Chapter Nine
Time to Stop Talking. Multilateral, Rules-based ‘Free Trade’ is (Belatedly) Born: The World Trade Organization.

Persist and persevere, and you will find most things that are attainable, possible.
Lord Chesterfield (1694-1773).
Diplomat, statesman, man-of-letters.

Chapter Highlights

On  January 1st 1995, the World Trade Organization (WTO) was formally established with a simple mission:

The World Trade Organization deals with the global rules of trade between nations. Its main function is to ensure that trade flows as smoothly, predictably and freely as possible.

Its origins are more complex. Along with the World Bank and the International Monetary Fund (IMF), the WTO was first proposed at the Bretton Woods Conference in the USA in 1944, just as the Second World War approached its grim but final conclusion. It ultimately provided the blueprint for a ‘New World Order’ of free and open trade between nations, a rules-based formula that had its conceptual roots in late eighteenth- and early nineteenth-century economic thought.

The WTO was the end-point of prolonged (and remarkably patient) political negotiations between multiple countries held under the General Agreement on Tariffs and Trades (GATT) framework. This new world order did not arise from luck, the roll of a dice. It was created, in an extraordinary battle of wills between a world-renowned British economist (John Maynard Keynes) and a largely unknown American technocrat (Harry Dexter White), in a negotiated order of monumental global impact.

Before the WTO was formally established, the framework for the conduct of international business was the General Agreement on Tariffs and Trade (GATT), known by aficionados of international relations as the General Agreement to Talk and Talk (ha ha).

The origins of GATT were rooted in failure: the attempt by many countries through a United Nations conference on trade and employment to create the International Trade Organization (ITO). This idea was heavily debated during the Bretton Woods negotiations with an explicit acknowledgement that tariffs and other forms of protectionism had contributed to the Second World War and significantly influenced the origins of the First.

As David Ricardo had observed more than a century earlier, free and open international trade has benefits for all country-participants whereas mercantilism (the predominant ‘global’ business modus operandi of his day) is rooted in parochial market closure, treasure accumulation and selfishness, i.e. it is a zero-sum game, winner takes all trade policy. Economic interdependence between nations, in contrast, has a happy side effect over and above wealth creation: world peace.

GATT got going on October 30th 1947 with 23 nations as signatories and became operationally effective on January 1st 1948. Its remit was expanded over time – as was its membership – during a long series of ‘rounds’ of negotiation talks:

      1. Geneva I (1947).
      2. Annecy (1949).
      3. Torquay (1951).
      4. Geneva II (1955-56).
      5. Dillon (1960-62).
      6. Kennedy (1962-67).
      7. Tokyo (1973-79).
      8. Uruguay (1986-1994).

Each round had different agendas and the cumulative outcomes achieved were extraordinary given that they progressed relatively smoothly against a geopolitical backdrop that included the still-unresolved Korean War (1950-1953), the complex second Indochina War – more generally known as the Vietnam War – which spanned two decades from 1955, the Cold War (and its proxies) and multiple military skirmishes (e.g. the Falklands War) which tested international relations between countries and continents.

And factor in the collapse of the USSR, the Chinese economic reform hiatus of the early 1990s and the creation of the European Single Market to underline how the patient persistence of GATT participants and negotiators led to a degree of unprecedented stability for international trade. The final pieces of this complex jigsaw during the Uruguay Round addressed two specific concerns of ‘developed countries’, the twin issues of trade in services and intellectual property protection in all its forms.

The persistence pay-off: rules-based international trade.

On January 1st 1995, the WTO replaced GATT as the independent regulator of global commerce. The following paragraph is taken from the WTO website page titled History of the Multilateral Trading System:

From the early days of the Silk Road to the creation of the General Agreement on Tariffs and Trade (GATT) and the birth of the WTO, trade has played an important role in supporting economic development and promoting peaceful relations among nations.

The following numbered list outlines the ten major roles, ambitions and aspirations which fall within the WTO’s remit and define its purpose:

      1. Cut living costs and raise living standards.
      2. Settle disputes and reduce trade tensions.
      3. Stimulate economic growth and employment.
      4. Cut the cost of doing business internationally.
      5. Encourage good governance.
      6. Help countries develop.
      7. Give the weak a stronger voice.
      8. Support the environment and health.
      9. Contribute to peace and stability.
      10. Be effective without hitting the headlines.

While it may sound overly utopian, it should be acknowledged that these lofty goals represent the desired outcomes of 164 member countries and provide the ‘round-table’ context for the discussion forum which the WTO enables. The hard-fought rules that GATT delivered to the WTO in 1995 still provide the legal framework for the conduct of international trade in 2021.

Much criticism of the WTO is misplaced, partial or demonstrates misunderstanding and ill-judgement. The three pillars of the WTO are:

      1. Tariff commitments.
      2. Transparency.
      3. Non-discrimination and most favoured nation (MFN) rules.

Most favoured nation rules require countries to treat tariffs and taxes on goods and services the same, regardless of the foreign countries they originate from. As with all legal frameworks, there are exceptions and exemptions to this MFN rule, notably regional trade agreements such as those embodied within the EU, which legitimately grants preferential terms to goods originating from those members within its external borders.

This WTO exemption ‘permission’ explains why the UK (or any other exiting EU member for that matter) has to negotiate multiple new international trade agreements, having departed the European Single Market it joined in 1993.

 

The tangled web of international relations.

In the next chapter, I leave geopolitics and the messiness of international relations behind and explore an arguably greater double-edged force in the globalization process that arose in the mid-1990s and is driving its current momentum: information technology and ‘step-change’ communications catalysts.

 

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All content © Colin Edward Egan, 2022