Ed Barton, LLM, CPA, CFA

A Short Modern History of Free Trade 1900-2001

Introduction and Overview

International Law developed largely around trade and the impacts of trade in international relations.  Arguably, many of our international conflicts also arose from trade or natural resource-related concerns.

Dynamically, there is a tension between “free” and “fair” trade.  Nations have historically striven to ensure that they have the ability to exercise freedom in their own trade activities while wanting to regulate the activities of other nations to their own advantage. Current views of free trade are laissez-faire or a very hands-off approach to the trading scheme by the states. The key trade activities should occur between individuals and commercial entities and not have state actor interference.

The first significant international trade regulations began after the First World War in response to weakened states attempting to rebuild their domestic industries with trade barriers.  Arguably, this approach was a major contributing factor to the interwar boom and bust period, resulting in the worldwide Great Depression – including the heavy regulation, high inflation, and economic inefficiencies created as a result.  The inability to conduct free trade was a cause of Japan’s expansionist policies in the interwar period as they attempted to fuel a rapidly industrializing economy with limited natural resources.

Following the Second World War, there was recognition that liberalized international trade was necessary but that the full laissez-faire approach of the 19th Century may not be the best.  This strategy began in Bretton Woods in 1944 and continues to this day.

The New World Order – A Post-War Vision

After the Second World War, there was a movement to develop a “New World Order.”  Unlike what you might read in some of the conspiracy sites, the New World Order was an attempt to rationalize and reduce international tensions using the lessons learned due to two major world conflicts resulting in tens of millions of deaths.

The New World Order contained four key pillars:

  • The establishment of a new political order in the UN focuses on maintaining international peace and security utilizing a dispute resolution system coupled with collective security infrastructure.
  • Establishment of a stable monetary system through the International Monetary Fund (IMF).
  • The development and reconstruction of countries impacted by the Second World War and continuing economic and infrastructure development through financing and technical assistance through the World Bank.
  • Liberalization of international trade and developing a framework focused on free trade and economic justice through the International Trade Organization (ITO).

While these elements sound admirable in theory, in fact, there were significant implementation challenges.  Following the Second World War, the U.S. emerged as the dominant economic and political force globally. As one of the few developed economies not physically devastated by the war and its territory emerging largely unscathed, there was understandable reluctance on the part of the U.S. to sacrifice this newfound power and cede elements of sovereignty to developing nations – particularly in the area of international trade.

As a result, the U.S. Congress failed to ratify the ITO agreement – citing the elements of economic justice as problematic – failing the ITO and the weakening of the fourth pillar of the New World Order.

As a provisional measure, the major powers developed the General Agreement on Tariffs and Trade (GATT). They focused on a capitalist world and a liberalization of international trade – largely without the social and economic justice components. GATT, the provisional measure, was the primary framework for nearly 50 years, until the development of the World Trade Organization (WTO) following the Uruguay Round in 1993.

GATT Law

GATT was limited in scope and predominantly focused on manufactured goods and their related inputs.  The approach utilized was to facilitate the movement of goods and ensure economic prosperity rather than achieve social or distributive justice issues in the world economy. It also did not address agriculture and did not limit the ability of developed nations to institute protectionist measures on agricultural products. As a result, many non-industrialized nations chose not to enter or participate in the GATT framework.

In the 1970s, responding to international pressure, the GATT treaty was amended to add “Part IV” to respond to the need of the newly docolonialized and developing nations. This amendment to GATT introduced general preferences for developing countries and set a new framework for trade and development.

Uruguay Round (1986-1993)

As the 1980s dawned, the addition of Part IV to the original GATT framework and a willingness to revisit fundamental elements of the framework – including agricultural trade – led to the call for a comprehensive review of GATT. The Uruguay Round of talks was the outcome of those calls – with a mandate to look at trade, intellectual property, and international investment.

During the Round, the fall of the USSR and the ascendancy of capitalism and the liberal Western democracies had a significant influence on the talks – resulting in the development of a more democratic and liberal organization in the WTO, but also a renewed focus on economic globalization as economic gain surpassed the security priorities of the Cold War as the primary driving force in international relations.

This opening of borders and economies also led to a review of the laissez-faire policies of the international trade environment in light of the rise of the multinational enterprise as a significant non-state actor in international affairs.  Focus in this area tended to revolve around environmental protections, promoting human rights, alleviating poverty, and developing a framework for economic and social justice.

Doha Round (2001)

In response to these pressures and drive for balance arising from the perceived excesses of the 1990s, the Doha Round of talks.  The focus of these talks was on the developing nations and was generally viewed as the “Development Round” of talks, as the emerging nations became the focus.

Scroll to top