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1. Background Objectives
The World Trade Organization (WTO) was formed in 1995 as an outgrowth of earlier arrangements set up by the governments of 23 countries under the General Agreement on Tariffs and Trade (GATT) in 1947. The objectives set for the WTO largely mirror those which emerged in the postwar years for the GATT. Prior to 1947, when the GATT was formed, there had been substantial discussion between governments of the appropriate postwar ﬁnancial and trade arrangements which would govern the global economy. In the area of international ﬁnance, the International Monetary Fund had been formed with a mandate to maintain exchange rate parities, and to do this by extending loans to countries coming under exchange rate pressure. These, in turn, were to be repaid when such pressures subsequently receded. In the area of international development and infrastructure ﬁnancing, the World Bank had been founded with the objective of providing ﬁnancing for roads, bridges, dams, and other forms of infrastructure through concessional ﬁnancing.
These arrangements were put in place at the 1944 Bretton Woods Conference but in the trade area things were left hanging for some time further. By early 1946, however, there was movement to also negotiate a charter for a wide-ranging new international trade organization which would lay down rules concerning the conduct of international trade and allowable interventions in trade by national governments. This negotiation was initiated in Havana, but as 1947 advanced it became clear to a subset of countries that this negotiation was in some difficulty in being too broad, and having a focus which was excessively interventionist. In the fall of 1947, a number of countries therefore decided to engage in a separate negotiation which, among other things, would provide a framework for the recording of the results of an initial tariff cutting conference which had been planned. The GATT was born of this separate negotiation, and as a temporary arrangement pending the ratiﬁcation of the wider International Trade Organization (ITO).
The ITO charter was not ratiﬁed by the US Congress in 1951 on the grounds that it contained too many compromises with free trade principles. So the GATT, born as a temporary arrangement, was left as the major arrangement in the postwar years between national governments available to guide the conduct of global international trade policy. At ﬁrst seen as a minimalist organization, with only limited expectations of it, it subsequently grew through a series of successful negotiating rounds which were fueled in the1950s by the creation of the European Community and, to a lesser degree, the entry of Japan into the GATT in 1955. This Round-based liberalization reached its high point in the 1960s with the Kennedy Round (1964–7) of trade negotiations, during which there were substantial reductions in tariff barriers, largely attributed at the time to the cooperation negotiated with the framework of the GATT. The later Kennedy Round (1973–9) was to a large degree an echo of the Kennedy Round, and the ambitious and still controversial later Uruguay Round (1986–94) was driven by the perceived need to broaden trade negotiations beyond now low tariffs.
2. Basic Elements Of The WTO Structure
In essence, the GATT as it evolved after 1947 and became permanent in the World Trade Organization in 1994 embodies three key elements which each contribute to oversight of the conduct of world trade and the ways in which national governments allow each other to intervene in that trade. The ﬁrst is a series of mutually agreed limits (or rules) on the use of trade restricting measures by national governments. These were initially set out in the General Agreement itself, but have been interpreted and elaborated on both by further negotiation and through the dispute settlement process within the GATT. The second is progressive liberalization, to be achieved through negotiations on trade barriers and reductions in trade barriers. These negotiating Rounds, guided by reciprocal exchanges of concessions between member governments, occurred in the 1960s and 1970s (in the Kennedy and Tokyo Rounds), and in the 1980s through to 1994 (in the Uruguay Round).
The third element in the GATT structure, and subsequently incorporated into the WTO, is an institutional presence maintained through the operation of its Secretariat. Importantly, the Secretariat largely oversees the conduct of dispute settlement panels, which, in effect, deﬁne the enforcement mechanism for the rules of the trading system within the WTO system. These dispute settlement panels have accelerated greatly in their use in recent years, culminating in decisions in a number of key areas, including recently in banana trade (see the statement by the WTO Director General to the WTO General Council, March 8, 1999).
3. Broader Objectives
While these three elements of rules, progressive liberalization, and dispute settlement deﬁne the structure of the WTO, at a broader level its objectives reﬂect a ﬁrm belief that it is important to restrict the use of new trade measures globally so as to prevent outbreaks of retaliatory trade wars that some people think characterized the 1930s. At this time, there was a rapid increase in trade barriers in the United States mandated under the 1930 Smoot-Hawley Tariff Act, and through the retaliation which followed in Europe. In the 1930s depression, world trade volumes shrank rapidly, some suggest by as much as 70 percent over a two year period (Kindleberger 1973). A central objective therefore set for the GATT was to prevent the world economy from going back to anything reminiscent of the 1930s, fueled by breakdown in international cooperation in the trade area.
Another broad objective relates to the potential gains from progressive global trade liberalization. It is widely believed in many circles that international trade represents the engine of growth for many economies around the world. While this is still contested by some, those involved with the WTO often point to the much more rapid growth of trade than income in the world economy since 1945, and the accelerating growth of trade in recent years. In the mid-1990s, for instance, trade growth was approximately three times income growth in the global economy, and many attribute this to the liberalization achieved within the trading system under the WTO in these years (UNCTAD Handbook of International Trade and Development 1999, 1993, 1995).
While these two overarching objectives, preserving international cooperation and going further with new liberalization, are generally agreed to be those under- pinning the GATT/WTO system, there has been much debate over other objectives for global trade policy. One concerns the relationship between trade and development and whether the rules of the trading system through WTO should be designed so as to help fuel the growth and development of developing countries, and facilitate their wider participation in the trading system, and hence the achievement of growth and development. The developing countries generally believe that growing trade is an important part of their developmental process, and have aggressively pursued their interest in this set of issues in the WTO in recent years. At the same time, many cling to longstanding positions that the WTO (and the GATT) has de facto operated as a rich man’s club, and that poorer countries do not actively participate in it because they are effectively excluded from it because of the structure of GATT bargaining (Srinivasan 1998).
Another area which has taken on a high proﬁle recently concerns the use of trade policy to achieve nontrade objectives. These considerations came into play in the Uruguay Round with the introduction of intellectual property into the trade negotiations. The idea was that international norms and standards could be agreed in intellectual property protection which could then be enforced through dispute settlement allowing retaliatory actions covering trade in goods. The discussion of international trade policy instruments in this case was not so much to achieve liberalization and new growth of trade as to enforce arrangements in a nontrade area through the use of trade threats and sanctions. Some trade economists have expressed concerns over these developments since they raise the prospect of higher rather than lower trade barriers from the WTO because of the linkage of trade to nontrade areas.
Beyond intellectual property, a similar structure of linkage prevails in other related proposals which are now before the WTO. These were at the heart of the conﬂict at the 1999 Seattle Ministerial meeting last autumn, and involved the proposed use of trade measures to achieve environmental objectives and the use of trade measures to enforce labor standards (UNCTAD 1999).
In summary, the WTO reﬂects a structure based on three pillars which is widely believed by many economists to have been extremely successful in most of the postwar years in both promoting world trade and preventing any increases in trade barriers. The broadening of the WTO agenda in the Uruguay Round, however, has converted it into much more than a trade organization. It now deals with the new issues which were introduced into the Uruguay Round (services, investment, and intellectual property) and threatens to broaden further to also cover environmental issues and labor standards (Crome 1998).
4. Current Issues In The WTO
The WTO currently faces a range of issues, many of which have their origins in previous negotiations and, to a large degree, the Uruguay Round, while others span the openness of WTO processes (transparencies), the political acceptability of WTO decisions and NGO participation, even to the survivability of the WTO itself. Shorter term, key issues lie in the area of agriculture; a key sector for global trade, insofar as it was effectively excluded from the GATT / WTO system in 1947 by provisions included in GATT Articles 11 and 16. GATT Article 11 speciﬁes that all use of import quotas is to be banned, but special provisions apply to allow these to be used in agriculture; GATT Article 16 has similar provisions applying to export subsidies. The reasons for these exemptions for agriculture reﬂect a belief in 1947 that the agricultural sector had been vital to the war effort and cultural identiﬁcation with the family farm and the agricultural sector as central to national identity justify protection. In addition, some countries (such as Japan) held the view that national security objectives implied that countries should be allowed to be self-sufficient in agriculture through trade protection.
For all these reasons, agriculture was initially outside the framework of the GATT structure and subsequent developments in the trading system including a special GATT waiver for the United States in 1955 and the 1957 European Common Agricultural Policy further intensiﬁed this situation (Ritson and Harvey 1997). Europe, which was a net food importer of large proportions in the 1950s, ﬁrst excluded imports under the Common Agricultural Policy. Then with high prices in their domestic support programs and stockpiles, Europe became a signiﬁcant net food exporter. This led to global export subsidy wars and major conﬂict more generally in agriculture in the 1980s.
The Uruguay Round represented the ﬁrst attempt to deal with agriculture in a substantive way in the GATT, and introduced new disciplines. These left the original concessions in place but put in place an overarching structure which aimed to reduce levels of support to farmers, to cut export subsidies, and to convert all existing trade restrictions into transparent border measures (tariffication). Agriculture, however, was left as an area after the Uruguay Round for further negotiation (Hathaway 1987). Approaching the Seattle Ministerial meeting, agriculture and services largely deﬁne the so-called ‘built-in agenda’ for future negotiations under the WTO. (For information on built-in agenda, see WTO Secretariat’s note. Implementation of the provisions for Review, Future Work or Negotiations in the WTO agreement and related decisions and Declarations of 7 May 1998 (WTO document WT / L / 271).) New conﬂicts cover such matters as to whether or not there should be a ban on export subsidies, a ban which given the European structure of agricultural supports would be difficult for them to implement. The issue of and the rationale for agricultural protection on existence value grounds is a further source of conﬂict.
Another area of current discussion is textiles and clothing. In the Uruguay Round, the developed countries agreed to terminate their use of textile and clothing trade restrictions under the Multiﬁbre Arrangement (Trela 1994). These restraints go back to the early 1960s, when a series of short-term agreements between the US and Asian exporters became subject to mutually agreed trade restraint on the grounds of allowing time for domestic adjustments which would accompany free trade to take place in the United States. The initial time agreed was one year, but this was ﬁrst renewed and then converted into longer term agreements of ﬁve years, and subsequently multi-lateralized to include other OECD countries in 1974 (Whalley and Hamilton 1996).
In 1994 under the Uruguay Round decisions, the developed countries agreed to terminate the Multiﬁbre Arrangements (MFA), but at the same time have been effectively tightening their trade restrictions they are committed to eliminate, despite an agreed phase-out plan for the MFA. Many developing countries are therefore skeptical over what may happen in the year 2004. Developing country negotiators have compared the developed country position on MFA elimination as akin to walking off a cliff (Nguyen et al. 1993). How this is to be resolved is yet another issue.
New issues also pose future issues for the WTO despite their inclusion in the Uruguay Round agreement. These include services, investment, and intellectual property. In the case of intellectual property, the phase-in period is long with special delays on implementation given for certain types of developing countries. Its full impact will be felt in the twenty-ﬁrst century. In services, a whole structure of restraint on trade measures was agreed, but very little substantive liberalization to include in the structure, and hence, what happens next is very much an issue of debate.
Future issues also include the trade and environment and later standards issues which have been at the heart of a lot of the discussion and debate in Seattle. In the environmental area, the issue is the extent to which trade-restricting measures can be used to achieve environmental objectives. The trade and environment conﬂict was greatly accelerated in the early 1990s because of a dispute between the United States and Mexico over the use of trade restrictions on tuna which had been caught in ways which generated large incidental kills of dolphin (the activities of the GATT (1990)). The measures mandated by US courts in response to actions taken under US law by various environmental NGOs in the US were subsequently not deemed to be GATT compatible by a GATT dispute panel (Seattle Ministerial Conference—Trade and Environment: Proposals on the Possible Implications for Developing Countries). The GATT and subsequently the WTO acquired a reputation among environmental groups as being environmentally unfriendly and hostile to environmental considerations. This perception persists and was in part behind some of the conﬂict which prevailed in Seattle. How this is all to be worked out in the future is now a central issue for the WTO, who in turn would perhaps like to see the trade and environment issue diffused with the environmental problems dealt with in another forum.
The trade and labor standards is also another high-proﬁle issue because of the claim in some circles and primarily in Europe that imports occur from factories where child labor is used in unacceptable conditions: long working days, poor lighting, children who could be subject to deformities as a result of their activities in carpet factories and other locations. The free traders, however, see this as a dangerous form of new protectionism which will be supported by labor groups in OECD countries who have an incentive to show opposition to imports from countries with low wages.
All of these, then, are current issues, and current matters for the GATT and the WTO. The overarching issue, however, remains one of the contribution of the WTO to global economic performance. In the 1930s, Ragnar Nurkse posed the question of whether or not trade was the engine or handmaiden of growth; did trade drive growth as being a major, perhaps even sole, determinant within national economies or did trade merely grow because the wider economies themselves were growing? This question posed by Ragnar Nurkse has never been adequately resolved in the research community, but strong views prevail on these matters nonetheless. Free traders generally believe that strong economic performance requires an open trade regime. This is despite the performance in Japan in the 1950s and 1960s and in some other countries that have adopted more protectionist trade for them, and the fact that some countries have liberalized and not grown. On the other hand, it seems clear that countries such as Korea who have generally moved towards strong outward orientation and Taiwan have grown rapidly as a result of their trade orientation.
The stance one takes on the issue of the role of trade in future global growth largely determines how much importance one attaches to the WTO. As a vehicle for preventing the world economy reverting to the 1930s, as part of the mechanism which avoided the major cataclysmic recessions in the 1940s and 1950s comparable to the 1930s, and as a vehicle for fueling substantial liberalization through the 1960s and 1970s, it seems clear that the GATT and the WTO have much pride that they can claim in their actions. However, issues such as whether or not the system favors rich countries over poor countries, whether the system is inequality enhancing at the expense of the poor, and whether the system is closed and highly nontransparent and hence not in accordance with principles of good governance, remain. How these issues are to be worked out will largely determine both the acceptability and the proﬁle of the WTO in the years which follow. The attempts that follow in the next few years to move forward from the Seattle Ministerial of December, which in the short term has proved to be destructive for the WTO, will largely determine both the acceptability and the proﬁle of the WTO in the future.
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