Important force in the trend toward liberalized trade. Under its sponsorship, seven “rounds” of

negotiations to reduce trade barriers were completed in the post-World War II period.

The Uruguay Round (1986—1994) was the last one in the history of GATT with the agenda:

• eliminating trade barriers and domestic subsidies in agriculture

• removing barriers to trade in services (which now account for 20 percent of international trade)

• ending restrictions on foreign economic investments, and

• establishing and enforcing patent, copyright, and trademark rights on an international basis

The World Trade Organization (WTO), a successor of GATT, began to function from January

1, 1995.

Crucial development in trade liberalization has taken the form of economic integration — the

joining of the markets of two or more nations into a free-trade zone. The illustrations of economic

Integration were the European Economic Community (eec), the eu, and the us-Canadian-

Mexican Free-Trade Agreement. There are about 60 communities now.

b) The European Economic Community

The most dramatic example of economic integration is the European Economic Community

(EEC), or the Common Market, as it is popularly known. Begun in 1958, the EEC now comprises

most of Western European nations and some Eastern European nations.

Goals. The Common Market calls for:

• the gradual abolition of tariffs and import quotas on all products traded among the participating

nations

• the establishment of a common system of tariffs applicable to all goods received from nations

outside the Common Market

• the free movement of capital and labor within the Market

• the creation of common policies with respect to a number of other economic matters of joint

concern, for example, agriculture, transportation, and restrictive business practices

These goals had been fully achieved by 2002 and resulted in a common currency — the Euro — •.

Results. Motives for creating the Common Market were both political and economic. The primary

economic motive, of course, was to gain the advantages of freer trade for members. While it

Is difficult to determine the extent to which eec prosperity and growth has been due to economic

Integration, it is clear that integration creates the mass markets which are essential to Common

Market industries if economies of large-scale production are to be realized. More efficient production

for a large-scale market permits European industries to realize the lower costs which small,

localized markets have historically denied them.

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The effects upon nonmember nations, such as the United States, Russia, Japan, the nations of

Asia and others are less certain. On the one hand, a peaceful and increasingly prosperous Common

Market makes member nations better potential customers for their exports. On the other hand, the

firms’ exports of these countries encounter tariffs which make it difficult to compete in EEC markets.

For example, before the establishment of the Common Market, American, German, and

French automobile manufacturers all faced the same tariff in selling their products to, say, Belgium.

However, with the establishment of internal free trade among EEC members, Belgian tariffs

on German Volkswagens and French Renaults fell to zero, but an external tariff still applies to

American Chevrolets and Fords. This clearly puts American firms and those of other nonmember

nations at a serious competitive disadvantage. The situation is the same with any other goods. The

elimination of this disadvantage has been one of the United States and other countries motivations

for promoting freer trade through the WTO.

c) US—Canadian Free-Trade Agreement

A second example of economic integration is the US-Canadian Free-Trade Agreement signed

by President Reagan and Prime Minister Mulroney in 1988. Although three-fourths of the trade

between the United States and Canada was already duty-free in 1988, the US—Canadian accord is

highly significant: It created the largest free-trade area in the world.

Under terms of the agreement, all trade restrictions such as tariffs, quotas, and nontariff barriers

were eliminated within a ten-year period. Canadian producers gained increased access to a

market ten times the size of Canada, while US consumers gained the advantage of lower-priced

Canadian goods. In return, Canada cut its tariffs by more than the United States because Canadian

tariffs were higher than those in the United States. These reduced Canadian tariffs helped American

producers and Canadian consumers.

The gain to each country from the US—Canadian accord is large. In 1992 Mexico signed this

agreement. In 1994 NAFTA came into force and its complete realization is to be effected by 2010.

Summary volume of export of the US to Canada and Mexico made $271 billion in 1999 (about

39 % of the total US exports), including: $167 billion (24 %) to Canada, $104 billion (15 %) to

Mexico. In its turn, Canadian exports to the US made $200 billion (82 %) in 1999 and Mexico

exports to the US made $113 billion (83 %).

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