The Evolution of the Trade Regime
This page is an attempt to summarize Chapter 6 of Barton's The Evolution of the Trade Regime; Chapter 6 is entitled “Expansion of GATT/WTO Membership and the Proliferation of Regional Groups.”
I) Introduction
Two main shifts have changed the WTO system in recent years: its expansion in membership and the growth of preferential trade agreements (PTAs). Barton, Goldstein, Josling and Steinberg ponder on the extent to which those two shifts have altered the system and suggest that "the growth in regional arrangements also derives in part from the expansion of the number of regime members, and associated changes in underlying power relations."[1]
II) GATT/WTO Membership Conditions
Initially, accession happened via a "Protocol of Provisional Application," which was a mere agreement not to enact policies inconsistent with the GATT.
Today, however, the process is much more complex and far more intrusive. First, a working party comprised of interested trading partners makes sure that the trading policies of the candidate are consistent with previous agreements. Then, in order to avoid being denied the privileges of some previous agreements by discontent members of the Gatt/WTO (denial authorized by Gatt article XXXV and WTO Agreement Article XIII), candidates usually have to comply with the desires of all the larger trading partners. Finally, a positive decision requires a 2/3 vote of the parties to the existing agreement.
Yet, the complexity of this process doesn't seem to have deterred potential new members. This passion for the WTO can in part be explained by the increasing scope of the organization and thus the increasing benefits it brings to its members. As JAM put it in class: "a bad deal is better than no deal at all." Or as Barton wrote: "the benefits of membership become greater, and the cost of exclusion more noticeable."[2]
The Accession of China: a Special Case?
Although the accession of China to the WTO expands the territorial scope of the international organization while locking in the steps China has taken towards liberalization (tariffs reduction, service commitments, systematic reforms...), it also poses issues unique in many respects because China is different in size and in its political economic structure.
--> At least 30% of China's GDP is produced by state-invested entreprises.
--> The transparency (in terms of laws, regulations, and administrative and legislative processes) necessary to the effectiveness of the GATT main principles is probably not fully respected in China, although it is hard to monitor it since, by definition, a lack of transparency is not easily noticeable.
--> Unlike most of WTO members, China lacks any meaningful competition policy, although the organization does not require a member to have a competition policy.
--> Absence of democratic guarantees, which leads to the problem of the relationship between trade and human rights.
WTO was not expected to intermediate trade relations between Western liberal democracies and ex Communist centrally planned giants in mutation. Barton therefore foresees trade tensions and pressure for an adaptation of WTO rules in several areas.
III) Increasing Involvement of Developing Countries:
--> At first, the GATT was focusing primarily on reducing tariffs and other trade barriers among developed nations. Because there was some concerns over developing countries' infant industries and trade balances, they were allowed to keep using some trade barriers, especially quotas.
--> In 1958, suggestion by some developed countries that a lowering in import barriers for commodities would benefit developing countries, but strong lobbies (such as sugar farmers in Europe and US) opposed such liberalization.
--> In 1965, addition of three new articles that "declared the importance of enabling developing nations to increase exports of primary, processed, and manufactured products, and contained hortatory commitments by the developed na- tions to give priority to improving market access."[3] Furthermore, developing countries were not expected to offer reciprocal deals to developed nations, which appears to have been designed to benefit developing countries, although it segregated them and remove them from essential bargains.
--> By the 1970's, GATT comprised around 80 countries, with some newly independent nations of Africa and most of the Latin American states. Rethinking of international economic relations, with the theory of dependence (dependencia) holding that "the international economic system was fundamentally biased against developing nations."[4] Changes had to be made because:
1) Prices of commodities exports of developing nations would never increase as fast as prices of their industrial imports, so always declining terms of trade.
2) Developed nations would protect their domestic production of manufactured goods, thus preventing developing nations from entering those markets.
3) Developed nations would make developing nations pay very high prices for technological (i.e. requiring technology) goods and services (e.g., pharmaceuticals).
4) All that would lead to a "trade gap", or deficit in the balance of payment of developing nations.
--> Developing countries pushed for a New International Economic Order (NIEO), composed of:
1) Call for international funds to stabilize commodity prices (by limiting production and buying or selling stocks depending on the price level).
2) Preferential Tariff Arrangements (designed to benefit them).
3) Restrictions on technology-licensing contracts to prohibit abuses of licensees from licensors.
One of the key components of this new order was Rahl Prebisch, the first secretary general of United Nations Conference on Trade and Development (UNCTAD, created in 1964). Under his leadership, the institution developed and elaborated a developing-nation position in trade matters.
--> At the same time, emergence of the G-77, lobbying bloc of developing countries under the leadership of Brazil and India and meant to counterbalance developed countries during forums (GATT, UN...).
--> 1960: creation of Latin American Free Trade Area
--> 1969: Andean Pact (several countries of South America)
--> 1963: the European Union created the Yaounde Convention (= 1975, "Lomi Convention" = 2000, "Cotonou Agreement"), "an agreement with more than seventy of its members' former colonies, especially in Africa and the Caribbean, that included provisions to offer these nations access to European markets tariff-free, though on a nonreciprocal basis."[5]
While the GATT was supposed to be non-discriminatory, with the principle of Most Favored Nations, a few adjustments were made to accommodate developing countries concerns:
1) 1971: Generalized System of Preferences (GSP) = developed nations can offer a developing nation a lower tariff than that offered to other developed nations.
2) 1979: "enabling clause" = decision on "differential and more favourable treatment" for developing nations. This decision was designed not only to authorize preferences but also to restate the earlier position that developed countries would not expect reciprocity for tariff concessions made to developing countries.
Because of the "a la carte" system (members can choose to participate or not), the GATT became a "multispeed" institution. Problem with the "GATT a la carte" = effective discrimination based on the subject matter being negotiated since developing countries have little leverage to demand liberalization in the sectors that were of most export interest, such as agriculture, textiles, and clothing.
--> In 1980's and 1990's, Washington consensus = new realization that free trade is preferable because less damageable than governmental management.
--> In 1980's, USA starts requiring that unwilling developing countries improve their Intellectual Property Rights standards.
--> Developed nations decide "Multispeed" system is no longer in their interest, hence the "single undertaking" concept = "swallow the whole thing" type of agreements (dixit JAM).
--> NAFTA = negotiations start in 1990 and late 90's protests to add labor and environmental supplements to the agreement, which was seen by developing countries as a way for developed countries to justify protectionism.
--> In 2001, Doha round = developed countries are forced into renegotiating agreements to reflect a compromise between their interests and those of developing countries.
IV) Different Perspectives and Coalitions:
"Ambivalence toward liberal trade has encouraged coalitions and loose groupings of developing countries within the WTO structure." [6] At least three distinct groups can be observed:
1) Some of the poorest nations that have little to export --> hurt by TRIPS (= trade-related aspects of intellectual property rights).
2) Nations that benefit immediately from trade liberalism because of benefits of trade in low-wage export.
3) Nations that move to develop their own more sophisticated industries.
Those ambivalences can be explained in part by the fact that "the developing world traditionally lacks bargaining power in international trade negotiations." [7] Why is that? One answer could be that they have neither the time nor the human resources to effectively prepare for trade agreements negotiations. This lack of human resources also creates a problem of compliance for the developing countries, which are asked to upgrade their standards and structures in order to implement the rules agreed upon by developed countries (TRIPS...).
V) Responding to the Concerns of the Developing Nations:
Several things seem to improve developing countries' ability to negotiate in the WTO:
1) Assistance in capacity building provided by international donors and NGOs (training programs, conferences, workshops...).
2) Advisory Centre on WTO Law in Geneva (2001), to provide developing nations with legal training and advise them during legal disputes.
3) Efforts made by developing nations to better coordinate their positions in order to form a more solid and effective bloc against developed nations during negotiations.
VI) Preferential Trade Arrangements and Developing Countries:
"This growth in regionalism may not reflect problems with the multilateral system but may be part of the way that regime members resolve problems of political support for free trade in a democratically acceptable way."[8]
