Trade agreement are multilateral or bilateral arrangements that reduce the barriers to trade in goods, services and capital. These agreements can speed global trade liberalization by providing incentives for recalcitrant governments to join the club and reduce their barriers. They can also encourage countries to make concessions in multilateral negotiations that they might not otherwise agree to.
These agreements discipline how governments collect tariffs on specific shipments of imported goods by specifying the country of origin, the customs category and the value of each good. They also establish a procedure for resolving disagreements about these rules and provide enforcement mechanisms. They may also include international obligations in a wide range of policy areas, including competition law, investigations and sanctions on abuse by trade cartels or monopolies, government procurement, intellectual property and the temporary movement of natural persons.
Trade agreements also discipline how governments manage imports by requiring them to limit the level of protectionism they employ and providing for “reciprocity.” This means that, if Country A wants to reduce its barriers to the products of Country B, it must insist that Country B do the same. This ensures that both countries gain from the arrangement and provides an incentive for all governments to sign up to the agreement. The rules are clear and detailed, which helps prevent governments from exploiting gaps in the rules and ambiguities in the wording to find creative ways to avoid compliance with them. In addition, the agreement usually requires that governments must bring a complaint to the arbitration body instead of acting unilaterally. This limits the potential for retaliation because it allows the arbitrators to review and apply the rules in a way that is seen as neutral and objective.
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