Trade Agreements

International trade agreements are designed to liberalize and (de)regulate trade flows in goods and services among trading countries. In essence, they constitute a defining feature of the process of economic globalization. Their shape and logic have varied considerably throughout the history of international political economy. This partly explains why scholars are strongly divided not only on the causes but also on the consequences of trade agreements, whether in regard to the future of trade liberalization or its welfare effects.

Trade agreements are commonly described as multilateral or regional (plurilateral or bilateral). While multilateral agreements are by definition nondiscriminatory, regional accords are often referred to as preferential trade agreements (PTAs) insofar as they grant trade concessions to a restricted number of trading partners. PTAs fall into three main categories: customs unions, free trade areas, and partial scope agreements. Within a free trade area like the North American Free Trade Agreement (NAFTA), trading partners agree to dismantle tariff barriers but remain free to set their tariffs with nonmember countries. By contrast, members of a customs union like the European Union or Mercosúr not only commit to liberalize trade flows but also agree to adopt a common external tariff. Partial scope agreements, as the name indicates, focus on a narrower set of trade barriers (e.g., the automobile sector in the case of the U.S.-Canada Auto-Pact of 1965) and are sometimes a preliminary step to the conclusion of a free trade agreement.

The content of trade agreements varies greatly from one deal to another. Whereas some agreements apply only to the circulation of goods, others can go far beyond trade issues to include a large diversity of provisions ranging from the free circulation of workers to the creation of resource transfers (European Union), the protection of investment and intellectual property rights, and the harmonization of regulatory requirements (NAFTA, European Union).

A Brief History of Trade Agreements

The literature on regionalism has shown that the history of international trade agreements long antedates the present era of globalization. International political economy scholars have recorded four waves of regionalism—including both regional and bilateral agreements—over the past two centuries. The first wave lasted from the second half of the 19th century until World War I and was characterized by a proliferation of bilateral trade agreements concentrated on the European continent. The Great War interrupted this process of regional, and to a larger extent, global integration, before a second cycle of regionalism took shape. [Page 1664]The geographic contours of this phenomenon were largely shaped along the lines of the great powers' respective spheres of influence—the British and French colonial empires, America's large presence in Latin America. In this case, trade agreements were noticeably more discriminatory than the previous wave of regional integration.

Figure 1 Participation in regional trade agreements as of January 2005.

Source: The Changing Landscape of Regional Trade Agreements by Jo-Ann Crawford and Roberto V. Fiorentino. © World Trade Organization, 2005. Reprinted with permission.

Note: CU = customs unions; FTA = free trade agreements; PS = partial scope.

The most recent waves of regionalism occurred in the post–World War II era. The third cycle took place from the 1950s until the 1970s and reflected the fast-changing nature of world politics, as illustrated by the consolidation of the communist bloc within the context of the Cold War, the proliferation of economic partnerships among newly independent countries of the Third World, and the process of regional economic integration in Europe.

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