When the General Agreement on Tariffs and Trade was signed by 23 nations in 1947, the goal was to establish a rules-based world trading system and to facilitate mutually advantageous trade liberalization. As the GATT evolved over time and morphed into the World Trade Organization in 1993, both goals have largely been achieved. The WTO presides over a rule-based trading system based on norms that are almost universally accepted and respected by its 163 members. Tariffs today are below 5 percent on most trade, and zero for a very large share of imports.
Despite its manifest success, the WTO is widely regarded as suffering from a deep malaise. The main reason is that the latest WTO negotiation, the Doha Round, has staggered between failures, flops, and false dawns since it was launched in 2001. But the Doha logjam has not inhibited tariff liberalization—far from it. During the last 15 years, most WTO members have massively lowered barriers to trade, investment, and services bilaterally, regionally, and unilaterally—indeed, everywhere except through the WTO. The massive tariff cutting that has taken place around the world, shown in Table 1, has been at least as great as in the previous successful WTO rounds. Moreover, the Doha gridlock has also not dampened nations’ interest in the WTO; 20 nations, including China and Russia, have joined since 2001.
This paper begins by sketching the historical context of the original GATT agreement. It then discusses how the rules and principles behind the GATT rounds combined to create a juggernaut of political economy momentum in which nations kept joining the GATT and tariffs kept falling.
The paper then turns to the current woes of the WTO and why its magic seems to have failed in the Doha Round. Two major sets of reasons emerge in this discussion. First, the last round of GATT negotiations, the Uruguay Round, sought to generate additional momentum for free trade through broadening its focus, both in terms of more countries joining and in terms of additional areas that would be covered by the agreement. However, these steps toward broadening also required altering some of the historical rules and principles that had generated momentum toward free trade. The changes altered and may even have ended the political economy momentum of the WTO. Second, the rules and procedures of the WTO were designed for a global economy in which made-here–sold-there goods moved across national borders. But the rapid rising of offshoring from high-technology nations to low-wage nations has created a new type of international commerce. In essence, the flows of goods, services, investment, training, and know-how that used to move inside or between advanced-nation factories have now become part of international commerce. For this sort of offshoring-linked international commerce, the trade rules that matter are less about tariffs and more about protection of investments and intellectual property, along with legal and regulatory steps to assure that the two-way flows of goods, services, investment, and people will not be impeded.
It’s possible to imagine a hypothetical WTO that would incorporate these rules. But in practice, the rules are being written in a series of regional and megaregional agreements like the Trans-Pacific Partnership (TPP) and Transatlantic Trade and Investment Partnership (TTIP) between the United States and the European Union. The most likely outcome for the future governance of international trade is a two-pillar structure in which the WTO continues to govern with its 1994-era rules while the new rules for international production networks, or “global value chains,” are set by a decentralized process of sometimes overlapping and inconsistent megaregional agreements.
■ Richard Baldwin is Professor of International Economics, The Graduate Institute, Geneva, Switzerland. He is also Director of the Centre for Economic Policy Research (CEPR) in London, UK, and Editor of VoxEU.org. His email address is rbaldwin@cepr.org.