Developing countries in the world trade regime
Developing countries in the world trade regime

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Developing countries in the world trade regime

2 The road to Doha

The WTO was created by the eighth in a series of multilateral trade negotiations that have taken place since the signing in 1947 of the General Agreement on Tariffs and Trade (GATT). Multilateral trade negotiations take place between many countries simultaneously. (Bilateral negotiations are negotiations between pairs of countries.) The GATT was designed to prevent a repetition of the experience of the 1930s, when individual countries had tried to claw their way out of the widespread unemployment that was characteristic of the Great Depression of those years by restricting imports and subsidising their exports to other countries. For an individual country, this policy seemed to make sense, because it prevented cheaper imports from displacing workers in vulnerable industries, and promoted employment in export sectors. However, when implemented by many countries simultaneously, it amounted to a ‘beggar-thy-neighbour’ policy which only made the overall situation worse, as one country's imports are another's exports. (Think of someone standing up to get a better view at a sports event: it makes sense for the individual, but if everyone stands up, no-one gets a better view and everyone gets exhausted.)

Two kinds of import restrictions were especially prominent: tariffs (which are customs duties or taxes on imports or exports) and quantitative restrictions (quotas or limits on the amount of imports; for example, ‘not more than x tonnes of steel’). Under the GATT, contracting countries agreed to restrict their use of such policies. Tariffs were ‘bound’ at maximum levels, while quantitative restrictions and export subsidies were abolished. The tariff reductions were negotiated on the principle of reciprocity: country A agreed to reduce tariffs on particular products which it imported from country B, in exchange for B reducing its tariffs on products exported by A.

Seven ‘rounds’ of multilateral negotiations took place under the GATT between the 1940s and 1970s, resulting in a significant reduction of tariff barriers for most manufactured goods traded between the developed countries. However, although developing countries comprised a majority of the original 23 GATT signatories and their number proliferated in subsequent years, they remained suspicious of the motives of the richer countries and of the idea of free trade itself, and most did not participate fully in this process for 40 years. They neither reduced their own tariffs and quantitative restrictions, nor did they obtain reciprocal concessions from the developed countries for their major exports, notably agricultural products, textiles and clothing.

This changed in the 1980s. The economic performance of the developing countries that had gone furthest in restricting imports was disappointing, and industries shielded from foreign competition were chronically inefficient. Also influential was the ‘East Asian Miracle’, the spectacular success of countries such as South Korea, Taiwan, Hong Kong, Singapore (and later China) in achieving rapid economic growth by promoting exports. Along with pressure from the World Bank and the IMF, these experiences swung developing countries in the direction of trade liberalisation. (Trade liberalisation refers to the reduction or abolition of barriers to trade such as tariffs and quotas.)

The tide was therefore turning when the eighth round of GATT negotiations got under way in 1986 with a conference in Punta del Este in Uruguay. The Uruguay Round, as it came to be known, was in comparison with earlier rounds the most protracted (it lasted eight years), the largest (it involved many more countries), and much more far-reaching. Some 30 agreements and ‘understandings’ were signed at the conclusion of the round in 1994, one of them setting up an entirely new organisation, the WTO, to supplant the GATT as an institution.

For the first time, the developing countries made significant concessions and opened their markets, in exchange for the developed countries agreeing to bring agriculture and textiles (important developing country exports) back into the framework of rule-bound trade liberalisation. In particular:

  • Most developing countries agreed to reduce and bind their tariffs, to reduce their subsidies, and to refrain from using quantitative restrictions.

  • They agreed to integrate agriculture into the framework of reciprocal concessions, exposing their farmers to intense foreign competition.

  • They agreed to extend trade liberalisation, which had earlier been confined to trade in goods, to services (for example, banking, insurance and telecommunications).

  • They agreed to include protection of intellectual property rights (patents, copyrights, trademarks and so on) in the GATT/WTO framework.

Although similar concessions were also made by the developed countries, we shall see that their very different economic conditions, and their ability to exploit loopholes in the agreements, meant that similar concessions often entailed very different outcomes in developed and developing countries. Some elements of ‘Special and Differential Treatment’ were retained for developing countries: for example, they were given a few more years to comply with some of the agreements, allowed to make smaller tariff reductions, and the 30 or so ‘least developed’ (poorest) countries were exempted from having to reduce their subsidies. Many other provisions exhort, but do not force, the developed countries to show special consideration in enforcing the rules on developing countries. Despite all this, the impact of the agreements has been quite severe, as we shall see.

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