Trade Liberalization

The decrease in trade barriers between countries, including reductions in quotas, tariffs, and nontariff barriers. Reductions such as these are designed to increase trade between nations and encourage economic interconnectedness.

Trade liberalization policies have contributed significantly to increases in international trade; average quotas and tariffs on foreign goods have been reduced from 40% prior to World War II to less than 4% currently. And while overall global output has increased over five times since the end of World War II, total world exports are now nearly 15 times greater than they were in 1950. This indicates a staggering growth in international trade relative to overall economic output.

Institutions Dedicated to Trade Liberalization

The modern era of global trade liberalization can be traced to the post-World War II period. The most notable step toward liberalizing trade during this period was the establishment of the General Agreement on Tariffs and Trade (GATT). GATT, which was created in 1947 and maintained offices in Geneva, Switzerland, was committed to systematically reducing barriers to international trade. Over a period of nearly five decades, it conducted eight rounds of multilateral negotiations to reduce trade barriers among member states.

The final round of GATT negotiations, the Uruguay Round (1986–93) resulted in the establishment of the World Trade Organization (WTO). The WTO was designed to carry on the work of GATT but had expanded goals that included not just reducing barriers to trade, but fostering global competition. The WTO also promotes the liberalization of trade by serving as a dispute settler for member nations. Additional tasks of the WTO include providing assistance to developing nations as they prepare to enter the global trade arena. The WTO, also based in Geneva, currently has 146 members, with more than a dozen additional states seeking membership.

Domestically, one of the most important institutions committed to trade liberalization is the North American Free Trade Agreement (NAFTA). NAFTA went into effect in 1994 and links the United States, Canada, and Mexico into a free trade zone. Both President Bill Clinton and President George W. Bush have attempted to increase the reach of NAFTA to include much of the rest of Latin America, but protests, both within the United States and from several Latin American governments, have delayed any significant progress on this initiative.

The Theory behind Trade Liberalization

Liberal trade policies are supported by a belief that a free market system of international trade is best equipped to provide for global economic growth. Proponents of trade liberalization suggest that by [Page 731]removing barriers to trade, states can more efficiently use the resources they have (capital, labor, and so forth) and purchase additional goods and services from other nations at competitive prices. Other arguments made by supporters of liberal trade policies include the potential for decreased international conflict as national economies become more tightly linked. Finally, supporters of trade liberalization often cite the effects of trade liberalization on income; the WTO estimates that aggregate global income may have increased by as much as $519 billion as a result of the Uruguay Round talks.

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