In this paper, I first trace the evolution of the global trading system from the 19th century to the present-day GATT/WTO arrangements, calling attention to the key roles of reciprocity and non-discrimination and taking note of how the system is now challenged by the new paradigm of global market integration. In Sections III and IV, the main features of the WTO are described, the boundaries of the WTO identified, and how the expansion of these boundaries may result in the over-extension and weakening of the effectiveness of the WTO. Section V concludes.
To a reader in the 19th century, that might well have seemed a fair description of global trading relations at the time rather than of a game of croquet in the Queen of Hearts court. It was only in the course of the 19th century that the beginnings of some order, as we know it today, began to emerge. Industrialization was taking hold in several countries, and it generated an intensified search for foreign markets and sources of supply. Governments in Europe were faced with calls to lower tariff barriers on imported inputs and to negotiate reductions in tariffs protecting foreign markets. But in a nationalistic world of vying states – as it still is today – governments were not about to ease access to their markets in the absence of some quid pro quo.
The way forward was found in the adoption of two instruments of policy – reciprocity and non-discrimination – which set off a wave of trade liberalization. These two ideas enabled countries to surmount their innate distrust of each other and to engage in mutually beneficial and generalized reductions in tariff barriers. Reciprocity – meaning contingent and equivalent concessions – assuaged the fear of governments that they might not be receiving at least as much from others as they were giving themselves, and non-discrimination reassured them that they were enjoying the same treatment as had been won by other competing states. Neither of these ideas was a sudden intellectual invention; they had long been known in human affairs. But their application to trade relations was comparatively new and did much to advance global trade liberalization.
Historians usually identify the signing of the Anglo-French Treaty of 1860 as the landmark that signaled the new era of trade relations. Besides the need for a political gesture of friendship, the immediate cause of the signing of the Treaty was a decision by the French government to follow Britain’s policy of trade liberalization. The French leaders were persuaded at the time by the popular, but mistakenly simplistic and mono-causal, belief that Britain’s superior industrial performance owed much to its free trade policy. However, in undertaking to reduce tariffs on British manufactures, the French government sought some concession from Britain in order to win the support of its export interests in getting the lower tariffs passed through Parliament. Although Britain had already nailed the flag of free trade to its mast – and firmly, but exceptionally, believed that others in their own interest should also reduce their tariffs unilaterally – it accommodated the French political need.2 Further, when other European countries anxiously sought comparable access to the French market, France offered them the same tariff rates that it had set for Britain. The inclusion of such a most-favored-nation (MFN) clause in commercial treaties thereafter became common practice among the European states. It also had the advantage of preventing treaties from being in a constant state of flux with tariff schedules having repeatedly to be renegotiated bilaterally.
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