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.

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.

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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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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