What Is a Free Trade Agreement (FTA)?
FTAs reduce or eliminate tariffs between countries. Understanding them can significantly cut your import costs.
Key Takeaways
- FTAs reduce or eliminate import duties between signatory countries.
- To claim FTA benefits, goods must meet the Rules of Origin requirements.
- The UK has FTAs with 70+ countries including Canada, Japan, Australia, and South Korea.
What an FTA does
A Free Trade Agreement is a treaty between two or more countries that reduces or eliminates tariffs (import duties) on goods traded between them. Where a standard duty might be 12%, an FTA may reduce it to 0–4%, substantially reducing the cost of importing from that country and improving the competitiveness of exports into it.
UK FTAs post-Brexit
Since leaving the EU, the UK has signed FTAs with 70+ countries. Key agreements include CPTPP (a major Pacific agreement covering Japan, Australia, Canada, New Zealand, and others), UKCA agreements with South Korea, Singapore, Norway, and individual agreements with Japan, Australia, and Canada. The UK-EU Trade and Cooperation Agreement provides zero tariffs on goods meeting Rules of Origin requirements.
Rules of Origin
FTA preferential rates are only available for goods that genuinely originate from the FTA partner country. Simply importing goods through an FTA country, or minimal processing, does not qualify. Specific rules — which vary by product and agreement — define the minimum level of production or value addition required. Your supplier should provide a certificate of origin to support the claim.
How to use FTAs in practice
When sourcing a product, check whether the candidate origin countries have UK FTA coverage for your HS code. The difference can be 6–12 percentage points in duty rate. For a £500,000 annual import programme, that represents £30,000–60,000 in annual duty savings — simply by choosing the right source country.