A trade agreement lays out the rules for buying and selling goods or services between two countries. They can reduce restrictions on cross-border ecommerce and lower the landed cost for imports. They are often based on preferential treatment—lowered or duty-free tariffs—for a product’s country of origin and if it is produced by small or medium-sized enterprises (SMEs). They can be bilateral, or multilateral agreements like the Comprehensive and Progressive Trans-Pacific Partnership or United States-Mexico-Canada Agreement.

In addition to the free-trade part of a trade agreement, they typically include commitments to keep protectionism within agreed limits; clarifications of how to identify domestic regulations that might be costly, “disguised” protectionism; and a dispute settlement mechanism for when governments violate the spirit of those rules. Detailed and specific trade agreement rules are important because vague rules can lead to disputes over what is being regulated—and why—with governments arguing that their actions are not in violation of the letter of the law, even when they clearly are.

While critics argue that these agreements are essentially corporate rent-seeking tools for large corporations, the evidence shows that the trade benefits outweigh the costs and that they create jobs and increase economic growth in both the exporting and importing countries. As trade expands, businesses have more choices, allowing consumers to have access to a wider variety of products at cheaper prices. This also allows smaller firms to compete more easily with foreign competitors. This helps all companies and consumers in both countries by making it easier, cheaper and safer to buy and sell products around the world.