The evolution of
the international
trade regime
From the GATT to
the WTO
IPE, Fall 2023,
Week 3
Prof. Işık Özel
Let’s remember what we covered last week
Postwar economic order
Resetting the liberal order, «embedded liberalism»
• Multilateralism
International • Recovered belief in the benefits
of freeR trade
level
• Yet, limited capital flows
Keynesian Peace &
compromise prosperity
• fear of unfettered markets
Domestic • State Interventionism &
Keynesianism-varying degrees
level
• Social safety nets
Bretton Woods TRIO: IMF, the Bank and the GATT
THE INTERNATIONAL BANK FOR
RECONSTRUCTION AND DEVELOPMENT (IBRD)
“…the nations should cooperate to increase the
volume of foreign investment for these purposes,
made through normal business channels. It is
especially important that the nations should
cooperate to share the risks of such foreign
investment, since the benefits are general.”
a permanent international body to perform these
functions, to be called the International Bank for
Reconstruction and Development
later the World Bank/ the Bank.
How to sustain an open trade regime?
Hegemonic Stability Theory (HST)
An «open» international trade regime as a
PUBLIC GOOD => Free rider problem
Non-excludable & no-rivalry
Itis in the hegemon’s interest to invest in build and
sustain an open int’l trade regime
strong interests-the stability of the trade regime
Historical data-more or less-support HST
Now? Hegemonic decay or transition?
GATT: «Commonly accepted principles»
Overarching norm: Openness, encouraging free flow of
goods & commitment to reduce barriers by multilateral rules.
1. Most-favored nation
Pledge against discriminatory practices: All members will be
treated equally
bilateral consessions will be extended to all 3rd countries that
the parties have signed agreements.
WHAT IS THE ROOT OF THE MFN CLAUSE?
2. National treatment
All imports will be treated as similar to ‘domestic products’
(domestic market)
3. Reciprocity
Governments would extend similar concessions to each
other
Unprecedented expansion of
international trade in the postwar period
GATT
National treatment
Prohibiting governments from using measures
(subsidies, tax breaks, other policy instruments) to
provide advantages for domestic firms at the
expense of foreign products.
Necessitating treatment of domestic and foreign
versions of the same products (“like products”)
similarly after they enter the domestic market.
How would the national governments respond to
this?
The GATT
Nondiscrimination & and the MFN clause
“members ought to extend most-
favored-nation (MFN) status to other
trading partners in GATT.”
Historical references:
Treaty of Madrid, 1667-Spain-England
Jay Treaty, 1794, US-Britain
Cobden-Chevalier, 1860, France-Britain
Some bilateral agreements, 1930s
The GATT
Nondiscrimination & and the MFN clause
Members’ access to foreign markets on equal terms.
Article I: “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.”
Each member receives the same tariff treatment for its goods in
foreign markets as that extended to the "most-favored"
country competing in the same market, thereby ruling out preferences
for, or discrimination against, any member country.
YET...A number of puzles remain
Riseof regional blocs
European Economic Community (EEC): 1957
Despite the principle of nondiscrimination (MFN),
Article XXIV allowed the formation of "customs
unions" and free trade areas among GATT members
through an exception
Multilateralism vs. Regionalism: building or stumbling
blocs?
GATT’s principles & regional blocs
In essence, regional blocs contradict with the
spirit of the GATT and nondiscrimination
GATT Article XXIV: allows countries to
form PTAs/RTAs as long as the level of
protection adopted for 3rd countries is not
higher than the level of protection that was
adopted prior to the agreement.
Why do you think that they provided such
generous exemption?
Multilateralism vs. Regionalism
“SPAGETTI BOWLS” of PTAs
GATT-some more exemptions
GSPs (Generalized System of Preferences)
allows the advanced industrialized countries to
apply lower tariffs to imports from developing
countries than those from advanced countries.
“Haberler Report” (1957): a GATT study
on relative terms of trade (primary commodities &
manufactured goods).
Finding: a decline in the terms of trade for primary
producers (commodity prices fell by 5%, while
industrial prices rose by 6%, since 1955).
How did the GATT operate?
One country-one vote
How was the balance
Consensus based
of power displayed? No board of directors
Veto power of the US? Members on equal foot.
Modus operandi?
Inter-governmental
bargaining platform
A forum based on “shared”
norms and principles Ministerial conferences
Rounds of negotiations
Flexible rules
GATT/ WTO Rounds
Year Place/ Name Issues negotiated meetings
1947 Geneva Tariffs 23
1949 Annecy Tariffs 13
1951 Torquay Tariffs 38
1956 Geneva Tariffs 26
1960-61 Dillon Tariffs 26
1963-67 Kennedy Tariffs, anti-dumping code, less-developed 62
countries (LDCs)-exemptions
1973-79 Tokyo Tariffs, NTBs (non-tariff barriers), LDC- 102
exemptions and contestations
1986-93 Uruguay Tariffs, NTBs, rules, services, intellectual 123
property rights, dispute settlement, textiles,
agriculture, subsidies, safeguards. WTO
2001- Doha Implementation, government procurement, 159
2008? Development dispute settlement, TRIPS, sustainable
2018? Round development, market access and N-S
conflict.
From GATT to WTO:
What is new?
1. Widening of the 2. Deepening of the
trade regime trade regime
https://www.wto.org/englis
h/thewto_e/acc_e/acc_m
ap_e.htm Further institutionalization
Why establish an international institution
which would tie states’ hands?
Who will open up first?
U.S.
Liberalize, Liberalize Liberalize, protect
China
Protect, Liberalize Protect, Protect
Chinese payoff order : P/L > L/L > P/P > L/P
U.S.’ payoff order : L/P > L/L > P/P > P/L
Cooperation in reciprocal opening
Prisoners’dilemma
How to resolve cooperation problems between
the states?
«Anarchic environment» of the international
arena: No state
Institutions
needed to resolve such problems of
enforcement, monitoring, sanctioning.
From GATT to WTO:
What is new?
1. Widening of the trade regime
Most countries are members: 164
https://www.wto.org/english/thewto_e/countries_e/org6_map_e.htm
Diversity & challenges
N-S Conflict
TRIPs, services
Agriculture,
What is new in the WTO?
2. Deepening of the trade regime: more
issues, sectors, more rules
New sectors: Agriculture & textiles
Formalization, binding rules, transparency & more information
Institutional harmonization
Competition policy (domestic)
TRIPS: Trade-Related Intellectual Property Rights
TRIMS: Trade-Related Investment Measures
GATS : General Agreement on Trade on Services
Legalization
«WTO brings the rule of law to bear in IT relations.»
(Oatley, p.43)
WTO-legalization
Dispute Settlement Understanding (DSU)
https://www.wto.org/english/tratop_e/dispu_e/dispu_maps_
e.htm
Quasi-judiciary status:
A Complaint & Consultation
Preferred outcome: to reach a mutually agreed
solution
If not, DSU procedures are applied
22
Consultations (60 days)
Panel (6-9 months)
Appeal (4 months)
DSB’s Adoption
Implementation Compensation or
retaliation
Challenges of the trade regime
Deadlock in the trade regime?
Some disputes w/o settlement
Some disputes w/ settlement, yet
No/ incomplete implementation
Thesettlement entails clauses which might
work against the foundational spirit of the
WTO/ GATT.
TRIPS:The Agreement on Trade-related
Aspects of Intellectual Property Rights
`Marrakesh Agreement`-1994
Standards for intellectual property regulation
1. Copyright and related rights
2. Trademarks
3. Geographical indications
4. Industrial designs
5. Patents
6. Layout designs of integrated circuits
7. Protection of undisclosed information
8. Control of anti-competitive practices in
contractual licences
“North-South Conflict”
“We want free trade, but free trade that is
reciprocal. Any export efforts we might
make will be worth nothing if the rich
countries continue to preach free trade and
practice protectionism.
Ex-President Lula da Silva,
World Economic Forum
1/23/2003
Isn’t that nice that we have all these rules that
arrange international trade?
Howcome the WTO has created immense
contestations?
Why did it take so long to launch a new round (Doha)?
widespread protests
Seattle, 1999
https://www.youtube.com/watch?v=ovDNI3K5R7s
https://www.youtube.com/watch?v=2ELOk24RgpE
The Battle in Seattle:
https://www.imdb.com/title/tt0850253/
