Multilateralism Versus Regionalism

Trade Issues after the Uruguay Round

Meine Pieter van Dijk

• Publisher: Routledge
• Year: 2005
• ISBN:
  9781135777647
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

The completion of the Uruguay Round in April 1994 has not solved all the problems. The issue of regionalism versus multilateral agreements such as the Uruguay Round remains a crucial one, as is argued in the first five chapters of this volume. Successive chapters deal with specific issues such as green protectionism, technical standards, intellectual property rights protection, the effects of disarmament on international trade, the effects of abolishing the Multi-fibre Agreement and the external impact of the European Union's Common Agricultural Policy. The volume, on the whole, takes up where the newly created World Trade Organization will have to start.

1
Introduction: The Results of the Uruguay Round and the Agenda for the World Trade Organisation

MEINE PIETER VAN DIJK

I
INTRODUCTION

In April 1994 the seven-year long Uruguay Round of trade talks was closed formally in Marrakesh. Tariffs would be reduced substantially and a number of non-tariff barriers would be removed.¹ The agreement was signed there, together with the agreement to create the World Trade Organisation (WTO). Since then the major trading nations have ratified the GATT Accord. It became effective in 1995. During the middle of the 1980s the internationalisation of the economy accelerated. Since the fall of the Berlin Wall in 1989, the rise of East Asia and the prospect of further economic integration (Europe 1992 and the Uruguay Round of GATT), international relations have changed rapidly. Economic growth is high in East Asia and jobs are moving from Western to Eastern Europe and Asia. The internationalisation of the economy has led to increased trade and globalisation of capital flows. Technological development, improved communications, a more liberal investment climate in many developing countries and lower costs of transportation have all contributed to these developments. In particular the East Asian developing countries have benefited enormously from the gradual liberalisation of world trade since 1947. Development takes place where there are structures. Trade negotiations result in international structures which reduce risks and facilitate trade; of crucial importance is the role of the private sector in the development process. Rapid economic growth is largely the result of the market or private initiative, backed up by investments in infrastructure and education, liberalisation of trade and financial services and sound macroeconomic policies.²

At the same time that multilateral negotiations have dragged on, regional agreements were reached with more ease and frequency than ever before.³ In this book multilateralism will be confronted with regionalism (regional economic integration), with the tendency to agree on more liberal trade policies within a regional co-operation framework.⁴ While the European Union (EU) and North-American Free Trade Agreement (NAFTA) are examples of the latter, the conclusion of the Uruguay Round is an example of successful multilateralism.

As a background to the articles in Part I dealing with multilateralism versus regionalism, we describe in this introduction the role of GATT, the achievements and possible effects of the Uruguay Round and the bones of contention that still exist. These have been put on the plate of WTO, the successor of GATT, which has come into existence as of 1 January 1995.

A list of issues in the field of trade that still exist after the Uruguay Round will be drawn up. Although we cannot deal with all these issues, in Part II eight important issues will be discussed. In the second part of the introduction we will discuss these issues while giving an overview of the whole volume. Preceding that, a special section will be devoted to the countries of Central and Eastern Europe. Their situation since the fall of the Wall may be described as being ‘caught between multilateralism and regionalism’. These countries would favour multilateral trade agreements which would facilitate the redirection of their exports. However, being so close to the important West European market, they are forced to attach more importance to regional trade agreements with the EU.

II
THE ROLE OF GATT

The General Agreement on Trade and Tariffs (GATT) was signed in 1947. It meant the beginning of a period of increasing multilateralism in international trade. The agreement is the basis for a global rule-based trading system. Tariff concessions are linked to non-discrimination through the principle of Most-Favoured Nation (MFN) treatment. Through a series of Rounds GATT has contributed significantly to the liberalisation of world trade.⁵ However, over time three trends can be detected. In the first place the number of countries participating in the negotiations increased, contributing to a lengthening of the time necessary to reach an agreement. Secondly, the issues became ever more complicated, when more sectors were discussed (for example also agriculture and the services sector) and when exports had become more important for many countries. Finally, the effects of just lowering tarifs gradually diminished, since tariffs had been reduced already in subsequent Rounds. Also, many countries became used to lower tariffs in the framework of regional associations or through the Generalised System of Preferences (GSP).

The Uruguay Round was the most ambitious Round of all multilateral trade negotiations ever undertaken under GATT.⁶ It was the eighth Round and has been described as a victory for a rule-based multilateral trading system and a milestone in the evolution of international economic relations.⁷ The new institutional economics points to the importance of rules and regulations to guide economic development. The opposite of rules is a series of ad hoc protective measures. The GATT Uruguay Round can be seen as the basis for emerging international institutions. The opposite of a rule-based system would be a system of arbitrary import restrictions, so-called anti-dumping policies and so called Voluntary Export Restraints (VERs). Multilateral trading rules erode when countries resort to protectionist and anti-dumping actions, VERs and other discriminatory measures.

During the seven years of negotiations the economic position of the OECD countries deteriorated and, hence, their willingness to make concessions. The fall of the Wall in 1989 implied a change from power policies to economic motives to give Eastern Europe and the former Soviet republics a better chance. In December 1994 trade negotiators cleared last-minute hurdles to a formal agreement to inaugurate the WTO on 1 January 1995. The WTO will have to deal with dumping and monitoring the results of the Uruguay Round. The advantage of the WTO is that all participants share similar rights and obligations. Despite their economic power WTO’s verdict is binding for all member states.

III
ACHIEVEMENTS OF THE URUGUAY ROUND

Because of the Uruguay Round, tariffs on manufactures will on average be 40 per cent lower compared with the previous GATT Round. The objective is to be achieved by the industrial countries over a period of five years, as the scope of GATT’s multilateral trade negotiations was extended in the Uruguay Round. The achievements in market liberalisation, strengthening of rules and institutions and extension of discipline to new areas will be far-reaching, according to the International Monetary Fund [IMF, 1994]. Negotiations went beyond the question of tariffs which had preoccupied previous ones. We saw an extension of the trade negotiations to areas as government procurement, Trade Related Intellectual Property rights (TRIPs) and Trade Related Investment Measures (TRIMs). This time non-tariff barriers (such as standards, procurement procedures on state aid) and trade-related intellectual property rights issues were high on the agenda, while sectors other than manufacturing (for example, agriculture and services) also received attention.

The Uruguay Round will strengthen multilateral discipline and extend this to other areas than manufacturing. More than ever, the role of the private sector was central in the negotiations. Most developed countries admitted that they wanted to reinforce the position of their private sector internationally.⁸ In second place came the improvement of the economic situation of developing and Eastern European countries.

Besides the lowering of import duties for industrial products, the major achievements of the Uruguay Round are:

1. the reduction of non-tariff barriers to trade;
2. the phasing out of the Multi-Fibre Arrangement (MFA);
3. agreement concerning Trade Related Intellectual Property rights and Trade Related Investment Measures;
4. an agreement on tropical and temperate agriculture;
5. new ideas about the role of GATT (and its successor) in the settlement of trade disputes;
6. agreement on technical standards;
7. an agreement reached on services (such as financial services, telecommunications, transportation and movement of natural persons);
8. the changing of safeguard provisions in GATT;
9. the decision of contracting parties to create the WTO and suggestions made concerning the agenda of the WTO;
10. the commitment of the Uruguay Round to the multilateral trade system.

Ad 1.

Grey area measures (non-tariff barriers) such as VERs and orderly marketing agreements will be phased out within four years. However, in the case of manufactures, protection remains possible because of the (altered) safeguard clause. However, developing countries benefit from the reduction of high tariff peaks on items in which they compete strongly with developed countries. Escalation (increasing tariffs when a product is processed further) will be eliminated. Growing misuse of anti-dumping will be reduced because the rules have been made clearer and more extensive, making it more difficult to resort to anti-dumping policies.

Ad 2.

The phasing out of the Multi-Fibre Arrangement (MFA) means that under the Uruguay Round most of the tariffs and quotas on textiles and clothing will gradually be eliminated after 1995 and completely abandoned in 2005. The dismantling of barriers to textile imports by such major markets as the United States (US) and the EU over a ten-year period is considered one of the major achievements of the trade pact [IHT 8–12–1994]. The MFA was a convenient device for developed countries, as they officially argued it would give them some time to restructure their industries to the competition from low income countries. The effects of the MFA will be discussed in more detail in Chapters 10 and 11.

Ad 3.

The section of the agreement on Trade Related Intellectual Property provides a good basis for the protection of intellectual property. Agreements on TRIPs and TRIMs oblige member countries to adjust their domestic legislation and policies with respect to the protection of Intellectual Property Rights (IPR) and Foreign Direct Investment (FDI) in order to avoid trade conflicts. Although developing countries may have to pay more for knowledge-intensive goods they received concessions on goods of export of interest to them and enjoy the advantages of a multilateral agreement over possibly tougher bilateral agreements. Trade-related investment measures that violate the GATT principles of national treatment and prohibition of quantitative restrictions (such as local content and foreign exchange balancing requirements) are to be eliminated within two years by industrial countries, within five years by developing countries and within seven years by Least Developed Countries or LDCs [IMF 1994:83].

Ad 4.

An agreement on tropical and temperate agriculture has been reached. Trade in agricultural products will be brought within the ambit of the WTO and will be progressively liberalised. Temperate agriculture was the most conflicting issue in the negotiations. An agreement between the US and the EU in the field of agriculture was necessary before the Uruguay Round could be concluded. Such an agreement between the US and the EU delayed the closing of the Uruguay Round by one year. Tariffs on tropical products have been cut and an agreement has been reached to introduce market mechanisms in production and trade. Issues related to agriculture and trade will also be discussed in Chapters 12 and 13.

Ad 5.

The settlement of trade disputes has been agreed upon. A new dispute-settlement system permits limited sanctions against countries breaking world trade rules. The increased predictability and discipline provided by the integrated dispute settlement mechanism should stimulate export-oriented investment and the expansion of world trade.

Ad 6.

Product standards may be imposed, provided these standards are applied without discrimination against imported goods, and provided they are justified by technological needs (technical standards), or scientific evidence (environmental and health standards) and applied indiscriminately (the GATT principle of nondiscrimination). Agreement has been reached on further harmonisation of technical standards in different countries (see also Chapter 7).

Ad 7.

An agreement has been reached on services: the General Agreement on Trade in Services (GATS). They have been brought for the first time within the multilateral framework of rules. Further, some degree of agreement on improved market access has also been reached. LDCs would like more liberalisation of migration while developed countries push for financial services liberalisation.

Ad 8.

The safeguard provisions in GATT have been changed. The objective was to discourage countries from using unilateral, selective restraints on imports outside the GATT as a substitute for existing GATT procedures which require consultation, non-selectivity and compensation without, however, bringing selectivity into the GATT [Page et al, 1992]. The safeguards clause has been altered in ways that may increase its use against LDCs although, in the past, developed countries have been reluctant to use it as a justification for import controls because these have to be applied against all suppliers. Some selectivity is admitted in the new agreement, if it can be established that imports from certain countries have increased disproportionately. Safeguards can be imposed for a maximum of eight years but, if selective, for four years at the maximum.

Ad 9.

The WTO is a single institutional framework to encompass all of GATT, with agreements and arrangements concluded under its auspices, and the complete results of the Uruguay Round. The WTO will monitor trade policies of its members, but enforcement of rules will continue to be more difficult for a LDC than for the US. Issues such as the liberalisation of the services sector, supervision of the phasing out of MFA, and labour and environmental codes have been placed high on the list of priorities of the WTO (see below).

Ad 10.

The Uruguay Round may be praised for its commitment to the multilateral trade system. The IMF [1994] added that the Uruguay Round ‘has created an environment conducive for tackling future challenges in trade policy’.

IV
CONSEQUENCES OF THE URUGUAY ROUND

What is the impact of the Uruguay Round on the international trading system? We would like particularly to assess the outcome of the Round for developing countries. However, it is extremely difficult to predict the consequences of GATT for developing countries. Research in general points to positive effects for the world economy. Between US$200 and 270 billion of additional trade would be generated. The additional cost of protectionism for developing countries (at US$45 billion) is a multiple of the development aid available each year [Goldin and Van der Mensbrugghe, 1993].

Several publications have tried to assess the implications of the Uruguay Round for developing countries [e.g. UNCTAD, 1990] or ...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Notes on Contributors
• Abbreviations
• 1: Introduction: The Results of the Uruguay Round and the Agenda for the World Trade Organisation
• Part I