RECIPROCITY (COMMERCIAL POLICY)

In the area of international trade, reciprocity refers to an agreement between two or more countries to mutually reduce tariffs and duties on goods traded between them. Reciprocity has played an important role in the trade policy of the United States since 1934, when the Reciprocal Trade Agreements Program was initiated to lower tariffs and other trade barriers. Under that program the United States negotiated bilateral trade agreements with other countries. In the years following World War II, the General Agreement on Tariffs and Trade (GATT) took effect. It provided for multilateral trade agreements to be negotiated in a series of "rounds," the most recent of which was the Uruguay Round that concluded in 1993. GATT represents overall reciprocity, where the consenting nations agree to mutual and equivalent reductions of trade barriers.

In the United States, tariffs had reached a peak in the early 1930s as a result of the country's protectionist policy. In 1934 the Reciprocal Trade Agreements Program went into effect. Under that program the United States sought to increase its exports and pull the country out of the Great Depression. The president was empowered to negotiate bilateral treaties with other nations to reduce tariffs by as much as 50 percent of their 1934 levels. For such a treaty to be concluded with another country, it was necessary for the other country to reciprocate, or agree to an equivalent tariff concession.

Countries with which the United States had negotiated reciprocal tariff reductions were given most-favored nation (MFN) status. All countries with MFN status were then eligible to receive the same tariff reductions that were negotiated in the bilateral agreements. In the case of commodities, the United States often granted the MFN tariff reduction only to the chief supplier of the commodity to the United States.

Two amendments introduced in the late 1940s modified the original Reciprocal Trade Agreements Program and gave the United States more flexibility in granting and withdrawing tariff reductions. An escape clause introduced in 1947 allowed the United States to reimpose tariffs on any imports that caused unforeseen damage to domestic producers. In 1948 the peril-point clause was added; it gave the U.S. International Trade Commission the power to recommend maximum permissible tariff reductions that would not damage domestic producers.

Reciprocal trade agreements may encompass more than the lowering of tariffs. Equivalent market access is a type of reciprocity in which trading partners agree to allow each other's firms to operate in each other's countries. Reciprocity may involve the extension of restricted nationalistic treatment by one nation to another country's firms operating in its country, but only to the extent that its firms are allowed to operate in the other country. National treatment, another type of reciprocity also known as equivalent treatment, is the treatment of goods produced in another country as if they were domestic goods.

Reciprocity is generally considered a politically safe policy as well as an economically safe one. Economically, reciprocity eliminates the risks associated with unilaterally reducing tariffs, such as a balance of-payments deficit. Politically, reciprocity makes all tariff reductions appear as exchanges rather than concessions.

In the United States multilateral trade agreements involving reciprocity are negotiated by the president and the executive branch of government, but they must be approved by Congress. Since 1974, under procedures developed by the administration of President Richard Nixon, U.S. presidents have had "fast-track authority" to negotiate new trade agreements to open foreign markets. Such authority prevented the U.S. Congress from adding amendments and otherwise changing such agreements after they had been negotiated by the president. But when President Bill Clinton attempted to renew this traditional authority by introducing fast-track trade legislation in 1997, it was defeated by Congress. As a result, new reciprocal trade agreements may be more difficult for the United States to negotiate in the future.