The World Trade Organisation Opportunities and Threats

History: where has the GATT/WTO come from?

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History: where has the GATT/WTO come from?

The General Agreement on Tariffs and Trade (GATT) was born in 1947, following the turmoil of the Second World War, and, prior to that, the Great Depression of the 1930s. Trade policy during the Great Depression was one of extreme protectionism and currency devaluation. With escalating tariffs, world trade over this period collapsed.

After the war, there was a natural desire to ensure not only that the world became more politically stable, but also that the economic turmoil of the Great Depression years was not repeated. It was generally felt that trade, finance and international relations had to be managed and regulated. At the Bretton Woods conference of 1944, the architecture for the post-war reconstruction of the global economy discussed. From the conference came the Bretton Woods exchange rate system, and the creation of the International Monetary Fund (IMF) and World Bank. It had been intended that, as part of the agreement, there should be established a body to govern trading matters called the International Trade Organization (ITO). However, failure by the US Congress to ratify the ITO agreement by the 1947 deadline, and not wishing to hold up the whole Bretton Woods agreement, the GATT was created as a temporary, interim measure, until a more formal deal could be struck concerning the ITO.

The GATT, however, was never to be replaced by the ITO and, as a consequence, the GATT was never to attain the same status as the IMF or World Bank. Both of these two institutions are international organisations, and as such have a legal identity separate from their members. The GATT, by contrast, was simply an inter-governmental treaty and thus lacked any power to enforce trade agreements. This, as will be shown, proved to be one of its major weaknesses.

Even though the ITO never came to be established, the principles it enshrined and its organisational structure were to be reflected in the GATT. The principles included: raising standards of living, ensuring full employment and a steady growth in effective demand, developing the full use of the resources of the world and expanding the production and exchange of goods.

The GATT might justly claim some success in achieving these goals. There have been eight rounds of multilateral trade talks. The first was the Geneva Round in 1947. The last, and the longest, was the Uruguay Round that ran from 1986 to 1994. As the rounds have progressed, the number of member countries has grown and the complexity of trade talks intensified. It was apparent prior to the Uruguay Round that the GATT, given its legal status, was finding it increasingly difficult to manage and police these increasingly complex trading agreements. Hence the decision was taken to elevate the status of the GATT to that of an international organisation. It would now become the World Trade Organisation. The creation of the WTO was seen as a necessary move in order to ensure the successful management of international trade in the future.

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