For free trade zones, it is necessary to distinguish between the two terms “free trade zone” and “free trade pilot zone”. In layman’s terms, a free trade zone is “negotiated” through trade negotiations, while a free trade pilot zone is “drawn” by a country itself.
(I) Concept
Free Trade Area (FTA) is a special term in the field of international trade and economy. It refers to a specific area for achieving trade and investment liberalization formed by signing an agreement between two or more sovereign states or separate customs areas, further opening up markets to each other on the basis of the most-favored-nation treatment of the World Trade Organization, phased elimination of tariffs on most or all goods and some non-tariff barriers, and improvement of market access conditions for services and investment. Similar to a commercial contract, the content of the agreement is not decided by one party, but is jointly negotiated and formulated by the contracting parties. Therefore, FTA is “negotiated” between a country or region and its free trade partners, and can also be said to be “external”.
Free trade zones with greater global influence include: North American Free Trade Area (NAFTA), China-ASEAN Free Trade Area (CAFTA), Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and Regional Comprehensive Economic Partnership (RCEP).
As of June 2023, my country has signed 20 free trade agreements involving 27 countries/regions.
(II) Preferential coverage
A free trade zone is a cross-border or cross-border “circle of friends”, covering the entire customs territory of each member that has signed a free trade agreement, rather than a part of it. In recent years, major economies have regarded the negotiation of free trade zones as an important strategic impetus, and free trade agreements have become an important means for major countries to engage in geopolitical and economic games. Conducting regional trade agreement negotiations is an effective means to expand the “circle of friends”. For example, RCEP includes 15 countries in Asia and Oceania, and CPTPP includes 11 countries in North America, South America, Asia and Oceania.
Free trade zones are only open to a specific range of “circles of friends” that have signed free trade agreements.
(III) Preferential policies
Preferential policies such as tariffs on goods, services and investments under the framework of the free trade zone are only applicable to countries that have signed free trade agreements. Countries that have not signed free trade agreements cannot enjoy them, which is highly exclusive. In other words, only members that have signed free trade agreements are considered “friends” and give each other preferential treatment. Those who have not entered the “circle of friends” cannot enjoy them. Looking further, even if they belong to the same party’s free trade “circle of friends”, the rights enjoyed by each “friend” are different, and the specific content depends on the mutual agreement between each free trade agreement partner. For example, South Korea and Australia are both free trade partners of my country. my country will cancel tariffs on instant coffee imported from South Korea within 15 years of the entry into force of the agreement, and will cancel tariffs on imports from Australia within 5 years. One party to the free trade “circle of friends” has a basis for determining whether to give “friend” preferential treatment to imported goods or cross-border services and investments. For goods, it mainly depends on whether they are of free trade partner origin; for services and investments, it mainly depends on whether the provider comes from a free trade partner.