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The Postwar Trade Regime

The Postwar Trade Regime. Lecture 9 – Tuesday, 11 October 2011 J A Morrison. Cordell Hull. James E Meade. 1. Admin. The Lesson of GATT.org. 2.

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The Postwar Trade Regime

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  1. The Postwar Trade Regime Lecture 9 – Tuesday, 11 October 2011J A Morrison Cordell Hull James E Meade 1

  2. Admin • The Lesson of GATT.org 2

  3. 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. 3

  4. 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

  5. Lec 9: Postwar Trade Regime • From the RTAA to the GATT • The Genesis of the GATT • The Ascendance of the GATT • The GATT’s Durability & Legacy 5

  6. Note that the title for Section 2 comes from Irwin, Mavroidis, and Sykes. (IrMS)We’ll consider them, though, beyond just Section 2. 6

  7. Lec 9: Postwar Trade Regime • From the RTAA to the GATT • The Genesis of the GATT • The Ascendance of the GATT • The GATT’s Durability & Legacy 7

  8. I. From the RTAA to the GATT • American Shift towards Liberalization • Anglo-American Negotiations

  9. 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) 9

  10. 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

  11. Do IrMS appreciate the salient institutional features of the 1934 RTAA? 11

  12. Why, according to IrMS, did the US shift toward trade liberalization?(p 13) 12

  13. “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

  14. How do we reconcile IrMS’ explanation with those given by BGW and MH? 14

  15.  IrMS recognize that explaining the effects of a policy is not the same as explaining why the policy was adopted in the first place. 15

  16. 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) 16

  17. (Later, IrMS use leadership in another way: to highlight the US’ leadership. See p 145.) 17

  18. I. From the RTAA to the GATT • American Shift towards Liberalization • Anglo-American Negotiations

  19. The GATT largely grew out of the negotiations between Britain and the United States in the 1930s and 1940s. 19

  20. 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 points. 20

  21. (Brace yourself: some of this will go blow-by-blow.) 21

  22. Hull saw the British imperial preference system as emblematic of the 1930s beggar-thy-neighbor strategies.He was determined to dissolve this economic bloc. 22

  23. 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

  24. Naturally, Keynes objected—but on what grounds? (p 19-22) 24

  25. 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

  26. 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 disappointed 26

  27. 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 27

  28. 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

  29. 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

  30. This brought great hope to the British, but two forces undermined this consensus… 30

  31. (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! 31

  32. (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 32

  33. 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

  34. Lec 9: Postwar Trade Regime • From the RTAA to the GATT • The Genesis of the GATT • The Ascendance of the GATT • The GATT’s Durability & Legacy 34

  35. II. The Genesis of the GATT • The GATT and the ITO • The Structure of the GATT

  36. In the summer of 1945, Canada responded to the US’s return to bilateralism with an innovative suggestion… 36

  37. Canada’s Plan • Selective Nuclear Multilateral-Bilateral Approach • Small “nucleus” of countries negotiate bilaterally • Agreements then generalized for larger group of countries  US adopted this two-step plan in early 1946. 37

  38. 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? 38

  39. Domestic politics.(pp 112-113) 39

  40. The ITO never materialized because it failed to secure Congressional approval. 40

  41. So, then how did the GATT get through? 41

  42. The GATT also did not receive Congressional approval. But it was snuck through under the auspices of the RTAA. 42

  43. II. The Genesis of the GATT • The GATT and the ITO • The Structure of the GATT

  44. Here are some of the essential features of the original GATT (“GATT 1947”). 44

  45. 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 45

  46. 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 46

  47. Lec 9: Postwar Trade Regime • From the RTAA to the GATT • The Genesis of the GATT • The Ascendance of the GATT • The GATT’s Durability & Legacy 47

  48. Despite its explicitly “provisional” status in 1947, the GATT emerged as the cornerstone of the postwar global trade regime. 48

  49. After the War, successive “rounds” were convened in which “contracting parties” met to negotiate trade liberalization.Each “round” was modeled on GATT 1947. 49

  50. GATT Rounds 50

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