Download - The Postwar Trade Regime
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The Postwar Trade Regime
Lecture 9 – Tuesday, 11 October 2011J A Morrison 1
James E MeadeCordell Hull
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Admin– The Lesson of GATT.org
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Last time, we discussed the collapse of the global trade
regime during and after WWI.
We also saw the early attempts by the US to rebuild this order in the mid-1930s.
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Today, we’ll continue that story by tracing the origins of the
General Agreement on Tariffs and Trade (GATT) and its
expansion in the postwar era.
This will set the stage for a discussion on Thursday about the contemporary global trade
regime.4
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Lec 9: Postwar Trade Regime
I. From the RTAA to the GATTII. The Genesis of the GATTIII.The Ascendance of the GATTIV.The GATT’s Durability & Legacy
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Note that the title for Section 2 comes from Irwin, Mavroidis, and Sykes.
(IrMS)
We’ll consider them, though, beyond just Section 2.
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Lec 9: Postwar Trade Regime
I. From the RTAA to the GATTII. The Genesis of the GATTIII.The Ascendance of the GATTIV.The GATT’s Durability & Legacy
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I. From the RTAA to the GATT
1. American Shift towards Liberalization
2. Anglo-American Negotiations
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IrMS offer their own explanation for the US shift in favor of liberalization in
the mid-1930s.
Let’s compare their analysis to those we have seen. (pp 10-
17)
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Previous Explanations of US Liberalization in the 1930s
• Bailey, Goldstein, & Weingast (BGW)– See-saw battle between parties on trade
policy– Democrats want to lock in tariff reductions– Institutional changes of RTAA…
• secure liberalization now • Foster exports entrenched advocates
• Michael Hiscox (MH)– Of course democrats liberalized trade– Durability is explained by exogenous
changes in trade interest (caused by war) 10
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Do IrMS appreciate the salient institutional features
of the 1934 RTAA?
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Why, according to IrMS, did the US shift toward trade
liberalization?
(p 13)
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“When the war came in 1914, I was very soon impressed with two points. . . . I saw that you could not separate the idea of commerce from the idea of
war and peace . . . . [and] that wars were often largely caused by economic rivalry conducted unfairly. . . . But toward 1916 I embraced the
philosophy that I carried throughout my twelve years as Secretary of State . . . . From then on, to
me, unhampered trade dovetailed with peace; high tariffs, trade barriers, and unfair economic
competition, with war...I reasoned that, if we could get a freer flow of trade ‐ freer in the sense of fewer
discriminations and obstructions ‐ so that one country would not be deadly jealous of another and
the living standards of all countries might rise, thereby eliminating the economic dissatisfaction
that breeds war, we might have a reasonable chance for lasting peace.”
-- From Cordell Hull’s Memoirs (IrMS 13) 13
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How do we reconcile IrMS’ explanation with those given by BGW and MH?
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IrMS recognize that explaining the effects of a policy is not the same as explaining why the policy was adopted in the first
place.
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IrMS on Leadership
• IrMS’ foundational assumption: leadership is key
• How Hull’s leadership set policy (p 14):– Set liberalization as high priority– Ensured robust design
• Hull was a leader (16, 17)
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(Later, IrMS use leadership in another way: to highlight the US’ leadership. See p 145.)
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I. From the RTAA to the GATT
1. American Shift towards Liberalization
2. Anglo-American Negotiations
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The GATT largely grew out of the negotiations between
Britain and the United States in the 1930s and
1940s.
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The initial Anglo-American imprint remains immensely
important.
We’ll discuss the efforts at reform—successful and not—later today and Thursday.
But we need to understand the nature of these starting
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(Brace yourself: some of this will go blow-by-blow.)
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Hull saw the British imperial preference system as
emblematic of the 1930s beggar-thy-neighbor
strategies.
He was determined to dissolve this economic bloc.
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Lend-Lease Act
• Passed March 1941• US provides money, munitions, &
supplies to GB and other Allies• The Consideration: GB not obliged to
repay loans, only to return unused portions and offer something of equal value
• US initially tries to trade Lend-Lease Assistance for abolition of Imperial Preference System 23
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Naturally, Keynes objected—but on what grounds? (p
19-22)
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Keynes on “the lunatic proposals of Mr Hull”
• GB lacked authority to oblige commonwealth
• Americans falsely assumed balanced postwar global economy– US: surplus of exports– UK: excessive demand for imports
• Keynes dreaded re-adoption of 19th C strictures (gold standard + free trade) Some controls would be necessary for
monetary policy autonomy 25
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The Atlantic Charter
• Meeting between FDR & WSC at Newfoundland, Aug 1941
• Joint Statement of Principles– No territorial aggrandizement– Self-determination– “endeavor, with due respect for their
existing obligations, to further the enjoyment by all States…to…trade and…raw materials”
• Hull was disappointed26
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The Mutual Aid Agreement
• Signed 23 Feb 1942• US attempts to trade assistance for
elimination of commercial “discrimination”
• British wonder if US State Dept is the only supporter of free trade
• Unclear language differing interpretations
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Meade’s (British) Plan
• Proposal for an International Commercial Union (Jul 1942)
• Desired multilateral rather than bilateral agreements
• Exceptions:– Imbalances of payments– “moderate degree of Imperial
Preference”
• International Commerce Commission: Judicial dispute settlement body 28
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Washington Seminar, Fall 1943
• Informal Anglo-American discussions• Broad agreement on trade policy:
liberalize!• Different modes of negotiation– US: bilateral negotiations; product-by-
product– GB: multilateral negotiation; across the
board cuts
• New consensus– Negotiations will be multilateral within group– GB gets transition period & exception for
balance of payments problems 29
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This brought great hope to the British, but two forces
undermined this consensus…
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(1) Connections with Money• Persistent disagreement about int’l
monetary system– Exchange rates– Capital controls
• This tainted trade negotiation through the balance of payments connection
--> Each FEP must be considered in the context of the other FEPs!
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(2) Domestic Politics• US State Dept liked free trade, but
Congress was another matter• Congress questions abandoning
RTAA– RTAA had a proven track record– Bilateral negotiations would maximize
benefits of US power
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After the war ended, the US ended Lend-Lease, forcing
GB to request further loans.
Relations worsened when the US returned to its old
mantra: we’ll give you financial assistance if you
eliminate Imperial Preference. 33
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Lec 9: Postwar Trade Regime
I. From the RTAA to the GATTII. The Genesis of the GATT• The Ascendance of the GATT• The GATT’s Durability & Legacy
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II. The Genesis of the GATT
1. The GATT and the ITO2. The Structure of the GATT
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In the summer of 1945, Canada responded to the US’s return to bilateralism
with an innovative suggestion…
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Canada’s Plan
• Selective Nuclear Multilateral-Bilateral Approach
1. Small “nucleus” of countries negotiate bilaterally
2. Agreements then generalized for larger group of countries
US adopted this two-step plan in early 1946.
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US’ Two-Step Strategy
• US extends invitations to select countries to meet in March 1946
• Feb 1946: UN Econ & Soc Committee recommends drafting charter for ITO
But the former was delayed and the latter fizzled entirely. Why?
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Domestic politics.
(pp 112-113)
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The ITO never materialized because it failed to secure Congressional approval.
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So, then how did the GATT get through?
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The GATT also did not receive Congressional
approval.
But it was snuck through under the auspices of the
RTAA.
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II. The Genesis of the GATT
1. The GATT and the ITO2. The Structure of the GATT
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Here are some of the essential features of the
original GATT (“GATT 1947”).
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GATT 1947
• 23 countries (“contracting parties”) signed 30 October 1947 in Geneva
• Agreement– “Protocol of Provisional Application”,
done in conjunction with expected ITO–Multilateral, MFN status– Very loose dispute settlement
mechanism– Consensus Decision-making
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Results of GATT 1947
• Immediate Results– 45,000 individual reductions– Affects $10 billion of trade (20% of
global total)
• Long-term Results– Established regime for future trade
negotiations
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Lec 9: Postwar Trade Regime
I. From the RTAA to the GATTII. The Genesis of the GATTIII.The Ascendance of the GATT• The GATT’s Durability & Legacy
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Despite its explicitly “provisional” status in 1947,
the GATT emerged as the cornerstone of the postwar
global trade regime.
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After the War, successive “rounds” were convened in which “contracting parties”
met to negotiate trade liberalization.
Each “round” was modeled on GATT 1947.
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GATT RoundsRound Name
Place Year(s) Subjects Countries Significance
GATT 1947 Geneva 1947 Tariffs 23 Established Framework
Annecy Annecy 1949 Tariffs 13
Torquay Torquay 1951 Tariffs 38
Dillon Geneva 1960-1961 Tariffs 26
Kennedy Geneva 1964-1967 Tariffs & Anti-dumping
62 Rule Change: Inclusion Exclusion
Tokyo Geneva 1973-1979 Tariffs, NTBs, “framework” agreements
102
Uruguay Geneva 1986-1994 Tariffs, NTBs, Intellectual Prop, DSU
123 Led to WTO
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Significant Trends
• Increase in Length of Rounds• Broadening Scope• Increase in Size
The GATT grows over time!
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Lec 9: Postwar Trade Regime
I. From the RTAA to the GATTII. The Genesis of the GATTIII.The Ascendance of the GATTIV.The GATT’s Durability & Legacy
52
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IV. GATT’s Durability & Legacy
1. Explaining the GATT’s Durability2. Assessing the GATT’s Legacy
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Why did the GATT prove so durable?
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Obviously, the US’ newfound commitment to
free trade was crucial.
But this was a prerequisite—necessary but not
sufficient.
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Why did the US continue to use the GATT framework
rather than returning to the RTAA or developing some
new protocol for liberalization?
And why did the rest of the world go along?
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It met the needs of both developed and developing
countries…
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(1) Loose, “Provisional” Structure
• Ambiguity & Flexibility Lowered bar of participation
• Ease of Exit Enhanced advantages of powerful states
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(2) Two-Step Process
• Allowed powerful states to set agenda
• But still created value for all members– Bad deal is better than no deal at all
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Here’s the takeaway:
GATT was premised upon consolidating advantages of
the powerful while still ensuring weak states were
better off with it than without it.
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IV. GATT’s Durability & Legacy
1. Explaining the GATT’s Durability2. Assessing the GATT’s Legacy
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De jure, decision-making in the GATT was premised on
consensus (unanimity).
But de facto the powerful countries set the agenda.
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This has led to what IPE scholars call democratic gap: the practical lack of
democratic rule in international regimes.
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And there is a deeper irony here: the countries that
dominate these international regimes are
predominantly democracies!
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This is what I call democratic irony:
democracy, which is highly correlated with international power,
ironically leads democratic states to develop incredibly undemocratic international
regimes. 65
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Next Time: The Trade Regime Today
• From the GATT to the WTO• Does the WTO matter?• Doha: The Colonies Strike Back• Regionalism & Multilateralism• The Normative Questions– Principle: Is trade liberalization good?– Execution: What’s with the double
standard for developing & developed countries?
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