Last week we pondered the dollar's falling value and how this devaluation affects U.S. imports and exports. The decreased dollar value lowers the costs of our exports to other countries, but it also increases the price of foreign goods imported into the U.S. One of the paths we took to investigate this balance of economics was through the World Trade Organization (WTO). We also located some history about U.S. economics that we'll share at the end of this article.

The history of global trade policies is important, because - even though the WTO is only eight years old - this agency was founded on over fifty years of global trade rule negotiation. To understand the WTO, we might want to understand why we need a supervisor for world trade in the first place. The need began in the 1930s, when increased transportation and communications created a global trade economy. The problem with trade at that time was that it affected just about every country in the world. When high unemployment and economic depression affected one country, it affected the entire trading world.

In reaction to this depression, many countries encouraged more of their own exports and restricted imports from other countries. The discouragement of imports came in the form of tariffs, or duties and fines, on the importer and their goods or services. Certain countries retaliated against the high tariffs, and tariff wars eventually led to an almost total collapse of international trade.

The reaction to this failure demanded a restructuring of international trade, based on a reassessment and realignment of global economy. These negotiations happened at the Bretton Woods Conference in 1944. We already know about Keynesian Economics, the World Bank, and the IMF (see previous articles). Now, we needed something like the ITO (International Trade Organization) to help regulate trade. Congress, however, refused to approve the ITO, so this agency was tabled.

Instead, a new group was established as an interim measure until ITO policies could be hammered out. GATT (General Agreement on Tariffs and Trade) was established in 1947 to negotiate tariff restrictions among its members and to establish a code of conduct and rules for trade dispute resolution. This organization was founded on principles of nondiscrimination and multilaterism (the "Big M" in case your kids can't pronounce this word). This means no nation could be favored above other nations in world trade. If one country decreased tariffs on imports, the tariff on all imports of the same goods from other GATT members would also be reduced. This meant all countries were treated fairly.

GATT was an invaluable agency at the time. This group worked successfully to increase world trade with little dispute. However, something happened in the 1980s to tip GATT off balance. Previous to this decade, the U.S. entered a period of political, social, and economic turmoil that affected attitudes toward their survival within world trade policies.

In 1975, America stumbled out of the decade-long Vietnam War to face high unemployment, losses of major industries, and political mandates that increased inflation at home. The middle class all but disappeared in this country due to automation and technological advances. By 1982, unemployment in the U.S. reached a staggering 11%. America experienced a brief economic revival in 1983, and this continued until the October 1987 stock market crash. On that date, America's economic future crumbled. Global economists agreed: the deficits in the U.S. budget and in their trade balance cast profound doubt on America's ability to sustain itself in the world economy.*

We could debate all the reasons why this disorder happened, but one theory - based on world trade - is that the U.S. felt GATT's multilateral and nondiscriminatory policies undermined its global economic power. Free trade meant everyone had a fair chance to compete, and the revitalized economies of Western Europe and Japan emerged to challenge U.S. supremacy in trade and manufacturing.

The U.S. responded to this challenge by pushing to expand GATT into nontraditional areas, and with disputes over this organization's resolution policies. GATT member countries resisted the U.S., so the U.S. went "unilateral," the opposite of the "Big M." At the same time, South American countries, especially Mexico, were faced with mounting debt and poor trade. To make a long history short, Mexico began negotiations with the U.S. and Canada to create NAFTA (North American Free Trade Agreement).

No matter what theory we use (and I try to teach Cora that history is always debatable), there's much more discussion, including pros and cons, involved with the demise of the GATT, the creation of the WTO, and the simultaneous development of the NAFTA. The upshot to this trade upheaval was the WTO was developed as a 1995 successor to GATT. WTO is now "the only global international organization dealing with trade between nations." WTO rules and negotiations are decided and relegated by member countries, and the results hopefully benefit producers of goods and services in many countries.

Cora and I liked the 10 Most Common Misunderstandings about the WTO. The thoughts and ideas contained in this section stimulated more discussion about world trade and its responsibilities. The WTO makes no bones about their mission and the fact their agency isn't a be-all and end-all to all world trade problems. We also liked the transparency of their documents, and access to world trade figures, both historic and current. We can use this material to compare to other documents at the library?right Cora?

"Mom! What about vacation?"

Uh-oh! How could I forget? Pack the bags! Cora and I are both free from school, and we intend to do a little trading of our own: cash for rental cars and airplane tickets. We won't stop our summertime education, though - next week we'll continue to uncover the importance of import/export demand in current markets.

Until Then,
Linda Goin

* Chafe, William H., The Unfinished Journey: America Since World War II, Oxford Press, 2003. This is a comprehensive college level book, but one that's very easy to read, to understand, and enjoy.