Although GATT’s success in reducing tariffs to such a low level was desired, combined with a series of economic recessions in the 1970s and early 1980s drove governments to devise other forms of protectionism for declining 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 their share of the agricultural trade. Both these changes undermined GATT’s credibility and effectiveness.
From its 47year rein, GATT helped establish a that became more and more liberal through . But by the 1980s the system needed a thorough overhaul. Member countries identified that the problem was not just a “deteriorating trade policy environment” ( history).
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 globalisation 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 liberalising 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 . Even GATT’s institutional structure and its dispute settlement system were giving cause for concern.
This led to the in 1986, the Marrakesh Declaration and ultimately to the creation of the WTO (World Trade Organisation) in 1994. It also brought back the reality of the failed attempt to create an International Trade Organization in 1948. Up to 1994, the trading system came under GATT, salvaged from the aborted attempt to create the ITO. These and other factors convinced GATT members that a new effort to reinforce and extend the multilateral system should be attempted.
As a result on the 1st January 1995, 128 countries signed the new WTO Agreements and officially became members. The WTO is a
“…member driven organisation, where all decisions are made by the member governments and the rules are the outcome of negotiations among members.”()
The main role of the WTO is to regulate and liberate world trade. Since 1995 the WTO has grown: there are now currently 144 member countries, 550 secretarial staff, a budget of 143 million Swiss Francs for 2002, and the countries members account for over 97% of world trade.
The WTO has ten main roles in the global economy: they promote peace, disputes are handled constructively, rules make it easier for everyone, freer trade cuts the cost of living, it provides more choice of products and qualities, trade raises income, trade stimulates economic growth, the basic principles make life more efficient, governments are shielded from lobbying and the system encourages good government.
A significant advantage, which the WTO has, is that it “ ….is more powerful than the GATT, which was merely an inter-govern-mental treaty not an international organisation” (Essentials of Economics, Sloman, p411). This assists the WTO in settling any disputes that occur between member countries. However, if countries do not agree with the ruling that the WTO gives, they are able to appeal. Although they will have to accept the ruling from the appeal “otherwise face sanctions”(). The fact that the WTO has this power, unlike the GATT, has enticed far more significant number of member countries to bring their disputes forward. As a result over 250 disputes have been brought forward to the WTO since 1995, in comparison with only 300 in the whole 47year duration of the GATT.
So much depends on the effective enforcement and the solution of disputes. It is this area that hopes are pinned. The WTO has by comparison with the GATT, achieved a vast improvement in this area of criticism; the number of cases already brought forward indicates a significant confidence that the mechanism for dispute resolution was undoubtedly needed.
A disadvantage of the WTO is that it takes an extremely long time to process disputes and the procedure is quite long and complex. This is down to the fact that the countries have to submit requests and reports on meetings and the process often takes years before a solution is found.
An example from today’s global economy, which demonstrates the effectiveness of the WTO in its role of regulation world trade between its member countries, is the dispute between the United States of America, Ecuador and the European Community over bananas.
In February 1996, the EC announced that they would put tariffs on imports of bananas to protect the ACP developing banana industry. This angered the USA and Ecuador who are significant producers of bananas. The USA in retaliation put a 100% tariff on all imports from the EC countries and submitted their dispute with the EC to the WTO.
It took several years of negotiations between these countries to come to a “mutually agreed solution” () in 2001. They agreed that the USA and Ecuador could import a set amount of bananas each into the EC without quotas being added to the price, and as a result the USA immediately lifted the 100% tariff on all EC imports.
Although neither side got what they had set out to achieve, threw negotiations with the WTO they came to a compromise where the EC was still helping to protect the developing ACP banana industry and the USA and Ecuador were still allowed to import a certain amount of bananas without tariffs being added to their price. In the end, because of the WTO all countries got something out of the settlement. Although the time in which it took to reach an agreement was extremely long.
It can be concluded from the information above, that the GATT achieved several desired advantages for world trade: a huge reduction in tariffs and a significant increase in world trade during its 47year reign. Although it is apparent that an overhaul of the GATT's system for regulating world trade was long needed. The GATT had not moved with the times to support trade in anything other than goods and it did not have the power to enforce solutions to disputes. For these reasons it is evident as to why the member countries pushed for the development of an organisation which could assist better with these issues.
Today the WTO is effectively accepted as an international organisation for monitoring and liberating world trade worldwide. Its apparent success in developing and enforcing solutions to disputes is playing a major role in promoting a well of confidence in its mechanics and as a result more countries are submitting applications to join.
Whilst it is too easy, but very much a mistake to undervalue what was achieved by the GATT, there can be no doubt that the WTO is in a different frame and far more effective and successful in regulating today’s global economy.
Word Count:1496
Bibliography:
Books:
-Essentials of Economics
Sloman, John
Second Edition, 2001
Prentice Hall
-The WTO and International Regulation
May, Cameron
Second Edition, 1999
T.J International Ltd
-The European Community and GATT
Hilf, Meinhard
Fourth Edition, 1986
Deventer London
Websites:
-www.wto.org
-www.economist.com
