The World Trade Organization and participatory democracy: the historical evidence.

• Author: Gerhart, Peter M.

ABSTRACT

Although the World Trade Organization (WTO) is one of the most significant international institutions, its function, domain, and legitimacy are still heavily contested. The Author examines the history of the founding of the General Agreement on Tariffs and Trade (GATT), the WTO's predecessor, to see what history reveals about the role that GATT was originally expected to fulfill. The Author's interpretive examination shows that GATT's founders recognized that trade policy must be internationalized in order to give one country an opportunity to participate in the policy-making of other countries; otherwise, a county can impose costs on other countries without representation from those countries. This review therefore supports the vision of the WTO as an institution of international participatory democracy; suggests that the WTO is a political, not just an economic institution; and rebuts the notion that the domain of the WTO is limited to helping countries overcome protectionist interests at home.

TABLE OF CONTENTS I. INTRODUCTION: WHY THE HISTORICAL RECORD MATTERS II. A BRIEF OVERVIEW OF TRADE INTERNATIONALIZATION III. THE U.S. TRANSFORMATION: THE RECIPROCAL TRADE AGREEMENTS ACT OF 1934 IV. THE SECOND TRANSFORMATION: THE KEYNESIAN REVOLUTION V. CONCLUSION I. INTRODUCTION: WHY THE HISTORICAL RECORD MATTERS

Although the World Trade Organization (WTO) is one of the most important international economic institutions, its function, domain, and legitimacy are still heavily contested. The WTO's role as a multilateral institution that oversees the international trading system is clear, but it is not at all clear why an international organization is needed to oversee national trade policy (1) or what the scope and penetration of that oversight should be. (2) The WTO is under constant academic and popular scrutiny in an effort to determine the rationale for its work and to assess, given that rationale, the borders and reach of its work. (3)

This Article examines the history of the founding of the WTO's predecessor, the General Agreement on Tariffs and Trade (GATT), in the 1940s to see what light history sheds on how to understand the WTO and its function. The connection between GATT and the founding of the WTO is direct, albeit separated by forty-five years, because the WTO takes the place of the organization that was envisioned when GATT was signed. (4) Although GATT's history has been well documented in other works, both contemporaneously (5) and retrospectively, (6) few works ask how history can aid understanding the function and domain of GATT, and its successor, the WTO. That interpretive task is undertaken in this Article.

The main contours of the interpretation advanced in this Article will not surprise informed readers. GATT's founding recognized that tariffs are a particularly troublesome source of economic friction between countries. (7) Tariffs came to be understood as a way by which the problems of one country were exported to, and visited upon, other countries--a form of economic aggression akin to war. Because a tariff is essentially a tax on the opportunities of foreign producers, it is a form of taxation without representation--a tax on foreign producers over which the foreign producers have no say. Tariffs therefore inevitably invite retaliation because retaliation through government-imposed tariffs is the only "voice" that foreign producers have to counter foreign taxation. The historical record makes it clear that an international institution was understood to be needed to forestall such aggression by providing a forum in which one country could voice its concerns about the policies of another country. (8) Thus, history shows that GATT's founding was driven by the understanding that every country had an interest in the tariff policies of other countries and therefore an interest in having a right to participate in the making of those policies.

Although not surprising, this historical interpretation is important for two reasons. First, it suggests that the rationale for the founding of GATT was political, not economic. The gains expected from GATT were not the familiar gains of trade and specialization that result in economic interdependence. Instead, the gains were to come from participatory lawmaking and political interdependence. Second, it suggests that GATT was not founded out of a need to overcome protectionist interests at home or to set up an international organization to counter domestic protectionist interests--but out of a need to counter protectionist interests abroad. GATT founders understood that a tariff policy that meets domestic objectives within a country may be objectionable not because it is bad for the country imposing the tariff, but because of its effect on producers in other countries.

This Article concludes that the historical account of the origins of GATT (and through GATT, the WTO) undercuts one common contemporary interpretation of the scope and function of the WTO--namely, the notion that GATT was established to help countries suppress the special interests that seek to influence trade policy. (9) GATT was not founded to help a country achieve a more efficient economy by overcoming protectionist sentiment at home or to benefit consumers by lowering tariffs. That was the effect of GATT-and a most salubrious one at that but the purpose of GATT was to allow a country to influence the policy of foreign countries that reduced opportunities for a country's exporters--what this author has called the "participatory vision." (10) GATT was founded by countries that were outward-looking, not inward-looking.

Before elaborating on these claims, the interpretive puzzle underlying this study should be clarified. Free trade across borders is in all consumers' interest because they get better products at better prices. Protectionism in the form of tariff or non-tariff barriers can be understood in one of two ways. Protectionism may result because special interests (i.e., producers and workers who compete against imports) capture the political process in order to divert some of the consumer value to themselves. Protectionism may also result because policymakers decide to advance some non-efficiency interests above the consumer interest. Neither basis for understanding why countries restrict trade has an a priori claim over the other; tariff barriers can be explained on the basis of political failures or because efficiency is sacrificed in the name of non-efficiency values.

The reasons that countries resort to reciprocal commitments to reduce tariffs are also ambiguous. Naturally, any country wants to break down foreign barriers to trade. A country benefits absolutely when a foreign country reduces its trade barriers, since such a policy makes a country's exports more valuable (by removing a barrier that would reduce demand). The motivation for reciprocal negotiations, however, is not so clear. (11) In reciprocal negotiations a country lowers its tariffs to induce a reciprocating country to lower its tariffs. This can be understood in two ways: first, as an attempt to help its producers gain access to the foreign market as an end in itself; or, alternatively, as an effort to strengthen the political power of a country's exporters so that the exporters can present a political counterweight to the special-interest producers that seek protection from competition. Again, when a country reduces its tariff barriers in order to get another country to reduce its tariff barriers, there is no a priori basis for determining whether the purpose was to help exporters as exporters or to help exporters as a way of overcoming protectionist special-interest objections to free trade.

Because neither competing explanation for tariffs or negotiations to break down tariffs has an a priori claim to be recognized as accurate, no conclusions can be drawn about why tariffs have come down in the context of reciprocal negotiations from the bare fact that they have come down. The United States moved from a policy of protectionism to a policy supporting bilateral and multilateral tariff reductions, but there is no a priori reason to attribute that change to either of the competing explanations.

In other words, the GATT/WTO system can be understood in one of two ways. One can understand the tariff negotiations that are at the heart of the GATT/WTO system as, on the one hand, an attempt by countries to use the interests of their export industries to overcome the special interests that support protectionist policies or, on the other hand, as an attempt to open new markets for export industries as an end in itself, with the benefits to the consumer (which come when a foreign country reduces its tariffs) as a beneficial by-product of that goal. Because a reduction in protectionism occurs under either causal account, the successful negotiation of lower tariffs in a multilateral round achieves both goals and is consistent with either motivation.

One might ask, of course, why it is important to understand the reason for engaging in reciprocal tariff reductions. After all, the outcome has two jointly produced results--it enhances the welfare of domestic consumers by reducing protectionism, and it enhances the welfare of domestic exporting producers. It should not matter which of these outcomes is the goal of the enterprise and which is the beneficial by-product of the enterprise. Why does one care which is the tail and which is the dog?

The answer is important because if the historical purpose of the GATT/WTO system is only to allow countries to use the interests of exporting producers to defeat the special interests that sought protectionism, then the WTO's function and legitimacy, at least from the historical standpoint, can be understood in a very narrow way. Under that view, the rationale underlying the GATT/WTO system would explain the extension of the GATT/WTO domain only to situations in which a...