The developing countries do not trust the developed world to dismantle its protectionist measures in the fields in which they are competitive – notably in agricultural produce – in return for market-opening decisions. This distrust has always existed. There is also a growing understanding that trade cannot be treated in a vacuum and the need to achieve social balance is not some old-fashioned socialist notion.
The GATT, which was set up in 1947, was envisaged as a temporary measure, until ratification of the Havana Charter.
The original intention was to create a third institution to handle the trade side of international economic cooperation, joining the two “Bretton Woods” institutions, the World Bank and the International Monetary Fund. Over 50 countries participated in negotiations to create an International Trade Organization (ITO) as a specialized agency of the United Nations. The draft ITO Charter was ambitious. It extended beyond world trade disciplines, to include rules on employment, commodity agreements, restrictive business practices, international investment, and services. The aim was to create the ITO at a UN Conference on Trade and Employment in Havana, Cuba in 1947.
The Havana conference began on 21 November 1947, less than a month after the GATT was signed. It was the first major event at which the emerging numerical advantage of developing countries in the UN became significant. Numerous proposals intended to safeguard industries and allow imposition of trade restrictions were tabled. A charter was eventually negotiated to the satisfaction of most delegations, by which the ITO would become a world economic forum to regulate trade. Special rules were adopted allowing limited trade protection for developing countries to adapt to a freer trade regime.
The ITO Charter was finally agreed in Havana in March 1948, but ratification in some national legislatures proved impossible. The most serious opposition was in the US Congress, even though the US government had been one of the driving forces. In 1950, it announced that it would not seek Congressional ratification of the Havana Charter, and the ITO was effectively dead. So, the GATT became the only multilateral instrument governing international trade from 1948 until the WTO was established in 1995.
Some blamed a cold war moon for casting a shadow over the internationalist sun. Others that it was due to a resurgence of economic nationalism. The mood in the US Congress by the time it was presented for ratification had begun to swing against the UN and international institutions. The internationalist Roosevelt/Truman era was coming to an end and the McCarthy era was beginning to cast its shadows. The ITO charter was not brought to the US Congress in time to catch the favourable tide. By the time it was brought to Congress, ratification had become hopeless and the ITO was abandoned even without a vote.
Thus the Bretton Woods system was incomplete from the beginning, lacking its intended third pillar. The GATT was a poor substitute and did not fill the gap as, for example, it had no functions for the stabilization of commodity prices or regulation of commodity markets. The latter’s failing has since become more, not less, significant for global prosperity. Attempts to create an influential trade organisation within the UN failed and GATT continued to function. It also galvanised developing countries into greater co-operation between them. The vacuum in world trade created by the demise of the ITO and dissatisfaction with GATT provided developing countries with a focus of common interest and the impetus for action
There is a lasting irony to the ITO’s still birth. A major reason that the current trade round talks began to fail in Seattle in 1999 was an underlying suspicion of the attempt to introduce a comprehensive agenda into a forum geared to the interests of the few major economic powers. Yet, all those years ago, the ITO was intended to have just such a comprehensive mandate. That vacuum has returned to haunt us.
Author : Stanley Crossick