Foreign Trade

A

Import Quotas

One method of limiting imports is simply to close the ports of entry into a country. More commonly, maximum allowable import quantities may be set for specific products. Such quantity restrictions are known as quotas. These may also be used to limit the amount of foreign or domestic currency that is permitted to cross national borders. Quotas are imposed as the quickest means to stop or even reverse a negative trend in a country's balance of payments. They are also used as the most effective means of protecting domestic industry from foreign competition.

B

Tariffs

Another common way of restricting imports is by imposing tariffs, or taxes on imported goods. A tariff, paid by the buyer of the imported product, makes the price higher for that item in the country that imported it. The higher price reduces consumer demand and thus effectively restricts the import. The taxes collected on the imported goods also increase revenues for the nation's government. Furthermore, tariffs serve as a subsidy to domestic producers of the items taxed because the higher price that results from a tariff encourages the competing domestic industry to expand production. See also Free Trade; Tariffs, United States.

C

Nontariff Barriers to Trade

In recent years the use of nontariff barriers to trade has increased. Although these barriers are not necessarily administered by a government with the intention of regulating trade, they nevertheless have that result. Such nontariff barriers include government health and safety regulations, business codes of conduct, and domestic tax policies. Direct government support of various domestic industries is also viewed as a nontariff barrier to trade, because such support puts the aided industries at an unfair advantage among trading nations.

V

20th-Century Trends

In the first half of the 20th century, equal tariffs for similar goods was not the policy of all nations. Countries levied differential tariffs (charging lower tariffs to favored nations) and established other restrictive trading practices as weapons to fight unfriendly nations. Trade policy became the source of many international economic disputes, and trade was severely affected during times of war.

---

---

A

Trade Negotiations

Attempts were first made in the 1930s to coordinate international trade policy. At first countries negotiated bilateral treaties. Later, following World War II, international organizations were established to promote trade by, for example, liberalizing tariff and nontariff trade barriers. The General Agreement on Tariffs and Trade, or GATT, signed by 23 non-Communist nations in 1947, was the first such agreement designed to remove or loosen barriers to free trade. GATT members held a number of specially organized rounds of negotiations that significantly reduced tariffs and other restrictions on world trade. After the round of negotiations that ended in 1994, the member nations of GATT signed an agreement that provided for establishment of the World Trade Organization (WTO). The WTO began operation in January 1995 and coexisted with GATT until December 1995, after which GATT ceased to exist. All of the 128 contracting parties to the 1994 GATT agreement eventually transferred membership to the WTO. See also Commercial Treaties.

	More from Encarta
	•  Presidential Myths Quiz •  Coffee break: Recharge your brain