A Trade agreement is a contractual arrangement between countries concerning their trade relationships. These agreements may be bilateral or multilateral, between two countries or between several countries. They are mainly aimed at lowering the cost of importing and exporting goods and services, which is often driven by government barriers to trade, including tariffs, quotas, import licensing, selective excise taxes and sales taxes, special “health” regulations, and even outright bans.
The most common type of Trade agreement is a free trade agreement (FTA). FTAs remove or reduce tariffs, and create a more transparent trading environment with fewer barriers to business. They also help companies establish themselves in their trading partner markets by establishing rules on foreign investment and intellectual property protections.
Another type of Trade agreement is a regional trade agreement (RTA), which limits its scope to countries within a specific geographical region. These agreements typically share similar histories, demographics and economic goals and can help reduce trade barriers in the region by allowing for greater cross-border flows.
A trade agreement can also include a Bilateral Investment Treaty (BIT), which helps ensure that investors in one country enjoy the same national or most-favored nation treatment as domestic investors in another. BITs vary in terms and conditions, but are primarily intended to protect investments in the host country from unfair competition and to promote investor confidence. In addition, a Trade agreement can also include a Preferential Trade Arrangement (PTA), which is negotiated outside of the WTO framework and provides better trade treatment for some countries.