The main function of trade agreements is to set the rules that nations play by. Trade agreements do this through a series of schedules that reduce tariffs, quotas, and other trade restrictions on goods, services, and investment flows between countries.

These schedules are enforceable through the trade agreement’s dispute settlement provisions, which authorize independent arbitrators to review governments’ behavior and impose penalties (typically a loss of certain trade benefits that membership in an agreement confers) on non-compliant nations. These procedures, which are well-established and based on neutral adjudication, have been relatively effective in inducing governments to reform their trade policies.

Trade agreements also set limits on protectionism through reciprocal, market-opening commitments (or “concessions”). Although this mercantilist approach falls short of economists’ unilateral free trade ideal, it is a practical and incremental approach that shifts national trade policies toward freer trade and helps check special interest demands for government protection from foreign competition.

While some critics of trade agreements suspect they contain hidden cronyism, this criticism is often misguided. In fact, over the past few decades, the thousands of pages of trade agreement schedules have helped to reduce protectionism, and, despite some exceptions, have helped to limit corporate influence over government policymaking. This progress is important, because the costs of continued protectionism are far greater than the benefits of more open trade. Trade agreements also provide valuable stability and predictability for American businesses, which can only operate if they know the rules of the game and that breaking those rules will come at a cost.