What a free trade agreement removes

1. The main charge an agreement removes is a tariff, which is a tax a government puts on goods arriving from abroad and which raises the price the buyer finally pays.
2. Agreements also cut the paperwork and the clashing product rules that add cost and delay at a border, and modern ones increasingly cover services as well as goods.
3. An agreement can be bilateral, signed by just two countries, or it can cover a larger group of countries that all give each other the same terms.

Why countries sign free trade agreements

1. Cheaper access for exporters: removing the charge applied to UK goods at a partner's border lowers the price its shoppers see, so UK firms can sell more there.
2. Lower prices at home: imports from the partner arrive without the same charges, which reaches UK consumers as lower prices and a wider range of goods.
3. Cheaper inputs for producers: firms can bring in components and raw materials from the partner more cheaply, which lowers their costs of production.
4. Certainty: an agreement is a written commitment, so a firm can invest in selling abroad knowing the terms will not be changed at short notice.
5. Influence: negotiating as part of a large group of countries carries more weight with a big economy than approaching it alone.

The UK's current relationship with the EU

1. The European Union is a group of European countries trading under one shared set of rules, and the UK has left it, so it is no longer inside the EU single market or the EU customs union.
2. UK and EU trade now runs under the Trade and Cooperation Agreement, which has been in force since 1 January 2021.
3. Under that agreement, goods meeting its rules of origin, which set out how much of a product must have been made in the UK or the EU, cross without being taxed or limited in quantity.
4. Customs declarations and border checks now apply that did not apply before, so selling to the EU costs UK firms time and paperwork even where no charge is due.
5. The agreement is reviewed from time to time and the two sides continue to negotiate on particular areas.

Joining CPTPP shows size and distance matter

1. In December 2024 the UK formally joined the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, or CPTPP, a 12-country agreement whose members include Australia, Canada, Japan and Vietnam.
2. The UK government's own assessment put the long-run gain at £2 billion, about 0.06 per cent of GDP (House of Commons Library, 2024).
3. That is very small next to the EU, which still supplies about half of everything the UK buys from abroad, and the reason lies in geography rather than in the terms of either deal.
4. Trade falls away sharply with distance, because transport costs more, delivery takes longer and it is harder to work closely with a customer far away.
5. So what an agreement is worth depends on how much trade the partners would realistically do anyway, not on how many agreements a country has managed to sign.

What an agreement can and cannot change

1. An agreement changes the cost of trading between its members, and that is all it changes directly, so trade only grows where buyers already want what the other side sells.
2. Paperwork can hold trade back even when nothing is charged at the border, which is what UK exporters met when customs declarations became necessary for EU sales.
3. Because the gain depends on the partner's size and closeness, counting up how many agreements a country has signed says very little about how much better off it is.

Why countries import and export in the first place, and which groups gain from it, is set out in 4.1.1.