A free trade area eliminates most trade barriers such as tariffs and quotas on the flow of goods and services between its member countries. However, member countries negotiate trade agreements separately with external countries. The 1994 North American Free Trade Agreement between the US, Canada and Mexico formed the largest free trade area at that time. A customs union, in contrast to a free trade area, is a trade agreement in which a group of countries charges a common set of tariffs to external countries, while allowing free trade among member countries. It is a higher level of economic integration over a free trade area, but less than a common market, which also allows free movement of resources such as capital and labor between member countries. The addition of common tariffs imposed on external countries differentiates a customs union agreement from a free trade area
The term GATT stands for The General Agreement on Tariffs and Trade. This agreement later became an organization affiliated with the United Nations whose purpose was to facilitate international trade. The primary actions of the organization were to freeze and reduce tariff levels on various commodities. GATT was created in 1947, and was originally intended to become a part of the International Trade Organization (ITO); however, the ITO failed to be created, so the GATT was left as an independent organization. In 1994, GATT was superseded by the WTO.
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