A trade agreement (or trade pact or free trade agreement) is a broad set of taxes, tariffs and other regulations agreed upon by two or more countries. They are generally negotiated in order to reduce government barriers to trade that are imposed at the border or internally through regulations or taxes. These include lowering or eliminating tariffs and quotas on imports; agreeing to specific rules about intellectual property (patents, trademarks, copyrights); establishing standards for food health and safety and other product-related issues; providing for the sale of goods or services by companies from each country into the others’ markets; and providing for sanitary and phytosanitary measures related to agricultural trade.
Governments negotiate the basic framework for their trade agreements (multilaterally, through the World Trade Organization), then bargain with each other over actual policies within those rules. They often include a “most-favored-nation” clause that requires them to extend their lowest existing tariffs on specified goods to all other WTO members, whether or not those governments have agreed to lower their own tariff rates in the future.
Modern trade agreements also tend to include provisions about investment and other areas of cooperation between nations. They may build on existing international intellectual property conventions or establish new ones, including those regarding data protection and the protection of geographical indications. They may also cover government procurement, allowing companies from each country to bid for the right to supply goods or services to each other’s central, regional, provincial and local governments.
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