Economic Discussion - Article Example

Such agreements become a hindrance to the free flow of goods causing global economic loss.In the current dynamic world, countries having wafer-thin comparative advantage suddenly lose the market to a rival who has entered into a PTA. Article 24 specifies that the external tariffs should not be raised when the PTA is functioning. This is precise to prevent harm to nonmembers. During the Mexican currency crisis of 1994, tariffs on 502 items were raised from 20 percent to as high as 35 percent but at the same time tariffs on US and Canada, under NAFTA continued unchanged.

Even small tariffs are likely to create trade diversion when tariffs are nonexistent on members of PTA while they remain applicable on nonmembers. This trade diversion is against the very basic intent of Article 24.The basic purpose of GATT was to encourage multilateral trade through reduced trade barriers. It aims at imposing the same tariff on goods regardless of which country supplies them and that purpose is not only defeated but restricts global economy to flourish.