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D. Sixty Years of the Multilateral Trading System

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D. Sixty Years of the Multilateral Trading System D SIXTY YEARS OF THE MULTILATERAL TRADING SYSTEM: ACHIEVEMENTS AND CHALLENGES Earlier Sections in this Report have sought to understand why international cooperation in trade matters seems to make sense to governments and how such cooperation translates into institutions and rules. We will now focus on the main achievements of multilateral trade cooperation over the last six decades and explore some of the core challenges and issues that the system faces today. The Section begins with a brief historical journey from the birth of the GATT to the establishment of the WTO. Subsection 2 records the efforts of governments over the years to reduce tariffs and address non-tariff measures. It also discusses briefly what can be said about the relationship between the GATT/WTO’s role in reducing and consolidating tariffs and the growth of trade. Subsection 3 analyses the evolution of dispute settlement in the GATT/ WTO, focusing on how the system has developed and performed during the last six decades. The theme of subsection 4 is developing country participation in the multilateral trading system. The subsection focuses on how developing country issues have increasingly found their way onto the multilateral agenda and the systemic challenges posed by a heterogeneous membership with divergent needs, interests and priorities. Subsection 5 addresses the phenomenon of regionalism and how the multilateral trading system has attempted to address burgeoning regional and bilateral trade policy tendencies. Subsection 6 deals with two procedural issues that have far-reaching systemic implications and go to the heart of legitimacy questions confronting the WTO. The subjects at hand are decision-making processes in the WTO and the relationship between the WTO and the outside world – specifically, non-state actors. Finally, subsection 7 explores the complex question of what can be said about how the WTO agenda is shaped and whether there exists a meaningful sense in which limits may be set to subject areas for cooperation under the WTO. 1. FROM GATT TO WTO: THEBUILDINGOFANORGANIZATION COOPERATION: WHAT HAVE WE LEARNT? WE HAVE WHAT COOPERATION: SYSTEM: ACHIEVEMENTS AND ACHIEVEMENTS SYSTEM: CHALLENGES Here we examine the history of the trading system as it moved from the GATT to the WTO, including II SIX DECADES OF MULTILATERAL TRADE D TRADING MULTILATERAL THE SIXTY OF YEARS the seven rounds of trade negotiations prior to the Uruguay Round. Some of the key themes during this period will be taken up in more detail later. A mix of economic and political factors conditioned the evolution of the trading system between 1947 and 2007. The six decades of the GATT/WTO can be divided roughly into four time periods. The first period is between 1947 and 1963 when the Contracting Parties were gaining experience with the rules to which they had committed as well as establishing procedures for negotiations. By 1963, two specific challenges faced the trading system – how to deal with non-tariff measures and the concerns of developing countries. We shall examine how the GATT responded to these challenges in the second period between 1963 and 1979. The third period, from 1980 to 1995, was dominated by efforts to launch a new trade negotiation, then by the Uruguay Round negotiations, and finally the birth of the WTO. The fourth period deals with life so far under the WTO, marked in particular by the launch of the Doha Round and the negotiations which continue today. WORLD TRADE 2007 WORLD REPORT (a) The emergence of an Organization: The GATT between 1947-1963 (i) A difficult birth The United States emerged as the leading political and economic power after World War II. In contrast to the aftermath of World War I the United States was now willing to take over a large share of responsibility in building a new international economic system. Concerning international trade policy, the United States wanted to avoid at any cost a renewed protectionist battle, as happened in the 1930s (see Section B.1). Trade was an essential component of the Bretton Woods plan. As in the case of the other Bretton Woods institutions, the first negotiations between the United States and the British government over the design of a post-war trade system had already begun in 1941 (Atlantic Charter). During these negotiations two major disagreements emerged. First, whereas the 179 Americans advocated non-discrimination without exception, the British wanted to continue with their system of preferential treatment of Commonwealth countries (Low, 1993). Second, in contrast to the Americans the British wanted to see the inclusion of rules that would have allowed the use of temporary import barriers. In the end, the two parties agreed in the suggested “Charter for the International Trade Organisation” that preference systems in existence at a specific date be excepted from the general rule, but that members of the forthcoming organisation pledge themselves not to increase existing margins but to reduce them through negotiation, the ultimate aim being total elimination (Kock 1969:44) and that trade restrictions could be imposed in the case of balance-of-payment difficulties. Based on this American-English proposal, the Economic and Social Council of the United Nations called for a conference to establish the International Trade Organization (ITO). Eighteen countries joined the preparatory committee that held four meetings to draft the ITO Charter from October 1946 to March 1948. The last meeting took place from November 1947 until March 1948 in Havana1 and the Charter for an International Trade Organization (ITO) was signed by 53 nations. The ITO Charter contained 106 Articles and 16 annexes covering not only trade policy, but agreements on employment and economic activity, restrictive business practices and inter-governmental commodity agreements. A majority in the United States Congress opposed the Charter. Several business groups in the United States judged the Charter overloaded with topics only indirectly related to trade (e.g. employment and antitrust). Others were concerned that foreign investment was inadequately protected under the Charter (Ostry, 1997). At the end of 1950, President Truman decided not to submit the ITO for congressional approval. Even though the ITO was a stillbirth, this did not man the demise of the multilateral trading system. SYSTEM: ACHIEVEMENTS AND ACHIEVEMENTS SYSTEM: CHALLENGES COOPERATION: WHAT HAVE WE LEARNT? WE HAVE WHAT COOPERATION: The GATT emerged as a by-product of the negotiations around the ITO Charter. Originally, it was intended II SIX DECADES OF MULTILATERAL TRADE D TRADING MULTILATERAL THE SIXTY OF YEARS to serve as a temporary agreement until the ratification of the ITO Charter. Once the Charter was to have come into existence, GATT would automatically expire. The provisional character of GATT was also reflected in the fact that the signatories were called “Contracting Parties” in order to dispel any concern that an international organization had been established. The GATT was signed by 23 countries2 on October 30, 1947, during one of the meetings of the preparatory committee for the ITO held in Geneva, and entered into force on January 1, 1948. The GATT consisted mainly of the commercial policy provisions of the ITO Charter, with minor formal adjustments. The overall objective of the GATT was to reduce barriers to trade, especially tariffs, and to limit the use of certain trade barriers, such as quotas. The negotiating parties agreed that substantial tariff cuts could only be achieved if certain exceptions were included in the structure of trade rules. The GATT therefore contains several escape clauses and contingent provisions. Among these are remedies against dumping and subsidies (Article VI), balance-of-payment exceptions (Article XII), and safeguards against import surges (Article XIX). A cornerstone of the GATT system was the principle of non-discrimination or WORLD TRADE 2007 WORLD REPORT the most-favoured nation (MFN) principle. Again, several exceptions from this principle were permitted, mainly to facilitate reconstruction of postwar Europe and a continuation of existing preference systems. Compared to the ITO Charter, the commitments of the GATT were less binding and the coverage of topics much narrower. However, flexibility and a more concentrated focus facilitated the adoption and ratification of GATT. (ii) A hopeful beginning: the Geneva, Annecy, and Torquay Rounds The negotiation leading to the creation of the GATT provided the first major step toward tariff reductions. In this first round of multilateral trade negotiations the Contracting Parties concluded 123 agreements covering around 15,000 tariff items, affecting about 40 per cent of world trade (see subsection 2.(a).(i)). 1 For this reason the ITO Charter later became known as Havana Charter. 2 Australia, Belgium, Brazil, Burma, Canada, Ceylon, Chile, China, Cuba, Czechoslovakia, France, India, Lebanon, Luxembourg, Netherlands, New Zealand, Norway, Pakistan, Southern Rhodesia, Syria, South Africa, the United Kingdom and the United States. 180 It is interesting to note that the tariff negotiations had taken place on a bilateral and product-by-product basis.3 This meant that prior to the negotiations countries would establish lists of “requests” for tariff concessions on various products from each trading partner. The negotiating parties would then exchange these requests and attempt to match them with offers. If a country agreed to reduce a tariff in a negotiation with one trading partner, the tariff reduction would automatically be extended via MFN to all other parties. We lack appropriate data to gauge the precise extent of the tariff cuts. Only for the United States is a detailed analysis available (see Section D.2.(a) below). However, it is generally recognized that the United States made the most generous tariff concessions reflecting its strong economic situation and relatively high level of tariff protection. Improved access to the US market allowed Western European countries to expand their exports and in return buy US capital goods.
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