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A Brief History of World Trade since 1945

As the Second World War came to an end, the United States and Britain were concerned to avoid a return to the economic conditions of the 1930s. This task was made all the more urgent by the emergence of the Soviet Union as a world power. The US, in particular, saw free trade as an important mechanism for world peace and as a crucial factor in the restoration of the world economy.

The shape of the post-war economy was agreed by the US and UK at the Bretton Woods conference, in 1944. The conference agreed to set up three organisations to maintain international economic co-operation; the International Monetary Fund, the International Bank for Reconstruction and Development (the World Bank) and the International Trade Organization (ITO). However, the American Congress refused to ratify the ITO and, without US participation, it was stillborn.

In parallel with the discussions to set up the ITO, the US was also promoting a multilateral commercial treaty on tariff reduction. In 1947, 23 countries agreed to the General Agreement on Tariffs and Trade (GATT) as a temporary measure until the ITO was set up. Yet this temporary arrangement survived for 47 years. Over these decades, the GATT had shown itself to be flexible and responsive to the needs of its signatories; by the time of the Uruguay Round of trade negotiations (1986-94), it had come to include not just tariffs but trade in services, trade in intellectual property rights, trade-related investment measures, textiles, and agriculture. The Marrakech Declaration, which drew the Uruguay Round to a close, and also heralded the birth of the World Trade Organization (WTO), was signed by 124 countries.

Despite its apparent success, manifested in its expanding scope and membership as well as durability, there had been growing dissatisfaction with certain aspects of the GATT. The voluntary codes of the Tokyo Round were proving inadequate; some of these were not only inconsistent with each other but were also enforced through different dispute settlement mechanisms. It was recognized that the new set of agreements, which was being negotiated in the Uruguay Round, would be too unwieldy to manage under the GATT system. As a solution to these and other problems, the World Trade Organization was created.

Since its inception, the WTO has been dogged by disputes about issues such as its decision-making and negotiation processes, the scope of its mandate and its dispute settlement mechanism. The limited successes of the GATT to address the concerns of the developing countries has also undermined the WTO amongst its membership and has provoked unprecedented public anger with the organisation, leading to the protests in Seattle (1999), Doha (2001) and Cancun (2003). In response, the first round of multilateral trade negotiations held under the WTO’s auspices, the Doha Development Agenda (DDA), is an attempt to engage with the concerns of the developing world and to expand the scope of the WTO’s remit. However, having been launched in November 2001, the DDA has missed its original completion date of January 2005 and negotiations have only recently been revived after being suspended in July 2006.

The future of the world trade system will be debated whatever the outcome of the DDA. The growth of bilateral trade treaties and the willingness of the developed world to address the concerns of the developing countries will both present challenges to the future of the multilateral trade regime.

With thanks to Amrita Narlikar for allowing the use of her excellent study, The World Trade Organization: A Very Short Introduction, Oxford: Oxford University Press, 2005