Which of the following Best Exemplifies a Free Trade Agreement
Free trade agreements (FTAs) are agreements between two or more countries that aim to reduce or eliminate trade barriers such as tariffs, quotas, and subsidies, to promote the free flow of goods and services between the member countries. FTAs are designed to enhance economic cooperation and to promote trade and investment, creating a more open and competitive market.
So, which of the following best exemplifies a free trade agreement?
A) A tariff-free agreement between two countries that limits trade only to certain goods.
B) An agreement between two countries that eliminates all trade barriers, but only for goods made in those countries.
C) An agreement between multiple countries that eliminates all trade barriers for all goods and services.
The correct answer is C. An agreement between multiple countries that eliminates all trade barriers for all goods and services is the most comprehensive and inclusive type of free trade agreement. This type of agreement creates a more open and competitive market by removing barriers to trade and investment, thus increasing trade flows and economic growth.
A tariff-free agreement between two countries that limits trade only to certain goods (option A) is a form of preferential trade agreement, which aims to reduce or eliminate tariffs on certain goods but not all. This type of agreement can lead to trade diversion, where trade flows are shifted from non-member countries to member countries without necessarily increasing overall trade.
An agreement between two countries that eliminates all trade barriers, but only for goods made in those countries (option B) is a bilateral free trade agreement. This type of agreement can still create trade diversion and may limit the benefits to member countries since they cannot access a wider market.
In conclusion, a free trade agreement that eliminates all trade barriers for all goods and services is the most comprehensive and inclusive type of agreement. It promotes economic cooperation, increases trade flows, and creates a more open and competitive market that benefits all member countries.