American Politics Today - Essentials (3rd Ed)

THE TOOLS OF FOREIGN POLICY| 485

World Trade Organization

(WTO) An international organi-

zation created in 1995 to oversee

trade agreements between nations

by facilitating negotiations and

handling disputes.

most-favored-nation status A

standing awarded to countries with

which the United States has good

trade relations, providing the lowest

possible tariff rate. World Trade

Organization members must give

one another this preferred status.

The main tools of trade policy are tariff s and trade agreements. A tariff is a tax
collected by the government for the import or export of certain commodities, and
a trade agreement sets tariff levels or limits the quantities of particular items that
can be imported or exported. The United States International Trade Commission
maintains a list of all tariff s in eff ect.^45 By adjusting tariff rates the government can
help or hurt domestic industries: high tariff s on imports help American producers
charge lower prices than foreign competitors can, and low tariff s on exports help
American producers sell to overseas markets.
Over the last two generations the United States and most other nations have
been lowering tariff s and establishing free trade zones, which refl ect agreements
to eliminate tariff s on all imports and exports among specifi c nations. Examples
include the North American Free Trade Agreement (NAFTA), involving the
United States, Canada, and Mexico; and the Central America Free Trade Agree-
ment (CAFTA) among the United States, fi ve Central American nations, and the
Dominican Republic. Other organizations, such as the World Trade Organiza-
tion (WTO), fa ci l it ate negotiations over t a r i ff s and provide a mechanism for adju-
dicating cases in which one nation believes that another is using tariff s unfairly.
Finally, the United States has granted many other countries most-favored-
nation status: tariff s on imports to the United States from these nations are set
at the lowest rate placed on any other nation.
Clearly, trade is an important part of foreign policy. The United States can use
free trade agreements and tariff s to bargain with countries for concessions in
other areas. For example, in the 1990s the Clinton administration used tariff s,
most-favored-nation status, and other inducements to force China to moderate its
human rights policies and crack down on illegal copying of software and videos.^46
Economic policies, which may involve the United States acting alone or with
other nations, are also used to threaten or sanction countries as a way of induc-
ing them to change their behavior. For example, in 2007 the UN Security Council
authorized sanctions against Iran aimed at forcing the nation to stop enriching
uranium, a fi rst step in the production of nuclear weapons.^47 These sanctions
included freezing bank accounts held by members of Iran’s nuclear team and
banning arms sales to the country. Additional sanctions imposed in 2012 cut off
Iranian banks from international funds transfer networks, making it diffi cult
for Iranian citizens and corporations to do business outside their nation’s bor-
ders. If Ira n agreed to stop its progra m, it would receive incentives such as civilia n
nuclear reactor technology and direct talks with the United States over various
issues. At the same time, the United States also discouraged Israel from attacking
Iranian nuclear facilities. This combination of carrots and sticks led to ongoing
negotiations between the Iranians and a group of nations, including the United
States and the European Union. However, as of the end of 2012, no deal had been
reached.

DIPLOMACY

The process of diplomacy involves using personal contact and negotiations with

national leaders and representatives to work out international agreements or per-

suade other nations to change their behavior. Sometimes these eff orts involve the

threat of military action or economic sanctions, or incentives such as economic

assistance or other forms of aid. The United States may participate directly in

such eff orts or mediate between parties in a dispute.

tariff A tax levied on imported and

exported goods.

ONE OF THE MOST CONFLICTUAL

issues involving international

trade is the enforcement of

copyrights on movies, music, and

computer software. The Chinese

government’s refusal to enforce

American copyrights has been a

source of tension between the two

nations.