Trade agreements are a broad category of taxes, tariffs and other trade restrictions that countries impose at the border or behind the border (for example, rules on competition, government procurement, intellectual property rights). They include multilateral and bilateral agreements.
Since the establishment of the General Agreement on Tariffs and Trade (GATT, implemented in 1948) and its successor, the World Trade Organization (WTO), global tariff levels have declined dramatically and world trade has expanded greatly. Most of the growth has occurred because of negotiated trade agreements.
Unlike GATT, the WTO includes rules governing nontariff barriers (e.g., discriminatory regulations, special “health” requirements, quotas on imports, special licensing conditions, dumping restrictions and outright prohibitions). These nontariff barriers are sometimes described as the “hidden tariffs” of trade. Countries negotiate trade agreements to reduce these nontariff barriers, and the rules include a “national treatment” clause that requires all signatories to treat domestically produced goods equally with foreign products.
In recent years, regional trade agreements have exploded in number and scope. These include bilateral free trade agreements, which typically cover zero or reduced tariffs. But more and more countries are negotiating deeper trade agreements, reducing not only tariffs but also nontariff barriers in behind-the-border areas such as competition policy and government procurement rules. These deep agreements increase goods and services trade, foreign investment, and global value chain (GVC) participation more than shallow agreements. But the efficient design of such agreements requires careful balancing of the benefits and costs.