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WHAT IS A FREE TRADE AGREEMENT (FTA)? COMPREHENSIVE GUIDE [2025]

What is a Free Trade Agreement?

A Free Trade Agreement (FTA) is an international regulation that facilitates the flow of goods and services by removing economic barriers between countries. Thanks to these agreements, the parties reduce or completely eliminate the customs duties and trade barriers they apply to each other by mutual agreement. In this way, trade in goods and services between countries can be carried out more efficiently, quickly and at lower costs.

Free Trade Law and Legal Process

The Free Trade Law determines the legal framework of agreements that regulate and facilitate commercial relations between countries. The process of entering into force of free trade agreements in Türkiye goes through the following stages within the framework of Article 90 of the Constitution:

• Negotiation between the relevant countries and signing of the agreement text
• Acceptance of the approval law by the Turkish Grand National Assembly and its approval in domestic law
• Presidential approval and entry into force by publication in the Official Gazette

Customs duty exemptions and other economic privileges within the scope of the agreement are implemented through administrative regulations within the framework of Customs Law No. 474. This process ensures that international trade is conducted in a transparent and orderly manner.

The Importance of Free Trade Agreements

The importance of free trade agreements is increasing in the global economy of the modern era. Countries use these agreements as a strategic tool to maintain and improve their competitiveness. Exporters thus have the opportunity to access new markets. With the removal of customs barriers, domestic producers can sell their products at more competitive prices in foreign markets, which contributes to an increase in export volume and economic growth.

The removal of restrictions on imports provides consumers with access to a wider range of products and more affordable prices. Especially for developing economies like Turkey, being able to import quality and affordable raw materials or consumer goods from different countries is an important factor that increases both industrial production and consumer welfare.

Free trade agreements provide a significant competitive advantage in international trade. Today, many countries facilitate mutual trade processes through various economic blocs and agreements. A country having a wide FTA network puts the companies in that country in a more advantageous position compared to their competitors. Otherwise, exporters may face the risk of losing market share by facing high customs barriers.

Free trade agreements are no longer limited to the removal of customs tariffs. Modern FTAs ​​also include regulations on comprehensive issues such as trade in services, mutual protection of investments, intellectual property rights, access to public procurement and harmonization of technical standards.

The strengthening of diplomatic relations by bilateral or multilateral trade agreements also reveals the political and strategic importance of FTAs. Strong trade ties pave the way for stronger political relations between countries and reinforce cooperation. Countries with intense trade relations tend to solve their problems through dialogue and develop stable relations. This situation makes significant contributions to ensuring regional and global peace in the long term.

The Importance of Free Trade Agreements for E-Traders

The dynamic structure of e-commerce largely eliminates geographical boundaries. Companies that invest in logistics and digital infrastructure can easily reach customers in different countries and effectively offer their products or services thanks to free trade agreements. With the removal of customs barriers, digital platforms gain a stronger competitive advantage in the global market and pave the way for the development of innovative business models.

Why Are Free Trade Agreements Made?

Countries sign free trade agreements for various reasons. The main purposes of these agreements are as follows:

• The main goal is to provide mutual economic benefits. By removing trade barriers, exporters can reduce their costs and access new markets more easily. Consumers can also increase their living standards by purchasing imported products at more affordable prices.
• Preserving and increasing international competitiveness is another important goal. Countries around the world sign similar agreements to open new markets for their producers. Companies from countries that are not included in these agreements face the risk of losing their competitiveness.
• Strengthening diplomatic and political relations is also an important goal. Negotiations conducted around common economic interests reinforce cooperation and friendship between countries.

Due to these advantages, countries attach great importance to free trade agreements. Since countries outside the agreement network will be at a disadvantage, governments are careful to participate in such agreements.

Free trade agreements can be arranged bilaterally or multilaterally. Within the scope of these agreements, countries mutually reduce or completely eliminate customs duties and import quotas, especially for industrial products. While agricultural products are generally included in the agreement, gradual liberalization or special exception applications may be applied in some sectors. Rules of origin are an important component of the agreements. Thanks to these rules, third countries are prevented from unfairly benefiting from the agreement advantages.

What are the Advantages of a Free Trade Agreement?

The competitive environment that emerges with the transition to free trade directs exporters to seek new markets and increases the scale of production. The main benefits of free trade agreements to the parties are as follows:

• Export Increase and Market Access: FTAs ​​increase the competitiveness of companies in foreign markets by providing tax exemptions and low customs tariffs to companies that want to export/e-export.
• More Affordable Import Prices: Reducing import tariffs reduces raw material costs for manufacturers and increases final product prices to more competitive levels. This advantage is of great importance especially for sectors with high input costs.
• Consumer Welfare: Increasing product variety and competitive prices increase consumers' purchasing power. This positive effect also plays a balancing role on the CPI, contributing to keeping inflation under control.
• Investment and Employment: Access to wide markets attracts the attention of domestic and foreign investors, creating new business opportunities in the country. Increasing production capacity expands employment opportunities and supports economic growth.
• Technology and Know-How Transfer: International commercial cooperation strengthens the interaction between companies and accelerates the introduction of advanced technologies and modern management approaches to the country.
• Strong Diplomatic Relations: Strengthening mutual commercial ties paves the way for the development of political and diplomatic relations between countries and facilitates the establishment of long-term strategic partnerships.

Free trade agreements significantly increase the economic performance and social welfare of countries with the advantages mentioned above. Countries that want to increase their competitiveness in global markets aim to benefit from the opportunities offered by these agreements at the highest level.

What are the Disadvantages of Free Trade Agreements?

Free trade agreements bring various disadvantages along with the advantages they provide. When evaluated from an economic perspective, the intense competitive environment created by these agreements can cause difficulties for some local sectors and decrease state revenues. However, the increasing import tendency as a result of trade liberalization has the potential to negatively affect the foreign trade balance. The main disadvantages of free trade agreements are as follows:

• Intense Competition Pressure: More affordable or higher quality products coming from contracted countries may negatively affect the market share and competitiveness of domestic producers.
• Foreign Trade Balance Risk: Easier and increased imports may disrupt the export-import balance and carry the risk of increasing the country's foreign trade deficit.
• Decrease in Public Revenues: Reducing or removing customs duties may cause a decrease in an important source of income, especially for developing countries.
• Protection of Strategic Sectors: Strategically important sectors such as agriculture, animal husbandry and some local industries may face serious difficulties when they are not ready for international competition.
• Bureaucratic Burdens and Rules of Origin: In order to benefit from FTA advantages, businesses are forced to obtain certificates of origin and other official documents, which results in additional costs and loss of time. is creating.

These disadvantages indicate that free trade agreements should be negotiated and implemented carefully. For this reason, countries add special provisions to protect their own sensitive sectors when signing agreements and take the necessary measures for a sustainable trade balance. They also try to minimize possible negative effects with tools such as transition periods and protection mechanisms.

Major Free Trade Agreements to Which Turkey is a Party

Turkey signs free trade agreements with many countries and regional organizations in line with its international trade strategy. Thanks to these strategic agreements, Turkish exporters have the opportunity to trade at competitive prices in a wide geography extending from Europe to Asia, from Africa to America. This situation not only increases exports, but also positively affects Türkiye's foreign trade balance and minimizes possible economic risks by increasing the geographical diversity of trade.

•  Customs Union Agreement

The Customs Union Agreement was signed between Turkey and the European Union (EU) in 1995 and entered into force in 1996. Although it is not a classic free trade agreement, this agreement foresees the removal of customs duties on industrial products and requires foreign trade policy to be aligned with the EU. Thanks to this comprehensive agreement, products originating in Turkey can enter the EU market and products originating in the EU can enter the Turkish market duty-free. Sectors such as textiles, automotive and white goods in particular have significantly increased their export performance and improved their international competitiveness thanks to the advantages provided by the Customs Union.

•  European Free Trade Association (EFTA)

The European Free Trade Association (EFTA) is an important economic union consisting of Switzerland, Norway, Iceland and Liechtenstein. Türkiye's trade relations with the EFTA countries were formalized with the free trade agreement signed in 1991. Within the scope of this agreement, customs duties on industrial products were completely abolished, significant tariff reductions were provided for processed agricultural products and fishery and aquaculture trade was subject to special regulations. The scope of the agreement was expanded with a comprehensive revision made in 2018; the basic elements of modern trade such as trade in services, intellectual property rights, public procurement and sustainable development were included in the agreement. This update further deepened the commercial and economic cooperation between Türkiye and the EFTA countries.

•  Türkiye – UK Free Trade Agreement

After Brexit, trade relations between Turkey and the United Kingdom have gained a new dimension with the free trade agreement signed on December 29, 2020. Within the scope of this agreement, which entered into force on April 20, 2021, customs duties between the parties were abolished and a significant portion of agricultural products were included in the scope of tax exemption. One of the most important features of the agreement is that, unlike the previous customs union practice, it adopts an origin-based trade system and requires the declaration of origin instead of the free movement of products.

•  Developing 8 Countries (D-8) Preferential Trade Agreement

The Developing Eight Countries (D-8) organization, consisting of Turkey, Iran, Pakistan, Bangladesh, Malaysia, Egypt, Nigeria and Indonesia, was established in 1997 to strengthen economic cooperation among its member countries. The D-8 Preferential Trade Agreement was signed in 2006 to increase trade volume and develop economic relations between member countries. However, the agreement could not enter into force until July 1, 2016 due to the inability of a sufficient number of countries to complete the ratification process.

This comprehensive agreement aims to gradually reduce customs duties and reduce trade barriers, especially in industrial and agricultural products. However, Bangladesh and Egypt have not yet ratified the agreement due to their reservations regarding the rules of origin. This situation prevents the full utilization of the trade potential between the D-8 countries.

•  Economic Cooperation Organisation (ECO) Preferential Trade Agreement

The Economic Cooperation Organization (ECOTA) is one of the important regional cooperation organizations of Central Asia and the Middle East. The organization includes Turkey, Iran, Pakistan, Afghanistan, Azerbaijan, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan as members. In order to develop regional trade, the ECO Trade Agreement (ECOTA) was opened for signature among the member countries July 17, 2003 in Islamabad, the capital of Pakistan. Turkey, Iran, Pakistan, Afghanistan and Tajikistan are parties to this important agreement.

The main goal of ECOTA is to reduce trade barriers and gradually reduce customs tariffs between member countries. In this way, it is aimed to increase intra-regional trade and strengthen economic integration. However, the agreement has not entered into force because some member countries have not yet completed their internal approval processes. Despite this, Türkiye and other party countries continue their efforts to develop commercial cooperation through bilateral and multilateral talks and alternative cooperation mechanisms are being considered.

Which Countries Has Turkey Signed Free Trade Agreements With?

The free trade agreements signed by Türkiye, in addition to diversifying exports, play a protective role against global economic fluctuations. Strong commercial ties established with different regions and various sectors support the country's economic development goals and ensure sustainable growth in foreign trade. The countries with which Türkiye has signed free trade agreements are listed below:

• Albania
• United Arab Emirates
• United Kingdom (UK)
• Bosnia and Herzegovina
• EFTA (Switzerland, Norway, Iceland and Liechtenstein)
• Faroe Islands
• Kingdom of Morocco
• Palestine
• South Korea (Republic of Korea)
• Georgia
• Israel
• Montenegro
• Kosovo
• North Macedonia
• Malaysia
• Arab Republic of Egypt
• Moldova
• Mauritius
• Serbia
• Singapore
• Chile
• Tunisia
• Venezuela

In addition, free trade agreements have been signed with Ukraine, Qatar, Lebanon and Sudan. However, these agreements have not yet entered into force as the domestic approval processes in the relevant countries have not been completed. Turkey is actively negotiating with other countries to expand its existing FTA (Free Trade Agreement) network and continues to strengthen its global trade integration.

To summarize;

•   A Free Trade Agreement (FTA) is an international arrangement that facilitates the flow of goods and services by removing economic barriers between countries.
•   FTAs offer e-commerce businesses the opportunity to expand into international markets at lower costs.
•   Modern FTAs ​​include comprehensive regulations on trade in services, investment protection, intellectual property rights and harmonization of technical standards.

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Certified Public Accountant