Suppose The United States And Sweden Sign A Free Trade Agreement

Multilateral trade liberalization, in which all countries reduce their trade barriers in parallel, is the best way to promote trade on the basis of comparative advantages. However, countries can abuse the system by adopting a neighboring beggar policy Western economic theory has also changed in recent years to take into account the fact that, since the early 1970s, world trade has grown much faster than overall economic growth. In 1973, the ratio of exports to GDP was 4.9% for the United States, and by 2005 it had more than doubled to 10.2%. For the world as a whole, this rate was 10.5% in 1973 and rose to 20.5% in 2005. It is clear that the United States is benefiting from the reduction of its trade barriers by its trading partners, because its exports will increase, which will lead to an increase in production and employment. Most economists also believe that the United States benefits from the removal of its own trade barriers, given that consumers benefit from reduced costs and international competition forces producers to improve efficiency. However, the liberalization of imports has an impact on domestic labour and production, which must be taken into account. The GATT authors considered that the removal of trade barriers should be done on a multilateral basis in order to maximize the benefits of expanded production based on comparative advantages. As already said, they have enshrined this approach in Article I of the GATT (most-favoured-nation, most-favoured-nation, treatment), which obliges members to accord all GATT members the same treatment with respect to trade barriers. In order to minimize the possible negative consequences of these trading blocs, Article XXIV of the GATT requires members of a customs union or free trade agreement to remove barriers to trade “essentially” with each other and that all GATT members have the opportunity to review the agreement. In the event that a GATT member that is not a contracting party to the customs union faces higher tariffs on certain products when forming a customs union, Article XXIV requires that member to be compensated for lost trade. However, as noted in Chapter 2, Article XXIV has proven to be totally ineffective in limiting the growth of trading blocs; As a result, these preferential regimes now significantly distort trade patterns. Fourth, Western economic theory assumes that trade will be reasonably balanced over time.

If this is not the case, it is stated that the deficit country will import products for which it would normally have a comparative advantage; If these products are in sectors where production costs are decreasing, the sector may lose its ability to compete with global markets over time. To succeed in a neo-Omerkantiist strategy, a country of course needs to have access to other markets that provide for the gradual liberalization of trade barriers within the framework of the GATT/WTO. Neo-Mercantiists typically focus on key industries chosen by the government, a strategy known as industrial policy. A successful industrial policy needs a far-sighted government. Japan had an extremely competent group of government officials within the Ministry of Industry and Trade (MITI), which monitored its industrial policy and was in fact immune from political pressure. Although MITI has been very successful, it has also made some mistakes. For example, in their plans to develop a world-class automotive industry in the 1950s, MITI officials initially believed they had too many auto companies and pushed Honda to merge with another company. Instead, Honda decided to invest in the United States and became a leading automaker. Non-tariff barriers – such as import quotas, subsidies, standards and rules – need to be converted into tariff equivalents, which is often difficult and unreliable. For new areas addressed in trade negotiations – such as services, investment and intellectual property – efforts to measure the impact of barriers are even more difficult. .

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