Multilateralism and Regionalism after the Uruguay Round

At the end of 1993, when few were still confident of a positive outcome, the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) was finally concluded, even though the participating countries did not sign the final documents until 15 April 1994 at the Marrakesh Conference. The effective deadline, which had been set for 15 December 1993, was met only with extreme difficulty in an atmosphere characterized right up to the last minute by controversy. The final rush to conclude the negotiations was influenced by the imminent expiration of the ‘fast track’ authorization granted by the US Congress to the President.¹ A similar deadline, originally fixed for the end of 1990, had already been missed, resulting in an extension of the ‘fast track’ authorization. But by the end of 1993 it appeared highly unlikely that the US Congress was willing to extend it again. Despite this and other incentives, three more years were needed in addition to the four originally allotted to complete the negotiations, an indication of the complexity of the negotiations and of the size of the obstacles that needed to be overcome to reach a satisfactory conclusion. During the entire period the deep and seemingly irreconcilable conflicts of interest over key areas of the negotiations put the Uruguay Round at risk of failure more than once.

Throughout the various negotiating cycles since the Geneva Round (1947), the GATT has achieved ever greater tariff liberalization, thereby contributing to the development of world trade. In the last 40 years, import tariffs on industrial products fell on average from 40 per cent to today’s current rate of about 5 per cent. And this is not the only success of GATT. New rules on dumping, subsidies, safeguard measures and many types of NTB were also introduced. World trade in the period from 1959 to 1975 increased five-fold. In the second half of the 1970s, however, the growth of world trade slowed down considerably. In this same period, even GATT’s capacity to ensure the stability and progressive liberalization of international trade lessened, as witnessed by the limited success of the Tokyo Round, the seventh negotiating cycle in the history of GATT.

The purpose of this chapter is to analyse the implications of the Uruguay Round of trade negotiations for the process of international technology transfer and, more generally, of international diffusion of innovation (IDI). Assessing the impact of IDI on countries’ productivity growth and trade performance is, however, a difficult task. Indeed, as with NTBs, IDI typically defies quantitification making estimation of the impact of trade liberalization quite hazardous. Channels and procedures of technology diffusion, not to say innovation diffusion (which includes a lot of micro-organizational and managerial factors), are indeed rather complex and typically hard to measure: they range from purchase of capital equipment to basic and applied research and development scientific publications, patenting and licensing, interfirm cooperative agreements, technical and know-how assistance, on the job training, skilled and semi-skilled labour mobility, education and investment in human capital, diffusion of software and information networks, international trade in professional and financial services, advertising and marketing efforts by sellers of new products and services (this long list is still incomplete).

Does the increasing trend towards the conclusion of regional trade agreements conflict with the strengthening of the multilateral trade system? Has world trade become more regionalized as a consequence of such agreements? These are some of the recurrent questions that have been addressed by international economists and policy-makers during the 1980s. The successful conclusion of the Uruguay Round has taken away only some heat from this debate. As argued in the recent survey of De Melo and Panagariya (1994), ‘regionalism is back — and here to stay’. In Europe, the process of both widening and deepening the EU is likely to continue and has gained further momentum with the accession of many of the European Free Trade Area (EFTA) countries and the implementation of association agreements with both Eastern European and mediterranean countries. Similarly, in the Americas the ratification of NAFTA can act as catalyst for countries in the Western-hemisphere to sign free trade agreements with the USA. Finally, Asian countries are seriously considering the option of strengthening their trade links through preferential trade liberalization. Overall, the success of the later round of GATT negotiations can only reinforce the need to understand the link between regionalism and the multilateral trade system.

Since the breakdown of the Bretton Woods system, international financial markets have experienced an acceleration in the trend towards liberalization. This is a most remarkable development given that, before 1973, capital controls were widely used, especially when a country faced a balance of payments crisis. The widespread reliance on capital controls stood in contrast with the stance in trade policy: several rounds of GATT negotiations had indeed prompted a substantial reduction in the barriers to trade in goods and services. The asymmetric treatment between trade in goods and trade in assets has always been difficult to justify.¹

Regionalism, defined as the tendency of a select group of countries to liberalize trade amongst themselves while discriminating against the rest of the world (the non-members),¹ has a relatively long history (Machlup, 1977). One may recall that nation-building in Germany began with, or at least was brought forward by, the establishment in 1834 of a Deutscher Zollverein, or German Customs Union. Regional integration in modern Western Europe can be traced to the Benelux Customs Union, which came into force in 1948 (after a failed attempt in 1932). Regionalism continued to spread widely, notwithstanding the emergence after the Second World War of a multilateral system of trade relations based on the principles of non-discrimination and reciprocity embodied in the GATT. Between 1947 and 1985 GATT was notified of 70 preferential trade arrangements (Schott, 1989). Since 1986 another 25 agreements of this type have been reported to it. According to the Director General of the GATT, at the beginning of 1994 ‘almost all of the [then] 115 contracting partners were members of at least one preferential trade agreement’ (Sutherland, 1994). Another way of highlighting the phenomenon is to note that trade among members of various arrangements (what is called sometimes intraregional trade) accounted in 1991 for 34.5 per cent of world trade, up from 25.3 per cent in 1970 and 17 per cent in 1960.²