Trade Wars

Situation in which countries attempt to protect their own industries and agriculture through mechanisms such as tariffs or subsidies. These actions spark similar retaliation from other countries.

Countries often attempt to protect their industries from cheaper imports or to obtain an advantage in exports to other countries. Subsidies that give an edge in global competition, (such as farm subsidies in the [Page 732]United States) or the imposition of stiff tariffs on imports from other countries (such as steel tariffs imposed by the United States in 2002) are common mechanisms for gaining such an advantage.

Sometimes it is not clear whether other countries are acting in a protectionist manner, such as when the European Union banned beef from cattle reared using growth hormones in 1999, arguing that such beef was not safe for consumption. In that case, however, the United States, which was the primary country injured by the ban on cattle imports, was allowed by the World Trade Organization (WTO) to impose sanctions on European countries. Such protectionist measures tend to benefit more developed countries and hurt the ability of developing nations to compete in the global economy. However, due to the tendency of other countries to retaliate in response to protectionist measures, often no one truly benefits.

The World Trade Organization (WTO)

The World Trade Organization (WTO), headquartered in Geneva, Switzerland, and established by the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) in 1994, is the primary regulator of trade disputes in the world. The WTO oversees a huge number of agreements defining the rules of trade between its member states. The WTO replaced several previous attempts at international trade regulation and agreement, such as the International Trade Organization (ITO) and the General Agreement on Tariffs and Trades (GATT). As of December 2004, there were 148 members of the WTO. All WTO members are required to grant one another most-favored nation status, such that (with some exceptions) trade concessions granted by a WTO member to another country must be granted to all WTO members.

The WTO is a onevote, one-country organization, which means that the very smallest and poorest countries theoretically have the same influence over trade policies as the largest and most powerful countries. In reality, however, most decisions of the WTO are made by consensus rather than by a vote. The advantage of consensus is that it encourages efforts to find the most widely acceptable solutions. The main disadvantages include the large time requirements and the many rounds of negotiation needed to develop a consensus decision, and the tendency for final agreements to use ambiguous language on contentious points, making future interpretation of treaties more difficult.

At the heart of the WTO, and most relevant to the issue of trade wars, is its Dispute Resolution Body (DRB). When a member nation feels that it has a cause of action against another member, it may request that a Dispute Settlement Panel (DSP) be established. Panels are required to complete their hearings and present their report within six months, absent extenuating circumstances. Panel reports may be appealed by the countries involved.

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