A trade agreement is a set of rules agreed upon by countries to regulate their economic interactions. They usually address government barriers to trade (either imposed at the border or internally through taxes and regulations). They may also address domestic rules on foreign investment, intellectual property protection, environmental and labor standards. Trade agreements can be bilateral or multilateral.
Free Trade Agreements (FTAs) are the most common type of trade agreement. They eliminate most or all tariffs and other trade restrictions between the parties to the agreement. This drastically decreases the landed cost for imports and promotes trade, international relations, and economic growth.
In addition to eliminating most or all barriers to trade, FTAs can have a number of other benefits that help increase trade and create jobs. For example, they often include provisions that grant preferential tariff treatment based on a product’s country of origin. This can significantly lower the landed costs for cross-border ecommerce and spur economic growth.
Additionally, FTAs can contain dispute settlement mechanisms that allow governments to resolve problems and disputes between one another. They usually rely on impartial tribunals and have been relatively effective at convincing losing governments to reform offending trade measures without imposing real penalties such as new tariffs.
EFTA FTAs normally have special provisions on trade remedies such as actions against imports that are being sold at unfairly low prices (anti-dumping duties) and emergency measures to limit the quantity of imports if they threaten serious injury to domestic industry (countervailing duties). Those measures build on WTO law and require the consent of both parties.