Warm up

Questions

  • What are the North American Free Trade Agreement and the World Trade Organization?
  • How their implementation affected U.S. trade deficits and trade-related employment?
  • What position should the U.S. government take over negotiations on trade issues?
Background

    Author Dr. Robert E. Scott

    Dr. Robert E. Scott joined the Economic Policy Institute as an international economist in 1996. Before that, he was an assistant professor with the College of Business and Management of the University of Maryland at College Park. He has represented U.S. industries as an expert witness on the economic effects of imports in several cases before the U.S. International Trade Commission concerning unfair trade complaints. Areas of his expertise include trade, NAFTA, global finance, international economic comparisons, trade effects on the U.S. textile, apparel, and steel industries, and so on.

    North American Free Trade Agreement (NAFTA)

    The North American Free Trade Agreement (NAFTA), based on the premise that removing as many tariffs as possible between these North American countries will increase trade within the region and benefit each country's economy, is a treaty that was signed on August 12, 1991 by the United States, Canada, and Mexico; it went into effect on January 1, 1994. (Free trade had existed between the U.S. and Canada since 1989; NAFTA broadened that arrangement.) On that day, the three countries became the largest free market in the world ¡ª the economies of the three nations at that time was more than $6 trillion and directly affected more than 365 million people. NAFTA was created to eliminate tariff barriers to agricultural, manufacturing, and services trade, remove investment restrictions, and protect intellectual property rights, all while addressing environmental and labor concerns (although many observers charge that the three governments have been lax (ËÉиµÄ) in ensuring environmental and labor safeguards since the agreement went into effect). Small businesses were among those that were expected to benefit the most from the lowering of trade barriers since it would make doing business in Mexico and Canada less expensive and would reduce the red tape needed to import or export goods.

    The World Trade Organization (WTO)

    Trying to bring order to a disorganized world, the World Trade Organization (WTO), headquartered in Geneva, Switzerland, resulted from the Uruguay round of General Agreement on Trade and Tariffs (GATT) concluded in 1995, works to facilitate international trade. Mr. Pascal Lamy is Director-General. Its member countries negotiate and sign agreements hammered out in the WTO forum. The WTO administers the agreements, fosters trade relations among its members, handles trade disputes, monitors national trade policies, provides technical assistance and training for developing countries, serves as a forum for future multilateral trade negotiations, and cooperates with other international organizations.

    An international organization with 142 members (2002), established in 1995 to replace GATT. Its stated aims are:

    ¡¤ expanding free-trade concessions equally to all members;
    ¡¤ establishing freer global trade with fewer barriers;
    ¡¤ making trade more predictable through established rules;
    ¡¤ making trade more competitive by removing subsidies.

    The WTO also has juridical powers, expressed through its Dispute Settlement Body, to rule on trade disputes. Only national governments are allowed to participate, and there are no outside appeals. After a WTO resolution of a dispute has been finalized, the losers must either conform with WTO requirements (even if this means altering their own national law), pay compensation to the winner, or be subject to non-negotiable trade sanctions.

    The organization derives most of its operating income from member contributions. Each member's contribution is calculated with a formula that takes into account that member's share of international trade. As a group, the 149 members contributed about $130 million to the WTO budget in 2005.

    http://www.wto.org

    The 1947 General Agreement on Tariffs and Trade (GATT) emerged from wartime and post-war negotiations to establish a stable, multilateral economic order. The lengthy negotiating process (1944-7) reflected the controversial nature of the politics of international trade at domestic and international levels of bargaining: changing patterns of international trade could have dramatic and fairly immediate effects on domestic employment and income levels within and among national economies. While it has never proved possible to gain broad agreement on the extent of liberalization in most domains of international trade, it was accepted that the unilateralist and discriminatory practices of the inter-war period had had particularly negative consequences for all concerned.

    GATT itself was an interim accord which sought to codify the rules of the emerging trade regime and to proceed with important reductions in national barriers to trade.

    The Uruguay Round of multilateral trade negotiations under the auspices of GATT established the World Trade Organization. Upon ratification of the Round's Final Act by members, the WTO replaced GATT as the global multilateral trade organization, and a series of agreements associated with but legally distinct from GATT were also placed under the WTO umbrella (such as the GATS, the Agreement on Agriculture, on Textiles and Clothing, on Rules of Origin, etc.).

    GATS£ºGeneral Agreement on Trade in Services

    The Uruguay Round of GATT negotiations included a legally distinct series of negotiations to bring the services sector of the global economy under GATT disciplines and dispute settlement procedures, despite substantial initial resistance from less-developed countries. The successful accord or GATS is now under the umbrella of the World Trade Organization (WTO), which succeeds GATT as the core of the multilateral trade regime.

    Fast Track (also called ¡°Trade Promotion Authority¡±)

    The Trade Act of 2002 (HR 3009; also called the U.S. Trade Promotion Authority Act) grants the President of the United States the authority to negotiate trade deals with other countries and only gives Congress the approval to vote up or down on the agreement, but not to amend it. This authority is sometimes called fast track authority, since it is thought to streamline approval of trade agreements. This authority makes it easier to negotiate deals, which engenders both support and opposition, opposition coming from labor and environmental groups.

    The last time the U.S. President was granted fast track authority was to negotiate the Uruguay Round Agreement of the World Trade Organization. The Uruguay Round was completed just as the fast track authority expired in 1994. The President went without the authority until it was renewed in 2002. Unless extended (by another two years) by Congress, trade promotion authority will expire in July 2007.

    U.S. trade deficit

    Over the past few decades, U.S. trade deficits have grown steadily. As each monthly report of the latest trade statistics is released, the print media and the broadcast news carry commentaries and debates over the causes of the deficit and its consequences. Some take the position that trade deficits are the result of U.S. prosperity and that the inflow of foreign capital and goods have kept inflation and interest rates low and boosted productive investments, which are essential components of American prosperity. Others see a more troubling side to the deficits. They see the deficits as evidence of something corrosive to the U.S. industrial base and as evidence that globalization and the workings of the world trading system pose threats to continued U.S. prosperity.