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The History and Future of the

World Trade

Organization

The History and Future of the World Trade Organization draws on a wealth of human, documentary and statistical sources to examine in depth the economic, political and legal issues surrounding the creation of the WTO in 1995 and its subsequent evolution. Among the topics covered are the intellectual roots of the trading system, membership of the WTO and the growth of the Geneva trade community, trade negotiations and the development of coalitions among the membership, and the WTO's relations with other international organizations and civil society. Also covered are the organization's robust dispute settlement rules, the launch and evolution of the Doha Round, the rise of regional trade agreements, and the leadership and management of the WTO. It reviews the WTO's achievements as well as the challenges faced by the organization, and identifies the key questions that WTO members need to address in the future.

Craig VanGrasstek is publisher of the

Washington Trade Report

and a trade consultant. He earned his doctorate in political science from Princeton University, and has taught political economy at the Harvard Kennedy School, international relations at American University's School of International Service, and literature at Georgetown University's School of Foreign Service and in its Department of East Asian Languages and Cultures.The History and Future of the World Trade Organization

Craig VanGrasstek

Disclaimer

Preface by WTO Director-General Pascal Lamy vii

Foreword ix

Chapter 1

The theory and practice of the multilateral trading system 3

Chapter 2

The creation of the multilateral trading system 39

Chapter 3

Members, coalitions and the trade policy community 83

Chapter 4

Accessions 121

Chapter 5

Relations with other organizations and civil society 151

Chapter 6

Rules and norms 201

Chapter 7

Dispute settlement 229

Chapter 8

Notifications, trade policy reviews and monitoring 271

Chapter 9

Modalities, formulas and modes 303

Chapter 10

WTO negotiations conducted outside the Doha Round 335

Chapter 11

The launch: from Singapore to Doha, with a detour in Seattle 373

Chapter 12

The conduct of the Doha Round 413

Chapter 13

Discrimination and preferences 463

Chapter 14

Leadership of the organization and management of the institution 503

Chapter 15

The future of the WTO 549

Annex 1: Biographical appendix 571

Annex 2: GATT/WTO senior management, 1948-2013

599

Bibliography 601

Abbreviations

621

Index 625

For Alma Crawford and Isidor Sherman,

who both believed in education.

“History," wrote James Baldwin, “does not refer merely, or even principally, to the past. On the

contrary, the great force of history comes from the fact that we carry it within us, are unconsciously controlled by it in many ways, and history is literally in all that we do." It is in this spirit that I have commissioned The purpose of this work is to not only tell us about our past, but to explain our present and to inform our future. The General Agreement on Tariffs and Trade (GATT) arose in 1947 out of the ashes of the Second World War, as did the International Monetary Fund and what we now know as the World Bank. It was the product of unprecedented international cooperation by an international community that was deeply scarred by the damage and destruction that endless warfare had brought about; an international community searching for an entirely new beginning and a new international order. While GATT certainly ushered in a new era of international cooperation, it nonetheless had to weather the aborted effort to create the International Trade Organization, pressures of numerous other national and regional conflicts, and the entire Cold War, before eventually morphing into the WTO. Over a decade and a half later, it is now high time for a history of the WTO - the successor organization that inherited GATT. The recording and writing of history is no easy task and is subject to its own set of controversies. As many of you know, historians are in a constant quest for new perspectives, and would view this quest as the very lifeblood of historical understanding. However, the reinterpretation of history has sometimes been called “revisionism", and it is frowned upon by some and even viewed with suspicion by others. But there can be no recounting of history without a point of view. Historian Eric Foner often recounts his conversation with an eager young reporter from . “Professor," she asked, “when did historians stop relating

facts and start all this revising of interpretations of the past?" “Around the time of Thucydides,"

he told her. This does not mean of course that absolutely any account of our past can count as history. In writing , Professor Craig VanGrasstek adhered to the strictest professional standards which clearly demarcate truths from falsehoods. We must nevertheless accept that there exists more than one legitimate account of the history of this organization.

Preface by WTO Director-General Pascal Lamy

viii THE HISTORY AND FUTURE OF THE WORLD TRADE ORGANIZATION making The History and Future of the World Trade Organization What chiefly makes the study of history wholesome and profitable is this, that you behold the lessons of every kind of experience set forth as on a conspicuous monument; from these you may choose for yourself and for your own state what to imitate, from these mark for avoidance what is shameful in the conception and shameful in the result. Livy preface (c. 27 BCE)

This book is a history in form but a biography in spirit. That term is technically inaccurate, as one

cannot literally write the record of a life for something that does not live. To the extent that we can speak of the World Trade Organization (WTO) as if it were living, however, it is still young. In most of its members, the WTO would barely be of legal age to drink, drive and vote. It has nevertheless been around long enough to permit preliminary assessments of those events that have changed the composition of its membership and altered the ways that those members interact with one another. An underlying theme of this study is that the character of an international organization represents more than the sum of its parties, being the institutional embodiment of specific ideas and aspirations. The fact that the membership of the WTO is virtually identical to that of several other international organizations that deal with global economic issues does not mean that their members meet in these different institutions with identical aims or that they deal with one another in these forums in identical ways. In 18 years of practice, and in its inheritance from a half-century of the General Agreement on Tariffs and Trade (GATT) and two centuries of trade diplomacy before that, the WTO has received and developed a character that sets it apart from all other global institutions. The main unifying element of this analysis is a focus on change over time. The presentation is more thematic than chronological, however, examining developments not in the sequential form of annals but instead by subject. Most of the information that follows is presented with a view towards either comparing the WTO with the GATT period or in illuminating the changes that have taken place over the WTO"s own tenure. Reference is made throughout this book to the GATT period, which can be precisely defined as 1947 to the end of 1994, and to the late GATT period, which can less precisely be defined as starting sometime in the latter years of the Tokyo Round (1972-1979) or in the interval between that round and the Uruguay Round (1986-1994). There are some ways in which the WTO period resembles the late GATT period, and other respects in which they are quite different eras.

Foreword

x THE HISTORY AND FUTURE OF THE WORLD TRADE ORGANIZATION

FOREWORD xi

denouement xii THE HISTORY AND FUTURE OF THE WORLD TRADE ORGANIZATION

FOREWORD xiii

xiv THE HISTORY AND FUTURE OF THE WORLD TRADE ORGANIZATION ad hominem

FOREWORD xv

xvi THE HISTORY AND FUTURE OF THE WORLD TRADE ORGANIZATION

Number

WeightMeasure

FOREWORD xvii

xviii THE HISTORY AND FUTURE OF THE WORLD TRADE ORGANIZATION

Endnotes

New Trade Policy for Europe under the Europe 2020 Strategy

The History of the Peloponnesian War

Provincial Letters

The foundations of the WTO

Chapter 1

The theory and practice of the multilateral trading system 3

Chapter 2

The creation of the multilateral trading system 39

CHAPTER 1

The theory and practice of the multilateral

trading system The prejudice which would either banish or make supreme any one department of knowledge or faculty of mind, betrays not only error of judgment, but a defect of that intellectual modesty which is inseparable from a pure devotion to truth.

George Boole

An Investigation of the Laws of Thought

(1854)

Introduction

The thought is the father to the deed, and the multilateral trading system could never have been built if it had not first been imagined. The World Trade Organization (WTO) is not the product of just one idea, however, or even one school of thought. It instead represents the confluence of, and sometimes the conflict between, three distinct areas of theory and practice. Law, economics and politics have each inspired and constrained the capacity of countries to work together for the creation and maintenance of a rules-based regime in which members with widely different levels of economic development and asymmetrical political power work together to reduce barriers to trade. It is therefore fitting to begin this history with a review of the intellectual prehistory of the WTO, as well as the contemporary debates surrounding each of these fields. Three major developments were required before a multilateral trading order could be created, including the emergence of two ideas and the resolution of a paradox. The first idea is that countries are sovereign, and hence have control of their own destinies, but also that the best exercise of sovereignty is to enter into binding agreements with other states by which they place voluntary and mutual limits on their exercise of that sovereignty. International law thus needed to be devised and respected, including the forms and norms of diplomacy, protocol, treaties, conferences and eventually the establishment of international organizations. The first steps towards the creation of the modern legal system date from the seventeenth and eighteenth centuries, based on speculations about natural law, but a true regime of international law was not under way until states developed a comprehensive body of positive law based on actual treaties. The WTO is an expression of that idea, but must also contend with the fact that states have created other international organizations (thus posing problems of coherence) while also jealously guarding their own sovereignty (thus setting limits on how far they are willing to go in negotiating and enforcing commitments).

4 THE HISTORY AND FUTURE OF THE WORLD TRADE ORGANIZATION

THE THEORY AND PRACTICE OF THE MULTILATERAL TRADING SYSTEM 5

CHAPTER 1

ancien régime Table 1.1. Key events in the legal, economic and political foundations of a multilateral trading system

Il Principe [The Prince]

De Jure Belli ac Pacis [On the Law of War and Peace]

De l'esprit des lois [The Spirit of Laws]

Du droit des gens, ou Principes de la loi naturelle [The Law of Nations] Inquiry into the Nature and Causes of the Wealth of Nations

Report on Manufactures

Zum Ewigen Frieden [On Perpetual Peace]

On the Principles of Political Economy and Taxation

6 THE HISTORY AND FUTURE OF THE WORLD TRADE ORGANIZATION

Legal and institutional foundations

THE THEORY AND PRACTICE OF THE MULTILATERAL TRADING SYSTEM 7

CHAPTER 1

The origins of international law

De Jure Belli ac Pacis [On the Law of War

and Peace]

8 THE HISTORY AND FUTURE OF THE WORLD TRADE ORGANIZATION

status quo ante bellum

Le droit

des gens, ou Principes de la loi naturelle

The Law of Nations

Inquiry into the

Nature and Causes of the Wealth of Nations

THE THEORY AND PRACTICE OF THE MULTILATERAL TRADING SYSTEM 9

CHAPTER 1

The creation of international organizations

Zum Ewigen FriedenOn

Perpetual Peace

10 THE HISTORY AND FUTURE OF THE WORLD TRADE ORGANIZATION

THE THEORY AND PRACTICE OF THE MULTILATERAL TRADING SYSTEM 11

CHAPTER 1

bona fide

International organizations after the Cold War

Our Global Neighbourhood,

Ibid

12 THE HISTORY AND FUTURE OF THE WORLD TRADE ORGANIZATION

The WTO and public goods: the legal, economic and political dimensions One concept that cuts across all three areas of thought examined here is the notion of public goods.

This economic idea has important

- although not always consistent - implications for the multilateral

trading system. It helps to explain why open markets are difficult to establish, how that difficulty can

sometimes be overcome as a general rule and what specific exceptions are then proposed.

As first described by Samuelson (1954), public goods share two key characteristics. The first is that they

are non-excludable, meaning that no one can be prevented from enjoying them. Roads and national

defence, for example, are available to everyone if they are available to anyone. Second, they are non-

rivalrous in consumption, meaning that one person's use of that good does not diminish its availability to

others. The information that one motorist receives from reading a road sign does not interfere with anyone

else's ability to navigate. From the standpoint of public policy, the most important aspect of public goods

is that they are highly susceptible to market failure. A rational, self-interested actor will normally perceive

a great disincentive to supply a public good when other, equally rational and self-interested actors can

“free ride" on that investment. This barrier to the provision of public goods by private parties thus

becomes a rationale for the state to step in as a provider, acting on behalf of the community. One school of thought applies public-goods reasoning to answer the “big picture" question of why global markets are sometimes relatively open and sometimes relatively closed, a conundrum that is - together with the question of why countries are sometimes at peace and sometimes at war - one of

the two great topics in international relations. According to the theory of hegemonic stability, an open

world market is a public good and hence tends to be under-provided, with each country pursuing its

own self-interest through selective protectionism while also being prepared to free-ride on any other

country's openness. The public good has historically been provided only when there is one large country that has both the motive (a competitive, export-oriented economy) and the means (military

power, political prestige and economic leverage) to lead or coerce other countries (see Kindleberger,

1973; Krasner, 1976; and Gilpin, 1987). As discussed at length in Chapter 2, Great Britain played this

role in the nineteenth century and the United States in the twentieth century. Another school of thought applies similar reasoning to argue more broadly for global governance through international organizations. The advocates of global public goods stress the collective gains over the individual costs of cooperation, and contend that institutions such as the WTO need to be established and strengthened as a means of dealing with the world's problems. This will, they hope, provide a more enduring, equitable and cooperative basis for democratic global governance than reliance on hegemony. In this environment, states “will witness continuing erosion of their capacities to implement national policy objectives unless they take further steps to cooperate in addressing international spillovers and systemic risks" (Kaul et al., 1999: 451). Public-goods concepts can also illuminate the domestic politics of trade, including the differing

levels of activism on the part of pro-trade and trade-sceptical interests. If all interested parties felt

the same incentive to act upon their interests we might expect trade liberalization to be a political

“no-brainer" in most democracies, as consumers

- the ultimate beneficiaries of an open market - would greatly outnumber the protectionist industries that conspire against their interests. Consumers face a public-goods problem to mobilization, however, just as the protection-seeking industries benefit from the organizational advantages of small numbers. THE THEORY AND PRACTICE OF THE MULTILATERAL TRADING SYSTEM 13

CHAPTER 1

Ibid

14 THE HISTORY AND FUTURE OF THE WORLD TRADE ORGANIZATION

demandeurs

The economic foundations

THE THEORY AND PRACTICE OF THE MULTILATERAL TRADING SYSTEM 15

CHAPTER 1

The economic rationale for open markets

The Wealth of

Nations

métiers both

16 THE HISTORY AND FUTURE OF THE WORLD TRADE ORGANIZATION

Ricardo"s illustration of comparative advantage: trading wine and cloth From David Ricardo, On the Principles of Political Economy and Taxation, third edition (1821). If Portugal had no commercial connexion with other countries, instead of employing a great part of her capital and industry in the production of wines, with which she purchases for her own use the cloth and hardware of other countries, she would be obliged to devote a part of that capital to the manufacture of those commodities, which she would thus obtain probably inferior in quality as well as quantity. The quantity of wine which she shall give in exchange for the cloth of England, is not determined by the respective quantities of labour devoted to the production of each, as it would be, if both commodities were manufactured in England, or both in Portugal. England may be so circumstanced, that to produce the cloth may require the labour of 100 men for one year; and if she attempted to make the wine, it might require the labour of 120 men for the same time. England would therefore find it her interest to import wine, and to purchase it by the exportation of cloth. To produce the wine in Portugal, might require only the labour of 80 men for one year, and to produce the cloth in the same country, might require the labour of 90 men for the same time. It would therefore be advantageous for her to export wine in exchange for cloth. This exchange might even take place, notwithstanding that the commodity imported by Portugal could be produced there with less labour than in England. Though she could make the cloth with the labour of 90 men, she would import it from a country where it required the labour of 100 men to produce it, because it would be advantageous to her rather to employ her capital in the production of wine, for which she would obtain more cloth from England, than she could produce by diverting a portion of her capital from the cultivation of vines to the manufacture of cloth. While the argument is sound, it is not universally accepted, and the advocates of free trade perennially face objections that have taken similar forms ever since the time of Smith andquotesdbs_dbs50.pdfusesText_50

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