At the moment within each country, each government dictates which goods and services are taxed or tarriffed and which are not. Currently governments around the world spend at total of 1 billion $ per day on subsidies. Regions or other jurisdictions reach agreements which seek to increases markets and profits for both parties through mutually benefitting arrangements.
Smaller countries are often bullied at talks that discuss free trade. Small nations face little choice for trade development, because they lack both economic and political power. This allows those counties to be put in a position where they are strong-armed into deals, which may not fulfill their goals.
Unfortunately in some cases free trade has led to economic ruin for the weaker of the countries involved. A good example is Argentina, where free trade agreements were made that led to privatization of their industries, and the loss of their labor unions. As international corporations took control of their industries, inflation got so great and the people so poor that they rioted for access to drinking water. This has also occurred in other South American countries with similar results.