Background to the Initiative
In looking ahead, the Cordell Hull Institute looked back to the efforts of governments, following the Great Depression, in deliberately setting about for the first time the establishment of a rules-based, as opposed to a power-based, international economic order.
At the United Nations Monetary and Financial Conference at Bretton Woods in 1944, the United States and Britain envisaged two frameworks of rules, one for trade and one for payments.
1940s and 1950s: Dismantling the Depression
After the autarkic and discriminatory (“beggar my neighbor”) excesses of the 1930s, inter-governmental attention focused in the late 1940s and 1950s on restoring some sense of order and stability to international commerce through the General Agreement on Tariffs and Trade and, as part of that effort, set about the reduction of border protection in a series of multilateral tariff-cutting negotiations (which came to be known as “rounds”).
Among other things, the GATT prohibited import quotas,
albeit subject to certain exceptions. In the early 1950s, through the
Organization for European Economic Cooperation (OEEC), import quotas on
industrial products in developed countries were substantially dismantled,
which was greatly assisted by the leverage that Marshall Aid provided.
1960s: Perception of a Rich-Man's Club
As a result, the developed countries of the North Atlantic region enjoyed a rapid return to stability, economic growth and prosperity. But the trade liberalization achieved in the OEEC and in the first six GATT rounds was limited to industrial products traded among the developed countries. No impact was made on the rising trend of protection accorded to agriculture in industrialized economies. Nor was anything much done about liberalizing trade in products of export interest to developing countries.
Before long, the developing countries saw the GATT system
as “a rich man’s club”, so they turned to the United
Nations. The developed countries responded by encouraging the developing
countries to join the GATT by allowing them a high degree “legal
flexibility”, in effect excusing them from many GATT obligations,
but that left developing countries ill placed to insist on their GATT
1970s: Limited Liberalization and a Growing Divide
In the early 1970s, the GATT focus shifted to tackling the competition-distorting effects of non-tariff measures within borders, which is what the Tokyo Round negotiations of 1973-79 were mainly about. At the same time, the developing countries launched demands in the United Nations and its agencies for a “new international economic order” (NIEO) based on international commodity agreements (à la OPEC), increased financial aid and preferential treatment of their exports. These NIEO demands led to the North-South Dialogue, the Brandt Commission and the Cancun Summit of 1981, but then petered out.
1980s and 1990s: Fuller Developing-country Participation
In the early 1980s, proponents of GATT reform urged developing countries to make the most of the GATT system by foregoing the legal flexibility they were allowed and insisting, instead, on "equal treatment". As little came of their NIEO demands, developing countries were pressed to participate more fully in the international trading system, which became an unstated goal of developed countries in the Uruguay Round negotiations of 1986-94.
The goal was substantially achieved, for in that eighth and last GATT round the developing countries made market-opening commitments for the first time and, having agreed to the negotiations being conducted as "a single undertaking", they are now parties to all the agreements reached. Today they recognize their stake in the new WTO system, as they did not in the old GATT system, and have to be persuaded that proposals for further negotiations and reform are going to be in their long-term economic interests. The developing countries (and those in transition to becoming market economies) account for four-fifths of the WTO membership.
Since the financial crises of 1997-98 and the relatively rapid recovery, many developing countries have come to appreciate much better the role of the WTO system in keeping trade open in times of economic upheaval.
2000s: Globalization and Others' Interests
With the increasingly rapid integration of national markets and the “globalization” of production, marketing and financial activities, further boosted by the Information Revolution, the focus of inter-governmental discussions began to shift again in the late 1980s. Since the Uruguay Round negotiations, policy-makers have been considering how to address impediments within economies to international enterprises investing and doing business around the world.
As these developments have unfolded, various single-issue non-governmental organizations, especially in the United States and the European Union, have become concerned that the environmental, public health and consumer standards they have been promoting since the 1970s may be threatened as developing countries are integrated into the WTO system, producing a “race to the bottom” so to speak. Similarly, in a modified version of the old “pauper labor” argument for protection, labor unions in developed countries fear that low-wage imports may adversely affect wages, labor standards and employment.
At a political level, the major trading powers were slow to recognize the changes taking place in the multilateral trading system, while also losing sight of fundamentals. By the later 1990s, they were perceived to be taking a back seat, instead of taking the initiative, and so the new WTO system has been marked by “drift” and loss of momentum. Others have been left a free hand to shape the post-Uruguay Round agenda, resulting in WTO principles, rules and procedures being heavily questioned by anti-globalization forces, which appear to have intimidated political and business leaders in developed countries into silence.
In spite of the diversity of the WTO’s membership, however, many developed and developing countries are finding their interests are aligned. Categorizing economies into developed, developing and least developed is becoming less and less useful. The WTO’s large membership, the wide range of issues it addresses and the practice of reaching decisions by consensus are ready explanations of the difficulty in making progress on any one issue. But the fundamental differences are still among the major players, the United States, the European Union and Japan, accounting for two thirds of the world economy.
Given these dynamics and the lessons of history on the
importance of keeping trade open and strengthening, it is imperative for
genuine debate on trade policy to be encouraged and, on the basis of sound
reasoning, for leaders get out there and lead. Accordingly, the Cordell
Hull Institute is setting out to play a constructive part in stimulating
debate, initiative and leadership.
Successful Leadership in
Public discussion of international economic relations, especially in the media, is replete with talk of “leadership” – assertions of leadership, by one side of an argument, or lack of leadership by the other side. “Successful” leadership is frequently determined by consulting focus groups and polling public opinion.
"The way to get elected is by putting together a coalition of special interests. You go to a group that has 5 per cent of the vote and say, ‘I will vote for what you want if you don’t care what else I do’. You go to another 5 per cent and in this way you are well on the road to assembling 51 per cent"
MILTON FRIEDMAN, “The
"It is important to see by what means leadership was exercised when it was successful? It is obvious that successful leadership – by Britain before World War I and by the United States after World War II – never understood itself in terms of responsibility for others, but in terms of long-term self-interest, carefully thought out. It operated primarily through ideas and example"
JAN TUMLIR, cited in
Participation of Developing Countries
It was at the Soeul Trade Conference that trade ministers in the countries of the Western Pacific first indicated informally their readiness to support the launch of a new GATT round. Afterwards, William E. Brock, the U.S. Trade Representative in President Reagan’s Cabinet, described the event as “the first time developing countries were involved in the planning of a new round of multilateral trade negotiations” (his article in Foreign Affairs, New York, July 1984). The round was eventually launched at Punta del Este, Uruguay, in September 1986.
William E. Brock, the U.S. Trade Representative (right), with Arthur Dunkel, the GATT Director-General, at the Seoul Trade Conference.