Why Was an International Organization Not Established - Coursework Example

Why was an International Trade Organization not established? The Bretton Woods Conference was an assembly of 730 delegates from 44 nations. It was held in Bretton Woods, New Hampshire from 1st July to 22nd July 1944. It was held during the World War II era with the aim of making financial arrangements and creating rules for the international monetary system for the post-war world. During the conference, two financial bodies were established. This were the IMF (International Monetary Fund) and the IRDB (International Bank for Reconstruction and development), which is part of the World Bank Group. In Bretton Woods, there were also existed plans of establishing an ITO. The International Trade Organization was intended to join the International Monetary Fund (IMF) and the IRDB (International Bank for Reconstruction and Development) as a third pillar of the international economic order. ITO Establishment Process The (ITO) International Trade Organization was a brainchild of Cordell Hull (the then US secretary of state) and a few other people working in the US Department of State. This idea advocated the international co-operation and free trade as an instrument to reach at the establishment of an ITO (United States Government, 1946). This can be epitomized in Hull’s saying: “Economic peace offers the greatest assurance of permanent world peace. Artificial trade barriers invariably create bitter trade rivalry, vicious trade practices, and economic wars, which in modern times have been the prelude to actual wars” (Hull, 1948). Hull’s leadership was manifested during particularly the war time, when the idea of economic peace was vague and was turned through a set of seminars and discussions within the state department to a detailed proposal (Aaronson, 1996). It would then be elevated to the forefront of the foreign policy agenda in the US and then intense advocacy of the proposal would take place within the US government and the Congress (United States Government, 1946). Expectations were that an ITO would be established during the Bretton Woods conference. However, the Bretton Woods conference failed to meet these expectations since no ITO was established. Among the 730 delegates present was John Maynard Keynes. Alongside Harry Dexter White, he found it essential to devise an exchange rates system that would competitive devaluations such as those experienced in the 1930s. After intense negotiations, the two established a system where only the US dollar would, at a fixed rate, exchange into gold. The other allies were to make their currency convertible to these gold standards within a fixed rate of 1%. Drafting of the ITO Charter The US had entered into negotiations with its war time allies in order to conclude an agreement on the reduction of trade tariffs. Harry S. Truman, then US President, had been given the power to negotiate and conclude this kind of agreement. In February 1946, the United Nations Economic and Social Committee adopted a resolution that called for a conference to draft a charter for an ITO (Bidwell & Diebold, 1949). In October 1946, a preparatory committee that had been established met in London, for the first time, with the main aim of drafting a charter of an ITO. The first negotiations on the ITO began in November 1946. A suggested charter was presented by US policy makers, and contained a code of international trade rules that were aimed at ensuring freer global commerce. The proposed charter was then amended based on the London discussions. The amendments covered issues relating to domestic employment, economic development, intergovernmental commodity agreements and restrictive business practices. In addition to this, the London Conference opened the way for a general trade agreement, which was independent of the International Trade Organization (United States Government, 1946). Therefore, in London in 1946, a two-track approach to cooperation in international commerce was adopted by US planners. The first track was aimed at developing the General Agreement on Tariffs and Trade (GATT) while the second track was developing the ITO. After approval, the ITO had been assumed to replace the GATT (Dam, 1970). First round, Geneva, 1947 The next step in the development was in Geneva in April 1947. International agreements were launched on both the ITO and GATT. The GATT arrangements were understood to be provisional. In Geneva, the first round of GATT discussions was concluded successfully. 23 nations engaged in bilateral bargaining seeking reductions in duties. The concessions which were made were later generalized through endorsement of principles which were most favored (Dam, 1970). This was conventional to the existing US RTAA (Reciprocal Trade Agreements Act). A total of 123 sets of negotiations were completed and incorporated in to the GATT. The GATT was signed in London on 30th October 1947 where 8 of the 23 countries involved in the negotiation process signed the ‘Protocol of Provisional Application of the General Agreement on Tariffs and Trade’ (Jackson, 1969). Havana, 1948 In 1948, international negotiations which were aimed at finishing the final part of the ITO charter started in Havana (Diebold, 1952). This charter was the second track in the plans of US policy makers. AS the negotiations talks continued, US state development officials still hesitated on whether to push for the RTAA (that was due to expire in 1948) or alternatively for Congressional support of the ITO, or for both. AS the US officials weighed their options, the Cold War and the European Recovery Program captured their attention. The state department officials later resolved to concentrate on renewing the RTAA as well as to postpone temporarily submitting the ITO to congress. The latter lacked strong support and The GATT became their fall back option (Diebold, 1952). In March 1948, the final charter (The Havana Charter for the ITO) was signed by fifty four nations in Havana. In June 1948, Congress also concurred to extend the RTAA by one year. In that same year, there was a presidential election and the major policy makers in the US State Department deferred considerations of ITO. The officials still focused on the RTAA once more in 1949 further deferring ITO considerations (United States Government, 1946). While the Senate hearings on the extension of the RTAA failed to touch on the ITO issue, while the president failed to submit the Havana Charter to the Congress in April 1949 and while the House of Representatives failed to conduct hearings on the charter, the ITO had already collapsed upon arrival at the congress for all practical purposes. America failed to join the International trade organization, and the organization, despite there been so much preparation for it, never materialized (Diebold, 1952). According to Aaronson (1996), Congress failed to vote for the ITO due to the US state department policy makers being secretive, unable to prepare the ground and ignorant to public relations. Unlike the United Nations, where public support was wooed, and unlike in the World Bank and IMF (Bretton Woods institutions) where there was good public relations despite the subject being remote, tariffs were very important domestically. Aaronson further shows clearly how policy makers dealing in the trade issues lacked a clear direction. There lacked an effective leadership such as that exhibited by Harry Dexter White and John Maynard Keynes in the World Bank and IMF arrangements (Aaronson, 1996). The Annecy Round, 1949 This was the second round in the negotiation process and was held in Annecy, France. This round resulted in the establishment of GATT. Also, it saw the reduction of custom duties of the participants. In the Annecy round, the participants from 23 countries agreed to exchange over 5, 000 tariff concessions while 10 more countries agreed to sign the general agreement. As the General Agreement on Tariffs and Trade (GATT) entered into force via a protocol signed by the 23 nations, backers of this agreement it would become part of a more comprehensive agreement. In March 1948, the ITO Charter was signed. However, enthusiasm had warned in various countries two years after its signing. The President of The United States, Harry Truman, indicated his decision of not seeking congressional ratification of the Havana Charter since it failed to enjoy support from the senate or other export oriented corporations. This move resulted in the ITO’s interim commission being left to administer the GATT. Subsequently, the commission became its secretariat (Jackson, 1969). The third round, Torquay, 1950 Negotiations in this round were mainly focused on further reduction of tariffs. This round saw the number of participants rise to 38. By the end of 1950, America had formally abandoned all efforts aimed at joining the ITO. However, the United States still remained part of GATT and participated in the series of rounds in international trade negotiations. The fourth round of GATT negotiations was held in Geneva in 1956 (Jackson, 1969). The Dillon Round, 1961 Negotiations in this round were held in Geneva and named after C Douglas Dillon, then US secretary of state. By this time, European Community had already been set up. It was beginning to match the economic clout of the United States. The Kennedy Round, 1964 At this stage, the GATT rounds were beginning to get longer and complicated. In this sixth round, saw the participation surge to more than 60 countries (Aaronson, 1996). The main subjects discussed in this round expanded from the traditional tariff reductions to new trade rules. This round saw the foundation of new rules such as those regarding the use of anti-dumping measures. The Tokyo Round, 1973 This was the seventh round in the negotiation process, held at a ministerial meeting in Tokyo. Participation in this round increased to 102 countries. This round saw more tariff negotiations that resulted in substantial reduction in custom duties. Various agreements were also reached on certain non-tariff barriers. However, these agreements were only signed by some participants. These agreements came to be known as the ‘Tokyo Round Codes’ (Bidwell & Diebold, 1949). However, negotiations in this round failed to touch on essential reforms in agricultural trade. Talks in this direction were scheduled to take place in the eighth round. The Uruguay Round, 1986 These negotiations were the last and the greatest of the GATT trade rounds. Talks in this round were also the longest and the most complicated. The talks were held in 1986, in Uruguay. For the first time, the talks were held in a developing country since these countries were to play a very active role in the negotiations alongside the other developed participants. In this round, 6 the participants concluded that GATT was straining when adapting to the new globalized world. The negotiations were aimed at extending the trading system into various new areas, especially trade in services and intellectual property, as well as to reform trade in sensitive sectors of textile and agriculture (Dam, 1970). The final Act that concluded negotiations in the Uruguay round saw the official establishment of the World Trade Organization (WTO) regime. This was signed in 1994 in a ministerial meeting held in Marrakesh (Bidwell & Diebold, 1949). Success of the GATT While the establishment of an ITO turned out to be a failure, the General Agreement on Tariffs and Trade (GATT) proved to be a triumph as it was well established. GATT provided a set of rules that governed much of the world trade. It presided over periods that recorded high rates of growth in international commerce. GATT’s success over the 47 years of service was incontestable although it was provisional with a limited field of action. It succeeded greatly in both securing and promoting liberalization of much of the world trade. Continued reduction in trading tariffs alone helped greatly spur high rates of world trade growth during the 1950s and 1960s (an average rate of 8% every year). Throughout the GATT epoch, the trade liberalization momentum ensured that production growth was consistently outpaced by trade growth, a measure of the increasing ability of countries to trade with each other and reaps the benefits of trade. The rush of new members also demonstrated that GATT was recognized as an anchor of development and a tool of both trade and economic reform (World Trade Organization, 2012). GATT’s success can also be attributed to the success of the 8 rounds of trade negotiation. The following table summarizes the 8 rounds of trade negotiations. The table also shows how participating countries increased at different rounds. Name and year Duration Participating Countries Achievements Geneva, 1946 7 Months 23 Signing of GATT Signing of 45,000 tariff concessions Annecy, 1949 5 Months 13 Participating countries agreed to exchange 5,000 tariff concessions Torquay, 1950 8 Months 38 Participating countries agreed to exchange 8,700 tariff concessions 25% reduction in the 1948 tariff levels Geneva, 1956 5 Months 26 Reduction of tariffs by $ 2.5 Billion Dillon, 1960 11 Months 26 Signing of tariff concessions with a net worth of $ 4.9 billion Kennedy, 1964 37 Months 62 Signing of tariff concessions with a net worth of $ 40 billion Tokyo, 1973 74 Months 102 Further reduction of tariffs by $ 300 Billion Uruguay, 1986 87 Months 123 Creation of the WTO Extension of trade negotiations Agreement to permit full access for clothing and textiles from developing countries Extension of rights regarding intellectual property Table summarizing the GATT trade negotiation rounds The success of GATT as an institution which has fostered increases in world trade lies in foundation principles. Unlike ITO, GATT’s founding principles are reciprocity and nondiscrimination. Reciprocity principle is the practice that mainly occurs in GATT negotiating rounds. This is where one country offers to reduce its barriers to trade and the second country ‘reciprocates’ by reducing its own trade barriers. Nondiscrimination is when a GATT member offers another GATT member country a benefit or a tariff concession. Thus, nondiscrimination extends the benefits of tariff reciprocation beyond the two parties and to all GATT members. According to Bagwell and Staiger (2003), these two principals have worked together towards improving the efficiency of the global trading system. In conclusion, the Bretton Woods system had a lot of benefits which were significant in the expansion of international trade and investment and a notable economic performance. Through this system, a number of organizations were formed and they contributed significantly towards development of world trade. However, participants in the Bretton Woods System failed to reach at an agreement that could have seen the formation of an International trade organization. The lack of an agreement to oversee the formation of an ITO was however insignificant due to the formation of GATT that ended up having more benefits than the ITO could achieve. References: Aaronson, A. S., (1996). Trade and the American Dream: Social History of Post war Trade Policies. Lexington: University Press of Kentucky. Bagwell, K., & Staiger, R. (2003) ‘Multinational Trade Negotiations, Bilateral opportunism and the rules of GATT/WHO’, Florida: CRC Press. Bidwell, P.W., & Diebold, W. (1949) ‘The United States and the International Trade Organization: International Conciliation’, vol.27, pp.187-239 Dam, K. (1970). ‘The GATT: Law & International Economic Organization’. Chicago: University of Chicago Press. Drache, D. (2000). ‘The short but significant life of the International Trade Organization (ITO): Lessons for our time’. Retrieved from: Diebold,W. (1952). ‘The end of the ITO, Princeton Department of Economics Working Paper’, Princeton: New Jersey. Hull, C. (1948). ‘Memoirs of Cordell Hull’, New York: Macmillan Publishers. vol.1. Jackson, J. (1969). ‘World trade and the law of GATT’, New York: Bobbs-Merrill Company. United States Government. (1946) ‘Basic principles in the establishment of International Trade Organization’. Washington: US Department of State. United States Government. (1946) ‘Suggested Charter for an International Trade Organization of the United Nations’. Washington: US Department of State. World Trade Organization. (2012). ‘Understanding the WTO: GATT years’. Retrieved from: < http://www.wto.org/nglish/thewto_e/whatis_e/tif_e/fact4_e.htm> Read More