UNDERSTANDING THE WTO:
BASICS The GATT years: from Havana to Marrakesh
The WTO’s creation on 1 January 1995 marked the biggest reform of international trade since after the Second World War. It also brought to reality
— in an updated form — the failed attempt in 1948 to create an International Trade Organization.
Much of the history of those 47 years was written in Geneva. But it also traces a journey that spanned the continents, from that hesitant start in 1948 in Havana (Cuba), via Annecy (France), Torquay (UK), Tokyo (Japan), Punta del Este (Uruguay), Montreal (Canada), Brussels (Belgium) and finally to Marrakesh (Morocco) in 1994. During that period, the trading system came under GATT, salvaged from the aborted attempt to create the ITO. GATT helped establish a strong and prosperous multilateral trading system that became more and more liberal through
rounds of trade negotiations. But by the 1980s the system needed a thorough overhaul. This led to the
Uruguay Round, and ultimately to the WTO.
for almost half a century back to top
From 1948 to 1994, the General Agreement on Tariffs and Trade (GATT) provided the rules for much of world trade and presided over periods that saw some of the highest growth rates in international commerce. It seemed well-established, but throughout those 47 years, it was a provisional agreement and organization.
The original intention was to create
a third institution to handle the trade side of international economic
cooperation, joining the two “Bretton Woods” institutions, the World Bank and
the International Monetary Fund. Over 50 countries participated in negotiations
to create an International Trade Organization (ITO) as a specialized agency of
the United Nations. The draft ITO Charter was ambitious. It extended beyond
world trade disciplines, to include rules on employment, commodity agreements,
restrictive business practices, international investment, and services. The aim
was to create the ITO at a UN Conference on Trade and Employment in Havana, Cuba
Meanwhile, 15 countries had begun talks in December
1945 to reduce and bind customs tariffs. With the Second World War only recently
ended, they wanted to give an early boost to trade liberalization, and to begin
to correct the legacy of protectionist measures which remained in place from the
This first round of negotiations resulted in a package
of trade rules and 45,000 tariff concessions affecting $10 billion of trade,
about one fifth of the world’s total. The group had expanded to 23 by the time
the deal was signed on 30 October 1947. The tariff concessions came into effect
by 30 June 1948 through a “Protocol of Provisional Application”. And so the new
General Agreement on Tariffs and Trade was born, with 23 founding members
(officially “contracting parties”).
The 23 were also part of the larger group negotiating
the ITO Charter. One of the provisions of GATT says that they should accept some
of the trade rules of the draft. This, they believed, should be done swiftly and
“provisionally” in order to protect the value of the tariff concessions they had
negotiated. They spelt out how they envisaged the relationship between GATT and
the ITO Charter, but they also allowed for the possibility that the ITO might
not be created. They were right.
The Havana conference began on 21 November 1947, less
than a month after GATT was signed. The ITO Charter was finally agreed in Havana
in March 1948, but ratification in some national legislatures proved impossible.
The most serious opposition was in the US Congress, even though the US
government had been one of the driving forces. In 1950, the United States
government announced that it would not seek Congressional ratification of the
Havana Charter, and the ITO was effectively dead. So, the GATT became the only
multilateral instrument governing international trade from 1948 until the WTO
was established in 1995.
For almost half a century, the GATT’s basic legal principles remained much as they were in 1948. There were additions in the form of a section on development added in the 1960s and
“plurilateral” agreements (i.e. with voluntary membership) in the 1970s, and efforts to reduce tariffs further continued. Much of this was achieved through a series of multilateral negotiations known as
“trade rounds” — the biggest leaps forward in international trade liberalization have come through these rounds which were held under
In the early years, the GATT trade rounds concentrated on further reducing tariffs. Then, the Kennedy Round in the mid-sixties brought about a GATT Anti-Dumping Agreement and a section on development. The Tokyo Round during the seventies was the first major attempt to tackle trade barriers that do not take the form of tariffs, and to improve the system. The eighth, the Uruguay Round of
1986-94, was the last and most extensive of all. It led to the WTO and a new set of agreements.
The trade chiefs
The Directors-general of GATT and WTO
· Sir Eric Wyndham-White (UK) 1948-68
· Olivier Long (Switzerland) 1968-80
· Arthur Dunkel (Switzerland) 1980-93
· Peter Sutherland (Ireland) GATT 1993-94; WTO 1995
· Renato Ruggiero (Italy) 1995-1999
· Mike Moore (New Zealand) 1999-2002
· Supachai Panitchpakdi (Thailand) 2002-2005
· Pascal Lamy (France) 2005–
Subsidies and countervailing measures — interpreting Articles
6, 16 and 23 of GATT
Technical barriers to trade — sometimes called the Standards Code
Import licensing procedures
valuation — interpreting Article 7
Anti-dumping — interpreting Article 6, replacing the Kennedy Round
Bovine Meat Arrangement
International Dairy Arrangement
Trade in Civil Aircraft
Tokyo Round: a first try to reform the system back to top
The Tokyo Round lasted from 1973 to 1979, with 102 countries participating. It continued
GATT’s efforts to progressively reduce tariffs. The results included an average one-third cut in customs duties in the
world’s nine major industrial markets, bringing the average tariff on industrial products down to 4.7%. The tariff reductions, phased in over a period of eight years, involved an element of
“harmonization” — the higher the tariff, the larger the cut, proportionally.
In other issues, the Tokyo Round had mixed results. It failed to come to grips with the fundamental problems affecting farm trade and also stopped short of providing a modified agreement on
“safeguards” (emergency import measures). Nevertheless, a series of agreements on non-tariff barriers did emerge from the negotiations, in some cases interpreting existing GATT rules, in others breaking entirely new ground. In most cases, only a relatively small number of (mainly industrialized) GATT members subscribed to these agreements and arrangements. Because they were not accepted by the full GATT membership, they were often informally called
They were not multilateral, but they were a beginning.
Several codes were eventually amended in the Uruguay Round and turned
into multilateral commitments accepted by all WTO members. Only four
remained “plurilateral” — those on government procurement, bovine meat,
civil aircraft and dairy products. In 1997 WTO members agreed to terminate
the bovine meat and dairy agreements, leaving only two.
GATT was provisional with a limited field of action, but its success over 47 years in promoting and securing the liberalization of much of world trade is incontestable. Continual reductions in tariffs alone helped spur very high rates of world trade growth during the 1950s and 1960s
— around 8% a year on average. And the momentum of trade liberalization helped ensure that trade growth consistently out-paced production growth throughout the GATT era, a measure of
countries’ increasing ability to trade with each other and to reap the benefits of trade. The rush of new members during the Uruguay Round demonstrated that the multilateral trading system was recognized as an anchor for development and an instrument of economic and trade reform.
But all was not well. As time passed new problems arose. The Tokyo Round in the 1970s was an attempt to tackle some of these but its achievements were limited. This was a sign of difficult times to come.
GATT’s success in reducing tariffs to such a low level, combined with a series of economic recessions in the 1970s and early 1980s, drove governments to devise other forms of protection for sectors facing increased foreign competition. High rates of unemployment and constant factory closures led governments in Western Europe and North America to seek bilateral market-sharing arrangements with competitors and to embark on a subsidies race to maintain their holds on agricultural trade. Both these changes undermined
GATT’s credibility and effectiveness.
The problem was not just a deteriorating trade policy environment. By the early 1980s the General Agreement was clearly no longer as relevant to the realities of world trade as it had been in the 1940s. For a start, world trade had become far more complex and important than 40 years before: the globalization of the world economy was underway, trade in services
— not covered by GATT rules — was of major interest to more and more countries, and international investment had expanded. The expansion of services trade was also closely tied to further increases in world merchandise trade. In other respects, GATT had been found wanting. For instance, in agriculture, loopholes in the multilateral system were heavily exploited, and efforts at liberalizing agricultural trade met with little success. In the textiles and clothing sector, an exception to
GATT’s normal disciplines was negotiated in the 1960s and early 1970s, leading to the
Multifibre Arrangement. Even
GATT’s institutional structure and its dispute settlement system were causing concern.
These and other factors convinced GATT members that a new effort to reinforce and extend the multilateral system should be attempted. That effort resulted in the
Uruguay Round, the Marrakesh Declaration, and the creation of the WTO.
Trade rounds: progress by package
They are often lengthy — the Uruguay Round took
seven and a half years — but trade rounds can have an advantage. They
offer a package approach to trade negotiations that can sometimes be
more fruitful than negotiations on a single issue.
The size of the package can mean more benefits because participants
can seek and secure advantages across a wide range of issues.
Agreement can be easier to reach, through trade-offs — somewhere in
the package there should be something for everyone.
This has political as well as economic implications.
A government may want to make a concession, perhaps in one sector, because
of the economic benefits. But politically, it could find the concession
difficult to defend. A package would contain politically and economically
attractive benefits in other sectors that could be used as compensation.
So, reform in politically-sensitive sectors of
world trade can be more feasible as part of a global package — a good
example is the agreement to reform agricultural trade in the Uruguay
Developing countries and other less powerful participants have a greater
chance of influencing the multilateral system in a trade round than
in bilateral relationships with major trading nations.
But the size of a trade round can be both a strength
and a weakness. From time to time, the question is asked: wouldn't it
be simpler to concentrate negotiations on a single sector? Recent history
is inconclusive. At some stages, the Uruguay Round seemed so cumbersome
that it seemed impossible that all participants could agree on every
subject. Then the round did end successfully in 1993-94. This was followed
by two years of failure to reach agreement in the single-sector talks
on maritime transport.
Did this mean that trade rounds were the only route
to success? No. In 1997, single-sector talks were concluded successfully
in basic telecommunications, information technology equipment and financial
The debate continues. Whatever the answer, the
reasons are not straightforward. Perhaps success depends on using the
right type of negotiation for the particular time and context.