Trade Problems Facing the World Today | Economics

In this article we will discuss about the trade problems facing the world today.

Since 1945, there have been eight major multilateral trade agree­ments. The multilateral tariff reductions since World War II have taken place under the General Agreement on Tariffs and Trade (GATT), established in 1947. GATT was both an agreement and an institution (replaced in 1995 by WTO) embodies a set of rules of conduct for international trade policy.

The main provisions of the GATT and the constraints it imposes on trade policy are:

1. Export Subsidies:

Signatories to the GATT may not use export subsidies, except for agricultural products.

2. Import Quotas:

Signatories to the GATT may not impose unilateral quotas on imports, except when imports threaten “market disruption” which is likely to put a domestic sector suddenly out of business).

3. Tariffs:

Any new tariff or increase in a tariff must be offset by reductions in other tariffs to compensate the affected exporting countries.

In December 1993, the Uruguay Round of multilateral trade negotiations was completed, but many trade problems remain. At the outset, we first review the provisions of the Uruguay Round and then refers to the major trade problems facing the world today.

The Uruguay Round:

In December 1993, the Uruguay Round, the eighth and most ambitious round of multilateral trade negotiators in history in which 117 countries participated, was completed after seven years of repeated negotiations.

The aim of the Uruguay Round was to establish rules for checking growing protectionism and reverse its trend; bring services, agriculture and foreign investments into the negotiations; negotiate international rules for the pro­tection of intellectual property rights; and improve the dispute settlement mechanism by ensuring more timely decisions and compliance with GATT rulings. The agreement was signed by the United States and most other countries on April 15, 1994 and took effect on July 1, 1995.

The major provisions of the agreement are the following:

1. Tariffs:

Tariffs on industrial products are to be reduced from an average of 4.7% to 3%, and the share of goods with zero tariffs is to increase from 20-22% to 40-45%; tariffs were removed altogether on pharmaceuticals, construction equipment, medical equipment, paper products and steel.

2. Quotas:

Nations are to replace quotas on agricultural imports and imports of textiles and apparel (under the Multi-fiber Agreement) with less restrictive tariffs over a ten-year period; tariffs on agricultural products are to be reduced by 24% in developing nations and by 36% in industrial nations, and tariffs on textiles are to be cut by 25%.

3. Antidumping:

The agreement provides for tougher and quicker action to resolve disputes resulting from the use of antidumping laws, but it does not ban their use.

4. Subsidies:

The volume of subsidised agricultural exports are to be reduced by 21% over a six-year period; government subsidies for industrial research are limited to 50% of applied research costs.

5. Intellectual Property:

The agreement provides for 20-year protection of patents, trademarks and copyrights, but it allows a 10-year phase-in period for patent protection in pharmaceuticals for developing countries.

6. Services:

The United States failed to secure access to the markets of Japan, Korea and many developing nations for its banks and security firms and did not succeed in having France and the European Union lift restrictions on the showing of American films and TV programmes in Europe.

7. Trade-Related Investment Measures:

The agreement phases out the re­quirement that foreign investors (such as automakers) buy supplies locally or export as much as they import.

8. World Trade Organisation:

The agreement also called for the replacement of L General Agreement on Tariffs and Trade (GATT) secretariat with the WTO in Geneva with authority not only in trade in industrial products but also in agricultural products and services. Trade disputes are also to be settled by a vote of two-thirds or three-quarters of the nations rather than unanimously as under GATT (which meant that the guilty nation could block any action against it).

Although the completion of the Uruguay Round was a great achieve­ment many trade problems still remain. The implementation of the Uruguay Round is expected to increase world trade by some $170 billion per year by the year 2002 and increase standards of living throughout the world Ta result of the more efficient use of the labour, capital and other resources.

Outstanding Trade Problems:

No doubt some benefits have resulted from the successful completion of the Uruguay Round. Yet three major trade problems remain. Firstly, many sectors were not included in the agreement. For example, many services such as banking, insurance and movies and TV programmes were excluded from the agreement; agricultural subsidies remain high; patent protection for pharmaceuticals is disappointing; and trade in computer chips is still subject to tariffs (even if cut by half).

Secondly, many of the trade problems of developing countries have either not been addressed or liberalisation is long delayed. This is the case for trade in agricultural products and textiles — products which are of great importance to most developing countries.

Finally, the Uruguay Round has not dealt with labour and environmental standards. So these may create major trade problems in the future. Trade- related competition policies (such as subsidies and regulation) as well as trade-related investment measures (TRIMs) have also not been properly dealt with in the Uruguay Round.