Episode 37: GATT/WTO [White text reading “Episode 37: GATT/WTO” is on a blue background.] NARRATOR: Now, I don't want to give anyone the false impression that tariffs are out of control. In fact, on average, tariffs on traded goods are lower than they were at any point in the 20th century. Let me give you a little background first. [The text fades to show various pictures of Herbert Hoover, Senator Reed Smoot, and Representative Willis C. Hawley.] NARRATOR: In the 1920s when Herbert Hoover was running for office, he made a campaign promise to US farmers to protect them from foreign competition if he was elected to office. Once he was elected, he needed legislative support to get a bill moving through Congress. Getting started wasn't so bad. Legislators from farming states were more than happy to sponsor such a bill, but that wasn't enough votes to actually get it passed. [The image of Herbert Hoover fades to a photo of a question mark.] NARRATOR: So what do you do if you're seeking support for farming protection bill from people who care nothing about farming? [The question mark image is replaced by a drawing of two people presenting a bill with the word “farmers” in it.] What if, for example, you're approaching a representative from Detroit? How do you make the proposed bill more interesting? [The bill is lengthened slightly to include the words “car parts.” in it.] Add a line or two about protecting automakers, perhaps? And so it went. A little something for car makers, furniture producers, textile manufacturers. [With each example, the bill is lengthened to include it.] In the end, the Smoot-Hawley bill entailed protection for over 20,000 US products. [At this point, the bill is so long that it runs off the page.] [A simple outline of the US appears behind the people holding the bill. On the other side of the screen, there are drawings of unhappy people holding the flags of France, Switzerland, Canada, Italy, and the U.K.] NARRATOR: Now, other countries in the world weren't sitting idly by as Smoot-Hawley was making its rounds. They were, to say the least, rather unhappy at the prospect of restrictions on so many of their own products. In an attempt to stop the US, other countries threatened to impose restrictions of their own if Smoot-Hawley passed. Some countries, like Canada, wrote up their own protectionist legislation while others simply said that they would boycott US products. [First, a drawing of someone holding a piece of legislation is shown with the Canadian flag as a background. This fades and is replaced by a drawing of someone holding a sign that reads “Say NO to U.S. products!!” with the Italian flag as a background. This fades and is replaced with a photo of Smoot and Hawley.] NARRATOR: Nonetheless, in 1929, the Smoot-Hawley bill became law, the first shot in a global trade war. Between 1929 and 1932, the total volume of world trade fell from a total value of about $3 billion to only $1 billion, making Smoot-Hawley one of the major contributing factors to the Great Depression. [The photo of Smoot and Hawley fades to show a black-and-white photo of woman holding a baby and another child leaning on her shoulder. They are outside in a tent made from a branch and a piece of fabric.] Europe was soon embroiled in World War II, with the US to follow. [The photo of the woman is replaced by six black-and-white photos from World War II. They show soldiers runnings, an army camp, destruction in a city, planes flying, a military official signing a piece of paper, and a line of battleships.] [These photos fade to show a drawing of a table with flags representing different countries at each seat.] NARRATOR: After the war, countries around the world agreed that perhaps the trade brawl had been a mistake that ought not to be repeated, and many of them sat down and formed an agreement to begin scaling back the tariff restrictions. This was the birth of the General Agreement on Tariffs and Trade, or GATT. At their highest, around 1930, the average level of tariffs on traded goods was at about 70%, nearly doubling the prices on imported goods. With the first full round of GATT in 1947, tariffs were reduced to about 40%, and then reduced further with each subsequent round. By 1993, GATT was in its ninth round, the Uruguay Round, and tariffs were down to about 2% to 3% average on traded goods. [A graph (Source: Baghwati (1989) and Siebert (1997)) is shown. It is numbered by tens 0 to 100 from left to right across the bottom. At the top left corner, it reads Pre-Geneva and there is a bar stretching all the way to 100. Beneath is is a bar labeled “Geneva (1947),” which extends to about halfway between 60 and 70. The next bar is labeled “Annecy (1949)” and goes to a little less than halfway between 40 and 50. The next bar is labeled “Torquay (1951) and reaches just slightly past 30. Beneath is is a bar labeled “Geneva 1956” which stretches almost to 30. The following bar is labeled “Dillion (1960-61) and extends to a little less than halfway between 20 and 30. The next bar is labeled “Kennedy (1964-67)” and goes to just beyond 10. After that is the bar labeled “Tokyo (1973-1979),” which reaches just before 10. Lastly, the bar labeled “Uruguay (1986-1994)” reaches about halfway between 0 and 10. This bar is circled and an arrow is drawn to point to it. This graph fades to be replaced with an downward-pointing arrow labeled “Tarrifs” on the left side of the screen and a question mark on the right.] NARRATOR: Here's the thing, though. Just because governments have agreed to cut tariffs, does this mean that the weak domestic industries stop wanting protection? No. [The question mark fades.] NARRATOR: So if you sign an agreement that says your country won't use tariffs, does this necessarily mean that no protection will be used? No. In fact, with the decline in tariffs came an increase in quotas, so then GATT began to address quotas. [On the right, an upward-pointing arrow labeled “Quotas” fades in.] With the declining quotas came an increase in the use of voluntary export restraints, VERs, or other non-tariff barriers, NTBs, like health and safety restrictions. [The upward-pointing arrow is replaced with another upward-pointing arrow labeled “NBTs.”] NARRATOR: Take a look at the duration of each round. [The arrows fade away and are replaced with a list of the rounds. It reads, “Geneva (1947), Annecy (1949), Torquay (1951), Geneva (1956), Dillon (1960-61), Kennedy (1964-67), Tokyo (1973-79), Uruguay (1986-94), Seattle (1999: failed), Doha (2001-???).”] NARRATOR: Do you notice that each round gets longer and longer? That's because one, it gets harder and harder to trim the fat. Two, the most contentious products, usually agriculture, kept getting put on the back burner. And three, the Uruguay Round was the first to try to deal with the trade restrictions placed on services. [The list is replaced with a photo of a farm.] Back when GATT started, it was dealing only with hard goods like cars and refrigerators. [The farm photo fades away to show a drawing of a car and a refrigerator.] Trade and financial services, technical consulting, and the like didn't appear until later. It took the better part of nine years to complete the Uruguay Round. And when it was done, not only were there reductions in protection but, also, the old GATT was gone. It evolved into the World Trade Organization, or WTO. [The WTO logo is shown.] The WTO is meant to serve as a place for trade dispute mediation. If one country has a complaint about another country's trade policies, that complaint can be heard by the WTO. Here's an interesting tidbit from The Economist magazine. [Two graphs from the WTO of World Trade Organization disputes between December 1st, 1995 and December 1st, 2009 is shown. The first one shows which members make the most trade complaints. The U.S. is first with 93, and the European Community is second with 81. Canada is third with a few more than 30, then Brazil about halfway between 20 and 30, then Mexico just over 20, then India just under 20, then Argentina about halfway between 10 and 20, and then Japan, Thailand, and South Korea, each with a few more than 10. The second graph shows which members are subject to the most trade complaints. The U.S. is first with 107, and the European Community is second with 66. India is third with about 20, then China with a few more than 15, then Argentina with just over 15, then Canada and Japan both have about 15, then Brazil, Mexico, and South Korea, each with a little under 15.] NARRATOR: As of 2009, the US was the single most challenged country, i.e the country that has had the most complaints lodged against it for unfair trade policies. However, we are also the single largest complaining nation. The US has lodged more complaints against other countries than any other single nation. Keep these facts in mind for a WTO discussion that we'll be having in our next face-to-face class. Next time, trade blocs. [The graphs fade to be replaced with text reading, “NEXT TIME: Trade Blocs.” This text is then replaced by text reading, “Photos Creative Commons (attribution) licensed:” which fades to show text reading, ‘Herbert Clark Hoover, Thirty-first President (1929-1933)” http://www.flickr.com/photos/nostri-imago/2872023226.' This is replaced by ‘“Commercial Agriculture” http://www.flickr.com/photos/cpwf_bfp/359906352.' This is replaced by ‘From http://wikimedia.org: National Archives and Records Administration (NARA) images. “Hoover Campaign,” “Smooth and Hawley Standing Together, April 11, 1929,” “Infobox Collage for WWII.”’ This fades and the video ends.]