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International Trade AgreementsThe General Agreement on Tariffs andTrade and the World Trade OrganizationAt the end of World War II, the United States and 22 other nations organized the bodythat came to be known as GATT. The General Agreement on Tariffs and Trade(GATT ) was an international organization of 153 nations dedicated to reducing oreliminating tariffs and other barriers to world trade. These 153 nations accountedfor more than 97 percent of the world’s merchandise trade (see Figure 3.4). GATT,headquartered in Geneva, Switzerland, provided a forum for tariff negotiations anda means for settling international trade disputes and problems. Most-favored-nationstatus (MFN) was the famous principle of GATT. It meant that each GATT membernation was to be treated equally by all contracting nations. Therefore, MFN ensuredthat any tariff reductions or other trade concessions were extended automatically to allGATT members. From 1947 to 1994, the body sponsored eight rounds of negotiationsto reduce trade restrictions. Three of the most fruitful were the Kennedy Round, theTokyo Round, and the Uruguay Round.The Kennedy Round (1964–1967) In 1962, the United States Congress passedthe Trade Expansion Act. This law gave President John F. Kennedy the authority tonegotiate reciprocal trade agreements that could reduce U.S. tariffs by as much as50 percent. Armed with this authority, which was granted for a period of five years,President Kennedy called for a round of negotiations through GATT.
These negotiations, which began in 1964, have since become known as the
Kennedy Round. They were aimed at reducing tariffs and other barriers to trade in
WTO Members Share in World Merchandise Trade, 2010
The 153 member nations account for more than 97 percent of the
world’s merchandise trade
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both industrial and agricultural products. The participants succeeded in reducing tariffs
on these products by an average of more than 35 percent. However, they were less
successful in removing other types of trade barriers.
The Tokyo Round (1973–1979) In 1973, representatives of approximately 100
nations gathered in Tokyo for another round of GATT negotiations. The Tokyo Round
was completed in 1979. The participants negotiated tariff cuts of 30 to 35 percent,
which were to be implemented over an eight-year period. In addition, they were able to
remove or ease such nontariff barriers as import quotas, unrealistic quality standards
for imports, and unnecessary red tape in customs procedures.
The Uruguay Round (1986–1993) In 1986, the Uruguay Round was launched to
extend trade liberalization and widen the GATT treaty to include textiles, agricultural
products, business services, and intellectual-property rights. This most ambitious and
comprehensive global commercial agreement in history concluded overall negotiations
on December 15, 1993, with delegations on hand from 109 nations. The agreement
included provisions to lower tariffs by greater than one-third, to reform trade in agricultural
goods, to write new rules of trade for intellectual property and services, and
to strengthen the dispute-settlement process. These reforms were expected to expand
the world economy by an estimated $200 billion annually.
The Uruguay Round also created the World Trade Organization (WTO) on
January 1, 1995. The WTO was established by GATT to oversee the provisions of the
Uruguay Round and resolve any resulting trade disputes. Membership in the WTO
obliges 153 member nations to observe GATT rules. The WTO has judicial powers
to mediate among members disputing the new rules. It incorporates trade in goods,
services, and ideas and exerts more binding authority than GATT. Its main function is
to ensure that trade flows as smoothly, predictably, and freely as possible.
The Doha Round (2001) On November 14, 2001, in Doha, Qatar, the WTO members
agreed to further reduce trade barriers through multilateral trade negotiations
over the next three years. This new round of negotiations focuses on industrial tariffs
and nontariff barriers, agriculture, services, and easing trade rules. U.S. exporters of
industrial and agricultural goods and services should have improved access to overseas
markets. The Doha Round has set the stage for WTO members to take an important
step toward significant new multilateral trade liberalization. It is a difficult task, but
the rewards—lower tariffs, more choices for consumers, and further integration of
developing countries into the world trading system—are sure to be worth the effort.
Some experts suggest that U.S. exporters of industrial and agricultural goods and
services should have improved access to overseas markets, whereas others disagree.
Negotiations between the developed and developing countries continued in 2012.
World Trade and the Global Economic Crisis
After the sharpest decline in more than 72 years, world trade was set to rebound in
2010 by growing at 9.5 percent, according to the WTO economists. In a 2012 speech,
WTO Director-General Pascal Lamy stated, “The multilateral trading system has been
instrumental in maintaining trade openness during the crisis, thereby avoiding even
worse outcomes. Members must remain vigilant. This is not the time for go-it-alone
measures. This is the time to strengthen and preserve the global trading system so that
it keeps performing this vital function in the future.”7
Exports from developed economies increased nearly 13 percent in 2010, compared
to a 16.5 percent increase in the rest of the world. China’s exports increased in 2010
by a massive 28 percent. Furthermore, the higher prices and extraordinary growth of
trade in developing Asia increased the combined share of developing economies and
the Commonwealth of Independent States in world exports to 45 percent in 2010, its
highest ever.
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