Free trade area 

is a type of trade bloc, a designated group of countries that have agreed to

eliminate tariffs, quotas and preferences on most (if not all) goods and services traded between
them. It can be considered the second stage of economic integration. Countries choose this
kind of economic integration form if their economical structures are complementary. If they are
competitive, they are more likely to choose customs union.[citation needed]

Contents
 [hide]

1 Description
2 Lists of free trade areas
3 Qualifying for a free trade
agreement
4 See also
5 References
6 External links

[edit]Description

Unlike a customs union, members of a free trade area do not have a common external
tariff (same policies with respect to non-members), meaning different quotas and customs. To
avoid evasion (through re-exportation) the countries use the system of certification of origin
most commonly called rules of origin, where there is a requirement for the minimum extent of
local material inputs and local transformations adding value to the goods. Only goods that meet
these minimum requirements are entitled for the special treatment envisioned by the free trade
area provisions.

Cumulation is the relationship between different FTAs regarding the rules of origin —
sometimes different FTAs supplement each other, in other cases there is no cross-cumulation
between the FTAs. A free trade area is a result of a free trade agreement (a form of trade pact)
between two or more countries. Free trade areas and agreements (FTAs) are cascadable to
some degree — if some countries sign agreement to form free trade area and choose to
negotiate together (either as atrade bloc or as a forum of individual members of their FTA)
another free trade agreement with some external country (or countries) — then the new FTA will
consist of the old FTA plus the new country (or countries).

Within an industrialized country there are usually few if any significant barriers to the easy
exchange of goods and services between parts of that country. For example, there are usually
no trade tariffsor import quotas; there are usually no delays as goods pass from one part of the
country to another (other than those that distance imposes); there are usually no differences of
taxation and regulation. Between countries, on the other hand, many of these barriers to the
easy exchange of goods often do occur. It is commonplace for there to be import duties of one
kind or another (as goods enter a country) and the levels of sales tax and regulation often vary
by country.

The aim of a free trade area is to reduce barriers to exchange so that trade can grow as a result
of specialisation, division of labour, and most importantly via comparative advantage. The
theory of comparative advantage argues that in an unrestricted marketplace (in equilibrium)
each source of production will tend to specialize in that activity where it has comparative (rather
than absolute) advantage. The theory argues that the net result will be an increase in income
and ultimately wealth and well-being for everyone in the free trade area. However the theory
refers only to aggregate wealth and says nothing about the distribution of wealth; in fact there
may be significant losers, in particular among the recently protected industries with a
comparative disadvantage. In principle, the overall gains from trade could be used to
compensate for the effects of reduced trade barriers by appropriate inter-party transfers.

[edit]Lists of free trade areas

Stages of economic integration around the World:

(each country colored according to the most advanced agreementthat it participates into.)
  Economic and Monetary Union (CSME/EC$, EU/€)
  Economic union (CSME, EU)
  Customs and Monetary Union (CEMAC/franc, UEMOA/franc)
  Common market (EEA, EFTA)
  Customs union (CAN, CUBKR, EAC, EUCU, MERCOSUR, SACU)
  Multilateral Free Trade Area (AFTA, CEFTA, COMESA, GAFTA,GCC, NAFTA, SAFTA, SICA, TPP)

 List of bilateral free trade agreements

 List of multilateral free trade agreements
Every customs union, trade common market, economic union, customs and monetary
union and economic and monetary union has also a free trade area.

[edit]Qualifying for a free trade agreement

Main articles: Rules of Origin and Cumulation

To determine eligibility for a free trade agreement (FTA), importers must obtain product
information from all the suppliers within the supply chain. An automated solution should be in
place for an importer to solicit his/her suppliers. Once supplier documentation is received the
importer must determine the eligibility of the product based on the many rules of origin
surrounding the products Harmonized Schedule Number. Each free trade agreement will qualify
an importer's products in different ways, however the basis of the qualification surrounds the
idea that the finished product must have a minimum percentage of local/regional content.

Under the North American Free Trade Agreement (NAFTA), qualifying rules include De Minimis,
Regional Value Content, and Tariff Shift.

 De Minimis states that a finished good will not be disqualified from preferential treatment
if the non-originating content of that finished good is 7% or less of the transaction value of
the good on an FOB basis (or its weight, depending on the type of good).
 Regional Value Content is a calculated percentage of the value of the product that
represents its North American content
 Tariff Shift is a substantial transformation that takes place in a NAFTA country

A finished good must qualify under one of these rules to be eligible for free trade under NAFTA.
This is just one example of a qualification for a free trade agreement. If a certificate of origin is
present from a supplier demonstrating that the good originated in a country under the
associated free trade agreement, no further calculations are needed.

When qualifying products for an FTA, the use of an automated system allows importers to stay
up-to-date on international compliance regulations, as well as solicit suppliers via the web
instead of manually. A functional solution should also perform the required calculations for the
associated FTA during the Bill of Material (BOM) analysis, ensuring correct eligibility.