12/5/12 1:25 AM
International Negotiation: governments agreed to engage in mutual tariff
• Linked reduced protection for each country’s import-competing
industries to reduced protection by other countries against that
country’s export industries
The Advantages of Negotiation
A mutual agreement helps mobilize support for freer trade.
Negotiated agreements on trade can help governments avoid getting caught
in destructive trade wars.
Can help avoid trade war
Acting unilaterally, each country will usually choose the outcome that
appears in their best interest à prisoner’s dilemma
International Trade Agreements: A Brief History
Dates back to the 1930’s
1930: Smoot-Hawley Act
• tariff rates rose steeply and U.S. trade fell sharply
Needed to make bilateral agreements to counteract this Act à 1932
Multilateral negotiations began soon after the end of WW2.
1947: GATT, 23 countries à governed trade for 48 years
• began as an agreement à contracting parties
GATT and WTO are designed to push the world economy into free trade.
• Process of binding: the country imposing the tariff agrees not to
raise the rate in the future
• Prevent non-tariff interventions to trade
o “grandfathers” existing import quotas
Trade rounds are used to make forward progress.
Kennedy Round: 1967, 50% reduction in tariffs by the major industrial
The Uruguay Round
8 round began in 1986 in Uruguay
Document consisting of 400 pages
Signed in Marrakesh, Morocco in 1994
Ratified by all major nations Trade liberalizations and administrative reforms
Uruguay Round cut tariff rates around the world à moved to liberalize trade
in agriculture and clothing