On 1 January 2008, the multilateral trading system will celebrate its 60th anniversary. This year's World Trade Report celebrates this landmark anniversary with an in-depth look at the GATT and its successor the World Trade Organization — their origins, achievements, the challenges they have faced, and what the future holds. The story is one of remarkable change and adaptation, of a system that has contributed significantly to post-war prosperity, but which has not delivered all it could and which still faces formidable challenges.

“The global trading system has been a source of prosperity, stability and predictability for six decades. It has underpinned an unprecedented period of economic growth and has provided an environment in which many countries have been able to raise development levels and reduce poverty,” said Director-General Pascal Lamy. “But the GATT and the WTO have not done all they could, particularly for developing countries. “In the coming months we have the chance to deliver more for our member governments and the citizens they represent. By striking an ambitious and development-oriented agreement in the Doha round we can greatly strengthen a system which has done much to make the world a better place.”

The report looks at the circumstances in which the GATT was born and goes on to explain why governments believe it is in their interests to cooperate on trade matters. This is followed by a discussion of how the GATT/WTO as an institution can foster greater international cooperation. Finally, the Report reviews what the multilateral trading system has achieved in six decades and what remains to be done.

The authors describe how the first half of the twentieth century does not stand as a monument to international cooperation. The inter-war years were marked by far-reaching government failure, limited international cooperation, and economic hardship in many countries. Trade policy was erratic, punctuated by bouts of protectionism, discrimination and policy tension. It was against this backdrop that the architects of the post-war system of economic cooperation set about designing arrangements that would guarantee greater stability and predictability.

The report makes clear the multilateral trading system is confronted by considerable challenges, both short-term and longer-term. An immediate task is to find closure to the current negotiations in a manner that will offer real benefits to all parties and prepare the WTO to play its rightful role in international trade governance. As the balance of economic power and the focus of international interests shift, the Report's authors ask whether governments see viable alternatives to the inclusiveness implicit in today's multilateral trading system. The future of the WTO depends entirely on how far governments value such an institution.

In looking at why governments choose to cooperate, the Report includes perspectives by economists, political economists, international relations theorists and lawyers. The array of different and sometimes complementary explanations for cooperation provided by this literature is rich. Economists, for example, emphasize the additional economic gains that flow from reciprocal trade liberalization. Political economists think about how electoral politics can help to shape decisions about cooperation and how international commitments can influence the relative strength of competing interests within the domestic economy. International relations theorists seek to explain cooperation in terms of managing power relationships, distributional conflict and shared ideas and beliefs. Legal theorists emphasize the role of “constitutions” such as international trade agreements in defending public interests and constraining government action. The discussion of this literature makes clear that the motivations for cooperating in trade matters are diverse and far from fully understood.

Among the contributions an institution like the WTO offers are to reduce uncertainty, facilitate negotiations, disseminate information, reduce transactions costs in various ways, help to settle disputes, administer agreements, monitor policies and act as an agent for surveillance. The WTO's record in these domains is discussed in the Report.

The report points out that world trade has grown twenty-seven fold in volume terms since 1950, three times faster than world output growth. The GATT/WTO has helped to deliver a considerable amount of trade liberalization, but progress has been uneven and success limited in some areas. Agricultural trade liberalization has proven particularly challenging and the results have been limited so far. Similarly trade in labour-intensive manufactures still faces relatively higher trade barriers in major markets. Other avenues — unilateral and regional — have also played an important part in reducing tariffs and other barriers to trade.

The last six decades have also witnessed remarkable developments in the GATT/WTO dispute settlement system, say the authors. Utilization of the dispute settlement mechanism has grown significantly since the establishment of the WTO, not least due to increased activity on the part of developing countries. During the Uruguay Round, dispute settlement procedures were strengthened in an unprecedented manner, notably with the introduction of the quasi-automatic adoption of reports and the establishment of the Appellate Body as a standing organ for legal review. Enforcement procedures have also been streamlined and isolated from possible blockage by the defendant. Most cases are settled successfully, predominantly in favour of the complaining party. In a majority of cases, compliance is forthcoming. However, a number of high-profile cases have been characterized by implementation problems and protracted proceedings. In a few instances, retaliatory measures were ultimately imposed. Additional improvements to the WTO's dispute settlement mechanism could possibly be made further strengthening its capacity to resolve disputes in a more timely and effective manner. The ability of smaller and poorer countries to bring cases could also be strengthened further.

Despite explicit voting provisions in the GATT, decision-making has generally been characterized by consensus. This practice has been carried over into the WTO, but the issue of participation in decision-making has come to the fore. In designing appropriate decision-making processes, the principal challenge will always be to find the right balance between efficiency and inclusiveness. Coalitions have become more important in WTO decision-making processes, as well as in the formulation of substantive negotiating positions. Most issues on the WTO agenda do not break along the sort of North-South fault line which in the past pre-empted the flexibility that characterizes coalition-building in the WTO today. The Doha Round negotiations have added a new dimension and a certain fluidity to the creation and destruction of coalitions and groups within the WTO.

Many of the future challenges facing the WTO system are embedded in the issues discussed above, ranging from the short-term imperative to complete the Doha Round to systemic issues that have been part of GATT/WTO deliberations for many decades. But the trading system has to look ahead too, and new issues will emerge. Such issues are likely to include the relationship between environmental challenges such as global warming and trade, and trade and energy. There are likely to be pressures on the system to build on work that has already started, such as how to deepen and strengthen the multilateral rules on trade in services.