Department of Economics,
College of Education, Katsina-Ala, Benue State.
E-mail: [email protected]


The central role played by the GATT/WTO in shaping post war trade policy is widely accepted. International trade has provided benefits to domestic producers and consumers. This work maintains that the conventional international trade theory based on the principle of comparative advantage is irrelevant for developing countries and the current trading system hinders economic development in the developing nations. The increasing participation of developing countries in the GATT/WTO trading system and the pragmatic support provided them assist these developing countries to both expand and diversify their trade. This work has identified formidable impediments to the complete attainment of these optimal benefits and concludes however that the fuller integration of the developing countries is critical to ensure the future health and sustained growth of the world economy and the trading system.

Keywords: Trade, Tariffs, free trade, reciprocity, non discrimination, countervailing, dumping, barriers.


            During the entire post-war period, bilateral agreements as well as multilateral trade liberalisation has made the world economy ever more interdependent. In particular after the collapse of communism, ideologies that favoured national self-sufficiency (autarky) have almost disappeared and countries have opened their economies to international trade, investment and competition and have in general gained from thus, (Bjornkor, 2005). International trade has not only grown dramatically since World War II, but has consistently grown more rapidly than world income. More specifically, the world’s share of merchandise exports in gross domestics product (GDP) has increased from 5.5 percent in 1950 to 17.2 percent in 1998 (Maddison, 2001).

This trend has been attributed, among other factors, to extensive trade liberalization measures as manifested by reductions in trade barriers that were facilitated by the General Agreement on Tariffs and Trade (GATT) (Kirugman, 1995) Through the eight rounds of trade negotiations that have followed since the inception of the GATT in 1947, average ad valorem tariffs on industrial goods have fallen significantly from over 40 percent to less than 4 percent. Over the same period of time, membership in GATT (and now its successor, world Trade Organisation WTO) has risen from 23 countries to over 100 (Bagwell and Staiger, 2009)

            What can government gain in a trade agreement? We adopt the view that a trade agreement is appealing to government if it offers them greater welfare than they would received in the absence of the agreement. If in the absence of an agreement, governments set trade policies in a unilateral faction, then a trade agreement is appealing provided that inefficiency (relative to governments’ preferences) exists under unilateral tariff setting. Viewed from this perfective, the role of a trade agreement is then to remove the inefficiency, so that member government can enjoy higher welfare.

            The work is divided into six sub-heads: the historical evolution of GATT and WTO; the objectives and functions of GATT; a theoretical perspective of what GATT negotiations can accomplish for its members; GATT/WTO and the third world or developing countries and some recommendations that conclude the work.   


GATT was originally created by the Bretton Woods conference as a part of a larger plan for economic recovery after the Second World War. Following this war, the victor nations sought to create institutions that would eliminate the causes of war. Their principles were to resolve or prevent war through the United Nations and to eliminate the economic causes of war by establishing three international economic institutions (Staiger, 2000).The three institutions were. The International Monetary Fund (IMF); the International Bank for Reconstruction and Development (IBRD) known simply as the World Bank, and the International Trade Organisation (ITO). The economic philosophy of these Bretton Woods institutions were classical economic neoliberalism.

            The United States (US) congress did not object to the establishment of the World Bank and the IMF but refused to agree to the ITO on the grounds that it would cede too much sovereignty to an international body. As a result the ITO was stillborn and the GATT became the agreement and the organisation for establishing and enforcing, through dispute settlement, the international trade rules. The GATT’s design reflects the lessons learned by government as a result of the trade policy choices in the 1920s and 1930s, a period marked by high and increasingly restrictive trade barriers. These barriers reached extreme levels with the enactment in the US of the Smoot – Hawley Tariff Act of 1930 and the associated retaliation responses of its trading partner. This Act raised average tariffs to 53 percent on protected imports. The legislation provoked retaliation by 25 trading partners of the US. Within two years after the Smoot-Hawley Act, US exports decreased by really two thirds (Carbaugh, 2006) partly in response to trade disruptions during the Great Depression. The US and some of its allies sought to impose order on trade flows after World War II. post war step as stated earlier toward trade liberalization of world trade was the GATT.

            The major GATT was crafted as an agreement among contracting parties, the member nations, to decrease trade barrier and to place all nations on an equal footing in trading relationship GATT was never intended to be an organisation; instead it was a set of bilateral agreements among countries around the world to reduce trade barriers, quantitative restrictions and subsidies on trade through a series of different agreements. It was a decision making body with a code of rules for the conduct of international trade, and a mechanism for trade liberalization (Jingan, 2009).

            According to Hudec (1990), “The post war design for international trade policy was animated by a single-minded concern to avoid repeating the disastrous errors of the 1920’s and 1930s”. There were many multilateral attempts during this period to reverse the rising tide of protection. Many international meetings and/or conferences were convened between World War I and World War II in an effort to orchestrate a return to the liberal trade policies of the pre war period. These attempts consisted largely of expressions of support for liberal trading ideas and invariably they ended in failure.

            The problem was aptly described by a League of Nations report in this way;

“… trade was consistently regarded as a form of warfare, as a vast game of beggar-my-neighbour, rather then as a cooperative activity from the extension of which all stood to benefit. The latter was the premise on which the post war conferences based their recommendation – a premise accepted by all in theory but repudiated by almost all in practice. It was repudiated in practice because as the issue presented itself on the occasion after another, it seemed only too evident that a government that did not use it bargaining power would always come off second-best… (League of Nations 1942 p.120)

The creation of GATT in 1947 marked a fundamental divergence from these earlier attempts. Rather than emphasising broad expression of free trade ideals and attempting to induce government to collectively and promptly abide by the ideals, GATT provided instead nothing more – or – less than a standing forum for negotiation. The GATT was an agreement not an organisation.

The World Trade Organisation(WTO), the successor to the GATT, was established by the Marrakech Development of April 15,1994. It was a properly established permanent world trade organisation. It has a legal status and enjoys privileges and immunities on the same footing as the IMF and the World Bank. It includes: (i) the GATT, as modified by the Uruguay Round (ii) all agreements and arrangements concluded under the GATT; and (3) the complete results of the Uruguay Round. Today, it has a membership of 151 states (Jhingan 2009.) The essential means by which governments hoped to achieve their objectives under GATT has not changed with the creation of the WTO.


The objectives of the original 23 member governments in creating the GATT were recorded in the GATT preamble:

“… Recognizing that their relations in the field of trade and economic endeavour should be conducted with a view of raising 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 on global level… (League of Nations; 1942).

The preamble also states the contracting parties belief that “reciprocal and mutually advantageous arrangement directed to the substantial reduction of tariffs and other barriers to trade and to the elimination of discriminatory treatment in international commerce” would contribute towards these goals. Importantly ‘free trade’ is not the stated objective of GATT. This was the means by which government hoped to achieve their objectives.

The foundation for the success of GATT as a negotiation forum was laid with a set of rules, contained in a series of GATT Articles. These rules created an environment where governments could voluntarily negotiate greater levels of market access with their trading partners through the reciprocal exchange non discriminatory tariff concessions. An important feature of this environment was the perception that the balance of market access rights (with regard to the markets of one’s trading partners) and obligations (with regard to one’s own market) so attained by each member-government would be secure. That the central function of the rules of GATT is to provide a forum for the exchange of secure market access commitments as expressed, for example, in a recent GATT panel report:

“… the main value of a tariff concession is that if provides an assurance of better market access through improved price competition, Contracting parties negotiate tariff concession primarily to obtain that advantage. They must therefore be assumed to base their tariff negotiations on the expectation that the price effect of the tariff concession will not be systematically off. If no right of redress were given to them in such as case, they would be reluctant to make tariff concessions and the General Agreement would no longer be useful as a legal framework for incorporating the result of trade negotiations”.

(Petersmann 1997 p.16.8)

The GATT was very successful in lowering tariffs, the then existing major barrier to free trade. The first five rounds of multilateral trade negotiation succeeded in lowering barriers substantially. This shifted protectionism to non tariff barriers (NTB) (Staiger, 2000).

            The GATT accomplished these goals through (a) multilateral negotiations, and (b) dispute settlement. The first five rounds reduced average trade weighted tariff from 50 percent to 12 percent. Kennedy Round dealt with problems of developing countries (special and differential treatment) part IV, Article 36 – 38. Tokyo Round dealt with non trade barriers, produced the antidumping and subsidies agreement and general system on preferences (GSP). Uruguay Round established the World Trade Organisation, amended GATT 1947 to become GATT 1994 which governed trade goods adding 12 side agreements to GATT 1994. The Uruguay Round agreement greatly expanded the GATT Agreement on Trade in goods by adding: General Agreement on Trade in services (GATS); Agreement on Trade – Related Aspects of Intellectual Property (TRIPS). The GATT 1994 added three side agreements that pertained to agriculture: Agreement on Agriculture; Agreement on Application of sanitary and phytosanitary measures (SPS); food safety, animal health standards, plant health standards. Agreement on Technical Barriers to trade (TNT) Agreement on textiles and clothing; Agreement on trade Related Aspect of Investment Measures (TRIMS); Agreement on subsidies and countervailing measure (SCM).

(b)Dispute settlement. The dispute settlement system of the WTO provides adjudication of issues pertaining to the internal policies of the member countries. However the dispute settlement mechanism was very weak in that a losing party could singly block the adoption of an adverse decision.

At a basic level, the remarkable record of trade liberalization under the GATT/WTO can be attributed to the success with which GATT rules have created a system of well-defined “property rights” over market access, and thereby made possible negotiations directed toward the mutually advantages exchange of market access commitments (Bagwell and Staiger 2009).


A trade agreement can promote a more efficient outcome for its member governments, if it serves as a means to eliminate the terms of trade –driven restrictions in trade that arise when prices are set unilaterally. It is useful to answer this question in two parts: First from the perspective of a world in which all countries are truly “small”; and then from the perspective of a world in which countries are large enough to have effect on market outside their borders.

  • GATT/WTO in a world of small countries.

If countries are sufficiently economically: small so that each alone has no effect on prices in markets outside of its borders, then GATT negotiations can’t help the governments of these countries get more of what they want. However, GATT negotiations might help these governments get less of what they don’t really want. The first statement holds under the standard conditions of tariff analysis, and remains valid whether governments are concerned only about real national income or value as well as the distributional consequences of their tariff choices. The second statement applies when governments face commitment problems with respect to their own private sectors (Staiger, 2000).

To see the validity of the first statement, it need only be observed that, when countries are small and when governments are capable of making policy commitment to their private sectors, the unilateral trade policy decision of these governments are efficient on a world wide scale, when viewed from the objectives of each government, and hence there can be no basis for international negotiation. However, if governments seek to maximize real national income with their tariff choices, this is just familiar statement that the traditional unilateral “optimal tariff” of a small country is zero (and also efficient). If governments pursue distributional/political goals with their tariff choices as well, the optimal tariff chosen unilaterally by a small country need not be zero but it still efficient. The key point is that if a country is truly small on world markets, then it faces the “right” incentives when unilaterally choosing its own trade policy, because it enjoys all the benefits and pays all the costs of these choices.

These diagrams depicted below using the traditional indifference curve analysis help in illustrating this idea:

Source: (Staiger, 200p.16)

Figure 1 illustrates the basic idea. The top panel of this figure depicts the familiar effects of the imposition of a tariff for a small country who, at free trade, is an importer of good  and an exporter of good  and achieves a level of real national income associated with the indifference curve labelled  As the bottom panels of the figure indicate, imposing a tariff on its imports of  results in shifts in the country’s import demand curve from the curve labelled to that labelled . But this does not alter equilibrium world price  (ie the ratio of prices received by domestic firms exporting  to prices received by foreign firms exporting ), because the country is by assumption small in world markets. Reflecting this fixed world price, the top panel of the figure illustrates the loss in real national income that would be associated with a positive tariff, indicated by the indifference curve – labelled  If the government seeks to maximize real national income with its unilateral tariff choice, then as suggested by the top panel, it can do no better than to adopt a policy of free trade, and if all governments pursue analogous objectives then each will adopt a unilateral free trade stance. This, of course, is efficient from a worldwide perspective, and we may then conclude that there is nothing for national-income maximizing governments of small countries to negotiation about.

            But the same conclusion applies even if these governments are not simply maximizing real national income with their unilateral tariff choices, but place value as well on the distributional/political effects of tariff choices, and so adopt unilateral policies that diverge (perhaps significantly) from free trade. For example, in terms of the top panel of figure 1 a tariff will reduce the real national income available to a small country, but it also redistributes the available national income across the population through the impact on local prices that the tariff implies. A government might value this redistribution, and so be willing to suffer some reduction in real national income in order to achieve it. Nevertheless, the unilateral tariff choices of their government will still be efficient from a world-wide perspective-in light of its own objectives and the objectives of the trading partners-because the fixed world prices ensures that the government faces all of the costs and benefits of its choices. Hence, we may conclude that there is nothing for the government of small countries to negotiate about, regardless of the underlying motivations for their tariff choices.

            Even in a world in which all countries are small, however, GATT/WTO may have something to offer governments of these countries, it they face difficulties in making commitments to their private sectors. For example, a government might wish to commit, ex ante, to a policy of free trade, but its incentives to offer protection might change, ex-post, once investment and resource allocation decision had been made by the private sector. If the government is unable to credibly commit to ex-ante policy choice, then it may find that the private sector expects-and it has reason to deliver the tariff policy that is optimal for it to choose ex-post. In this case, the unilateral tariff choices of a government, while still efficient from the perspective of its own ex-post preferences, may not be efficient when gauged by its ex-ante preferences.

            When this is the case, government could have something to gain from GATT/WTO negotiations, even if all countries are small, if these governments can utilize their international commitment to solve their commitment problems of home. By so doing, GATT/WTO negotiations to lower tariffs could help each government rid itself of protection that it didn’t really (i.e. in ex-ante sense) want in the first place. In fact there is some evidence that GATT/WTO commitments do help member governments make domestic commitments of these forms (Staiger and Tabellin, 1999).

            It seems unlikely that securing domestic commitments against their own private sectors is the only explanation for why governments negotiate in GATT, and it is quite possibly not even the central explanation for GATT negotiations, if for no other reason than this explanation goes against the common sense explanation that every trade-policy practitioner knows governments negotiate trade agreements not because they wish to reduce their own trade, barriers, but because they seek to reduce the trade barriers of their trading partners, they are willing to “pay”–with market access “concessions” of their own-for the greater access to foreign markets that lower foreign barriers would bring.

  • GATT/WTO in a world of large countries

Some scholars consider the notion that government desiring more market access from its trading partners and viewing access to its own market as something to be conceded only in exchange for something else of value as “Mercantilist”. The point here is that, in contrast to this idea of setting one’s own policies to stimulate one’s exports, GATT negotiators seek to stimulate their countries exports by securing changes in the policies of their trading partners. And this makes all the difference as the diagrams below illustrates.

Figure 2 illustrates, with world prices (the terms trade) now determined so as to equate the excess demands of the (large) home country with the excess supplies of its trading partners. The top panel of this figure depicts the terms of trade deterioration that would be suffered by the home government if it pursued a policy of expanding its with, say, an increase in the export subsidies it offers its firms. The bottom panel of the figure, by contrast depict the terms-of-trade improvement that the home country would enjoy if the home government can convince its trading partners to accept more of its exports (ie give it more market access). The top panel can be interpreted as illustrating the folly of pursuing “mercantilist” policies. The bottom panel simply points to the wisdom of convincing trading partners to open their market to one’s exports and the potential cost associated with providing access to one’s own markets.

            According to the standard trade model, trade negotiators should view increased exports as a good thing, if these increased exports are the result of market-opening foreign policy changes, (a grant of increased foreign market access) because of the terms-of-trade improvements that these foreign policy changes would bring. Similarly, trade negotiators should view increased imports as bad thing; increased imports are result of market-opening domestic policy changes, (a concession of increased domestic market access) because of terms-of-trade deterioration that these domestic policy changes would bring. The basis of a resolution of this puzzle reflects GATT concept of reciprocity other things equal, an equal increase in imports and exports is good (Krugman).

            The key features of reciprocity in trade negotiations can be appreciated, once it is observed that negotiations which conform to reciprocity fix the world price. The upshot is that trade liberalization negotiation’s that conform to reciprocity will leave all countries with more market access but no changes in the terms of trade. Here the home government chooses a tariff that is optimal for it given its objectives. On the margin, the government perceives the benefits of greater redistribution that would come from a further increase in the tariff as just balancing the additional reduction in real national income that the further tariff increases would bring. Here the home government does not face the full cost of its tariff choice, but instead shifts some of those costs onto its trading partners. This cost shifting comes about through the terms of trade movement that the trade movement that the governments tariff choice imply (Staiger, 2000).

            By the same token, a second principle of GATT may be understood from this perspective, the principle of non discrimination. In a multi country world, the desirable feature of reciprocity can be preserved if and only if the principle of reciprocity is joined with the principle of non discrimination because when tariffs are discriminatory, cost-shifting can occur through local price-effects. As a consequence, with discriminatory tariff is possible for a government to shift the cost of protection onto its trading partners even when world prices are fixed. By contrast, when tariff are required to satisfy the principle of non-discrimination, the only mechanism by which cost-shifting can occur is through world price movement, which the principle of reciprocity is well equipped to handle.


The role of GATT in integrating countries into an open multilateral trading system is of major concern the world over. The increasing participation of developing countries in the GATT trading system and the pragmatic support provided them through the flexible application of certain rules help developing countries to both expand and diversify their trade. It could now be said that a great number of these countries have already become full partners in the system as can be witnessed by their active participation in the Uruguay Round. The task of helping to integrate further third world or less developed countries or developing countries is one of the challenges, that lies ahead for the world Trade Organisation (WTO) the successor of the GATT.

            When the WTO was founded in 1995, commentators hailed it as a major transformation of the world trading system. The new, more juristic and permanent WTO replaced the previous, more pragmatic and adhoc GATT. The industrial countries, led by US, the EU and Japan, brought about this change to consolidate and deepen their own and the world’s commitment to an open trading system. Their support for the change was crucial because they dominated the GATT, and they continue to dominate the WTO (Barceto III, 2005).

            The world trade is fast changing, however, in another way. Developing countries, led by China, India, Brazil, South Korea etc are playing increasingly important roles and are having a dramatic impact on the WTO’s agenda. This shift could be referred to as a transition from a “Trade as Aid” to a “Trade as Trade” regime for developing countries – a transition that is still unfolding.

During the lifespan of GATT, from 1947 to 1995, developing countries were largely on the sidelines of the world trade system. They were the recipients of largesse, but not serious participants in the functioning of governance of the regime. Theories of trade and development prevalent in the early part of this period presumed that development required shelter from the rigours of the competitive world market. The developing countries’ need to protect “infant industries” and shelter local produces was highly touted.

Under provisions of Article XVIII, developing countries have wide ranging authority to protect select industries with quotas that would otherwise run afoul of Article XI’s prohibition on quantitative restrictions. In 1979, the GATT contracting parties expanded their exceptionalism for developing countries by adopting the Enabling Clause, a clause which allows industrial countries to grant the third world non reciprocal, preferential access to their markets. This violated two cardinal principles of the trade regime (i) non discrimination and (ii) reciprocity.

During this Pre-WTO period, another aspect of two-tier GATT emerged. In a series of GATT negotiating rounds, the industrial members negotiated and adopted various “side agreements” amending, expanding and tightening the original GATT rules. A good many developing countries failed to adhere to these side agreements, and leave were not bound by their disciplines. Thus again, one set of rules applied for the industrial world, and a different set for the developing world.

Although the Uruguay Round made progress on the third world’s behalf, it did not address the fundamental paradox of the two-tier system. It left the GSP exceptionism in place, thus continuing the system of reverse discrimination in favour of developing countries. At the same time it failed to deal effectively with agricultural subsidies and tariff peaks on a range of development country exports not included in GSP. Thus there exists side-by-side in the current WTO regime both positive discrimination in favour of developing countries, and negative de facto discrimination against them. Both of these results stem, in a sense, from the two-tier GATT, from treating developing countries as only marginal, not fully-participating members.

In addition, certainly well-intentioned, the GSP non-reciprocal, preferential regime for developing countries has disappointed many observers. Some pitfalls in the GSP regime are easy to grasp. As a form of unilaterally granted largesse or benevolence (hence the concept “Trade as Aid”),the GSP access is unreliable and constrained. If a developing country-exporter makes any real headway in capturing a substantial part of an industrial country’s market a backlash from competing local producer’s is easy/quick to develop and hard to resist. Trade officials would be pilloried were they to favour developing –country entrepreneurs over home growth firms and workers-especially since the latter go to the polls. Since preferential access is a “gift” in the first place, the gift can be legally withdrawn and when necessary, it is. As Jhighan (2009) aptly notes:

… there is the US Trade Law section 301 which allows industrial enterprises to compel the US government to investigate foreign trade practices that restrict or harm their trade interests. It is doubtful if the WTO dispute settlement system can resolve complaints arising out of the use of this law… (p.478)

            Moreover, attaching political conditions (“conditionality”) to the “gift” has been irresistible. Thus, to be eligible for GSP treatment under the US plan, a developing country must afford adequate production for intellectual property, not expropriate the property of US citizens, guarantee adequate worker rights, enjoy a clean bill of health on enforcing arbitral awards in favour of US citizens, support the US efforts to combat terrorism, and so on (Barceto III, 2005).

Some writers maintain that providing developing countries greater access to the markets of advanced countries will not solve all the developing countries; problems. They face structural weakness in their economics, which are compounded by nonexistent or inadequate institutions and policies in the fields of law and order, sustained macroeconomic management, and public services (Carbaugh, 2006). Some of these weaknesses or alleged problem may be slated as follows:

  • Composition of developing–nations’ exports – these exports centre principally on primary products (agricultural goods, raw materials, and fuels).Of the manufacture goods that are exported by the developing nations, many are labour-intensive and include only modest amounts of technology in their production.
  • Producer costs to industrial – country markets are often higher than the tariffs on their goods, so that transport costs are even more of a barrier to integration that the trade policy of rich countries.
  • Producers in advanced countries sometimes suffer from import competition, so they tend to seek trade protection in order to avoid it. However, this protection denies critical market access to developing countries, thwarting their attempts to grow. Thus there is a bias against their catching up to the advanced countries.
  • Unstable export market-a key factor underlying the instability of primary –product prices and export receipt’s is the low price elasticity of the demand and supply schedules for production of primary products. This means changes in demand induce wide fluctuations in prices when supply is inelastic as well as changes in supply induce wide fluctuation in prices when demand is inelastic.
  • Worsening terms of trade – this means the benefits of international trade accrue disproportionately to the industrial nations. That is the commodity terms of trade has deteriorated in the past century or so, suggesting that the prices of their exports relative to their imports have fallen.
  • Limited market access – As noted above developing countries as a whole have improved their penetration of world markets. However, global protectionism has been a hindrance to their market access. This is especially true for agricultural and labour-intensive manufactured products such as clothing and textiles.

 Tariffs imposed by the industrial countries on imports from developing countries tend to be higher than those they levy on other industrial countries. The differences in tariff averages reflect in part the presence of major trading blocs such as the European Union (EU), North America free Trade Agreement (NAFTA) etc. Also because developing countries did not actively participate in multilateral trade liberalization agreements prior to the 1990s, their products tended to be omitted from the sharp reductions in tariffs made in those rounds. Simply put, average tariff rates in rich countries are low, but they maintain barriers in exactly the areas where developing countries have comparative advantage.

Global protectionism in agriculture is another challenge for developing countries. In addition to using tariffs to protect their farmers from import-competing products, industrial countries support their farmers with sizable subsidies. Subsidies are often rationalized on the non economic benefits of agriculture, such as food security and maintenance of rural communities. By encouraging production of agricultural commodities, subsidies discourage agricultural imports, thus displacing developing-country exports in industrial –country markets.

Anti dumping and countervailing duties have become popular substitutes for traditional trade barriers, which are generally being reduced in the course of regional and multi lateral trade liberalization. Developing countries have argued that industrial countries such as the US have limited access to their market through aggressive use of antidumping and countervailing duties. Such policies have resulted in significant reductions in export volumes and market shares.

The inability of WTO members to conclude a comprehensive agreement during the Doha Round raised new questions about the WTO’S future direction. Many intractable issues from Doha remain unresolved, and members have yet to reach consensus on a way forward. Persistent differences about the extent and balance of trade liberalization countries to stymie progress, as evidenced by the outcomes of recent ministerial meetings. Further, members remain divided over adopting new issues on the agenda amid concerns that the WTO members seek to incorporate new issues that pose challenges to the trading system, such as digital trade competition with SOES, global supply chains and the relationship between trade and environment issues.

            These divisions have called into question the viability of the “single undertaking” or one package approach in future multilateral negotiations and suggest broader need for institutional reform if the WTO is to remain a relevant negotiating body. Moreover, the consistent practice of some countries like India to block discussion of new issues serves as a reminder of the power of a single member to half progress in the WTO’S conversion-based system.

            As a result of slow progress at the WTO, countries have increasingly turned to other venues to advance trade liberalization and rules, namely plurilateral agreement and preferential FTAS (Free Trade Agreements) outside the WTO. Plurilaterals have been seen as having the potential to resurrect the WTO’S relevance as a negotiating body, but have also been seen as possibly undermining multilateralism if the agreements are not extended to all WTO members on an MFN basis. How these negotiations and agreements will ultimately affect the WTO’s status as the pre-eminent global trade institution is widely debated. In a addition, an open question is whether US leadership within these initiatives will continue under the Trump Administration (Congressional Research Service, 2019).

            More recently, concerns for some have been mounting about further strains on the multilateral system, due to growing use of trade protectionist policies by both developed and developing countries, the recent US tariff actions and counter relations by other countries and the escalating trade disputes between major economies. Many countries are questioning whether the WTO is equipped to effectively handle the challenges of emerging markets like China, where the state may play a central role in international trade, as well as the deepening trade tensions between major economic players. Some experts view the multilateral trading system as facing a potential crisis, however we remain optimistic that the current state of affairs could spur renewed focus on reforms of the system.

            Reforms here we mean concerning the administration of the organisation, including its procedures and practices. Dispute settling (DS) reforms attempt to improve the working of the DS system, ie by safeguarding and strengthening the DS system; reinvigorating the WTO’S negotiating function including how the development dimension can be best pursued in (one word) and strengthening the monitoring and transparency of WTO members trade policies.

            All these reforms have in addition the objective of integrating all developing countries and also economies in transition into the trading system in order to strengthen economic interdependence as a basis for greater prosperity and world peace. The globalization of the world economy over the past century has created a greater reliance than ever on an open multilateral trading system. Free trade has become the backbone of economic prosperity and development throughout the world. In November 2019 at its mini ministerial meeting., China called on all parties “to firmly support the multilateral trading system, resolutely oppose unilateralism and protectionism, actively participate in the necessary reform of the WTO, integrate all developing economies and enhance the WTO’S confidence” (Inside US Trade). By improving the system through reform, grounds would be found for new compromises if the WTO is to remain the cornerstone of the trading system and fully integrated all developing countries in world trade.


We have traced the historical evolution of the GATT/WTO, its objectives, functioning as well as describe the theory of trade agreement that speaks to the design of GATT/WTO and have demonstrated that, in the absence of a trade agreement, the unilateral policy choice of the governments of large countries would give rise to inefficiencies that stem from a common source: the ability to shift costs on to trading partners through world price movements.

            We have also shown that the basic challenge of the GATT/WTO is the full integration of developing countries into the mainstream of the GATT/WTO. This integration is crucial as these negotiations are critical to ensure the future health of the world economy and the trading system. The globalization of the world economy over the past decades has created a greater reliance than ever on an open multi lateral trading system. Free trade has become the backbone of economic prosperity and development throughout the world. Partly as a result of this, there has been a shift in trade policy mechanism from border measures to internal policy measures substantially affecting the management of trade relations.

The challenges developing countries face are enormous. Will the WTO continue its transition to a one – tier, “Trade as Trade” regime for developing countries? Will the negotiators succeed in eliminating agricultural subsidies, and in truly liberalizing trade in textiles and other products of interest to the less developing countries? Will industrial tariffs move dramatically toward zero?. These are some of the major challenges facing the negotiators as they seek a successful conclusion in the next few years. We should wish as them well and, if it continues to emerge hail the transition to a one – tier WTO.


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