Module-I: The Evolution of World Trading System

The Evolution of World Trading System

The Basis for Trade
Significance of the Codben-Chevalier Treaty Pattern of Bilateral Treaties and MFN International Trade System during World

War I, and Its Aftermath Unsuccessful Attempt to Set-up ITO The GATT Regime: Its Creation and Purposes

Contd.
The GATT Tariff Negotiations: From Geneva

to Tokyo The Uruguay Round Negotiations Establishment of the WTO

The Basis for Trade

The origins of trade are found in the

beginnings of human history. Trade is the exchange of goods and services through barter or sale. International Trade is the extension of commercial exchange outside a countrys borders to the international arena. During primitive societies trade was a means to acquire scarce commodities between groups with differing expertise or resources

Contd.
It also served as a means of

social

communication. However, the basis for trade was economic. Trade lay at the centre of state revenue and state power.

Regulatory Arguments for Trade

History of trade always goes along with the

regulation of trade. Trade may be ancient, but the regulation and taxation of trade are nearly as old. Tolls were payments exacted by local leaders for permission to pass through territory. Tolls became replaced by tariffs and nontariffs restrictions.

Contd.
Countries started to go with the policy of

mercantilism. The basic idea of regulation of trade is specialization and exchange and division of labour. The argument for free trade.

Significance of the Codben-Chevalier Treaty

The History of International trade during

the past two centuries reflected contradictory trends towards either protectionism or free trade.
The

Codben-Chevalier

Treaty,

1860.

Pattern of Bilateral Treaties and MFN

The Codben-Chevalier Treaty stimulated a

series of liberalizing trade agreements among the countries in Europe. International competition in manufactured goods as well as grains became severe. In 1870, Europe fell into a recession that was to be both serious and longstanding. By the end of the 19th century Britain was the only major nation still practicing free trade.

Contd.
US, the leading developing country of the

period, never joined the European movement in the direction of free trade. Rather, US firmly remained protectionist throughout the 19th century. After the war of 1812, the US introduced the Tariff of 1816, created primarily to protect domestic industry.

Contd.
US Tariffs increased dramatically in the

1860s as a result of the Civil War. The depression that began in the 1870s triggered a policy of protectionism that lasted more than half a century.

International Trade System during World War I, and Its Aftermath

After the World War I, unmindful of treaty

obligations, countries imposed higher tariffs and applied further constraints on foreign economic relations. However, economic production was returned shortly after the end of the War. Conversely, industries lacked markets but not necessarily access to raw materials.

Contd.
There were a number of attempts in the

1920s and 1930s to restore economic confidence and open up the trading system. The International Conferences held under the aegis of the League of Nations sought to restore international trade to its pre-war levels. The focus turned to trade in 1923 with the conclusion of an agreement between 35 countries to reform and harmonize border customs controls and procedures.

Contd.
The World Economic Conference of 1927

produced the Geneva Convention on Import and Export Prohibitions and Restrictions. But it failed to come into force by one countrys ratification. However, the Conference refuted the traditional international legal doctrine that tariffs were a matter of domestic concern and sovereign power.

Contd.
The 1927 Conference recommended the

reduction of tariffs by the nation states individually and collectively.

The US Smoot-Hawley Tariff

After the World War I, US emerged as the

largest trading nation in the world. The Smooth-Hawley Act, 1930 represented a visible and politically important step in the process of closing national boundaries to foreign imports. Governments in foreign countries closely observed the process that led to the smootHawley Tariff in US., and quickly stared to retaliate.

Contd.
In the meanwhile, Great Britain ended its

historic policy of free trade in 1931. Great Britain introduced the Imports Duties Act of March, 1932. Great Britain in 1932 negotiated Ottawa agreements that resulted in tariff preference in the British Commonwealth. However, US in 1934 decided to liberate trade by the reciprocal trade agreements programme borne of Cordel Hulls imagination.

Unsuccessful Attempt to Set-up ITO

After World War II, it was universally felt

that political security could not be divorced from international financial and economic stability. US and UK entered into Mutual Aid Agreement in 1942. From 1943 to 1944, the collaboration between US and UK got further progressed.

The GATT Regime: Its Creation and Purposes

The history of the preparation of GATT is

intertwined with that of the ITO charter. The 1947 Geneva meeting was an elaborate conference divided into three major parts. The GATT was not intended to be an organization. From the US point of view, the GATT was being negotiated under authority of the 1945 extension of the trade agreements authority.

Contd.
The 1945 Act did not authorize the US

President to enter into an agreement for an organization. The 1945 Act only authorized agreements to reduce tariffs and other restrictions on trade. The general clauses of GATT were largely drawn from the chapter of the draft ITO charter.

The GATT and the Protocol of Provisional Application

The GATT as such had never come into

force! The GATT was applied through PPA as a treaty obligation under international law. May negotiators felt that the GATT must be brought into force sooner.

GATT Tariff Negotiations

The

GATT was devised to see that international economic and trade relations should be conducted with a view to raising the 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 goods.

Contd.
Further,

the GATT was aimed to progressively reduce tariffs and other trade barriers; this objective was decided to be implemented by the contracting parties through tariff negotiation rounds. Geneva Round (1947): 45,000 tariff concessions affecting $10 billion of trade were covered. 23 original contracting parties participated.

Contd.
Concentrated on product-by-product negotiations on tariff reduction. Annecy Round (1949): Countries exchanged

some 5,000 tariff concessions. Thirty four countries had participated. Torquay Round (1950-51): Countries exchanged some 8,700 tariff concessions, cutting the 1948 tariff levels by 25%. Both Annecy and Torquay rounds combined modest tariff cutting with negotiations of conditions of accession of new entrants. Thirty eight countries had participated.

Contd:
Geneva-II Round (1956): It had a limited

success with $2.5 billion in tariff reductions. Liberalization of trade in agricultural sector and the needs of less-developing countries was recognized. It was focused on product-by-product method in accordance with principal supplier rule. Twenty six countries had participated.

Contd.
Dillon Round (1960-61): Tariff concessions

worth $34.9 billion of world trade were negotiated. Twenty six countries had participated. This round was negotiated in the background of the threat of EECs common external tariff. Kennedy Round (1964-67): Sixty Two countries had participated. Tariff concessions worth $40 billion of world trade were negotiated. The Round concentrated on anti-dumping duties.

Uruguay Round Negotiations (1986-1994)

The Impetus for the Uruguay Round lay in

the conditions of the world economy in the early 1980s. For much of the post-war period growth in trade and output had been buoyant, but growth rate fell as the countries entered 1970s and further fell under the impact of shock of increasing oil prices after 1973.

Contd.
Further, problems in agriculture sector got worsened. The services sector had become the central issue for developed countries. US was trying during initial 1980s to negotiate trade restrictive agreements entirely outside the GATT Rules. Voluntary Export Restraints escalated the problem of non-tariff barriers. LDCs continued to remain outside the periphery of the GATT.

Contd.
As the developed countries were suffering

from recession, they too were anxious to open up their exports and avoid protectionist measures as developed over the years. Agricultural sector which was excluded from the GATT was being considered the major culprit in accentuating the protectionism in international trade.

Contd.
LDCs

needed special and differential treatment in terms of tariffs, quantitative restriction, internal taxes holding down the consumptions. Negotiation also concentrated on clarifying safeguard measures, subsidies and countervailing measures.