The journey from GATT to WTO

During and immediately after the Second World War the US, the UK and other allied nations engaged in a series of negotiations to find ways and means and to establish the rules for the post war international economy. They engaged themselves in finding a solution as to how fast they can rebuild war torn Europe. The result of the negotiation was the creation of the IMF and IBRD the July, 1944 Bretton Wood Conference and the signing of the General Agreement on Tariffs and Trade at an International Conference in Geneva in October, 1947. International Policy experts were there including famous Economist John Maynard Keynes. The lessons drawn by the US policymakers from the interwar period informed their approach to the postwar global economy. President Franklin D. Roosevelt and officials of the State Department were adherents of the Wilsonian belief that free trade promoted not just prosperity, but also peace. The experience of the 1930s Great Depression certainly suggested as much policies adopted by Governments to combat the Great Depression—high tariffs, competitive currency devaluations, discriminatory trading blocs helped destabilize the international environment instead of improving the economic situation. This experience led the leaders throughout the Anti-Axis United Nations alliance to conclude that economic co-operation was the only way to achieve both peace and prosperity at home and abroad.

This vision was articulated in the Atlantic Charter issued by Franklin D. Roosevelt (FDR) and British Prime Minister Winston Churchill at the conclusion of the August 1941 Atlantic Conference. The Charter’s fourth point committed by the US and the UK “to further the enjoyment by all states, great or small, victor or vanquished, of access, on equal terms, to the trade and to the raw materials of the world which are needed for their economic prosperity”, while the fifth point express their commitment to “the fullest collaboration between all nations in the economic field with the object of securing for all, improved labour standards, economic advancement and social security”. The UK and US elaborated these principles in Article VII of their February, 1942 agreement on lend-lease aid. Subsequently UK and US agreed to co-operate in devising measures to expand “production, employment and the exchange and consumption of goods “, and to eliminate “all forms of discriminatory treatment in international commerce“, to reduce barriers to trade. By early 1942 US and British experts were asked to prepare proposals that would foster economic stability and prosperity in the post war world. To this end two separate plans were prepared by the UK and the US representatives.

The drafted plans proposed creating organizations that would provide financial assistance to countries having short term Balance of Payment deficit, on conditions that it would guarantee that such countries would not adopt protectionist or predatory economic policies to improve their Balance of Payment position. Both plans envisioned fixed exchange rate, believed to be more conducive to the expansion of international trade than floating exchange rates. Both pans differed in several respects. So a number of bilateral and multilateral meetings were held between 1942—1944. Two major accomplishments of the Bretton Woods Conference were the creation IMF and IBRD. IMF to oversee fixed exchange rates centered on US dollar and gold and IBRD as a provider of short term financial assistance to rebuild war torn Europe and to improve the temporary deficit in Balance of Payment of the less developed countries. After ratification the two organizations officially came into existence. However, in 1973 the fixed exchange rate system was suspended by President Richard Nixon and floating exchange rate became the norm for major industrialized nations.

On the other hand agreement on International Trade proved more difficult to achieve. One of the most contentious issues was the system of Preferential Tariffs established among the members of the Commonwealth in 1932, whereby trade within the Commonwealth was subject to lower tariffs than trade between Commonwealth nations and the rest of the world. The preferences on both ideological and practical ground called for their abolition. UK and the Commonwealth nations favoured keeping the preference until the US reduced its high tariffs. This has led to four year long negotiation and the structure of a proposed new institution to oversee International Trade. Agreement finally reached in October, 1947, met in Geneva established the Organization known as International Trade Organization (ITO) and GATT was designed to implement tariffs cuts and also to serve a codification of Rules governing commercial relation. GATT officially started operation to govern post war International Trade in March 1948. Under GATT’s aegis 8 rounds of Trade Negotiations resulted in significant tariffs reductions among its members before it was superseded by WTO in January, 1995.

The writer is former DG of EPB