This essay examines some of the factors that led to the conclusion of the Tokyo and Uruguay Rounds, both of which produced agreements dealing with subsidies. Results of the Tokyo Round included agreements on subsidies and countervailing duties and commodity agreements on dairy and bovine meat. Results of the Uruguay Round included the agriculture agreement, a further agreement on subsidies and countervailing duties, and the General Agreement on Trade in Services.
The main point of this essay is that these agreements on subsidies would not have been possible outside a major negotiating round dealing with a wider range of subjects: subsidies, especially export subsidies, are best dealt with multilaterally. Each GATT round was more ambitious and complex than the one before.2 When both the Tokyo and Uruguay Rounds ended many commentators said never again but they were followed by the Doha Round. The reason for the organisation of major Rounds is of course the need to conduct them “with a view to ensuring benefits to all participants and … an overall balance in the outcome of the negotiations” 3, the results of which are to be applied on a most- favoured-nation basis. The reasons behind this insistence on reciprocity are by now well understood. It is true that GATT/WTO has produced a number of agreements outside major negotiating rounds but these have been agreements on infrastructure sectors that all countries have an interest in making more efficient: information technology, basic telecommunications, financial services and, more recently, trade facilitation.
Successive GATT rounds after 1947 produced agreements because they were founded on principles and practices that had been tested by time in earlier negotiations on bilateral trade agreements. Participants were convinced that they could all benefit from the results (many would have said that the negotiations were not zero sum games) and had a pragmatic willingness to compromise when necessary, to accept the benefits that were available, and to try again another day. Only in the Uruguay Round did the conditions exist for major participants to go for broke.4
Sufficient driving force is needed if major negotiating rounds are to be launched and brought to a successful conclusion. Powerful motives and objectives are necessary. The main motive for proposing the Kennedy Round was the formation of the European Economic Community and the European Free Trade Area and the need to reduce the relative disadvantage that these created for outside suppliers. Preparations for the Tokyo Round were begun when several large economies were simultaneously undergoing a recession and were motivated by a desire to take positive action to head off protectionist pressures and to tackle not only tariffs but also the unfinished business of non-tariff measures and agriculture. Preparations for the Uruguay Round were begun to deal with unfinished business including agriculture and to meet the challenges of a rapidly changing world.
1 Member of the GATT Secretariat from 1961 to 1991. Contact: [email protected].
2 The Tokyo Round lasted for 12 years. Preparations began in November 1967. The Round itself was inaugurated at a
ministerial meeting held in Tokyo in September 1973 and was concluded in November 1979. The Tokyo Declaration was four pages long, 99 countries participated in the negotiations and the Round produced agreements on 12 different subjects. The preparations for the Uruguay Round started in 1981 and the implementation of the Round’s results was agreed at the end of 1994, more than 13 years later. The Punta Del Este Declaration ran to 10 pages, 123 countries participated, and agreements were reached on 29 subjects supplemented by 24 decisions, declarations and understandings. The Declaration that launched the Doha Round in 2001 is also 10 pages long but is supplemented by 18 pages of related declarations and a set of procedures relating to export subsidies of some developing countries. There are now 161 Members of the WTO.
3 This is the wording of the Doha Declaration, paragraph 49. 4 A gambling term: risking everything to reap substantial reward
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These negotiations relied heavily on the leadership of the United States of America and it is commonly said that the success of the GATT in the early days was the result of the exercise of hegemonic power. In the days of the cold war it had a political interest in strengthening the “free world” as well as an economic interest in trade stabilisation and liberalisation. The United States considered itself the leader of the free world and that it had a responsibility to take the initiative. In the early days the GATT was the essence of the United States’ trade policy: when another government asked for a bilateral trade agreement it was told to join the GATT. It maintained this leadership role in the Tokyo Round despite the deterioration of its balance of payments: after abandoning of the gold standard and imposing a 10 per cent import surcharge in 1972, the United States administration adopted an outward-looking strategy. In the Uruguay Round, the United States once more provided the leadership but President Reagan’s tough new trade policy, adopted in response to the five-fold increase in the United States’ trade deficit from 1981 to 1985, was based not only on a multilateral initiative and on regional and bilateral action but also on unilateral action, including greater use of Section 301 authority.
To say that the United States has provided leadership is of course not to say that it could dictate the course and the result of GATT Rounds. It always worked with core steering groups of other governments that took basic decisions before negotiations on specific issues were widened to other interested governments. At the beginning it worked very closely with the United Kingdom: in the Tokyo Round with the European Economic Community and Japan: in the Uruguay Round with other members of the Quad, which included Canada as well as the EU and Japan. However, in the final stages of this Round bilateral negotiations between the United Nations and European Communities were crucial to the success of the Round.
It was never going to be possible for a parliament of all the participants to bring the negotiations to a successful conclusion but reliance on steering groups posed a problem for other countries and it was necessary to find ways to resolve the tension between the need for efficiency and the need for equity. In the Uruguay Round, countries with similar interests formed coalitions to increase their bargaining power. The Cairns Group of agricultural exporters is one main example of this. Developing countries particularly resented the use of small steering groups. In earlier GATT Rounds they were rule takers rather than rule makers, reaping some benefits, in accordance with the most-favoured-nation clause, from the generalisation of tariff reductions exchanged between developed countries. The establishment of the United Nations Conference on Trade and Development (UNCTAD) in 1964 coincided with the opening of the Kennedy Round. At that time, and during the Tokyo Round, the developing counties in the Group of 77 pinned their hopes on the UNCTAD, commodity agreements and the generalised system of preferences, rather than on their participation in the GATT. However, the main developing country delegations did participate actively in the negotiations, did exercise some influence on their outcome and did derive some benefits.
The Tokyo Round ended with agreement and produced some useful results but was a disappointment in several respects. Developed participants’ tariffs on industrial products were reduced by about one third and were to some extent harmonised. The non-tariff codes improved disciplines in the areas covered. However, participation in the codes was voluntary. Agriculture remained very largely outside the disciplines of the GATT and some observers considered that the negotiation of a dairy products cartel was a retreat from basic GATT principles. Developing countries made a relatively small contribution to the objectives of the Round. Some observers drew the conclusion that in future the developed countries should not only bargain amongst themselves to reduce their levels of protection because they would then be left with little power to bargain with developing countries, especially the more advanced among them.
When the Uruguay Round began in 1985 it was clear that developing countries needed to be more effectively involved in the negotiations. Faith in the UNCTAD and the UN’s New International Economic Order had been shaken by the limited benefits that most of them drew from the generalised system of preferences, the failure of the Cancun summit hosted in 1981 by President Lopez Portillo
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ending attempts to negotiate global economic agreements between North and South, and the difficulty of organising and managing commodity agreements, four of which collapsed or were suspended in the 1980s (sugar, tin, coffee and cocoa). It was also clear that each developing country had its own interests.
Some developing countries had improved their standards of living enormously by adopting export- oriented development policies. On the other hand, in August 1982 Mexico’s announcement that it could no longer service its debt had triggered a Latin American debt crisis. This was followed by criticism of developing countries with overvalued exchange rates and import restrictions, and led to loans to these countries being made conditional on reforms, including unilateral tariff reductions, and to what became known (in 1989) as the Washington Consensus. Hard-line developing countries continued to demand redress for past injustices, standstill and rollback, in addition to preferential treatment and less than full reciprocity.
It was necessary for the agenda of the Uruguay Round to be broad enough to promise benefits to all these various participants. When the conference inaugurating the Round opened in Punta del Este it was faced with two competing drafts, one in the name of a group of 48 developed and developing countries and another by a group of 20 hardline countries. It was a tribute to the GATT approach and the quality of many of the negotiators that the conference was able to reach agreement on a declaration containing an agenda for the negotiations that straddled issues as diverse as the insistence of the hard- liners on standstill and rollback of measures inconsistent with the GATT and developed countries’ insistence that negotiations must take place on trade in services and trade-related intellectual property where their comparative advantage increasingly lay.
The Punta Del Este agenda held out the promise of substantial benefits for the full range of participants. Only the hard problems were left. These included: agricultural restrictions and distortions; restrictions on textiles and clothing; grey area measures; anti-dumping duties; subsidies and countervailing measures; trade-related investment measures; trade-related aspects of intellectual property rights; trade in services; dispute settlement rules and procedures.
GATT Rounds were largely driven by impersonal forces but the results achieved are a tribute to a large number of people. Nothing would have happened without individuals to do the work. So many people were involved that it is invidious to single out individuals.5
To find a balance of benefits at a high level the trick is first to get ambitious offers and draft agreements on the table. It is relatively easy to find a balance of benefits at a low level, but if offers start to be withdrawn the risk is that nothing is left. In the Uruguay Round the prospective benefits of the negotiations were big enough and widespread enough to persuade participants to maintain their initial offers and then to take the decisions necessary to bring the negotiations to a successful conclusion.
In the end the conditions were right. The collapse of the import substitution policies, the New International Economic Order, the central planning model and the Soviet Union created a honeymoon period for free markets. The benefits of the Round were clear. The Uruguay Round resulted in an agreement that was more far-reaching than imagined when the negotiations opened.
The outcome of the negotiations was even more ambitious in some important respects than had been expected at the outset. The final agreements were bound together in a new organisation with much more effective dispute settlement provisions. The rule-makers obtained significant benefits in areas of interest to them. The rule-takers obtained incidental benefits and joined the WTO because they did not want to remain outside in the cold.
5 For a list of 106 people that “played a leading role in creating the WTO”, see C. VanGrasstek, The History and Future of the World Trade Organization (Geneva, 2013) , Annex 1: Biographical Appendix. See also, e.g., the index to E.H. Preeg, Traders in a Brave New World: The Uruguay Round and the Future of the International Trading System (Chicago,
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To end on a different note. Keynes wrote: “Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.”6 From this point of view, at the top of my list of individuals that influenced the GATT Rounds would be David Ricardo, closely followed by Richard Cobden, who lost his faith in a free trade utopia and, with Michel Chevalier, concluded the reciprocal Anglo-French Trade Agreement of 1860. GATT Rounds also owed a lot to Senator Reed Smoot and Representative Willis C. Hawley whose 1930 Tariff led President Franklin D. Roosevelt and his Secretary of State Cordell Hull to champion the Reciprocal Trade Agreements Act of 1934 that led to the United States’ bilateral agreements of the 1930s and 1940s. The General Agreement was largely a multilateralisation of these.
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