From the GATT to the WTO

Government 1740 International Law

Summer 2008

Outline

I: History of the International Trading SystemII: GATT 1947

-the GATT norms -GATT negotiating rounds -focus on the Uruguay Round

III: Creation of the WTOIV: Current Problems in the Trade Regime

I: History of the Trading System

“Prohibit trade, prohibit honest gain;Turn all the good that God hath made

To fear and hate, and pain;Till beggers all; assassins all,

All Cannibals we be,And death shall have no funeral

From shipless sea to sea”-from “Caged Rats” by Ebenezer Eliot, the Corn

Law Rhymer

Free Trade, 1846-1914

Founded upon: technological innovation interest groups in the dominant economy, Britain,

including manfacturers and the City of London subsequent web of bilateral trade treaties beginning

with the 1860 Franco-British Trade Treaty the gold standard system of fixed exchange rates intellectual developments of economic liberalism:

the theory of comparative advantage.

The Interwar Years, 1919-1939 Growing economic isolation of the US and

Europe: Republican rule and Smoot-Hawley (1930) world economic depression and the demise of the

gold standard new economic nationalism supplants liberal

orthodoxies The failure of international economic

cooperation becomes inextricably linked with subsequent conflict

US emerges from WWII committed to free trade

The International Trade Organization

The complementary institution to the IMF and the World Bank

Havana Charter not ratified by the US Senate interest groups on both sides critical post-war moment for elaborate institutional

engineering over: majority voting for executive council; retaliatory measures; broad remit

Britain concerned about imperial trade system; Europe about trade balance

suspicion among developing countries

II: GATT 1947 Negotiated concurrently as a stop-gap

declaration of principles with initial set of tariff concessions while ITO finalized

Little institutional heft: no secretariat until 1955 not an IO and signatories not members (“GATT

contracting parties”) panel reports for non-compliance easily blocked or

ignored Emerges as treaty for trade agreements, and

the flexible linchpin of post-war liberalization.

The GATT Norms

Liberalization

Liberalization

With the aim of “raising standards of living, ensuring full employment, and... a growing volume of real income” states agree to “enter into reciprocal and mutually advantageous arrangements directed to the substantial reduction of tariffs and other barriers to trade...”

Article XI: General Elimination of Quantitative Restrictions exceptions: agricultural and fisheries products

GATT would grow to cover a wide variety of non-tariff barriers (NTBs) to trade

The GATT Norms

Liberalization Two norms of non-discrimination

Most-favored nation

Most-favored nation

Article I: “any advantage granted by any contracting party shall be accorded ... unconditionally to all other contracting parties.”

Exceptions: FTAs, customs unions, and colonial blocs Generalized System of Preferences national security and government use sectoral development

The GATT Norms Liberalization Two norms of non-discrimination

Most-favored nation National treatment

Reciprocity Safegaurds

“...serious injury to domestic producers...” or “external financial position...”

written notice and consultation required must be non-discriminatory

GATT Negotiating Rounds

Trends over time:

GATT Negotiating Rounds1947 G en eva T ariffs 23 1949 A nn ecy T a r iffs 38 1951 T orquay T ariffs 38 1956 G en eva T ariffs 26 1960 -61 D il lon R oun d T ariffs 26 1964 -67 K enn edy R oun d T ariffs an d an ti

-dum pin g m easu res 62

1973 -1979 T ok yo R oun d T ariffs an d “code” A greem en ts cover ing va r ious N T B s, subs id ie s , an ti-dum ping

102

1986 -1994 U ruguay R oun d T ariffs , N T B s, ru le s , se rv ices , IP , d ispu te se tt lem en t, tex t ile s , ag r icu ltu re , e s tab lishm en t o f W T O , an d ‘bu il t-in ’ ag reem en ts

123

2002 -P resen t D oh a R oun d T ariffs , A gricu ltu re, se rv ices , IP , governm en t p rocu rem en t, trade , th e en v ironm en t, com pe ti t ion po licy, e-com m erce …

15 3

GATT Negotiating Rounds

Trends over time: number of issues percentage of world trade number of participating states a trend towards 'package negotiations'

A complete formal agenda Institutionalized issue linkage Final consensus on a complete package

amount of time and negotiation burden

The Uruguay Round, 1986-1994

A response to changes in the composition of international trade... increased FDI and intra-firm trade in the developed world increased trade in services high-tech trade with an IP component

...and changes in trade politics developing states emerging out of ISI the new regionalism unresolved issues: agriculture, textiles. resolved issues: manufacturing tariffs

The Grand Bargain

Player: Sought to O bta inL ibera liza tion of:

N eeded to offe rL ibera liza tion of:

U nited Sta tes A griculture (gra ins); In te llec tua l Property Services Inves tm ent

tex tiles non-gra in agriculture

E uropean C om m unity In te llec tua l property Inves tm ent

A griculture T extiles

Japan In te llec tua l property Inves tm ent

A griculture

D eveloping C ountries A griculture T extiles

Services In te llec tua l property Inves tm ent

New Regulatory Coverage (1)

GATS: General Agreement on Trade in Services broad definition of types services extends MFN to trade in services exceptions to national treatment and full market

access acceptable but must be negotiated regulations must be transparent, impartial and

supply some from of regulatory review

New Regulatory Coverage (2)

TRIPs: Trade-Related Aspects of IP Rights an attempt to cover lingering IP issues from

previous international conventions MFN and national treatment for trade in IP but perhaps more importantly, a baseline set of

ground-rules for IP to which all WTO members must adhere

including fair and equitable IP protections sufficient to deter violation of the law

Renewed Regulatory Coverage: Textiles

Before Uruguay, textiles and apparel covered under the Multi-Fiber Agreement

$50 billion plus annually in lost exports to developing world, but some states benefit under MFA

Agreement on Textiles and Clothing (1995-2005) dismantles MFA and transitions textiles and apparel to the ordinary GATT rules

III: Creation of the WTO

1: A new international institution: fully fledged IO with member-states, explicitly charged with

administering broad set of rights and obligations under the GATT

permanent forum for negotiations which nonetheless remain intergovernmental

Trade Policy Review Mechanism to supervise compliance and facilitate reciprocal compliance

2: A clear set of baseline obligations to which all members must adhere: TRIPs, TRIMs, GATT 1994, GATS, Anti-Dumping

Agreement, Agreement on Import Licensing, Rules of Origin Agreement, Technical Barriers to Trade…

Creation of the WTO: The DSM

3: The Dispute Settlement Mechanism legally binding system of dispute settlement with a

decentralized system of member-state sanctioning as enforcement

A 15-month process: government brings violation to WTO DS Body if dispute cannot be negotiated, it faces panel review three experts prepare final report: consensus veto only appeals procedure available to both sides if upheld: change behavior, compensate, or face

authorized retaliation

Three Interpretations of the DSM

Defense, if not deterrence: potential punishments for violations of trade rules are binding and potentially severe, increasing stability of the trade regime.

Stability through flexibility: 15 months to come back into compliance; pay a fine and spread the pain among the tax base; let the aggrieved retaliate.

Dispute settlement in the shadow of power

IV: Current Problems in the Regime

The Doha “Development Agenda” Launched in November 2001 after the failed

launch at Seattle Ministerial Conference (1999) the Doha round was intended to concentrate on

the unresolved North-South issues from Uruguay: reduction in agricultural tariffs and subsidies implementation of TRIPs and a pharma exception reform of over-used anti-dumping rules environmental issues capacity building dismantling of GSP

Further Setbacks

Cancun Ministerial Conference (2003) lack of compromise by US/EU on agriculture in run-

up to the conference controversy over expansion into “Singapore issues”:

rules on investment, competition, transparency in government procurement and trade facilitation

participants lament the WTO's unwieldy (and unfair?) negotiating structure

Geneva (2008): a final attempt?

Summary States have a long history of regulating access to their markets First comprehensive multilateral efforts to liberalize international

trade after WWII ITO fails, but GATT 1947 emerges as a flexible set of norms to

govern liberalization: non-discrimination, national treatment, reciprocity, safeguards.

The Uruguay round significantly expands the scope and depth of the international trading system, and centralizes administration in the WTO, which has a binding and enforced dispute settlement mechanism

North-South distributional debates remain over agriculture, IP and other issues.

The US and other countries have increasingly turned to bilateral or regional agreements.