Exam 8: Capitalizing on Global and Regional Integration

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Created in 1948,the GATT was technically an agreement but not an organization.Its major contribution was to reduce the level of tariffs by sponsoring rounds of multilateral negotiations.As a result,the average tariff in developed economies dropped from 40% in 1948 to 3% in 2005.Between 1950 and 1995 (when the GATT was phased out to become the WTO),while world GDP grew about fivefold,world merchandise exports grew about 100 times(!).During the GATT era,trade growth consistently outpaced GDP growth.Despite the GATT's phenomenal success in bringing down tariff barriers,it was clear by the mid-1980s,when the Uruguay Round was launched,that reforms would be necessary.Such reforms were triggered by three concerns.First,because of the GATT's declared focus on merchandise trade,neither trade in services nor intellectual property (IP) protection was covered.Both of these areas were becoming more important.Second,in merchandise trade,there were a lot of loopholes that called for reforms.One of the most (in)famous loopholes was the Multifibre Arrangement (MFA) designed to limit free trade in textiles,which was a direct violation of the letter and spirit of the GATT.Finally,the GATT's success in reducing tariffs,combined with the global recessions in the 1970s and the 1980s,led many governments to invoke nontariff barriers (NTBs),such as subsidies and local content requirements.Unlike tariff barriers that were relatively easy to verify and challenge,NTBs were more subtle but more pervasive,thus triggering a growing number of trade disputes.The GATT,however,lacked effective dispute resolution mechanisms.Thus,at the end of the Uruguay Round,participating countries agreed in 1994 to upgrade the GATT and launch the WTO.