33.3 Current Trade Policy LO 5, 6
The General Agreement on Tariffs and Trade (GATT), under which
countries agreed to reduce trade barriers through multilateral
negotiations and not to raise them unilaterally, has greatly reduced
world tariffs since its inception in 1947.
The World Trade Organization (WTO) was created in 1995 as the
successor to GATT. It has 164 member countries and contains a
formal dispute-settlement mechanism.
Regional trade-liberalizing agreements, such as free trade areas and
common markets, bring efficiency gains through trade creation and
efficiency losses through trade diversion.
The North American Free Trade Agreement (NAFTA) is the world’s
largest and most successful free trade area, and the European Union
is the world’s largest and most successful common market.
NAFTA is based on the principle of “national treatment.” This allows
Canada, the United States, and Mexico to implement whatever social,
economic, or environmental policies they choose providing that such
policies treat foreign and domestic firms (and their products) equally.