Historical background of the WTO

The World Trade Organization, established on 1 January 1995, is the umbrella organization governing the international trading system. It oversees international trade agreements and provides the secretariat for GATT, based in Geneva.

The members of the WTO now account for well over 90% of the world’s trade and virtually all of its investment; by the end of 2005, the organization’s membership had increased to 149, from the 76 founding members of 1995. Nearly all the developed, and most of the developing countries, have joined.

The multilateral framework of international trade originated from the end of the World War II. The earlier experience with the Great Depression of the late twenties and early thirties, followed in its wake by the trade protection imposed by major trading nations, made governments aware of the need for a multilateral discipline in the field of international trade. This awareness assumed a new urgency with the devastation caused by the World War II and with the need for the expansion of international trade as an important tool for development and growth. The WTO’s origins can be traced back to the Atlantic Charter of 1941, developed by then US President Franklin Roosevelt and British Prime Minister Winston Churchill. In order to counter US isolationism, the principle of the Atlantic Charter was for an international trading system with equal access to trade for all nations. This was seen as a complement to an effective world political forum, the United Nations, established in 1946 with its permanent headquarters in New York City. The United States organized an international conference on trade and employment which resulted in the Havana Charter of 1948, in which it was proposed to establish the International Trade Organization (ITO). Twenty-three countries agreed to a set of tariff cuts and these were ratified by the GATT, which was set up as a transitory arrangement to be subsumed under the ITO. However, the ITO was never ratified because the US government announced in 1950 that it would not seek Congressional ratification of the Charter, and the GATT, though never intended to be an “organization”, continued for 47 years, until the WTO finally emerged in the last stages of the Uruguay Round to take on the role originally designed for the ITO. The WTO now stands with the World Bank and the International Monetary Fund as the third leg of the global economic system.

The Bretton Woods conference and the GATT.

In July 1944, a meeting of Allied ministers was held in Bretton Woods, New Hampshire, the US. The institutions created there remain at the core of the global economy today: IMF, World Bank. In December 1945, the US invited 14 countries to begin negotiations on liberalizing international trade. The negotiations were intended to create an International Trade Organization that would facilitate trading relations as Bretton Woods facilitated monetary relations and to implement quickly an agreement to reduce tariff levels. In March 1948, the draft charter for the ITO, known as the Havana Charter, was drawn up. This charter contained sections on employment and economic activity, economic development and reconstruction, restrictive business practices, inter-governmental commodity arrangements and subsidies. It was more wide ranging than the GATT, which focused on tariffs in manufactured goods. In negotiating the Havana Charter the US push for a pure free trade system was limited by its own internal commitment to agricultural protection. With echoes of the Senate’s refusal to endorse Woodrow Wilson’s effort to have the US join the League of Nations following the First World War, the US Congress refused to give its agreement to the ITO. More influential than isolationists in rejecting the agreements were liberal forces which heartily condemned concessions the US negotiators made to other countries. The GATT was actually created two years later to replace the abortive ITO. The original 23 GATT countries were among over 50 which agreed a draft Charter for an ITO - a new specialized agency of the UN. The Charter was intended to provide not only world trade disciplines but also contained rules relating to employment, commodity agreements, restrictive business practices, international investment and services.

The disastrous state of the global economy - especially the collapse of trade markets - contributed to the belief that the international system required greater management along liberal lines. It also convinced policymakers everywhere that a prosperous national economy was impossible without a well-designed international system. In an effort to give an early boost to trade liberalization after the World War II, and to begin to correct the large overhang of protectionist measures which remained in place from the early 1930s because of the Great Depression, tariff negotiations were opened among the 23 founding GATT contracting parties in 1946. The tariff concessions and rules together became known as the GATT and entered into force in January 1948.

Throughout its 48-year history, the GATT provided the structure for a global process of steady trade liberalization through eight “rounds” of multilateral trade negotiations sponsored by its Contracting Parties. In the first six Rounds, the focus was on the reduction of tariffs. The last two Rounds have covered wider areas (see table below).