Free Trade Agreements Explained | Global Tariff Rates

What Are Free Trade Agreements?

A Free Trade Agreement (FTA) is a treaty between two or more countries that reduces or eliminates tariffs and other trade barriers on goods traded between the signatories. FTAs are one of the most powerful tools available to importers for reducing duty costs — but they come with conditions. To claim preferential rates under an FTA, your goods must meet specific rules of origin, and you must have the documentation to prove it.

As of 2026, there are over 350 FTAs in force worldwide, and the number continues to grow. The WTO estimates that preferential trade now accounts for more than half of global merchandise trade. Yet many businesses fail to claim the preferences they're entitled to — either because they don't know an FTA applies, or because they lack the documentation to prove origin.

Major FTAs You Should Know

While the specific FTAs that matter depend on your supply chain, these are the agreements with the broadest impact on global trade:

Agreement	Parties	Key Features
USMCA	US, Mexico, Canada	Replaced NAFTA in 2020. Stricter auto rules of origin, digital trade provisions, labor standards.
CPTPP	11 Pacific Rim nations	Comprehensive agreement covering goods, services, investment, IP. Cumulation provisions allow sourcing across member states.
EU-UK TCA	EU, United Kingdom	Post-Brexit agreement providing zero tariffs on qualifying goods. Strict rules of origin with bilateral cumulation.
RCEP	15 Asia-Pacific nations	World's largest FTA by GDP. Harmonized rules of origin, cumulation across all members.
AfCFTA	54 African Union members	Aims to create a single continental market. Phased tariff reduction with special treatment for least-developed countries.

Understanding Rules of Origin

Rules of origin are the criteria that determine whether a product qualifies as “originating” under an FTA. They exist to prevent transshipment — routing goods through an FTA partner country just to claim the preferential rate without any real economic activity there. The three main types of origin criteria are:

Wholly Obtained or Produced

Products that are entirely grown, harvested, mined, or manufactured within the FTA territory using only originating materials. This applies mainly to agricultural products, minerals, and goods made entirely from domestic inputs.

Tariff Shift (Change in Tariff Classification)

The product must undergo sufficient transformation that its HS code changes at a specified level (chapter, heading, or subheading) from the HS codes of its non-originating inputs. For example, if a rule requires a “change in chapter,” then raw materials from Chapter 52 (cotton) must be transformed into a finished product in Chapter 61 (knitted garments) to qualify.

Regional Value Content (RVC)

A minimum percentage of the product's value must originate within the FTA territory. The threshold varies by agreement and product — USMCA requires 75% RVC for automobiles, while other products may require only 35–50%. RVC can be calculated using different methods (transaction value, net cost, build-up, or build-down), and the choice of method can affect whether a product qualifies.

Many FTAs use product-specific rules that combine these criteria. For example, a rule might require both a tariff shift at the heading level AND a minimum 40% RVC. The specific rules are listed in the FTA's annex on product-specific rules of origin, organized by HS code.

Documentation and Certification

To claim preferential treatment, you need a valid proof of origin. The type of document required depends on the FTA:

Certificate of Origin (CO)

A formal document issued by a designated authority (such as a chamber of commerce) or by the exporter/producer certifying that the goods meet the FTA's rules of origin. Some FTAs require a specific form (e.g., EUR.1 for EU agreements), while others accept a statement on the commercial invoice.

Self-Certification

Modern FTAs increasingly allow exporters, producers, or importers to self-certify origin. USMCA, CPTPP, and the EU-UK TCA all support self-certification. The certifier must have the records to back up the claim and may be subject to verification by customs authorities.

Supporting Records

Regardless of the certification method, you must maintain records that demonstrate how the product meets the rules of origin. This includes bills of materials, supplier declarations, production records, and cost accounting data. Most FTAs require you to keep these records for at least five years.

Cumulation: Sourcing Across FTA Partners

Cumulation is one of the most valuable features of FTAs. It allows producers to use materials from other FTA partner countries and still have the finished product qualify as originating. Without cumulation, a manufacturer would need to source all inputs domestically or from non-FTA sources and still meet the origin requirements.

Bilateral Cumulation

Materials originating in one FTA partner can be treated as originating when used in production in the other partner. This is the most basic form and is available in virtually all FTAs.

Diagonal Cumulation

Materials originating in any country within a group of FTA partners can be cumulated. This is common in the EU's network of agreements (the Pan-Euro-Med zone) and in RCEP.

Full Cumulation

Any processing carried out in a partner country counts toward meeting the origin requirements, even if the materials used are not themselves originating. This is the most generous form of cumulation and is available in some EU agreements.

Common Pitfalls When Claiming FTA Benefits

Claiming FTA preferences incorrectly can result in duty reassessments, penalties, and loss of preferential treatment. Watch out for these common issues:

Assuming origin without verification: Just because a product is shipped from an FTA partner doesn't mean it originates there. You must verify that the product-specific rules of origin are met.
Expired or invalid certificates: Certificates of origin have validity periods (typically 12 months). Using an expired certificate or one with incorrect information invalidates the preference claim.
Insufficient record-keeping: If customs requests verification and you can't produce supporting records, the preference will be denied and you'll owe the full MFN duty plus interest.
Ignoring de minimis thresholds: Most FTAs allow a small percentage of non-originating materials (typically 7–10% of the product's value) without disqualifying the product. Failing to account for this can mean missing out on preferences you're entitled to.
Not monitoring FTA changes: FTAs evolve over time — tariff phase-downs, rule changes, and new protocols can affect your eligibility. Regular monitoring ensures you don't miss new opportunities or continue claiming under outdated rules.