If country A has a free trade agreement with country B, and country B has a free trade agreement with country C, does that mean country A effectively has a free trade agreement with country C?

If the answer is “it depends what you mean by free trade”, what characteristics of the A-to-B agreement would be be conducive to it being “transitive” with the B-to-C agreement?

If A-to-B and B-to-C were perfectly “compatible” in this sense, could A ship goods directly to C or would they still have to go via B?

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    $\begingroup$ Free trade agreements usually involve "rules of origin" to prevent benefits going to A-to-B-to-C transactions which do not involve any transformation in country B $\endgroup$ – Henry Oct 4 '18 at 7:28

Free trade agreements are not transitive. Each country in a free trade agreement needs to ratify it with a legislative or regulatory body. Otherwise there is no legal basis for it to function and customs officials won't be able to observe it.

In practice if A and B have a free trade agreements and B and C do too, businesses can transship in the best case scenario. Or, most likely, ship from A to B, unload-unpack-repack-load using an intermediary company in B, and ship from B to C. That might cost less or more than paying import/export tariffs from A to C.


As far as I know, free trade agreements don't automatically extend in a transitive way, but you may want to ask lawyers in international law or look it up.

In practice free trade agreements between A and B and B and C are not equivalent to an agreement between A and C, because shipping goods directly from A to C makes them subject to import and export taxes. Shipping from A to B is tax-free, and similarly from B to C, but the shipping cost may make this not worthwhile. For example when A and C are next to each other, but B is on the opposite side of the world, then low-value goods are not worth taking through B.

In contrast, if A and C had a free-trade agreement, then it would be worthwhile to ship low-value goods between them.


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