GEOG 216 Chapter Notes -North American Free Trade Agreement, World Trade Organization, Kennedy Round

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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 ! 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 ! 1932
Multilateral negotiations began soon after the end of WW2.
1947: GATT, 23 countries ! governed trade for 48 years
began as an agreement ! contracting parties
1995: WTO
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
8th round began in 1986 in Uruguay
7 years
Document consisting of 400 pages
Signed in Marrakesh, Morocco in 1994
Ratified by all major nations
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Trade liberalizations and administrative reforms
Trade Liberalization
Uruguay Round cut tariff rates around the world ! moved to liberalize trade
in agriculture and clothing
The agreement required agricultural exporters to reduce the value of
subsidies by 36% and the volume of subsidized exports by 21%, over a six
year period.
Quotas were required to be replaced by tariffs
Net set of rules concerning government procurement
From the GATT to the WTO
The WTO replaced the ad hoc secretariat that administered the GATT
WTO has been accused of undermining national sovereignty
The GATT is a provisional agreement, while the WTO is a full-fledged
international organization
WTO includes rules on trade in services, while GATT does not
Agreement on Trade-Related Aspects of Intellectual Property
“dispute settlement” procedure
Benefits and Costs
Benefits: supposed to raise world real income by about 1%
Will accrue to broad, diffuse population
Will be felt by concentrated, often well organized groups
Directly hurt small but influential populations of farmers in Europe,
Japan, and other countries where agricultural prices are far above
world levels
Hurt workers in the clothing and textiles industry
Developing Country Support: offer new opportunities to their textile and
clothing exports
Fear of what would happen if it failed
Preferential Trading Agreements
“nondiscriminatory” tariff rates: tariff rates apply to all imports, not just
from the nation the agreement was made with
“Most Favoured Nation” (MFN): a guarantee that their exporters will pay
tariffs no higher than that of the nation that pays the lowest
Preferential Trading Agreements
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