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International Trade

International Trade Agreements

Trade agreements regulate international trade between two or more nations. An agreement may cover all imports and exports, certain categories of goods, or a single category. The United States is currently engaged in some 320 trade agreements with various nations. (These are listed at www.tcc.mac.doc.gov.) However, several general trade agreements have shaped trade policy on broad levels.

The most important general trade agreement is called, simply enough, the General Agreement on Tariffs and Trade (GATT). GATT was signed in October 1947 to liberalize trade, to create an organization to administer more liberal trade agreements, and to establish a mechanism for resolving trade disputes. The GATT organization is small and located in Geneva. More than 110 nations have signed the general agreement, which originally was signed by 24 nations, including the United States. To a large degree, the role of GATT as an organization has been superceded by the World Trade Organization, which I discuss later in this section.

Since GATT was signed, several “rounds” of talks to liberalize trade have occurred. The most significant of these were the Kennedy rounds, which eventually led to a one-third reduction in tariffs and, more recently, the Uruguay rounds. The Uruguay rounds dealt with general barriers to trade and the relatively new issues of intellectual property rights, fishing practices, and environmental concerns.

A major trend of the past 25 years has been the creation and growth of free trade zones among nations agreeing to form regional trade blocs. The agreements that create free trade zones all share the same aims: to liberalize trade, promote economic growth, and provide equal access to markets among the member nations.

The most significant free trade zones are the European Union (EU), the North American Free Trade Agreement (NAFTA), and the Association of Southeast Asian Nations (ASEAN).

EconoTip

From time to time you will hear about so-called fast track trade legislation, in which Congress would give the president the authority to negotiate trade agreements. This legislation has not been passed, and it remains controversial.

Supporters of the legislation believe that the present method of negotiating trade agreements, which requires Congressional approval, is too slow and cumbersome for today's world. Opponents point out that trade agreements are treaties with other nations and that the Constitution invests Congress with the authority to enter these agreements. They also point out that the fast track legislation would limit public debate on trade policy. That debate, of course, is one of the reasons that the present method is slow and cumbersome.

In addition, the World Trade Organization (WTO) is a global organization, headquartered in Geneva, for dealing with trade between nations. Established in January 1995 by the Uruguay round negotiations under GATT, the WTO included 144 nations as of January 2002. The WTO administers trade agreements, provides a forum for trade negotiations and resolving trade disputes, monitors trade policies, and provides technical assistance and training for developing countries.

Let's Trade

Despite calls for protectionism from those who stand to lose from free trade, the world has clearly been liberalizing trade policy, lowering barriers to trade, and forming regional trade blocs. As a result, international trade is freer than it has ever been. We can all thank economists for this. They are without a doubt the steadiest, strongest, clearest voices in favor of free trade.

U.S. tariffs stand at their lowest level in history. Before World War II they ranged up to 40 percent on some imports. Today, tariff revenues amount to less than 5 percent of import dollar volume, and many imports are exempt from tariffs and quotas. Nontariff barriers to trade have also been largely—but not completely—eliminated.

This does not mean that all is rosy in the world of foreign trade, nor does it mean that the United States always plays fair in the global marketplace. U.S. agricultural subsidies and textile tariffs, for example, hinder imports of food, cloth, and clothing from poor nations in order to protect these domestic industries. Nevertheless, the United States and the world in general are expected to continue on the path toward freer international trade.

book cover

Excerpted from The Complete Idiot's Guide to Economics © 2003 by Tom Gorman. All rights reserved including the right of reproduction in whole or in part in any form. Used by arrangement with Alpha Books, a member of Penguin Group (USA) Inc.

To order this book direct from the publisher, visit the Penguin USA website or call 1-800-253-6476. You can also purchase this book at Amazon.com and Barnes & Noble.


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