Trade agreements establish the rules that govern economic interactions between countries. They focus on government barriers to trade — restrictions at a country’s borders or within a country through taxes or regulations — and are meant to reduce these restrictions and expand world trade.
Since the implementation of the General Agreement on Tariffs and Trade (GATT) and its successor, the World Trade Organization, in 1995, tariff levels have dropped significantly and world trade has expanded. They have also established key principles such as most-favored-nation status and national treatment of nontariff restrictions.
These changes have given impetus to further liberalization of global trade and provided incentives for countries to compete with one another in the market based on their relative efficiency. It also provides opportunities for the creation of new jobs in a wide range of sectors and allows governments to invest in their communities by increasing the amount of money that is available through foreign investment.
Often, trade agreements include rules of origin that require that the goods being exported come largely from the country signing the agreement. For example, USMCA requires that most of the contents of a good be made in Mexico or the United States to enjoy preferential treatment from those countries.
Congress plays an important role in approving trade agreements. The Trade Promotion Authority (TPA) process gives Congress the opportunity to set negotiating objectives for the executive branch and requires consultation with legislators throughout the negotiations. Once a trade agreement is finalized, the president has the power to submit it for fast-track approval, meaning that any implementing legislation faces a simple up-or-down vote in Congress and limited floor debate. This limits congressional input after the agreement is signed, but preserves a role for Congress to provide guidance during the negotiation process.