July 8, 2020
Free Trade agreements are contracts/treaties between one or more nations designed to increase trade. Many consider the United States a longstanding pioneer of free trade agreements. Dating back to the 1930’s to the present, the U.S. has implemented trade policies and agreements aimed at reducing barriers to trade. If you’re an importer looking to take advantage of U.S. free trade agreements, there are some important details you need to know beforehand.
The U.S. has free trade agreements in place with multiple countries. Each arrangement is unique and has distinct conditions. Businesses and importers can utilize these agreements, but need to follow specific processes when importing.
Our complete guide below explains all of the ins and outs of U.S. free trade agreements. Additionally, we’ll cover all of the necessary steps that need to be taken to ensure your goods qualify for free trade status.
The United States currently has 14 standing free trade agreements in over twenty different countries on various continents. However, new agreements are always being considered and reviewed for future viability. As the needs of the U.S. and other countries change, agreements are created, removed, or adjusted.
The free trade agreement process unofficially began in 1934 when the Reciprocal Trade Agreements Act (RTAA) was passed. Since then trade relations and free trade agreements fostered by the U.S. have continued to evolve. As noted above, many now consider the United States as the leader of the free trade agreement movement.
The United States often works in conjunction with the General Agreement on Tariffs and Trade (now more commonly called the World Trade Organization).
The United States currently has free trade agreements with 20 countries.
These countries are:
Some of these free trade agreements are featured/included in other agreements, such as USMCA (Mexico & Canada) and CAFTA-DR(Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the Dominican Republic).
While the answer to this question might seem obvious, there’s actually a bit more to it. First and foremost, free trade agreements reduce or eliminate import duties when products originate from a free-trade eligible country. This reduced or duty-free status is often covered under the rules of origin within the particular agreement. These rules specify the exact conditions that must be met in order for products to be eligible for free and reduced duty treatment.
Along with reduced or free duty status on most products, decreased restrictions are usually present as well. For example, an import shipment from a country with free trade status will typically pass through Customs quicker and with less scrutiny than a shipment from a non free-trade country. This is due to the previously established trust between the countries that’s agreed upon when a free trade agreement is enacted.
Additionally, free trade agreements have many benefits and advantages beyond the obvious. They facilitate peace among nations by fostering behind-the-scenes talks and negotiations on other diplomatic issues. When the United States trades with a smaller nation, specifically a “third world” nation, it often benefits that country by pumping money into the economy and allowing for commercial growth This growth can take the form of creating more jobs, funneling money into local economy, and placing the status of the country into a higher global standing.
If you’re new to importing, check out our article Importing Tools for Beginners. We cover all of the basic information you need to begin importing goods.
Importing from a country with free trade status is much easier and almost always more beneficial than attempting to import from a country that does not have free trade status. Importing from free trade countries allows you to import certain goods duty-free, or at reduced rates from countries that participate.
Even with a free trade agreement in place, goods you import must still meet certain guidelines. These include the goods having been manufactured in the country that’s eligible for free trade status. As noted above, these rules will be specifically spelled out in the rules of origin in each individual agreement.
Proper applications and forms must be filled out and permissions granted before you can import goods from any country, including those that are part of free trade agreements. The forms required to qualify for free trade status will vary for each country and situation.
While we strongly encourage importers to work with a customs broker, you may still wish to import products on your own. If you choose this route, you may want to read our article How to Clear U.S. Customs With Cargo.
When the topic of free trade is discussed, fair trade often comes up and is confused with. While related, the two things are somewhat different. Free Trade simply refers to two or more countries who allow for trading and importing/exporting between their countries cheaply and with few restrictions. Fair Trade is a process that ensures that imported goods are not brought into a country for sale that involve theft, fraud, or inhumane working conditions. Essentially, it’s a set of labor rules to protect the supplier/workers of a smaller nation. While these two terms are different, they do come into play with one another as often goods from free trade countries must comply with fair trade standards. This is especially true in industries such as the coffee or tea industries, and so on.
For businesses that wish to import many specific types of goods for resale from a Fair Trade Country, you will need to get Fair Trade Certified. Fair Trade Certifications ensure that all fair trade practices and imports meet a certain standard to ensure that suppliers and sellers are not being exploited, cheated, or subjected to unfair/inhumane working conditions.
To get Fair Trade Certified in the United States, you must complete the following steps:
Make sure that any fair trade imports you organize are also in compliance with Free Trade Rules of Origin. These still apply even under Fair Trade regulations.
For instances in which you cannot ship directly from one Free Trade country to another, you may be granted permission to import via a third party country, but only if you do so via a Customs Bond or other type of permit. You must check with the proper authorities ahead of time, fill out the proper applications to gain permission and pay any fees before doing so. When filling out these permit applications, you must ensure that all information about the imported goods are absolutely, 100% correct. You’ll need the following: detailed description of item, detailed composition of item, end of use (how you mean to treat and eventually dispose of item). Failure to provide this detailed information can result in you being denied the permit.
Importing products from a country with an active free trade agreement is a worthwhile endeavor. The process is much cheaper and usually far quicker than importing from other countries. In order to properly do this though, you need to ensure your shipment meets all of the qualifications for free trade status.
Most importantly, you’ll need to provide adequate proof that the goods you’re shipping originate in the free-trade country that you’re importing from. This process will differ for each country and agreement. However, in most cases, proper paperwork from the supplier and customs documentation will suffice. The customs documentation that’s typically used is called a Certificate of Origin.
In short, a Certificate of Origin will usually convey the following information:
As noted above, the requirements for each country and agreement will vary. When working to ensure your import is covered under a free trade agreement, it’s wise to consult with a Licensed Customs Broker. When you schedule an import consulting session with one of our Licensed Brokers, they’ll go over everything you need for your import shipments. This includes ensuring your import is covered under a free trade agreement and all of the necessary steps you need to take.
While many people will argue this question, the majority answer with a resounding yes. Free trade agreements not only work to strengthen economies and promote international trading; it also works to strengthen diplomatic relationships between nations.
Restrictions on imports and trade only harm individuals within a specific country. Free trade promotes more choice and economic freedom as it pertains to various purchases. As the United States has such a large economy, being able to purchase more goods of all types from various countries allows for more choice and lower prices for the average consumer. At the same time, the country can strengthen relationships with foreign countries. These positive consequences benefit not only the United States but the countries it chooses to trade with.
Free trade agreements serve larger purposes than just allowing for trade and boosting economies. They are key elements when it comes to diplomatic relationships and fostering goodwill among nations. Often, fair trade agreements can be used as tools in other peacekeeping agreements and can be used as motivation for political strategizing.
While the advantages and benefits of free trade agreements are obvious, there are also some downsides. As with any capitalist system, Free Trade promotes “survival of the fittest” mentality that can result in smaller, less marketable suppliers and businesses losing revenue or even going under, if they cannot meet supply and demand. Competitiveness can force out the weaker suppliers, resulting in job losses.
It also opens up the possibility for foreign nations to dump all of their supplies into the U.S. Trade, cutting out smaller countries who desperately rely on these trades. The United States must be mindful of how these large Trade Agreements with smaller nations can result in other allied nations losing a seat at the table.
As stated above, often free trade agreements have some influence over other diplomatic negotiations and good will among nations. This can have a downside as well; when diplomacy fails and countries find themselves at odds, often Fair Trade Agreements between said nations are the first thing on the chopping block. Trade sanctions can be imposed and sometimes Fair Trade Agreements can even be suspended or dissolved entirely.
Naturally, this isn’t of benefit to either nation, so most countries try to avoid these types of conflicts when they can. However, in times of war, political or economic distress, free trade agreements can fail. When this happens, citizens of said countries can expect higher prices, less availability, lesser-quality products and dwindling contracts and jobs.
Some financial experts argue that free trade agreements give larger, richer countries such as the United States or Britain too much power and lead to an unlevel playing field. This, in turn results in less wealthy or undeveloped nations are at the whim of countries they have no power against. These are valid arguments; however, other experts argue that without Free Trade, i.e. customers to buy their goods, these smaller nations would be doomed to fail.
If you’re ready to import products from a free-trade eligible country and need help, we’re here for you. USA Customs Clearance, powered by AFC International, is a Licensed Customs Broker with years of knowledge and experience that we put to work for you. We work directly with importers to clear your goods at the border and ensure they are safely imported without any issues. This applies to shipments coming from free-trade countries and non free-trade countries as well.
In addition to providing customs clearance, we also provide other critical supply chain services. From arranging international transportation to warehousing & fulfillment and more, we’ve got you covered. Our comprehensive approach to transportation and logistics allows us to be your one-stop shop for all of your supply chain needs.
Reach out to our team today at (855)912-0406 to start importing your products today.