However, these advantages must be offset by a disadvantage: by excluding certain countries, these agreements can shift the composition of trade from low-cost countries that are not parties to the agreement to high-cost countries. As a result, many countries have moved away from the multilateral process instead of bilateral or regional trade agreements. One such agreement is the North American Free Trade Agreement (NAFTA), which entered into force in January 1994. Under NAFTA, the United States, Canada and Mexico agreed to phase out all tariffs on trade in goods and remove restrictions on trade in services and foreign investment over a decade. The United States also has bilateral agreements with Israel, Jordan, Singapore, and Australia, and is negotiating bilateral or regional trade agreements with countries in Latin America, Asia, and the Pacific. The European Union has also concluded free trade agreements with other countries around the world. Some countries, such as Britain in the nineteenth century and Chile and China in recent decades, have made unilateral tariff cuts – reductions made independently and without reciprocal action by other countries. The advantage of unilateral free trade is that a country can immediately reap the benefits of free trade. Countries that dismantle trade barriers themselves do not have to postpone their reforms while trying to convince other countries to do the same.
The benefits of such trade liberalization are considerable: several studies have shown that incomes rise faster in countries open to international trade than in countries more closed to trade. Dramatic examples of this phenomenon are China`s rapid growth after 1978 and India`s growth after 1991, which indicate when important trade reforms took place. Aiming to remove barriers to trade, promote fair competition, increase investment opportunities, protect intellectual property rights, establish dispute settlement procedures Since Adam Smith published The Wealth of Nations in 1776, the vast majority of economists have accepted the thesis that free trade between nations improves overall economic well-being. .