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A trade agreement (also known as trade pact) is a wide-ranging taxes, tariff and trade
treaty A treaty is a formal, legally binding written agreement between actors in international law. It is usually made by and between sovereign states, but can include international organizations, individuals, business entities, and other legal per ...
that often includes
investment Investment is the dedication of money to purchase of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort. In finance, the purpose of investing is ...
guarantees. It exists when two or more countries agree on terms that help them trade with each other. The most common trade agreements are of the preferential and
free trade Free trade is a trade policy that does not restrict imports or exports. It can also be understood as the free market idea applied to international trade. In government, free trade is predominantly advocated by political parties that hold econ ...
types, which are concluded in order to reduce (or eliminate)
tariff A tariff is a tax imposed by the government of a country or by a supranational union on imports or exports of goods. Besides being a source of revenue for the government, import duties can also be a form of regulation of foreign trade and p ...
s,
quotas Quota may refer to: Economics * Import quota, a trade restriction on the quantity of goods imported into a country * Market Sharing Quota, an economic system used in Canadian agriculture * Milk quota, a quota on milk production in Europe * Indi ...
and other
trade restrictions A trade restriction is an artificial restriction on the trade of goods and/or services between two or more countries. It is the byproduct of protectionism. However, the term is controversial because what one part may see as a trade restriction a ...
on items
trade Trade involves the transfer of goods and services from one person or entity to another, often in exchange for money. Economists refer to a system or network that allows trade as a market. An early form of trade, barter, saw the direct exc ...
d between the signatories. The logic of formal trade agreements is that they outline what is agreed upon and the punishments for deviation from the rules set in the agreement. Trade agreements therefore make misunderstandings less likely, and create confidence on both sides that cheating will be punished; this increases the likelihood of long-term cooperation. An international organization, such as the
IMF The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution, headquartered in Washington, D.C., consisting of 190 countries. Its stated mission is "working to foster glob ...
, can further incentivize cooperation by monitoring compliance with agreements and reporting third countries of the violations. Monitoring by international agencies may be needed to detect
non-tariff barriers Non-tariff barriers to trade (NTBs; also called non-tariff measures, NTMs) are trade barriers that restrict imports or exports of goods or services through mechanisms other than the simple imposition of tariffs. The Southern African Development C ...
, which are disguised attempts at creating trade barriers. Trade pacts are frequently politically contentious since they may change economic customs and deepen interdependence with trade partners. Increasing efficiency through "
free trade Free trade is a trade policy that does not restrict imports or exports. It can also be understood as the free market idea applied to international trade. In government, free trade is predominantly advocated by political parties that hold econ ...
" is a common goal. For the most part, governments are supportive of further trade agreements. There have been however some concerns expressed by the WTO. According to Pascal Lamy, Director-General of the WTO, the proliferation of regional trade agreements (RTAs) "...is breeding concern — concern about incoherence, confusion, exponential increase of costs for business, unpredictability and even unfairness in trade relations." The position of the WTO is that while the typical trade agreements (called ''preferential'' or ''regional'' by the WTO) are useful to a degree, it is much more beneficial to focus on global agreements in the WTO framework such as the negotiations of the current Doha round. The
anti-globalization movement The anti-globalization movement or counter-globalization movement, is a social movement critical of economic globalization. The movement is also commonly referred to as the global justice movement, alter-globalization movement, anti-globalist m ...
opposes such agreements almost by definition, but some groups normally allied within that movement, e.g. green parties, seek
fair trade Fair trade is an arrangement designed to help producers in developing countries achieve sustainable and equitable trade relationships. The fair trade movement combines the payment of higher prices to exporters with improved social and envir ...
or
safe trade {{Unreferenced, date=November 2007 ''Safe trade'' is a slogan advocated by Greenpeace in its desire to " green" the World Trade Organization and the Doha Development Round. It is designed to compete with "free trade" as a concept. Safe trade i ...
provisions that moderate real and perceived ill effects of
globalization Globalization, or globalisation (Commonwealth English; see spelling differences), is the process of interaction and integration among people, companies, and governments worldwide. The term ''globalization'' first appeared in the early 20t ...
.


Classification of trade pacts


By number and type of signatories

There are three different types of trade agreements. The first is ''unilateral'' trade agreement, this is what happens when a country wants certain restrictions to be enforced but no other countries want them to be imposed. This also allows countries to decrease the amount of trade restrictions. That is also something that does not happen often and could impair a country. The second is classified as ''bilateral'' (BTA) when signed between two sides, where each side could be a country (or other customs territory), a trade bloc or an informal group of countries (or other customs territories). Both countries loosen their trade restrictions to help businesses, so that they can prosper better between the different countries. This definitely helps lower taxes and it helps them converse about their trade status. Usually, this revolves around subsided domestic industries. Mainly the industries fall under automotive, oil, or food industries. A trade agreement signed between more than two sides (typically neighboring or in the same region) is classified as ''multilateral''. These face the most obstacles- when negotiating substance, and for implementation. The more countries that are involved, the harder it is to reach mutual satisfaction. Once this type of trade agreement is settled on, it becomes a very powerful agreement. The larger the GDP of the signatories, the greater the impact on other global trade relationships. The largest multilateral trade agreement is the North American Free Trade Agreement between the United States, Canada, and Mexico.


By geographical region

These are between countries in a certain area. The most powerful ones include a few countries that are near each other in a geographical area. These countries often have similar histories, demographics and economic goals. The
North American Free Trade Agreement The North American Free Trade Agreement (NAFTA ; es, Tratado de Libre Comercio de América del Norte, TLCAN; french: Accord de libre-échange nord-américain, ALÉNA) was an agreement signed by Canada, Mexico, and the United States that crea ...
(NAFTA) was established on January 1, 1989, between the United States, Canada, and Mexico. This agreement was designed to reduce tariff barriers in North America. The
Association of Southeast Asian Nations ASEAN ( , ), officially the Association of Southeast Asian Nations, is a political and economic union of 10 member states in Southeast Asia, which promotes intergovernmental cooperation and facilitates economic, political, security, mi ...
(ASEAN) was formed in 1967 between the countries of Indonesia, Malaysia, the Philippines, Singapore, and Thailand. It was established to promote political partnership and maintain economic stability throughout the region.


By level of integration

There are a variety of trade agreements; with some being quite complex (
European Union The European Union (EU) is a supranational union, supranational political union, political and economic union of Member state of the European Union, member states that are located primarily in Europe, Europe. The union has a total area of ...
), while others are less intensive (
North American Free Trade Agreement The North American Free Trade Agreement (NAFTA ; es, Tratado de Libre Comercio de América del Norte, TLCAN; french: Accord de libre-échange nord-américain, ALÉNA) was an agreement signed by Canada, Mexico, and the United States that crea ...
). The resulting level of
economic integration Economic integration is the unification of economic policies between different states, through the partial or full abolition of tariff and non-tariff restrictions on trade. The trade-stimulation effects intended by means of economic integrati ...
depends on the specific type of trade pacts and policies adopted by the trade bloc: # Separate #* Trade and Investment Framework Agreement (TIFA) #*
Bilateral Investment Treaty A bilateral investment treaty (BIT) is an agreement establishing the terms and conditions for private investment by nationals and companies of one state in another state. This type of investment is called foreign direct investment (FDI). BITs a ...
(BIT) #* Preferential Trade Arrangement (PTA)–limited scope and depth of tariffs reduction between the customs territories. #**
Free Trade Agreement A free-trade agreement (FTA) or treaty is an agreement according to international law to form a free-trade area between the cooperating states. There are two types of trade agreements: bilateral and multilateral. Bilateral trade agreements occ ...
establishing a Free Trade Area (FTA)–extensive reduction or elimination of tariffs on substantially all trade allowing for the free movement of goods and in more advanced agreements also reduction of restrictions on
investment Investment is the dedication of money to purchase of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort. In finance, the purpose of investing is ...
and establishment allowing for the free movement of capital and free movement of services #*** Common market–FTA with significantly reduced or eliminated restrictions on the freedom of movement of all factors of production, including free movement of labour and of
enterprise Enterprise (or the archaic spelling Enterprize) may refer to: Business and economics Brands and enterprises * Enterprise GP Holdings, an energy holding company * Enterprise plc, a UK civil engineering and maintenance company * Enterprise ...
; and coordination in economic policy #* Currency union–sharing the same
currency A currency, "in circulation", from la, currens, -entis, literally meaning "running" or "traversing" is a standardization of money in any form, in use or circulation as a medium of exchange, for example banknotes and coins. A more general ...
# Composite #*
Customs union A customs union is generally defined as a type of trade bloc which is composed of a free trade area with a common external tariff.GATTArticle 24 s. 8 (a) Customs unions are established through trade pacts where the participant countries set up ...
–FTA with common external tariffs of all signatories in respect to non-signatory countries #**
Customs and monetary union A customs and monetary union is a type of trade bloc which is composed of a customs union and a currency union. The participant countries have both common external trade policy and share a single currency. Customs and monetary union is establis ...
–Customs union with Currency union #**
Economic union An economic union is a type of trade bloc which is composed of a common market with a customs union. The participant countries have both common policies on product regulation, freedom of movement of goods, services and the factors of produc ...
–Customs union with Common market #*** Economic and monetary union (EMU)–Economic union with Currency Union #**** Fiscal union–common coordination of substantial parts of the
fiscal policies In economics and political science, fiscal policy is the use of government revenue collection ( taxes or tax cuts) and expenditure to influence a country's economy. The use of government revenue expenditures to influence macroeconomic variables ...
''(proposed step between EMU and Complete economic integration)''


Special agreements

*
World Trade Organization The World Trade Organization (WTO) is an intergovernmental organization that regulates and facilitates international trade. With effective cooperation in the United Nations System, governments use the organization to establish, revise, and ...
treaty ** agreements in the WTO framework (Textile Agreement and others) * the now defunct Multilateral Agreement on Investment (in the
OECD The Organisation for Economic Co-operation and Development (OECD; french: Organisation de coopération et de développement économiques, ''OCDE'') is an intergovernmental organisation with 38 member countries, founded in 1961 to stimulate ...
framework)


By the World Trade Organization

Typically the benefits and obligations of the trade agreements apply only to their signatories. In the framework of the
World Trade Organization The World Trade Organization (WTO) is an intergovernmental organization that regulates and facilitates international trade. With effective cooperation in the United Nations System, governments use the organization to establish, revise, and ...
, different agreement types are concluded (mostly during new member accessions), whose terms apply to all WTO members on the so-called most-favored basis (MFN), which means that beneficial terms agreed bilaterally with one trading partner will apply also to the rest of the WTO members. All agreements concluded outside of the WTO framework (and granting additional benefits beyond the WTO MFN level, but applicable only between the signatories and not to the rest of the WTO members) are called ''preferential'' by the WTO. According to WTO rules, these agreements are subject to certain requirements such as notification to the WTO and general reciprocity (the preferences should apply equally to each of the signatories of the agreement) where unilateral preferences (some of the signatories gain preferential access to the market of the other signatories, without lowering their own tariffs) are allowed only under exceptional circumstances and as temporary measure. The trade agreements called ''preferential'' by the WTO are also known as ''regional'' (RTA), despite not necessarily concluded by countries within a certain region. There are currently 205 agreements in force as of July 2007. Over 300 have been reported to the WTO. The number of FTA has increased significantly over the last decade. Between 1948 and 1994, the
General Agreement on Tariffs and Trade The General Agreement on Tariffs and Trade (GATT) is a legal agreement between many countries, whose overall purpose was to promote international trade by reducing or eliminating trade barriers such as tariffs or quotas. According to its pr ...
(GATT), the predecessor to the WTO, received 124 notifications. Since 1995 over 300 trade agreements have been enacted. The WTO is further classifying these agreements in the following types: *''
Goods In economics, goods are items that satisfy human wants and provide utility, for example, to a consumer making a purchase of a satisfying product. A common distinction is made between goods which are transferable, and services, which are not ...
covering'': ** basic ''preferential trade agreement'' (a.k.a. ''partial scope agreement'') **''free trade agreement'' **''customs union'' *'' Services covering'': **''Economic Integration Agreement''–any agreement, including a basic PTA, that covers also services


See also

*
Trade and development Trade can be a key factor in economic development. The prudent use of trade can boost a country's development and create absolute gains for the trading partners involved. Trade has been touted as an important tool in the path to development by prom ...
*
Trade creation {{trade bloc Trade creation is an economic term related to international economics in which trade flows are redirected due to the formation of a free trade area or a customs union. The issue was firstly brought into discussion by Jacob Viner (1950 ...
*
Trade preference A trade preference is a preference by one country for buying goods from some other country more than from other countries. It grants special support to one country over another. It is the opposite of a trade prohibition. For example, the Agreemen ...
* Permanent Normal Trade Relations (PNTR) Lists: * List of international trade topics * List of free trade agreements * List of trade blocs


References


External links

*ITC'
Access Map
an online database of customs tariffs and market requirements. {{DEFAULTSORT:Trade agreement
Agreement Agreement may refer to: Agreements between people and organizations * Gentlemen's agreement, not enforceable by law * Trade agreement, between countries * Consensus, a decision-making process * Contract, enforceable in a court of law ** Meeting ...