The End of Bretton Woods and the Future of the International Trading System – by Michael Trebilcock

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Since the 1944 Bretton Woods Agreement, international trade has been structured on a multilateral model.  But, as Professor Michael Trebilcock argues, without significant systemic changes the social and economic vision promoted by Bretton Woods may no longer be tenable.

The Doha Round of Multilateral (WTO) Trade Negotiations, which began in 2001, 14 years on appear to have reached a stage of potentially terminal impasse. In contrast, bilateral and regional preferential trade agreements continue to proliferate, with several major such agreements currently under negotiation. Is multilateralism dead, and is the future of the international trading system an increasingly fragmented patchwork of bilateral and regional deals (in Jagdish Bhagwati’s terms, a “spaghetti bowl” of trade agreements)?

If so, this would portend the end of the vision of the architects of the Bretton Woods Agreement and the GATT at the end of or shortly after World War II, which envisaged a world trading system where potentially every country in the world could trade with other countries on a non-discriminatory basis, irrespective of cultural or political differences between or among them. Beyond the economic benefits of global free trade, it was thought that increasing economic interdependencies would substantially mitigate the risk of major military conflicts of the kind that had devastated Europe and much of the rest of the world in the first part of the 20th century.

We are clearly at a critical juncture in re-evaluating the future of the multilateral trading system. My own view is that the all or nothing, single undertaking approach that has largely prevailed to this day in the multilateral system, where nothing is agreed until everything is agreed, most starkly reflected in the various Uruguay Round agreements that came into force in 1995, is an unrealistic and inappropriate basis for the multilateral system going forward. With WTO membership now of around 160 countries (compared to the initial 23 GATT members), in very different stages of economic and political development, any aspiration to achieving consensus amongst these countries on major trade initiatives going forward is chimerical (and largely explains the proliferation of PTAs).

international trade lawInstead, I propose that the WTO provide much greater flexibility for plurilateral agreements amongst sub-sets of its members (“coalitions of the willing”), recognizing the realities that the multilateral system in future can only be sustained on a multi-speed, multi-tiered basis. Such orientation would also blur the lines between the multilateral system and preferential trade agreements, while at least leaving open the possibility of much more extensive plurilateral agreements in terms of issue and country coverage.

I would also propose that the WTO provisions on dispute settlement and preferential trade agreements should be amended so as to permit parties to PTAs, if they are so minded, to delegate to the WTO dispute settlement body (Panels and the Appellate Body) the task of adjudicating disputes under PTAs (with retaliatory sanctions for non-compliance confined to signatories to such agreements). This would promote greater coherence in the interpretation and application of basic trade principles that are often to be found in both multilateral and PTA agreements.

Unless we are prepared to contemplate accommodations along these lines of differences among countries (developed and developing), the vision of the architects of the post-war international economic order may indeed be in terminal decline, which I believe would be to sacrifice something that was both noble and important in the original vision, and does not bode well for other areas of global policy-making, such as climate change, or global financial crises, where in the end only coordinated global policy initiatives are likely to be effective in addressing the full implications of such policy challenges.

trebilcockProfessor Michael Trebilcock is Professor of Law and Economics at the University of Toronto Faculty of Law.  He specializes in Law and Economics, International Trade Law, Competition Law, Economic and Social Regulation, and Contract Law and Theory.  In 2007 he was the recipient of the Ontario Attorney General’s Mundell Medal for contributions to Law and Letters. In 2010, he was the recipient of the Ontario Premier’s Discovery Award for the Social Sciences.  His latest book Advanced Introduction to International Trade Law is published by Edward Elgar.

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