Creating the International Trade organization- Case Study
Creating the International Trade organization- Case Study
President Truman had the unenviable task of deciding the fate of one of the most revolutionary proposal that had the potential to change the shape of international economy forever. If he lobbied hard enough for it using all his diplomatic clout and political power, he could get it ratified by the congress. But deep in his mind he must have had doubts about its worth because the charter that was proposed had several weak points that were not in the complete interests of his own country.
History of 19th century gives sufficient proof that a perfectly free trade system is not practical or sustainable. All countries are not similar in their economic and political make up and individual countries, from time to time, have had and are likely to always have their own problems and objectives. An International Trade policy of a country is one factor that will get flexed at the time of domestic distress within a country or when the relationship with another country or countries is strained.
The Charter of the International Trade Organization ( ITO ) failed to come into existence due to several factors. The most of important of them was the protests from within the United States from the perfectionists who felt the charter was not strict enough to lead to a free trade world and the protectionists who protested that ITO would ruin their domestic industry and employment situation.
After the Second World War, the world economy and trade were in chaos. The United States, emerging as the most powerful economy in the world, initiated a series of activities to help reconstruct the affected countries and their economies. President Truman considered ITO as ideal platform for setting the tone for the future of world economy. (p.1).
The successful creation and operation of the International Monetary Fund ( IMF ) and the International Bank for Reconstruction and Development ( later named World bank ) after the second world war it was the idea of the think tank of US to create a system of free trade between nations by proposing a clearly laid out guidelines for international negotiations of trade, trade liberalization, foreign direct investment, cartels and commodity agreements. (p.1)
Both the IMF and World Bank proposals were ratified without much opposition and had been seen by the international community at large, as the steps in the right direction to eliminate the disparities between the developed, the developing and the third world countries.
The problems of the charter started when the two of years of international negotiations compromised a number of original recommendations of Cordell Hull and his team, the original proponents of ITO. These compromises gave plenty of escape routes and loopholes to member countries especially of the developing world to nullify the terms of the charter on certain grounds. Many people in the US and other major economies feared that these loopholes are likely to be misused jeopardizing the whole idea of free trade.
The ideology of ITO was flawed to the extent that the final agreement had several clauses that made the free-trade system self-defeating.
Had the Americans compromised too much in the negotiations?. It would seem so. The opponents of the ITO pointed out that US would probably be the only country that would stick to the rules of the agreement while a majority of the rest of world would be able to use any one of the clauses to claim exemption to deviate from the terms of the agreement.
Within the domestic economic framework in the United States was clearly divided towards the implementations of ITO. The agriculture based enterprises in the south where in favor of ITO while the industrial sectors in the north areas were crying foul. On the Political front the republicans were largely opposing ITO while the democrats where for free trade.
After several failed attempts to get it passed by the congress President Truman finally announced that he would not pursue the matter further. Thus the ITO chapter was dead and buried by 1950.
However, the failure of the ITO or the critics arguments on it did not seem to affect the fate of another trade agreement at a much lower level called General Agreement of Trade and Tariffs ( GATT ). The success of GATT instead of ITO is ample proof of the fact that ITO charter was all-encompassing and universal with an organizational structure and comprehensive provisions to the extreme extend. GATT on the contrary was narrow and focused. GATT was later used by the US as a vehicle to push some of the ITO charter recommendations (Wilkinson, R., p.20). The fact that GATT, later gave way to World Trade Organization ( WTO ) which is reminiscent of the ITO charter points to fact that ITO was introduced too early for its own good. The world market was not ripe enough to handle such a complicated and comprehensive system of regulations and conditions. In the shape of size of GATT and then WTO some of the ITO objectives were pursued with considerable success even though the achievement of global free trade looks an unlikely possibility.
Yet, some of the concerns voiced by the opponents of ITO have proved to be true, such as the fear that in a free and open global economy, a crisis in one area would affect the rest of the world.
The US congress did not ratify the ITO charter that the proposal committee had signed up with 53 countries of the world at Geneva in 1947. It would seem that United States escaped fro committing a blunder of sorts which would have seriously undermined its aim of sustaining and strengthening its position as the leading political and economic power of world. The world was not ready for a structure of that magnitude. And in order to satisfy all countries concerned the charter committee had made far too many compromises that would have been taken advantage of by undeserving nations. The ITO was indeed a brilliantly beautiful but utterly unpractical dream.
Harvard Business School, 1998, Creating the International Trade Organization
Wilkinson R., , 2001,Multilateralism and the World Trade Organization: The Architecture and Extension of International Trade Regulation, Routledge
Northrup C N, 2003, The American Economy, ABC-CLIO