The normative content of the GATT regime

Geneva on a reciprocal basis and concluded between 23 countries in 1947 in parallel with the ITO talks. The agreement on tariff reductions (GATT) would later be incorporated into the final Charter, which was finalised in 1948.³⁵ However, the Truman administration did not put it before Congress for ratification. The administration considered the GATT -which was never ratified by U.S. legislative body- as a sufficient tool to conduct multilateral negotiations for tariff liberalisation, and withdrew the ITO bill from the Congressional agenda following the Senate hearings in late 1950 without putting it to a vote (Gardner 1956: 371-8; Capling 2000:

20). Hence, the GATT came into being in 1947 as a legal accord and as a “peculiar and entirely accidental international institution” (Finlayson and Zacher 1981: 562). It remained as the sole multilateral instrument to govern international trade until 1994.

understanding. However, the Charter went beyond the General Agreement with a broader set of rights and obligations that would have created a further embedded economic order. By setting up a binding international mechanism with a dispute settlement system, the ITO Charter recognised and codified the rights and duties of the states vis-à-vis each other and regarding their citizens, well beyond the confines of

“embedded liberal” order. In Drache’s words: “Embedded liberalism was, at best, a second best option. It gave a more limited role to state interventionism and by contrast, a very large play to international market needs” (Drache 2000: 28). Positive commitments regarding full employment and development in the Charter were not transferred into the text of the GATT. The balance between trade liberalisation and state intervention was struck through basic commercial norms and principles for non-discriminatory trade liberalisation, and the exceptions and safeguards which allowed state intervention to the markets. Until the radical transformation of the regime throughout the Uruguay Round, this normative content remained intact, but it evolved in time with changes to its regulative rules and procedures.

The normative texture of the GATT has been analysed by scholars who developed different classifications regarding the GATT norms, principles and rules.³⁶ Here the

36 The following works provide useful insights about the changing nature of the norms, rules, principles, and procedures in the trade regime: Dam 1970, Winham 1986, Kirshner 1996, Jackson 2002, and Wilkinson 2006.

dissertation follows Finlayson and Zacher’s (1981) approach which distinguishes the norms in the GATT regime as “substantive” and “procedural.” They consider the guidelines for decision-making such as ”multilateralism” and “major interests” as

“procedural norms,” while enlisting the norms that set standards for state actions to engage in the trading system as “substantive norms.” The analysis here concentrates on the substantive norms as to states’ behaviours regarding international trade and the trading system. Especially important for this dissertation are the non-discrimination and liberalisation norms. Nevertheless important norms instrumental for understanding the functioning of the trade regime also include: reciprocity, safeguards and development.

Non-discrimination and Liberalisation

The preamble of the GATT explicated its two most fundamental goals as “substantial reduction of tariffs and other barriers” and “elimination of discriminatory treatment in international commerce.”³⁷ The non-discrimination norm was as important as the liberalisation norm for Americans and other developed and developing country negotiators who actively participated in the post-war negotiations (Capling 2000).

Since the creation of the GATT this norm has taken an operational form in the

37 GATT articles and other WTO legal texts in the dissertation are cited from WTO 1999b.

principles of most favoured nation (MFN) and national treatment (NT). All privileges and advantages accorded by one country to another are required to be extended to all contracting parties as outlined under the MFN principle detailed in Article I of the GATT (WTO 1999a: 39-40). For instance, if country A cuts its tariffs for product X of country B, it must apply this reduced tariff level to all GATT signatories exporting that product. The privileges may not only take the form of tariff reduction, but also allocation of quotas. On the other hand, the national treatment principle outlined in Article III of the GATT applies to domestic and foreign goods within national borders (WTO 1999a: 40-41). It bans any discriminatory taxes, laws, regulations and practices that would unfavourably affect the supply of imported products in the internal market in comparison to “like products” of national origin. For example, once foreign product X clears the customs and enters the national market, it cannot be subject to a certain tax or fee which is unfavourably different from the taxes or fees charged on the same or similar products of national origin.

From the beginning of the negotiations, the U.S. had sought “unconditional non-discrimination” with minimum exceptions (Wilcox 1949: 21-4). However, the exceptions created through GATT articles weakened the unconditional status of this fundamental norm. One major loophole was opened in the system for preferential trade arrangements. As noted above, existing regional trade agreements including the

British Imperial Preferences were exempted (grandfathered) from the MFN principle in consequence of the resistance of the British and French governments during the ITO/GATT talks. Article XXIV of the GATT was hammered out during the Geneva talks in 1947 to elaborate the MFN exception for existing and future preferential arrangements (including customs unions and free trade agreements) with listed criteria intending to minimize their trade distorting effects for the third parties (Finlayson and Zacher 1981: 567). The article created a legitimate basis for future regional agreements such as the European integration that ultimately evolved into a comprehensive customs union after the creation of the European Economic Community (EEC) with the Treaty of Rome of 1957. It also allowed for the enlargement of the EEC, and preferential agreements between the EEC and former European colonies (Finlayson and Zacher 1981: 568). Moreover, with the rise of “new protectionism” during the 1970s, the scope of liberalisation extended from tariffs to non-tariff measures (NTBs) which included measures such as voluntary export restraints (VERs), technical barriers, and trade distorting state practices such as subsidies (Bhagwati 1993: 43-53). NTBs were put on the agenda of the Tokyo Round that concluded with a set of “plurilateral” disciplines or “codes” created to supplement the GATT.³⁸

38 These codes included agreements on technical barriers, import licenses, customs valuation, subsidies and anti-dumping measures, public procurement, as well as sectoral arrangements for civil aircraft, beef and diary products (Jackson 2002: 76).

On the other hand, the liberalisation norm entailed the gradual elimination of border measures such as tariffs and quotas through negotiations among parties, which were later called “rounds.” The norm did not take primacy in the early years of the GATT as governments sought other domestic policy goals such as full employment, economic growth and development with the discretion created by GATT articles (i.e.

Article XII) (Finlayson and Zacher 1981: 570). Although the liberalisation norm was supposed to apply multilaterally, in the first two decades tariff negotiations were conducted in a bilateral manner between the industrialised nations (Dam 1970: 61-4).

With the exception of the United States’ cuts on its tariffs, liberalisation remained at low levels between the first multilateral round in Geneva (1948) and the Kennedy Round (1963-1967) (Hoekman and Kostecki 2001: 103). Four of the eight multilateral GATT rounds that took place in the first decade of the regime substantially reduced U.S. tariffs (Hoekman and Kostecki 2001: 101-3). The norm of liberalisation entertained the strongest endorsement in the late 1960s (Finlayson and Zacher 1981).

Until the initiation of the Uruguay Round, tariff negotiations within the ambit of the GATT covered only industrial products other than textiles and clothing. Trade in textiles and clothing was excluded from GATT disciplines, and was governed by a separate regime codified by the Multi Fibre Arrangement (MFA) in 1974. The MFA contained provisions for sectoral quotas on the amount of trade between developed

and developing countries (Jackson 2002: 206-9). Agricultural products remained immune from the GATT disciplines from the very beginning. The exemptions granted to suspend the application of certain GATT rules to farming became permanent and consequently kept this sector largely out of the GATT ambit (Yeutter 1998: 61-2).

Another GATT norm directly related to liberalisation was reciprocity. This norm did not become operational in the early years of the GATT because of the asymmetrical concessions given by the United States (Dam 1970: 58-64). As Japanese and European allies gained competitiveness in the 1960s with a rising share in world trade, the U.S.

put stronger emphasis on reciprocal opening from other industrial countries (Dam 1970: 64-76; Finlayson and Zacher 1981: 575-6). The norm did not become operational for developing economies that benefited from market opening with no proportional cuts in return. This special status of developing countries was initially acknowledged with the insertion of Part IV on Economic Development to the GATT in 1965 parallel to the decolonisation process and the mobilisation of the Third World countries for a systemic reform (Dam 1970: 236-42). This amendment created a symbolic waiver justifying “non-reciprocity” for developing countries (Finlayson and Zacher 1981:

575). “Differential treatment” and “non-reciprocity” for developing countries were further codified with the creation of another discriminatory leeway, i.e. the inception of the Generalised System of Preferences (GSP) and the “enabling clause” decision

taken in the 1970s. The GSP legitimised duty free or advantageous access of developing countries to the markets of industrialised countries in products essential to their industrial development with no reciprocal obligation (Jackson 202: 322-5). In the same vein, developing countries did not sign off on the Tokyo Round plurilateral codes (Finlayson and Zacher 1981: 575-8). In sum, Special and Differential Treatment (SDT) became the operational aspect of the development norm in time as it provided poor countries with exclusions from reciprocal liberalisation commitments (Jackson 2000: 164, 324; Matsushita et.al. 2003: 385-8). Considering their negligible share in world trade, developing economies’ exemptions from reciprocal reductions in tariffs did not harm the interests of industrialised countries. Yet, from the 1970s on newly industrialised countries (NICs) gained greater competitiveness in certain manufactured products, became significant markets for developed country goods, and were gradually perceived as “free riders” (Paemen and Bensch 1995: 115). This norm would truly be institutionalised during the Uruguay Round largely as a result of the insistence of the U.S. and other OECD governments.