International trade theory and policy Term Paper

International trade theory and policy - Term Paper Example Before the end of World War II, countries had their own protectionist measures in place in terms of tariffs to safeguard their domestic manufacturers and businesses since a long time. The high tariffs were becoming a great hindrance to global trade. The General Agreement on Tariffs and Trade (GATT) in first six rounds from 1948 through 1967 provided the basic framework for tariff reductions. All first six rounds were mainly devoted on reducing tariffs and other barriers to trade and eliminate or lessen discriminatory treatment to promote global growth in trade (World Trade Organization). While there were only 23 participating countries in the first round of discussion, this numbers increased to 62 during the sixth Kennedy Round of negotiation. The 23 founding members of the GATT were also part of a group who were negotiating the ITO Charter as a specialized body of the United Nations. The ITO Charter was quite ambitious as it covered rules on employment, international investment, res trictive business practices, and commodity agreements. Early provisions of GATT did mention about accepting some of the trade rules of the ITO draft; however, the ITO Charter could not be ratified due to serious opposition within the US Congress. This resulted into the early death of the ITO charter and GATT remained only instrument that governed international trade (World Trade Organization). Through intensive talk and deliberations right from the first to the sixth round of negotiations, the participating countries could arrive at the consensus to reduce effective tariff rates from 38% in 1947 to just 9 percent by year 1972. Apart tariff reduction, the major turnaround came in the sixth round of negotiation when anti-dumping agreement came into effect. It should be noted that first five rounds were focused on item-by-item negotiation for the reduction of tariffs while the sixth round took some bold approach reducing tariff across the board; however, it is important to keep in mind that these rounds had little success in achieving non-tariff trade relations among the nation. The sixth round also called the Kennedy Round lasted over 3 years and provided tariff concessions to the tune of $40 billion. In view of the strong global protectionism prevailed at that time, achievements in the Kennedy Round were noteworthy. The Kennedy Round was the first of its kind that went beyond tariff reduction discussions and advanced the idea of non-tariff barriers besides highlighting the concerns of the developing world; however, trade in services, intellectual property rights were never discussed in the first six rounds of negotiation (World Trade Organization). Q: Discuss the global economic conditions in the mid-70s, and the anti-trade policies that became common despite the GATT. Motivate by worry about these policies, the 7th (Tokyo) Round was called to start in 1973. How can this Round be simultaneously considered a â€Å"success† (by the GATT Secretariat) and a â€Å"failure† by most international economists. Answer Those were the tumultuous years in mid-‘70s when Bretton Woods system based on fixed exchange rate collapsed. The system failed because the US dollar came under tremendous pressure to devalue. In the process of financing the Vietnam War and implementing public welfare programs during those years, the US government had increased its spending substantially that eventually resulted into increased money