The International Trading System

Alice Landau

• Publisher: Routledge
• Year: 2005
• ISBN:
  9781134352487
• Edition: 1
• Topic: Business
• Subtopic: Business generale
• Index: Business

The World Trade Organization (WTO) is without doubt one of our main instruments of globalization, the controversy which is whipped up by this organization is arguably mainly caused by the mystery which surrounds it.The International Trade System seeks to remove the clouds of misunderstanding that circle the multilateral commercial system by clearly

1 The WTO

From disappointment to hope

The International Trade Organization (ITO) had been conceived as a third pillar of the Bretton Woods Agreement, alongside the International Monetary Fund (IMF) and the World Bank. According to the United States and Great Britain, the two great powers who shaped the world after the Second World War, the principles of multilateralism had to apply to the trade system. They reaffirmed the ties between trade policy and international cooperation on many occasions during the 1942 lending agreements, the 1944 Bretton Woods Conference and the San Francisco Conference, which launched the United Nations. The 1945 American proposals stressed that a trade system must be both multinational and non-discriminatory (Goldstein 1993). Great Britain only partially agreed with to the American arguments. Its preferences were more in the direction of a system that not only took account of tariffs and quotas, but also envisaged full employment. Quantitative restrictions remained at the centre of the American system and the two governments were determined to ban them. In 1945, the United States published some proposals for expanding world trade and employment and circulated them widely. They invited fifteen countries to negotiate the reduction of tariffs and other trade barriers. Fourteen countries, with the notable exception of the Soviet Union, accepted the invitation. An International Trade Organization (ITO) thus was created.

The WTO: new features of the world economy

The United States associated quotas with the economic nationalism that had prevailed in the Havana Charter, concluded in March 1948, which was not only to reduce trade barriers but also to envisage agreements on raw materials and full employment policies. But such an ambition was contrary to the more reductionist visions of the American Congress, under the control of the Republicans, who rejected the ITO largely because the United States had not obtained agreement from Great Britain that it would dismantle its trade preferences.

The President of the United States requested an extension of his negotiating mandate in 1949 and decided not to submit ratification to the vote by Congress. The next year saw the outbreak of the Korean War and interest in international cooperation was no longer unanimous (Ostry 2000: 52–76). Opposition spread and support for multilateralism weakened. The Havana Charter was not ratified and it became a temporary agreement whose purpose was to regulate international trade (Destler 1995: 34). The GATT covered about one thousand individual tariff concessions, but, moving beyond this context, it was going to adapt to changes in the world economy, i.e. the creation of the European (Economic) Community (E[E]C) in 1957 and the escalation of trade wars between the United States and the EC from the 1970s onwards. The Kennedy Round annexed Part IV regarding developing countries in the GATT. The Tokyo Round introduced nine multilateral codes, such as those relative to technical barriers to trade, public procurements, the interpretation and application of Articles VI, XVI and XXIII (subsidies and anti-dumping) and import licence procedures. But agriculture and textiles continued not to be subject to GATT discipline.

The United States obtained an exemption for agriculture in 1955 and 1972, the Multifibre Arrangement (MFA) was negotiated under the auspices of GATT. The contracting parties attempted to retain certain flexibility in GATT legalism, at least during the first years of its existence. When development problems became pressing, the GATT adopted the entitlement clause on special and differentiated treatment that enabled developing countries to enjoy exemptions from the GATT agreements (Kennes 1995).

The WTO inherited this past, but it presented very different characteristics. All WTO agreements had to be endorsed by the member states. They represented a single undertaking, and all the agreements integrated in the Marrakesh Agreements applied to the 133 members, except for the two multilateral agreements on government purchases and civil aircraft.¹ They differed from the preceding Tokyo Round, in which many agreements were multilateral. Countries could choose whether to belong or not. The mechanism for settling differences represented one of the most original changes in the present trading system. Within the Tokyo Round, each agreement was independent and instituted its own system for settling disputes, The Memorandum of Agreement on the Rules and Procedures Governing the Dispute of Settlements applied to all WTO agreements on goods, services and intellectual property. There was no longer more than one mechanism for all WTO agreements.

This mechanism is multilateral and was intended as a response to the unilateralist ‘drift’ at the end of the 1980s. Henceforth, the most powerful countries who tended to have recourse to unilateral retaliatory measures to settle their bilateral trade differences were constrained to use the WTO system for this contingency. For their part, the developing countries no longer hesitated to employ this mechanism to settle their disagreements with the most powerful countries and between themselves. Numerous legal texts were revised by the Marrakesh Agreements in order to improve their application. Measures for anti-dumping, subsidies and evaluation of merchandise for customs duties were adjusted in accordance with current practices and made more transparent in order to enable the rules to enhance trade.

The Marrakesh Agreements not only cover goods. They incorporate new areas of activity, such as services and intellectual property rights, and subject others to multilateral discipline. All the WTO members have concession lists in the services sector. Many developing countries that were reluctant about negotiating services during the opening of the Uruguay Round have made concessions in order to attract investment and rationalize their policy with regard to services. The Marrakesh Agreements protect intellectual property rights and grant developing countries transition periods for adapting their legislation.

Before the Uruguay Round, agriculture was excluded from the considerable tariff reductions that had taken place during the previous negotiation rounds. Certain GATT Articles, moreover, permitted the use of derogations in agriculture. Certain countries were past masters in the art of protecting their agricultural market and in obtaining derogations. At the end of the Uruguay Round, agriculture complied with WTO discipline. Non-tariff measures such as quotas or variable taxes were converted into tariffs and were reduced. The new tariffs were consolidated, and although they are still high, they can be progressively reduced.

The GATT is built on several principles:

• The Most Favoured Nation (MFN) clause, which ensures non-discriminatory treatment. This principle, according to which promotes the cause of liberalization. This principle reduced the transaction costs of the negotiations for the members. All countries having an interest in a product and seeking to improve access to it in an exporting country and having negotiated this concession, must accord the same to every other country.

all advantages, favours, privileges or immunities granted by one contracting party to a product originating from or destined for any other country shall, immediately and unconditionally, be extended for the same treatment to any similar product originating or destined for the territory of all other contracting parties

• The second principle of this system is that of national treatment and is intended to complement the MFN clause. It stipulates that every imported product after payment of the customs duties must not receive less favourable treatment than a local product. Each member state is obliged to treat local and imported products in the same way.

• The third principle is that of transparency. The Marrakesh Agreements reinforce transparency by adjusting notification and information procedures. All laws and regulations must be published, in order to enable other members to consult them and ensure that they conform to the prevailing legal texts in force. Transparency is also the aim of the review mechanism of trade policies. This enables WTO members to examine the implementation of the trade policy of a member state or group of countries within a regional agreement. It gives more transparency to trade policies. At present, the trade policies of the four biggest exporters – the United States, the European Union, Japan and Canada – are examined every two years, those of the sixteen other largest exporters every four years, and those of developing countries every six years. The less advanced countries are not subject to an examination at any fixed period. Many of the developing countries display their very marked interest in a system that enables them to have a better knowledge of the trade policies of other members, to point out defects in the system and to introduce improvements.

Emergence of new trade barriers

Since the Kennedy Round and the Tokyo Round, negotiations have been extended to non-tariff barriers (Table 1.1). But new forms of protectionism are replacing the tariffs that were been reduced during the preceding rounds of the Uruguay Round. Governments are continually inventing new barriers in order to limit imports. In 1973, the GATT listed almost 800 non-tariff barriers. Certain studies show that the tariff equivalent of a non-tariff barrier is about 9 per cent (Jackson 2000: 155). These barriers take the form of administrative barriers or ‘grey zones’ that exist beyond the GATT discipline and may appear in various guises, including the variable tax applied by the EU within the terms of the Common Agricultural Policy (CAP) or the ‘voluntary export restrictions’ (VERs). In the latter case, countries whose exports are increasing are asked to keep their exports within the limits negotiated with the importers. These arrangements are supposed to be voluntary, but in reality they are less so.

Table 1.1 GATT negotiation rounds

Source: WTO reports, various issues, Jackson (2000).

The restrictions are applied to imports from certain countries and are therefore incompatible with GATT rules, which stipulate non-discrimination of imports, and with Article XI of the GATT, which stipulates that there shall be

no prohibition or restrictions other than customs duties, tariffs and other charges, whether it be through quotas, import or export licences or other measures, shall be introduced by a contracting party on the exports or sales for export of products destined for the territory of anot...

Table of contents

• Cover
• Dedication
• Title
• Copyright
• Contents
• List of illustrations
• Foreword
• List of abbreviations
• Introduction
• 1 The WTO: from disappointment to hope
• 2 The Agreement on Sanitary and Phytosanitary Measures
• 3 The Agreement on Technical Barriers to Trade
• 4 The Agreement on Agriculture
• 5 The General Agreement on Trade in Services (GATS)
• 6 The Agreement on Intellectual Property Rights
• 7 Measures concerning trade-related investment
• 8 The Agreement on Textiles and Clothing
• 9 The WTO and regional integration: compatible or contradictory?
• 10 The Agreement on Rules of Origin
• 11 The Agreement on Subsidies and Compensatory Measures
• 12 The WTO and developing countries: towards an equality of power?
• 13 The emergence of new issues
• 14 Conclusion
• Notes
• Bibliography
• Index