From GATT to WTO to what?

Table of Contents

Introduction

1. Historic Development
1.1 From Ricardo to RTAA
1.2. Establishing the GATT

2. General Agreement on Tariffs and Trade
2.1. Preface
2.2. Precepts of the regime
2.3. Prominent negotiation rounds
2.3.1. Kennedy-Round and Tokyo-Round
2.3.2. The Uruguay-Round

3. The World Trade Organization
3.1. Organization, Elements
3.2. The Doha Development Agenda

4. Preferentialism and Regionalization
4.1. Types of Regional Trade Agreements
4.2. Why RTA's?
4.3. Regional Integration
4.4. Empirical Evidence
4.4.1. NAFTA
4.4.2. EU

5. Conclusion

6. Annex

Sources

Introduction

The multilateral trade Regime, the World Trade Organization, arrived, as so often in its past, at a cross road. The Doha Development Agenda is now in its 7th year, once again cancelled and once again tried to be revitalized. How come? On the one hand a broad consensus exists, saying that free trade is better for everyone. From farmers and fishermen to bankers and C.E.O.’s, everybody from white to blue-collar is supposed to gain welfare from global free trade. And those who don’t even have collars can get some through trading. China’s rise in the last decades is not imaginable without global trade. Almost 1 billion people profit from that and that is just one country!

But on the other hand there are protectionist measures, bilateral overreaching treaties, subsidies for bankrupt industries and non-tariff barriers to trade installed from those countries that benefitted the most of the liberalizations of the past decades.

Today the small ones, the former colonies, the developing countries try to pick their piece of the pie and are not willing to let the industrialized countries break the rules they used to engage years ago. They are not willing to take the inequality anymore and raise their voices in one of the only forums they have, where they’re treated on a one to one basis.

This essay will give an overview about the historic development from the General Agreement on Tariffs and Trade to the World Trade Organization. Their structures as well as their development will be pointed out. After exploring libraries full of literature to the topics of GATT and WTO, the remarkable text by Robert Winham about “The evolution of the global trade regime” appeared to be the most comprehensive, intelligible and workable. Therefore it is one of the main sources of this essay. Last but not least regionalization and preferentialism will be explained in their different facets, concluding with two contrary empirical examples for economic and political integration.

1. Historic Development

1.1 From Ricardo to RTAA

The foundation of the current trade regime was laid by theorist like Adam Smith or David Ricardo. Through the principles of absolute and comparative advantage both showed that free trade and liberal markets are the most efficient way to raise a nation’s wealth and welfare. Thereby a strong movement for free trade arose in the second quarter of the nineteenth century in Great Britain, which concluded in repealing the so called Corn Laws in 1848. This was the first step of the trade hegemon of this century away from mercantilist protectionism towards an opening of its own markets. Free trade, here at first in agricultural markets was put into practice. Later, in 1860, the bilateral Cobden-Chevalier treaty was signed between Great Britain and France, allowing free trade of manufactured goods. Europe experienced a period of liberalization and free trade under the growing hegemony of the British Empire, safeguarding the transatlantic channel of commerce and even onward to its Asian possessions. But with the heralds of the First World War, protectionist practices arose again and “the war broke up an imperfect but workable equilibrium between internal economic policies, trade, and payments that had existed under the gold standard of the nineteenth century.”^[1]

Trying to repair the damages of war and prevent further escalations the nations of the (western) world wanted to establish international regimes. In 1920 the League of Nations was founded and in the field of economic cooperation different trials of cooperation were undertaken. But both World Economic Conferences of 1927 and 1933 failed to attract the United States governments.^[2] But the U.S., now peeling Great Britain away of being the world’s trade hegemon, however feeling the pain of the 1929’s Black Thursday, adopted in 1930 the so called Smoot-Hawley tariff, the probably most protectionist act in American trade history. The tariffs rose to unknown heights and by the middle of the 1930’s world trade declined by about two-thirds. Yet feeling its consequences really soon, American government turned around and enacted the Reciprocal Trade Agreements Act (RTAA) in 1934. These two events are believed to be the major economic events and “probably more important than the Second World War”.^[3] The RTAA shifted the right to lower tariffs away from the congress to the white house within the framework of bilateral negotiations. In so far it is revolutionary because the RTAA at first administers that tariff policy should not be the domain of a single country but, due to its liability for prosperity, of a group of countries. Another important cornerstone of the RTAA was the Most-favored-nation-principle (MFN); but this is to be discussed later. Hence the RTAA was essential to US trade policy throughout the 1930’s and 40’s.

1.2. Establishing the GATT

After World War II the United States, yet not facing an imperial overstretch^[4], took over the leadership in the western hemisphere on both, security and economic, domains. Keeping 70% of the world gold stock, transacting 20% of world trade and getting over 100 million dollars of foreign investment^[5], the United States where the unquestioned hegemon of the first post-war decades. Therefore the international system after WWII was heavily dominated by Washington, D.C. Already in 1944 the western Anti-Hitler allies met in the New-Hampshire town of Bretton Woods, planning a new post war financial order. Considering different plans, the British Keynes-plan and the American White-Plan, the United States affirmed their supremacy and the on free trade, liberalization and dollar-gold fixation based White-plan was adopted. As a result the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (World Bank) were established. Also supposed to be founded was the International Trade Organization (ITO), but the U.S. Congress wasn’t seasoned enough to transfer trade competence to an international organization. But an international agreement was of immense importance, so 23 countries^[6] of the world settled in 1947 on the General Agreement of Tariffs and Trade, temporary.

2. General Agreement on Tariffs and Trade

2.1. Preface

The GATT itself was not an international institution; it was “simply a contract embodying trade rules”^[7]. One could say it was a multilateralization of the bilateral Reciprocal Trade Agreement Act (see above). Theoretical based on the assumption, that when national regulations are reduced then trade would flourish, it became the most prominent forum on trade among its contracting parties^[8]. Thence its main purpose was to reduce the protectionism of national regulations. Furthermore the reduction of the uncertainty and the unpredictability of international trade relations was also one of its functions; promoting stability was its purpose.

2.2. Precepts of the regime

As mentioned before, the GATT can be seen as the multilateralization of the RTAA. This implies not only American dominance in the world order of the time, but also shows a soft transfer of American values. Thus one of its core elements is known since RTAA; the most-favored-nation principle (MFN). The MFN is stated in Article 1 of the GATT and indicates that “any advantage, favour, privilege or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties”^[9]. Non-Lawyers would say that one contracting party has to impart all benefits awarded to another country (the most favored nation) have to be imparted to all other contracting parties (even to those who are not favored). For example: If the United States agree with Great Britain on reducing tariffs on sheep bowels (main ingredient for haggis), the U.S. would have to reduce this tariff for every contracting party of the GATT, even to “rogue states” like Cuba. The idea behind MFN was to create a unified worldwide trading system where no country has to fear discrimination. This idea weighted heavier than concerns about free-riding^[10].

[...]

^[1] Winham, R. (2005): T he evolution of the global trade regime in: Ravenhill, J. (edt.)(2005), Global Political Economy, Oxford: Oxford university Press, p.90.

^[2]ibidem p.91.

^[3] Ibid. p. 91.

^[4] Kennedy, P. (1989). Aufstieg und Fall der großen Mächte. Ökonomischer Wandel und militärischer Konflikt von 1500 bis 2000. Frankfurt/Main, S. Fischer.

^[5] Winham (2005) p. 93.

^[6] Australia, Brazil, Belgium, Burma, Canada, Ceylon, Chile, Republic of China, Cuba, France, India, Lebanon, Luxembourg, New Zealand, Netherlands, Norway, Pakistan, South Rhodesia, South African Union, Syria, Czechoslovakia, United Kingdom, USA

^[7] Winham (2005) p.94.

^[8] Official term for member states of the GATT.

^[9] Article I of the GATT 1947.

^[10] Someone benefits of a public good without contributing to its preservation.