By Amol Agrawal
On October 30, 2022, the World Trade Organisation celebrated 75 years of the General Agreement on Tariffs and Trade (GATT). While GATT does not exist anymore as it was replaced by WTO in 1995, it still remains an important landmark in global cooperation. In a world which is increasingly becoming divided, this anniversary could not have come at a better time.
Trading has been central to human history. Whether we look at individuals or kingdoms of the past and today’s nation-states, trading with each other has been essential to understanding their evolution. However, despite this long history, humans conveniently forget the importance of trading. Each time there is a war or an economic crisis, trading is one of the first casualties. In fact, trade is one way in which one could minimise conflicts but that lesson is also ignored.
The important lesson that trading-enabled cooperation hit home amidst the second World War. As the US was entering war, Winston Churchill and Franklin D Roosevelt crossed the Atlantic at the peak of the war to sign a charter basing their “hopes for a better future for the world”. Of the eight Atlantic charter clauses, the fourth one stated ‘to further enjoyment by all states access on equal terms to trade and raw materials of the world’. The world had seen two world wars in quick succession and the leaders saw trade as one of the ways to bring back harmony and peace.
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The Atlantic charter also became the basis of the Bretton Woods Conference held in 1944. The objective of the BWC was to work towards a better world post the Second World War. There were three key objectives of the BWC—re-establishing the exchange rates between countries, restoring the internal economy of nations disorganised by war, and re-establishing trade relations between nations and encouraging total trade expansion.
The discussions were led by John Maynard Keynes and Harry Dexter White, who decided to create international institutions to cement the goals. For exchange rates, the International Monetary Fund was created. For restoring internal economics, the International Bank for Reconstruction and Development was set up, which later became part of the World Bank group. For the third, there was a proposal to create a multilateral trade organisation which was to be named the International Trade Organisation. The draft ITO charter contained provisions to liberalise trade in goods and services, lower restrictions on cross -border employment and investments and so on. The idea was to approve the charter in the United Nations Conference on Trade and Employment to be held at Havana in 1947.
WWII ended in August 1945. In December 1945, 15 countries began initial discussions to undo the protectionist measures which were adopted before the war. The group soon expanded to 23 countries, including India. This first round of trade negotiations resulted in a package of trade rules and 45,000 tariff concessions affecting $10 billion of trade amounting to one-fifth of the world’s total. From 1945-1947, when the Havana charter was to be discussed, the trade environment again became uncertain. The US Congress expressed concern that ITO would intervene in domestic policy matters and did not approve the charter. There were also concerns that rising Cold War tensions could once again lead to protectionist measures and trade restrictions. Hence, the 23 members signed onto a temporary General Agreement on Tariff and Trade in October 1947. Eventually, the talks on ITO fell through as the US did not approve, other countries also dropped it.
Thus, GATT was not only the sole so-called multilateral instrument governing international trade from 1947, but it was also responsible for laying the groundwork for the WTO, which was established in 1995. Over the 47 years of its existence, GATT rounds led to the lowering of trade tariffs and tackled the non-tariff trade barriers. The membership grew from 23 founding members to 123 participants in the Uruguay round of 1986-1994, which expanded discussions and negotiations to include services, intellectual property, dispute settlement etc.
While reading this history of GATT, one cannot help but compare the similarity between the 1940s and today. In the last 15 years, we have witnessed a global financial crisis, a pandemic, and now, a war. We are sitting on a major climate crisis. These global shocks have fractured the world and created many conflicts.
There is once again a rise of protectionism and the emergence of strong nationalist leaders. The global institutions created after the World Wars never really served their global purpose and were controlled by the Western and developed countries. WTO, which started as a big bang, has turned out to be a whimper. A temporary GATT achieved much more than a permanent WTO. In such times, we need the global leadership to shun parochialism and instead seek to embrace the world. Why is it that humans seek war and not peace remains a mystery.
The author is Assistant professor, economics, Ahmedabad University