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• Lessons
  • 1. A Brief Overview of World Trade
  • 2. The SPS Agreement
  • 3. SPS Agreement Principles
  • 4. Implementation of the SPS Agreement
  • 5. International Standards and Organizations
  • 6. Module Conclusion
• Topics
  • 1. The World Trade Organization (WTO): Historical Background and Perspective
  • 2. Emergence of an SPS System
  • 3. Summary
  • 4. Assessment
• Resources
  • Glossary (English)
  • Glossary (Urdu)
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Lesson 1: A Brief Overview of World Trade

Topic 1: The World Trade Organization (WTO): Historical Background and Perspective

The Benefits and Challenges of Trade

Why Trade Evolved

Throughout history, many countries have used trade barriers to protect developing and established markets. In addition to reducing competition, trade barriers promote uncertainty in international markets. When trade barriers are high, traders must face difficult questions such as: Would you be able to export? How much would goods cost? How much could be exported or imported? Would you make a profit? During the first half of the twentieth century, some goods were scarce in Europe and Asia and relationships between countries were strained under these conditions. These policies added to other economic problems of the time, which contributed to a widespread conflict known as World War II. The war lasted for six years. During that time, the economies and infrastructures of many countries, particularly those in Europe, were damaged or destroyed. After the war, many countries realized that they would not be able to rebuild if they maintained the international trade policies of the past.

Liberalizing Trade

Countries needed economic stability after World War II. Governments agreed that if tariffs and quotas were removed or reduced, prices and access to markets would be more stable. Trade could help countries begin the long-term economic growth they needed after years of war. One or two countries would not be able to fix years of economic damage, but many countries working together had the power to rebuild the global economy. Collective trade liberalization between many countries was thought to be a way to create a stable global economy. This effort to promote lasting peace and economic stability led to the multilateral trade agreement known as the General Agreement on Tariffs and Trade, or the GATT.

The Development of the General Agreement on Tariffs and Trade

An effective multilateral trade agreement had to be flexible. It needed to provide a balance between the domestic interests of Member states and international trade liberalization. This multilateral trade agreement would only succeed if nations self-enforced agreements and followed the rules. The General Agreement on Tariffs and Trade (GATT), which was negotiated in 1947 and first entered into force in 1948, addressed these issues. It also became the basis for the international trading system that we have today. Countries that signed the GATT are referred to as signatories.

Core Principles of the GATT

The goal of the General Agreement on Tariffs and Trade is global market stability. There are several core principles designed to stop preferential treatment of international trading partners and domestic producers. Core principles of GATT include:

• The most-favored nation (MFN) rule
• The principle of reduction and binding of national tariffs
• The rule of national treatment
• The prohibition of additional protective measures

Let’s look at the core principles of the GATT more closely. Click on each of the boxes below to learn more.

The Creation of the WTO During the Uruguay Round

The GATT went through many rounds of renegotiation between the late 1940s and the late 1980s. Through the seven rounds prior to 1987, tariffs were reduced by nearly $350 billion, and countries exchanged over 13,000 tariff concessions. A multi-year negotiation that started in 1987 and ended in 1994, known as the Uruguay Round, resulted in the World Trade Organization. When it became effective on 1 January, 1995, the WTO replaced the former GATT system. The WTO and the other agreements reached during the Uruguay Round were based on the GATT, and its core principles served as the foundation for the new organization.

The WTO was created to focus on issues that countries felt were not sufficiently covered in the GATT system. The establishment of a formal dispute settlement system was among these issues. In this system, countries could present cases of unfair treatment and receive a binding judgment from a panel of international experts. For the first time, countries had an official mechanism to challenge the actions of trading partners and receive relief or compensation for unjustified actions.

Negotiations during the Uruguay Round focused on the traditional topics of strengthening multilateral trade rules and reducing barriers to trade. However, negotiations related to trade in services, capital, intellectual property, textiles, and agriculture were also significant during this round. Agriculture was nearly exempted from previous agreements because many parts of the sector were permitted to use import quotas and export subsidies.

During the Uruguay Round, many countries insisted on discussing the agricultural sector more directly and refused to move forward if their concerns were not considered. Those discussions led to the Agreement on Agriculture (AoA). The AoA was made to improve market access for agricultural products, to reduce domestic support for agriculture in the form of subsidies and quotas that led to unfair prices, and to end export subsidies on agricultural products. Under the AoA, treatment of agricultural products came closer to the general GATT approach for trade in manufactured goods. As the WTO reduced unfair trade practices, the need to harmonize sanitary and phytosanitary measures between Member countries became even more important. You will learn more about the harmonization of sanitary and phytosanitary measures between countries in lesson two.

To continue, select Topic 2 from the Topics menu above or click here.