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Examples Of Trade Agreements


A trade agreement (also known as a trade pact) is a large-scale fiscal, customs and trade agreement, which often contains investment guarantees. There are two or more countries that agree on terms that help them trade with each other. The most common trade agreements are the types of preferences and free trade concluded to reduce (or eliminate) tariffs, quotas and other trade restrictions for goods traded between signatories. Some countries, such as Britain in the nineteenth century and Chile and China in recent decades, have made unilateral tariff cuts – reductions made independently and without any reciprocal action by other countries. The advantage of unilateral free trade is that a country can immediately reap the benefits of free trade. Countries that remove trade barriers themselves do not need to postpone reforms as they try to convince other nations to follow suit. The benefits of such trade liberalization are considerable: several studies have shown that incomes rise faster in countries open to international trade than in countries more closed to trade. Dramatic examples of this phenomenon are the rapid growth of China after 1978 and India after 1991, which indicate when major trade reforms took place. For most countries, international trade is governed by unilateral barriers of various types, including tariffs, non-tariff barriers and bans altogether. Trade agreements are a way to reduce these barriers and thus open up all parties to the benefits of increased trade.

While virtually all economists believe that free trade is desirable, they differ as to how best to move tariffs and quotas to free trade. The three fundamental approaches to trade reforms are unilateral, multilateral and bilateral. While free trade offers overall benefits, the removal of a barrier to trade for a given good harms the shareholders and employees of the domestic industry that produces that good. Some of the groups affected by foreign competition have sufficient political power to protect themselves against imports. Therefore, despite their considerable economic costs, trade barriers remain. For example, according to the U.S. International Trade Commission, the U.S. profit on lifting trade restrictions on textiles and clothing was nearly $12 billion in 2002 alone. This is a net economic profit after deduction of losses incurred by enterprises and workers in domestic industry. .