ECONOMIC

A reduction of trade barriers on a global basis would reduce theresulting diversion of trade, just as the Kennedy Round cushioned thediversion of trade after the EC was formed. Fourth, the ongoing reformof the international monetary system will require mutually supportiveimprovements of the monetary and trading systems, in particular toensure that efforts in one field are not frustrated in the other. Finally, recentyears have seen an increase of political friction related to trade issues, bothwithin the United States and between the United States and its major tradingpartners. While some friction is inevitable, given the large degree of economicinterdependence among countries, the heightening of these tensionsreflects in part a failure of the international institutions designed to resolveeconomic disputes before they spill over into the political arena.An improvement in the functioning of the international trading systemmay be the most important outcome of the new round of trade negotiations,inasmuch as such improvement may be essential for alleviating the tensionswhich might otherwise lead to new obstacles to trade. A better internationalframework for resolving trade problems is required in five areas: nontariffbarriers related to domestic economic and social policies; agricultural tradebarriers related to domestic agricultural programs; safeguard measures tofacilitate an orderly adjustment to new market conditions by producers inimporting countries; subsidies and other government assistance to industries;and finally new understandings on the access of consuming countriesto sources of supply, which might include safeguard arrangements to facilitateorderly adjustments to new market conditions by consumers in exportingcountries.Quite appropriately, however, the primary focus of the new round ofnegotiations will not be on maintenance of the status quo but on a continueddismantling of trade barriers. It should thus be possible to avoidconfusing the end—the expansion of profitable trading opportunities—withthe means—the negotiation of rules governing trade. Countries have benefitedgreatly from the rapid expansion of trade in the past quarter century;and should this trend cease or be reversed because of a failure of internationalcooperation, the economic welfare of all countries, including theUnited States, would be likely to suffer.As in the past, a major focus of the negotiations will be on a reduction oftariffs. While past trade negotiations have reduced the relative importanceof tariffs, they remain the most visible obstacle to trade.Approximately 60 percent of all trade in industrial products remains subjectto tariffs in the major industrial countries, and the average rate of suchtariffs is about 10 percent. Moreover, while in the aggregate, tariffs havebeen substantially reduced, some very high tariffs remain on a few importantconsumer goods. Of all trade, 4 percent is still subject to tariffsof 20 percent or more. It is hoped that the negotiations will result in a substantialexpansion of the duty-free category as well as a substantial reductionin the average tariff on the remaining dutiable items.213