In the most simple terms, a trade agreement enables goods, services, money and people to move more freely across national borders.
The European Union (EU) has 35 free trade agreements in place, with a wide variety of partner countries. Each of these was negotiated in close cooperation with the partners and the Council of the EU. The first step in creating a new trade agreement is for the Council to authorise the Commission to negotiate with the partner country on behalf of the EU, by means of a ‘negotiating mandate’.
Once in place, these agreements can create significant economic benefits by lowering or eliminating tariffs on products, simplifying customs procedures, removing unjustified restrictions on imports and exports, and improving rules affecting issues such as intellectual property and e-commerce. They can also increase the competitiveness of businesses and improve access to foreign markets for foreign goods and services.
However, the main advantage of a trade agreement is that by promising not to raise barriers – and by lowering them if necessary – it offers businesses predictability. This allows investment to be made, jobs created, and consumers to enjoy the full benefits of competition – choice and lower prices.
In addition, a “most-favoured-nation” clause in an FTA prevents the parties to the agreement from using their new trading arrangements to gain competitive advantages against third countries that are not signatories of the agreement. This is the core of WTO law and it has played a major role in improving world trade over the past decades.