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World: GATT Celebrates 50th Anniversary

  • Breffni O'Rourke

Prague, 14 May 1998 (RFE/RL) -- The World Trade Organization is about to open an extravagant birthday party in Geneva marking the 50th anniversary of GATT, the General Agreement on Tariffs and Trade. Unexciting as its name may sound, GATT is the instrument which forged the multilateral trading system known today, and thus was a key factor in creating the prosperity enjoyed by so many countries.

The three-day celebrations open on May 18 with a full ministerial meeting of the 132 member states. A highlight is the address that evening by U.S. President Bill Clinton, who added Geneva to his European itinerary at the last moment. The following day comes the official commemoration, attended by at least 10 heads of state or government, including those of Italy, Britain, Norway, Slovenia, Switzerland, and Brazil. Then (May 20) WTO ministers hold another session to discuss not past successes but future challenges.

The WTO itself is now three-and-a half years old, and replaced the GATT organization. The WTO is distinguished from GATT in that it sets rules to which member countries commit themselves legally, and it has a formal procedure for settling disputes.

When GATT was founded in 1948, the world was ravaged by the aftermath of war and economic depression. The task at that time was to lay the foundations of a more open trading order to replace the destructive economic nationalism which had ruled between the two great wars. GATT was built on the principle that an open and fair trading system is a basic element to peace and stability. The statistics show its success: protective tariff barriers in industrialized countries have fallen from high double-digit figures in 1947 to less than 4 percent today. World trade is now 14 times the level of 1950, and is worth $6.5 trillion.

Although Russia, like China, is not yet a member, other transition economies are already benefiting. Those states which are prospective members of the European Union have a extra advantage in that their exposure to foreign trade possibilities is maximized. Professor Rolf Langhammer of Kiel University's Economics Institute explains.

He says that there are two ways for the Central and East European countries to integrate into the international trading system. One is through regional integration, meaning that they are to become full members of the European Union, and the second is by participating actively in the WTO. This gives them a double strategy, as it were, complementing each other. On the one hand, as prospective EU members, those countries are going to have to conform to all the commitments the EU has made to GATT, and at the same time, they are still contributing to the WTO as individual members by complying with commitments made under the Uruguay round of trade talks.

The integration of the former command economies into the global economy is one of the challenges which is still proceeding. At the same time, as the WTO itself says, the massive rise in trade and investment flows around the globe is testing the abilities of the multilateral trading system to cope.

The irony is that the WTO is celebrating a half-century of success at a moment when one of the world's great trading regions, namely South East Asia, is experiencing prolonged crisis. Scores of millions of people in South Korea, Indonesia, Thailand and Malaysia are suffering loss or reduction of incomes, companies are bankrupt, governments struggle to keep tensions within bounds. The neighboring giant Japan is also affected.

All this of course is not the fault of the WTO. It is a financial rather than trade crisis, caused by inconsistencies in internal finance markets, plus herd behavior by international investors, particularly on the short-term money market. But the catch is this. The WTO's central principle is that the international trade system should remain open, that closure of markets is negative.

So far, Asia has largely resisted temptations to restrict access to its markets despite fears that foreigners could end up owning large sections of their economies. But in turn the rest of the world will have to remain open as Asia begins its "counter attack".

Because for the Asians, the only way out of their troubles is by trading back to economic health. Their traditionally strong product range, plus their sense of innovation and marketing, and prices which are now ultra-competitive, will make them even more formidable in the market place. Asian exports over the next several years can be expected to put severe pressure on the manufacturing industry of other countries, thus introducing new strains into the world trade system.

Looking ahead, the WTO's evolving presence can help. Professor Langhammer explains.

He says the link to the WTO in the crisis is the liberalization of financial services, the agreement which is due to come into force early next year, which should help to stabilize the monetary situation in Asia. He repeats, that the WTO can't be blamed for the crisis.