What is a free trade agreement?

A free trade agreement is fundamentally a pact designed to reduce or eliminate trade barriers, such as tariffs and quotas, between member countries, facilitating smoother and more cost-effective exchange of goods and services. The intention behind enforcing a free trade agreement is to encourage economic cooperation and integration by allowing countries to benefit from comparative advantages, leading to increased competition and a wider selection of products at lower prices for consumers.

This definition aligns perfectly with the characteristics and objectives of free trade agreements, which are established to promote international trade by making it easier and cheaper for goods to flow across borders. By minimizing restrictions, countries can bolster economic growth, enhance trade volume, and strengthen economic ties.

The other options do not accurately represent what a free trade agreement entails. For example, a legal contract for export and import tariffs is more specific to individual transactions rather than a broad agreement between countries. A federal law regulating agricultural trade focuses solely on the agricultural sector and does not encompass the entirety of trade relations. An economic policy promoting domestic products may suggest protectionist measures which contradict the principles of free trade agreements, which prioritize the reduction of barriers rather than promoting only domestic goods.