Seventy years ago, on 30 October 1947, the legal foundation of global commerce was laid when 23 countries adopted and signed the General Agreement on Tariffs and Trade (GATT). A press statement from the European Office of the United Nations, published on 30 October 1947, described the creation of the GATT as “the most comprehensive, the most significant and the most far-reaching negotiations ever undertaken in the history of world trade”.
The backdrop to those negotiations was the prevalence of beggar-thy-neighbour economic policies between 1918 and 1939, the interwar period, namely between the end of the First World War (WWI) in 1918 and the start of the Second World War (WWII) in 1939. This was a period when countries erected trade barriers and stubbornly refused to cooperate on economic matters. Prior to that period, the world had experienced greater economic openness, from 1820 to 1913, often referred to as the “golden era” of free trade under British hegemony.
According to the hegemonic stability theory, an international order can only be assured when a hegemon – a powerful and dominant state, with the motivation and capability to establish and sustain a global order – is involved in creating and maintaining it. By contrast, the neo-liberal institutionalist theory states that likeminded nations create regime not on a hegemon’s say-so, but because they have a shared interests to cooperate, and that, once created, a regime doesn’t need a hegemon to survive; it will maintain itself as long as it performs functions that meet the needs of its members; otherwise, it will decay or die!
In truth, both hegemony and cooperation are needed to create and maintain an international order. Britain’s hegemony alone did not create the international economic order of the 19th century; it needed the cooperation of its European rivals, such as France and German, who were willing to follow its leadership and example. But without a hegemon to provide leadership and bear much of the costs of creating and maintaining a regime, having likeminded states alone is not enough to create it or to maintain it if created. For example, the League of Nations was established in 1920 but ceased to exist in 1946. Why? Because the US did not support it! Also, the charter to establish the International Trade Organisation (ITO) was signed in 1948, but the ITO never took off, well, because the US Congress refused to ratify the charter.
The combination of hegemony and cooperation was present in the 19th century, with Britain’s hegemonic leadership and support of its European rivals. But neither of these two elements – hegemony and cooperation – existed during the interwar period. The US, which replaced Britain as the new hegemon after the end WWI, failed to show leadership, as the economic historian Charles Kindleberger eloquently narrated in his book, The World in Depression. And the other nations were too inward-looking to cooperate. The result was the economic devastation of the interwar period.
By the end of WWII, however, the lessons of the interwar period and the need to take fundamental action to correct the conditions that led to the breakdown of economic cooperation during the period had concentrated minds. This time, the US, the world’s hegemon, stepped up to the plate. It took the first significant, practical step in 1945 by publishing its proposals for a post-war economic order, and brought together a representative group of trading nations to negotiate what was to become the GATT, and thus was born the world’s first multilateral trade agreement!
Of course, the GATT was not without flaws, not least because it was a mere agreement and lacked the full functionality of an international organisation, a role designed for the still-born ITO. However, notwithstanding its birth-defects, for nearly 50 years, before the creation of the World Trade Organisation (WTO) in 1995, the GATT, as one scholar put it, “furnished the ‘highway rules’ for the free flow of the ‘traffic’ of world trade”. It set the rules of international trade, and, through eight rounds of multilateral trade negotiations, led to substantial reductions of tariffs on industrial goods. So, then, congratulations are in order. It is fitting and proper to say Happy Birthday GATT!
But as the world celebrated the 70th birthday of the GATT last week, there were also concerns about the future of the organisation that now embodies it, the WTO. If you take my argument that it takes a combination of a hegemon and a coalition of cooperative states to create and maintain a regime, then, well, one aspect of this duo is now deficient. The WTO is under threat not because there is no coalition of the willing who subscribe to its values, but because the hegemon, the US, is not helping to maintain the global order but, instead, acting like a bull in a china shop. The world is crying for more international cooperation, but America, under President Trump, is retreating from multilateralism, and taking actions that could damage one of the flagships of global economic cooperation, the WTO.
During the 2016 presidential campaign, Trump threatened to pull the US out of the WTO, describing the organisation as a “disaster”. In February this year, after President Trump assumed office, the Financial Times reported that “Trump’s team looks to bypass the WTO dispute system” as officials were exploring how to impose unilateral trade sanctions without the WTO’s authorisation. But it was not until March this year, when President Trump submitted his trade policy agenda to Congress that his anti-WTO views moved from the realm of rhetoric to that of policy. In the Trade Policy Agenda, President Trump made clear that his administration would pursue aggressive unilateral measures even if they violated WTO rules. In August this year, the administration took the first step towards this policy of unilateralism when it launched investigations into alleged intellectual property theft by China, using unilateral powers under Section 310 of the US trade law.
American unilateralism was profound in the 1980s, prompting Professor Jagdish Bhagwati to describe the US as “judge, jury and executioner” in trade matters. It was the attempt to put an end to such practices, widely condemned as “the law of the jungle, where might is right”, that led to the creation of a powerful dispute settlement system in WTO law to constrain the behaviour of states. But America did not like the supranational judicial body, which it believed undermined its sovereignty, and did everything to limit the domestic effects of WTO rulings through its 1994 Uruguay Round Agreement Act that ratified the WTO treaty. Now, however, the Trump administration wants to go further to undermine the dispute settlement system at source on the grounds that it is engaging in “judicial overreach” and that the US “loses the lawsuits, almost all of the lawsuits”, as President Trump said recently. Yet, according to Factcheck.org, the US won 91% of the 114 cases it brought to the WTO since its inception, and lost 89% of the 129 cases brought against it.
But such evidence of the independence and impartiality of the WTO judges doesn’t matter in the context of the “America First”, anti-multilateralism policy of the Trump administration. Now, the US is showing its antipathy towards the WTO dispute settlement system by blocking appointments to the Appellate Body, made up of distinguished trade lawyers. The Appellate Body consists of 7 members, who sit in divisions of 3 to hear appeals. It needs at least 4 members to function; its members would be reduced to 4 by next month and even below that next year due to mandatory expiry of tenures (each judges serves for a term of four years, renewable once). The US’s refusal to support the filling of the AB vacancies has been described by the EU trade commissioner, Cecilia Malmstrom, as “killing the WTO from inside”.
Surely, as we clink glasses to celebrate the GATT at 70, we must spare a thought for the beleaguered WTO, now 22, and wish it survives the Trumpian onslaught. For the sake of the global economic system, it must!