Reciprocal Trade Agreements

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RECIPROCAL TRADE AGREEMENTS

RECIPROCAL TRADE AGREEMENTS. To help increase American exports at a time when worldwide depression had reduced international trade and many countries raised import tariffs, in June 1934 President Franklin D. Roosevelt's secretary of state Cordell Hull persuaded Congress to pass the Reciprocal Trade Agreements Act (RTAA). This amendment to the 1930 Smoot-Hawley Tariff Act granted the president the power to make foreign trade agreements with other nations on the basis of a mutual reduction of duties. This marked a departure from the historic approach of having Congress set import duties, usually at high protectionist levels.

Although Congress gave the State Department the primary responsibility for negotiating with other nations, it instructed the Tariff Commission and other government agencies to participate in developing a list of concessions that could be made to foreign countries or demanded from them in return. Each trade agreement was to incorporate the principle of "unconditional most-favored-nation treatment," and could permit a reduction of import duties of up to 50 percent of Smoot-Hawley levels.

In negotiating agreements under the RTAA, the United States usually proceeded by making direct concessions only to so-called chief suppliers—namely, countries that were, or probably would become, the main source, or a major source, of supply for the commodity under discussion. The concessions were granted in return for openings of foreign markets to American exports.

Secretary Hull's initial effort was to obtain reciprocal trade agreements with countries in Latin America, a region considered crucial to U.S. trade and security, where rival powers (especially Germany) were gaining ground at the expense of American exporters. However, Hull was able to negotiate agreements with only three of ten South American countries by September 1939, because the reciprocal trade program ran up against opposition from Latin Americans who opposed the most-favored-nation requirement that they abandon all bilateral arrangements with other countries. Since pressure from Congress on behalf of special interests ensured that the Latin American countries were not granted unrestricted access to the U.S. market, these countries would have been seriously hampered in their efforts to sell their raw materials abroad had they eliminated the bilateral agreements with European countries that absorbed much of their exports.

Between 1934 and 1947 the United States made separate trade agreements with twenty-nine foreign countries. The Tariff Commission found that when it used dutiable imports in 1939 as its basis for comparison, U.S. tariffs were reduced from an average of 48 percent to an average of 25 percent during the thirteen-year period.

The General Agreement on Tariffs and Trade

During World War II the State Department and other government agencies worked on plans for the reconstruction of world trade and payments. They discovered important defects in the trade agreements program, and they concluded that they could make better headway through simultaneous multilateral negotiations. After the war, President Harry S. Truman used the RTAA to authorize the United States to join twenty-three separate countries conducting tariff negotiations bilaterally on a product-by-product basis, with each country negotiating its concessions on each import commodity with the principal supplier of that commodity. The various bilateral under-standings were combined to form the General Agreement on Tariffs and Trade (GATT), signed in Geneva on 30 October 1947.

The RTAA was regularly renewed by Congress until it was replaced in 1962 by the Trade Expansion Act, which President John F. Kennedy sought to grant him wider authority to negotiate reciprocal trade agreements with the European Common Market. The Common Market had been established in 1957 to eliminate all trade barriers in six key countries of Western Europe: France, West Germany, Italy, Belgium, the Netherlands, and Luxembourg. Their economic strength, the increasing pressure on American balance of payments, and the threat of a Communist aid and trade offensive led Congress to pass the Trade Expansion Act. Whereas the United States had negotiated in the past on an item-by-item, rate-by-rate basis, in the future the president could decide to cut tariffs on an industry, or across-the-board, basis for all products, in exchange for similar reductions by the other countries. In order to deal with the tariff problems created by the European Common Market, the president was empowered to reduce tariffs on industrial products by more than 50 percent, or to eliminate them completely when the United States and the Common Market together accounted for 80 percent or more of the world export value.

From the original membership of 23 countries, GATT grew to include 128 countries responsible for about four-fifths of all world trade. During eight extended negotiating sessions or "rounds," GATT member countries further reduced tariffs, established antidumping regulations, and contributed to an upsurge in international trade levels.

World Trade Organization

In the final "Uruguay Round" (1986–1994), GATT created its own successor, the World Trade Organization (WTO), which established ground rules for replacing bilateral agreements with a multilateral trading system among more than 140 member countries. The WTO went beyond tariff reduction efforts to promote trade liberalization in areas such as global information technology and financial services. The WTO Secretariat is based in Geneva, but decisions are made by consensus among the member countries at biannual Ministerial Conferences. Because of the advantages of membership, even former Communist countries, including Russia and China, sought to join.

At the end of the twentieth century, the WTO came under fire from environmentalists, trade unions, and advocates of sustainable development in many countries because of the organization's ability to overrule national protective laws when these laws were deemed to be an impediment to free trade, and because critics argued that the WTO promoted an international economic system that favored rich countries and large private corporations at the expense of the poor. The ministerial conferences were often the scene of public demonstrations outside and clashes inside between the poorer countries of the third world and the wealthier industrialized nations. Together with the major international lending agencies—the World Bank and the International Monetary Fund—the WTO found itself obliged to defend the impartiality of policies designed to foster global economic growth.

BIBLIOGRAPHY

Butler, Michael A. Cautious Visionary: Cordell Hull and Trade Re-form, 1933–1937. Kent, Ohio: Kent State University Press, 1998.

Hody, Cynthia A. The Politics of Trade: American Political Development and Foreign Economic Policy. Hanover, N.H.: University Press of New England, 1996.

Kunz, Diane B. Butter and Guns: America's Cold War Economic Diplomacy. New York: Free Press, 1997.

Steward, Dick. Trade and Hemisphere: The Good Neighbor Policy and Reciprocal Trade. Columbia: University of Missouri Press, 1975.

Max PaulFriedman

SidneyRatner

See alsoEuropean Union ; General Agreement on Tariffs and Trade ; Tariff .