The main function of trade agreements is to set limits on protectionism through market-opening commitments. They typically balance the interests of farmers, manufacturers and service providers that want access to foreign markets against those of politically powerful entities that seek government protection from import competition (or, in other words, the demand for trade subsidies). To facilitate this process, a trade agreement must include most-favoured-nation status, national treatment of nontariff restrictions and other rules that discipline how governments calculate tariffs to collect for imported goods. Thanks to these rules, world tariff levels have dropped and the world trading system has expanded over the past decades.
These rules also discipline how governments impose other nontariff restrictions, such as special excise taxes, quotas, “voluntary” restraints on importing and other domestic requirements. They define how governments may use trade-distorting subsidies, and they classify some of these in a separate category that must receive harsher penalties when found. Trade agreements also contain detailed rules that govern how the dispute settlement system works. While it is true that the rules in these documents are often vague, they tend to have the effect of discouraging governments from violating the spirit of the agreements.
There are other parts of trade agreements, however, that have nothing to do with free trade and could discourage it. These include international obligations in a wide range of policy areas, usually related to corporate demands or social policy regulations advocated by civil society groups.