What Are the Functions of Trade Agreements?

International trade

Trade agreements are negotiated between sovereign states to facilitate economic trade. They provide the rules and boundaries for trade.

Types

There are two types of trade agreements, bilateral and multilateral. The former is an agreement between two countries, the latter is an agreement between multiple countries.

Background

Oftentimes, countries set their trade parameters unilaterally or by establishing their own laws. These include tariffs, subsidies, quotas, embargoes, taxes and prohibitions. Trade agreements seek to establish set tariffs and quotas or eliminate tariffs and quotas between countries to facilitate trade, while providing a fair standard for participating member-countries.

Significance

The United States, through its executive branch and specifically the Office of the U.S. Trade Representative, has trade agreements with other countries to facilitate open, free trade which helps the U.S. economy grow. Additionally, the United States is a member of large trading blocs and frequently advocates in the international arena for more open trading laws and agreements.

Advantages

Trade agreements seek to lower tariffs and other barriers to trade with foreign countries, thus opening markets for U.S. exports. Additionally, they increase trade volume internationally, thus making the economy grow.

Protections

Trade agreements also provide protections to U.S. companies and to the U.S. economy by ensuring that laws are applied equally and other member-countries do not cheat. For instance, tariffs and quotas must be abolished by all participating countries, and if one country levels a tariff, the U.S. can appeal to have that tariff removed, thus protecting America's economic interests.

Fun Fact

The World Trade Organization is a multi-lateral trade agreement between many participating countries designed to facilitate liberal trade between 154 participating member-countries and protect those countries participating by enforcing free-market rules agreed to under the treaty, so that all countries have fair opportunities in economic competition.

References

• Office of the United States Trade Representative: Trade Agreements
• U.S. Free Trade Agreements: U.S. Free Trade Agreements
• International Trade Administration: Free Trade Agreements