What are the benefits of a trade agreement?
Trade agreements are a complex and important instrument of international economic policy. They can have a positive impact on the economic development of a country by securing access to raw materials and intermediate goods, promoting imports and exports, enabling companies to gain access to new markets, and stimulating the labour market.
According to the World Trade Organisation, more than 380 trade agreements* were in force at the start of 2026– a testament to how central such agreements have become to the modern global economy.
Yet even in ancient times, trade agreements served as essential contractual arrangements between early advanced civilisations or city-states, designed to facilitate the exchange of goods, regulate customs duties and ensure the safety of traders on key trade routes such as the Silk Road.
In the Middle Ages, the Hanseatic League – an association of North German merchants and towns – dominated trade in the Baltic and North Sea regions through its trading posts, which were governed by their own legal systems and enjoyed special privileges. At the beginning of the 19th century, the idea of free trade began to gain greater acceptance. Alongside the Industrial Revolution and the expansion of imperial structures, the removal of many customs barriers also contributed to strong growth in world trade. Preferential trade agreements (PTAs) were used as treaties under international law to grant preferential tariff treatment to trade between member states. The Great Depression at the end of the 19th century and the First World War were followed by an era of protectionism, which reinforced trade barriers.
After the Second World War, economic cooperation became more systematic and global free trade experienced a resurgence: In 1947, the General Agreement on Tariffs and Trade (GATT) was established; this was transformed into the World Trade Organisation (WTO) in 1995, which serves as the central body for regulating global trade and brings together 166 members representing 98 per cent of world trade.
Author
Mag. Magdalena Quell, Product and Project Manager at Raiffeisen KAG
Types of trade agreements
Trade agreements can be categorised at various levels, for example by the number of members (bilateral or multilateral) or by the degree of integration.
A free trade agreement aims to reduce or completely eliminate customs duties and other trade barriers between members, whilst allowing states to retain independence in their own trade policies towards third countries.
By contrast, a customs union not only involves the removal of customs duties between members, but also establishes common external tariffs vis-à-vis third countries.
The establishment of a common market comprising member states also facilitates the free movement of people, services and capital – the European Union being the most prominent example.
Economic integration offers the closest interdependence between member states. In addition to the points mentioned above, the commonalities here also extend to the currency and economic policy measures, as is the case within the eurozone, for example.
Some of the world’s most important trade agreements:
RCEP, the Regional Comprehensive Economic Partnership, is the world’s largest** free trade area, encompassing 15 Asia-Pacific countries.
USMCA, the United States–Mexico–Canada Agreement, as the successor to NAFTA, governs trade between the three North American countries.
The EU, the European Union, as the most comprehensive example of economic integration with a single market, a customs union and common rules, has concluded numerous free trade agreements with third countries.
Mercosur is a South American trade bloc comprising a customs union between Argentina, Brazil, Paraguay, Uruguay and Bolivia (the latter since 2024). The EU–Mercosur Free Trade Agreement is intended to lead to further trade liberalisation.
CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership) governs free trade between eleven Pacific Rim countries and the United Kingdom.
Explanations:
*Regional Trade Agreements (RTAs)
** Measured by cumulative Gross Domestic Product (GDP)