CHAPTER 4
THE INTERNATIONAL TRADE ORGANIZATION
RICHARD TOYE
4.1 INTRODUCTIONS
THE International Trade Organization (ITO)—an intellectual
precursor of the WTO—never existed. During and after the Second
World War, extensive efforts were made to bring it into being,
culminating in the multilateral negotiation of a charter for the
organization at Havana in 1947–8. However, the Havana Charter
was never ratified, chiefly because domestic opposition within the
United States led the Truman administration to drop its efforts to
win congressional backing for the ITO by the end of 1950.
Although the attempt to create the ITO failed, it was nonetheless
significant for two reasons. The first of these was its relationship
with the General Agreement on Tariffs and Trade (GATT), which
was designed as an interim measure to regulate international trade
in the period before the ITO came into effect (see Chapter 5). In
other words, the effort to establish the ITO brought the GATT into
being, and this in turn had consequences for the eventual creation of
the WTO. The second reason is that the idea of the ITO marks an
important staging post in the shift between two contrasting types of
trade liberalism. Late nineteenth century free trade arguments were
strongly influenced by moral internationalism, the assumption that
global economic well-being was best secured by governments
reducing trade barriers unilaterally out of enlightened self-interest.
After 1945, by contrast, arguments for freer trade were almost
always based on institutional internationalism, which assumed,
more pessimistically, that successful liberalization required an
international regulatory framework in order to avoid free riding and
enforce good behaviour.1 Although the ITO itself proved a dead
letter, the underlying idea persisted, and today has hegemonic
status.
William Diebold’s The End of the ITO2 provided a classic
contemporary analysis for the failure to ratify the charter, which in
his view was determined by American domestic politics. The plan
was derailed by an unholy alliance between supporters of
protectionism and free trade purists who objected to exceptions to
laissez-faire within the proposed ITO rules. This assessment,
although capable of refinement, still holds good today. However, the
considerable literature on the ITO tends to be very US-centred in
terms of its focus and ideological outlook. For example, the role of
poorer countries, which successfully pressed for exemptions in the
charter for the purposes of economic development, is often treated
dismissively. This chapter offers a more rounded treatment. It
examines:
(1) the origins of the ITO
(2) the negotiation of the charter
(3) the failure to ratify the charter.
The conclusion considers the ITO’s legacy. It places the relevant
diplomatic negotiations within the context of trade culture and
politics in the US, the UK and elsewhere, and explains them in
relation to contemporary understandings of the concept of economic
underdevelopment and attitudes to international organizations in
general. It has recently been argued that there is a mistaken
tendency to romanticize the supposedly ‘wise and prudent
internationalists’ of the 1940s at the expense of the politicians of
more recent times.3 The ITO episode reminds us that, if its
proponents were in some respects unusually far-sighted, they were
also at the mercy of events and subject to pragmatic political
considerations not dissimilar to those experienced today.
4.2 THE ORIGINS OF THE ITO
The idea of an international organization to regulate trade received a
major boost from the perceived economic failures of the interwar
years, but it had earlier antecedents. In 1847, the year after the
British anti-protectionist lobby secured the goal of abolishing the
Corn Laws, an international free trade congress met at Brussels;
further congresses met at irregular intervals in the years before the
First World War and again thereafter. This, however, was not an
intergovernmental body, but was rather a means for individual free
traders to meet to promote their cause in what was arguably a rather
self-congratulatory atmosphere. The idea that free trade helped
promote international peace was of course a familiar trope from the
rhetoric of Richard Cobden. By the 1850s, free trade was being
discussed in the same breath as proposals to settle diplomatic
disputes by arbitration, although no one yet suggested that
international trade disputes could be resolved in this way.4 In fact, in
the late nineteenth and early twentieth centuries, the very concept of
international trade agreements was seen as suspect by many British
free traders. The 1902 Brussels Sugar Convention was an agreement
by ten countries, including Britain, to work together to tackle export
bounties that destabilized the international market. The effort was a
success, but it was opposed by Liberals who, prizing cheap sugar for
British consumers above all else, portrayed involvement in an
international commission as an attack on British sovereignty. In 1912
the Liberal government denounced the convention.5 During the
Great War, however, British progressives were amongst the
proponents of international government and the concept of a League
of Nations, although the consequences of this in the sphere of trade
were not yet clear.
The first concrete proposal for a recognizably ITO-type body
came from within the United States. In 1916, Democratic
Congressman, Cordell Hull, argued for the establishment of ‘a
permanent international trade congress’. (Later, in 1925, he used the
term ‘International Trade Organization’.) As a native of Tennessee,
Hull shared the common sense of grievance that high US tariffs
favoured Northern manufacturers to the detriment of Southern
agriculture; but he also developed Cobdenite opinions about the link
between trade barriers and war. The purpose of his proposed
organization was to reach agreements ‘designed to eliminate and
avoid the injurious results and dangerous possibilities of economic
warfare’, and to promote fair and friendly international trade
relations.6 Hull’s ideas may have influenced the third of President
Woodrow Wilson’s famous Fourteen Points—the third point called
for the removal of economic barriers and ‘the establishment of an
equality of trade conditions’ between all the nations consenting to
the eventual peace treaty.7 Hull’s contribution thus marked a shift in
the American trade debate. The focus until this point had largely
been on whether or not a particular tariff level was beneficial for the
United States; with America’s global power increasing, there was
now some consideration of the impact of trade barriers on the good
of the world as a whole.8 It should be noted, though, that Hull had
no clear concept of the mechanisms by which the planned
organization would actually operate. Furthermore, with the US shift
to isolationism in the 1920s, and with the Democratic party showing
increased sympathy for protectionism as the decade went on, Hull
remained an isolated if respected voice until appointed as Franklin
D. Roosevelt’s Secretary of State in 1933.
Meanwhile, the economic machinery of the League of Nations
provided a potential arena for international cooperation on trade,
American failure to join the League not-withstanding.9 John
Maynard Keynes’ The Economic Consequences of the Peace (1919)
included a proposal for the creation of a ‘free trade union’ under the
auspices of the League of Nations. Members would ‘impose no
protectionist tariffs whatever against the produce of other members
of the union’.10 Subsequent League efforts to establish a ‘tariff truce’
failed, partly because of the lack of any means of enforcement, but
principally because of the growing protectionist sentiment in the
world at large in the aftermath of the Great Crash of 1929.11
In 1930, the United States adopted the Smoot-Hawley tariff,
which is frequently alleged to have deepened the depression and is
often mistakenly stated to have been unprecedentedly high. In fact,
Smoot-Hawley was less significant for its direct economic
consequences than for the mythical status it achieved as an
emblematic policy failure, which was used by later policymakers to
justify support for international trade cooperation.12 In the wake of
a serious political and financial crisis in 1931 (and not in obvious
retaliation for Smoot-Hawley), Britain extended significantly its
existing system of imperial tariff preferences. Traditional opposition
to British imperialism helped fuel US resentment of imperial
preference, which became Hull’s special bugbear.13 The elimination
of such forms of ‘discrimination’ was to become at least as important
an object of US policy as the reduction of average tariff levels.
Ironically, though, the 1932 Ottawa accords—a series of bilateral
deals between Britain and its self-governing dominions—formed a
model of sorts for the GATT/ITO experience. The Ottawa conference
was, in a sense, a precursor of later forms of multilateral negotiation,
even though it represented an attack on free trade rather than an
attempt to extend it. The failure of the 1933 World Economic
Conference, however, demonstrated that at this time there was no
capacity or political will for economic cooperation on a global scale.
Although humiliated by the circumstances of the conference’s
collapse, Hull, as Secretary of State, was able to pursue his vision of
freer trade on a more piecemeal basis through the Reciprocal Trade
Agreements Act (RTAA) of 1934. The act virtually handed the power
to alter the tariff from Congress to the administration. It empowered
the President (in practice the State Department) to enter into trade
agreements with foreign countries for the reciprocal reduction of
tariffs and other trade restrictions. The powers it granted were
initially for three years only, but the act was successively renewed for
further fixed terms. In the decades to come, the deadlines set by the
expiry of presidential tariff-cutting powers affected negotiating
positions and substantive outcomes. Moreover, the diminution of
congressional influence was significant. As Stephen Haggard notes,
‘With the transfer of tariff-making authority to the executive, the
United States could make credible commitments and thus exploit its
market power to liberalize international trade.’14 The act permitted
the reduction of US tariffs on an item-by-item basis (in contrast to
the more sweeping powers granted under later legislation), although
no one duty could be reduced by more than 50 per cent. Any such
reductions of duty would be extended to all other countries,
although these benefits could be withheld from countries that
discriminated against American commerce.
By 1938, Hull had succeeded in bringing 60 per cent of the
foreign trade of the USA within the scope of the trade agreements.
However, the average level of US tariffs remained high, and Hull
made little if any progress in reversing the trend towards
discrimination and bilateralism in world trade in general.15
Although the RTAA was to become central to later efforts to create
the ITO, it was not originally imagined that it could form any kind of
basis for the establishment of an international organization. After
the outbreak of the Second World War, therefore, State Department
planning for the post-war world was initially based on the
assumption that future progress towards freer trade would be
founded on a straightforward extension of the RTAA programme.
The planning process was further stimulated when, in August
1941, the British and American governments issued the Atlantic
Charter, in which the two countries stated their ‘desire to bring
about the fullest collaboration between all nations in the economic
field, with the object of securing for all improved labour standards,
economic advancement and social security’.16 The Japanese attack
on Pearl Harbor on 7 December that year gave further stimulation to
US internationalism, in economic relations as well as in foreign
policy.17 And in 1942, Britain committed herself to Article VII of the
Mutual Aid Agreement, whereby as ‘consideration’ for American
lend-lease aid, the UK would work with the USA towards ‘the
elimination of all forms of discriminatory treatment in international
commerce, and to the reduction of tariffs and other trade
barriers’.18 There followed a drawn-out process of Anglo-American
negotiation as to the form this consideration should take.
Up until this point, as we have seen, the Roosevelt
administration had pursued its substantial objective—an increase in
global multilateral trade—via a bilateral procedure, under the RTAA.
The 1942–3 period saw a shift towards support for procedural
multilateralism as the means to achieve substantive multilateralism.
By the end of the war, in other words, it was envisaged that many
countries would negotiate bilateral trade agreements amongst
themselves, simultaneously, before generalizing the results of each
deal to the other participant nations, and that a new international
organization would be required to make this process work. To a
considerable extent, this important departure was the result of
thinking by British officials, who approached their negotiations with
the US with two tactical objectives in mind. First, they wanted future
trade deals to be carried out on a multilateral basis, as they hoped
that this would help Britain form a united front with the
Commonwealth countries, combating possible US attempts to play
them off against one another. The Americans were prepared to
accede to this, as they were aware of the importance of appearing to
treat each of their allies alike. Second, the British were keen to take
the initiative in the wartime discussions. Deeply conscious of their
own country’s likely post-war economic weakness, they chose to
make bold proposals to the Americans while writing their own
safeguards and ‘escape’ clauses.19
One key British proposal was the plan designed by James Meade,
a Keynesian economist and wartime civil servant, for an
international commercial union. This was intended as the
complement of John Maynard Keynes’ contemporaneous plan for an
international clearing union. The purpose of the commercial union
was to create a multilateral trading system, from which, Meade
believed, Britain was likely to benefit. However—and here were the
safeguards—both state trading and ‘the continuation of a moderate
degree of Imperial Preference’ would be permitted.20 Meade’s ideas
were recognizably similar to Hull’s original idea of a permanent
trade congress but they were much more detailed and concrete. His
proposals formed the framework of the Anglo-US Article VII
discussions that took place in the autumn of 1943; the British found
that they were knocking at an open door.21 The multilateral
economic regime that emerged after the war is often portrayed as a
product of American hegemonic imposition. In the case of trade,
however, Britain—a substantially weaker power—played an
important (if self-interested) role in promoting the multilateral
agenda.
There was also a limited amount of input into the discussions
from countries other than the USA and the UK. By the end of 1945,
the Americans and the British had agreed on a set of ‘proposals for
consideration by an international conference on trade and
employment’. The emphasis on employment reflected pressure
from, in particular, the Australian government, for the international
coordination of Keynesian-style full employment. Although this
demand was sidelined in subsequent negotiations, it did reflect a
significant strand of contemporary thought (not least among British
Keynesian economists and politicians) and illustrates the divergent
and potentially conflictual approaches to international economic
reform that were in circulation at the end of the war.22 More
generally, the ‘Proposals’ outlined the need for ‘an International
Trade Organization of the United Nations, the members of which
would undertake to conduct their international commercial policies
and relations in accordance with agreed principles […] in order to
make possible an effective expansion of world production,
employment, exchange and consumption’.23 The ITO was thus
intended, like the Bretton Woods institutions, to be a UN specialized
agency, that is to say, part of the UN system but independent in
terms of operational control. Like them, too, it was seen as an
essential part of a broad-ranging multilateral, international
economic regime that would encompass both trade and payments.
4.3 THE NEGOTIATION OF THE CHARTER
Although the ‘Proposals’ seemed to show outward harmony between
Britain and America, there were tensions between the two countries
that would come to pollute the subsequent ITO discussions. There
was indeed agreement over the general desirability of the ITO, but
progress on the issue was inseparable from arguments over specific
trade practices (notably imperial preference) and tariff levels, and
from the new Labour government’s need for American help to prop
up the British economy. Indeed, acceptance of the ‘Proposals’ was
one of the conditions of the $3.75 billion loan by America to Britain
agreed in December 1945. Over time, Anglo-American trade
diplomacy became soured by the Truman administration’s growing
irritation at Britain’s demands (made in consciousness of her own
economic weakness) that the ITO rules include various departures
from free trade principles. In the end, the US successfully mobilized
a coalition of nations against Britain’s demands, but at the cost of
including other exemptions in the charter that made it unacceptable
to American domestic opinion.
The ‘Proposals’ were subsequently elaborated in a draft ITO
charter, which was then discussed at the first session of the
preparatory committee to the UN conference on trade and
employment. This met in London in October-November 1946,
attended by 18 countries. Widening participation in the discussions
had the effect of altering their tone. Although concerns about the
stability of international demand raised their head, being reflected
in the ‘full employment’ issue, the most pregnant topic raised was
that of special treatment of underdeveloped countries. The concept
of ‘economic underdevelopment’ was a relatively new one and did
not have any substantial body of theory behind it. However, the
inclusion of a significant number of poorer countries in the UN gave
it a considerable political salience in the era of decolonization.
Changes in terminology were related to political sensitivities; as
more and more nations became independent the interests of tact
dictated that countries previously described as economically
‘backward’ should now be referred to as ‘undeveloped’ or
‘underdeveloped’, and later as ‘developing’ or ‘less developed’.
Increasingly, countries became willing to identify themselves as
belonging to some of these latter categories, and the corollary of this
was usually the claim that the richer states bore some measure of
responsibility for the condition of the poorer and should be prepared
to do something about it. State-led, import-substituting
industrialization was often the development model of choice for
these poorer countries. Accordingly, at the London conference,
India, China, Lebanon, Brazil, and Chile argued that the charter
should allow countries to promote industrialization by using import
quotas. Australia, which at this time was perceived (at least by its
own negotiators) as an underdeveloped country, also supported the
use of quotas. In order to meet this demand, the US delegation
drafted a new chapter on economic development, recognizing ‘that
special governmental assistance may be required in order to
promote the establishment or reconstruction of particular industries
and that such assistance may take the form of protective measures’.
The ITO itself would be responsible for judging countries’
applications to be allowed to take such measures.24 Therefore,
although the Americans had made some concessions to the
underdeveloped countries’ point of view, they could expect, given
their likely dominant role in the ITO’s governance, to have
considerable influence on the way that these provisions were
actually used.
The second session of the preparatory committee met in 1947 in
Geneva. Twenty-three countries, 11 of which could be classed as
underdeveloped, were now represented.25 Talks to refine the draft
charter took place simultaneously with the first round of
negotiations aimed at achieving mutual tariff concessions. The
Geneva conference needs to be understood in the context of both the
emerging Cold War and the severe economic plight of European
countries—not least Britain. These factors triggered the American
Marshall Aid programme, announced during the conference, and
this came with an ancillary US agenda for European economic
integration. Although the tariff talks would almost certainly have
failed in the absence of the Marshall Plan, this support for a form of
regional integration to some extent undercut the global ambition of
the ITO project. The dynamics of multilateral negotiation also had a
significant impact on the shape of the charter, leading to the
inclusion of some provisions which the developed countries’
representatives believed to be inconsistent with the basic principles
of multilateral trade.
At Geneva, the developing countries continued their efforts to
secure for themselves greater freedom to use devices such as
quantitative import restrictions (QRs), differential internal taxation,
mixing regulations, and preferences between neighbouring states for
the purposes of development. The Americans were forced to yield on
these matters, more or less reluctantly, although the concessions on
regional preferences were in harmony with their own ideas on
European integration.26 Thus far, the British had favoured the
freedom to discriminate and to employ QRs in the interests of
solving balance-of-payments problems, but had worked with the
Americans in attempting to resist pressure from the less-developed
nations. However, the sterling convertibility crisis of July-August
1947, which severely drained Britain’s dollar reserves, weakened the
UK’s commitment to the ITO. Just as the draft charter was
completed, and in the immediate aftermath of the crisis, the British
warned publicly that for the time being, in order to safeguard their
balance of payments, they would have to use methods which ‘may
appear to be opposed to the principles and methods of the draft
charter’.27
Britain’s growing doubts about her economy’s ability to sustain
the full obligations of ITO membership in the near future were
matched by her increasing scepticism—fuelled by the experience of
the tariff talks—of America’s willingness to reduce her own trade
barriers substantially. Unless this were done, British policymakers
believed, the conditions for the ITO’s success would not exist.
Therefore, they followed a dual strategy. On the one hand, whilst
accepting ITO principles, they asked for application of the most
burdensome obligations to be postponed; on the other, they resisted
American demands for the substantial elimination of the imperial
preference system, insisting that the proposed reductions in US
tariffs, offered as a quid pro quo, were insufficient to justify this. In
the short term, this strategy worked well. The British secured US
agreement that there should be a breathing space before the
nondiscrimination provisions of the GATT—the terms of which were
also agreed at the Geneva talks—came into effect. They also called
the Americans’ bluff when faced with the threat that Marshall Aid
would be withheld from Britain unless a substantial move was made
towards the abolition of imperial preference.28 At the Havana
conference, however, these previous successes led the British to
push their luck. Their demands for further concessions infuriated
the Americans. The resulting collapse in mutual trust had significant
repercussions for the final form, and thus the eventual fate, of the
ITO charter.
The Havana conference opened in November 1947.29 The
chairman of the US delegation was the ‘tall, strikingly handsome,
beautifully attired, articulate, affable, assured’ Will Clayton,
formerly Under Secretary of State for Economic Affairs.30 Clayton
and his team of officials have often been characterized as free trade
ideological visionaries. Yet they themselves stressed that complete
free trade was not practical; they were pursuing only freer trade.31
And when domestic political interests (notably agricultural ones)
were at stake, the representatives of the US proved just as willing as
those of other countries to modify free trade principles to suit
themselves. Therefore, the real issue at Havana was not whether free
trade principles would be modified, but in what ways, and to what
extent, this should be done. And because the majority of the 56
countries present were, or at least classed themselves as,
economically underdeveloped, the question of development became
central to discussion. The informal leadership of the underdeveloped
group was now taken by the Latin Americans.
At the time, US officials portrayed the views these countries
expressed at the conference as ‘extreme’, and historians have tended
to accept this picture.32 Yet, although there was indeed an
unreasonable and erratic element amongst the leadership of the
poorer countries, this does not mean that all of their arguments were
unsound. Many such countries had experienced severe economic
dislocation during the war and post-war period, and this
conditioned their attitude to the ITO. They argued that the charter in
its existing form was devised for the benefit of the developed
countries (which would benefit from let-outs when in economic
difficulties), but that the underdeveloped did not have the necessary
exemptions to enable them to develop their own economies. As the
delegate of El Salvador put it, ‘The industrialized countries’ concept
of equilibrium was very formal, while the underdeveloped countries
felt that there should be a basic criterion—unequal treatment for
unequally developed countries.’33
The conference quickly became bogged down, the major
stumbling block to progress being the issue of QRs. These were
governed by Article 13 of the draft charter, which provided an escape
from the general embargo on QRs for the purposes of protection, but
required that its use be approved by the ITO in advance. (This
Article had been added to the charter in Geneva.) The
underdeveloped bloc rejected this rule of ‘prior approval’, as they
wanted more or less unrestricted freedom to use QRs for the
purposes of economic development. For their part, the British feared
that allowing such freedom on QRs would severely damage UK
exports. The question also intersected with the UK’s objectives on
non-discrimination. Its delegation attempted to secure continuation
until March 1952 of the suspension, agreed at Geneva, of nondiscrimination
obligations. This demand was likely to try the
Americans’ patience, not least because it would encourage the
underdeveloped countries to demand a quid pro quo, making it
more difficult for the developed countries to hold the line on the
QRs. As one Foreign Office official noted at the end of the month,
‘While the Americans are beginning to recognize that we have a good
case’ for a complete waiver until 1952, ‘the arguments for it
unfortunately provide the “developers” with a first-class weapon in
their attack on us’.34 British insistence on pushing for this
contributed much to their own isolation at the Havana talks.
In spite of the seeming deadlock, the Americans in Havana
pressed on in their bid to secure an acceptable charter, even though
their superiors in Washington, distracted by the Marshall Aid
programme, were no longer taking much interest in the ITO. The
eventual completion of the charter, however, was dependent on a
change in US strategy. Rather than force a showdown over QRs, it
was decided to offer a package of concessions to the underdeveloped
countries on a take-it-or-leave-it basis. Cold War concerns played
some part in the decision to take this approach, which successfully
exploited the divisions between these countries. It was feared that an
overt confrontation with the Latin American nations would have
damaging consequences in the Western Hemisphere and that the
collapse of the conference would hand a propaganda victory to the
Soviets. However, the Cold War cannot be used as a monocausal
explanation for the US delegation’s decision to adopt a less directly
confrontational position towards the developing countries. Britain
was an important Cold War ally but the Americans had no hesitation
in squeezing them at Havana. It was impossible to satisfy in full the
competing demands of the developed and the underdeveloped
countries, and in choosing to look for some degree of compromise
with the latter, the interests of the former had to some degree to be
sacrificed. Although the underdeveloped countries were by no
means an entirely cohesive bloc, the outcome of the ITO talks did
reflect their growing political power, independent of purely Cold
War issues.
The Americans were now prepared to concede ground on QRs.
Article 13, as finally embodied in the charter, meant that the ITO
would be expected to give automatic approval to quantitative
restrictions on commodities not covered by existing trade
agreements if any of a number of conditions were filled. Among
these conditions was that the industry was started between 1939 and
1948, this being intended to cover the case of uneconomic industries
started during the war or immediate post-war periods.35 The British
delegation, at least at first, fought determinedly against the US
attempt to reach this compromise with the Latin American and
other underdeveloped countries. But they found themselves ‘almost
alone in seeking to restrain the Americans from progressive
weakening of the text of Article 13’, receiving only moderate support
from the Canadians and the French. ‘In our view the United States
have been astonishingly feeble in their approach to this whole
problem, and we have been led to the conclusion that their attitude
was dictated primarily by a wish to gain credit with the Latin
American countries.’36
The British believed that they were being asked to agree to
concessions to underdeveloped countries on QRs (under Article 13),
whilst receiving, in her own view, insufficient rights to discriminate
(under Article 23). They also objected to another US concession,
under Article 15, that the ITO would be expected to give automatic
approval to new regional preference agreements, created for the
purposes of economic development, if they conformed to certain
agreed standards.37 The British felt that the American position on
this involved a double standard. The USA was now sympathetic to
the idea of preference, in the form of a customs union for Western
Europe, in the interests of boosting the region’s prosperity as an
antidote to the Cold War communist threat. However, US
policymakers remained implacably hostile to Britain’s imperial
preference system, even though, in terms of economic theory, it was
arguably no more objectionable than a customs union. But British
protests were to no avail. As Clair Wilcox, Clayton’s deputy,
observed with glee: ‘The UK is trying to pressure us at the last
minute but they cannot get away with it since the US has fifty
countries lined up to support the Charter, including the rest of the
British Commonwealth and Europe. The UK is absolutely isolated
and their position is as impossible as that of a small boy standing in
front of a steam roller.’38 The British did receive some minor
concessions on non-discrimination and regional preferences, but
were obliged to accept the provisions on QRs. When the conference
finally reached agreement on the charter in March 1948, therefore,
the British were downbeat. Clayton, by contrast, was jubilant: ‘This
may well prove to be the greatest step in history toward order and
justice in economic relations among the members of the world
community and toward a great expansion in the production,
distribution and consumption of goods in the world.’39
4.4 FAILURE TO RATIFY THE CHARTER
From the point of view of the Americans, however, the outcome was
mixed. They had been defeated or outmanoeuvred on some issues,
such as how the exports of the occupied areas (Germany and Japan)
were to be treated. They were forced to abandon what proved to be a
short-lived conversion to the principle of weighted voting—as
opposed to one vote for each country—in the ITO. (This was
potentially problematic for the USA, which risked being outvoted,
although how things would have worked out in practice had the ITO
come into being is hard to say. Under the GATT, decision-making
generally proceeded by consensus rather than by formal voting, but
the ITO could have created a different dynamic, as transpired later
with the WTO.) Having been persuaded by US business interests to
include in the charter provisions on the security of foreign
investment, the provisions that were actually negotiable proved,
from the point of view of those interests, unacceptably weak.40 The
charter’s insistence that foreign investments could not be
expropriated or nationalized except under ‘just’, ‘reasonable’, or
‘appropriate’ conditions could be interpreted as weakening the
protection that US investments abroad had previously enjoyed.41
The charter had other aspects which the US found unpalatable, but
to which its negotiators had long since reconciled themselves. For
example, from the American point of view, agreements for the
stabilization of commodity prices were fundamentally inconsistent
with the other provisions of the charter; but, believing that primary
producing countries would inevitably enter into them, they accepted
that it was desirable to lay down ‘rules of the road’ and thus
eliminate some of the worst characteristics of such agreements as
had been seen in the past. These and other provisions became the
subject of intense criticism within the United States.
Fifty-three countries, including Britain, signed the final act of the
conference. However, the ITO charter would not come into effect
until it was ratified, and other countries generally held back from
doing so until it was clear how the United States would act. Even
though the Democrats regained control of Congress in 1948, the
Truman administration hesitated to put the issue to the test. US
public opinion was not well informed on trade issues. Opinion polls
in 1947–8 showed that only about one-third of respondents had
heard of the GATT or of the reciprocal trade agreements
programme; and whereas 59 per cent agreed that it was important to
establish an organization to increase global trade, it would not
necessarily be easy to translate this general backing into support for
a specific plan.42 Nevertheless, historical criticisms of weaknesses in
the administration’s public relations efforts on behalf of the ITO are
somewhat misplaced. These were doubtless imperfect but they were
substantial, and it is doubtful that an improved effort would have
made a difference to the final outcome. More significant was the fact
that the ITO lacked powerful advocates in Washington, its main
State Department champions (including Clayton) having left the
administration after the Havana conference. Dean Acheson, who
became Secretary of State in 1949, was prepared to send the charter
for congressional consideration, and to speak in favour of it, but
lacked Clayton’s drive and conviction on the subject.43
Clayton did, however, testify during relevant Senate hearings.
The exchanges between him and the Republican Senator Eugene D.
Millikin were illustrative of the differences between the
administration and one of its key protectionist critics. Clayton had
argued that other countries’ exchange controls, import quotas, and
other restrictions were a consequence of the war, and that they
would disappear under the ITO as the world recovered its economic
health. ‘I suggest to you that the tendency will be entirely the other
way’, Millikin responded. ‘We are off on a great international
movement toward state socialism and toward stateism.’44
Protectionists, of course, felt that (some forms of) state intervention
in foreign trade matters was acceptable, but saw any kind of
international trade organization as an incipient ‘superstate’ that
would infringe American national sovereignty.45 What they had in
common with free trade enemies of the ITO was support for
domestic free enterprise, to which—both groups of opponents
claimed—the Havana Charter posed a threat.
Groups such as the National Association of Manufacturers, which
supported free trade but which came out against the charter, have
been cast in the literature as ‘purists’. Arguably, this requires
qualification. They were not pure believers in moral
internationalism—as British Edwardian opponents of the Sugar
Convention were—but saw a role for international institutions in the
governance of trade. They thought that some kind of ITO was
desirable, but felt that the plans that had actually been drawn up
would do more harm than good. With some sections of organized
labour opposing the ITO too, the charter was up against a
formidable coalition.46
Diebold’s ‘unholy alliance’ explanation for the failure is then not
in need of serious amendment, but it may be added to. In May 1948
Clair Wilcox, the US negotiator who had done much to secure the
final deal at Havana, gave a presentation on the charter to nongovernmental
advisers who had also been at the conference. After
acknowledging that it was hard for America to criticize the
underdeveloped countries’ strong sentiment in favour of
protectionism for purposes of development ‘in view of our own
history of policy during our period of industrialization’, he offered a
‘sweeping generalization’ which was ‘not for publication’.
This Charter is very one-sided. It will impose restraints and
limitations on one side and leave almost absolute freedom on the
other side. And the way it is one-sided is this: It imposes on most
of the other countries in the world limitations on their freedom to
do a lot of things they have been doing, are doing, want to do,
otherwise will do, without this Charter. Now these limitations are
also imposed on us, but they are things we haven’t done, aren’t
doing, and don’t intend to do. And the Charter, as far as I can see,
is not going to prevent us from doing anything that we are doing
or intend to do or want to do.47
Wilcox was obviously attempting to put the best possible gloss on the
outcome, so his analysis may well have been too optimistic. It is very
difficult to say how the charter would have operated in practice had it
come into effect, given that the countries that negotiated it
interpreted many of its provisions very differently. The crucial point,
however, is that Wilcox’s arguments were ones that could not, as he
pointed out, be made in public, at least not explicitly. Although
potentially persuasive to a US home audience, they would alienate
the other countries which also had to ratify the charter and which
would only do so if they continued to believe that they had secured a
good deal. Thus, the administration’s domestic efforts to secure
ratification were hampered by the game it needed to play at the
international level.
The outbreak of the Korean War in June 1950, which meant that
congressional time had to be devoted to emergency business, sealed
the ITO’s fate: in December, the administration announced it would
not proceed with ratification. To the extent that the ITO was
deprioritized by the Truman administration because of more
pressing concerns, it can be seen as a victim of the Cold War. This
dimension, however, should not be overstated. The Soviet Union
had not taken part in the charter talks, although it left open the
chance it would do so until just a few weeks before the Havana
conference. As Diebold reflected in 1994, this actually made things
simpler: ‘Had the USSR joined, the cold war would have fuelled
Congressional, and other, resistance to full American support for the
ITO and perhaps blocked other trade measures as well. As it was, the
obstacles to the adoption of the ITO that proved impossible to
overcome were rooted in American relations with the rest of the
world, not the Communist countries.’48
4.5 CONCLUSIONS
The standard view of the post-Second World War global economic
settlement is that ‘America… invented multilateralism’;49 but, as G.
John Ikenberry has noted, ‘the system was shaped by the United
Kingdom as well as by the United States and in ways that would be
unanticipated by simple considerations of power’.50 As we have
seen, the case of the GATT/ITO demonstrates this point. It also
shows that countries beyond the Anglo-American axis could have an
impact on negotiations via the new multilateral procedures. At
Havana, the United States was still learning to play the multilateral
game—successfully in terms of securing international agreement, but
at the price of alienating its own domestic opinion.
In spite of its failure, the ITO had a number of legacies for the
politics of international trade. In 1955—in what appears to have
been an opportunistic bid to secure the support of underdeveloped
countries—the Soviet Union declared that the Havana Charter
should be ratified and that it was itself willing to join the ITO.51
More significantly, chapter 6 of the charter continued to serve as a
general guide to commodity problems during intergovernmental
consultations on the issue, and thus influenced the various
international price stabilization agreements that were reached in the
years following Havana. The most obvious significance of the ITO,
however, is that the attempt to create it gave birth to the GATT,
which continued as the basis on which world trade was regulated
until it was superseded by the WTO in 1995. As the 1947 GATT rules
(as subsequently amended) were nested inside the Marrakesh
Agreement of 1994, it could be argued that the spirit of the ITO—as
well as that of the GATT—lives on in the WTO.
It is worth asking whether or not the ITO’s failure should be seen
as a missed opportunity. The ITO might well have had a wider
membership than the GATT, which came to be perceived as a ‘rich
men’s club’.52 It was not that poor countries were excluded from
GATT membership, but that the organization’s activities gave them
little motive for joining: during the 1950s, it concentrated its efforts
on reducing tariffs on industrial goods, an issue of limited
importance to the many underdeveloped countries which had yet to
industrialize. An ITO might have been a more attractive organization
for underdeveloped countries to join, and that might have promoted
less autarchic/anarchic trade policies in such countries, with
additional growth benefits. This might have given a further boost to
the impressive post-Second World War growth in world trade that
took place under the auspices of GATT. At the same time, the
Havana Charter’s exceptions to free trade rules, especially those
made in the interests of economic development of poorer countries,
might have helped reduce global inequalities. Conceivably, then, the
ITO might have produced a more inclusive, productive, orderly, and
just world economy than that which in fact emerged.
This, however, remains speculative, given the difficulties noted
above of saying with confidence how the Havana Charter would have
operated in practice. It is equally possible that, even on the
optimistic assumptions about the way it would have worked, the ITO
would not have proved to be a substantially more economically
productive regime than the GATT. This is not to say that the charter
should not be commended as a forward-looking document. The
debates surrounding it provided some of the inspiration for the
radical thinking on economic development that spurred the creation
of the UN Conference on Trade and Development (UNCTAD) in
1964. It is, however, worth noting some of its limitations. For
example, questions of intellectual property and the environment did
not find any more place in the charter than they did in the original
GATT.53 At the time, of course, no one suggested that they should
be included in either document.
A crucial difference between the charter and the GATT, though,
was that the former allowed disputes to be referred to the
International Court of Justice, the recommendations of which would
be binding (Chapter VIII, Article 96). By contrast, the GATT’s
dispute settlement mechanism could easily be ignored because of its
voluntary nature.54 That a compulsory mechanism was written into
the charter, even though it did not come into effect, signifies how
much progress the institutional version of trade liberalism had made
since the pre-1914 era. Today, the assumptions of institutional trade
liberalism are so hegemonic that the common equation made
between the WTO and ‘free trade’ seems an entirely natural one.
Some defenders of classical free trade, such as the Ludwig Von Mises
Institute, denounce the WTO as a Trojan horse for mercantilism and
economic planning. Such views, precursors of which were part of the
mainstream in Edwardian Britain and even 1940s America, are
nowadays marginal. Perhaps they are absurd. They do, however,
help remind us that free trade and international organization,
however desirable it may be, did not always go hand in hand. The
link between them had to be invented—and it was for this
accomplishment that the designers of the ITO were to a great extent
responsible.
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