Free trade area

European Free Trade Association (EFTA) (Photo:

An area within which all goods are sold without customs duties. Whereas countries belonging to a free trade area may have different custom duties towards other countries, the EU - as a customs union - has common custom duties as a result of its common trade policy.

Free trade increases overall production and produces more wealth to distribute. But free trade does not necessarily benefit all partners equally. Some may gain while others lose, depending on the terms.

Free trade agreements are therefore often combined with a financial protocol with financial provisions for transferring wealth from the richer to the poorer partner.