A study on recent protectionist trends, implications for Indian trade policy and the changing role of multilateral institutions

Abstract

Going back to the days of the Silk Road, trade has played an essential role in promoting peaceful relations among nations and ensuring economic levels of modern-day trade, particularly in reaction to the second World War saw the formation of the General Agreement on Tariffs and Trade (GATT) as an icon of peace and security in the newly emerging multilateral economic system. The GATT established rules of trade and presided over periods of exceptional economic growth but was only ever a provisional organization through the 47 years of its existence from Havana in 1948 to Marrakesh in 1994. Though the initial intention was to create a third institution to join the existing "Bretton Woods" institutions; the World Bank and the IMF, an International Trade Organisation that overlooked trade disciplines, employment, commodity agreements, international investment and more, growing multilateralism required focussing on correcting the legacy of protectionist measures that reigned from the early 1930s. It was thus that the GATT was born. Numerous rounds of trade negotiations that the GATT enabled helped establish an increasingly liberal multilateral trading system. (Exhibit 1 – Subjects Covered Under the GATT) For much of its existence, the GATT's essential legal principles remain unchanged. Apart from a few additions that dealt with the development and voluntary plurilateral agreements, it focussed on reducing tariffs. The Kennedy Roundabout an antidumping agreement, and the Tokyo round attempted to tackle Non-Tariff Methods (NTM). From 1973 to 1979, the Tokyo Round successfully achieved an average 33% reduction (Exhibit 2 - Average Tariffs in UNS & Major European Countries) in customs duties in the world's major industrial markets bringing the average tariff on industrial products to 4.7%. This round, however, failed to address emergency import measures and fundamental problems affecting farm trade. GATT's success in ensuring the reduction of tariffs also drove governments to devise other methods to protect sectors facing increased foreign competition, especially when dealing with a series of economic recessions in the 1970s and 1980s. These recessions also caused factory closures and consequentially high unemployment in North America and Western Europe. Governments in these regions resorted to bilateral market-sharing agreements and embarked on a subsidies race to ensure continuity of their agricultural trade. A deteriorating trade environment coupled with GATT's lack of regulation for the growing services sector in the face of increasing globalization was ripe for a refreshed attempt at extending the multilateral system. The Uruguay Round and the Marrakesh Declaration paved the way for the creation of the World Trade Organisation (WTO) by addressing several issues that had never been discussed previously concerning global trade negotiation. It expanded the scope from the GATT's focus on eliminating tariffs by establishing new rules that help liberalized trade in services, protected intellectual property. The Uruguay round also interestingly reduced agricultural trade restrictions. An attempt to quantify the impact of the Uruguay round has approximated aggregate gains at $96 B in the short run, with the understanding that while developing countries may lose out in the short run, almost all countries will gain over a longer time scale. The WTO in its current form serves three interrelated functions; negotiation, illumination & litigation for its members. Since its inception on January 1st, 1995, it builds upon the trading system established by the GATT. As an expanded trading system the WTO now covers trade in services, traded inventions, creations and designs, the later which form a part of Intellectual Property. Over the past 20 years, the WTO's membership has grown to 164 members who comprise 98% of international trade.