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

2. CHAPTER 6
U.S. Commercial Policy

3. 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?

4. 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

5. 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

6. 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

7. 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%.

8. 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 ( ), 35% tariff cuts staged over
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)

9. 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

10. 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

11. 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

12. 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