How the Globalized Economy Works Today 329While international trade based on comparative advantage may result in economic
growth of the collectivity, individual states also have other policy objectives. They want
to maintain domestic employment levels and minimize unemployment. They want to
enforce their own domestic labor and environmental standards. They may want to help
subsidize emerging sectors to enable them to be competitive. They often view some
economic sectors as vital for national security reasons and thus seek to protect domes-
tic production or prevent exports. Therefore, negotiations over trading arrangements
must consider not only the anticipated economic gains from opening up the economy
to competition from others, but also the costs of achieving the other objectives. It is no
won der trade negotiations have been so contentious.
In TErnaTIonal TradE nEGoTIaTIons
The negotiating parties in GATT, the forerunner of the World Trade Or ga ni za tion,
sought to expand international trade by lowering trade barriers. That work occurred
over the course of eight negotiating rounds, with each round progressively cutting tar-
iffs, giving better treatment to the developing countries, and addressing new prob lems
(subsidies and countervailing duties). For example, in the Kennedy Round, between
1963 and 1967, tariff cuts averaged 35 percent on $40 billion of trade among 62 coun-
tries. In the following Tokyo Round, between 1973 and 1979, 102 states negotiated
tariff cuts, again amounting to more than 35 percent on $100 billion of trade. In addi-
tion, more favorable arrangements were negotiated for developing countries. Overall,
between 1946 and the mid-1990s, tariffs were reduced in the major trading countries
from an average of 40 percent to 5 percent on imported goods.
The final round, called the Uruguay Round, began in 1986. The Uruguay Round
covered new items such as ser vices (insurance), intellectual property rights (copyrights,
patents, trademarks), and, for the first time, agriculture. Previously, agriculture was seen
as too contentious an issue, complicated by both U.S. agricultural subsidies and the
Eu ro pean Union’s protectionist Common Agricultural Policy (CAP). Agreement was
reached to begin to phase out agricultural subsidies. In late 1994, the most compre-
hensive trade agreement in history was fi nally reached, a 400- page document covering
every thing from paper clips to computer chips. Tariffs on manufactured goods were
cut by an average of 37 percent among members. The developing countries that par-
ticipated in these tariff cuts— the liberalizers— enjoyed a full percentage point per year
boost in growth compared with the nonliberalizers.
In 1995, GATT became a formal institution, renaming itself the World Tr a de
Or ga ni za tion (WTO). The WTO incorporated the general areas of GATT’s jurisdic-
tion and expanded jurisdiction in ser vices and intellectual property. Regular ministe-
rial meetings give the WTO a po liti cal prominence that GATT lacked. Representing
states that conduct over 90 percent of the world’s trade, the WTO has the task of