FROM GATT TO WTO: ATTEMPTS AT RATIONALIZATION OF INTERNATIONAL

TRADE
INTRODUCTION
Whereas trade traces its ancestry more than 4000 years ago to Mesopotamia, Greek and
Phoenicians, trade as we know it today can be credited to the following events namely; the
collapse of feudal society, the emergence of the mercantilist philosophy and colonial systems of
urope! "he fall of feudal society and its philosophy of subsistence living as human society
gravitated towards communal living was pivotal in the development of trade especially foreign
trade! "his was further boosted by the introduction of the money currency and the rise of the city
states in the eleventh century! "he development of banking and credit during the period served to
further enhance the trend!
Mercantilism and e!!ar"t#$"nei!#%&'r P&lic$
"he rise of the nation states in urope in the #$00s established the conduct of trade and
commerce firmly under the authority of Government! Mainly driven by imperialist ambitions
uropean nation%states were guided by the Mercantilist approach where trade came to be e&uated
with the accumulation of wealth! 'uring this period, (ross border trade flourished guided by
principle of )*eggar%thy%neighbor+ borne by a general policy of e,ports dominating imports! "o
this end, trade policies developed by government authorities to control patterns of commerce
were mediated by motley of legal regimes comprising import duties, tariffs, subsidies,
restrictions, barriers crafted to ensure e,port domination of imports!
"he pursuit and adoption of the )*eggar%thy%neighbor+ principle set the stage for discriminatory
trade practices in international trade! "his state of affairs however, became untenable as it proved
counter%productive as states found themselves in a deadlock! "o cure this, trade practice shifted
towards bilateral trade agreements between states willing to become trading partners! *ased on
the principle of reciprocity and preferential treatment, these arrangements became popular in
urope as most countries entered into bilateral arrangements with several other countries! -ence
a network of bilateral agreements emerged! "his network had an interlocking effect that helped
promote and maintain an atmosphere of non%discriminatory treatment and trade liberali.ation!
"his development closely mirrored the structure of today/s multilateral trade system in the
rationali.ation of international trade!
INTERNATIONAL TRADE
-istorically, trade relations between countries though characteri.ed by various arrangements
have mainly been mediated through0
- *ilateral agreements
- 1egional agreements
ilateral A!reements
2nfluenced mainly by the geographical scope, trade arrangements at the international level took
the form of bilateral commercial treaties! "his was particularly in respect of colonialism!
(olonial masters entered into e,clusive bilateral agreements with their colonies! "hese
agreements guaranteed the colonialists e,clusive access to markets and resources for their
industries!
3n the other hand, move towards more openness and trade liberali.ation was put into motion
through bilateral arrangements between uropean powers such as the (obden%(havalier "reaty
of #450 between *ritain and 6rance! 7uch bilateral arrangements, based on the principle of
reciprocity in the promise of non%discriminatory treatment guaranteed mutual access to markets
by the uropean powers! "his set the stage for the great phase of uropean free trade whereby
the interlocking nature of the network of bilateral trade treaties strengthened unilateral trade
liberali.ation in urope and foreshadowed the present day multilateral system! "his state of
affairs was however short%lived, abruptly ending in #488!
Re!i&nalism
2n tandem with bilateral arrangements was the emergence of a proliferation of hostile and
protectionist regional trade blocs! 7uch hostile attitude in the international trade arena traces its
origin to the economic depression that lasted from #489 to #488! : critical case in point was the
unification of Germany and 2taly during this period, to consolidate their mutual trade interests by
raising e,ternal tariff barriers! 7uch conduct put paid to the hitherto non%discriminatory trade
practices marking the advent of protectionist trade blocs as protection of domestic markets took
centre stage! 2t is in the stated circumstances that trade barriers in the form of protectionist
policies and the various tariff and non%tariff barriers became the hallmark of international trade!
MULTILATERALISM
"he modern multilateral trading system was established after the 7econd World War in the
aftermath of a complete system collapse! "he ;nited 7tates had emerged from the war as the
un&uestioned economic superpower pushed the international system in the direction of
multilateralism with the convening of the *retton Woods (onference in #<44!
Internati&nal Trade Or!anisati&n (ITO)
nvisaged in the *retton Woods (onference of #<44, alongside the 2nternational Monetary 6und
=2M6> and the World *ank; the 2"3, was conceived as a mechanism to oversee the
administration of an open and non%preferential multilateral trading order! 2t boasted a
comprehensive coverage including provisions on commercial policy, investment, employment
and business practices as well as dispute resolution mechanisms and a secretariat!
-owever it proved unpopular when its charter failed to materiali.e to a vote in #<44 and 2"3
conse&uently died! 2n the circumstances, the G:"" :greement which had been negotiated in
#<48 became the one to provide the foundation for multilateral trade e,pansion!
General A!reement &n Trade and Tari**s (GATT)
G:"" was established in #<48 upon being negotiated among the ?9 contracting parties! G:""
was not a treaty but a provisional agreement pending the ratification of the -avana (harter
establishing the 2"3 in #<44! G:"" was the first multilateral convention founded on a
multilateral approach to international trade! 2t was however limited in its scope to negotiating
trade barriers!
"he basic principles for G:"" reflected earlier bilateral trade models and approaches which
embodied reciprocity, non%discrimination and national treatment as the basis! Premised on the
belief that )reciprocal and mutually advantageous arrangements directed to the substantial
reduction in tariffs and other barriers to trade and to the elimination of discriminatory treatment
in international commerce+ would contribute toward the goals as set out in the G:"" preamble!
W&rld Trade Or!anisati&n (WTO)
"he W"3 was established as a successor to G:"" during the ;ruguay 1ound of G:""
negotiations between #<45 and #<<9! 2ts mandate also included oversight over the
implementation of the trade agreements negotiated in the ;ruguay 1ound of trade talks! 2n
contrast to G:"" however, it is more comprehensive with a broader purview including
subsidies, intellectual property, food safety and other policies previously restricted at the national
level!
"he W"3 is based on the concept of reducing trade barriers and applying non%discriminatory
rules through the principles of M6@ =Most 6avored @ation> treatment and @ational "reatment!
C#allen!es
"he development of the multilateral trading system following its inception under G:"" has
faced a raft of challenges through the years! :mong these challenges included new waves of
regionalism and bilateral arrangements! "he resurgence of these arrangements posed a threat to
the still nascent multi%lateral trade system obAectives!
Within five years of launching G:"", there was the reemergence of new regional agreements
especially in urope! "he resurgence of regional trade agreements mostly driven by a perceived
need for greater and faster integration among a group of countries may be categori.ed into three
distinct phases namely;
- 6irst wave of 1egionalism =#<$0s and #<50s>
- 7econd Wave of 1egionalism =mid%#<40s>
- "hird wave of 1egionalism =#<<0s>
First Wave of Regionalism (1950s and 1960s)
3ccurred in urope in the late #<$0s and #<50s! 2t was driven by a move towards continental
integration! 'uring this period the uropean conomic (ommunity =(> was established in
#<$8! 3n the other hand, the uropean 6ree "rade :ssociation =6":> was established also in
#<$8 by uropean countries that had chosen to stay out of the (!
"he ( was adopted as a model for similar arrangements in :frica, the (aribbean, (entral and
7outh :merica! :mong the various regional and sub%regional arrangements that followed hot on
the heels of the ( include the ast :frica (ommunity and the (entral :merican (ommon
Market! Most of these arrangements did not last past the #<80s! :lternatively, uropean
integration however, gained momentum with plans to e,pand the ( to include *ritain, 2reland,
'enmark, Greece and @orway between #<54 and #<58!
Second Wave of Regionalism (mid-1980s)
"his wave of regionalism began in the mid%#<40s and e,tended into the #<<0s! 'uring this
period, urope embarked on its Bsingle market programme/ aimed at dismantling the remaining
physical, technical and ta, barriers within the (! "his was marked with the transformation of
the ( to become the uropean (ommunity =(> with the passage of the Maastricht "reaty in
#<<9!
-owever, the (/s main aim was the e,pansion of its membership to astern and (entral
uropean countries following the collapse of the 7oviet ;nion as well as the Mediterranean
countries! "his was characteri.ed by creation of bilateral Preferential "rade :greements with the
astern and (entral uropean countries! :t the same time, the ( also concluded bilateral trade
agreements with countries in the Middle ast and @orth :frica! 'uring this period, the ;nited
7tates also Aoined the uropean bandwagon of regionalism which among others established the
@orth :merican 6ree "rade :greement =@:6":> in the early #<<0s! @:6": started off as a
bilateral agreement between the ;nited 7tates and (anada later becoming a trilateral agreement
with the inclusion of Me,ico!
'uring this period, the establishment of the ( in urope, Aust as before with the (, inspired
resurgence in regional arrangements in Catin :merica such as the ambitious M1(37;1
=7outhern (ommon Market>! M1(37;1 envisaged a full customs union among; :rgentina,
*ra.il, Paraguay and ;ruguay! 2n :frica, initiatives such the (ommon Market for astern and
7outhern :frica =(3M7:>, (3W:7 and 7:'( came about in the said period! 2n :sia too,
initiatives such as :7:@ and :6": gathered pace! Most notably, was the ambitious :sia
Pacific conomic (ooperation =:P(> of #<4< whose goal was the pursuit of free and open
trade! :round the time :ustralia and @ew Dealand established the (loser conomic 1elations
=(1>!
2t is during the 7econd Wave of 1egionalism that the ;ruguay 1ound was launched in #<45 in
which service trade, intellectual property and investment were negotiated for the first time! 2t is
this round of trade talks that culminated with the creation of the W"3 in #<<4! "his was despite
the growing concerns about G:"" being increasingly overshadowed by the regional initiatives!
Third Wave of Regionalism
"his new wave of regional arrangements has been touted as being all%encompassing and
comprehensive focusing on issues such as services, capital flows, standards, intellectual
property, regulatory systems and commitments on labour and environmental issues! "his wave is
characteri.ed by a shift from mere rule%making to policy integration!
RATIONALIZATION
:ttempts at rationali.ation of global trade may be viewed in the conte,t of the W"3 e,tension of
international rulemaking into areas of domestic policy! "he same has been sparked by the
fren.ied rate of globali.ation leading to emergence of the following areas of global interest!
C&m+etiti&n +&lic$
Practices that frustrate international competition whether through market behavior or government
policy goes against the interests of consumers and producers and that of the W"3 fraternity!
-owever, the diversity in forms of business organi.ation among countries limits the possibility
of common rules! "here are many variants of capitalism as it has evolved in the uni&ue political,
social, and economic circumstances of each country!
Internati&nal in,estment
Previously, international investment was viewed as an alternative means of accessing markets!
-owever, globali.ation has blurred such characteri.ation rendering international trade and
international investments in complementary roles! "his area is currently within the purview of
bilateral agreements there being no multilateral rules on the same!
C'rrencies and Internati&nal Trade
Eolatility of e,change rates affects trade! :s such frustration of the multilateral trade system
through actions on e,change rate is a matter of concern for the W"3! -owever, primary
institutional responsibility over monetary matters rests with the international Monetary 6und!
Trade and *inance
"he bulk of international trade re&uires finance to lubricate the payment system! ;nduly costly
or the lack of trade finance may have a severe negative impact on trade! "he regulation of trade
finance is yet to take root at the W"3!
La%&'r
"he incorporation of labor standards in the W"3 is widely regarded as yet to gather traction!
Cabor standards in the W"3 would wade into disputes on policies that countries regard as
wholly domestic affairs!
En,ir&nmental- Climate c#an!e and Trade
"he rash of contingent protection cases initiates at the W"3 among several countries in relation
to government support for renewable energy indicates its growing importance in international
trade! -owever, attempts at international rule making have so far suffered the same fate as in the
case of labor!
.ealt# and sa*et$ standards and c&ns'mer +r&tecti&n
:nother problematic policy area for the W"3 is the range of measures that governments may
design and implement with regard to health and safety standards and consumer protection! 2n this
connection, ; policies regarding imports of hormone%treated beef and products containing
genetically modified organisms =GM3s> provide an apt illustration of the limits of W"3
policies!
CONCLUSION
"he adoption of the twin policies of reciprocity and non%discrimination that emerged in
industriali.ing urope brought a sense of order in international trade practices! "his marked the
earliest attempts at rationali.ation of international trade! "hese bilateral agreements evolved the
BMost 6avored @ation/ =M6@> clause being the principle of not discriminating between one/s
trading partners! "he inclusion of a most%favored%nation =M6@> clause in commercial treaties
thereafter became common practice among the uropean states! 2t had the advantage of
preventing treaties from being in a constant state of flu, with tariff schedules having repeatedly
to be renegotiated bilaterally!
"he M6@ clause in the bilateral arrangements aided in establishing an inclusive trading
atmosphere which set the stage for multilateralism as the foundation for the multilateral trading
system under G:""! "he principles of non%discrimination and national treatment under the
G:"" regime and later under the W"3 are an embodiment of the M6@ clause! -owever, the
G:"" regime was limited to reducing barriers to international trade through reduction of tariff
barriers, &uantitative restrictions and subsidies on trade! "his state of affairs limited the scope for
rationali.ation of trade practices in the face of increasing globali.ation of trade practices!
"he trend in globali.ation has rendered international trade wider and more comple,! 2t is this
state of affairs that has necessitated further and greater rationali.ation of emerging areas in
international trade! "o enhance greater integration of the global economy the W"3 system has
reached into new policy areas previously the reserve of national Aurisdictions! "hese new policy
areas include0 services trade, foreign investment, intellectual property and government
procurement!
(urrently, the W"3 is moving towards uniformity of practices on matters such as labor
standards, environmental standards, health and safety standards and consumer protection! "his
may be viewed as the ne,t frontier in the attempts at rationali.ation!