Trade agreement

A trade agreement (also known as trade pact) is a wide ranging tax, tariff and trade treaty that often includes investment guarantees. The most common trade agreements are of the preferential and free trade types are concluded in order to reduce (or eliminate) tariffs, quotas and other trade restrictions on items traded between the signatories.

Classification of trade pacts

By number and type of signatories

A trade agreement 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). A trade agreement signed between more than two sides (typically neighboring or in the same region) is classified as multilateral.

By level of integration

There are a variety of trade agreements; with some being quite complex (European Union), while others are less intensive (North American Free Trade Agreement). The resulting level of economic integration depends on the specific type of trade pacts and policies adopted by the trade bloc: