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What is a free-trade agreement?

Similar to a customs union, a free-trade agreement (FTA) is a multinational treaty that reduces or eliminates trade barriers between the signatory countries. However, unlike a customs union, the members of a FTA do not share identical tariffs and can treat third-party countries as they wish.

An example FTA is the North American Free Trade Agreement (NAFTA), a trilateral agreement between Mexico, Canada and the United States. A single country can also sign multiple FTAs, for example, Australia has 14 FTAs currently in force with 5 additional FTAs currently being considered.