Trade liberalization is the removal or reduction of restrictions or barriers on the free exchange of goods between nations. This includes the removal or reduction of tariff obstacles, such as duties and surcharges, and nontariff obstacles, such as licensing rules, quotas and other requirements. Economists often view the easing or eradication of these restrictions as promoting free trade.
Since World War II, governments have cooperated on a variety of efforts to reduce or eliminate import restrictions and export subsidies. They have been motivated by the conviction that deregulating, or liberalizing, trade would increase the volume of trade, promote economic growth, and improve living standards worldwide.
Trade liberalization initiatives have been pursued at the country-to-country level (bilateral level), among groups of neighboring countries (the regional level), and in the GATT, which was established in 1947 and included eight major, multiyear rounds of negotiations among a broad cross-section of countries. A ninth round of discussions is currently underway. Two critical principles have guided post World War II trade liberalization efforts and have contributed significantly to their success:-
- The nondiscrimination principle stipulates that both trade restrictions and proposals to reduce trade restrictions should apply to all of a country’s trading partners equally, and that imported goods and services will not be treated differently than domestic ones.
- The principle of reciprocity dictates that all participating countries offer to reduce some of their own import barriers or export subsidies in exchange for comparable steps by their negotiating partners.
Agreements liberalizing trade at the bilateral, regional, and multilateral levels have been highly successful over the past five decades. The eight major rounds of multilateral trade talks since World War II have reduced average global tariffs from forty percent to five percent (Vesseth & Uchitelle, 2002).
This reduction in tariffs has helped promote economic efficiency and saved consumers billions of dollars of income through lower prices. Unfortunately, during worldwide recessions, like the one in 2009, countries are prone to increase tariffs to protect domestic industries and raise revenue.
While tariffs were low, and there was no thought of recession, the attention of trade negotiators turned to a range of more complicated barriers to trade. Development became a top priority. The most recent round of global trade talks, known as the Uruguay Round, was launched in 1986. The ninth and as-of-yet uncompleted “Doha Round” began in 2001. As of 2013 the Doha talks have not been restored, but hopes remain that members who want to continue the talks will begin again (WTO, 2012).