The World Trade Organization has its roots in the General Agreement on Tariffs and Trade, signed after World War II by 23 countries with the intention of forming an International Trade Organization as part of the new inernational financial structure with International Bank for Reconstruction and Development (IDRB and precursor to the World Bank) and the IMF. The purpose was to create a transparent and rules-based system of international trade, to reduce barriers to trade and settle trade disputes.
The ITO was originally nixed by the U.S. on the grounds that it ceded too much sovereignty, so the GATT stood as the framework for international trade until 1995. The GATT was primarily agreed upon by Western countreis, the first five rounds managed to reduce barriers from 50% to 12%, contributing to significant growth in the West. The Kennedy round involving 66 countries in the 1960s was geared toward developing countries as well as bringing in anti-dumping rules. By the Tokyo round in the 1970s, 102 countries were participating and non-trade barriers were tackled. Problems remained and were even provoked by the success of GATT rounds in lowering tariffs, as with the factory closures and unemployment in the West that encouraged bilateral market-sharing with competitors, and the subsidies race in agriculture thus undermining the needs of developing countries and the multilateral process. Other problems were that the dispute mechanism took too long to process and had weak enforcement, and trade had become more complex with services becoming more important though left out of GATT. The Uruguay round took seven and a half years ending in the creation of the World Trade Organization in 1995.
The purpose of this historical context is to argue that change in the international trading system that has promoted the largest peak in globalization (surpassing the peak prior to WWI) has a longer history than the WTO which has de facto fulfilled the original goal of an ITO. It will be argued that the change provided by the WTO is in its relative success in fulfilling the aims of a transparent rules-based system and preventing fracture of globalization (there are strong counter-arguments to the popular notion that globalization is unstoppable).
The core principle behind the ITO, GATT and the WTO lie is non-discrimination - the lowering of barriers for one trading partner should imply lowering for all partners. This should be agreed upon by all countries, however agreements are voluntary which opens the door for plurilateral agreements (4 codes which are agred upon by some members but not all in the WTO), and countries are free to enter into voluntary agreements beyond the WTO - through PTA's, RTA's and bilateral FTA's. This does create a spaghetti bowl which seems to contradict the spirit of non-discrimination but it is important to note that agreements are layered so that the WTO rounds can reach agreements at that level, and the other arrangements go beyond these, are frequently registered with the WTO and should not therefore contradict WTO rules. No one can expect that such a system will be perfect since the entire project is one of complex negotiation and limits on sovereignty must be voluntarily entered into.
The World Trade Organization has provided a forum to put the multilateral normalization of international trade back on track. The Uruguay round also dealth with the issue of services, establishing GATS - the General Agreement on Trade in Services. The issues surrounding textiles were covered in the multifibre agreement. Some progress was made on agriculture between the U.S. and E.U. with the Blair House accord quelling the subsidy war. Intellectual property was included in with the TRIPS agreement, though some writers such as Bhagawati believe that IP should not be included because it makes the WTO a royalty collection agency These developments formed the basis for the WTO's further timetable to continue to hash out issues and to work towards a better deal for developing countries. Finally, the Uruguay round provided the WTO with a more robust dispute settlement mechanism. The momentum of membership in the institutions continued and today with 151 members and over 50 observers.
The international trading system clearly had a trajectory of market integration based on the reduction of barriers to trade since the first GATT, and prior to this protectionism had peaked after WWI putting a halt to the previous peak. The national interests that give rise to protectionism and the erection of tariffs, the use of subsidies and other barriers to trade are rational to a point except that trade on the whole makes everyone better off. This provides the incentive for countries to reduce those barriers, however since the barriers served their own purposes, countries want to reduce them in ways that ensure that they agreements with trading partners do not leave them worse off than the partner. Since nations are cast in a competitive situation, there are actually two dimensions of competition to be dealt with in trade. One is the nature of free trade allowing competition of firms and industries across borders to create economic growth and the second is that national borders and governments remain important and nations themselves must remain competitive - if they lose out too much there is the urge to return to protectionism.
Therefore countries negotiate the terms of trade agreements, and in fact barriers that exist already are a bargaining chip. When the country plays its hand in eliminating such barriers, it wants reciprocity. Bilateral negotiations can reduce tariffs for some countries allowing free trade that has not been negotiated with others. This becomes more complex as the trading partner also has partners. This process can become very complex, and without a rules-based transparent system all will benefit less as the bargaining chips of protection and their more myopic benefits become more relevant. Ultimately all nations' interest is to remain competitive while benefiting from cooperation. It appears that without a return to a multilateral track with the WTO, the system of negotiating bilateral or preferential arrangements can easily disentangle into a trading system of seeking competitiveness through barrier competitions and alliances, rather than seeking competitiveness through negotiated multilateral cooperation.
So, the international trading system has evolved with the WTO. Given the desire for more and more countries to develop a normalized freer trading system throughout the second half of the 20th century, and the concerns that the GATT could be eroded, as well as the need to address development and developing countries through trade, the WTO has fulfilled the hopes for the creation of the ITO. The original GATT and its successive rounds had the most influence on changing the formerly protectionist driven international trading system pre-WWII and promoting globalization. The WTO has further expanded globalization and offered the hope of multilateral negotiations maintaining the original goal of a transparent rules-based system. Bilateral FTA's and PTA's sill create some complexity and discrimination, but trade wars between countries and large blocs seem less likely with the presence of the WTO. Services can now dealt with as trade under a multilateral rules-based system. Smaller countries have the ability to object to larger countries unfair trading practises through a dispute settlement mechanism. Though the Doha development round has not yet reached an agreement satisfactory to developing countries, the process offers the possibility of greater benefit and fairer trade from the point of view of developing countries and reducing those tenacious non-tariff barriers in agriculture, and expanding market access for goods that developing countries have a comparative advantage in producing.
The WTO's stronger dispute settlement mechanism has made it more difficult for governments to intervene and this is a blessing and a curse depending on the reasons governments have for intervening. The slippery slope is all in interpretation. The whole issue of anti-dumping legislation brought in early in the GATT is case in point. One country may see its domestic producers be knocked out by competition from cheaper imports. Dumping should mean that the importer is selling the product below cost for a period to knock out the competition, and then recover those costs later by capturing that market. This is anti-competitive. But the legislation allows the domestic producer to make the complaint and the way in which the legilation and the process is constructed may mean that anti-dumping laws can be used unfairly to keep out fairly competing lower-cost products - protectionism. Now there are issues in health and safety as well. Thailand has had many disputes with the United States - on cigarettes they claim that American cigarette companies produce a product that is more addictive and which has more additive harmful chemicals than domestic cigarettes. They tried to ban the import. Was this a reasonable health regulation, or protectionism to favour domestic producers? Here the U.S. could bring Thailand to the WTO on dispute at the behest of American tobacco companies. Apparently, one effect that the WTO has had is in the increase in tobacco smoking wordwide, and of course regulating imports has been more difficult everywhere because it is less arbitrary, and requires greater grounds for doing so as well as the possibility of coercion by the dispute settlement mechanism which is now more robustly enforceable. The whole issue of sovereignty that the U.S. resisted is there again for any member and frequently raised by civil society. Whereas more power to governments to erect barriers is a dangerous path, it is not clear whether there is an adequate response to these negative effects of globalization directly linked to WTO's presence.
The WTO has not replaced bilateral FTA's and clearly the effort to negotiate worldwide agreements on tariffs and trade is a grinding process. The United States in particular has pursued a great many bilateral arrangements, again with Thailand the FTA is a bone of great contention among the people. Many activitists see far greater hope in a better deal in the WTO despite its difficulties, and they see greater danger especially for smaller countries in asymmetric bilateral FTA's with powerful countries. This has again raised the motivation for left-out countries to join RTA's or PTA's.
Therefore, the WTO has not ended the complexity of the international trading system, nor has it rounded out that system to be entirely fair. However, given the enormity of the task, the number of players and the rounds and rounds of negotiation needed it cannot be expected to have accomplished this. The fact that the negotiations are in process and have gradually made trade more open in the world while providing greater stability than a system without a common multilateral platform is a sign that that the WTO has changed the international trading system for the better.
I personally remain concerned that the environment, human rights and health infrastructure of our world is not yet strong enough to cope with globalization. For instance with the difficulty in banning foreign cigarettes even though within the country cigarettes are legal is that the larger foreign companies have much more powerfull marketing, greater supply and do not contend with strong public education and public health measures, age enforcements, advertising restrictions. Yet, there is the rule that local and foreign producers must be treated equally. Thus more kids will take up smoking, and this can't be good. The question is: would it do more bad than good to orient the WTO's concerns beyond trade distortion, or to end the WTO? Is the answer rather to make a concerted effort to strenthen public health, human rights and environmental protection on a world-wide mulitalateral basis in concert with WTO and use globalization in order to catch up with globalization?
