Foreign Trade.

« tax policies.

Direct government support of various domestic industries is also viewed as a nontariff barrier to trade, because such support puts the aided industries at anunfair advantage among trading nations. V 20TH-CENTURY TRENDS In the first half of the 20th century, equal tariffs for similar goods was not the policy of all nations.

Countries levied differential tariffs (charging lower tariffs to favorednations) and established other restrictive trading practices as weapons to fight unfriendly nations.

Trade policy became the source of many international economicdisputes, and trade was severely affected during times of war. A Trade Negotiations Attempts were first made in the 1930s to coordinate international trade policy.

At first countries negotiated bilateral treaties.

Later, following World War II, internationalorganizations were established to promote trade by, for example, liberalizing tariff and nontariff trade barriers.

The General Agreement on Tariffs and Trade, or GATT,signed by 23 non-Communist nations in 1947, was the first such agreement designed to remove or loosen barriers to free trade.

GATT members held a number ofspecially organized rounds of negotiations that significantly reduced tariffs and other restrictions on world trade.

After the round of negotiations that ended in 1994, themember nations of GATT signed an agreement that provided for establishment of the World Trade Organization (WTO).

The WTO began operation in January 1995 andcoexisted with GATT until December 1995, after which GATT ceased to exist.

All of the 128 contracting parties to the 1994 GATT agreement eventually transferredmembership to the WTO.

See also Commercial Treaties. B Trading Communities and Customs Unions The largest trading community in the world began in Europe in 1948 with the founding of the customs union known as Benelux—Belgium, the Netherlands, andLuxembourg.

In 1951 France, West Germany, and the Benelux countries formed the European Coal and Steel Community (ECSC).

These nations established theEuropean Economic Community (EEC), often called the Common Market, in 1957.

The ECSC, EEC, and other entities merged in 1967 to form the European Community(EC), which was succeeded in 1993 by the European Union. Several other trading communities have been established to promote trade among countries that have common economic and political interests or are located in aparticular region.

Within these trade groups, preferential tariffs are administered that favor member countries over nonmembers.

Non-Communist countries encouragedtrade-promoting programs to stimulate the redevelopment of economies ruined during World War II.

The North American Free Trade Agreement (NAFTA), ratified byMexico, the United States, and Canada in 1993, was designed to bring about a free market in everything produced and consumed in the three countries. In 1995 the South American free-trade group known as Mercosur began working with the EU in an attempt to forge a free-trade agreement between the two groups.Bolivia and Chile became associate members of Mercosur in 1996, with Peru (2003) and Venezuela (2004) achieving the same status in ensuing years.

In 2004Mercosur joined with the Andean Community to form the South American Community of Nations, bringing wider economic integration to the continent.

The alliancebecame the world’s third largest trading bloc, behind the EU and the economies of the countries belonging to NAFTA. In 2005 the Central American Free Trade Agreement (CAFTA) was approved.

It lowered trade barriers between Costa Rica, the Dominican Republic, El Salvador,Guatemala, Honduras, Nicaragua, and the United States. VI U.S.

TRADE In 2004, U.S.

exports totaled about $818 billion, and U.S.

imports, $1.53 trillion.

Manufactured goods constituted 81.7 percent of all U.S.

exports in 2004, and foodproducts accounted for another 7.3 percent.

Major exports also included chemicals, grains and grain products, soybeans, and coal.

Of imports to the United States in2004, 74.4 percent were manufactured goods and 14.2 percent were fuels.

Among essential materials imported were rubber, tin, graphite, sugar, coffee, tea, andenergy resources.

In the 1960s, the United States experienced an erosion of its dominant position in world trade, and in most of the years after 1970, it reported anegative trade balance (more imports than exports).

The U.S.

share of world manufactured exports declined from 25.3 percent in 1960 to 10.8 percent in 2003.

TheAmerican trade deficit with Japan was perceived to be a growing problem. VII WORLD TRADE In 2000 world trade (total exports) was approximately $6.5 trillion, more than triple the figure for 1980.

Driven by inflation and higher prices for commodities such asoil, the value of world trade in U.S.

dollars increased nearly 20 times from 1970 to 2000. In the 21st century, trade has increased, becoming a more dominant segment of the world's economy.

It is expected that the trend toward increasing interdependenceamong national economies will continue into the future.

See also Commerce; Globalization. Contributed By:Charles Michael AhoMicrosoft ® Encarta ® 2009. © 1993-2008 Microsoft Corporation.

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