Whether multilateral or bilateral, and whether focused on goods or services, trade agreements set out a set of rules that countries must follow. These rules bind governments, but they also help to provide stability and predictability for businesses. This helps businesses lower costs, expand opportunities and create jobs.
Trade agreements generally focus on reducing or eliminating tariff barriers – the taxes (customs duties) that countries place on imported products. They may also seek to reduce nontariff barriers such as licensing requirements, special “health” regulations, quotas or other restrictions on importing and exporting that prevent or distort trade flows. They also may include a “national treatment” provision, under which signatories of the agreement must treat imported and locally produced goods the same.
Under the General Agreement on Tariffs and Trade (GATT), which was created after World War II, most countries agreed to lower their average tariff rates on industrial goods by negotiating through successive rounds of trade negotiations. This process greatly expanded trade among the major industrial nations and contributed to the massive increase in global economic prosperity after World War II.
Today, most of the trade agreements that governments negotiate, including those negotiated by President Trump since his threats of sky-high tariffs on all trading partners, are multilateral and include provisions to reduce or eliminate customs tariffs and nontariff barriers, cooperation on regulatory harmonization, and economic security coordination. Some of these agreements are also referred to as free trade agreements (FTAs). Other, less comprehensive, deals often are called Trade and Investment Framework Agreements or TIFAs.