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From GATT to WTO: The Evolution of an Obscure Agency to One Perceived as Obstructing Democracy

Susan Ariel Aaronson, National Policy Association

Historical Roots of GATT and the Failure of the ITO

While the United States has always participated in international trade, it did not take a leadership role in global trade policy making until the Great Depression. One reason for this is that under the US Constitution, Congress has responsibility for promoting and regulating commerce, while the executive branch has responsibility for foreign policy. Thus, trade policy was a tug of war between the branches and the two branches did not always agree on the mix of trade promotion and protection. However, in 1934, the United States began an experiment, the Reciprocal Trade Agreements Act of 1934. In the hopes of expanding employment, Congress agreed to permit the executive branch to negotiate bilateral trade agreements. (Bilateral agreements are those between two parties — for example, the US and another country.)

During the 1930s, the amount of bilateral negotiation under this act was fairly limited, and in truth it did not do much to expand global or domestic trade. However, the Second World War led policy makers to experiment on a broader level. In the 1940s, working with the British government, the United States developed two innovations to expand and govern trade among nations. These mechanisms were called the General Agreement on Tariffs and Trade (GATT) and the ITO (International Trade Organization). GATT was simply a temporary multilateral agreement designed to provide a framework of rules and a forum to negotiate trade barrier reductions among nations. It was built on the Reciprocal Trade Agreements Act, which allowed the executive branch to negotiate trade agreements, with temporary authority from the Congress.

The ITO

The ITO, in contrast, set up a code of world trade principles and a formal international institution. The ITO’s architects were greatly influenced by John Maynard Keynes, the British economist. The ITO represented an internationalization of the view that governments could play a positive role in encouraging international economic growth. It was incredibly comprehensive: including chapters on commercial policy, investment, employment and even business practices (what we call antitrust or competition policies today). The ITO also included a secretariat with the power to arbitrate trade disputes. But the ITO was not popular. It also took a long time to negotiate. Its final charter was signed by 54 nations at the UN Conference on Trade and Employment in Havana in March 1948, but this was too late. The ITO missed the flurry of support for internationalism that accompanied the end of WWII and which led to the establishment of agencies such as the UN, the IMF and the World Bank. The US Congress never brought membership in the ITO to a vote, and when the president announced that he would not seek ratification of the Havana Charter, the ITO effectively died. Consequently the provisional GATT (which was not a formal international organization) governed world trade until 1994 (Aaronson, 1996, 3-5).

GATT

GATT was a club, albeit a club that was increasingly popular. But GATT was not a treaty. The United States (and other nations) joined GATT under its Protocol of Provisional Application. This meant that the provisions of GATT were binding only insofar as they are not inconsistent with a nation’s existing legislation. With this clause, the United States could spur trade liberalization or contravene the rules of GATT when politically or economically necessary (US Tariff Commission, 1950, 19-21, 20 note 4).

From 1948 until 1993, GATT’s purview and membership grew dramatically. During this period, GATT sponsored eight trade rounds where member nations, called contracting parties, agreed to mutually reduce trade barriers. But trade liberalization under the GATT came with costs to some Americans. Important industries in the United States such as textiles, television, steel and footwear suffered from foreign competition and some workers lost jobs. However, most Americans benefited from this growth in world trade; as consumers they got a cheaper and more diverse supply of goods, as producers, most found new markets and growing employment. From 1948 to about 1980 this economic growth came at little cost to the American economy as a whole or to American democracy (Aaronson, 1996, 133-134).

The Establishment of the WTO

By the late 1980s, a growing number of nations decided that GATT could better serve global trade expansion if it became a formal international organization. In 1988, the US Congress, in the Omnibus Trade and Competitiveness Act, explicitly called for more effective dispute settlement mechanisms. They pressed for negotiations to formalize GATT and to make it a more powerful and comprehensive organization. The result was the World Trade Organization, (WTO), which was established during the Uruguay Round (1986-1993) of GATT negotiations and which subsumed GATT. The WTO provides a permanent arena for member governments to address international trade issues and it oversees the implementation of the trade agreements negotiated in the Uruguay Round of trade talks

The WTO’s Powers

The WTO is not simply GATT transformed into a formal international organization. It covers a much broader purview, including subsidies, intellectual property, food safety and other policies that were once solely the subject of national governments. The WTO also has strong dispute settlement mechanisms. As under GATT, panels weigh trade disputes, but these panels have to adhere to a strict time schedule. Moreover, in contrast with GATT procedure, no country can veto or delay panel decisions. If US laws protecting the environment (such as laws requiring gas mileage standards) were found to be de facto trade impediments, the US must take action. It can either change its law, do nothing and face retaliation, or compensate the other party for lost trade if it keeps such a law (Jackson, 1994).

The WTO’s Mixed Record

Despite its broader scope and powers, the WTO has had a mixed record. Nations have clamored to join this new organization and receive the benefits of expanded trade and formalized multinational rules. Today the WTO has grown 142 members. Nations such as China, Russia, Saudi Arabia and Ukraine hope to join the WTO soon. But since the WTO was created, its members have not been able to agree on the scope of a new round of trade talks. Many developing countries believe that their industrialized trading partners have not fully granted them the benefits promised under the Uruguay Round of GATT. Some countries regret including intellectual property protections under the aegis of the WTO.

Protests

A wide range of citizens has become concerned about the effect of trade rules upon the achievement of other important policy goals. In India, Latin America, Europe, Canada and the United States, alarmed citizens have taken to the streets to protest globalization and in particular what they perceive as the undemocratic nature of the WTO. During the fiftieth anniversary of GATT in Geneva in 1998, some 30,000 people rioted. During the Seattle Ministerial Meetings in November/December 1999, again about 30,000 people protested, some violently. When the WTO attempts to kick off a new round in Doha, Qatar later this year, protestors are again planning to disrupt the proceedings (Aaronson, 2001).

Explaining Recent Protests about the WTO

During the first thirty years of GATT’s history, the relationship of trade policy to human rights, labor rights, consumer protection, and the environment were essentially “off-stage.” This is because GATT’s role was limited to governing how nations used traditional tools of economic protection — border measures such as tariffs and quotas.

GATT’s Scope Was Initially Limited

Why did policy makers limit the scope of GATT? The US could participate in GATT negotiations only by Congress granting extensions of the Reciprocal Trade Agreements Act of 1934. But this act allowed the president only to negotiate commercial policy. As a result, GATT said almost nothing about the effects of trade (whether trade degrades the environment or injures workers) or the conditions of trade (whether disparate systems of regulation, such as consumer, environmental, or labor standards, allow for fair competition). From the 1940s to the 1970s, few policy makers would admit that their systems of regulations sometimes distorted trade. Such regulations were the turf of domestic policy makers, not foreign policy makers. GATT also said little about domestic norms or regulations. In 1971, GATT established a working party on environmental measures and international trade, but it did not meet until 1991, after much pressure from some European nations (Charnovitz, 1992, 341, 348).

GATT’s Scope Widened to Include Domestic Policies

Policy makers and economists have long recognized that trade and social regulations can intersect. Although the United States did not ban trade in slaves until 1807, the US was among the first nations to ban goods manufactured by forced labor (prison labor) in the Tariff Act of 1890 (section 51) (Aaronson, 2001, 44). This provision influenced many trade agreements that followed, including GATT, which includes a similar provision. But in the 1970s, public officials began to admit that domestic regulations, such as health and safety regulations, could with or without intent, also distort trade (Keck and Sikkink, 1998, 41-47). They worked to include rules governing such regulations in the purview of GATT and other trade agreements. This process began in the Tokyo Round (1973-79) of GATT negotiations, but came to fruition during the Uruguay Round. Policy makers expanded the turf of trade agreements to include rules governing once domestic policies such as intellectual property, food safety, and subsidies (GATT Secretariat, 1993, Annex IV, 91).

Rising Importance of International Trade and Trade Policy

In 1970, the import and export of American goods and services added up to only about 11.5% of gross domestic product. This climbed swiftly to 20.5% in 1980 and at the end of the century averaged about 24%. (In addition, by the mid-1980s a persistent trade deficit emerged, with imports exceeding exports by significant amounts year after year — imports exceeded exports by 3% of GDP in 1987, for example.)

Public Opinion Has Become More Concerned about Trade Policy

Partly because of the rising importance of international trade, since at least 1980, the relationship of trade policy to the achievement of other public policy goals became an important and contentious issue. A growing number of citizens began to question whether trade agreements should include such social or environmental issues. Others argued that trade agreements had the effect of undermining domestic regulations such as environmental, food safety or consumer regulations. Still others argued that trade agreements did not sufficiently regulate the behavior of global corporations. Although relatively few Americans have taken to the streets to protest trade laws, polling data reveal that Americans agree with some of the principal concerns of the protesters. They want trade agreements to raise the environmental and labor standards in the nations with which Americans trade.

Most Agree That Trade Fuels Economic Growth

On the other hand, most people agree with analysts who argue that trade helps fuel American growth (PIPA, 1999). (For example, 93% of economists surveyed agreed that tariffs and import quotas usually reduce general economic welfare (Alston, Kearl, Vaughan, 1992).) Economists argue that the US must trade if it is to maintain its high standard of living. Autarchy is not a practical option even for America’s mighty and diversified economy. Although the US is blessed with navigable rivers, fertile soil, abundant resources, a hard working populace, and a huge internal market, Americans must trade because they cannot efficiently or sufficiently produce all the goods and services that citizens desire. Moreover, there are some goods that Americans cannot produce. That is why America from the beginning of its history has signed trade agreements with other nations.

Building a National Consensus on Trade Policy Is a Difficult Balancing Act

For the last decade, Americans have not been able to find common ground on the turf of trade policy and how to ensure that trade agreements such as those enforced by the WTO don’t thwart achievement of other important policy goals. After 1993, American business did not push for a new round of trade talks, as the global and the domestic economy prospered. But in recent months (early 2001), business has been much more active, as has George W. Bush’s Administration, in trying to develop a new round of trade talks under the WTO. Business has become more eager as economic growth has slowed. Moreover, American business leaders seem to have learned the lessons of the 1999 Seattle protests. The members of the Business Roundtable, an organization of chief executive officers from America’s largest, most prestigious companies have noted, “we must first build a national consensus on trade policy… Building this consensus will…require the careful consideration of international labor and environmental issues…that cannot be ignored.” The Roundtable concluded by noting the problem is not whether these issues are trade policy issues. They stressed that trade proponents and critics must find a strategy — a trade policy approach that allows negotiators to address these issues constructively (Business Roundtable, 2001). The Roundtable was essentially saying that we must find common ground and must acknowledge the relationship of trade policy to the achievement of other policy goals. The Roundtable was not alone. Other formal and informal business groups such as the National Association of Manufacturers, as well as environmental and labor groups, have tried to develop an inventory of ideas on how to proceed in pursuing trade agreements while also promoting other important policy goals such as environmental protection or labor rights. Republican members of Congress responded publicly to these efforts with a warning that such efforts could compromise the President’s strategy for
trade liberalization. As of this writing, however, the US Trade Representative has not announced how it will resolve the relationship between trade and social/environmental policy goals within specific trade agreements, such as the WTO. Resolving these issues will undoubtedly be very difficult, so the WTO will probably remain the source of contention.

References

Aaronson, Susan. Trade and the American Dream: A Social History of Postwar Trade Policy. Lexington, KY: University Press of Kentucky, 1996.

Aaronson, Susan. Taking Trade to the Streets: The Lost History of Efforts to Shape Globalization. Ann Arbor: University of Michigan Press, 2001.

Alston, Richard M., J.R. Kearl, and Michael B. Vaughan. “Is There a Consensus among Economists in the 1990’s?” American Economic Review: Papers and Proceedings 82 (1992): 203-209.

Business Roundtable. “The Case for US Trade Leadership: The United States is Falling Behind.” Statement 2/9/2001. www.brt.org.

Charnovitz, Steve. “Environmental and Labour Standards in Trade.” World Economy 15 (1992).

GATT Secretariat. “Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations.” December 15, 1993.

Jackson, John H. “The World Trade Organization, Dispute Settlement and Codes of Conduct.” In The New GATT: Implications for the United States, edited by Susan M. Collins and Barry P. Bosworth, 63-75. Washington: Brookings, 1994.

Keck, Margaret E. and Kathryn Sikkink. Activists beyond Borders: Advocacy Networks in International Politics. Ithaca: Cornell University Press, 1998.

Program on International Policy Attitudes. “Americans on Globalization.” Poll conducted October 21-October 29, 1999 with 18,126 adults. See www.pipa.org/OnlineReports/Globalization/executive_summary.html

US Tariff Commission. Operation of the Trades Agreements Program, Second Report,