Multilateralism and the World Trade Organisation

The Architecture and Extension of International Trade Regulation

Rorden Wilkinson

• Publisher: Routledge
• Year: 2006
• Print ISBN: 9780415221719
• eBook ISBN: 9781134597345
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Politics
• Index: Politics & International Relations

This book explores the significance of the establishment of the World Trade Organisation (WTO), as well as some of the issues brought into sharper focus by the Seattle demonstrations of 1999. Located within the broader study of global governance, Multilateralism and the World Trade Organisation offers a critical examination of the legal framework of the WTO. The book uncovers a series of discriminatory practices embedded in the WTO's legal framework, which act to the disadvantage of smaller, developing and transitional states.

Part I
The architecture of multilateralism

1 The institutional evolution of international trade regulation

The establishment of the WTO on 1 January 1995 marks, in many ways, a new era in international trade regulation. It symbolises the successful completion of a protracted and periodically fraught Uruguay Round of Multilateral Trade Negotiations (MTNs) – a round that seemed to many destined to failure (see, for instance, Finger, 1991). It also represents the completion of a significant step towards the creation of a coherent system of global economic governance, centred around the WTO and acting in concert with its older siblings, the IMF and the World Bank, as well as with a host of like-minded global and regional bodies.

The WTO is the successor to the GATT as the regulative body overseeing the governance of international trade. The GATT provided the legal framework regulating international trade for 47 years, in which time it evolved a quasiorganisational character with an appropriate managerial and administrative structure. And although the GATT has been heralded, by its supporters at least, as a qualified success, it was an agreement born with a number of defects. Periodic negotiations were held during the GATT’s tenure, yet these were directed more at pushing forward the trade liberalisation agenda than at addressing the General Agreement’s shortcomings. This lack of attention was heightened by the memory of previously unsuccessful attempts at altering international trade rules and creating a formal body to oversee international commerce.

The GATT itself was the benefactor of post-war attempts to create an International Trade Organisation (ITO), and the survivor of a second attempt this time to establish an Organisation for Trade Co-operation (OTC). The absence of a further attempt to create a formal organisation designed to regulate international trade was, however, rectified when four years into the Uruguay Round a consensus emerged to take forward and strengthen the existing framework of international trade regulation. Initially the subject of some debate, particularly in the context of a seemingly never-ending Uruguay Round, the decision was made to extend the regulative framework governing international commerce, and it was out of this decision that the WTO emerged.

The story behind the creation of the WTO is thus more than just about the enormous effort put into rescuing and completing a protracted, and at times wayward, Uruguay Round of GATT negotiations, though of course that had an important hand in shaping the WTO. Rather, in order to understand comprehensively how the WTO came about, the form that it has taken, and its role in governing the contemporary global economy, it is necessary to explore a longer and richer history. This chapter begins that story, by exploring the institutional history behind the creation of the WTO. It then moves on, in the following chapter, to explore its regulative heart – what is termed here, the architectural core – embodied in its predecessors and rendered visible through the development of a conception of multilateralism. Beyond this, Chapters 3, 4, 5 and 6 direct attention towards the WTO and specific aspects of its legal framework in the pursuit of a more coherent and accessible understanding of the WTO.

The post-war settlement and the ITO

As we noted at the outset, the WTO owes much to wartime and post-Second-World-War efforts to create an ITO charged with the task of administering a series of rules governing international trade and its related areas. But the ITO itself was intended to be one part of a wider plan to create a series of global economic institutions designed to manage the global economy. These institutions were themselves intended to form part of an even broader institutional framework designed to govern large tracts of global social, economic, political and cultural life under the auspices of the United Nations Organisation.

The idea of an integrated system of economic management of which a trade body would be the central component was not, however, an innovation of the wartime planners. As early as 1920, John Maynard Keynes, as part of his critique of the post-First-World-War Paris Peace Accords, put forward a suggestion for the establishment of a Free Trade Union. The proposal envisaged that such a union would operate under the auspices of the League of Nations in concert with a large rehabilitation loan directed at reconstructing Europe, and a ‘Guarantee Fund’ to assist in the restoration of currency stability (Keynes, 1920: 248–52, 265–70). The primary purpose of the Union was to mitigate the imposition of tariffs as part of a wider reconstruction strategy, but also to retrieve ‘some part of the loss of organisation and economic efficiency … which must otherwise result from the innumerable new political frontiers now created between greedy, jealous, immature, and economically incomplete, nationalist States’ (Keynes, 1920: 249). While this was one of many suggestions that the League of Nations extend, in some way, its jurisdiction into the field of trade beyond the minimalist references in Articles 16 and 23 of the organisation’s Covenant, it was among the more significant.

The importance of Keynes’ ideas lies in the system of economic governance he envisaged. The establishment of a Free Trade Union was only to be undertaken in tandem with a means by which the economic fortunes of defeated states could be rectified through some kind of lending facility, coupled with a mechanism for promoting currency stability. While Keynes’ ideas did not bear fruit initially, they set out the concept of a ‘trinity’ of institutions designed to promote domestic well-being through international means. These formative ideas proved to be of particular importance to the complexion of the system of economic governance that was to emerge in the aftermath of the Second World War. As one contemporary remarked, it ‘is interesting to note that [Keynes] should have been leader of the British Delegation at the Bretton Woods Conference negotiating [the] self-same questions’ – and, one might add, creating the same kind of institutions (Guinness, 1944: 502).

The idea of a highly interrelated trinity of institutions was given purchase by the experience of the interwar period. The hiatus between the First and the Second World Wars had been an era of severe economic, social and political malaise. The reparations that Keynes had so strongly warned against (Keynes, 1920; also Markwell, 1995: 190–5) crippled the German economy, and contributed to hyperinflation, the rise of extreme forms of nationalism and ultimately Nazism. Political tensions again arose in Europe as the defeated powers sought to rectify what they perceived to be the injustices of the Paris Peace Accords. The Wall Street Crash of 1929 heralded the start of a series of financial crises among the major capitalist powers (Helleiner, 1993: 21–6; Germain, 1997: 58–72). As depression spread throughout a highly interdependent and largely uninhibited world economy, governments began moving away from their previously liberal policies, to the retraction of their external linkages and the embarkation upon economically nationalist policies. This economic nationalism became characterised by the imposition of tariff barriers and capital controls as states sought to protect themselves from the contagious effects of participation in the global economy. Yet this added fuel to the rising cause of political nationalism. By 1939 the political ramifications of the interwar period had come to a head when Europe again went to war.

The economic hardship of the interwar period, and its role in facilitating a return to belligerence, strengthened contemporary perceptions that any new international order must, as part of a wider strategy to abate a further general outbreak of war, comprise a coherent system of global economic governance directed at enhancing national economic betterment. It was against this backdrop that the wartime allied planners began thinking about the shape of the post-war world order.

In the first of several attempts to define their post-war objectives, the US and the UK convened the Atlantic Conference in August 1941. It was at this meeting that Churchill and Roosevelt laid the foundations for the post-war economic order. Albeit couched in the vaguest of language, the Atlantic Charter that was the outcome of the Conference resurrected the idea of an integrated set of economic institutions, at the heart of which would be a global trade body. For them, the key to the post-war order was:

with due respect for their existing obligations, to further the enjoyment of all States, great or small, victor or vanquished, of access, on equal terms, to the trade and to the raw materials of the world which are needed for their economic prosperity … [to] bring about the fullest collaboration between all nations in the economic field with the object of securing, for all, improved labour standards, economic advancement and social security.

(Atlantic Charter, 1941: paragraphs 4, 5)

The commitments outlined in the Atlantic Charter, and in particular the centrality of a trade body to plans for the post-war world order, were furthered by the February 1942 Lend–Lease Agreement between the UK and the US. Article 7 of the Agreement provided the mandate for discussions to commence between the two powers on the issue of liberalising international trade. Yet from the outset, it was clear that unabated laissez-faire trade policies were not an option. The lack of stability engendered by the previous liberal international order had left too many scars. This is not to suggest, however, that the general ethos of liberalisation did not continue to hold influence, as to varying degrees it did; rather that the necessity of a degree of domestic intervention had gathered salience in key political and economic circles. As Richard Gardner puts it, ‘[a]fter the havoc wrought by two world wars and the Great Depression the reconstruction of a liberal world economy was bound to require widespread government intervention’ (1956: 2–3; also Ruggie, 1982). As such, the preliminary discussions that were to result in the drafting of the Havana Charter for an ITO stated clearly that post-war commerce must marry the general principle of free trade with a recognition of, and need for, mechanisms designed to enable a degree of state intervention at the national level. Such a commercial order, then, had to reflect this marriage as did the institutions charged with the task of its management.

This view was not, however, shared by all. Differences were to remain as to the symmetry of the blend between commercial internationalism and national interventionism – differences which ultimately contributed to the still-birth of the ITO project (Diebold, 1952; Penrose, 1953; Gardner, 1956; Woods, 1990; Schild, 1995; Graz, 1999). Article 7 of the Lend–Lease Agreement reads:

To that end [the promotion of mutually advantageous economic relations] they shall include provision for agreed action by the United States of America and the United Kingdom, open to participation by all other countries of like mind, directed to the expansion, by appropriate international and domestic measures, of production, employment, and the exchange and consumption of goods, which are the material foundations of the liberty and welfare of all peoples; to the elimination of all forms of discriminatory treatment in international commerce, and to the reduction of tariffs and other trade barriers; and, in general, to the attainment of all economic objectives set forth in the [Atlantic Charter].

(Lend–Lease Agreement, 1942: Article 7)

The project that was to emerge from the wartime discussions envisaged an economic order governed by three key institutions, each of which was to have jurisdiction over its own field of operations, though ultimately they were to be mutually complementary. Once agreement had been reached on the broad postwar agenda, internal discussions and negotiations between US and UK officials effectively separated out into two streams. The first centred on the financial issues thrown up by the designs for the post-war order culminating in the July 1944 Bretton Woods Conference and the subsequent establishment of the IMF and World Bank. The second stream dealt with making provisions for the establishment of a quasi-liberal international trading order, the eventual product of which was the Havana Charter for an ITO. Yet, while the negotiations diverged, the key to the success of the overall project was the high level of coherence between the two streams. The mechanisms devised for stabilising balance of payments situations were to have no effect unless subsequent progress was made in reducing, and ultimately eroding, trade barriers, and increases in productive capacity as a prerequisite for accruing the supposed benefits of freer trade could only be achieved in some cases through capital provision for reconstruction.

The Havana Charter and the ITO

What was to become the ITO emerged from a plan for a Commercial Union drafted by the Economic Section of the UK War Cabinet and Members of the Board of Trade, and designs for a Multilateral Convention on Commercial Policy doing the rounds in equivalent US circles. Both the outline for the Commercial Union and that for the Multilateral Convention envisaged, to greater or lesser degrees, the establishment of a permanent body which would administer a series of rules designed to promote non-discrimination in international commerce; have the legal authority to interpret such rules; and provide a mechanism for settling any disputes arising among member states. Intrinsic to these designs was the inclusion of certain safeguards allowing member states to enact discriminatory trade practices in times of balance of payments crisis, thus reflecting the domestic focus underpinning the project (Penrose, 1953: 95) and underlining the institution’s intended congruity with its financial counterparts.

In September 1943, a UK delegation arrived in Washington for talks with their US counterparts on the issue of international commerce. The talks were primarily intended to be exploratory, more of a ‘university seminar’ rather than formal negotiations (Gardner, 1956: 104). Yet, despite continuing disagreement as to how to tackle the issue of tariff reductions, the talks resulted in a broad consensus on the need for some kind of international commercial policy, supplemented by an international trade organisation with dispute settlement powers (Penrose, 1953: 97–104; Gardner, 1956: 104). Furthermore, the discussions explored the possibility of weaving into a convention certain issues related to commerce, in particular employment, investment, commodity agreements and cartels.

In spite of the degree of agreement that had been reached between US and UK officials on post-war trade policy, talks between the two powers did not recommence until early 1945. From here on, negotiations on the complexion of the post-war trading order were discussed more vigorously both independently as well as during talks surrounding the US loan for UK reconstruction in the aftermath of the end of the Lend–Lease Agreement (Penrose, 1953: 104–15). Yet, while there was much agreement on the inseparability of trade and employment policy, the issue of the UK’s imperial preference system and the way in which US officials favoured approaching the issue of tariff reduction remained key points of contention (see Parmar, 1995: 161–4). Ultimately, UK insistence on the issue of its imperial preference ensured that the procedural approach to tariff reduction – wherein tariff levels are negotiated bilaterally as had become the norm under the 1934 US Reciprocal Trade Agreement Act (RTAA) – favoured by the US largely prevailed.

The success of the Bretton Woods Conference in establishing the IMF and World Bank increased the pressure for the completion of the ITO project. In December 1945 the US took the lead by preparing and sending out for discussion a draft charter of the ITO. This was followed, in February 1946, by the passing of a resolution by the Economic and Social Council of the newly created United Nations calling for an international conference on trade and employment to be convened (Fawcett, 1951: 269). The resolution, in turn, established a Preparatory Committee to discuss the creation of the ITO. Nineteen states were involved in the subsequent discussions that took place when the Preparatory Committee met to discuss the suggested charter in London in Autumn 1946, though the bulk of the negotiations remained between the UK and the US (Viner, 1947: 612; Brown, 1950: 67–134; Gardner, 1956: 269–70).

Two provisions in particular emerged as a result of discussions in London – though they were the product of hard-fought negotiation rather than the emergence of a consensus. These related to the issues of employment and quantitative restrictions. On the issue of employment, the UK government was intent on endorsing measures designed to promote full employment, in part, to assist in the dispersion of social pressure resulting from mass demobilisation, whereas within the US, where such pressure was less evident, there was some reluctance to commit domestic employment policies to an international body. The UK delegation was largely successful in pushing through its intention, and the issue of full employment became a central feature of the charter. Similarly, the US was relatively successful in pursuing the issue of quantitative restrictions. Yet, in spite of the apparent compromise on the issues of full employment and quantitative restrictions, significant tensions remained over the detail of the international trade body. The resulting ‘London Charter’ that was the outcome of the Anglo-American discussions reflected these tensions. Nevertheless, it provided the prelude for what was to become the ITO Charter developed, first, at the Preparatory Committee’s second session in Geneva in April 1947, and second at the 1948 Havana Conference on Trade and Employment itself.

As an addendum to the work on the ITO, the Preparatory Committee negotiated the GATT. The initial purposes of the GATT, at least at that moment in time, were generally deemed to be two-fold: first, to ‘give contractual force to the tariff concessions negotiated at that [Geneva] meeting between 23 governments’ (Fawcett, 1951: 270; Evans, 1968: 73–4) and thus to get the process of tariff liberalisation underway; and second, and by extension, to act as a bridging agreement between the previous international economic order and the rules-based system encapsulated in the legal framework of the ITO. As such, it was not intended to provide anything more than a lock on the progress that had been achieved on tariff liberalisation, injecting an additional degree of momentum into the larger task at hand, and thus paving the way for the full provisions of the ITO. The format of the GATT was largely derived from Chapter IV of what was to become the Havana Charter. This ensured that once established, the GATT would be relatively easily subsumed into the legal framework of the ITO (see Article XXIX of the GATT 1947).

The successful conclusion of the GATT aside, disagreements between the two main players continued to plague designs for the ITO, and ultimately proved irreconcilable as each sought to ‘incorporate in the Charter a detailed statement of their favourite economic doctrines’ (Gardner, 1956: 379). Cast within a postwar political and economic climate markedly different from that envisaged by the wartime planners, the possibility of a successful completion of the ITO project began to look bleak. The end of the war witnessed an increasingly difficult economic situation in the UK wherein support for the ITO began to wane. On the other side of the Atlantic, the US polity became increasingly preoccupied with the growing tensions between itself and the Soviet Union. In addition, serious concerns were being raised about the content of the Charter itself.

The Havana discussions themselves witnessed much disagreement. This was most pronounced on the issue of economic development, particularly with regard to commitments relating to tariff reduction negotiations, the establishment of new preferential systems, the ability to impose import quotas, and the employment of other trade restrictions without prior notice (Wilcox, 1949a: 48–9). These disagreements were not, however, confined to Anglo-American negotiations. In commenting on the Havana Conference, Herbert Feis noted that:

[a]lmost every one – [was] trying to re-write important sections of the [Charter], in the service of its special necessities, ideas, wishes or prejudices. The number of suggested amendments runs into hundreds. Most assertive of all seem to be the smaller countries which have little industry and small variety of natural resources; they seem carried away by the hope of rapid development.

(Feis, 1948: 51)

The disagreements that had emerged between the UK and the US early on in the wartime commercial negotiations, as well as those that emerged at the Havana Conference, were reflected in the final Charter, ensuring that it was a weighty and contradictory document. As one recent commentator has noted, ‘[t]here were too many loopholes, far too much government intervention for free traders, and too much free trade for protectionists’ (Ostry, 1997: 64).

The content of the Charter was not the only problem facing the ITO. The political intensities of the Cold War had begun to crystallise, diverting attention away from the project. Tensions between the US and the Soviet Union were exacerbated by an increasing sympathy for socialism in Western Europe. Furthermore, the sheer length of time that the project had taken, coupled with the frustration that many of the negotiators felt at the number of compromises that had been negotiated, had quelled much of the planners’ enthusiasm. And although 53 countries signed the Havana Charter, only two (Australia and Liberia) sought its ratification (Williams, 1991: 21). The relatively small number of participants seeking ratification of the Charter reflected a widely held perception that the US, as the leading industrial nation and guardian of the ITO project, should be the first to ratify its Charter. Once this had occurred a general process of ratification would take place among the other participants (Ostry, 1997: 63). However, the emer...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Illustrations
• Acknowledgements
• Abbreviations
• Introduction
• Part I: The Architecture of Multilateralism
• Part II: The Extension of Multilateralism
• Bibliography