free trade area

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A group of countries with free trade between them, but retaining independent systems on trade with non-members. There are several free‐trade areas, including those of the European Free Trade Agreement and the North American Free Trade Agreement. The free‐trade arrangements must apply to a substantial proportion of trade, but some sectors, such as agricultural products or defence equipment, may be exempted from the free-trade provisions. To avoid the country with the lowest external tariff on any good being used as a route for imports to other members, tariff-free trade is confined to goods certified as being produced in member countries. A free-trade area is contrasted with a customs union which has both free trade between members and a common external tariff.

Subjects: Economics.

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