Trade agreements are an essential tool for international business. They can significantly decrease the landed cost of your imports and help boost economic growth by lowering barriers to entry into foreign markets, including quotas and tariffs. Despite the recent political debate, the reality is that trade agreements have made America a richer country and the world a more hospitable place for businesses and consumers to thrive.
Generally, trade agreements reduce or eliminate government barriers to commerce, whether at the border through tariffs and quotas or internally through regulations and taxes. Trade agreements can also include provisions for reducing non-tariff barriers, such as technical barriers to trade, customs valuation, foreign investment rules and intellectual property regulations.
The most well-known trade agreement category is the multilateral trade agreement, such as those that make up the World Trade Organization (WTO). These agreements establish rules that govern how member governments can trade with each other. Using the WTO’s most-favored-nation principle, members agree to treat each other equally with respect to goods and services entering their markets.
There are also regional trade agreements, or RTAs, that are more focused on specific geographic areas with common historical and demographic characteristics. These include the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) and the United States-Mexico-Canada Agreement, or USMCA.
There are also plurilateral trade agreements, which involve three or more countries negotiating rules that do not necessarily extend to other members of the WTO. An example of this is the WTO’s Government Procurement Agreement, which sets standards for competition in domestic procurement markets.