INTRODUCTION
The Great Depression of the early 1930´s generated
"beggar-thy-neighbor policies" and mounting protectionism in leading economic
powers. Governments in these countries closed their borders to imports in order
to achieve economic growth by means of domestic policy measures. Consequently,
they exported unemployment. Instead of cooperating in order to expand international
markets, governments resorted to unilateralism and engaged in an escalating
trade war. Such trade policies exacerbated the world economic crisis and increased
tensions between the great powers (Kindleberger, 1987). It is generally believed
that these developments indirectly contributed to the onset of World War II.
The world depression of the 1930´s exhibited the
meaning of trade war and its potentially devastating effects. The memory
of the world depression has been long and has probably influenced economic policy-making
until the present time. The Bretton Woods institutions and the General Agreement
on Tariffs and Trade (GATT) created after the end of World War II were motivated
by a widely perceived need to establish international institutions that would
facilitate cooperation between the great powers to prevent a new world economic
crisis (Eichengreen, 1996; Dam, 1970). When on occasion such a crisis seemed
to be unfolding politicians and academic analysts recalled the specter of the
Great Depression in a call for prudence and cooperative solutions. The economic
repercussions of the so-called first oil crisis of 1973 was one such chain of
events. Other examples are the recession of the early 1980´s and the global
financial crises of the late 1980´s and the 1990´s. On all such occasions multilateralism
and inter-governmental cooperation has triumphed (James, 1996). Since the end
of World War II no economic crisis has occurred repeating the events of the
Great Depression of the 1930´s.
The explanation is not that world economic relations
have remained harmonious and non-conflictual. In spite of the free trade objectives
of the international trade regime, many governments have pursued policies of
managed trade that have generated a multitude of inter-state disputes.(1)
Several waves of neo-protectionism have occurred during the last decades (Tumlir,
1985; Baldwin, 1986; Ray, 1989). Governments have also intervened to monitor
trade flows for security reasons. For example, control of trade flows was employed
as a political weapon by CoCom against the Soviet Union and its allies during
the Cold War, by Arab states against Israel, and by the United Nations against
Iraq after the 1991 desert war (Forland, 1991; Simons, 1996). A row of episodes
of economic sanctions involving various countries have occurred since the end
of World War II (Hufbauer et al., 1990; Cortright & Lopez, 1995;
Doxey, 1996). The media have also reported about so-called trade wars
involving one or more of the present world economic great powers, the European
Union (EU), Japan and the United States (US).
When such conflicts have transpired commentators have often been quick to make
comparisons with the great world economic crisis of the 1930´s. However, on
no occasion after World War II has a trade conflict involving one or more of
the economic great powers escalated out of control. Escalation in trade wars
has occurred but only under such conditions that the conflict has remained carefully
managed by the parties involved, or one of them. The chief issue of this chapter
is what circumstances and actions have contributed to preventing so-called trade
wars occurring after World War II from escalating into a situation similar to
the great economic crisis of the 1930´s.
Recall that preventive diplomacy is given a wide interpretation in
this project; it means either that an emerging confrontation is forestalled
or that escalation in an on-going conflict is discontinued (see chapter 1).
Due to the practical difficulties of identifying trade conflicts that would
have occurred unless preventive measures had been undertaken, the study
of actual cases is primarily focused on the prevention of further escalation
of a dispute.(2)
The analysis of the prevention of the occurrence of trade wars has
been carried out in more general terms without reference to particular cases.
The perspective on preventive diplomacy is partly open-ended in the sense that
it does not stipulate a priori what kinds of state action might represent
preventive diplomacy associated with trade war.
Considering the special circumstances of the issue area of international trade,
it is important to distinguish between actions producing direct and those producing
indirect preventive effects. Mediation in an on-going trade conflict arresting
its further escalation represents an example of a direct preventive effect
(Bercovitch & Rubin, 1992; Kleiboer, 1997). In contrast, indirect preventive
effects are typically separated in time and space from the diplomatic measures
generating them. Indirect preventive effects typically originate in the operation
of international regimes. International institution-building has often been
the result of arduous negotiation containing strong elements of conflict resolution.
However, once institutions have been established they may have a considerable
impact on the behavior of states without further agreements between the nations
concerned. Hence, a market share settlement between the main producers of a
particular good may eliminate the incentives for conflict resolution within
this group of nations for a certain period of time.(3)
An international regime may identify common interests of member countries in
such a way that cooperation prevails in their mutual relationship. Value distribution
becomes subordinated to value creation. Regimes and other forms of international
agreements may, hence, generate preventive effects either through their initial
establishment or through their operation. In the analysis of trade wars both
direct and indirect effects of preventive diplomacy will have to be considered.
The study only covers the period after World War II and is particularly concerned
with trade wars engaging the present great economic powers, the European Union
(EU), Japan and the United States (US).
WHAT IS A TRADE WAR?
Trade war has been given a narrow interpretation in this study, as
conflicts in which national governments with diverging interests try to
monitor trade flows in order to achieve trade policy objectives other than those
attained on the market.(4)
A typical pure trade war situation is at hand when the government of
nation A introduces illegitimate trade obstacles in order to
circumscribe the penetration of A´s domestic markets by companies
from nation B and government B responds in
kind. The trade policy measures of a country are illegitimate when
they are inconsistent with the international obligations that this nation has
accepted in GATT/WTO and other international agreements.(5)
The present definition of trade war has fundamental implications that
need to be pointed out at the outset. An emerging conflict in which at least
one of the parties uses military power or political leverage to promote trade
objectives is not a pure trade war. Neither is a situation in which
warfare manifests itself as the manipulation of trade flows - - sanctions -
- for purposes outside the realm of trade policy. For example, in this study
the trade sanctions going on for many years in order to force South Africa to
abandon the apartheid system were not part of a trade war (Doxey, 1996).
In spite of these limitation the definition of pure trade war as " - - a conflict
situation in which parties use trade policy measures in order to achieve trade
policy objectives" remains too vague and general for the analytical purposes
of this study. "War" indicates an atypical situation in which parties resort
to extraordinary measures. Conflict as such is not atypical for international
commerce, although trade is often mentioned as a prime example of international
cooperation. According to the predominant free trade doctrine, formalized in
GATT/WTO, competition - - conflict of interest - - is a main driver of the world
economy (Lusztig, 1996). It is true that companies as well as governments have
undertaken steps to manage trade, e.g. by means of cartels and neo-protectionism
(Sjöstedt & Sundelius, 1986). Although such measures have reduced the
unrestricted competition of a truly free market, the struggle for market shares
is still a basic characteristic of all international trade.(6)
The recurrent multilateral trade negotiations in GATT/WTO have disclosed considerable
differences of interest amongst many trading nations, not the least between
the economic great powers the European Union (EU), Japan and the United States
(US). A main function of the GATT rounds has been to cope with such major conflicts
related to international trade and trade policy (Gilpin, 1987; Winham, 1986).
Nevertheless, the GATT rounds have not been considered to represent a trade
war.
Accordingly, the critical element of a trade war is not the presence of a conflict
of interest but how the parties involved perceive it and behave toward one another
in order to cope with contention between them. A trade war is a process
of exchange of threats and sanctions between two or more competing parties -
- pressure and coercion.
Trade wars obviously concern business firms in two or more countries as international
commerce is the transboundary exchange of goods and services amongst individual
companies. Business competition on international markets may certainly sometimes
have warlike attributes in the sense that companies may use various "dirty"
measures to promote their interests such as economic espionage or character
assassination (Brégeon & Luchaire, 1988). However, in this study
trade war is considered to be a confrontation of states.
A CHARACTERIZATION OF PURE TRADE WARS
The political processes related to the international trade regime are primarily multilateral in character. For example, almost one hundred nations participated in the Uruguay Round (1986 - 1994) (Croome, 1995). In contrast, pure trade wars have unfolded as a two-party confrontation. Many trade conflicts have been motivated by differences of broad interests. For example, numerous disputes between the European Union and the United States regarding specific agricultural or tropical products have related to the overall agricultural policies of these two great powers or to EU´s preferential economic treatment of former colonies in Africa and the Caribbean (Josling, 1996; Lemesle, R.-M., 1996; Mailafia, 1997). However, a typical feature of emerging trade wars after World War II has been the very specific issues that they have usually addressed. Usually, they involve particular products or product groups as well as specific trade policy measures like tariff treatment, the regime for a special commodity (e.g. sugar), import measures, production aid or internal regulations with an impact on international trade (Petersmann, 1997; Baldwin & Hamilton, 1988). All sorts of states have been engaged in emerging trade wars, industrialized as well as developing countries. However, larger economic powers seem to have been over-represented in potential trade wars and particularly the European Union and the United States (Bhagwati, 1991).
A trade war begins when one country tries to hurt another country with the
help of trade policy measures. The beginning of any trade war is the initiation
of an offensive by one nation, A, by means of illicit trade
policy measures for the purpose of putting pressure on another country, B.
This is the first strike stage of an unfolding trade war.(7)
Further developments depend on the reaction of the target hit by this first
strike. Nation B in theory has several options, e.g. ignore,
comply, retaliate, accept mediation or bargain. These responses correspond to
a number of scenarios for the further evolution of a potential trade war after
the first strike stage; abortive trade war, blitzkrieg, rule-based dispute settlement,
multilateralization, rule-making and escalation.
1. An abortive trade war is totally inconsequential after
the first strike stage. In this scenario one country introduces illicit trade
policy measures, which do not have any significant impact on the target nation.
It is possible that governments of some developing countries are not fully aware
of some trade policy measures directed against them.
2. A blitzkrieg. The blitzkrieg scenario also represents a brief episode. It is different from an abortive trade war in the sense that includes a reaction on the part of the target nation.
The first strike of the offensive party (A) leads to an immediate victory as
the target party (B) chooses to comply with A´s demand without
any further resistance. One indicator of the frequent occurrence of successful
trade blitzkriegs has been their outcome: so-called voluntary inter-governmental
agreements in which one of the two parties undertake to restricts its exports
of certain clearly defined products or product groups.
Many of the known voluntary export restraint (VER) agreements have common attributes
indicating that they are the outcome of a rising trade war (Choi, Hwa &
Marian, 1995; Tumlir, 1986; Baldwin, 1986; Hamilton, 1990; Krueger, 1995; Chen,
1995). First, the accord that they express is heavily skewed in favor of the
offensive party (A) in this encounter. The main objective of the agreement is
to limit the exports of the target party (B) to A in disregard of B´s
own interests. Second, the agreements are highly specific with regard to their
stipulations. Third, the agreements are valid for a limited period of time.
Fourth, the agreements become increasingly institutionalized and more legitimate
over time. The history of the Multi-Fibre Agreement that is becoming dismantled
after the close of the Uruguay Round (1986 - 1994) is a telling example. Fifth,
the voluntary agreements negotiated in the trade blitzkriegs have typically
been signed between countries of quite different size and power. The offensive
party, A, is invariably an industrialized country, usually one of the Great
Powers.(8)
In contrast, B has for the most part been a developing country with little leverage
in international trade politics.
These five characteristics may explain why so many trade wars were almost immediately
won by the offensive party (A). For weak instigators, the "best alternative
to a negotiated agreement" (BATNA) is an outcome that is clearly more costly
or risky than voluntary export restraint. The alternative confronting the target
(B) is typically unilateral action by A in the form of import restrictions with
a broader coverage, with no time limit and a legal form that makes removal difficult.
3. Multilateralization. Emerging bilateral trade conflicts
have sometimes become partly or completely integrated into a parallel multilateral
process dealing with trade questions. For example, in the Uruguay Round so-called
grey area measures represented an important issue. Grey area measure
was a common designation for various "voluntary" arrangements to manage trade
with sensitive products. The concepts of "stand still" and "roll back" were
introduced into the special language of the Uruguay negotiations. The meaning
of stand still was that countries participating in the Uruguay Round
should to refrain from introducing new "grey area measures". Roll back
meant that parties to the Uruguay Round would undertake to begin eliminating
existing "grey area measures" (Croome, 1995).
The example of grey area measures indicates a scenario, in which emerging two-party
confrontations regarding trade issues are discontinued because they become reframed
and transferred to a new multilateral context.(9)
Seemingly, multilateralization disarming an emerging trade war need not necessarily
produce a binding agreement including the parties concerned. Multi-party processes
of policy harmonization and coordination in, for example, the World Trade Organization
(WTO) or the Organization for Economic Cooperation and Development (OECD) may
likewise absorb and interrupt emerging trade wars (Dobson, 1991; Croome, 1995).
4. Rule-based dispute settlement. In general descriptions
of the significance of the new World Trade Organization (WTO) its instrument
for dispute settlement has often been emphasized. However, WTO´s instrument
for dispute settlement was no innovation but was transferred from the General
Agreement on Tariffs and Trade (GATT) (Petersmann, 1997).(10)
For many years trade disputes have been handled in GATT panels, the critical
component of the instrument. For example, in 1980 there were 5 panels, in 1981
4, in 1982 8 and in 1983 6 panels (Bhagwati, 1991).(11)
5. Rule-making. Rule-making is not a permanent but a recurrent
function of the international trade regime (Wiener, 1995). It takes place in
special negotiating bodies set up outside the permanent institutional framework
(Winham, 1986). These multilateral negotiations (the GATT rounds) have been
used to cope with bilateral disputes between leading trading nations in a larger
context involving more countries and a multitude of issues. Hence, all the successful
GATT rounds since the creation of the European Economic Community (EEC) have
been used as an instrument for coping with EU-US trade problems (Baldwin &
Hamilton, 1988). The scenario of rule-making may be seen as variation of the
multilateralization scenario. However, it includes an important additional element
which is the creation of new, or modified, rules which represent the solution
to complicated or sensitive trade issues that have been difficult to deal with
in a bilateral setting.
6. Escalation. Target party B´s
retaliation represents escalation if it will increase the scope (number
of issues), rate of participation (number of actors) or intensity
(higher costs or risks) of a conflict. Escalation may be understood as upward
movement on a ladder, in which each rung passed represents action/response by
one of the contenders, A or B.
Trade is driven by competition - - continuous conflict - - amongst business firms. Governments become involved in the continuous "economic warfare" on international markets because they support and defend companies based in their respective country. Recurrent government intervention generates contention between the two countries. Most of these controversies are managed and resolved at a very early stage. Either they are a settled soon after they have manifested themselves, as in the blitzkrieg scenario. Or else they are managed in an orderly way through established institutions such as formal dispute settlement mechanisms or multilateral negotiations. Only a few of the multitude of emerging disputes evolve into an exchange of threats or sanctions. Such trade wars share a number of critical characteristics. Escalation occurrs only at the low end of the ladder. Threats and counter-threats are exchanged and actual sanctions start to become implemented. In its emerging stage, conflict intensity is high and rising. Parties are aggressive and recalcitrant. Escalation appears to be imminent. However, escalation intensity has not passed the threshold where the risk for a larger and more destabilized interaction between the parties increases radically.(12)
The Oilseeds Trade War
An example of the typical process character of
an emerging trade war between great powers is the confrontation between the
European Union and the United States concerning subsidies to European farmers
that took place in the autumn of 1992, the oilseeds trade war.(13)
Process initiation occurred on 2 September 1992. The US Administration
declared that the support to American wheat producers would be increased. One
declared motive was the need to demonstrate more assertiveness against EU in
the negotiations about the liberalization of agricultural goods currently going
on in the Uruguay Round. A week later, the French government cautioned Washington
that the American initiative represented a threat to the multilateral trade
negotiations. A month thereafter, EU spokesmen in Brussels informed that immediate
negotiations were forthcoming in Brussels between EU and the US on the issue
agricultural subsidies. The French government declared its firm resolution to
block any EU concession to the United States. In Washington US spokesmen explained
the necessity of reaching an agreement before the upcoming Presidential election
in the United States on 3 November.
Bilateral talks between EU and the US in Brussels 10 - 12 October
failed to reach an settlement. A meeting of EU Heads of Government on 15
October in Birmingham confirmed dissent between the major European Powers.
Germany and United Kingdom expressed the need for a swift dispute settlement,
but France continued to refuse concessions to the United States. President Bush
sent a message to the European meeting stressing that the United States had
done everything possible to facilitate an agreement. Now it was up to EU to
lead the way. On the following day the President of the European Commission
responded by noting that the United States had not made any concessions in the
negotiation, and asserted that the EU governments must have the courage to defend
their legitimate interests against the United States. The EU meeting in Manchester
two days later was followed by consultations in Ontario between the major players
in the GATT talks: the United States, EU, Canada and Japan. On the following
day the French government insisted that the US argument could not be accepted
that it was necessary to reach a solution before the US elections in November.
The on-going dialogue between EU and the US broke down a few days later, on
21 October. Washington warned the next day that unless EU accepted
to reduce the controversial economic support to producers of vegetable oil the
United States would introduce import surcharges on French wine and cheese representing
a cost of $ 350 million. This threat put pressure on the EU countries to activate
the bilateral direct talks with the United States on 2 November, but
the talks broke down the following day.
Lame Duck President Bush two days later signaled that within 30 days the United
States would introduce 200% surcharges on imported French white wine. The European
Commission responded with threats of reprisals, although it was clear that the
leading EU countries were highly divided on this issue (France taking a hard
stance whereas Germany and United Kingdom favoring an agreement with the United
States). On 11 November the Director General of GATT, Arthur Dunked,
indicated that he was now engaged as a mediator in the EU-US conflict, holding
direct discussions with the key decision makers in Brussels and Washington during
the following week. An agreement was reached on 20 November between
the EU and the US. It was rejected by France, but three days later the French
government acknowledged that it could not veto the position taken by the other
EU countries. On 3 December a US delegation came to Brussels to finalize
the technical details in the US-EU treaty definitely settling the Transatlantic
dispute on vegetable oil.
The 1992 EU-US oilseed dispute demonstrates a number of typical properties
of pure trade wars. Like most outspoken disputes between economic great powers,
the oilseed trade war was initiated by the United States. The United States
performed as the demandeur. Likewise, this nation also represented
the main motive force sustaining the conflict. Neither EU nor Japan has launched
a trade war against the United States, although Washington has usually argued
that it has reacted against protectionist or unfair policies developed by the
other party to the emerging trade war.
The transatlantic oilseed conflict revealed the recurrent difficulties of EU
to establish and retain a common position against the United States in an emerging
crisis. France typically performed an intransigent role whereas both Germany
and Britain argued for a compromise settlement of the dispute. The oilseeds
conflict was focussed on extremely specific and narrow issues with regard to
both products and trade policy measures. The issues on the agenda were, however,
clearly linked to more fundamental and larger values. Hence, in the case of
the oilseeds war, the connection with the multilateral trade negotiations in
GATT were referred to openly by the parties themselves. The oilseeds war may
be seen as a surrogate for a much larger and more risky conflict pertaining
to agricultural trade generally, or even the overall agenda of the Uruguay Round.
The link to the GATT context also opened the way for third party intervention,
in this case mediation by the Director General of GATT.
The oilseed case included a sequence of exchanges of threats of sanctions.
Sanctions began to be enacted by the United States but did not have time to
have any effect on the target party, EU, before a settlement was reached. All
trade wars between great economic powers since 1945 have unfolded and finished
in a similar way. They have represented a relatively brief process of hostile
diplomatic interaction culminating with an exchange of threats and sometimes
sanctions. At this point the trade war has appeared to be menacing and destabilizing.
However, trade conflicts have invariably been terminated before sanctions and
retaliation has begun to hurt.
PREVENTION OF TRADE WARS: INSTRUMENTS AND CONDITIONS
A general pattern in the sector of international trade has been that conflicts
have been managed and resolved very effectively. Furthermore, conflict prevention
also seems to have been important and successful with regard to contentious
trade issues. How then has prevention functioned: What have been the instruments
and tactics employed to prevent the occurrence or the further escalation of
a pure trade war? Three kinds of explanation that need special consideration:
weak motive forces supporting the escalation of conflicts; successful preventive
intervention; preventive impact of the international trade regime.
Weak motive forces supporting the escalation of conflicts
When governments employ threats and sanctions to have their way in trade disputes
they accrue costs and take risks. Regulated imports increase costs to consumers
and may also elevate production costs in domestic companies which are forced
to buy more expensive components on the home market (Baldwin, 1986). Threats
and sanctions may also cause substantial political risks, particularly when
such measures are used by an economic great power (Robinson, 1996). An aggressive
government may, for instance, contribute to reduce the credibility of the international
trade regime in the eyes of other governments.
There are, hence, cost constraints for the rational employment of threats and
sanctions in the context of trade politics. The relationship between, on the
one hand, costs and risks and, on the other, the magnitude of the stakes of
potential trade wars will determine the will of governments to initiate confrontations
and to escalate conflicts (Hufbauer & Schott & Elliot, 1990). Accordingly,
governments may abstain from escalating an emerging trade war because such action
is not cost effective. This hypothesis is supported by the highly specific and
circumscribed issues that have been typical for trade wars involving economic
great powers.
However, specificity and narrowness of issues does not necessarily exclude
salience. The particular issues that emerge in an unveiled conflict between
two leading economic powers like EU, Japan or the United States have often been
a manifestation of much broader and more fundamental differences (Mason &
Turay, 1991; Handy facts on EC-Japan economic relations, 1991;
Baldwin & Hamilton, 1988). For example, the initiation of the "oilseed war"
should be seen as a US offensive directed against EU´s Common Agricultural Policy
(CAP) generally (Joslin, 1986). The offensive was also linked to the deadlock
in the parallel Uruguay Round, where one of the main sticking points concerned
the liberalization of trade with agricultural products. Specified narrow questions
of emerging trade wars have often represented much broader differences of interest
of high political importance and of a strategic significance. A general conclusion
that issues have been so relatively insignificant that they have not motivated
a strong response to a first strike in a trade war is not warranted.
Preventive effects of diplomatic interaction
Eventually, the Director General of GATT appeared as a mediator in the oilseeds
trade war between EU and the United States. Although this intervention occurred
just before the parties made a settlement it is hard to determine exactly what
role the GATT Director performed in this crisis. Seemingly the GATT attempt
of mediation was essentially symbolic in character. The main function of the
intervention was to recall the significance of the international trade regime.
Trade wars have usually been terminated by the parties themselves without significant
facilitation support by a third party.
Preventive diplomacy in the trade sector has usually not had the form of direct
intervention in a particular conflict. Instead, multilateral interaction has
prevented a multitude of trade disputes from evolving into a trade war. Three
types of multilateral exchange have been especially important in this regard;
recurrent GATT rounds, formalized dispute settlement and trade policy reviews.(14)
Formally, multilateral trade negotiations at the level of world politics
have been organized in a sequence of autonomous rounds; the Kennedy Round (1964
- 1967), the Tokyo Round (1973 - 1979) and the Uruguay Round (1986 - 1994) after
1960 (Preeg, 1970; Winham, 1986; Croome, 1995).In reality the multilateral trade
negotiations have been an almost continuous diplomatic process, of which the
rounds have represented particularly intensive and decisive stages. The rounds
have been inter-linked by periods of preparatory work for the next round as
well as various forms of post-negotiation related to the implementation of decisions
made in the earlier round (Winham, 1986). Multilateral trade negotiation in
GATT/WTO has evidently represented an appealing alternative to bilateral conflict
resolution. A multilateral approach is less risky with regard to political costs.
A multi-party context makes it possible to involve other countries than the
two initial contenders in an emerging trade dispute. Such circumstances may
represent at least two advantages. First, the multilateral environment encourages
problem-solving and integrative negotiations, and creates possibilities for
creative solutions to an emerging stalemate in a bilateral confrontation, for
example with the help of trade-off arrangements amongst a group of several or
many countries. Second, many arrangements designed to cope with a trade problem
disturbing the trade relations between two of the economic great powers need
to involve also other trading nations to become viable international "rules
of the game" (Zartman, 1994).(15)
The instrument of dispute settlement in GATT has an obvious potential
for conflict prevention (Petersmann, 1997). It represents an alternative to
trade war as an approach to resolve a bilateral trade dispute.
Trade policy reviews were introduced into the international
trade regime in connection with the transformation of GATT into the new World
Trade Organization.(16)
This instrument of policy assessment was, however, no novelty to industrialized
countries with market economies. It had been used for a long time in the OECD.
One purpose of the policy reviews is to give advice to individual countries
as to how they should pursue their trade policies. Measures related to this
objective may help to decrease the likelihood for the initiation or escalation
of trade conflict by indicating for the country reviewed how other governments
react to their trade policies. An other aim of the country reviews is to teach
individual governments about the trade policies of other countries and their
conditions. Such consultations may create a mutual understanding about trade
policies. Mutual understanding can, in turn, be expected to decrease the risk
for brutal trade wars.
Preventive impact of the international trade regime
The international trade regime secured in GATT/WTO has evidently had an important
preventive effect on potential trade wars. The rules of the GATT/WTO
regime constrain the formulation of trade policies at the national level (Chayes
& Chayes, 1995).(17)
Compliance to GATT/WTO rules contribute to conflict prevention in at least two
different ways. First, the existence of accepted rules of the game decreases
the risk that one country will undertake trade policy measures that other states
will consider to be a threat. The existence of respected rules means that governments
have agreed in detail what they can and cannot do with regard to trade policy.
Secondly, the accepted rules also reduce uncertainty in the trade policy area,
as national trade policies become fairly predictable. Transparency in policy
making reduces the risk for pseudo-conflicts, in which misunderstanding may
enhance conflictual behavior unnecessarily (Jackson, 1996; Krasner, 1983; Levy,
Young & Zürn, 1996; Hasenclever, Mayer & Rittberger, 1997).
It has been debated in the literature exactly to what extent trading nations
have complied with the rules of GATT/WTO, as well as those of other regimes
(Chayes & Chayes, 1995). It is always possible to find example of countries
that have not fully respected the rules in a particular situation. Some authors
have been worried that a decreasing US hegemony in the world trading system
has started to dilute the authority of the international trade regime. According
to these authors international regimes will not function effectively unless
they are policed by a hegemon (Gilpin, 1987). However, there seems to a wide
agreement among analysts of GATT/WTO that its rules are complied with by most
nations most of the time (Hudec, 1993; Petersmann, 1997). In fact, the trade
regime is exceptionally strong as compared to other regimes relating to international
economic questions, and also when compared to other regimes generally. Consequently,
the capacity of the GATT/WTO regime to prevent the occurrence of escalating
and destabilizing conflicts is likewise relatively forceful.
Other elements of the GATT/WTO regime besides rules have also contributed to
prevent the occurrence of trade wars or their escalation. According a standard
theoretical approach, regimes can be regarded as issue-specific systems of "rules,
norms, principles and procedures around which actor expectations converge" (Krasner,
1983). Norms give general direction to policy-making without representing
formal and binding obligations. In the trade area a leading norm is that governments
should promote world economic growth by using economic resources efficiently
(Hudec, 1993). Principles represent a widely accepted understanding
- - consensual knowledge - - about issues covered by the regime. In the GATT/WTO
regime an important element of the principles is the free trade regime explaining
why and how the elimination of obstacles to the uninhibited transboundary exchange
of goods and services contributes to increase world economic growth (Sjöstedt
& Sundelius, 1986; Analytical Index, 1986). Procedures,
finally, include organizational bodies and established working methods for the
management and evolution of the regime (Jackson, 1996).
A typical feature of the GATT/WTO regime is that not only rules and procedures
are formal and highly specified constructions. Also norms and principles have
been explicitly expressed very clearly (Analytical Index, 1986).
Although the four types of regime elements are distinguishable from one another
in reality, there is a strong and complex interaction between them. Thus, one
of the main functions of both norms and principles in the context of regime
dynamics is to support the operation of regime rules, that is, essentially to
increase the likelihood of actor compliance to them. However, norms and principles
also have other regime functions, which furthermore have had an important preventive
effect on emerging - - or potential - - trade wars.
The norms specified in the GATT/WTO regime have been important in conflict
resolution in the sense that they have identified common objectives for the
parties involved. In an emerging conflict the norms of GATT/WTO may help steer
two parties away from a confrontation with an escalation potential.
The principles - - consensual knowledge - - of the GATT/WTO regime
may contribute to conflict prevention in different ways. For example, the free
trade doctrine representing the heart of GATT/WTO principles provides governments
with authoritative arguments that a government may use in the domestic political
debate against powerful sectoral interests requiring protectionist measures
(Lusztig, 1996). However, the most important contribution of regime principles
to conflict relation relates to their function as a common doctrine and a transnational,
conceptual framework of trade policy makers in national governments as well
as in international organizations. This professional language code has created
substantial transparency in national trade policies (Sjöstedt & Sundelius,
1986). It has also improved the capacity of national governments to assess the
consequences of offers, requests and new policy measures. A particularly important
function of the conceptual framework has been its capacity to help national
governments to identify and evaluate common interests and objectives. Furthermore,
the consensual knowledge which represents the main component of regime principles
facilitates the communication between parties when they strive to describe their
own concerns and particular interests ((Haas, 1990; Spector & Sjöstedt
& Zartman, 1994). The consensual knowledge embedded in GATT/WTO is unusually
specified and acknowledged for an international regime. It has significantly
facilitated inter-governmental constructive discussions of sensitive and complex
trade issues which, in turn, has seemingly prevented the escalation of trade
conflicts.
CONCLUSION
Since World War II a large number of bilateral disputes have surfaced in the
sector of international trade, many of which have concerned highly important
values. On a number of occasions trade disputes involving economic great powers
have started to evolve in the direction of an intensive trade war. In such cases
escalation has been under way but has invariably been terminated before parties
have started to hurt each other. Such prevention has not primarily been the
achievement of the brilliant intervention of hero-diplomats but has rather been
the result of the daily work of heroic institutions. A variety of successful
approaches to conflict management have been established. Effective conflict
management has seemingly been a positive condition for the prevention of serious
and destabilizing conflicts.
One may ask if the lessons from the trade sector could not be applied in other
issue areas. This prospect should certainly be investigated. However, when lessons
are drawn from the trade sector it has to be kept in mind that it in certain
respects it represents special conditions for policy-making, international cooperation
and preventive diplomacy. For instance, under the label of competition conflict
has a much more positive role with regard to international trade than it has
in most other issue areas. Trade issues can usually be expressed in quantitative
terms and are therefore comparatively easy to handle on the negotiation table.
An exceptionally strong link exists between the international trade regime and
a widely supported free trade doctrine guiding policy-making in the large majority
of trading nations. Finally, the stability of the background factors for effective
conflict prevention needs to be carefully investigated. For example, what will
be the consequences for the trading system when developing countries become
stronger and more assertive in discussions about export restraint? What will
be the effects on the GATT/WTO regime if the doctrine of fair trade
continues to dilute the doctrine of free trade? Will the forces of
conflict prevention weaken if the trade regime becomes increasingly less potent?
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1. Recall that the essence of a "free trade policy" has been to eliminate obstacles for the uninhibited trans-boundary exchange of goods and services. The essence of a free trade policy has been non-intervention by state authorities in international markets.
2. See endnote 12.
3. A commodity agreement of states may be compared with a deal to create an oligopoly market, in which a group of leading firms reduce competition between themselves by sharing the market. Commodity agreements typically has a limited duration, which is specified in the contract of the parties.
4. This interpretation is derived from a definition proposed by J. Conybeare: (A) trade war " - - is a category of intense international conflict where states interact, bargain and retaliate primarily over economic objectives directly related to the traded goods or service sectors of their economies, and where the means used are restrictions on the free flow of goods and services (Conybeare, 1987).
5. The notion of grey area policy measures indicate the difficulty of always distinguishing between legitimate and illegitimate elements of a national trade policy. Some confrontations of states in the trade area have been genuine disputes of interpretation of regime rules.
6. Note that the present understanding of trade war represents an interesting paradox with respect to the role of competition on international markets: More intensive conflict between states (an emerging trade war) intends to create less intensive conflict among firms (managed competition).
7. The initial stages of a full-fledged trade war can in reality only be identified ex post; when this conflict has manifested itself clearly. The "first strike" of the trade war may have at least two different functions for the nation performing it; either to benefit from a neo-protectionist commercial advantage or to punish the target nation.
8. In trade in textiles, the system of voluntary export restraint became quasi-legitimate by the multilateralization through the Multi-Fibre Agreement and its couplings to GATT. This arrangement facilitated smaller industrialized nations' asking developing countries for voluntary restraint with respect to textiles. The quasi-legitimate character seemingly also gave support to neo-protectionist measures in other sectors than that of textiles.
9. The so-called Dillon Round in 1960 is considered to have been a failure. Thereafter, three consecutive, successful GATT rounds have taken place: The Kennedy Round (1964 - 1967), the Tokyo Round (1973 - 1979) and the Uruguay Round (1986 - 1994) (Preeg, 1970; Winham, 1986; Croome, 1995; Sjöstedt, 1994).
10. The transfer of the instrument for dispute settlement from GATT to WTO was combined with certain reforms intended to enhance its effectiveness. A common assessment is that these reforms have been successful. At the same time the differences between the instrument of GATT and that of WTO should not be exaggerated. The accomplishments of dispute settlement in GATT should not be underestimated.
11. To the GATT panels should be added an unknown number of cases that were handled by the instrument for dispute settlement, but could be resolved by means of consultations between the parties concerned.
12. The following cases of trade war have been looked at: The chicken war at the time of the J Kennedy Round (US-EEC), the oilseeds war in the midst of the Uruguay Round (US-EC), voluntary export restraint regarding exports of cars and IT products (US-Japan; EC-countries-EU); cooperation regarding the development and construction of aircraft; Airbus (US-EC), the construction of a Japanese military aircraft (US-Japan, the merger of Boeing and Douglas (US-EU, access to Japanese and US harbors (US-EU).
13. The story of the oilseeds war has been reconstructed on primarily on thee basis of two sources; Keesings Record of World Events and New York Times Index.
14. This is not a complete inventory of conflict preventive multilateral instruments. There are, for instance, also a number of such institutions at the regional level particularly in Europe and North America. The three cited categories should be understood as three principal models, each of which produces a preventive impact in a somewhat different way.
15. All the three latest GATT rounds were initiated by the United States. It is significant to note that a main motive behind the US initiative was a need to cope with trade problems pertaining to the EU-US relationship.
16. A considerable number of member states have already been assessed in country review; see, for instance, Trade Policy Review. Brazil, 1996)
17. The rules of trade regime are specified in the legally binding Articles of the World Trade Organization in the same way as they were stipulated in the General Agreement on Tariffs and Trade.
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