Trade agreements are a foundation of modern world economics. They discipline how governments collect tariffs — taxes on imported goods that are collected to support government programs and services — and open markets to help countries grow their economies. They also promote competition and create jobs by reducing barriers to foreign investment and making foreign markets more accessible to domestic producers. They establish rules on investment, standards, intellectual property, and other issues that affect trade circulation.

They can take many forms, but most involve multilateral negotiations. The most prominent examples are the General Agreement on Tariffs and Trade (GATT) and its successive negotiating rounds, which dramatically reduced tariff barriers to industrial goods. The GATT and subsequent free trade agreements fueled the tremendous growth in world trade that followed World War II and helped lift real per-capita incomes throughout the globe.

In addition to standardizing the collection of tariffs, many of these agreements include commitments to limit how much protectionism each country will employ in other areas, such as restrictions on trade in services and government procurement, agricultural subsidies, and other measures. In these nontariff measures, governments commit to treat each other on a “most-favored nation” basis, meaning that benefits agreed upon with one partner automatically apply to the other partners.

Other kinds of trade agreements can include bilateral or regional trade agreements, which usually involve fewer trading partners. These can focus on specific sectors, such as energy and agriculture, or on particular challenges to free trade, such as behind-the-border barriers that impede the flow of goods and services. In addition to lowering barriers, these trade agreements can encourage investment and facilitate the resolution of disputes over trade rules.