INTRODUCTION

The previous chapter described the origins of the multilateral trading system created at the end of World War II and the trade liberalization that took place thereafter under the auspices of the General Agreement on Tariffs and Trade (GATT). It then traced the growth of opposition—the revival of protectionism in the United States and other countries as older industries were exposed to import competition, and the growing use of nontariff barriers, as well as antidumping and countervailing duties. It also noted that the GATT had failed to liberalize trade in farm products or deal with hidden trade barriers, such as the restrictive practices used by Japan and other countries to insulate their markets from import competition—practices that led the United States to adopt an aggressive trade policy aimed at opening foreign markets by threatening retaliation.

Other major changes in the world economy posed threats and challenges to the trading system. The globalization of manufacturing accelerated sharply in the 1980s, due partly to the rapid growth of foreign direct investment by American, European, and Japanese firms. Many developing countries, moreover, began to upgrade their exports, moving from toys, textiles, and apparel to TV sets, microchips, and cellular phones, and some of them started to export steel, machinery, and ships. The collapse of the Soviet Union added two dozen countries to the world economy, from Hungary in the West to Kazakhstan in the East, and they began to transform their domestic economies—to switch from central planning to the use of market prices—and to restructure their foreign trade.