Abstract
The conflicts of interest that prevailed between the great powers in the wake of the First World War eviscerated their ability to respond collectively to the advent of the Great Depression. Instead, each turned to discriminatory trade barriers and trade blocs to try to revive domestic output. Persuaded that trade discrimination exacerbated the political tensions that erupted in World War II, policy makers constructed a postwar economic order that institutionalized nondiscrimination. Thus, Article 1 of the charter of the General Agreement on Tariffs and Trade (GATT) mandates most-favored nation (MFN) treatment. We argue here that the MFN clause itself encouraged the adoption of practices and policies that actually recreated discrimination. In particular, we argue, developing countries, long regarded as victims of discrimination, institutionalized it in their negotiations with each other. We examine two developing country PTAs that included about 80 percent of all developing-country GATT members by output (the Global System of Trade Preferences and the Protocol Relating to Trade Negotiations). We show that as in the GATT writ large, their patterns of tariff cuts and trade expansion were highly skewed toward a small number of their largest members. In trying to avoid discrimination, policy makers actually encouraged its de facto adoption.
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Notes
This figure dropped to about 60 percent after China joined the WTO in 2001.
The text of Article 24 is at http://www.wto.org/english/docs_e/legal_e/gatt47_02_e.htm, last accessed November 29, 2011. “Substantially all” trade has never been precisely defined.
GATT members did agree that states that together were a principal supplier could act as one. As this required DC agreement on the tariffs they would cut, it proved useless (Enders 2002: 97).
McGeorge Bundy and Under Secretary of State George Ball discuss the UN conference 3/64 on trade relations. Miscellaneous. White House confidential. October 20, 1963. Declassified Documents Reference System. Farmington Hills, Mich.: Gale, 2009.
Various explanations exist for the small impact of GSP agreements—e.g., preferences went only to goods in which DCs had no comparative advantage (Hoekman and Özden 2005: 5); rules of origin could be satisfied only at high cost; and the exclusion of exports as their prices dropped.
This might seem to exaggerate Article XXIV’s importance as no FTA was declared GATT-inconsistent. Though often attributed to politics, some argue that deviation was rare in fact. Antoni Estevadeordal and Kati Suominen find that FTAs freed substantially all trade in a “reasonable” time period, reduced “90 percent of tariff lines and about the same amount of trade by year ten,” and did so on a “rather homogeneous” and “uniformly encompassing” basis (2009: 163–64). In their view, compliance outliers involved states exploiting the Enabling Clause.
We omit the eight with three members, as our analysis specifies three dyad types.
PRTN members could opt to apply tariff cuts only to new members they had negotiated with, akin to GATT Article 35. PRTN, Note by the Secretariat. GATT/doc CPC/W/35 (June 25, 1976).
Summary of Discussion at First Special Meeting. GATT/ document CPC/S/2 (November 16, 1973), 2. GATT/ doc L/3643 (14 December 1971) contains the text of the PRTN.
GATT/ doc CPC/S/4 (26 January 1983), p. 3.
GATT/ document CPC/8 (8 May 1974), p. 4.
Paraguay, the Philippines, and Mexico had not acceded to the GATT when the PRTN came into effect. The Philippines acceded in 1979, Mexico in 1986, and Paraguay in 1994.
The quotations in this paragraph are from the Agreement on the Global System of Trade Preferences among Developing Countries, GSTP/MM/Belgrade 10 (April 12 1988) (http://www.unctadxi.org/Secured/GSTP/LegalInstruments/gstp_en.pdf, last accessed November 29, 2011).
This paragraph is based upon “UNCTAD: A Brief Historical Overview,” UNCTAD/GDS/2006/1.
Procedures for Accession to the Protocol Relating to Trade Negotiations among Developing Countries. GATT/ document CPS/S/1 (December 3, 1973), 3.
GATT/ document CPC/W/68 (14 May 1979), p. 6.
http://www.unctadxi.org/Secured/GSTP/LegalInstruments/gstp_en.pdf, p. 5, last accessed November 29, 2011.
UNCTAD/ITCD/TAB/1, 27 April 1998, p. 4.
Conclusion of the São Paulo Round of the GSTP. Briefing Notes. The UNCTAD Unit on Economic Cooperation and Integration among Developing Countries. No. 1, January 2011. http://www.unctad.org/en/docs/webecidc2011d1_en.pdf, last accessed November 29, 2011.
The Subramanian and Wei paper is distinctive in treating membership in different groups—e.g., the GATT/WTO, PTAs, and GSPs—as mutually exclusive (2007: 158). Thus, the WTO control excludes countries that were both WTO members and PTA members, assigning them only to the PTA group.
Thus, we do not include time invariant controls (e.g., distance, contiguity, landlocked, island). Recent work suggests including time-varying importer and exporter fixed effects; the computer memory required to do so for our sample makes this infeasible. Dyadic fixed effects control for the time-invariant component of multilateral trade resistance (Felbermayr and Kohler 2010: 67).
Gowa and Kim (2005) include Canada rather than Japan but Japan’s output exceeds that of Canada throughout the postwar period. As in other studies, we code an industrial state here as any nation to which the IMF assigns a country code less than or equal to 200.
Spain and Greece belonged both to the PRTN and to the informal group of DCs within the GATT. The IMF, however, codes both as industrial states. Because we could not find any archival data about when either left the DC group, we test whether our results are robust to coding them as: 1) industrial states, 2) DCs, and 3) DCs until each joined the EU. (We use the third category in the analyses we report on below). The results are not sensitive to their coding.
The data set (Tomz_IO_2007.zip) is posted at: http://www.stanford.edu/~tomz, downloaded July 16, 2007.
Unilateral PTAs are agreements other than GSPs providing one-way market access (e.g., the Lomé Convention) (Goldstein et al. 2007b: 46).
http://www.ggdc.net/maddison, downloaded December 16, 2008.
For all dichotomous variables, the magnitude of the coefficient is expressed relative to the base group, unless otherwise specified. We use the formula (e β-1) to calculate the size of the effects.
We group dyads with one and two DCs together, as their individual effects are the same.
GATT/docs CPC/W/40; CPC/W/42; CPC/W/63.
The results are robust to omitting the Philippines and Paraguay from the PRTN.
We report below on the sensitivity of our results to changing the way we define large states.
PRTN: 0.203 + 0.372 - 0.400; GSTP: 0.250 + 0.05 - 0.400.
The assumption of the Hiscox-Kastner paper is that the gravity model accurately explains most trade and that the residuals reflect trade-distorting policies such as tariffs.
We also check whether our results depend on the fact that we compare the GSTP and PRTN with a group of countries that include both least-developed countries and other DCs. To do so, we create a group of DC/DC dyads that do not include PRTN or GSTP members or any least-developing countries. The results do not change. Complete results are available from the authors.
There are also some cases in which another country joined a preexisting PTA or signed an agreement with a preexisting PTA. We include these in the analysis but not in the table. None of them match the pattern of trade expansion that the GSTP and PRTN generated.
By comparison, only 33 of the 177 agreements in force are multilateral.
We also analyzed the data including all PTAs at one time. While the magnitude of the size coefficients changes, their rank ordering does so only rarely.
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Gowa, J., Hicks, R. The most-favored nation rule in principle and practice: Discrimination in the GATT. Rev Int Organ 7, 247–266 (2012). https://doi.org/10.1007/s11558-011-9141-6
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DOI: https://doi.org/10.1007/s11558-011-9141-6