Converting GATT 1947 to the World Trade Organisation - Essay Example

?Table of Cases and ities Preamble of GATT 1947................................................................................... 4 Inter-sessional Group for Telegraphic Ballot (1951).......................................... 5 Council of Representatives (1960)..................................................................... 5 Interim Commission for the International Trade Organisation (1947-1994).......5 Review Session (1950s)....................................................................................... 6 European Economic Community (EEC) (1957).................................................. 6 Multifibre Arrangements (MFA-I through MFA-IV).......................................... 6 The Uruguay Round (1993-1994)....................................................................... 8 Multilateral Investment Agreement (MIA) (1996)............................................... 9 U.S. Corporate Average Fuel Economy .............................................................. 9 Dispute Settlement Body (DSB)............................................................................10 WTO’s Articles III and IV.....................................................................................10 Converting GATT 1947 to WTO Introduction The GATT was formed by states with a decisive idea of the co-operation that was required to promote economic development and modernisation. Even though the idea required an International Trade Organisation (ITO), the GATT was also able to achieve the goals of the original participants.1 It was, to a certain extent, efficient trade-liberalising machinery. The removal of QRs by developed nations in the aftermath of World War II was confined under its control, and excise taxes were cut down considerably.2 Barriers to trade, as of the 1970s, in the form of quotas and tariffs had weakened radically in value3, and governments were beset by the trade-misleading features of other economic strategies. The first five decades of GATT’s existence has a close resemblance to a product’s lifecycle. In the beginning market growth is sluggish, as the public become used to it. This is pursued by a phase of drastic improvement of market productivity and share as the product launches.4 In the developed or third phase, growth stabilises but profits remain elevated. In the last stage profits start to drop. Core marketing theory informs us that by the third phase a company had to create a new product in order to thrive and survive.5 In the case of GATT, the stages of take off and maturity took place in the 1950s and the 1960s.6 This was the time when the greatest development was accomplished in terms of trade liberalisation. The demand for the products of GATT had stabilised by the 1970s.7 An effort was made to branch out into new markets by moving to non-tariff barriers (NTB), but this move was not quite productive. Indecisive strategies were implemented to deal with trade-related national regulations, but development was sluggish.8 The GATT-1947, with the formation of the World Trade Organisation (WTO), was converted into an organisation, and its expanse was considerably enlarged.9 Hence, the important issues to be addressed here are: (1) why was it necessary to replace GATT 1947? (2) What are the main differences between GATT 1947 and the WTO? (3) Is WTO an improvement, if so, why? In addressing these issues it is helpful to analyse briefly several of the major developments that took place in the world economy in the twentieth century. From GATT 1947 to WTO GATT was not officially a global organisation, specifically, an official unit in its own right. GATT is an inter-governmental agreement. Hence, GATT had contracting participants rather than member states.10 This transformed with the formation of an international organisation that governs multilateral contracts concerning trade in goods, trade-related aspects of intellectual property rights (TRIPs), and trade in services (GATS): the WTO.11 The different treaties governed by the WTO are between customs territories and nation states, and take into account government rules. The WTO addresses mostly the governmental procedures, setting up controls on trade policy mechanisms such as state trading, subsidies, quotas, and tariffs.12 Hence, the WTO is a watchdog of regulatory procedures adopted by governments that influence trade and the circumstances of competition confronting imported goods on local markets. In this sense it is not dissimilar from the previous GATT. A basic belief of the pioneers of the GATT was that multiparty organisations facilitating cooperation between states were vital not just for economic grounds, but that the consequential boost in interdependence between states would contribute in lessening the threat of war.13 The projected boost in real incomes after non-discriminatory involvement in markets and trade liberalisation was predicted to lessen the range of political problems. The improvement in transparency and the availability of round-table where in to talk about possible or real trade disagreements was predicted to decrease the possibility of these brimming over into other areas.14 The GATT 1947’s Preamble declares that its goals involve ‘raising standards of living, ensuring full employment and a large and steadily growing volume of real income and effective demand, developing the full use of the resources of the world and expanding the production and exchange of good’15.It adds that shared and equally beneficial contracts requiring a significant cutback in tariffs and other trade barriers as well as the eradication of inequitable practice in international trade will help the achievement of these goals.16 Free trade was not included as a final objective. This persists to be the situation under the WTO. The GATT was formed from the negotiations to build an ITO after World War II.17 The arbitrations on the contract of such an organisation, even though made effectively in 1948 in Havana, did not result in the formation of the ITO because the Congress of the United States was anticipated to turn down the ratification of the contract.18 The GATT was agreed in 1947 between 11 developing countries and 12 developed, prior to the conclusion of the ITO negotiations.19 The governments engaged in the exchange of tariff reductions in 1947 feared that the realisation of liberation will not be dependent on the finale of the ITO discussions.20 They hence formed the GATT as a temporary contract. Since the ITO was never created, the GATT was the single tangible outcome of negotiations. Even though the GATT integrated the statutes of ITO’s commercial policy section, having been formed as an interim trade contract, it did not have an institutional foundation.21 In the initial period of its existence it did not even operate as a mechanism apart from once or twice a year when official gatherings of the agreeing parties were conducted. GATT’s organisational structure materialised slowly. As crucial decisions were made at the meetings of the agreeing parties, it immediately became evident that a standing body was necessary. In 1951, an inter-sessional group was founded to put into order telegraphic ballot or voting by mail on concerns about import barriers validated for reasons of payment balance.22 In 1960, this association was replaced by a Council of Representatives which was awarded with more inclusive duties and privileges for daily management.23 The GATT secretariat, throughout 1947 to 1994, was officially recognised as the Interim Commission for the International Trade Organisation (ICITO), formed during the ITO negotiations.24 It was practically a United Nations (UN) entity, while the negotiations in the ITO took place under the rule of the UN.25 Since the ITO was never realised, the formal bond between the UN and the GATT was constantly weak. Throughout the almost fifty years of its life, the GATT structure broadened to involve several more states. It transformed into a ‘de factor world trade organisation’26, yet an entity that was more and more disintegrated as ‘side agreements’ or standards were discussed among divisions of states.27 GATT’s somewhat complicated and cautiously drafted core legal document was widened or adjusted by several additional statues, waivers, interpretations, special arrangements, accounts by dispute settlement units, and Council resolutions.28 A well-functioning GATT system existed as of the 1990s, assisting agreeing parties in dealing with developments in trading, such as monitoring of trade regulations and supporting conflict settlement through mediation, consultations and dispute resolution.29 The initial years of GATT were dictated by succession arbitrations, a Review Session in the 1950s that resulted in the amendments to the agreement, and the formation of the European Economic Community (EEC) in 1957.30 Devaluations from the GATT policies in the sector of trade in cotton materials were arbitrated in 1962. This became consecutive Multifibre Arrangements (MFA-I through MFA-IV)—an intricate structure of organised trade that was incompatible with the fundamental premises of the GATT. Beginning from the 1960s, repeated rounds of MTNs steadily broadened the reach of the GATT to more nontariff regulations, and finally resulted in the formation of the WTO. No progress was witnessed on clothing, textiles, and agriculture until the Uruguay Round. The agreement that eventually permitted these segments to multilateral controls involved the creation of trade rules in services and implementation of IPRs, and the formation of the WTO. Differences between GATT 1947 and WTO There are several resemblances between the GATT and the WTO. The core ideologies did not change. The WTO keeps on operating by agreement and keeps on being member-oriented. Yet, several large-scale changes did take place. Most apparently, WTO’s coverage is much broader. Furthermore, dissimilar from GATT, the WTO contract is an ‘exclusive mission’—all its statues apply to all participating states.31 This means it surpasses the relevance of GATT for developing states. In the area of dispute settlement, WTO became much more complicated to hamper the creation of committees and the implementation of committee reports.32 Ultimately, better transparency and monitoring duties were assigned to the secretariat through the creation of a Trade Policy Review Mechanism.33 Basically, there are four major differences between the GATT and the WTO34: (1) GATT was temporary legal contract whilst WTO is an organisation with long-term contracts; (2) GATT had contracting parties whereas WTO has members; (3) GATT handled trade in good whereas WTO deals with intellectual property rights, services, etc.; and (4) the actual major difference between GATT and WTO is formation of an obligatory dispute settlement process. There was no efficient implementation process in GATT whereas in WTO an efficient implementation process exists. Even though still a slightly understood and slightly recognised organisation, the WTO has become ever more controversial as it has broadened the range of its duty from its initial limited GATT concentration on cutting down tariffs on manufactured goods.35 The WTO currently tries to remove nontariff barriers, and may be employed to question health, environmental, and other directives that may satisfy valid social objectives but may be considered as barriers to global trade. The substitution of GATT by the WTO in 1995 intensified concern among scholars because its more powerful position embody an additional transfer of power from the national governments and the public to an international community governed by undemocratically positioned civil servants.36 Representatives from member states modified the rules of GATT and opened up world trade a number of times in regular sessions referred to as ‘Rounds’.37 The Uruguay Round, which is GATT’s most recent Round, completed in 1993 and gained the approval of the U.S. congress in 1994.38 It is criticised to lead to average reductions of tariff for industrialised economies, cutting down average tariffs all over the world. The most contentious result of the Uruguay Round was the creation of much powerful implementation processes in the WTO.39 Even though GATT constantly had a dispute settlement procedure member states usually disregarded its decisions since they do not have major implementation power. Not like GATT, panel resolutions of the WTO are binding.40 Investment liberalisation was another objective of the Uruguay Round, but stalemated representatives had to lengthen the deadline for new regulations in this area.41 Hence, at the ministerial conference of the WTO in Singapore in 1996, governments of Europe, supported by Japan and the United States, insisted discussions on a suggested Multilateral Investment Agreement (MIA).42 The MIA is intended to oblige member states to award foreign financiers ‘national treatment’, the identical notion of non-discrimination that is related to trade.43 If implemented, the MIA could allow companies to invest with no constraints in any member state of the WTO. Negotiations in GATT take place covertly in Geneva, Switzerland. Even though U.S. representatives should discuss with nongovernmental advisory groups, these bodies have an uneven number of commercial activists.44 Environmental groups and labour unions have trivial representation, whereas health, consumer, family farm, and other citizen associations are wholly excluded.45 Similarly, the WTO does not have machinery for public involvement or accountability. It is not mandated to discuss with nongovernmental groups or discharge files until after resolutions are reached.46 The dispute resolution committee of WTO are made up of ‘trade specialists’47 who conduct investigations and proclaim decisions in secret. One of the most controversial features of the WTO policies is the employment of the ‘least trade-restrictive’ trial.48 Within GATT and currently WTO policies, a test is considered ‘crucial’ only if there is no available trade-restrictive process to attain the test’s valid health-related objectives. This measure restricts the capability of a WTO member to create its own environmental protection method.49 The European Union, in 1994, applied this premise to question the U.S. Corporate Average Fuel Economy (CAFE) policies, claiming that the fuel conservation objectives of the policy may have been just as effortlessly acquired through gasoline taxes.50 The policies were resolved somewhat in breach of GATT. Is WTO an Improvement? However, the WTO was not a replacement of GATT 1947; rather, the WTO contract comprised of ‘institutional’ reforms.51 Even though the WTO reformed a few of GATT’s substantive statutes, it formed a large number of new laws. This was achieved through a chain of thorough expansions. The Dispute Understanding was part of these expansions. The Dispute Understanding initiated a number of large-scale reforms to the dispute policies and procedures of GATT.52 One of the major new policies for the intentions of this Note is that ‘disputing parties must adopt a WTO panel report unless a party notifies the Dispute Settlement Body (DSB) that it plans to appeal or unless the DSB decides by consensus not to adopt the report’.53 This radically changes the earlier tradition of GATT of granting any losing nation the privilege to prohibit a hostile panel session. Ultimately, the WTO provides an affected nation with reinforced means with which to impose trade penalties for non-cooperation--- that is, the right to retaliate.54 Although these reforms are a radical improvement from the weakened dispute settlement practice of GATT, the core objectives of economic development remain unattained. In order to wholly explain the failures of the present dispute resolution practice of WTO, it is important to concisely discuss its core processes. The goal of the dispute settlement procedure is to help disputing nations realise an equally favourable resolution or, if that is impossible, to eliminate the processes incompatible with the WTO contract.55 Articles III and IV only ‘allow a complaining Member to call for removal of the alleged offending measure and provide the respondent ten days with which to reply to the complaint.’56 This in general will require the complainant’s postponement of compromises or duties it formerly awarded to the other party.57 The problems intrinsic in the retaliation agenda of WTO are the economic impacts which certainly attend trade barriers. Free trade is quite advantageous to trading states. Fundamentally, taxes have three considerable impacts on free trade58: (1) domestic producers, operating under a tariff-induced price umbrella, can expand production; consumers are faced with higher prices and therefore reduce their consumption of the imported goods, resulting in the loss of an unrecoverable surplus; and (3) the retaliating government gains tariff revenues.59 Apparently, the WTO will confront a challenging scheme in the near future. The actual test of goals of its members will be the level to which existing policies that control markets’ contestability can be overwhelmed. There is many more that has to be accomplished on services and on clothing, textiles, and agriculture, where tariff barriers are still high. There is also many more that has to be accomplished to regulate the application of contingent defence, particularly anti-dumping.60 Investment regulations are possibly the most vital in the terms of access to markets. This is also a concern where a traditional GATT model can function fairly well. Even though agreement to standardise competition regulations seems to be highly impossible, in theory evaluating the likelihood of connecting competition regulation with anti-dumping might become successful in transforming the system of trading in a more liberal path. Conclusions A significant challenge for the WTO will be to limit the risk of protectionist confinement of labour standard and environmental concerns. This may demand some recognition of uniformity through an agreement to implement certain minimum labour principles, and creating opportunities for the application of trade policy to realise environmental goals within hardly identified circumstances. Some shift to this path may be needed as ‘a favour for a favour’ for additional market opening in the old sectors of WTO—markets of goods and services. Then, vigilance should be adopted to lessen the likelihood of confinement by anti-trade or industrial campaigns. Transparency will be essential at this point. Furthermore, a required situation should be that injured nations are paid off for the trade restrictions, except if trade penalties are employed to impose a multilaterally formed agreement. Protection in these situations should not be permitted to become favourable to the local import-competing markets. As the supposed goal are environmental policies or associated with labour standards, revenues amassed through trade resolutions must be exercised to restructure the condition in the exporting nation. Bibliography K. Bagwell & R. Staiger, ‘Multilateral trade negotiations, bilateral opportunism, and the rules of GATT/WTO’ (2003) JIE J. Bhagwati, ‘Regionalism versus multilateralism’ (1992) TWE 535-555 M. Crowley, ‘An Introduction to the WTO and GATT’ (2004) EP 42 W. Ethier, ‘Unilateralism in a Multilateral World’ (2002) EJ 266-292 B. Hoekman & M. Kostecki, The Political Economy of the World Trading System: The WTO and Beyond (Oxford, 2001) K. Miyagiwa & Y. Ohno, ‘Credibility of protection and incentives to innovate’ (1999) IER 143-163 A. Narlikar, International Trade and Developing Countries: Bargaining Coalitions in the GATT & WTO (London, 2003) F. Ortino, Basic Legal Instruments for the Liberalisation of Trade: A Comparative Analysis of EC and WTO Law (UK, 2004) J. Pauwelyn, Conflict of Norms in Public International Law: How WTO Law Relates to Other Rules of International Law (Cambridge, England, 2003) T.N. Srinivasan, Developing Countries and the Multilateral Trading System: From GATT to the Uruguay Round and the Future (Boulder, Co 1998) Read More