Reciprocity - 1974–2001



After eight rounds of GATT negotiations, this regime was finally transformed into the World Trade Organization in 1995. During its lifetime, average tariff rates on industrial products had been lowered from 40 percent in 1947 to 4 percent by the early 1990s. Although every U.S. administration supported liberalized trade, in fact, Cold War diplomacy took precedence over reciprocity until the 1990s. U.S. leaders tended to take a soft line when its allies or trade partners were less than faithful in this area.

Congress in 1974 renewed for five years the president's trade negotiating authority and established the fast track authority for considering trade legislation. The president promised regular consultation, and Congress gave up the right to amend any trade agreement and agreed to consider any agreement within ninety days. In this act Congress emphasized reciprocity with developed nations ("the harmonization, reduction, or elimination of devices which distort trade or commerce"). Congress, however, stated that it would not insist on full reciprocity for developing countries.

The seventh GATT (Tokyo) round of negotiations began in 1973 and lasted until November 1979. These negotiations stressed nontariff barriers for the first time. In many cases these had become more important than actual tariffs. Among other factors, health and safety regulations were quietly used to limit imports. The members approved a series of specialized, nontariff codes pertaining to countervailing duties, antidumping duties, subsidies, product standards, import licensing, and government procurement. Relatively few countries signed these codes, and a decade later the six nontariff codes had little effect outside of the European Community, the United States, and Japan.

After 1975 the U.S. trade deficit began to grow rapidly. In 1975 the United States had nearly a $1 billion surplus in trade with Asia, but by 1987 this had changed to a $101 billion deficit. During the 1980s, U.S. attempts to promote free trade and reciprocity faced difficult times. The administration of Ronald Reagan imposed some import restraints for steel, motorcycles, semiconductors, and automobiles. In the latter case, strong hints that Japan needed to head off congressional action led to voluntary limitations. Although Japan lowered its tariffs significantly after the Tokyo Round, foreign manufactured imports were impeded by restrictive marketing customs and through a combination of cultural loyalties and administrative guidance.

The Reagan administration also began a two-track approach to liberalizing trade. It urged GATT members to begin negotiations to expand the Tokyo Round Codes and it developed a bilateral approach to free trade agreements (FTAs). Such an agreement was signed with Israel in 1984 and Canada in 1987. The latter provided for some integration of the two economies. All tariffs and nontariff barriers were to be eliminated by 1998, and in the agricultural area all tariffs were to be eliminated during a ten-year period and nontariff barriers would be reduced. Several major controversies and legal challenges have developed in the agricultural area. To complicate matters, each nation continued to enforce its own antidumping and countervailing duty laws to imported goods. Publishing and communications were excluded from the nontariff provisions because of the Canadian policy of "protecting" its cultural heritage. Financial services were not included in this agreement.

President George H. W. Bush pushed for a trilateral free trade agreement with Canada and Mexico. This North American Free Trade Agreement (NAFTA) was signed in October 1992. Two of the most important elements were the investment provisions and the mandatory dispute settlement. Foreign investors, for the most part, received national treatment and various other safeguards. President Bill Clinton supported NAFTA despite heated opposition from labor unions and his own party. He negotiated limited side agreements concerning labor and environ-mental issues but a majority of House Democrats voted against NAFTA. Businessman and 1992 presidential candidate Ross Perot predicted a "great sucking sound" of jobs moving south of the border.

Economic historian Alfred E. Eckes, Jr. has written an overall summary of the FTAs. He notes:

Interestingly, the FTA's with Israel, Canada and Mexico (NAFTA) represented significant departures from U.S. commitment to the multilateral GATT process. FTA provisions digressed somewhat from the principle of nondiscrimination, but arguably they complemented the overall objective of liberalizing trade in that bilateral FTA's sought to address specific issues not handled successfully in the GATT forum—agriculture, services, investments, intellectual property, and other non-tariff issues.

One of the most controversial aspects of NAFTA has been the binational panel process to revise the application of antidumping and countervailing duties. One of the three-member panel's first decisions was to reverse the U.S. Commerce Department's subsidy determination. It was later revealed that two of the Canadians on the panel had business and government connections that compromised their neutrality. A U.S. judge ruled that the process was flawed under U.S. law and ordered Canada to negotiate restraints on its softwood lumber exports to the United States. Some authorities believe, however, that the binational panels have been effective in "relatively routine" cases.

In early 2001 the United States and Mexico clashed over a Clinton administration refusal to allow Mexican trucks full access to U.S. high-ways—they were limited to a twenty-mile zone north of the border where they had to transfer their loads to U.S. trucks. A NAFTA arbitration ruled that the United States had violated the treaty. In May 2001 the U.S. government issued revised rules to meet the arbitration panel's ruling. Under the new rules, all Mexican trucks that operate in the United States must apply for permission and their companies must provide detailed information about their safety practices and show that they are in compliance with U.S. trucking regulations.

The United States and Canada were at odds over a U.S. ban on the import of potatoes from Prince Edward Island, on the grounds that potato wart fungus had been found in a field on the island. Canada referred the issue to NAFTA negotiations.

In April 2001 newly elected President George W. Bush provided the leadership for a Free Trade of the Americas initiative called Super NAFTA. A three-day summit meeting of hemisphere leaders in Quebec, Canada, hoped to out-line a free trade zone that would wipe out most trade restrictions by 2005. If it comes to fruition it will be the greatest advance for reciprocity in the history of the world. The leaders ratified a plan barring undemocratic nations from the free trade zone. The so-called democracy clause would suspend the benefits of the free trade zone from any country that ceases to be a democracy. Cuba was the only nation excluded from the summit because of its totalitarian regime. An odd amalgamation of anarchists, communists, labor activists, environmentalists, New Agers, and others took to the streets in violent protests against free trade and capitalism in general. President Bush noted that he was willing to discuss their grievances, and in his address to the meeting, he stated that the proposed agreement had to be accompanied by a "strong commitment" to protecting the environment and improving labor standards. Brazilian President Fernando Henrique Cardoso pledged to push for "trade openings that are reciprocal and [to] help close rather than widen the disparities in our region."

The eighth round of GATT talks (the Uruguay Round) began in 1986. In 1984, 109 nations signed a new agreement to create a World Trade Organization to replace GATT and implement the last GATT accord. This final accord, in December 1993, cut overall import duties by about 40 percent, phased out import limits that made clothing and textiles more expensive, scaled back (but did not end) state support to farmers, boosted protection for copyrights and patents, and set new rules to help liberalize trade in services such as tourism. Separate accords also covered government contracts, dairy products, and beef. The World Trade Organization was given enforcement authority. In January 1995 the new accords became official.

For the next two years the WTO did very little and negotiations to extend free trade failed. In December 1996 a conference of ministers from 128 nations finally agreed to sweep away customs duties on computers, software, semiconductors, and hundreds of other information technology products by 2000. Significant progress in telephone services negotiations was also made.

The mandatory dispute settlement provision has created a problem for the United States. In the WTO it has one vote, while the European Union, which negotiates as a bloc, has fifteen separate votes. And developing nations have 83 percent of the votes. But this disparity does not seem to have had serious consequences for the United States to date. In late 2000 the General Accounting Office testified that out of forty-two cases involving the United States as a plaintiff or defendant, America had won fourteen and lost eight; the remaining cases were decided through negotiation.

But in some areas reciprocity continues to take a beating. The European Union has set up trade barriers to U.S. beef produced with growth hormones and to bananas grown on American-run plantations in the Caribbean and Central America. In turn, the United States retaliated with $116.8 million in trade sanctions on a range of European goods. Negotiations in late 2000 failed. The EU did relax its ban on genetically modified organisms. This prepared the way for an end to Europe's moratorium on bioengineered seeds and food. But debates continued over the role of government subsidies in protecting industries. The United States pointed to British, French, and German low-interest loans to Airbus Industries in its efforts to build a rival to Boeing's jumbo jet. The French demanded the right to protect their film industry from U.S. competition and to extensive agricultural subsidies. In turn, the Europeans complained that the United States also provided massive support to farmers and used restrictive quotas and high tariffs to protect sectors such as sugar, peanuts, and tobacco.

Another complicating factor in reciprocity negotiations is the demand by labor unions, environmentalists, and leading Democrats that any agreements must include worker protection and environmental concerns. Robert Zoellick, the Bush administration's trade representative, argued that free trade should be about free trade and nothing else. According to Zoellick, "the WTO should not be seen as a global government with power to order new environmental or labor laws—or, for that matter, better tax regimes, pension plans, health programs, civilian control of militaries, or a host of other meritorious outcomes."

Trade with the People's Republic of China was an ongoing problem. For years the U.S. Congress annually reviewed China's trade status before voting on renewing most-favored-nation status. In 2000 the Clinton administration pushed to make this status permanent and even changed its name to "permanent normal trade relations." Under the terms of the new agreement, China consented to cut tariffs and restrictions on American agriculture, industrial products, banking, insurance, telecommunications, and movies. The United States agreed to accept Chinese membership in the WTO and give up its annual review of China's trade status. The opponents argued that with this deal the United States gave up its efforts to influence China's human rights policies. But in past annual reviews, the United States had never done anything except lecture the Chinese government. A new antidumping law took effect in 2001. Under its provisions, any company that proves it was harmed by "unfair competition" will be given protection by a special antidumping duty. The proceeds from this duty will be paid to the companies involved. For example, on behalf of the Diamond Sparkler Company, the U.S. government imposed a 93.4 percent import tax on Chinese sparklers. It is estimated that $100 million will be collected in 2001 as a result of all such special duties. The steel industry dominates the list of companies in line for the payments, with 46 percent of the 360 cases preliminarily qualified for payment.

According to the law, the funds received by each company can be used only for training, new technology, health benefits, pensions, and other specific items. That leaves the Customs Service with the problem of determining whether the funds are spent legally. Thus, the problem of "unfair competition" continues to plague reciprocity.

As of 2000, the European Union, Japan, Australia and several other countries had filed complaints with the WTO. The government of Canada warned that if duties levied against Canadian or Mexican products were turned over to competing U.S. companies, Canada will charge this to be a violation of NAFTA.

President George W. Bush in 2001 requested that Congress restore "fast track" negotiating authority to the president. The authority was first granted in 1974 and expired in 1994. Congress refused to renew it in 1997, because of congressional demands that environmental and labor rights protection be included in all trade negotiations. Under fast-track authority, Congress cannot amend a treaty—it can only approve or disapprove.

As in 1789, reciprocity in 2001 was buffeted and shaped by internal pressures and external circumstances. In the twentieth century the United States emerged as the leader in the struggle for an open world based on reciprocity. Contradictions, limitations, and modifications are still present, but the world is more open and reciprocity is more widespread than in 1789. The ideas proclaimed in that earlier period are still a vital part of American foreign relations.



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