A trade agreement is a set of rules that outlines how countries and businesses can trade with one another. The rules are designed to reduce or eliminate tariffs, create a more predictable trading environment for investors and traders, resolve behind-the-border barriers that impede the flow of goods and services, and set rules on issues like intellectual property protection, e-commerce and government procurement.
A number of different types of trade agreements exist, with the most significant ones being free trade agreements (FTAs). FTAs enable your company to compete in international markets by providing zero or reduced tariffs on qualified products. They also help improve the rules that affect issues such as product standards, labor standards and a country’s ability to sell into government procurements.
Trade agreements discipline how governments collect tariffs by requiring that they abide by the rules laid out in the agreement when they determine the origin of an import shipment, its customs category and value. In addition, these agreements establish the principles of reciprocity, most-favored nation status and national treatment of nontariff restrictions. In combination, these provisions have dramatically reduced protectionism in recent decades and helped expand world trade.
Nevertheless, critics complain that the thousands of pages of these trade agreements often contain “hidden special-interest favors” and are too complex to achieve their goals. This criticism is misguided. Despite their flaws, these agreements are helping shift national trade policies toward freer trade and are checking corporate demands for government protection from competition.