A trade agreement is a multilateral or bilateral arrangement between two or more nations that reduces trade barriers, such as tariffs. Trade agreements also include provisions to harmonize standards for intellectual property and labour laws, and guarantee that foreign investors are treated the same as domestic ones.
The United States is involved in a number of international trade agreements with various countries, including the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) and the North American Free Trade Agreement. In addition, the US is a member of the World Trade Organization and several narrower bilateral investment treaties that protect private investments abroad.
One of the key functions of these agreements is to limit governments’ ability to use subsidies, Buy National procurement requirements, and other policies that boost corporate profits above market levels by giving companies political advantages over competitors. For this reason, supporters of free trade argue that these agreements should be seen primarily as anti-protectionism exercises.
But when these agreements aren’t negotiated and enforced carefully, they can result in trade conflicts that undermine the benefits they should provide. This is because vague rules give governments room to make creative arguments that they are complying with the spirit of an agreement, rather than its precise letter.
For example, some studies of FTAs have found that a country’s agricultural exports to the United States may accelerate under an agreement, while total exports may slow or stagnate. This suggests that some of the increase in exports to the United States was the result of a reallocation from other markets. These results are a sign that the “most-favoured-nation” clause in an FTA was not fully applied.
About the Author
