Trade agreements help countries engage in the global marketplace by lowering trade barriers and increasing the opportunities for goods and services. They also promote stability and predictability, making it easier to do business abroad. They do all of this while fostering good-paying jobs at home.
Since 1947, eight rounds of GATT (General Agreement on Tariffs and Trade) negotiations have reduced industrial countries’ average tariff rates. The Uruguay Round, in 1994, further reduced global tariffs and established the WTO to administer the deal and resolve disputes. In addition, it phased out the Multi-Fiber Arrangement system of rich country quotas and restricted agricultural subsidies. The agreement lays out the principle that countries should disclose their trade policies and practices publicly, either within their borders or to the public at large, through a system of regular policy reviews.
By reducing or eliminating tariffs between countries, trade agreements can make the prices of imported products more comparable to those of domestic goods. This increases competition for domestic producers and spurs economic growth and innovation in the signatories. As a result, on average, US exports to FTA partner countries have grown about three times more rapidly than they would otherwise have without an agreement.
Nevertheless, proponents of FTAs can oversell their impact. They can overstate the gains from reduced tariffs and ignore disruptions such as job losses that often accompany the opening up of a market. They can also overstate the impacts of an agreement on nontrade factors such as political and economic reforms, which can vary from one country to another.