A Trade agreement is a multilateral, bilateral or regional arrangement that establishes trade rules. Among other things, these arrangements can set minimum tariffs or reduce barriers to trade in goods and services, provide protections for investment and intellectual property, and facilitate regulatory harmonization on issues such as labor and environmental standards.
Since the implementation of the General Agreement on Tariffs and Trade (GATT) in 1948 and its successor, the World Trade Organization (WTO), world tariff levels have dropped dramatically, and trade has expanded globally. Moreover, the widespread acceptance of norms such as reciprocity and most-favoured-nation status have contributed to the overall success of the WTO’s trading system.
However, in recent years, the United States has been moving away from its traditional stance on multilateral and comprehensive PTAs. Instead, it is pursuing alternative trade-related agreements with emerging economies and developing countries that are not legally binding or provide for neutral dispute settlement mechanisms.
These “trade-related” agreements can include agreements that establish “rules of origin” that require the product of a signatory country to be substantially made in the country to qualify for preferential treatment. They can also include other provisions such as most-favored-nation status and national treatment for nontariff restrictions on goods and services. While the benefits and costs of these arrangements vary, they can help companies enter markets more easily through zero or reduced tariffs and lower the cost of doing business internationally. By providing a more stable and predictable environment in which to compete, they can allow companies to make informed capital decisions and build competitive advantages that increase the chances of success.