Developments of the 1960s raise sober doubts as to the permanence of GATT....The Kennedy Round may emerge in the perspective of history as the twilight of the GATT.1
— John W. Evans, assistant special representative for trade in the Executive Office of the President of the United States

W

hen the founding fathers2 gathered at Bretton Woods, New Hampshire, in July 1944, there emerged two-and-a-half pillars of modern global economic governance. The International Monetary Fund and International Bank for Reconstruction and Development (better known as the World Bank) were full-fledged, treaty-based organizations with defined governance structures. The putative International Trade Organization (ITO) never got off the ground in the same manner. Although negotiations for an ITO were successfully completed in the Havana Charter in March 1948, the charter was not ratified by the US Congress, on the grounds that it intruded into domestic economic issues. Instead, the General Agreement on Tariffs and Trade (GATT) became operational on January 1, 1948, with 23 members, including the United States. The GATT was a far-reaching document for its time. It was designed to overcome resistance and might have built in a planned obsolescence.

Customs unions were permitted as the main exception to the most-favoured-nation principle, on the grounds that some tariff reduction among willing countries was still better than none, so long as tariffs around the group’s perimeter did not increase. Although this logic got the economics partially wrong — Jacob Viner’s pioneering work distinguishing between trade creation and trade diversion did not appear until 1950 — the nod to historical and political exigencies was pragmatic and necessary.

On quantitative restrictions, the economics was more solid, and they were understood to be inferior to equivalent tariffs. But here, too, the practical question of protecting politically powerful agricultural sectors in Europe led to acquiescence by the framers of GATT so that the larger, longer-term enterprise of baking trade liberalization into global economic affairs — and creating a European bulwark against the Soviet Union — was not derailed.

The mild strictures on state trading enterprises in article XVII were followed in the next article by what, at the time, must have seemed big-hearted concessions to developing countries3 and the process of economic development in many war-torn signatory nations. Temporary deviations from the GATT articles — albeit with scrutiny and permission from the other contracting parties — were permitted in the interests of a poor country seeking to raise its level of development.

Balance-of-payments crises and spikes in imports that unduly hurt domestic producers of the same product were also grounds for a country to deviate from its GATT obligations.

The change from a negotiating forum to a full-fledged, treaty-based international institution systematized international trade governance.

Article XX lists 10 general exceptions to GATT obligations that resonate even (or especially) today. The key ones are worth listing:

  • the protection of public morals;
  • the protection of human, animal or plant life or health;
  • the protection of patents, trademarks and copyrights;
  • the avoidance of the use of prison labour;
  • the protection of national treasures of artistic, historic and archaeological value;
  • the conservation of exhaustible natural resources; and
  • the maintenance of adequate domestic stocks of key commodities and products.

Additionally, article XXI provides for exemptions for reasons of national security and war.

Against this institutional background, and with tariffs on goods averaging 22 percent at the end of World War II, the first GATT rounds, starting with Annecy in 1949, concentrated on lowering tariffs on manufactured goods, the proverbial low-hanging fruit. By the end of the Tokyo Round in 1979, average tariffs on industrial goods stood at 4.7 percent. The Tokyo Round took on other imperatives — non-tariff barriers, Japan’s business model and crunchier issues that inevitably led “behind the border” — which implied that progress would be a slower slog, irritating more and varied constituencies across a membership that now numbered more than 100.

The Uruguay Round lasted a long time (1986–1994) and yet did not deliver on all of its ambition precisely because — to their credit, but also because they had no choice, tariff reduction having run its course — member countries added subjects left over from the Tokyo Round and added others. These included services, financial flows, textiles, agriculture and intellectual property (IP). The round resulted in the creation of the World Trade Organization (WTO) in 1995. The change from a negotiating forum to a full-fledged, treaty-based international institution systematized international trade governance. Trade in services and IP lay within its remit, the dispute resolution system became binding on all members, small and large, and the institutional edifice meant that consideration of new issues and mission creep were built into the structure. Such a system was necessarily and inevitably going to “fill in” missing bits and adjudicate “grey areas.”

The Doha Round that started in 2001, while mostly a failure (and technically still ongoing), was termed the Doha Development Round, but also included issues raised earlier at the 1996 Ministerial Conference in Singapore: competition, investment, government procurement and trade facilitation. Developing countries successfully lobbied against the inclusion of the first three topics, arguing that they did not belong in a development agenda. There has been partial progress here — a modernized version in 2014 of an agreement on government procurement first introduced in the Tokyo Round, and one on trade facilitation that came into force in 2017. In this period of mixed success, the notion of the WTO process dealing with norms rather than tariff reduction was now embedded in international trade governance — and is proving to be its undoing.

But it is hard to visualize the WTO — or any single multilateral organization — dealing with these issues in their entirety, starting with the negotiation.

As the essays in this series demonstrate, the global trade governance agenda is almost entirely a “trade and...” agenda. The list is a daunting one, including labour, women, Indigenous peoples, climate change (and the environment more broadly), data and digital issues, and IP, ideally crowned by a reformed dispute resolution process.

But it is hard to visualize the WTO — or any single multilateral organization — dealing with these issues in their entirety, starting with the negotiation. Clearly, the “single undertaking” approach, where all manner of topics were pooled to make broad-based progress while allowing for trade-offs between issues, is dead — and should be. The last two rounds floundered on account of the weight and unwieldiness of this approach, and it is harder still to imagine an organization tasked with monitoring commitments to this wide range of issues, much less adjudicating disputes around them. It starts with framing. The “trade and...” moniker might itself be the wrong way around. It may be more a concern about how trade rules risk tripping up important public policy objectives in such areas as labour, climate change and the digital economy.

The case of data governance vis-à-vis e-commerce is indicative of the dilemma. In the absence of a meaningful multilateral framework on e-commerce, regional trade agreements (RTAs) are forging ahead. In the Americas, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, Pacific Alliance and the Canada-United States-Mexico Agreement (CUSMA) have provisions for e-commerce. Since one of the reasons to have RTAs is their “hot house” nature to experiment and innovate, it is possible that in the absence of multilateral rules, RTAs establish precedent and practice, which might eventually become the multilateral norm.

There are two areas where seeming technocratic e-commerce-related provisions mask deeper and more sensitive issues of power and national sovereignty. One is data localization; the other is the capacity of national authorities to hold multinational digital platforms accountable for the content they carry. The CUSMA provision on data localization (article 19.12) is short and not so sweet, at least for those who read more into such policies than simply the enabling of trade: “No Party shall require a covered person to use or locate computing facilities in that Party’s territory as a condition for conducting business in that territory.”

If data is seen only through a commercial lens and not as an aspect of personal protection and privacy, the logic of ever more openness makes sense. But examples abound of the non-economic dimensions of data, lost when data is treated strictly through the trade agreement medium. While some in the human rights community have raised concerns about forced data localization in countries with authoritarian regimes,4 it is safe to say that the categorical language on data localization in CUSMA is not driven by such concerns in relation to Canada, the United States or Mexico. However, this does highlight the quandary of placing a deeply conflictual social issue in the lap of global trade governance.

The possibility of the WTO fading into the background as other issues and better adapted fora rise to pre-eminence should not be overlooked.

CUSMA also uses the “safe harbour” provision to liberate digital platforms from responsibility for the content they carry. There is currently a lively discussion ongoing on how best content on digital platforms might be managed.5 Safety must be balanced with freedom of speech. Models of content regulation ranging from none to purely government-imposed to self-regulating and public-private partnerships (such as Facebook’s Oversight Board) are currently being evaluated. It is entirely likely that one size does not fit all in this case, and that the political economic process in different countries might arrive at different solutions.

The US projection of this political economy, via RTAs, into other countries removes their ability to view this situation differently. The RTA entry point is used to manage policy space for areas that go well beyond e-commerce. In effect, RTAs act as a ratcheting mechanism, locking-in norms and practices negotiated by powerful players (whose power is even further enhanced in a regional setting) that stand to become a multilateral standard. This may well be where a “modernized” WTO is headed, but it is no longer an international trade governance organization — and it might no longer be global, if the result is a fragmented internet, what Sean McDonald and An Xiao Mina term the “war-torn web.”6

The flexibility and pragmatism built into the GATT articles, coupled with the rise of the “[name your issue] and trade” agenda, have led to a stage where the WTO either mutates drastically or becomes obsolete. There are many strategic choices awaiting the WTO: for example, become a niche organization that provides governance in a single sector such as data or climate change; act as a repository for RTAs and forum to discuss the spaghetti bowl of ideas generated therein; host a more modest trade dispute resolution process for participating countries; or choose a default option and serve as an institution adjudicating trade among the many in areas that are not hyper charged. The WTO will no longer be the high-profile go-to organization of the past quarter-century. And it will remain relevant for a huge percentage of conventional commerce, but not regulate the division of rents in the intangible economy. Unlike 1944, in the Group of Twenty today, we have a ready-made forum that balances inclusivity, diversity and efficiency in decision making. Such a forum might be useful in helping to choose among the options and setting a realistic course for WTO modernization.

The implications of the quote cited at the beginning of this essay — that once tariffs were lowered, what was left for multilateral trade negotiations to achieve — was just as true when it was written in 1971 as it is today. The possibility of the WTO fading into the background as other issues and better adapted fora rise to pre-eminence should not be overlooked.
 


Author's note: I would like to thank both Oonagh E. Fitzgerald and Dan Ciuriak for their comments on the previous version of this piece.

1 John W Evans, Assistant Special Representative for Trade in the Executive Office of the President of the United States, cited in Alasdair I MacBean & P Nicholas Snowden, International Institutions in Trade and Finance (London, UK: Allen & Unwin, 1981) at 78.

2 They were mostly men. Not one of the 44-country delegation chairs was a woman, and a scrutiny of the list of attendees put together by Kurt Schuler and Mark Bernkopf suggests that more than 90 percent of the national delegations were male. The proportion was slightly lower among members of the international press covering the conference and, of course, lower still among support staff. See Kurt Schuler & Mark Bernkopf, “Who Was at Bretton Woods?” (2014) Center for Financial Stability Paper in Financial History, online: <www.centerforfinancialstability.org/bw/Who_Was_at_Bretton_Woods.pdf>.

3 Although, in practice, they were not big hearted, as David Malone and I, summarizing the key literature in this regard, argue. See David M Malone & Rohinton P Medhora, “Development Advancement through International Organizations” CIGI, CIGI Papers No 31 at 7–10, online: <www.cigionline.org/sites/default/files/cigi_paper_31.pdf>.

4 Arindrajit Basu et al, The Localisation Gambit: Unpacking Policy Measures for Sovereign Control of Data in India (Centre for Internet and Society, India, 2019), online: <https://cis-india.org/internet-governance/resources/the-localisation-gambit.pdf>.

5 For a sense of this discussion, see Susan Etlinger, “What’s So Difficult about Social Media Platform Governance?” in Models for Platform Governance, CIGI Essay Series, 29 October 2019, online: <www.cigionline.org/sites/default/files/documents/Platform-gov-WEB_VERSION.pdf>; Kate Klonick, “Does Facebook’s Oversight Board Finally Solve the Problem of Online Speech?” in Models for Platform Governance, ibid.

6 Sean McDonald & An Xiao Mina, “The War-Torn Web”, Foreign Policy (19 December 2018), online: <https://foreignpolicy.com/2018/12/19/the-war-torn-web-internet-warring-states-cyber-espionage/>.

The opinions expressed in this article/multimedia are those of the author(s) and do not necessarily reflect the views of CIGI or its Board of Directors.
  • Rohinton P. Medhora is president of the Centre for International Governance Innovation and a member of the Commission on Global Economic Transformation, an initiative co-chaired by Nobel economics laureates Michael Spence and Joseph Stiglitz.

Conclusion

The WTO: Ever Mutating, Planned Obsolescence or Unplanned Obsolescence?