A trade agreement is a treaty in which a country promises to lower or remove barriers to the free movement of goods, services, capital and people. Trade agreements can be unilateral, bilateral or multilateral. There has been a rapid increase in the number of trade agreements, including regional trade agreements (RTAs), since the founding of the World Trade Organization in 1995. As of 2022 there are 355 RTAs in force, most of which are bilateral.
The core of trade agreements is that member governments promise to reduce or eliminate duties on most goods traded between them. But they also establish a rules-based system for resolving disputes between governments over trade issues. This helps keep corporate demands for government favors in check and discourages trade wars.
In addition, most trade agreements contain provisions that protect intellectual property rights and provide for the reciprocal protection of foreign investments in each other’s territory. They also establish mechanisms for resolving disputes between countries over unfair trade practices, such as dumping and countervailing subsidies. They may also address specific economic policies in the region, such as the development of least-developed countries, and require members to make their internal laws consistent with international trade law. Trade agreements also provide for the impartial adjudication of trade disputes by independent tribunals, which have proven to be more effective than governments’ own unilateral determinations to induce compliance with their trade obligations. Actual trade retaliation is rare, however. Rather, a winning government usually suspends the trade benefits it grants to the losing country until the other government brings its laws into compliance.
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