International Economics Mordecai E. Kreinin Part I International Trade Relations Copyright ©2002 South-Western/Thomson Learning. All rights reserved.

CHAPTER 6 U.S. Commercial Policy

OVERVIEW Reciprocal Trade Agreements Legislation 1962 Trade Expansion Act Trade Reform Act of 1974 Trade Competitiveness Act of 1988 Regional and Bilateral Relations Political Economy of Protectionism Industrial Policy?

Important Concepts Reciprocal Trade Agreements Act Safeguard provisions Escape clause National security clause Trade-adjustment assistance Offshore Assembly provision Generalized System of Preferences (GSP) 301 provision Political economy of protectionism Industrial policy Fast Track provision

U.S. Commercial Policy: Introduction Tariff rates determined by congress, reflect political and economic pressures from diverse groups U.S. tariff level peaked in 1932 due to Smoot-Hawley Act of 1930 Retaliation by other countries contributed to spread of Great Depression In mid 1930s legislation obtained for gradual reduction in tariff rates Post WW II legislation made U.S. moving force behind 40-year trend of trade liberalization under GATT succeeded by WTO

Reciprocal Trade Agreement Act, 1934 Sanctions participation in GATT/WTO negotiations Permitted continual, limited import tariff reductions No-injury escape clause counter to purpose of trade reduction Designed to open new export markets during depression 1958 Extension and safeguard provisions Trade-adjustment assistance

The 1962 Trade Expansion Act Legislated first trade-adjustment program President permitted to cut duties up to 50% of July 1962 level, remove duties not exceeding 5%, To remove duties on agricultural commodities from temperate and tropical zones. Kennedy Round (1962—1967) resulted in average tariff rate reduction of 35%.

The Trade Reform Act of 1974 Authorized reduction of tariffs by 60% of post-Kennedy-Round level, elimination of tariffs of 5% or less, nontariff barriers. Tokyo Round of GATT (1975-1979), 35% tariff cuts staged over 1980-1988 Escape-clause relief, offshore assembly provisions Conformed antidumping regulations to GATT rule Granted authority to impose restrictions on countries employing unfair import restrictions Patent-infringing articles excluded from entry Generalized System of Preferences (GSP)

The Trade and Competitiveness Act of 1988 Authorized U.S. participation in Uruguay Round of GATT, concluded in 1993 40% tariff cuts staged over 5–10 years, nontariff barriers liberalized 301 provision: publish unfair-trading nations, negotiate removal of such practices Allows actions against unfair multinational subsidies to international consortia Allocates $2.5 billion for boosting farm exports Permits blocking foreign takeovers that would impair national security Mandates U.S. coordination of economic policies and exchange-rate strategies with other major nations

Regional and Bilateral Relations Postwar multilateral approach subject to MFN rule Evolved into tri-foci approach in 1980s: multi- lateralism, regionalism, bilateral relations WTO no longer exclusive focus Free trade agreement with Canada NAFTA FTA of the Americas proposals Possible FTAs with Asia or Europe Disputes with countries or regions Fast track provision

The Political Economy of Protectionism Strong lobbying incentive for groups that gain from protection Lack of incentive for groups that lose Net loss from protection is diffused, gains are concentrated Studies of protection structure

Industrial Policy? Designed to move resources to industries government deems important Externalities argument Not used widely in U.S., market considered better guide to future growth