Trade Standards

Trade standards are the “rules of the game” for trade in international goods and services, essential for the maintenance and reproduction of consumer culture. The process of evolution of these trade standards has been long and torturous. T. N. Srinivasan, while discussing the historical development of the World Trade Organization (WTO), provides a succinct history of this process. In 1930, facing a recession and bowing down to the consequent domestic pressures for protection, the United States passed the Smoot-Hawley tariffs. As other countries retaliated, the average worldwide tariff rate rose to 25 percent by 1933 (Krugman and Obstfeld 2009, 230). These high tariffs and other trade restrictions led to a dramatic fall in world trade and decline in total world production, which contributed to the deepening of the American recession into a global depression and to the outbreak of World War II. This bitter experience showed the world, and especially the United States, that restricting global commerce was a costly mistake and made a strong case for liberalizing international trade worldwide. Indeed, in 1934, in an unsuccessful attempt to remedy this mistake, the U.S. Congress passed the Reciprocal Tariff Act (RTA). The RTA was enacted to facilitate bilateral trade agreements between the United States and other nations and thus roll back the earlier protectionist stance adopted by the United States. After the end of World War II, this trend toward trade liberalization was continued under the leadership of the United States, and multilateral negotiations to facilitate international trade liberalization began between the representatives of 44 nations at Bretton Woods, New Hampshire. There were calls for the formation of an international body, to be called the International Trade Organization (ITO), under whose aegis these multilateral negotiations for trade liberalization would be conducted. In 1947, as a temporary measure until the ITO formally came into existence, trade negotiations between these countries started under a provisional set of rules that became known as the General Agreement on Tariffs and Trade (GATT). Meanwhile, the idea for the ITO ran into severe political opposition in the United States, and the charter for the ITO was never ratified. The ITO never emerged as the international trade body that it was supposed to become. In its place, the GATT, which was initially designed as a purely provisional agreement, became the de facto arrangement under which trade negotiations between nations began to be conducted. After several unsuccessful attempts to create an international body to monitor world trade, and building on the organizational structure of the GATT, the WTO was finally established in 1995. Although the ambit of the WTO is vastly extended compared to GATT, the GATT rules concerning trade in goods also remain in force under the WTO. However, besides GATT, which covers agreements between nations on trade standards related only to goods, the WTO standards cover standards for trade in services (GATS) and standards for intellectual property rights (TRIPs) as well. Authors Bernard Hoekman and Michel Kostecki give a detailed account about the content, structure, and the process of development of these trade rules or standards. All the existing WTO standards are outlined in the WTO agreements. These agreements are the result of the 1986–1994 Uruguay Round of negotiations of the WTO. The WTO legal texts contain four annexes that outline the general principles and the substantive trading rules governing member countries. Annex 1 has three parts. Annex 1A contains the extended GATT 1994 (the original GATT agreement of 1947, which was amended in the Uruguay Round of 1994). Annex 1B contains the GATS. Annex 1C contains TRIPs. Besides these main sections, which serve to facilitate negotiation and effective implementation of multilateral trade agreements and trade standards among nations, there are also provisions in the agreement for resolving trade [Page 1472]disputes between nations; these provisions appear in Annex 2 (DSU—Dispute Settlement Understanding), which contains standards or procedures for settling trade-related conflicts between member nations. Finally, Annex 3 contains standards for monitoring trade policy under surveillance procedures given under the Trade Policy Review Mechanism.

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