How do countries get what they want out of trade? How do they make sure other countries cooperate? And how do they solve disputes?
They make trade agreements. In a free trade agreement (FTA), countries agree on certain obligations to facilitate trade. Whether they are multilateral (between many countries) or bilateral (between two), these agreements cover more than just trade: they protect foreign investment, ensure intellectual property rights, and can influence labor standards, environmental regulations, e-commerce rules, and more.
While the history of trade is long, the history of modern trade agreements is not; we can trace the first multilateral trade agreement to just after World War II. Since then, international trade has exploded, and agreements are needed to govern all of it.
MULTILATERAL TRADE AGREEMENTS: FROM THE GATT TO THE WTO
World War I was supposed to be the “war to end all wars.” But World War II, the largest and deadliest war in history, broke out twenty years later. World leaders believed that in order to create a lasting peace, they needed to forge more ties, particularly economic ones. President Franklin D. Roosevelt’s secretary of state, Cordell Hull, put it succinctly: “unhampered trade dovetail[s] with peace; high tariffs, trade barriers, and unfair economic competition, with war.”
These new connections needed new rules, and those rules needed new organizations to enforce them.
From one of those new organizations (the United Nations) sprang the General Agreement on Tariffs and Trade (GATT), built on the belief in a direct relationship between a global economy and enduring peace.
A Loose Agreement
The GATT was negotiated by twenty-three countries in 1947, and was meant to be a temporary stopover until a more robust organization came to fruition. But that next step took decades to materialize, and the GATT remained the sole multilateral agreement governing international trade between 1948 and 1995. In those forty-seven years, a growing roster of member countries met eight times in what were called rounds of tariff negotiations. By the end of the Uruguay Round, the GATT’s final meeting, average global tariffs had decreased from 22 percent in 1947 to just over 3 percent in 1994.