From the GATT to the WTO

1. Government 1740 International Law Summer 2008 From the GATT to the WTO

2. I: History of the International Trading System II: GATT 1947 -the GATT norms -GATT negotiating rounds -focus on the Uruguay Round III: Creation of the WTO IV: Current Problems in the Trade Regime Outline

3. “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 I: History of the Trading System

4. 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.

5. 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

6. 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

7. 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.

8. The GATT Norms • Liberalization

9. 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

10. The GATT Norms • Liberalization • Two norms of non-discrimination • Most-favored nation

11. 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

12. 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

13. GATT Negotiating Rounds • Trends over time:

14. GATT Negotiating Rounds

15. GATT Negotiating Rounds • Trends over time: • number of issues • percentage of world trade • number of participating states • a trend towards 'package negotiations' • A complete formalagenda • Institutionalized issue linkage • Final consensus on a complete package • amount of time and negotiation burden

16. 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

17. The Grand Bargain

18. 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

19. 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

20. 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

21. 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…

22. 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

23. 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

24. IV: Current Problems in the Regime

25. 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

26. 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?

27. 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.