Free trade agreements can vary from place to place, but their goals are all basically the same: to increase trade and reduce the costs of doing business. Nations work together to better meet their needs at lower costs. Each country in a Free Trade Area (FTA) tends to specialize in products they may all need. Instead of companies in all countries making trucks and heavy equipment, one may do that, while another makes kitchen appliances. One may produce computers, while another specializes in the chips that run the computers. Farm products can also be specialized, allowing each nation to grow crops for which it is best suited. Of course each nation in an FTA contributes many types of products, but the idea is to cooperate rather than compete.

Free trade areas work much like the division of labor that developed when people first settled in towns. When people lived apart from others, they tried to fill as many of their own needs as possible. They grew their own food, made their own clothes, stored and ground their grains, baked their own bread, and so forth. Then when they settled together, they found it was easier to become very good at one or two things and exchange what they had for what they needed. Money made the exchange even easier.

Source: Geography Lesson Plan on NAFTA of course not everyone favors FTA’s. One of the biggest downsides is that some workers lose their jobs as a result of specialization. As some factories close or retool to make other products, some workers may be laid off to make way for those who are better suited to new products. Some factories may shut down altogether. There are clear arguments against FTA’s, but the fact that many have formed suggests their advantages may outweigh the negatives.