10. Discuss the following:

1. The USA – Leader of American Economic Integration.

2. Economic Impact of NAFTA.

Unit 8

From the GATT to the WTO

Read the text and decide whether the sentences are true or false:

In the famous phrase of Charles Kindleberger, “For the world economy to be stabilized, there has to be a stabilizer, one stabilizer.” But in 1926, Britain suffered from imperial overstretch and could no longer act as a hegemonic power to sponsor the relatively free trade regime of the nineteenth century. And the other Great Powers that could have provided leadership had also been greatly weakened by World War I: Germany and Austria had lost the war, and France had won but lost some 6 million soldiers—much of its productive work force. The only exception was the United States: it had entered the Great War late, sustained relatively minor losses, and emerged from the war as the strongest power with the capability to sponsor freer trade. But Britain could not, and the United States would not, play the leadership role needed for the international stability. Since there was no one else to fill the vacuum, the result was catastrophe: tariff hikes by all great trading partners to protect their domestic industries, including the Smooth-Hawley tariff in the United States, bilateral trade agreements by Nazi Germany, trade wars, and finally World War II.

When the Allies met at Bretton Woods to build an institutional framework that would prevent similar disastrous policies in the future, one result was the WTO’s predecessor: the General Agreement on Tariffs and Trade came into effect in January 1948. Originally, the Bretton Woods framers had planned an International Trade Organization (ITO) alongside the IMF and World Bank. The GATT was meant only as a provisional short-term agreement until the ITO could be launched at a 1947 conference in Havana. But the ITO never came into force for several reasons: though the Soviet Union had to attend Bretton Woods, it stayed away from Havana, probably to protest the incipient Cold War and the Truman Doctrine, which called for containing communism anywhere in the world; thirty developing countries protested that the ITO draft treaty was solely in the interest of the Great Powers; and US president Harry Truman never submitted the treaty to the US Senate. (Congress never voted on the GATT either, and when it did so later, only on tariffs within the GATT, since it saw the GATT as an executive agreement, a treaty not an organization; and treaties were none of its business but rather the job of the executives.)

The GATT was not a rulemaker. It operated under general principles: nondiscrimination (members agreed to treat other members equally), reciprocity (concessions made to one member were automatically available to all others), and trade expansion. Decisions were unusually reached by consensus, not through voting. From its inception, member states worked in eight rounds of multilateral trade negotiations that substantially opened industrial markets (except in agriculture, where high trade barriers remained). The last was the longest: the so-called Uruguay Round, 1986 to 1994. Three major trading blocs, the United States, the EU, and Japan, dominated the talks. An agreement was finally reached in 1993, but the markets of these three economic powerhouses remained effectively closed to agriculture and textile imports from the South. Meanwhile, developing nations updated their laws on competition, intellectual property rights, customs systems, and foreign investment; and liberalized their capital accounts, industrial tariffs, and service sectors to give Northern multinationals access to their markets. The GATT is generally recognized as having contributed to economic growth in developing countries, especially those that qualified for most-favored-nation (MFN) status with each other.

But the GATT’s very success led to its downfall. As it grew beyond narrow trade issues, it became insufficient for resolving disputes. Often derided as the “Gentlemen’s Agreement to Talk and Talk,” it lacked the teeth—the institutional credibility and authority—needed for effective arbitration and rulemaking. A new institution was warranted to address the complexities of global trade. At the end of 1994, the GATT was history.

In its place, the WTO came into being in January 1995, with headquarters in Geneva, and within a few months its secretariat employed 630 people. Its main functions are administering WTO trade agreements, providing a forum for trade negotiations, handling trade disputes, monitoring national trade policies, providing technical assistance and training for developing countries, and cooperating with other international organizations.

The WTO has enlarged its scope from mere trade liberalization based on tariff concessions (shallow, or “negative,” integration) to a wider range of more intrusive regulations (deep, or “positive,” integration). It now includes services, trade-related intellectual property rights, foreign investment, competition policy, and a quest for harmonization of national rules in trade-related investment services. This broader agenda lowers the risk of cross-border transactions for millions of entrepreneurs. But the WTO’s competencies differ sharply from those of the GATT. Member nations that signed the GATT agreements were called “contracting parties,” for which GATT rules were legally binding only insofar as they agreed to each rule individually. The WTO, by contrast, is a stand-alone institution and a legal person with self-executing rules and procedures. With its vastly expanded jurisdiction, the WTO is more than a trade organization. Its rules have far-reaching effects on the socioeconomic environments of countries—even nonmembers—around the globe. The WTO’s unprecedented powers have alarmed not only nongovernmental groups but also governments, which fear that their control of vital national decisions is being overtaken by supranational rules. They and other critics have raised questions about the organization’s democracy and legitimacy.

1. The GATT was meant as a provisional long - term agreement.______

2. The ITO never came into force.______

3. The GATT operated under general principles: nondiscrimination, reciprocity, and the trade expansion._____

4. Decisions were reached through voting, not by consensus.______

5. Member states worked in seven rounds of multilateral trade negotiations._____

6. The GATT is recognized as having contributed to economic growth in developing countries._____

7. The GATT's very success led to its downfall._____

8. The WTO enlarged its scope from mere trade liberalization to a wider range of more intrusive regulations._____

9. It includes services, intellectual property rights, foreign investment.____

10. The rules of the WTO do not have far - reaching effects on the socioeconomic environments of countries around the globe._____

Choose the most suitable word and fill in the gaps:

1. Originally, the Bretton Woods framers had planned the _________ alongside the IMF and World Bank.

1. WTO

1. NAFTA

1. CEC

1. ITO

2. Developing nations updated their _________ on competition, customs systems, and foreign investment.

1. laws

1. statute

1. regulations

1. negotiations

3. As it grew beyond narrow trade issues, the _________ because insufficient for resolving disputes.

1. TRIP

1. GATT

1. MIA

1. ITO

4. The WTO came into being in January 1995, and within a few months its _________ employed more than six hundred people.

1. commission

1. office

1. secretariat

1. agenda

5. The WTO's _________ differ sharply from those of the GATT.

1. competencies

1. rights

1. duties

1. tasks

Exercises and Tasks

1. Complete the text with the following words: stand - alone, short- term, disputes, authority, rule-maker, powerhouses, round, inception, blocs, regulations.

1. The GATT was meant only as a provisional __________ agreement until the ITO could be launched.

2. The GATT was not a _________, it operated under general principles.

3. From its __________, .member states worked in eight rounds of multilateral trade negotiations.

4. The Uruguay _________ was the longest.

5. Three major trading _________ dominated the talks.

6. The markets of these three economic ________ remained closed to agriculture and textile imports from the South.

7. The GATT lacked the institutional credibility and ________ needed for effective arbitration and rulemaking.

8. The main functions of the WTO are administering trade agreements, handling trade _________, monitoring trade policies.

9. The WTO enlarged its scope from trade liberalization to more intrusive __________.

10. The WTO is a ________ institution and a legal person with self - executing rules and procedures.