James Kramer, age 13, of Dotham, Ala., for his question:
WHAT IS A RECIPROCAL TRADE AGREEMENT?
A reciprocal trade agreement is a pact between two or more nations to lower tariffs on certain products. A tariff is an official schedule of duties or customs imposed by a government on imports or exports.
Reciprocal trade agreements form the basis of the foreign trade policies of most nations today.
Since 1934, reciprocal trade agreements have been an important part of the United States foreign trade policy. That year, Congress passed the first Reciprocal Trade Agreements Act. Since then, periodic legislation has given the government authority to continue such trade policies.
Most reciprocal trade agreements start as pacts between two governments to lower specific tariffs. Such pacts are called bilateral trade agreements. Since 1947, most bilateral trade agreements have been expanded to include other countries.
In 1947, 23 countries, including the United States and Canada, signed the General Agreement on Tariffs and Trade (GATT). All these nations received tariff reductions and products specified in various bilateral trade agreements. The GATT provision that grants the reductions is called a "most favored nation" clause.
An example of how a reciprocal trade agreement might be arranged could have one nation that produces more wheat than it needs but not enough shoes, and another nation that produces too many shoes but does not have enough wheat.
The two governments would negotiate a bilateral trade agreement. The first country would reduce by a certain percentage its tariff on shoes imported from the second country. The second country would reduce by the same percentage its tariff on wheat imports from the first country. Both countries would benefit from this arrangement.
Then, under the most favored nation clause of the GATT, the first country would extend the tariff reduction on shoes to ail GATT countries. These nations could send shoes to the first country under the lower tariff even if they had not signed a trade agreement with that country.
By the mid 1960s, about 85 nations had signed the GATT.
Changes in world economic conditions have brought about some changes in trade agreements. Many underdeveloped countries want the industrial nations to lower their tariffs. But the underdeveloped countries want to keep their own tariffs high to protect their less competitive industries.
Some industrial nations, including the United States, have agreed to import many manufactured products from the developing countries at a lower tariff rate than the same products made by other industrial nations.