TRADE AGREEMENTS AND THE WORLD TRADE ORGANIZATION

A country can take one of two approaches free trade. It can take a unilateral approach and remove its trade restrictions on its own. This is the approach that Great Britain took in the 19^th century and that Chili and South Korea Have taken in recent years. Alternatively a country can take a multilateral approach and reduce its trade restrictions while other countries do the same. In other words it can bargain with its trading partners in an attempt to reduce trade restrictions around the world.

One advantage is that the multilateral approach has the potential to result in freer trade than a unilateral approach because it can reduce trade restrictions abroad as well as at home. If international negotiations fail however the result could be more restricted trade than under a unilateral approach.

In addition the multilateral approach may have a political advantage. In most markets, producers are fewer and better organized than consumers and thus wield greater political influence. Reducing the Isolandian tariff on steel, for example may be politically difficult if considered by itself. The steel companies would oppose free trade and the users of steel who would benefit are so numerous that organizing their support would be difficult. Yet suppose that Neighborland promises to reduce its tariff on wheat at the same time that Isoland reduce its tariff on steel. In this case the Isolandian wheat farmers who are also politically powerful would back the agreement wheat farmers, who are also politically powerful would back the agreement. Thus the multilateral approach to free trade can sometimes win political support when a unilateral reduction cannot.

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