Backgrounder: Trade and Trade Agreements
What is trade?
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Bilateral v. Multilateral Trade Agreements
Trade is an activity in which goods or services are exchanged between various
parties. It occurs on both domestic and international levels.
International trade takes place at the bilateral and multilateral levels.
Bilateral trade agreements are negotiated
between two countries. Examples include the
Canada-Chile and Canada-Peru FTAs.
What is a trade agreement?
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A trade agreement, sometimes referred to as a free trade agreement (FTA), is a
contract that outlines provisions that govern and facilitate trade relations among
signatories.
They are tools usually used by national governments to a) create stable and
transparent trade environments, and b) enhance economic and market integration
with their trading partners.
Multilateral agreements are signed by three
or more parties. The North American Free
Trade Agreement (NAFTA) between Canada,
the US and Mexico is an example of a small
multi-lateral agreement. Agreements signed
at the World Trade Organization, comprised
of 153 member countries, are an example of a
large multilateral arrangement.
NAFTA logo
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What does a trade agreement cover?
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Most, if not all, trade agreements are concerned with market access for local
goods and service producers. This can be achieved by reducing or removing import
tariffs, quotas and other barriers to trade.
There is no one-size-fits-all format for trade agreements and agreements are
negotiated on a case-by-case basis. The table on the right lists areas that can be
addressed in trade agreements.
The areas and sectors covered in an agreement, as well as their terms of inclusion,
are typically determined through a trade negotiation process.
Chapters or areas considered
in trade agreements:
Agriculture
Competition policy
Customs duties and
tariffs
Environmental
regulations
Financial Services
Intellectual property
Investment
Labour
Sanitary measures
Telecommunications
Trade in services
Transparency
Why are free trade agreements controversial?
Debate surrounding international trade agreements is vociferous, and is connected to concerns over the negative impact of
increased globalization. Below is a small sample of the arguments for and against trade agreements.
Proponents say that trade agreements:
Opponents counter that trade agreements:
Decrease and/or remove costly and timeconsuming trade barriers, making the trade of
goods and services easier
Lead to the loss of domestic jobs to foreign
markets
Open-up foreign markets, allowing for an
increase in sales, revenues and profits for
domestic companies
Contribute to the exploitation of workers in
foreign countries
Create domestic middle-class, higher-wage
jobs over the long term
Force countries to liberalize key supply
managed systems, leading to job loss and
negative effects on key sectors
Provide developing countries access to cheaper
goods and services
Are often carried out without adequate public
consultation and attention to domestic,
industry-specific concerns
Allow for comparative advantage, thus
decreasing the cost of goods and services
Exacerbate environmental degradation
Can the goals of trade agreements be achieved or supported through other means?
A variety of alternatives to traditional trade agreements exist and may be pursued if broad and comprehensive trade
agreements among certain countries are perceived as being unsuitable or not feasible. These include:
Trade and Investment
Framework Agreements (TIFAs)
 Outline a framework and principles
for dialogue on trade and
investment-related issues between
signatories.
 Can address a range of issues
including market access, intellectual
property rights, and the
environment.
 Are usually bilateral.
 Are sometimes seen as a precursor
to a full-fledged FTA.
Sectoral Agreements
 Are strategies to increase market
access and collaboration in a specific
industry between two or more
countries.
 Include science and technology and
higher education agreements as
well as collaborations in sectors
such as health, fisheries and energy,
Sources:
“Canada-India Joint Study Group Report: Exploring the Feasibility of a Comprehensive
Economic Partnership Agreement.” Foreign Affairs and International Trade Canada.
“Canada’s FIPA Program: Its Purpose, Objective, and Content”. Foreign Affairs and
International Trade Canada..
Editorial. “Free the Free-Trade Agreements.” The Washington Post. 5 June 2011.
Goldfarb, Zachary A. and Lori Montgomery. “Obama Gets Win as Congress Passes FreeTrade Agreements” The Washington Post. 12 October 2011.
Khor, Martin. “Bilateral/Regional Free Trade Agreements: An Outline of Elements, Nature
and Development Implications” Third World Network. Sept. 2005.
“NAFTA at 10.” Foreign Affairs and International Trade Canada.
“Top Ten Reasons to Oppose the Free Trade of the Americas.” Global Exchange.
“Trade and Investment Framework Agreements.” Office of the United States Trade
Representative.
“What is Comparative Advantage?” Investopedia.
Covarrubias, Alex. "NAFTA_logo.png" Wikimedia Commons. 3 October 2007. 3 November
2011.Licensed under Creative Commons Attribution 2.5 Generic License.
Foreign Investment Promotion and
Protection Agreements (FIPAs)
 Create a transparent, rules-based
system for the conduct of foreign
investment by companies
incorporated in the jurisdictions of
signing parties.
 Ensure that investors receive fair
treatment in accordance with
international law.
 Are usually bilateral.