sibilities. For example, a country with abundant land and labor tends to be an efficient producer of agricultural goods, whereas an abundance of capital and a scarcity of labor encourages efficiency in sophisticated manufacturing that requires laborsaving machinery. Since international trade today is much more sophisticated than in simpler times when wine was swapped for cloth, many economists now accept a fourth and even a fifth factor of production: technology and managerial talent. The ability of a given country to be efficient in certain industrial products (e.g., Japan in electronics and the United States in computers) cannot be explained adequately only in terms of land, labor, and capital.
The system of international trade which has evolved since the end of World War II has sought to reduce governmentally impose trade barriers and distortions as fast as political sensitivities would allow. All industrialized countries have accepted in principle the advantages of freer trade. Subsequent to its creation in 1948, the General Agreement on Tariffs and Trade (GATT) has served as the negotiating and moral focal point for efforts at trade liberalization. The three basic principles of GATT follow:
(1) Nondiscrimination: Each country's negotiated concessions apply equally to all signatories; i.e., the products of all other countries receive the same treatment afforded to the most-favored nation.
(2) Tariff protection. Tariffs, not quotas, are the sanctioned means of protecting domestic industries from foreign competition.
(3) Consultations. Existing and potential trade disputes should be submitted for consultation. No new trade barriers should be implemented unannounced.
Although the GATT is the central international organization concerned with trade, a number of important regional organizations have come on the scene. Aside from the customs union formed by the European Economic Community (EEC), referred to ...