Strategy ConsultingTax AdvisoryNovember 7, 2022by fieconEvolution of Trade Agreements: Uruguay Round & Formation of WTO

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Key issues and concerns remained at the end of the previous trade negotiation round. Developing countries felt that more needed to be done to strengthen the multilateral trading system. The prevailing system then for example, permitted developed countries to impose temporary trade restrictions to protect local industries and hence negotiations on safeguards were to continue. Additionally, it was agreed towards the end of the Tokyo round that the dispute settlement measures of GATT needed to be strengthened.

Similar to other trade negotiations in the past, the push for a new round began from the United States in 1982. However, this push failed after Europe refused to welcome the proposal to remove agricultural subsidies and developing countries wanted action on safeguards first before engaging in a new round of trade negotiations. A work plan however was agreed that would cover 1983 to 1984 that included issues such as dispute settlement and textiles and would set the stage for launching of a new round. In 1986 at a ministerial meeting in Punta del Este. Uruguay, an agreement to launch a new round of trade negotiations was reached; after the sustained push by the US to address its growing protectionism by engaging in more trade liberalization talks.

This round was the 8th and final round of multilateral trade negotiations under GATT with 123 countries participating as “contracting parties”; and it would include additional aspects such as trade in services and intellectual property rights and other aspects of trade such as banking. Initially, the trade round was expected to last for 4 years but ended up taking 7.5 years with significant achievements and some failures over the course of the negotiations. It was also during this round that we saw the creation of the World Trade Organization (WTO) towards the final phases of the negotiations; that would incorporate aspects of the GATT provisions and agreements established during the Uruguay Round.

Developing nations were split in the run up to this new round of negotiations. One side partnered with developed countries and submitted an ambitious plan with a broad scope of negotiations. The other side that was predominantly developing countries and was led by nations such as India and Brazil had an agenda with a limited scope. However, Brazil became more open to adopting a broader scope and in Punta del Este, the broader agenda was adopted.

On the other hand, the US was coming off from a trade surplus that existed in the 70s and was now facing a trade deficit. This was attributed to the tariffs US products were facing in foreign countries and the lack thereof of similar tariffs for foreign products in the US. Pressure groups were calling on the government to act; with most of them preferring the introduction of protectionist policies. In retaliation, the US passed the “Omnibus Foreign Trade and Competitiveness Act” that gave more powers to the executive branch to look into bilateral trade especially with countries that had a larger trade surplus compared to the US.

GATT at the time was starting to look at some bilateral and regional economic communities (RECs) as going against what GATT stood for in terms of trade liberalization for all. Some nations began questioning the European Community and saw its market unification as opposing entry of imports into the region. Other nations such as the US and East Asian nations were talking of creating their own free trade areas; and these would pose as threats to GATT as they were viewed to be preferential in nature to the disadvantage of non-members of those agreements. Another challenge that GATT was facing was the increasingly export-driven economies in developing countries. More developed countries under GATT felt that the provision that protected these countries from reciprocity on commitments made under GATT was not fair as the economies of these countries such as South Korea, and Brazil were growing and they would be expected to participate in these commitments just as developed countries were. Throughout the round this remained as an issue of contention.

In 1988, there was a review meeting in Montreal, Canada where the progress of the round was assessed. There was some success in getting concessions to lower import barriers for tropical goods from developing nations aimed at assisting them; and the dispute settlement system was streamlined. There was also a framework for trade in services that was agreed upon but certain aspects of it touching on market access were left for a later period. Additionally, the trade policies of the GATT members were reviewed. This mechanism was called the Trade Policy Review Mechanism and in addition to the regular notifications (this is where member countries notify WTO and fellow members of their laws and trade policies) was aimed at increasing transparency of trade practices among the members.

Despite this success agreements on trade in agriculture were not arrived at and the round was extended. Not much was done during this meeting that touched on intellectual property rights and it was left in the preliminary stages. The biggest challenge however during this meeting was the failure to agree on trade in agriculture between the US and EC. The US was pushing for a complete elimination of protection and on the other hand the EC proposed a freeze on current protections and some short-term reductions. As a result of the impasse, in December of 1988 the mid-term review was suspended by the GATT Director General Arthur Dunkel and pushed to the next year.

Author: David Kageenu

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