A trade agreement, such as the Free Trade Agreements (FTA) negotiated under President Obama, is an agreement between two or more countries that lowers barriers to trade in goods and services. The agreements can also reduce restrictions on investment and intellectual property. The goal is to help businesses become more competitive in foreign markets and to create jobs.
Reciprocity is a key feature of any trade agreement. This ensures that each country in the agreement gains as much from the pact as it loses. For example, Country A must agree to reduce tariffs on the products of Country B in order to receive concessions on its own products. This allows American consumers to buy cheaper goods from Country A and provides new opportunities for its businesses.
The agreements often include a most-favored nation clause, which prevents countries from lowering barriers to other nations in ways that might make the other country worse off. This helps to prevent “trade wars.”
One of the main functions of trade agreements is to check special-interest demands for government protection from foreign competition. By including detailed schedules of trade liberalization (goods, services and procurement entities), the agreements force governments to be more transparent and limit their ability to do political favors for corporations by imposing tariffs, subsidies or Buy National procurement requirements on imported goods.
The schedules also address technical issues like the treatment of sanitary and phytosanitary measures, which are commonly used to restrict imports and protect local industries. The agreement also sets up dispute settlement mechanisms. As of 2024, there are 355 regional FTAs in effect worldwide, with the rest of the world moving forward with them even as the United States stalls on its own.