Free Trade Agreements Mean Export Growth for Some Countries, Reallocation of Trade for Others

Free trade agreements (FTAs) create additional trade between member countries by lowering import barriers and opening markets for producers. More than half of U.S. agricultural imports arrive from FTA partners, especially low- and middle-income countries. However, free trade agreements do not always lead to an increase in the total level of exports for all sectors of the economy. To determine the effect of FTAs on developing countries, researchers at USDA’s Economic Research Service recently examined the United States’ portfolio of free trade agreements. For each trading partner, they looked at changes in agricultural exports to the United States and total agricultural exports during the first 5 years of the FTA and found the direction and magnitude of trade changes varied by country. They grouped the changes into four categories: export growth, export reallocation, growth and reallocation together, and neither export growth nor reallocation. Acceleration or slowing of exports can be positive or negative depending on the average annual change in exports before the FTA. For instance, if a country’s exports decreased by an average of 10 percent during the 5 years before the FTA’s implementation and then decreased by a smaller average of 5 percent in the 5 years after the FTA, that change still would be considered acceleration.