A free trade agreement is a set of rules for how countries treat each other when it comes to doing business together—importing and exporting goods or services and investing.

Free trade agreements aim to encourage trade between the countries by making it more efficient and profitable. They are usually agreements to eliminate or reduce tariffs on goods, simplify customs procedures, remove unjustified restrictions on what can or can’t be traded, and make it easier for business people to travel or live in each other’s country.  

FTAs can be between just two countries, or between a group of countries. The focus is primarily on economic benefits, but the agreement may also have political, strategic, or aid benefits. FTAs are legally binding, so they provide certainty and security for exporters, importers and investors. They help businesses to become and remain competitive in those markets.

What’s covered in an FTA?

New Zealand values high quality and comprehensive FTAs covering a range of trade-related issues, such as:

  • trade in goods, including tariffs, market access, Rules of Origin, customs procedures, trade remedies, sanitary and phytosanitary measures, technical barriers to trade
  • trade in services, including market access, movement of natural persons
  • investment
  • intellectual property
  • government procurement
  • competition and consumer policy
  • consultation and cooperation
  • trade and labour
  • trade and environment
  • institutional and legal matters

The FTA process

Depending on the scope and the countries involved, it can take years to complete a free trade agreement. The process can be broken down into 6 steps:

1. Identify the opportunity

Identify the opportunity for a trade agreement. This often happens at a political level following behind-the-scenes diplomatic work. There is no set format for this part of the process, which can evolve over a very long period of time.

2. Joint study

Conduct a joint or parallel study to investigate the potential advantages and disadvantages. This is not an essential step but is frequently used to build mutual understanding.

3. Negotiations

Launch negotiations and proceed through a series of “rounds” involving government officials from each country. Early rounds focus on building confidence between the parties, exchanging ideas, clarifying ambitions and expectations, and agreeing to what should be covered in the FTA. Later rounds focus on the specifics of the agreement text. MFAT leads this process, although it involves a number of other agencies such as New Zealand Customs Service, the Ministry of Business, Innovation and Employment, and the Ministry for Primary Industries. We seek input from businesses and other stakeholders with interests in the agreement outcomes.

4.  Government review and approval

After negotiations are concluded, the agreement is legally verified and then signed. It then goes through a Parliamentary treaty examination process before it is ratified by New Zealand. Parliament’s Foreign Affairs, Defence and Trade Select Committee examines the trade agreement text and accompanying National Interest Analysis, which sets out the advantages and disadvantages to New Zealand becoming a party, and calls for public submissions. At this point, the text becomes publicly available and, depending on the report from the Foreign Affairs, Defence and Trade Select Committee, there may also be a debate on the trade agreement in the House and a further call for public submissions.

5.  Legislation

Laws may need to be changed or introduced to allow for the conditions of the FTA. Once any legislation required has entered into force, New Zealand can become a party to the trade agreement. Most parts of the agreement will come into effect immediately, but others may be phased in gradually.

6.  Implement and monitor

FTAs are living agreements that evolve to meet the changing needs of business. This requires experts from the countries involved to meet regularly to discuss the operation of the agreement, trade concerns, and opportunities for further cooperation and modernisation of the agreement.

Why do we need FTAs when we belong to the WTO?

The WTO operates by consensus. Every member’s opinion carries the same weight and all members must agree before a decision can be made. This means that progress can be slow, and agreements may not address the specific interests and issues of individual countries. An FTA between two countries or a group of countries mean:

  • the negotiations can happen more quickly than WTO negotiations, because they involve fewer parties
  • FTAs can focus on the interests and issues specific to the countries involved.

Read more about our membership in the WTO

Have your say

MFAT welcomes your views on free trade agreements. It is vital that exporters and importers tell negotiators about problems they face and opportunities they’re aware of, so that these issues become part of the negotiation. Public submissions are called for at the start of negotiations and during the negotiation process. For more information contact tnd@mfat.govt.nz