The World Trading System:
The WTO, Trade Disputes,
and Regional Agreements
For more than sixty years, the General Agreement on Tariffs and Trade (GATT) has provided a system of world trade rules under which international trade has flourished. In 1994, the Uruguay Round of trade negotiations produced sweeping agreements to liberalize trade in agriculture and apparel and to extend trade rules to new areas such as services, investment, and intellectual property. In addition, the World Trade Organization (WTO) was established as a formal multilateral institution with stronger procedures for resolving disputes than in the GATT. While the GATT had a rather quiet existence, the WTO has proven very controversial. This chapter assesses the WTO as an institution and examines the controversies about its dispute settlement rulings, the prospects for the Doha Round of negotiations, and the increasing importance of regional (or preferential) trade agreements.
The searing experience of the Great Depression in the 1930s provided the impetus for establishing a formal system of world trade rules. The Great Depression was a worldwide economic disaster. Between 1929 and 1932, the volume of world trade fell 26 percent and world industrial production fell 32 percent. Unemployment in many countries topped 20 percent. As the economic downturn intensified, countries responded by raising tariffs and imposing import quotas in a desperate attempt to insulate themselves from the worldwide economic collapse and boost domestic employment. Widespread protectionism—in the form of tariffs, quotas, foreign exchange restrictions, and the like—materialized overnight.