The GATT

The scars left by World War I¹⁰¹ were not only devastating but also lasted long. To see the end of the war was fortunate, but the participants were neither awake nor conscious about their initiatives about restoration and recovery. Instead of being faithful to the basic lessons of “[t]he gains from trade derive from specialization on the basis of comparative advantage”¹⁰² to bring cooperation and prosperity, the countries chose to be egoistic, implementing beggar-my-neighbor policy¹⁰³ – no different, but as aggressive and selfish as they were when they started the War in 1914. “Despite the promise of free trade, countries have historically been reluctant to reduce trade barriers and quick to raise them.”¹⁰⁴ It was the beginning of a war-like period,

101 The World War I broke out on July 28, 1914 and lasted until November 11, 2918.

102 Narlikar, Amrita, (2005), “the World Trade Organization: A Very Short Introduction,” p. 2

103 ‘beggar-my-neighbor policy’ is a policy in economics in which one damages others for the purpose of his or her own economic benefits or recovery.

104 Narlikar, Amrita, (2005), “the World Trade Organization: A Very Short Introduction,” p. 3.

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‘the Great Depression.’¹⁰⁵

Following the stock market crash of 1929, the US Congress adopted the Smoot-Hawley Tariff Act¹⁰⁶ in 1930 that raised US tariffs to an average of nearly 60%. Most of the major trade partners of the US retaliated by raising similar tariff barriers and engaging in a competitive devaluation of their currencies.

Prices fell further, tariff barriers went up, and a race to the bottom ensued that worsened the Great Depression.¹⁰⁷

The destruction from the War might not have left many lessons, but the world had learned much from the hunger from the Depression. “Following the end of the World War II¹⁰⁸, international leaders were anxious to build safeguards and institutions into the international system that would protect the world from the recurrence of such disastrous events.”¹⁰⁹ In other words, the War “offered the Allied Powers an opportunity to remake the world, and the post-war system of international organizations that they devised resembles the structure of national governments.”¹¹⁰ The need of the International Trade

105 According to according to Case, Karl E. and Fair, Ray C. (2007) “Principles of Economics (8^th Edition),” Pearson Prentice Hall, p. 400, the Great Depression is “the period of severe economic contraction and high unemployment that begain in 1929 and continued throughout the 1930s.”

106 According to according to Case, Karl E. and Fair, Ray C. (2007) “Principles of Economics (8^th Edition),” Pearson Prentice Hall, p. 710, Smoot-Hawley Tariff Act is “the U.S. tariff law of the 1930s, which set the highest tariffs in U.S. history (60 percent). It set off an international trade war and caused the decline in trade that is often considered a cause of the worldwide depression in 1930s.

107 Narlikar, Amrita, (2005), “the World Trade Organization: A Very Short Introduction,” p. 3.

108 The World War II broke out on September 1, 1939 and lasted until September 2, 1945

109 Narlikar, Amrita, (2005), “the World Trade Organization: A Very Short Introduction,” p. 10.

110 VanGrasstek, Craig. (2013) “The History and Future of the World Trade Organization,” p. 10: the structure is described as follows: “to creating a legislature (General Assembly of the United Nations), a judiciary (International Court of Justice), and a central bank (World Bank and International Monetary Fund), the architects of the post-war order established the equivalents of the ministries of agriculture (Food and Agriculture Organization), education and culture (United Nations Educational, Scientific and Cultural Organization), health (World Health Organization), labour (International Labour Organization)

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Organization, as “a global trade ministry,”¹¹¹ was thus raised and in 1944’s Bretton Woods Conference, the US led the world to reconstruct the global economic order and freer trade. After experiencing and understanding how reckless it is to end the war without preparation, “[t]he Allies, particularly the US and Britain, began discussions about the reconstruction of the world economic order even before the war effort was over.”¹¹²

In fact, the Conference originally intended to build the trinity for global economic cooperation and harmony, aiming to develop the three pillars that were the IMF, the International Bank for Reconstruction and Development (IBRD or the World Bank), and finally the International Trade Organization (hereinafter referred to as ITO). In spite of “successive multilateral conferences [from] 1946 to 1948 and the Havana Charter, the draft agreement for the creation of the ITO signed by 53 of the 56 countries participating in the conference,”¹¹³ the ITO was never established. It “died before it was born.”¹¹⁴

“The agreement required ratification in the US Congress before it could be implemented, and no other country was willing to commit to the rules of an ITO without the US aboard. But US ratification proved to be problematic, despite its leading role in the genesis and evolution of the idea of the ITO.”¹¹⁵ Meanwhile, “the result of the latter set of negotiations on a multilateral tariff-

and so forth.

111 Ibid.

112 Narlikar, Amrita, (2005), “the World Trade Organization: A Very Short Introduction,” p. 10.

113 Ibid., pp. 10-11.

114 Ibid., p.14.

115 Ibid., p.11.

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reduction was the GATT”¹¹⁶ and when “the US Congress refused to approve the Havana Charter to this institution, the ITO, countries instead fell back on the supposedly temporary GATT, which became the centre-piece of the trading system and had been intended to serve as an interim arrangement before the new trade institution came into being.”¹¹⁷ The Havana Charter, then “was signed accordingly by 23 countries, 11 of which were developing countries,¹¹⁸ in January 1948 and was to provide a provisional basis for multilateral cooperation until the ITO was formed. This temporary agreement provided the basis for the international trading system for 47 years”¹¹⁹ until the year 1995 when the World Trade Organization (hereinafter referred to as WTO) was finally established and came into power.