The Importance of a Trade Agreement

A trade agreement reduces or eliminates tariffs and other barriers that limit the flow of goods and services. It can also create a framework to facilitate commerce and provide for neutral dispute settlement. International trade agreements can be multilateral, bilateral, or preferential.

Generally, the objective of any trade agreement is to increase trade between the parties. However, balancing the benefits of trade with other concerns like sovereignty remains a challenge. The role of international organizations like the WTO is critical in creating the rules and norms that govern global trade, facilitating negotiations among countries and addressing disputes that arise from them. But involvement in the process may pressure countries to conform to norms and rules that restrict their ability to regulate their domestic industries according to their own priorities, which can lead to trade distortion and trade diversion.

Trade agreements can greatly impact the economies of the countries involved by lowering or eliminating tariffs, reducing barriers that make buying and selling products more expensive, and facilitating access to new markets. They can also promote economic growth as businesses expand operations, and enhance the quality of life in participating countries.

Increasingly, regional trade agreements (RTAs) go beyond tariffs to cover multiple policy areas at the border and behind the border. These are known as deep agreements and on average boost trade, foreign investment and global value chain (GVC) participation by more than shallow agreements. Currently, the United States has 14 FTAs that significantly lower or eliminate tariffs on qualified products, making it easier and cheaper for U.S. companies to export to these markets. These agreements include provisions on intellectual property protection, product standards, and government procurement.