BRUSSEL S FORU M PAPER SER IE S

Time to Rethink
the WTO System
The United States, the European Union,
and world trade

Hugh Corbet
President
Cordell Hull Institute

Joe Guinan
Program Officer
The German Marshall Fund of the United States
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 Time to Rethink the WTO System
The United States, the European Union, and world trade

Brussels Forum Paper Series

March 2008

Hugh Corbet
President, Cordell Hull Institute

Joe Guinan
Program Officer, The German Marshall Fund of the United States

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Is the Doha Round Salvageable? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Outline of the Paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Origins and Evolution of the GATT System . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Role of the Marshall Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Role of the GATT System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Developing Countries in the GATT System . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Difficulties in the Tokyo Round . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Success of the Uruguay Round . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Misadventures of the Doha Round . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Negotiations in Historical Perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Loss of General Consensus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Background to the Deadlock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
How the Impasse Developed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
What is to be Done? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Protectionist Agricultural Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Litigation in the WTO System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Pursuit of Preferential Trade Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Developing Countries in the WTO System . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
New Approach to Multilateral Negotiations . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Problems of European Trade Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Introduction
The United States and Great Britain were the
principal architects of the international economic
order established after World War II and following
the autarkic and discriminatory excesses of the
inter-war period. As much as ever, the United
States and the European Union have major
stakes in the international trade and financial
system. Since November 2001, however, when the
Doha Round of multilateral trade negotiations
was launched in the newly formed World
Trade Organization (WTO), the global trading
system has been fragmenting and exhibiting
deep divisions between groups of countries at
different stages of economic development.
In an anti-globalization opinion climate, the
negotiations were launched on the run, half-
heartedly, and without an inter-governmental
consensus on their purpose—or, for that matter,
on the purpose of the WTO itself. Moreover,
in the absence of a high political objective, the
negotiations were launched without a commitment
to their success at the highest levels in the leading
industrial countries. In these circumstances, the
negotiations were inadequately prepared and, more
than six years later, they are hopelessly deadlocked
and still unable to settle on the modalities for
negotiations on agriculture and industrial products.
Senior officials and possibly ministers meeting
in Geneva in March and April 2008 may yet
agree on the elusive modalities. They may even
get a “horizontal” agreement on how improved
access to markets in the two sectors could be
negotiated. Ministers may then try to settle on the
framework of an overall Doha Round agreement
that might be cobbled together by the end of
the year. The framework, however, would have
to cover more than agriculture and industrial
products. Nearly all countries have priorities
beyond the two sectors, such as the European
Union’s demand for “geographical indications”
on branded food products, India’s demand
for headway in liberalizing trade in services,
and Japan’s demand for a new anti-dumping
accord outlawing the U.S. practice of “zeroing.”
Is there a political imperative for any of this?
Not that anyone can see. Can governments be
stampeded all of a sudden into a Doha Round
package of what could be empty agreements?
Is the Doha Round Salvageable?
The Doha Round negotiations have been a story of
missed deadlines, almost continuous frustration,
and intermittent crises. At the WTO Ministerial
Conference in Cancún, Mexico, in September
2003, governments were struggling with apparently
intractable issues in an atmosphere of division
and distrust. Three years later, an agreement
was still not in sight and the WTO director-
general, Pascal Lamy, was obliged in July 2006
to suspend the negotiations for “a timeout for
reflection which,” he said, “is clearly necessary.”
Negotiations resumed in February 2007, but
stalled again in June when the ad-hoc Group of
Four—ministers from Brazil, the European Union,
India, and the United States, meeting in Potsdam,
Germany—could not agree on an outline agreement
for further consideration at the multilateral level.
The negotiations continue to limp along, sustaining
the illusion that “technical” progress can be made
before the U.S. presidential election in November
2008 and the new U.S. administration is in office,
a new domestic consensus among American
interest groups has been forged, and the new
Congress has approved a new “fast track” trade-
negotiating authority. While that may only take a
year after the new American president takes office,
it is more likely to take a lot longer—two, three,
or more years. And it will be more complicated
if there is a global economic slowdown.
Time to Rethink the WTO System 3
 Although the Doha Round negotiators may
be making progress on, say, “flexibilities” for
producers of “sensitive” or “special” farm
products, any agreement on the modalities for
agriculture is likely to be meaningless without a
thorough grasp of the myriad technical details.
Unless the U.S. administration can explain what
Whatever happens the modalities mean for specific products—for
in the Doha Round chicken legs, pork bellies, or whatever—the
negotiations, U.S. Congress is not going to approve a limited
the longer-term trade-negotiating authority later this year.
interests of the Whatever happens in the Doha Round negotiations
United States, the in the near term, the longer-term interests of the
European Union, United States, the European Union, and the world
and the world economy as a whole lie in the maintenance and
economy as a strengthening of the multilateral trading system.
whole lie in the Moreover, the agricultural-exporting countries in
the Group of 20 led by Brazil, taking over from
maintenance and
the Cairns Group countries led by Australia, are
strengthening of
hardly disposed to let the duopoly of the European
the multilateral
Union and the United States continue determining
trading system.
the content, pace, and direction of multilateral
trade negotiations as it has been doing since the
1960s.1 Nowadays, account has to be taken, too,
of the further and conspicuous redistribution of
power in the world economy with the dramatic
rise of China, India, and Brazil, never mind
all the other emerging-market economies.
The Doha Round troubles are not temporary.
They are deep-seated and by now systemic. Their
evolution can be traced back decades. There was
a time when they could be brushed aside by the
major trading powers as of little concern to them.
But the large number of developing countries
that have joined the WTO system, accounting
for three-quarters of the membership, and the
1 
For an account of the Brazilian position after the Cancún Min-
isterial meeting, see Rubens Antonio Barbosa, “Why the Group
of 20 was Suddenly Formed,” address to a seminar on “Getting
the WTO Negotiations on Track,” Cordell Hull Institute, Wash-
ington, DC, November 23, 2003, reproduced in Trade Policy
Analyses, Vol. 5, No. 13, www.cordellhullinstitute.org.
4 The German Marshall Fund of the United States
burgeoning role of China, India, and Brazil
means that the fundamentals of the multilateral
trading system have to be rethought. On both
sides of the Atlantic it is time for policymakers
to reflect on, first of all, the place of the WTO
system in the world economy. Second, what
might be the consequences for their producers in
manufacturing, agriculture, and services of the
system breaking down altogether. And, third, what
can be done to rebuild an inter-governmental
consensus on the purpose of the WTO system.
If the Doha Round negotiations come to grief, the
WTO system will not collapse overnight, but it
could wither away slowly—which might be worse.
As Lorenz Schomerus, a former state secretary in
the German Ministry of Economics, has declared:
“Multilateral institutions and rules cannot
be left on a standby basis. They have to
be used, supported, and developed day by
day. Failure to do so will destroy the WTO
system and its rules. If that happens even
the most successful winners in business
communities around the world will lose out.”2
Outline of the Paper
Following this introduction, the paper recalls
the circumstances in which the multilateral
trading system was established after World
War II. It then reviews the evolution of the
system over the ensuing half century, including
the gradual involvement of developing countries,
and the various missteps along the way.
The paper traces in the third part the
misadventures in the Doha Round negotiations,
putting them in an historical perspective, and
dwelling on the loss of a general consensus on the
2 
Comment at an international roundtable meeting on “The
Role of the WTO System in the World Economy,” convened by
the Cornell Law School and the Cordell Hull Institute, Paris, July
9-10, 2004.
underlying purpose of the multilateral trading
system. Emphasis is put on the accumulation of
systemic problems especially over agriculture,
important to developing countries, and the
proliferation of preferential trade agreements.
The paper then outlines the background to the
impasse in the negotiations and how it developed.
In the concluding part, attention turns to what
is to be done, arguing the need for reflection
on the purpose of the WTO system. It entails
putting the rapid integration of the world
economy in perspective and considering what
the rise of China, India, and Brazil—and other
emerging-market countries—means for the
world economy. The paper dwells on American
and European leadership, or lack of leadership,
on the major threats to the WTO system over
agricultural protectionism and the proliferation of
preferential trade agreements. While the positions
of the European Union and the United States
on agriculture have been the main obstacles to
progress in the Doha Round negotiations, the
positions of the developing countries have also
contributed to the negotiations being driven
by defensive interests. The paper concludes
by considering alternative broad approaches
to the further liberalization of trade.
Origins and Evolution of the GATT System
To address fundamental issues, and to address what
is at stake, it is worth reviewing what led to the
establishment of the multilateral trading system and
its role in promoting the integration of the world
economy—which was also promoted in the early
post-war years by freedom of capital movements
and technological advances in transport,
communications, and production processes.3
3 
As the integration of national markets proceeded, other factors
also became significant—the international migration of labor,
still greater economies of scale, the development of new and ex-
panding markets, and, too, of new and cheaper sources of supply
of both raw materials and finished goods.
At the Bretton Woods conference in 1944,
governments conceived for the first time a rules-
based, rather than a power-based, multilateral trade
regime. In 1946–47, governments negotiated the
articles of the General Agreement on Tariffs and Trade
(GATT), aimed at safeguarding the interests of the
participating countries, particularly those of politically
“small” countries in relation to more powerful ones.
The architects of the GATT system had in mind
the hard lessons of the 1930s when the “beggar-thy-
neighbor” policies adopted by the major trading
countries led to a collapse of world trade. As the
world slipped into depression after 1929, the U.S.
Congress moved to pass the Smoot-Hawley Tariff
Act of 1930, just as members of the League of Nations
were attempting to negotiate a tariff truce in Geneva.
The Smoot-Hawley Act, which one historian called “a
virtual declaration of economic war on the rest of the
world,”4 quickly precipitated a tit-for-tat trade war as
America’s trading partners retaliated and a downward
spiral began. All the major trading countries sought
to export their economic difficulties, stifling trade and
hampering economic recovery. World trade fell within
four years from $68 billion to $24 billion.5 Smoot-
Hawley turned into an own-goal for the United States
when, in 1932, Britain abandoned almost a century
of “free trade” policies and put in place the system of
Commonwealth preference—described by Cordell
Hull as the most “grievous injury” inflicted on U.S.
commercial interests during his time in public life.6
4 
Richard Hofstadter, The American Political Tradition, cited in
Piers Brendon, The Dark Valley: A Panorama of the 1930s (New
York: Vintage, 2002), p. 206.
5 
Statistical Yearbook of the League of Nations for 1926-1935, cited
in Edward Gresser, Freedom from Want: American Liberalism and
the Global Economy (New York: Soft Skull Press, 2007), p. 79.
6 
Robert Skidelsky, John Maynard Keynes: Fighting for Freedom,
1937–1946 (New York: Viking, 2001), p. 188. Another view is
that, as the world was turning protectionist, the Commonwealth
countries sought to maintain trade among its members. Leonard
Beaton, “Pioneers of an Open World,” in Hugh Corbet (ed.),
Trade Strategy for the Asia-Pacific Region (London: Allen &
Unwin, 1970).
Time to Rethink the WTO System 5
 Cordell Hull, U.S. secretary of state from 1933–1944
and father of the United Nations, dedicated his
long political career to pursuing the idea of an
international economic order as a basis for peace
and prosperity in the world. A passionate advocate
of non-discrimination in trade policy, he believed
that the attempts to close off markets during the
The Marshall Plan Great Depression were one of the main causes
was an economic of the war. On joining Franklin D. Roosevelt’s
cabinet, Hull moved to unblock trade, securing
means to tie the
passage of the Trade Agreements Act of 1934, which
West together in
authorized the U.S. president to negotiate reciprocal
the emerging Cold
War by liberalizing tariff concessions and laid the foundation for the
post-war multilateral trading system that came
international trade
into being in 1948.7 Reflecting in his memoirs on
and capital flows.
the excesses of the inter-war period, Hull wrote:
“Unhampered trade dovetailed with peace; high
tariffs, trade barriers and unfair competition,
with war. Though realizing that many factors
were involved, I reasoned that, if we could get a
freer flow of trade—freer in the sense of fewer
discriminations and obstructions—so that
one country would not be deadly jealous of
another and the living standards of all countries
might rise, thereby eliminating the economic
dissatisfaction that breeds war, we might have
a reasonable chance for lasting peace.”8
Role of the Marshall Plan
From 1945 until the mid 1960s, the United States
was able, more or less on its own, to stabilize the
international trade and financial system. George
C. Marshall, a successor to Hull as U.S. secretary
of state, announced the European Recovery
Program of aid to Western Europe in a speech
delivered at Harvard University on June 5, 1947:
7 
Michael A. Butler, Cautious Visionary: Cordell Hull and Trade
Reform, 1933–1937 (Kent, OH: Kent State University Press, 1998).
8 
Cordell Hull, Memoirs of Cordell Hull (New York: Macmillan,
1948), cited in Chuck Hagel, “Relevance of Cordell Hull’s Legacy
to Today,” Cordell Hull Institute, Trade Policy Analysis, Vol. 5,
No. 4, May 2003, p. 2.
6 The German Marshall Fund of the United States
“It is logical that the United States should do
whatever it is able to do to assist in the return of
normal economic health in the world, without
which there can be no political stability and
no assured peace. Our policy… should be the
revival of a working economy in the world so as
to permit the emergence of political and social
conditions in which free institutions can exist.”9
Technically available to the Soviet Union and
its satellites, the Marshall Plan was, in reality, an
economic means to tie the West together in the
emerging Cold War by liberalizing international
trade and capital flows. Another lesson of the
1930s was being absorbed. No major free-market
country can alone achieve sustained economic
growth in a stagnant or even slowly growing
world economy. The Marshall Plan sought to
strengthen the production capacity and financial
markets of West European countries. Almost $9
billion was channeled from the United States and
Canada into West Germany, France, Italy, Great
Britain, the Netherlands, Belgium, and Greece.
A large share of Marshall Plan funds went to buy
goods from the United States—a necessity, thus,
helping to calm domestic fears of a slump in U.S.
exports and a renewal of the Great Depression.
But American policymakers in the 1940s showed
a willingness to oblige declining industries at
home to adjust to the forces of the international
market. The perceived domestic costs of “free
trade” were viewed as relatively insignificant
compared with the foreign policy importance of
U.S. leadership in the postwar international order.
The Marshall Plan was administered through the
Organization for European Economic Co-operation
(OEEC), based in Paris—the predecessor of the
Organization for Economic Co-operation and
Development (OECD). In the 1950s, the OEEC
Commencement address by George C. Marshall, U.S. secretary
9 
of state, at Harvard University on June 5, 1947.
undertook a trade-liberalization program that
dismantled quantitative import restrictions in
Western Europe on industrial products traded
among industrial countries—but not on agricultural
products or trade with developing countries.
By establishing rules and standards of conduct
for the global economy, the United States and its
European allies became the stewards of the post-
war capitalist system. The system was based on
the twin pillars of the GATT, covering the real side
of economies, and the International Monetary
Fund (IMF) covering the financial side. Together
they provided stability, market opening, ready
availability of capital, stable foreign exchange
rates, and a forum for the coordination of macro-
economic policies. Not that providing economic
leadership in the period was without its difficulties.
Attempts to create an International Trade
Organization (ITO) with a wider remit—covering
labor standards, commodity agreements, restrictive
business practices, international investment,
and trade in services—was controversial among
interest groups in Washington. In 1950, the
ITO had to be abandoned when the Truman
administration announced that it would not seek
Congressional ratification of the Havana Charter.
The votes on Capitol Hill were not there.
In general, U.S. trade policy proceeded in
the teeth of parochial interests because it had
strong bipartisan support and was harnessed
to broader U.S. strategic goals. U.S. Presidents
Harry S. Truman, Dwight Eisenhower, and
John F. Kennedy all secured trade-negotiating
authority by stressing the national interests
at stake, above and beyond commercial
interests. In fact, the GATT system was widely
supported in Washington on politico-strategic
grounds, as a bulwark against communism.
Role of the GATT System
The GATT entered into force in January 1948
to underpin a first round of multilateral tariff
reductions. It was founded on free-trade principles,
private enterprise, and open competition. But the
original contracting parties, a diverse group of 23
countries,10 were not able to agree on free trade
Iriuscidunt verci
as the objective. The most that can be said is that
tinciduisi. Lis ad
the underlying purpose of the multilateral trading
system has been the liberalization of trade and elessi. Um alis
institutional stability. The latter is conducive, even dolor si. Ing eum
essential, to the conduct of international trade dolorem nullaor
and trade-related investment, enabling private tionseq uipsum
enterprises to know where they stand vis-à-vis ipsusto dolore
their governments and the governments of other feum quiscil iscilis
countries—so that they can make investment, er si et vent amcor
marketing, and other business decisions of ad dio eum vel
long-term significance, so that they can plan
for expansion or, if need be, for adjustment.
In that way, economic growth is promoted in
developed and developing countries alike. Economic
growth, after all, is an autonomous process of
adjustment to changes in patterns of demand,
advances in technology, shifts in comparative
advantage, and so on—stimulated by ideas and
innovation, driven by investment. The rule of law is
also important, with impartial tribunals upholding
private property rights and contracts, both critical
to the functioning of market economies.11
On the two-fold purpose of the multilateral trading
system, trade liberalization, and institutional
stability, the former is explicit. Eight rounds of
multilateral trade negotiations have resulted,
10 
The GATT was signed by Australia, Belgium, Brazil, Burma,
Canada, Ceylon, Chile, China, Cuba, the Czechoslovak Repub-
lic, France, India, Lebanon, Luxembourg, the Netherlands, New
Zealand, Norway, Pakistan, Southern Rhodesia, Syria, South
Africa, the United Kingdom, and the United States.
11 
For an historical account of the importance of the rule of law
in successful economies, see David S. Landes, The Wealth and
Poverty of Nations (New York and London: W.W. Norton, 1998).
Time to Rethink the WTO System 7
 along with the OEEC program, in the widespread
liberalization of trade in industrial products among
industrial countries (although not yet in agricultural
products and labor-intensive products of export
interest to developing countries).12 Between the
first GATT round in 1947 and the launch of the
Doha Round negotiations in 2001, there was a huge
Non-discrimination increase in international trade, by a factor of 175.
has been the
Institutional stability, the other purpose of
cornerstone of
the system, is not as explicit, but it is apparent
the multilateral
in the emphasis on predictability, tariff-only
trading system, protection, tariff bindings, transparency, and
even if since the adherence to rules, most notably the principle of
1960s it has been non-discrimination, expressed at the domestic
more honored in level through national treatment and at the
the breach than in international level through most-favored-nation
the observance. (MFN) treatment. Indeed, non-discrimination has
been the cornerstone of the multilateral trading
system, even if since the 1960s it has been more
honored in the breach than in the observance.
Together with their counterparts in Western
Europe and a few other countries “on the
periphery,” successive U.S. administrations ran
the GATT system for much of the postwar era.
After the birth of the European Community with
the Treaty of Rome in 1957—aimed at cutting
trade and investment barriers among France,
Italy, West Germany, the Netherlands, Belgium,
and Luxembourg—allowances were made for
“European unity,” which meant going along with
the Community’s preferential trade agreements
and the bloc’s protectionist farm-support policies,
12 
There were eight rounds of multilateral trade negotiations
under GATT auspices: Geneva-I Conference, 1947; Annecy
Conference, 1949; Torquay Conference, 1950-51; Geneva-II
Conference, 1955–56; Dillon Round, 1960–61; Kennedy Round,
1963–67; Tokyo Round, 1974–79; and Uruguay Round, 1986–94.
For a calculation of the respective “productivity” of each of
the GATT rounds in lowering tariffs, see Patrick A. Messerlin, A
Long Term View on the Doha Round and the WTO, the German
Marshall Fund of the United States, 2007.
8 The German Marshall Fund of the United States
embedded in its Common Agricultural Policy
(CAP), in the face of deep skepticism in other
parts of Western Europe and the rest of the world.
Developing Countries in the GATT System
In the 1950s, developing countries saw the GATT
as “a rich man’s club.” Accordingly, in the 1960s,
they pressed for generalized tariff preferences
in their favor, which were pursued through
the United Nations Conference on Trade and
Development (UNCTAD) formed in 1964 for
this purpose. With the redistribution of power
in the world as de-colonization proceeded, the
developing countries increased in number and
in the early 1970s, again via the United Nations,
they mounted a campaign for a “new international
economic order” (NIEO) as the Tokyo Round
negotiations of 1973–79 were being initiated.
As a result of the rivalry between the GATT and
UNCTAD in the 1960s (with the latter seen to
be trying to form a separate trade regime), the
former acquired a large number of low-income
members on terms that did not require them
to adhere to the central rules of the multilateral
trading system. From the outset, developing
countries were accorded special treatment
through Article XVIII, providing for development
assistance. Then in 1966, special treatment was
extended again through the GATT’s Part IV,
relieving developing countries of the need to
reciprocate in trade negotiations. Next the MFN
principle, the one system-forming principle of
the GATT (outlined in Articles I and XII), was
waived for the generalized system of preferences.
In the 1960s and 1970s, it was accepted as
axiomatic that promoting economic growth in
developing countries required economic planning.
As a corollary it was also accepted that for
developing countries to be able to catch up quickly,
they should be relieved of the more onerous
disciplines articulated in GATT rules. They were
permitted—in the words of Robert Hudec, the
great scholar of international trade law—“legal
flexibility” in the multilateral trading system.13
Difficulties in the Tokyo Round
After the Kennedy Round negotiations of 1964–67,
with the integration of the world economy proceeding
apace, governments began to look beyond border
protection to the next phase in the liberalization of
international trade. It was finally recognized that
farm-support policies had to be broached if trade in
agricultural products was to be liberalized and that
international trade in services merited attention.14
In Paris, the OECD secretary-general appointed
a high-level group on trade and related problems,
which produced a report with trade-liberalizing
recommendations for OECD governments.15
Earlier, in the United States, then-President Richard
Nixon appointed a presidential commission on
international trade and investment policy and the
Joint Economic Committee in the U.S. Congress
held a series of hearings on U.S. foreign economic
policies. The Williams Commission and the
Congressional series stimulated studies by several
Washington think tanks. Of particular interest,
in view of the difficulties governments have had
a quarter of a century later with public fears of
“globalization,” the Williams Commission wrote on
the state of public discussion in the early 1970s:
13 
Robert E. Hudec, Developing Countries in the GATT Legal
System (Aldershot, Brookfield and Sydney: Gower, for the Trade
Policy Research Centre, 1987).
14 
The Haberler Report, Trends in International Trade (Geneva:
GATT, 1958), resulted in consultations in the GATT forum on
the liberalization of agricultural trade. The authors were Got-
tfried Haberler (chairman), Roberto Campos, James Meade, and
Jan Tinbergen.
15 
High Level Group on Trade and Related Problems, Policy
Perspectives for International Trade and Economic Policies, Rey
Report (Paris: OECD, 1972). Jean Rey was the former president
of the Commission of the European Community.
“The core of our present difficulty is that
government policies and practices, and
international arrangements for collective decision-
making, have not kept abreast of the high degree
of international economic integration which
has been achieved since World War II.”16
Whereas the first six GATT rounds were substantially
about the reduction of tariffs within an accepted
framework of rules, the Tokyo Round negotiations
were about the rules as well. After the Kennedy Round
negotiations, the GATT conducted an inventory of
discriminatory non-tariff measures, prior to figuring
out how to address them. Several private studies
were also undertaken.17 Second, GATT attention
focused on the “escape-clause” provisions for anti-
dumping actions (addressed in the Kennedy Round),
subsidy-countervailing measures and, most of all,
emergency “safeguard” protection against sudden
import surges. Third, preparations were made for
the first time for negotiations on farm-support
policies, it being appreciated that reducing border
measures, as in previous rounds, did not get at the
real impediments to liberalizing agricultural trade.18
At that time there was growing interest in industrial
policies, pursued through non-tariff measures,
ranging from subsidies and public procurement
policies, to “voluntary” export restraints (VERs) and
cartel or cartel-like arrangements. The phenomenon
came to be known as “neo-protectionism.” Trying to
discipline the resort to non-tariff measures, covered by
16 
Commission on International Trade and Investment Policy,
United States International Economic Policy in an Interdependent
World, William Report (Washington, DC: Executive Office of
the President, 1971), p. 6. The commission was chaired by Albert
Williams, a senior IBM executive.
17 
Most notably, see Robert E. Baldwin, Non-tariff Distortions
of International Trade (Washington, DC: Brookings Institution,
1970), and Gerard and Victoria Curzon, Hidden Barriers to In-
ternational Trade (London: Trade Policy Research Centre, 1970).
18 
For an authoritative analysis of the issues, see the seminal
work by D. Gale Johnson, World Agriculture in Disarray, first
edition (London: Macmillan, for the Trade Policy Research
Centre, 1973). A revised edition was published in 1991.
Time to Rethink the WTO System 9
 articles in the GATT’s Part II, was difficult when the
leading industrial countries were largely responsible
for them. The European Community even tried to
formulate a common industrial policy, the so-called
Colonna Plan, but—given experience with the bloc’s
CAP—it encountered strong international resistance.19
So the attempt in the Tokyo Round negotiations
The Uruguay to conclude plurilateral “rules of conduct” on
Round non-tariff measures was only a mixed success.
negotiations
On safeguard measures, no progress was made,
were only partly
in spite of strenuous efforts by the United
successful in States and the smaller developed countries. (It
extending the would not be until the end of the eighth and last
multilateral GATT round that an agreement was reached on
trade-liberalizing safeguards, including the elimination of VERs.)
process to
agriculture, On agricultural trade, the European Community
was still bent on international commodity
doing little more
agreements, the antithesis of trade liberalization.
than agree to a
Toward the end of the Tokyo Round negotiations,
framework for
the European Community and the United
tackling domestic States took agriculture off the negotiating table
subsidies, market because, with little prospect of reaching an
access, and export agreement on farm trade, they did not want to
competition—the jeopardize an agreement on industrial products.
three pillars of This was to be remembered in the next GATT
farm support. round when the Cairns Group of smaller
agricultural-exporting countries tried to hold
up negotiations with other items on the agenda
until progress was made on agriculture.
When it became clear that the developing
countries were not getting anywhere with their
NIEO demands, efforts were made to persuade
them to make the most of the GATT system.
But it was too late for the developing countries
to influence the outcome of the Tokyo Round
negotiations, which didn’t amount to much anyway.
See, for example, Victoria Curzon Price, Industrial Policies in
19 
the European Community (London: Macmillan, for the Trade
Policy Research Centre, 1981).
10 The German Marshall Fund of the United States
Success of the Uruguay Round
The fuller participation of developing countries in the
multilateral trading system was an unstated goal of the
Uruguay Round negotiations of 1986–94. Developing
countries participated actively in the negotiations,
became parties to the agreements reached and, for
the first time in the GATT’s eighth round, undertook
multilateral market-opening commitments—albeit
modest. In the end, the negotiations were generally
successful, the agreements contained elements
of substantial benefit to developing countries.
The GATT was extensively revised and the reforms
were incorporated, with other general agreements,
in the new WTO system. Among other things,
agreement was reached on the phasing out of textile
and clothing quotas against developing countries and
on the elimination of VERs, which was achieved in the
course of reforming the GATT “safeguard” provision
for emergency protection. But the negotiations were
only partly successful in extending the multilateral
trade-liberalizing process to agriculture, doing
little more than agree to a framework for tackling
domestic subsidies, market access, and export
competition—the three pillars of farm support.20 They
fell short, too, of achieving an effective opening of
markets to those labor-intensive industrial products
of export interest to developing countries, at least
in the eyes of developing countries themselves.
In summary, the multilateral trading system provides
a contractual framework of internationally agreed
rules, a forum for consultations and negotiations, and
a basis for resolving trade issues through a binding
dispute-settlement process. Moreover, the system
is concerned, it should be stressed, with helping to
increase the size of the pie in all member countries. It
is not concerned with divvying out slices of the pie, i.e.
20 
At the beginning of the Uruguay Round negotiations, the
Council of the European Community insisted that “the funda-
mental objectives and mechanisms both internal and external of
the CAP shall not be put in question.”
with the redistribution of wealth and income, which
is the province of other economic policies, assisted
by the institutions of the capital market, including
the World Bank and regional development banks.
Looking back, the GATT system was one of the
resounding successes of the second half of the
20th century. Although some tariff peaks remain
and agriculture has been neglected, one of its
main aims was established—the importance of
liberalizing trade in the world economy.
Misadventures of the Doha Round
Informed observers in Geneva noted a “sense
of drift” as the newly created WTO entered into
force in 1995. That was alarming so soon after the
successful Uruguay Round negotiations. Public
discussion of the WTO system’s role in a rapidly
integrating world economy, dubbed “globalization”
as if it was something entirely new, was confused
by the sometimes violent demonstrations of
non-governmental organizations, exploiting
popular fears and prejudices, that political
leaders did little or nothing to assuage.
In 1998 and 1999, a first attempt was made to
launch a round of multilateral negotiations in the
WTO system. At the conclusion of the Uruguay
Round negotiations, it was accepted in Geneva
that the highest priority in future negotiations
would have to be the extension of the multilateral
trade-liberalizing process to agriculture. The
European Union proposed the ill-fated Millennium
Round in an effort—if its agricultural markets
were to be opened—to broaden and deepen
internationally agreed trade rules. It was blocked,
though, by developing countries that did not
want the WTO system extended any more until
their trade interests in agriculture and light
manufactures were properly addressed. The
EU’s ill-prepared initiative was dropped with the
collapse of the WTO Ministerial Conference in
Seattle in December 1999. The ministerial failed
before it began because the Geneva delegations
of WTO member countries could not agree on
a negotiating agenda for the first WTO round.
The first WTO round was launched at the second
attempt in Doha, Qatar, in November 2001,
boosted by the desire of the world’s governments
to demonstrate international cooperation in the
wake of the 9/11 attacks on the United States.
Negotiations in Historical Perspective
To address fundamental issues in the Doha Round
negotiations, it helps to recall, as discussed earlier,
what led to the multilateral trading system and
its evolution to embrace developing countries.
It is also necessary to take into account the
emergence of China, India, and Brazil (and other
emerging-market economies), whose exports are
generating great alarm in developed countries.
The Uruguay Round agreements were chiefly
about the reform of the multilateral trading system.
Even though the negotiations took nearly twice
as long as intended, time and patience ran out
and so some issues were papered over and others
postponed for another day, while still others were
surfacing. Thus much remained to be tackled in
the next round of multilateral trade negotiations.
After Seattle, however, the major trading
powers lost control of the agenda. The large
developing countries began calling the shots,
but the issues posed by the industrial countries
did not go away and, in public discussion
in those countries, governments did not
promote public understanding of the need to
adjust to an integrating world economy—to
developing countries joining the process.
As a result, the impasse in the Doha Round
negotiations has been a reflection of deep-seated,
systemic issues. Among them have been entrenched
Time to Rethink the WTO System 11
 resistance in industrial countries to imports of
low-cost farm products, which governments
tried to broach in the Tokyo Round and Uruguay
Round negotiations, and labor-intensive industrial
products that can be traced back to legitimate
grievances giving rise to the NIEO demands.
But there has also been the proliferation of
Cumsan hendio preferential trade agreements that has been
con vullaorem steadily undermining the multilateral trade
regime. Then there has been the unwillingness
zzrilit laorting
of the European Union and the United States
el do exer si tin
to reform WTO trade-remedy laws to facilitate
ulputem iure
velendrer sequat. structural adjustment. Many developing countries,
too, have shown a political inability to reduce
Ummy nissis eum
their own barriers to trade and investment as a
dolummy nullaor
critical step in their economic development.
amconsecte
exercilisl ut Inadequate preparation has been one explanation
vullandio odo for the difficulties in the Doha Round effort.
More fundamental, however, has been the
accumulation of systemic problems, making for
the divisions and distrust among WTO member
countries that were palpable at the Cancún
Ministerial meeting in September 2003.
Loss of General Consensus
After the GATT system was established, for
two decades there was a general consensus
on its underlying purpose, at least among the
senior officials responsible for the trade policies
of the major trading countries. By the 1970s,
however, that consensus was breaking down and
the attempt in the early 1980s to build a new
consensus, in preparing to launch the Uruguay
Round negotiations, did not last for long. It was
complicated further as the integration of the
world economy accelerated with the Information
Revolution, facilitating the globalization of
production, marketing, and financial activities.
It was evident soon after the WTO came into being,
in the efforts to launch the first WTO round, that
12 The German Marshall Fund of the United States
there were large differences among WTO member
countries, especially between the developed and
the developing countries. But there are, in addition,
large differences within those two broad groupings.
In the United States, the tendency is to regard
the multilateral trading system as a way to obtain
access to foreign markets for American exports,
not to pursue trade liberalization as a positive-sum
game or to secure the benefits of imports—better
prices, lower interest rates, and pressure to
improve competitiveness and productivity.21 In
the European Union, the system is viewed in large
part as the framework within which it handles its
relationship with the United States, while building
its own system of preferential trade agreements.22
For decades, Japan saw the GATT system as a
defense against bilateral pressures to open its
markets, but then turned to bilateral negotiations
following the multilateral commitment in the
Uruguay Round agreements to open markets to
agricultural products from other countries.
Developing countries tend to perceive the WTO
as a development institution. Their insistence on
seeing the Doha Round as a development round
raised unrealistic expectations. Many developing
countries do not see the negotiations as a round
of multilateral negotiations like previous ones,
aimed at the further liberalization of international
trade. Most of them appear to regard the round
as an effort to (i) roll back much of what they
agreed to in the Uruguay Round negotiations, (ii)
preserve preferential access to the markets of the
21 
Address by Robert Rubin , “U.S. Trade Policy in 2005,”
Peterson Institute of International Economics, Washington, DC,
February 15, 2005. Robert Rubin, former U.S. secretary of the
treasury, is chairman of the executive committee of Citigroup.
22 
J.P. Hayes, Making Trade Policy in the European Community
(London: Macmillian, for the Trade Policy Research Centre,
1993; and New York: St Martin’s Press, 1993). Philip Hayes was
earlier assistant under secretary of state at the British Foreign
and Commonwealth Office in charge of the economic advisers.
industrial countries, (iii) obtain more extensive
special-and-differential treatment, and (iv) obtain
further financial and technical assistance.
When governments are at such cross-purposes it is
hardly surprising that the Doha Round negotiations
bogged down over short-term or technical differences
with almost every item on the WTO agenda.
Background to the Deadlock
The integration of the world economy has been
promoted since World War II by the multilateral
trading system, which has facilitated adjustment
to intensifying international competition in
the manufacturing sector (except with respect
to labor-intensive products), but has failed to
facilitate adjustment to intensifying international
competition in the agriculture sector. As for the
services sector, the Uruguay Round negotiations
yielded a general framework of rules, the General
Agreement on Trade in Services (GATS), but so far
little has been done to liberalize access to markets.
It is as if governments only attach importance to
the adjustment process in the manufacturing sector
of their economies and do not attach importance
to the adjustment process in the agriculture
sector. Governments everywhere appear to be
paying little heed to the twin purposes of the
multilateral trading system of trade liberalization
and institutional stability. Business communities
in industrial countries are also paying little heed
to the WTO system in spite of their stake in the
maintenance of a stable institutional environment
that is critical to their international activities.
In the United States, spokesmen for the
manufacturing sector are fond of saying of
agriculture, over which the Doha Round
negotiations are floundering, that they don’t
have a dog in that fight. That may be true, but
they do have a dog in the fight over the WTO
framework of rules, for the institutional stability
it fosters requires multilateral cooperation. It
can not be delivered by military power alone.
How the Impasse Developed
The Doha Round negotiations have been
concerned primarily with integrating the
developing countries into the world economy. Governments
More specifically, they have focused on the everywhere
liberalization of trade in light manufactures of appear to be
export interest to developing countries and trade paying little
in agricultural products of interest to producers heed to the twin
not only in developing countries, but also in purposes of
North America, Oceana, and parts of Europe. the multilateral
At the outset of preparations for a first WTO
trading system:
round in the late 1990s—as was stated over and
trade liberalization
over again—it was well understood among WTO
and institutional
delegations in Geneva that, after industrial-country
stability.
resistance for half a century, the multilateral
trade-liberalizing process had to be extended to
the agriculture sector of the world economy.
Unfortunately some of the decisions, made with
good intentions, turned out to be mistakes.
• One mistake was to call the negotiations a
“development round” without explaining
why or how.23 Development is a huge field
in which trade liberalization plays only a
small part. Expectations were raised above
what the WTO system can actually deliver.
• Another mistake, later corrected, was to lose
sight of the need to address the trade interests
of the industrialized countries. These countries
may have been the main beneficiaries of
23 
For example, in the Zanzibar Declaration of July 2001, min-
isters from the least-developed countries protested against their
marginalization in the WTO system and pressed for the first
WTO round to be a “development round.” In the end, the prom-
ise was that the negotiations would be pursued in a manner that
allowed developing countries to “secure a share in the growth
of world trade commensurate with the needs of their economic
development.”
Time to Rethink the WTO System 13
 previous rounds, but their legislatures have to
ratify the agreements that are reached—and
they cannot be expected to do so without
substantial benefits to those countries’
manufacturers, farmers, and service providers.
• A third mistake was to overlook the reality
Cumsan hendio that for trade-liberalizing agreements to
con vullaorem be effective and durable, they have to be
underpinned by internationally agreed rules,
zzrilit laorting
which have to keep abreast of developments
el do exer si tin
in the world economy if they are to
ulputem iure command the respect of governments.
velendrer sequat.
Ummy nissis eum In addition, as acknowledged today among
dolummy nullaor trade experts at the inter-governmental level,
amconsecte the negotiations were inadequately prepared.
exercilisl ut
In their first 18 months, the Doha Round
vullandio odo
negotiations missed every deadline in the agreed
negotiating schedule. At the WTO Ministerial
Conference in Cancún in September 2003, the
negotiations were seen to be in deep trouble.
When the negotiators returned to Geneva and still
couldn’t find a basis on which to proceed, it had to
be asked whether the negotiations were salvageable
or, if that was too soon to determine, whether it was
not time to reflect more on what the negotiations
and the WTO system should be trying to achieve.
Early in 2004, a fresh effort was made to get
the negotiations on track. The WTO General
Council shifted the focus to reaching framework
agreements without modalities by the end of July on
agricultural and industrial products. The July 2004
Package of Agreements did not break new ground,
but it could be presented to the U.S. Congress as
progress, enabling the trade-negotiating authority
to be extended for another two years and the
negotiations to continue. Even so, the negotiations
struggled for the rest of the year and through
2005, ahead of the WTO Ministerial Conference
in Hong Kong in December of that year.
14 The German Marshall Fund of the United States
In October 2005, in a bid to break the Doha Round
deadlock, the United States made agriculture
offers on domestic support, market access, and
export subsidies. Apart from offering to phase
out export subsidies, the European Union was not
able to match them, especially on market access.
Peter Mandelson, the EU trade commissioner,
could not move beyond the bloc’s circumscribed
negotiating position on agriculture. In fact,
the president of France at the time, Jacques
Chirac, publicly charged Mandelson with
exceeding his mandate. The episode brought the
limits of the EU’s trade policy to the fore.24
In preparing for Hong Kong, it was decided to
defer the hard issues for a few months, rather
than risk another failure. But the ministerial
continued to aim at concluding the negotiations
in short order, this time by the end of 2006,
without lowering the level of ambition. The
meeting agreed to abolish export subsidies by
2013 and agreed to tariff-free and quota-free
access to markets for least-developed countries.
After Hong Kong, governments were faced with
a serious dilemma, caught between a perceived
deadline to conclude the negotiations by the end of
2006 and a realization that a high level of ambition
would have to be achieved for agreements to be
ratified in the United States and the European
Union. There were some who again said that,
with the constraints on the EU’s position, the only
way forward was at a low level of ambition. The
United States was left virtually alone in seeking
an ambitious outcome to the negotiations.
At the 2006 G-8 Summit in St. Petersburg,
Russia, the leading industrial countries were
24 
A cogently argued account of the European Union’s trade
policy in this regard can be found in Simon Evenett, “Trade
Policy: Time for a Rethink?” in André Sapir (ed.), Fragmented
Power: Europe and the Global Economy (Brussels: Bruegel Books,
2007), pp. 61–93.
not able to make a difference. Shortly afterward,
on July 24, 2006, the WTO director-general
suspended the Doha Round negotiations.
In the next months, Lamy sought the intervention
of ministers of finance, who have a strong influence
on how the world economy is viewed in capitals.
Inter-governmental meetings from August until
October urged that the Doha Round negotiations
be resumed as quickly as possible. In financial
circles, there were and remain strong concerns
about growing protectionism, most visible in public
reactions to the “outsourcing” of manufacturing,
and the deteriorating international financial
situation with “global payment imbalances,”
perceived exchange-rate misalignments, and so on.
In November 2006, Lamy began informal
discussions in Geneva with key players about
resuming negotiations. Bilateral talks between
the European Union and the United States—with
India, Brazil, and others also being consulted—
were followed by a half-day meeting of trade
ministers in Davos, Switzerland, on January
28, 2007. The following week, an informal
meeting of the WTO’s trade negotiations
committee decided to restart the negotiations.
The expectation was that agreement could be
reached on the modalities for negotiations on
agricultural and industrial products by April–May
2007, on the framework of an overall agreement
by the end of June, and on the tabling of schedules
of commitments by October–November. This
would have potentially coincided with passage
in the U.S. Congress of a new fast-track trade-
negotiating authority. The new objective was
to conclude the Doha Round negotiations
by the end of 2007 or not long afterward.
These hopes were dashed in Potsdam with the
collapse of the attempt on June 21, 2007, by
ministers from Brazil, the European Union, India,
and the United States to formulate an outline Doha
Round agreement on the modalities for further
discussion. The failure of the Potsdam meeting did
not mean the breakdown of the Doha Round, but
it did mean a breakthrough could not be reached
in time to induce the U.S. Congress to grant the
administration a new trade-negotiating authority.
Hopes for a
Hopes for a breakthrough in 2007 became less
breakthrough in
probable as realities impinged more and more on
the international situation. The subsequent events 2007 became
did not augur well for the future of the world less probable as
trading system. realities impinged
more and more on
• Following the mid-term elections in the United the international
States in November 2006, the new leadership situation. The
in Congress began arguing for enforceable
subsequent
labor and environmental standards in trade
events did not
agreements (as the Clinton administration had
augur well for the
done without success). As both issues were
pressed, there promised to be a long debate on future of the world
Capitol Hill, where the Republicans have been trading system.
opposed to enforceable labor and environmental
standards—and, indeed, many believe it isn’t
feasible to pursue them at the multilateral level.25
• At the end of May, the speaker of the U.S. House
of Representatives, Nancy Pelosi, declared
in Brussels that both issues would have to be
addressed in the WTO if the U.S. Congress
was to approve a new U.S. trade-negotiating
authority. Most developing countries have
vehemently resisted all such proposals.
• In June 2007, an agreement was announced
between the White House and Democrats in the
U.S. Congress for a “new American trade policy”
under which trade partners of the United States
would commit to adhere to the five principles
of the International Labor Organization, a short
list of multilateral environmental agreements,
Stuart E. Eizenstat and Marney L. Cheek, “Ending the Trade
25 
War in Washington,” Foreign Affairs, New York, May-June 2007.
Time to Rethink the WTO System 15
 and generally worded provisions covering
investment and government procurement.
• By then it was evident that, even if enough
was done by the August holiday break to
persuade the U.S. Congress to approve
a new trade-negotiating authority, the
Cumsan hendio negotiations could not be completed by
con vullaorem the end of 2007—or even by early 2008.
zzrilit laorting • It also became apparent that any breakthrough
el do exer si tin on the modalities for negotiations on
ulputem iure agricultural and industrial products was likely
velendrer sequat. to be at a low “level of ambition,” causing
Ummy nissis eum some countries to hold out for more. For
dolummy nullaor other countries, the Doha Round would
amconsecte still be “incomplete,” with much remaining
exercilisl ut to be done, for instance, on trade-remedy
laws and regional trade agreements.
vullandio odo
• Larger issues weighed heavily on many
opinions. In a U.S. presidential election
year, it is hard to negotiate with other
countries on politically sensitive trade issues,
given the statutory requirement that the
administration consult with Congress.
• Finally, in spite of the persistent impasse
within the Doha Round negotiations, there
has been a reluctance among governments
to abandon them. Abandoning them
would result in a greater resort not only
to protectionism generally, but also to
preferential trade agreements, further
undermining the multilateral trading system.
Whatever happens, the Doha Round negotiations
can be expected to continue at a “technical” level
beyond the U.S. presidential election—until the
new president is in office, a new administration has
been formed, and the new Congress has approved
a new “fast track” trade-negotiating authority.
16 The German Marshall Fund of the United States
What is to be Done?
Ernesto Zedillo, the former president of Mexico,
now a professor of political economy at Yale
University, has closely monitored the Doha
Round negotiations. In May 2007, he wrote in
Forbes magazine, “At this stage, the relevant
question will not be how can the WTO save
the Doha Round but, rather, how can the
WTO be saved from the Doha Round?”26
The crisis in the WTO system, even after six
years of Doha Round deadlock, is hardly written
about in newspapers, whereas there is apparently
great alarm over the perceived crisis in the
international financial system as a result of the
“global credit squeeze” of the last few months.27
In fact there is a belief abroad that if financial fears
get out of hand there could be a greater resort to
protectionism. How confident are governments,
legislatures, and interest groups on either side of
the Atlantic that the WTO system could withstand
a strong movement toward protectionism? The
condition of the WTO system is different from
what it was during the last financial crisis, the East
Asia crisis of 1997–98, when the WTO system held
up well. That was shortly after the Uruguay Round
triumph, and there was no question of governments
in East Asia introducing trade restrictions.
Today it is acknowledged that preparations for
the Doha Round negotiations were inadequate
not only internationally, but also in the major
trading powers. Informal meetings of ministers
and senior officials were held around Lake Geneva
in the late 1990s, but without written analyses of
Ernesto Zedillo, “Save the WTO from the Doha Round,”
26 
Forbes, New York, May 21, 2007.
27 
For instance, the new British prime minister, Gordon Brown,
devoted much of his Guildhall speech (traditionally on foreign
policy) on October 12, 2007, to the need to reform the interna-
tional financial system, but not a word was said about the quiet
crisis in the multilateral trading system.
the issues, which meant they were largely political
exchanges. Public discussion then was alive with
reactions in development circles and among those
worried on behalf of developing countries, against
globalization, and the Uruguay Round agreements.
With the erosion of confidence in the WTO
system since the collapse of the Seattle Ministerial
Conference in December 1999, and the
subsequent proliferation of preferential trade
agreements, the political hiatus in the Doha
Round negotiations is an opportunity to do what
should have been done before the negotiations
started. Governments, legislatures, and interest
groups need to reflect on what has been happening
over the last decade and, in particular:
• put the rapid integration of the world
economy (globalization) in perspective,
• rethink the world trading system,
• build a new inter-governmental consensus on
the multilateral path to the liberalization of
trade and investment and, in that context,
• confront the central WTO issue, the
liberalization of agricultural trade.
Although the WTO director-general last July
called for a timeout for reflection, which he said
was “clearly necessary,” no one took advantage
of it. How could governments, legislatures,
and interest groups reflect on how the Doha
Round negotiations got into such a mess?
In the United States, after the Kennedy Round
negotiations, the Joint Economic Committee of the
U.S. Congress held hearings on the next phase in
the liberalization of trade, several think tanks in
Washington conducted studies and a presidential
commission was appointed. At the international
level, the OECD secretary-general appointed a
high-level group on trade and related problems.
Similar initiatives could be undertaken by the
same authorities, but groups of experts could
also be formed by the WTO, the World Bank,
APEC, and regional development banks, as well
as individual governments and influential think
tanks. Policymakers and media commentators
may look dimly on collective efforts (“talk-
fests”) to clarify issues, but they could not The biggest
do worse than what has been happening in obstacle to the
Geneva and at WTO ministerial conferences.
liberalization
On agricultural trade, the focus of the Doha of agricultural
Round negotiations, the biggest obstacle to trade has been
the liberalization of trade in the WTO system the duopoly of
has been the duopoly of the European Union the European
and the United States. Both have to be induced Union and the
somehow to reconsider their positions. United States.
Both have to be
Protectionist Agricultural Policies
induced somehow
After the Uruguay Round agreement on agriculture, to reconsider
it was believed that, after decades of special their positions.
treatment on agriculture, an effort would be made
to set about the liberalization of agricultural trade.
It was believed that the application of multilateral
disciplines to agriculture would allow farmers
in developing countries, through cooperatives
and the like, to compete in world markets.
For a while, it appeared the United States and
the European Union might make good on that
promise. In the United States, the 1996 Farm Bill
contained arguably the biggest reforms of U.S.
farm-support programs since, in the depths of
the Great Depression, they were introduced in
1933 as “a temporary solution to deal with an
emergency.”28 In the European Union, the CAP
also underwent, after the MacSharry Reform of
1992, a series of reforms with the Agenda 2000
program and the Luxembourg agreement on
the Mid Term Review of the CAP in 2003.
Henry Wallace, as U.S. secretary of agriculture, introducing
28 
the Agricultural Adjustment Act of 1933.
Time to Rethink the WTO System 17
 In the Doha Round negotiations, there was
uncertainty as to which of the two economic
superpowers would move first. There was
talk of the two moving together, which meant
one would not move without the other, which
resulted in neither doing so. Before long, it
was being said there was not a good working
Cumsan hendio relationship between the European Union
con vullaorem and the United States and, consequently, it
zzrilit laorting was remarked the negotiations on agriculture
el do exer si tin were being driven by defensive interests.29
ulputem iure
Spokesmen for the United States said early in
velendrer sequat. the negotiations they would reduce agricultural
Ummy nissis eum protection and subsidies if the European Union
dolummy nullaor did the same. Protectionist interests in the latter
amconsecte only had to resist changes for nothing to happen.30
exercilisl ut After meeting with his Indian counterpart in
vullandio odo March 2007, China’s then-minister of commerce,
Bo Xilai, observed in a statement that the obvious
“failure of the European Union and the United
States to make concessions on farm tariffs and
subsidies has been the biggest obstacle to the
successful conclusion of the negotiations.”31
Continuing agricultural protectionism in the two
economic superpowers was enough to persuade
developing countries to keep in place their
agricultural trade barriers until meaningful reforms
were undertaken in the industrial countries.
29 
For an analysis of what a likely Doha Round agreement would
mean for disciplines on agriculture in the European Union
and the United States, see David Blandford and Tim Josling,
Meeting Future WTO Commitments on Domestic Support: The
Implications of Ambassador Falconer’s July 2007 Proposals for the
European Union and the United States, a report to the German
Marshall Fund of the United States, Brussels and Washington,
DC, September 2007.
On the importance of CAP reform to developing countries,
see Alan Matthews, The Development Interest in Reform of the
European Union’s Common Agricultural Policy, a report to the
German Marshall Fund of the United States, November 2007.
30 
Most recently, John Negroponte, U.S. deputy secretary of state,
said in Burkina Faso in November 2007 that the United States
was “ready to reduce our farm subsidies on the condition that our
European Union partners can equally make the same gesture.”
31 
Financial Times, London and New York, March 14, 2007.
18 The German Marshall Fund of the United States
Agriculture is of central importance to most
developing countries. It accounts for half their
combined GDPs and 70 percent of employment.
Productivity and export growth in developing
countries’ agriculture sectors, it is believed,
can put money in the hands of the world’s
poorest people—the bottom billion. But the
conditions of trade in agricultural products are
weighted against developing countries. In spite
of the declining importance of agriculture in
industrial countries, both as a share of GDP and
of the labor force, the operation of agricultural
markets tilts heavily in their favor. Subsidies in
the 30 OECD countries account for 30 percent
of farm revenues. Agriculture in Europe and
the United States is among the most heavily
protected and subsidized in the world.
In the United States, producer pressures resulted
in the 1996 reforms being rolled back in the
2002 Farm Bill. As for the 2007 Farm Bill, the
House and Senate versions, as of this writing,
have yet to be reconciled, but the indications
are that the new Farm Bill will be much like the
current one—and may increase subsidies more.
In the European Union, agricultural policy
reform appears to have stalled as well. The
so-called “Health Check” and review of CAP
financing this year could conceivably open the
door to additional reforms. But the European
agriculture commissioner, Mariann Fischer
Boel, has insisted that, just as going to the
doctor for a check-up does not necessarily
mean the patient is sick, the Health Check
should not imply CAP reform by the back door.
As proposed by the European Commission,
the Health Check is shaping up to be a
technocratic exercise, a cleaning up around the
edges of the 2003 reforms, while dampening
expectations. Unless something changes,
the likelihood is that there will be, at best,
marginal tinkering with the CAP in 2008.32
French President Nicolas Sarkozy has promised
to use France’s presidency of the European
Union in the second half of 2008 to facilitate
a debate about fundamental CAP reform.33
But musings about a return to “community
preference” have also been emanating from
the Élysée Palace. These concerns have been
compounded by reports of a “new Malthusianism”
with discussions turning once again to “food
security” and the need to stimulate agricultural
production for a future in which food is scarce.
Litigation in the WTO System
How far an extensive public debate on CAP reform
in the European Union would get is an open
question. Much would depend on how determined
are the critics of the CAP and how ready are the
pro-reform governments of member countries to
hold up the EU’s other business. The international
climate of opinion would be another factor.
At an international meeting in Rio de Janeiro in
October 2002, the idea of using the WTO dispute-
settlement process to test the legality of certain
farm-support programs of industrial countries,
in the event of the Doha Round negotiations
not getting anywhere, was discussed.34 Shortly
afterward, Brazil lodged complaints in the WTO
32 
An assessment of likely CAP reform in the European Union
issuing from the 2008 “Health Check” and ongoing review of
the European budget can be found in Tamsin Cooper, David
Baldock, and Martin Farmer, Toward the CAP Health Check and
the European Budget Review: The Proposals, Options for Reform,
and Issues Arising, a report to the German Marshall Fund of the
United States, October 2007.
33 
Address by the President of France, Nicolas Sarkozy, to the
livestock farmers of Rennes, September 11, 2007.
34 
Chairman’s statement by John Weekes issued after the interna-
tional roundtable meeting at the Palácio Itamaraty, Rio de Janeiro,
Brazil, convened by the Cordell Hull Institute and the Centro
Brasileiro de Relações Internacionais, on October 14–16, 2002.
against the United States over its cotton program
and, in cooperation with Australia and Thailand,
against the European Union over its sugar program.
Both cases were substantially successful.
Since then, Uruguay has been contemplating
a case against the United States over its rice
program, and Canada has explored the possibility
Iriuscidunt verci
of mounting a case against the United States
tinciduisi. Lis ad
over its corn program. In the 2007 Farm Bill,
the United States has taken steps to insulate elessi. Um alis
its farm programs against litigation. But it is dolor si. Ing eum
not known how far that course will go. dolorem nullaor
tionseq uipsum
Pursuit of Preferential Trade Agreements ipsusto dolore
feum quiscil iscilis
Although preferential trade agreements are
on the Doha Round’s agenda, under the er si et vent amcor
heading of regional trade agreements, the ad dio eum vel
negotiations have not come to grips with them.
Asked what would happen if the Doha Round
negotiations were to collapse outright, the
standard response has been that, apart from a
general resort to protectionism, there would
be a rush into preferential trade agreements.
There can be no minimizing the problem. An
item on the WTO web site last year said that if
account is taken of bilateral and regional trade
agreements that have been negotiated but not
notified to the WTO, those signed but not yet
in force, those currently being negotiated, and
those still at the proposal stage, there could
be close to 400 such agreements by 2010.35
There has been mounting criticism of “bilateral
and regional trade agreements” or, as they are
often called, “free trade agreements.” None of
them, however, satisfy the conditions laid down
in GATT Article XXIV for departures from the
principle of non-discrimination to form free
trade areas or customs unions. They are really
35 
See the page on Regional Trade Agreements on the WTO web site.
Time to Rethink the WTO System 19
 preferential trade agreements (which the GATT
was formed, in part, to eliminate over time).
There are many drawbacks with preferential trade
agreements.36 One, such agreements exemplify
trade diversion, rather than trade creation.
Two, the rules of origin inherent in them are
Although discriminatory, aimed at preempting “outside”
agriculture has countries from benefiting from agreements to
which they aren’t parties. Three, “spaghetti bowls”
been the major
of preferential trade agreements are putting in
obstacle to
jeopardy the multilateral trading system that
progress in the has succeeded up to a point in overcoming trade
Doha Round distortions. Indeed, the growth of preferential trade
negotiations, agreements could all too easily accelerate, which
progress has also weak governments in industrial countries would
been held up by have difficulty in halting and reversing. Four, the
the developing proliferation of preferential trade agreements
is producing hub-and-spoke systems of trade.
countries, which
The “hub” countries, usually large and geo-
have not been
politically influential, benefit disproportionately
ready to reduce
relative to smaller “spoke” countries. What is
their trade
happening is that power-based systems are
restrictions.
replacing the WTO rules-based system.37
The problems associated with preferential trade
agreements cause distortions not only at the
macro-economic level, but also at the micro-
economic level. They affect the everyday decisions
of individual businesses. The cost of compliance
with rules of origin outweighs the benefits of
the agreements in which they are found. So
businesses in the countries involved regularly
accept the alternative tariff rather than devote
resources to complying with rules of origin.
But the European Union is bent on negotiating
even more preferential trade agreements,
36 
For a comprehensive analysis of bilateral and regional trade
agreements, see the Asian Development Outlook 2006 (Manila:
Asian Development Bank, 2006).
37 
Sidney Weintraub, “The Complexity of Trade Policy,” Issues
in International Political Economy, Center for Strategic and Inter-
national Studies, Washington, DC, April 2007.
20 The German Marshall Fund of the United States
continuing a policy it has been pursuing, one
way or another, for half a century. In 2006,
the European Commission announced an end
to its self-imposed moratorium on free trade
agreements in order to join the scramble for
Asia, prioritizing agreements with Korea, and
the Association of Southeast Asian Nations.
Much the same is happening in East Asia. China
and Japan are negotiating preferential trade
agreements for chiefly political or foreign policy
reasons. Beijing is interested in establishing
institutional ties with China’s neighbors. Tokyo
is fearful of Japan’s giant neighbor and is
interested in establishing institutional ties with
other countries in the Asia-Pacific region.
The United States has also been pursuing
preferential trade agreements for chiefly political
and foreign policy reasons. There are questions
about how viable this course will be politically in
the future. Criticism of the agreements negotiated
so far has been mounting in the U.S. Congress.
Some fear that if the Doha Round negotiations
peter out and preferential trade agreements
are barred, either for policy reasons or because
U.S. trade-negotiating authority is not renewed,
Washington will lose the power of initiative to
influence the course of events in the world—as it
did from 1994 to 2002 when, for lack of U.S. trade-
negotiating authority, the process of Asia-Pacific
Economic Cooperation (APEC) lost direction, the
proposed Free Trade Area of the Americas (FTAA)
lost impetus, and the WTO lost momentum.
Developing Countries in the WTO System
Although agriculture has been the major obstacle
to progress in the Doha Round negotiations,
progress has also been held up by the developing
countries, which have not been ready—in their
own interests—to reduce their trade restrictions.
Mismanagement of the problems created by the
Uruguay Round agreements reinforced the emphasis
put on special and differential treatment as the
way to deal with developing countries in the WTO
system. This has been at the cost of the WTO system
being a mechanism that developing countries
might use to advance their economic reforms and
economic interests. In the Doha Round negotiations,
developing countries have not been able to agree
among themselves on how special and differential
treatment could be more effective, even though
that has been one of the main purposes of the
negotiations—as far as they are concerned.
The inability of developing countries to agree among
themselves on special-and-differential treatment
has reinforced the querying of generalized tariff
preferences in their favor. Among mainstream
economists in the field of economic development,
there is almost a consensus that generalized tariff
preferences, subject to quotas and safeguards, are not
as beneficial as initially supposed.
Apart from resisting trade liberalization, some
developing countries have been resisting the
idea of WTO rules, not recognizing their role
in promoting a stable institutional environment
conducive to investment. This has caused some
trade negotiators in other countries to wonder
why those countries belong to the WTO system.
New Approach to Multilateral Negotiations
Slow progress in the Doha Round negotiations, on
top of the slowness of things in the WTO system
generally, has caused experienced trade negotiators
to consider other options for liberalizing
international trade. Some are considering bilateral
free-trade—rather than preferential trade—
agreements. Others are contemplating a litigation
approach with the emergence, through the WTO
dispute-settlement process, of a transnational
body of case law on trade-policy issues.
Still others argue that the traditional approach to
multilateral trade negotiations has run its course.
After eight rounds of negotiations based on
unconditional MFN treatment, a new approach
is needed.38 The unconditional MFN approach
has had the effect of slowing negotiations
down to the rate acceptable to the least-willing
participants, to the slowest ships in the convoy.39 Iriuscidunt verci
(Some observers prefer to put this effect down tinciduisi. Lis ad
to the tradition in the multilateral trading elessi. Um alis
system of decision-making by consensus.)
dolor si. Ing eum
One proposal along these lines has been for a dolorem nullaor
free-trade treaty limited to countries seriously tionseq uipsum
interested in liberalizing trade across-the-board, ipsusto dolore
including agriculture. The idea would be that such feum quiscil iscilis
a plurilateral agreement could be progressively er si et vent amcor
expanded to become, in due course, the functional ad dio eum vel
equivalent of a multilateral regime. The free trade
treaty approach, negotiated under GATT Article
XXIV, would leave aside developing countries that
are not ready to liberalize access to their markets.
How feasible would that approach be if neither the
European Union or the United States is prepared,
after resisting for so long, the liberalization of
agricultural trade in their markets? Well, how
feasible would any approach be, if that was the
case? On the other hand, how feasible would it
be if one of the majors was to decide to liberalize,
even if at a slower pace than the liberalization
of trade in industrial products and services?
The question for the future is whether the business
communities of the European Union and the
38 
Grant Aldonas, “Fresh Free Trade Agenda for Doha,” Financial
Times, July 12, 2007.
39 
This was argued by a group of eminent economists in 1972:
Frank McFadzean et al., Towards an Open World Economy (London:
Macmillan, for the Trade Policy Research Centre, 1972), which
favored the free trade treaty option. Besides Frank McFadzean, the
group consisted of Sir Alec Cairncross, W.M. Corden, Sidney Golt,
Harry G. Johnson, James Meade, and T.M. Rybczynski.
Time to Rethink the WTO System 21
 United States, with their large stakes in the WTO
system, are going to press their governments to
make the reforms of farm subsidies and tariffs that
could get the Doha Round negotiations on track
and save the multilateral trading system. Will the
agricultural communities of the European Union
and the United States look long-term, beyond
Trade policy in the their immediate concerns, and consider how
European Union secure their access to markets will be if the WTO
system ceases to be effective? Could the authority
is struggling to
of the WTO system endure for long when it offers
find coherence.
little more than a dispute-settlement process?
It is constantly
wrestling with Problems of European Trade Policy
competing
priorities in Trade policy in the European Union is struggling
decision-making to find coherence. It is constantly wrestling
processes that with competing priorities in decision-making
processes that inhibit the bloc’s effectiveness
inhibit the bloc’s
and capacity for leadership. The bloc is now 27
effectiveness
countries with a combined population of 490
and capacity
million and over $3.5 billion in external trade.
for leadership. Many of its preferential trade agreements have
been with neighboring countries or in nearby
regions. They have been motivated more by
foreign policy and politico-strategic concerns
than by economic interests. Even so, in spite of
the European Union’s expanding patchwork quilt
of preferential arrangements, 74 percent of its
trade remains on an MFN basis, according to
the European Commission’s own estimates.
The aggregation of trade policy at the inter-
governmental level in the European Union has
also proven to be a problem. While the European
Commission wields considerable powers of initiative
in making trade policy, the Commission is required,
under Article 133(2) of the Treaty of Nice, to
obtain a mandate from the Council of Ministers
for policy initiatives. The jealous manner in which
this mandate is watched over by some member
countries has acted as a considerable brake on the
ability of the Commission to engage in multilateral
22 The German Marshall Fund of the United States
trade negotiations. As Simon Evenett, a close
observer of European trade policy, has noted:
“Member states can and do express themselves
forcefully when they believe the Commission
has exceeded, or is likely to exceed, its
negotiating mandate. In recent years nowhere
has this been more apparent than in the
Doha Round negotiations on agriculture.
France has maintained a coalition numbering
more than half the member states which has
repeatedly warned the Commission not to
exceed the relevant negotiating mandate, which
in this case refers to the outer limits of the
agricultural reforms that the member states
agreed to undertake earlier in the decade.…
With the subsequent accession of Bulgaria
and Romania press reports have suggested
that this coalition has been strengthened.”40
These political constraints have manifested
themselves in the sometimes “schizophrenic”
attitude of EU trade policy. On the one hand,
European officials have been increasingly
hesitant about trade liberalization, pushing for
an expansion of the WTO’s remit to include rules
on labor and environmental standards and so
forth. On the other hand, EU trade negotiators
have attempted to pursue an aggressive agenda
on the Singapore issues—proposals to extend
WTO rules to investment, competition, trade
facilitation (streamlining customs administration),
and transparency in government procurement,
advanced at the first WTO Ministerial
Conference in Singapore in December 1996.
The effect of all this has been not only to curtail the
EU’s leadership in the multilateral trading system, but
also to restrict the ability of “free trade” countries—
40 
Simon Evenett, “Trade Policy: Time for a Rethink?” in André
Sapir (ed.), Fragmented Power: Europe and the Global Economy
(Brussels: Bruegel Books, 2007), p. 65.
such as Great Britain, Germany, the Netherlands, The former WTO director-general, Mike
and Sweden—to support trade liberalization in the Moore, warned in 2004 that the organization
WTO system and respond to U.S. leadership. was in danger of becoming like the League of
Nations of the 1930s, “sidelined for another
All this amounts to a tall order. But what could few years until another generation of ministers
anybody expect after a decade of failure by rediscovers the virtues of multilateralism.”
governments, especially those of the leading industrial
countries, to think through the consequences of Can the world afford to wait?
Iriuscidunt verci
their actions and inactions in the WTO system.
tinciduisi. Lis ad
elessi. Um alis
dolor si. Ing eum
dolorem nullaor
tionseq uipsum
ipsusto dolore
feum quiscil iscilis
er si et vent amcor
ad dio eum vel

Time to Rethink the WTO System 23

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