International Trade

Development

A response in many countries to the 1930s Great Depression was the raising of the tariff wall.  Most western European countries raised tariff barriers.  Overall output suffered, and it was felt that the process exacerbated the Great Depression.

The United States entered into bilateral trade negotiations with partners to reduce tariffs, commencing in the mid-1930s. After World War II, protectionism came to be seen as part of the seeds of the war and was rejected as a policy by most developed countries.

International trade has increased enormously since the Second World War.  There has been significant legal and political movement in favour of free trade, including a reduction of tariffs and quotas and, in many cases, their complete removal.

GATT

The founders of the IMF saw the creation of a system to liberalise world trade and international cooperation as a central pillar of the post-world war age. This was to be complemented by a World Trade Body.

Ultimately, the requisite treaty was not approved by the US Congress, and the General Agreement or Trade and Tariffs provisional agreement came into effect in 1948.

The trend towards globalisation associated with the liberalisation of trade has been criticised. As trade assumes a worldwide scale, some sectors may lose, and some may gain.  The position of large multinational firms is strengthened.  Certain countries and regions will benefit more from free trade than others. Free trade allows multinational companies to locate parts of their production in low-wage countries to the detriment of employees in developed countries.

The 1947 GATT agreement remained in place until the creation of the World Trade Organisation in 1994.  Most of the key provisions of the original GATT remain in place.

Basic Principles

As originally formed as a multinational treaty, the state members were to negotiate substantial reductions in customs tariffs and impediments in trade.  Further states acceded to the Agreement over time.

It is forbidden to discriminate between states.  Each state was to accord the same trading privileges to all other states equally.  This is the most favoured nation status principle.  Once trade foreign goods were imported into a state, they were to be treated in the same way as domestic goods.

Subject to some exceptions, the only barriers that could be permitted to the importation of goods were customs tariffs.  Trade regulations must be transparent, clear, published and available to other states.

Custom Unions and free trade agreements between states were permitted by GATT and are legitimate means of liberalising trade between them.  They must not, however, discriminate against third-party states that were also members of GATT.

Anti-dumping duties to offset the advantage that imported goods have when sold their price charge in their home, countervailing duties to counteract foreign export subsidies, fees and proper charges are the only permissible charges on imported goods.

Updating GATT

Multilateral trade negotiations or rounds have updated the original GATT treaty.  Eight rounds were held, principally in Geneva.

The last round was initiated at Doha in Qatar, and was protracted due, in significant part, to disputes between the EU and US over agricultural subsidies. There was a significant breakdown and hiatus in and after 2008. After 14 years of talks, members of the World Trade Organization effectively ended the Doha round of negotiations in December 2015.

The early rounds of GATT were devoted to reducing tariffs.  Later rounds commenced dealing with non-tariffs restrictions. Commonly, states interested in a particular product or service negotiate arrangements which are then extended to all states through the most favoured nation principle.

Tariff reductions were agreed upon in rounds and involved significant target percentages over a period. Focussed efforts to reduce the higher tariffs through rounds in the 1960s that reduced duties by 35 per cent.

Rounds

 A new part of the GATT agreement provided for the stabilisation of basic raw materials and commodities and the reduction of customs duties and restrictions that differentiated between products in a primary state and finished form.  Developed states did not have to apply the principle of reciprocity in relationships with developing states.

Tariffs were reduced but by as much as in the Kennedy round.  Some tariffs, including those for agricultural products, were not cut. Relatively modest reductions were achieved.

Several codes were produced regulating non-tariff matters, including trade in particular commodities.  There were sponsored but not necessarily administered by GATT.

The multilateral treaties were open to ratification by any state. The codes included codes on custom valuation, subsidies and countervailing measures, anti-dumping, import licensing, standards and procurement by the governmental sector.

The Uruguay Rounds from 1986 to 1984 culminated in the replacement of the GATT by the World Trade Organisation.  108 states ratified the outcome of the Uruguay Round and shortly afterwards established the successor World Trade Organisation, which commenced in 1995.

WTO

Several multilateral trade agreements are part of the WTO agreement and bind all members.  There are 14 agreements on trade, including the

• GATT 1994
• General Agreement on Trade in Services
• Agreement in the Trade-Related Aspects of Intellectual Property
• Understanding on rules of procedure governing the settlement of disputes and
• a trade policy review mechanism.

There is a number of plurilateral trade agreements that are binding only on those states which ratify and accept them.

WTO Body

The WTO is an umbrella organisation that provides a common institutional framework for the implementation of the Agreement. There are now over 150 members of the WTO. Less developed states are required only to undertake commitments consistent with their development and trade needs

It acts as a forum for ongoing negotiations. It provides a tribunal for the resolution of disputes. It reviews the trade policies and practices of members.

The WTO consists of a Ministerial Conference and General Councils for trade in goods, trade in services and trade in intellectual property. The General Council acts as a dispute settlement body and trade review body..

The Ministerial Council and General Council are made up of representatives or member states. There is a Secretariat which is headed by a Director General.  He is appointed by the Ministerial Conference.