reciprocal trade agreement, international commercial treaty in which two or more nations grant equally advantageous trade concessions to each other. It usually refers to treaties dealing with tariffs. For example, one nation may grant another a special schedule of tariff concessions in return for equivalent advantages. Originally reciprocity agreements involved bilateral tariff reductions that were not to be extended to third countries. In the 18th cent., England relaxed its Navigation Acts in return for similar action by other nations. In the 19th cent. the German Zollverein was based on reciprocity, and the system of reciprocity fostered by Napoleon III worked strongly in favor of free trade. After the downfall of the French Second Empire (1870), many European countries began to follow a policy of high tariffs. In the United States reciprocity was advocated as part of the tariff policy after 1880. The use of the most-favored-nation clause after 1922 resulted in a widespread exchange of tariff concessions; it was followed by the Trade Agreements Act (1934). Since 1948 the general policy of the United States has been to negotiate reciprocal tariff concessions within the framework originally established by the General Agreement on Tariffs and Trade (GATT). The Trade Expansion Act (1962) provided for negotiations, under GATT auspices, to expand reciprocal trade agreements, especially with the European Economic Community, or Common Market (now part of the European Union). The act resulted in the Kennedy Round (1964-67) and the Tokyo Round (1974-79) of GATT talks, which produced reciprocal tariff reductions, mainly between the United States and W Europe, and new rules on customs and duties. GATT's Uruguay Round (1986-93) culminated in the creation (1995) of the World Trade Organization. Reciprocal agreements may also deal with such matters as rights of foreigners and consular relations.

monetary agreement, attempt by two (bilateral) or more (multilateral) nations to regulate and coordinate their financial relations by treaty. The objectives are usually to promote trade by facilitating payment of international debts and to maintain in each nation a stable exchange rate by making available credits to meet temporary difficulties with balance of payments. After World War II there was a significant movement toward multilateral monetary agreements, of which the most important were the International Monetary Fund and the European Payments Union (1950). Customs unions such as the European Community (EC) and the European Free Trade Association often require a large degree of monetary cooperation, and the increasing European integration that has transformed the EC into the European Union (EU) has also led to increasing monetary cooperation through the European Monetary System. In 1999 most EU nations adopted a single currency, the euro, which replaced the currencies of 12 member states in 2002.

gentlemen's agreement, in U.S. history, an agreement between the United States and Japan in 1907 that Japan should stop the emigration of its laborers to the United States and that the United States should stop discrimination against Japanese living in the United States. This agreement was ended in 1924 by the act of Congress excluding immigration from Japan, as immigration from China had been previously excluded.

North American Free Trade Agreement (NAFTA), accord establishing a free-trade zone in North America; it was signed in 1992 by Canada, Mexico, and the United States and took effect on Jan. 1, 1994. NAFTA immediately lifted tariffs on the majority of goods produced by the signatory nations. It also calls for the gradual elimination, over a period of 15 years, of most remaining barriers to cross-border investment and to the movement of goods and services among the three countries. Major industries affected include agriculture, automobile and textile manufacture, telecommunications, financial services, energy, and trucking. NAFTA also provides for labor and environmental cooperation among member countries. The pact contains provisions for the inclusion of additional member nations. Labor representatives have criticized NAFTA, claiming the agreement has led to numerous jobs lost in the United States because industries have moved plants to Mexico (see maquiladoras); NAFTA proponents point to the U.S. jobs created because of increased imports by Mexico and Canada. The agreement has negatively affected the economies of several Caribbean countries whose exports to the United States now compete with duty-free Mexican exports.

General Agreement on Tariffs and Trade (GATT), former specialized agency of the United Nations. It was established in 1948 as an interim measure pending the creation of the International Trade Organization. However, plans for the latter were abandoned and GATT continued to exist until the end of 1995. Members of GATT were pledged to work together to reduce tariffs and other barriers to international trade and to eliminate discriminatory treatment in international commerce. The most important service of GATT was to negotiate multilateral extensions of tariff reductions through the application of the most-favored-nation clause. GATT also provided for regular meetings to consider other problems of international trade. An important GATT principle was that protection of domestic industries was to be done strictly through tariffs and not measures such as import quotas. The only exceptions permitted to GATT rules were those dealing with balance of payments difficulties, and these exceptions are carefully supervised. GATT provided the framework for most important international tariff negotiations from 1947 until 1994. The eighth, or Uruguay round, of GATT negotiations, which began in 1986 with 15 negotiating groups, was long stalemated by the issue of agricultural subsidies maintained by the European Community. The agreement that resulted (1994) from the Uruguay round led to the creation (1995) of the more powerful World Trade Organization (WTO) as a replacement for GATT. However, the GATT framework remained in place for a 12-month transition period.

European Monetary Agreement (EMA), international governmental organization to facilitate settlement of balance of payments accounts between member states. The EMA, which was administered by the Organization for Economic Cooperation and Development (OECD), existed from 1958 until 1972, replacing the European Payments Union. The EMA provided for the convertibility of the currencies of member states; that meant that the currency of one state could be exchanged directly for the currency of any other member state by nonresidents. In view of the facilities available for balance of payments assistance in the International Monetary Fund, the OECD announced (1972) that the EMA would, therefore, be terminated.

Any contractual arrangement between states concerning their trade relations. Trade agreements may be bilateral or multilateral, that is, between two states or more than two. For most countries international trade is regulated by unilateral barriers, including tariffs, nontariff barriers, and government prohibitions. Trade agreements aim to reduce such barriers and thus provide all parties with the benefits of increased trade. Reciprocity is a necessary feature of trade agreements, since neither state will be willing to sign the agreement unless it expects to gain as much as it loses. Another common feature is a most-favoured-nation clause, which provides against the possibility that one of the parties to the current agreement will later offer lower tariffs to another country. Agreements often include clauses providing for “national treatment of nontariff restrictions,” meaning that both states promise not to duplicate the properties of tariffs with nontariff restrictions such as discriminatory regulations, selective excise taxes, quotas, and special licensing requirements. General multilateral agreements are sometimes easier to reach than separate bilateral agreements, since the gains to efficient producers from worldwide tariff reductions are large enough to warrant substantial concessions. The most important modern multilateral trade agreement was the General Agreement on Tariffs and Trade (GATT), which reduced world tariff levels and greatly expanded world trade. Such agreements continue under the aegis of the World Trade Organization (WTO), which replaced GATT in 1995. Seealso NAFTA.

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Instrument by which nation-states and international organizations regulate matters of concern. They are governed by international law, and their purposes include the development and codification of international law, the creation of international bodies, and the resolution of actual and potential international conflict. The most comprehensive agreement is a treaty; others, including conventions (e.g., the Geneva Conventions), charters (e.g., the UN charter), and pacts (e.g., the Kellogg-Briand Pact), are less formal and rely primarily on goodwill. Agreements may be negotiated between states, between an organization and a state, between organizations, or between any of those and a nongovernmental organization.

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Actual or hypothetical compact between the ruled and their rulers. The original inspiration for the notion may derive from the biblical covenant between God and Abraham, but it is most closely associated with the writings of Thomas Hobbes, John Locke, and Jean-Jacques Rousseau. Hobbes argued that the absolute power of the sovereign is justified by a hypothetical social contract in which the people agree to obey him in all matters in return for a guarantee of peace and security, which they lack in the warlike “state of nature” posited to exist before the contract is made. Locke believed that rulers also were obliged to protect private property and the right to freedom of thought, speech, and worship. Rousseau held that in the state of nature people are unwarlike but also undeveloped in reasoning and morality; in surrendering their individual freedom, they acquire political liberty and civil rights within a system of laws based on the “general will” of the governed. The idea of the social contract influenced the shapers of the American Revolution and the French Revolution and the constitutions that followed them.

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Agreement between two or more parties that creates for each party a duty to do something (e.g., to provide goods at a certain price according to a specified schedule) or a duty not to do something (e.g., to divulge an employer's trade secrets or financial status to third parties). A party's failure to honour a contract allows the other party or parties to bring an action for damages in a court of law, though arbitration may also be pursued in an effort to keep the matter confidential. In order to be valid, a contract must be entered into both willingly and freely. A contract that violates this principle, including one made with a legal minor or a person deemed mentally incompetent, may be declared unenforceable. A contract also must have a lawful objective.

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in full North American Free Trade Agreement

Trade pact signed by Canada, the U.S., and Mexico in 1992, which took effect in 1994. Inspired by the success of the European Community in reducing trade barriers among its members, NAFTA created the world's largest free-trade area. It basically extended to Mexico the provisions of a 1988 Canada-U.S. free-trade agreement, calling for elimination of all trade barriers over a 15-year period, granting U.S. and Canadian companies access to certain Mexican markets, and incorporating agreements on labour and the environment. Seealso General Agreement on Tariffs and Trade; World Trade Organization.

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(1938) Settlement reached by Germany, France, Britain, and Italy permitting German annexation of Czechoslovakia's Sudetenland. Adolf Hitler's threats to occupy the German-populated part of Czechoslovakia stemmed from his avowed broader goal of reuniting Europe's German-populated areas. Though Czechoslovakia had defense treaties with France and the Soviet Union, both countries agreed that areas in the Sudetenland with majority German populations should be returned. Hitler demanded that all Czechoslovaks in those areas depart; when Czechoslovakia refused, Britain's Neville Chamberlain negotiated an agreement permitting Germany to occupy the areas but promising that all future differences would be resolved through consultation. The agreement, which became synonymous with appeasement, was abrogated when Hitler annexed the rest of Czechoslovakia the next year.

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Set of multilateral trade agreements aimed at the abolition of quotas and the reduction of tariff duties among the signing nations. Originally signed by 23 countries at Geneva in 1947, GATT became the most effective instrument in the massive expansion of world trade in the later 20th century. By 1995, when GATT was replaced by the World Trade Organization (WTO), 125 nations had signed its agreements, which governed 90percnt of world trade. GATT's most important principle was trade without discrimination, in which member nations opened their markets equally to one another. Once a country and its largest trading partners agreed to reduce a tariff, that tariff cut was automatically extended to all GATT members. GATT also established uniform customs regulations and sought to eliminate import quotas. It sponsored many treaties that reduced tariffs, the last of which, signed in Uruguay in 1994, established the WTO.

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