Definition Of The Reciprocal Trade Agreement

During World War II, the Department of Foreign Affairs and other government agencies worked on plans to rebuild world trade and payments. They discovered significant gaps in the trade agreement agenda and concluded that they could make progress through simultaneous multilateral negotiations. After the war, President Harry S. Truman took advantage of RTAA to allow the United States to join 23 separate countries conducting bilateral customs negotiations on a product-based basis, with each country negotiating its concessions on each imported product with the main supplier of that commodity. The various bilateral meetings were summarized as part of the General Agreement on Tariffs and Trade (GATT) signed in Geneva on 30 October 1947. When U.S. tariffs fell dramatically, global markets were also increasingly liberalized. Global trade has undergone a rapid transformation. The RTAA was a U.S. law, but it provided the first widely used system of guidelines for bilateral trade agreements. The United States and European nations began to avoid beggar neighborhood policies that pursued national trade objectives at the expense of other nations.

Instead, countries have begun to realize the benefits of trade cooperation. Secretary Hull`s first efforts were to reach reciprocal trade agreements with Latin American countries, a region considered crucial to U.S. trade and security, where rival powers (particularly Germany) have gained ground at the expense of American exporters. However, until September 1939, Hull was only able to negotiate agreements with three out of ten South American countries, because the trade agenda was opposed by Latin Americans, who opposed the most favoured national requirement to abandon all bilateral agreements with other countries. Pressure from Congress, in the name of special interests, to ensure that Latin American countries do not have unrestricted access to the U.S. market, these countries would have been seriously hampered in their efforts to sell their raw materials abroad if they had abolished bilateral agreements with European countries that absorb much of their exports. As more and more U.S. industries began to benefit from tariff cuts, some of them began campaigning with Congress for lower tariffs. Until RTAA, Congress had been mainly pressured by industries that wanted to create or increase tariffs to protect their industry. This change has also helped to maintain many of the benefits of trade liberalization. In short, the political incentive to increase tariffs has diminished and the political incentive to reduce tariffs has increased.

[3] The RTAA was regularly renewed by Congress until it was replaced in 1962 by the Trade Expansion Act, which President John F. Kennedy wanted to give it broader power to negotiate reciprocal trade agreements with the European Common Market.

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