Trade agreements: this is how they work

A trade agreement makes it easier for businesses to trade with one another. Trade agreements promote freer movement of goods and services. That is why they are also known as free trade agreements. The EU negotiates trade agreements with other countries on behalf of all EU Member States.

In this article, you can read about the latest trade agreements, what a trade agreement is, and what the advantages and disadvantages are.

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On 1 May 2026, the the EU-Mercosur agreement provisionally came into force. Mercosur is the economic partnership between Brazil, Argentina, Uruguay, and Paraguay. This trade agreement makes doing business with Mercosur countries easier and cheaper. For example, you pay lower import duties on many products when importing from these countries. Your customers in these countries also often pay lower import duties when they buy your products.

Negotiations for new agreements with India and Australia have been finalised. The European Parliament and the EU Member States have yet to approve these agreements.

On the European Commission's website you can find an overview of all the EU trade agreements and negotiations.

Agreements 

For entrepreneurs, import duties are probably the best-known part of a trade agreement. But they contain agreements on many more topics. On product requirements, for instance. This means all parties involved know what requirements their products have to meet. Trade treaties may also contain agreements about: 

• Sustainable forest management and logging.
• Ban on child labour.
• The use of certain chemicals. 
• Testing and certification of medical devices. 
• Investing in a partner country.
• Protecting local produce, such as Gouda cheese and champagne.
• Treating each other's businesses equally.

Benefits of trade agreements

Trade agreements have many advantages for the economy, for governments, and for entrepreneurs: 

• Trade between treaty countries prospers. This generates money and creates jobs.
• People and businesse in the treaty countries can earn more. 
• Treaties lower import duties or eliminate them altogether. 
• Treaties can relax quotas, or the maximum quantity of a particular product that can be imported or exported. This means supply increases and prices fall. 
• Declaring goods to customs is made easier This means importing and exporting are faster and simpler.. 
• Countries can accept each other’s safety and standardisation tests. This means imported products do not have to be tested again if that has already been done in the other treaty country. This can apply, for example, to electronics, foodstuffs, medication, and machine and vehicle parts. This means businesses have less administration to deal with. 
• Some trade agreements mean the countries more easily give permission for temporary work by each other’s citizens. Recognising each other's degrees makes it easier for service providers and professionals to get started. 

Disadvantages of trade agreements

There are also disadvantages to trade agreements. 

• Lower import duties, for example, come at the cost of an increase in foreign competition, because trade agreements also make it easier for foreign business owners to sell their products in the Netherlands. 

• In some sectors, an increase in foreign competition results in job losses. 

• You may have more administration. Because you need documents to pay less import duty, for example. These are called preferential proofs of origin, such as an EUR.1 or an invoice declaration when exporting or importing.

How trade agreements are made

The European Commission negotiates with other countries on behalf of the EU. The EU concludes the trade agreements. Before a trade agreement comes into force, the EU takes a number of steps. 

• The European Parliament must first give its consent.
• The European Council then approves the agreement.
• The text of the agreement is translated into various languages.
• The Member States ratify the agreement. This often involves businesses, organisations and public authorities.

It usually takes years for a trade agreement to be finalised.

Entrepreneurs' influence 

As an individual entrepreneur, you do not get much of a say in the contents of a trade agreement. But you can make your voice heard by banding together with others in your sector. For example, through a sector association you can make your views known to the Ministry of Foreign Affairs via the General Trade Council. The ministry will then discuss these with  the negotiators in Brussels.