A Brief Introduction About Reciprocal Trade Agreement
The Reciprocal Trade Agreements Act was a U.S. bill of legislation passed by Congress on 12th June 1934. It was an effort to reconstruct the global trade regime.
The Reciprocal Trade Agreements Act of 1934 is the U.S. federal statute. It makes provisions for negotiation of tariff agreements amid the U.S. as well as other countries. Through negotiation, the Act brings a reduction of duties. This agreement had led to the General Agreement on Tariffs and Trade in 1947. The Act includes rules for the principal-supplier relationship.
The Act boosts the trade relation amid the U.S. as well as other foreign nations.
Who Takes the Reciprocal Trade Agreement?
A reciprocal trade agreement is an agreement between two nations. It provides for the exchange of products between them at lower tariffs. Such agreements generally refer to the direction of treaties that manage with tariffs. This agreement is an international commercial treaty that allows two or more nations to benefit trade concessions.
Purpose of the Reciprocal Trade Agreement
Reciprocal agreements are made between states which permit employees that work in one state but living in another to only pay income taxes towards their state of residency. However, in case of reciprocity existed amid the two states, employees shall be required to complete and deliver a non-residency certificate to have residency state tax withheld rather than the work state tax.
RTAA is essential for two reasons. Firstly, it was one of the earliest times when the U.S. Congress approved trade policymaking authority directly towards the President. In later years, this exercise continued with congressional authorization for presidential trade promotion authority that was utilized to negotiate additional trade liberalization agreements.
Secondly, the RTAA had served as a model for the negotiating basis of the General Agreement on Tariffs and Trade (GATT). As per the GATT, nations would also offer “concessions” which means tariff reductions on imports, in response to comparable concessions from the additional GATT members. The key difference is that the RTAA had involved bilateral grants, while the GATT discusses in a multilateral environment.
Contents of the Reciprocal Trade Agreement
The United States Reciprocal Trade Act had chosen upon the Trump administration’s approach of utilizing a twisted look at selectively picked individual goods, by concentrating on tariffs as well as other trade barriers for a particular product. The presentation of the “United States Reciprocal Trade Act” in the U.S. Congress on 24th January is the most recent instance of trade unilateralism implied in an objectively deceptive title.
The Reciprocal Trade Act has recently presented in the U.S. Congress. It states that
- As per reciprocity in trade negotiations, WTO signatories are required to offer adequate trade concessions to receive similar concessions from their trading partners.
- Reciprocity is usually a traditional principle of GATT/WTO. However, it is practicable only amid developed countries owing to their roughly matching economies.
- For trade amid the developed and developing nations, the concept of relative reciprocity is applicable.
- Under these developed contracting parties does not expect reciprocity for obligations to reduce or remove tariffs when they trade with less-developed contracting parties.
- Though, this revised meaning of reciprocity allowable a differential treatment of developing as well as least-developed nations at the discretion of the developed world.
- This discretion exposes the provisions of the U.S. Reciprocal Trade Act.
How to Draft the Reciprocal Trade Agreement?
While drafting Reciprocal trade agreements, one must consider including in the agreement that –
- The reciprocal trade agreement is an agreement made between two countries that offer for the exchange of goods amid them at lower tariffs as well as better terms than that exist between one of the nations and other countries.
- Such agreements generally refer to treaties that deal with tariffs.
- This agreement is an international commercial treaty that grants two or more countries equally advantageous trade concessions towards one another.
- Reciprocal agreements also deal with matters regarding the rights of foreigners as well as consular relations.
- Under the United States Reciprocal trade agreements, if a trading partner rejects to lower its tariffs or non-tariff barriers, the President could impose reciprocal or duties.
- In case the nation refuses to lower its nonreciprocal tariffs or non-tariff barriers through negotiations, the President then has the authority to impose reciprocal duties to offset or mirror that nation’s protectionist advantage in this agreement.
Negotiation Strategy
The draft legislation is also known as the United States Reciprocal Trade Act. It specifies the argument that President Donald Trump would have a wide collection of tools in the direction of opening the markets of United States trading partners, which includes the authority to adjust rates of tariff to reciprocal levels.
The main intent of the legislation is to provide the President with the tools to pressure other countries to lower their tariffs as well as stop taking advantage of America. The U.S. President could unilaterally increase the existing U.S. tariffs for those goods where the U.S.’s trading partners have enforced higher tariffs or higher non-tariff barriers.
In applied terms, it furnishes the U.S. with an opportunity to selectively pick goods of certain trading partners for differential or retaliatory tariff treatment.
The Bill also showed certain goods where the U.S. has lower tariffs than certain other nations. As per the Bill, foreign tariffs higher than U.S. tariffs on any of the goods in the U.S. tariff schedule would amount to robbery.
When passed, the Bill shall allow the President either to levy higher duties on specific products where he believes U.S. exports have been treated unfairly or to negotiate an agreement with another nation towards reducing duties or non-tariff barriers on those products. Also, the Reciprocal Trade Act is to be expected to face an uphill fight in Congress, where numerous lawmakers in both parties have opposed Trump’s trade policies.
Benefits and Drawbacks of the Reciprocal Trade Agreement
Advantages
The bill assists in balancing the economic scales, reversing what they see an economic environment disadvantaged against America.
American workforces, farmers, and manufacturers are considered as the hardest working and most productive individuals in the world. It holds that if given a level playing field, they could compete as well as a win against anyone else. The main intention of the U.S., the Reciprocal Trade Act(1), is not to increase America’s tariffs; however, preferably in the direction of encouraging the rest of the world towards lower theirs. The American individuals deserve free as well as fair trade, and the Reciprocal Trade Act would be a significant step in achieving that goal.
Drawbacks
The Bill reflected the changing attitude or a growing lack of regard amongst legislators as well as policymakers in key economies towards international trade rules.
Reciprocity didn’t need interpreting reciprocity parity of treatment on a good-to- good basis.
Usually, if a higher duty is imposed on certain products by a trading partner, it would subsequently be matched through providing trade concessions on other products or services that they trade.
However, this Bill appears to look at only specific items within the tariff schedule, whereas negating similar concessions offered through its trading partner on other goods.
Violating the MFN principle: The Bill is a clear violation of the concept of the Most-Favored-Nation (MFN)(2). Under the WTO agreements, nations cannot normally discriminate amid their trading partners. If they grant somebody special favor (for example, a lower customs duty rate for one of their goods), they have to carry out the same for all other WTO members. (MFN principle)
Therefore, if the President raises tariffs on a product of a particular nation as is provided in the Bill, the U.S. shall be discriminating against that nation relating to others. Such a treatment would strike at the roots of the non-discriminatory MFN-based WTO system.
Uneven treatment: The Bill had failed to differentiate amid WTO consistent and WTO inconsistent non-tariff barriers.
Therefore, the Bill undermines the rights granted under the WTO agreement as well as furnishes a grossly distorted idea of reciprocity.
Breaching commitments: The U.S. President could breach the sovereign commitments specified by the U.S. in bilaterally negotiated trade deals.
Consequently, the issue with the Bill is that its intent, as well as an object, is admittedly a complete disrespect of the WTO rulebook.
What Happens in Case of Violation?
The twin objectives of expansion of trade, as well as an inclusive international economic order, cannot have happened if trade arrangements drive through self-interest.
In case it is passed, it would make other WTO members towards adopting similar processes on retaliation, bringing a halt to the rules-based international economic order.
A reciprocal trade agreement is an international commercial treaty in which two or more countries grant equally beneficial trade concessions to one another. It generally refers to treaties managing with tariffs. For instance, one country might grant another particular schedule of tariff concessions in response to equivalent advantages. Formerly reciprocity agreements involved bilateral tariff reductions that have not extended towards the third nations.