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The Evolution of the Trade Regime: Law, Politics, and Economics of the GATT and the WTO

Author(s):Barton, John H.
Goldstein, Judith L.
Josling, Timothy E.
Steinberg, Richard H.
Reviewer(s):Aaronson, Susan Ariel

Published by EH.NET (January 2007)

John H. Barton, Judith L. Goldstein, Timothy E. Josling and Richard H. Steinberg, The Evolution of the Trade Regime: Law, Politics, and Economics of the GATT and the WTO. Princeton, N.J: Princeton University Press, 2006. xiv + 242 pp. $30 (cloth), ISBN: 0-691-12450-7.

Reviewed for EH.NET by Susan Ariel Aaronson, Graduate School of Business, George Washington University.

If success is about results, then the most successful international organization is the GATT/WTO. (The World Trade Organization superseded the General Agreement on Tariffs and Trade in 1995.) Under its aegis, trade has expanded dramatically. The ratio of world exports of goods and services to GDP rose from 13.5% in 1970 under the GATT to 32% in 2005 under the WTO. All major geographic regions recorded an excess of trade over output growth. In its almost 60 year history, the GATT/WTO has stimulated multilateral trade liberalization, settled disputes, and provided a forum for ongoing trade talks. The WTO has 150 members as of October 2006, and nations such as Iran and Russia, major world/regional powers, are clamoring to be admitted as members. But past success is no guarantee of the future; and the WTO’s future in governing world trade is under threat from multiple sources such as the proliferation of bilateral regional trade agreements, the failure to find common ground on agriculture and other sectors largely outside the WTO, and the unwillingness to several large trading nations to implement WTO dispute settlement decisions. Moreover, the current round of trade talks, the Doha Round, is in jeopardy. In the five years of negotiations (since November 2001), WTO members have been unable to find common ground on a wide range of issues (particularly related to market access in agriculture). Thus, the Director General of the WTO suspended the talks in July, 2006. .

This book attempts to explain the multiple threats to the future success of the WTO by examining the political, legal and economic foundations of the GATT/WTO. The authors come from different scholarly traditions: law, political science, and economics. They then apply those multiple lens to their analysis of the evolution of the world trading system. They maintain that the key to the success of the GATT/WTO over this almost 60 year period is its “legitimacy” both to policymakers and the public engaging in trade. They argue that the GATT/WTO “was once oriented towards free trade and thus served a goal believed to be globally beneficial. But as it entered into other areas, it became a rule-oriented institution and therefore needed a new form of legitimacy” (pp. xi-xii). The book “argues that this ‘authoritative gap’ reflects the regime’s inability to recast its rules and norms of behavior in line with the changing interest and power of its members” (p. 2). But as the authors note, the WTO’s 150 members no longer share norms. Many of the features that explained its success “later turned out to be its Achilles heel, creating demand for institutional change” (p. 2). The authors note that one key flaw in the design of the GATT/WTO is that it allowed nations to join preferential regional trading groups. “The result has been an explosion of such arrangements, even though the trade and investment diversion resulting from regionalization … often conflict with the goals of the multilateral regime” (p. 3). I would argue slightly differently that the United States, one of the creators of the GATT/WTO, has deliberately undermined the institution it created. This focus of bilateral trade liberalization began with the first President Bush, but has reached its apex under Bush II, George W. Bush. His trade representative, Robert B. Zoellick, argued that competitive liberalization would stimulate greater attention to multilateral talks, but in fact it has undermined multilateralism and led more nations to develop such bilateral arrangements. On October 9, 2006, EU Trade Minister Peter Mandelson noted that the EU would also pursue bilateralism. It is hard not to believe that such agreements take up time and energy from a focus on the WTO.

The book is at its best when it explains how the trade regime has evolved over time. The authors provide a thorough analysis of how GATT/WTO members have dealt with problems such as allowing China (an original GATT member) to rejoin the WTO; new issues such as accommodating health and safety standards, the environment, and services; and why it has failed to deal with key problems such as labor standards and movement of people. I was surprised to see that the book did not discuss why the inclusion of intellectual property rules was revolutionary for the GATT. The GATT/WTO delineates what policymakers can not do — a form of negative regulation. But the Trade Related Intellectual Property Agreement (TRIPS) is positive regulation. Such an approach to global governance signified a major change in regulatory approach to the world trading system, yet the authors do not examine that change in that manner.

The book also contains some interesting findings. The authors describe a study that proclaims that while each nation has benefited from GATT/WTO membership, “nations may have been best off in a world absent this international institution” (p. 206). They make this point in regards to developing countries that have to comply with rules they did not devise. Yet I would have liked to see more on this analysis. Maybe policymakers from the newest entrants to the GATT/WTO didn’t write the rules, but they have benefited from them. In addition, whatever the failures of the Doha Round, the focus on the needs of developing countries declared in that round has inspired WTO members to focus greater attention on what poor countries and people living in poverty need to participate in trade. The poor don’t just need lower tariffs or abstract access to markets. They need low cost capital, education about land productivity and planting techniques, roads, understanding of national standards and the like. To put it differently, trade liberalization is insufficient to enable the bulk of the world’s poorest people to reap the benefits of trade.

The authors also describe a study published in the American Economic Review that claims that the GATT/WTO has not increased trade and that non-members may have had a larger increase in trade than did members (p. 213). But the authors disagree, citing the role of the GATT/WTO in assuring that agreements are honored, and they stress that the GATT/WTO has instilled among policymakers a shared notion of proper trade etiquette (pp. 213-14).

Yet this reader was left hanging about the authors’ view of the future of the WTO. As of this writing, its future looks murky indeed. The Doha Round of trade talks is at death’s door and no member state has been willing (or able) to make sufficient concessions to entice other members to take similar steps. The authors conclude that the WTO must find ways to change — but the WTO is nothing but the sum of its members’ wills. If they are unwilling to support change, the WTO will become an institution with a proud history and lost potential.

This book deserves a broad audience. It is not a book for entry-level undergraduate students in trade, political science, or governance. I highly recommend it for students that have already had some introduction to the politics and the economics of trade. It would be useful in advanced classes in trade, global governance, and law. The volume is a good synthesis of intellectual perspectives that can help students gain greater understanding of the nuances of trade.

Susan Ariel Aaronson teaches at George Washington University and is the author (with Jamie Zimmerman) of Righting Trade: Public Policies at the Intersection of Trade and Human Rights (Cambridge University Press, 2007).

Subject(s):International and Domestic Trade and Relations
Geographic Area(s):General, International, or Comparative
Time Period(s):20th Century: WWII and post-WWII