What Is Meant By Reciprocal Trade Agreement

RTAA`s innovative approach freed Roosevelt and Congress from breaking this trend of tariff increases. It has linked U.S. tariff reductions to reciprocal tariff reductions with international partners. It also allowed Congress to approve tariffs by a simple majority, unlike the two-thirds majority needed for other contracts. In addition, the President had the power to negotiate the terms. The three innovations in trade policy have created the political will and feasibility of a more liberal trade policy. [3] Reciprocity was an important principle of trade agreements negotiated under the RTAA, as it encouraged Congress to reduce tariffs. As more and more foreign countries have entered into bilateral tariff reduction agreements with the United States, exporters have been more encouraged to promote Congress in favour of even lower tariffs in many sectors. [3] Due to the Great Depression, tariffs were at a historically high level.

Members of Congress have generally entered into informal quid-pro-quo agreements, in which they voted in favour of other members` preferential tariffs in order to gain the support of their members. No one took into account the overall toll for U.S. consumers or exporters. This practice is commonly referred to as logrolling. Roosevelt and key members of his government made sure to put an end to the practice. [19] The Trump administration`s trade agenda for “free, fair and reciprocal” trade may seem harmless, but it poses an existential threat to the international economic order invoked by the WTO. By giving the president the power to negotiate the agreements, Congress effectively ceded to the executive branch some of its power (in accordance with the U.S. Constitution, Article I, Section VIII). The president had to take into account the well-being of all Americans, his foreign policy priorities and what was feasible with other countries in his tariff decisions. These considerations have generally left presidents more inclined to reduce tariffs than Congress. [19] Whether Roosevelt or Congress predict this outcome is a matter of historical debate. In recent decades, the idea of “less than total reciprocity” has become an integral part of trade negotiations and development debates.

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. Between 1934 and 1947, the United States entered into separate trade agreements with 29 foreign countries. The Customs Commission found that U.S. tariffs were reduced from an average of 48% to 25% on average over the 13-year period when it used duty-subject imports in 1939 as a basis for comparison. The Reciprocal Tariff Act (adopted on 12 June 1934, Chapter 474, 48 Stat. 943, 19 U.C No. 1351) provided for the negotiation of customs agreements between the United States and various nations, including Latin American countries.

[1] The law served as an institutional reform to allow the president to negotiate with foreign nations a reduction in tariffs in exchange for a reciprocal reduction in U.S. tariffs.