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Free Trade Free World: The Advent of GATT

Author(s):Zeiler, Thomas W.
Reviewer(s):Aaronson, Susan Ariel

Published by EH.NET (June 1999)

Thomas W. Zeiler. Free Trade Free World: The Advent of GATT. Luther

Hartwell Hodges Series on Business, Society

and the State. Chapel Hill:

University of North Carolina Press, 1999. Pictures, text, notes,

bibliography, and index. Pp. 288. ISBN -0-8078-2458-5. $39.95

Reviewed for H-Business and EH.NET by Susan Ariel Aaronson, George Mason

University.

One of the world’s most misunderstood organizations sits on the glistening

shore of Lake Geneva, in Geneva, Switzerland. Its 450 international civil

servants toil in a former palace. Despite their tony digs, they have little

power or clout. The World Trade Organization (WTO) is a member driven

organization. Its 132 members meet to develop rules to govern trade among

nations. Decisions at the WTO are not made by these officials, but by consensus

among all members. And consensus is not quickly or easily arrived at.

At this writing, the WTO is some 4 years old, but it has a little known

history. It was built on a multilateral trade agreement, the GATT (General

Agreement on Tariffs and Trade), established in 1948. The GATT was supposed to

be a temporary measure, superseded by a formal international organization to

govern trade. This organization, the International Trade Organization (ITO),

not only included the GATT’s agreements on commercial policies (tariffs,

quotas, exchange controls and other border measures that can distort trade)

but also rules on economic policies that could also distort trade such as

employment policies or business practices.

The ITO was the most comprehensive international agreement ever negotiated.

In my opinion, it made the WTO look simple. Had it been approved, the ITO

would have required Congress to change some U.S. laws and regulations–beyond

the traditional turf of trade policy. But Congress never voted on the ITO.

Republicans and Democrats alike were preoccupied with

the spread of Communism throughout Eastern Europe, instability in Asia, hunger

throughout the world and inflation in the United States.

President Truman made NATO and the Marshall Plan his legislative priorities in

1948-1949 and did not press for its approval. He was satisfied with the

achievement of the GATT.

This is a complicated history and it gets more complex. The U.S. Congress also

never approved U.S. membership in the GATT. The GATT was built on America’s

reciprocal trade agreements act, first passed by the Congress in 1934, during

the Great Depression. With this law, for a limited period,

Congress granted its traditional authority to make trade policy to the

Executive in the hopes that bilateral trade liberalization would yield economic

growth.

The GATT was tailored to fit the limitations of this legislation as well as

Congressional reluctance to cede control over trade policy either to the

Executive or to a formal international organization.

This act allowed the United States to negotiate bilateral trade agreements

that mutually reduced border measures such as tariffs that distorted trade.

The GATT then generalized these agreements among its contracting parties.

They were called contracting parties because the authors of the GATT, in

particular

State Department official John Leddy, recognized that Congress would not like

the term “members.” Moreover, the United States accepted the GATT’s provisions

only insofar as it did not interfere with its existing laws. As a result, the

United States could

continue to protect and subsidize its agricultural producers without breaching

the very trade agreement it had created. To reiterate, the trade agreement used

to reduce protectionism allowed protectionism and was built to accommodate

protectionism. And the trade agreements act did not allow U.S. policy makers

to convene discussions about the many other policies (such as labor or

competition policies) that distorted trade among the United States and its

trade partners. Thus, the GATT was not built on a very stable foundation,

because the trade agreements act had to be renewed every couple of years. Until

1995, when the United States joined the WTO, the GATT was simply a trade

agreement, a club, because the reciprocal trade agreements act did not

authorize

the executive branch to sign a treaty or build an international organization.

Tom Zeiler, an associate professor in the history department of the University

of Colorado at Boulder, has worked hard to shed light on this complicated

history in his new book

, Free Trade, Free World: The Advent of GATT. Knowing that the

historians of foreign economic policies have not focused on the GATT, Zeiler

tries to fit its history into American foreign policy. This is an important

objective. He argues that this multilateral trade agreement was “designed to

ensure American values and security, not just profits” (p.2). And he argues

that “by liberalizing trade while protecting domestic economies–a bargain

consistent with U.S. trade law,

practice, and history–GATT facilitated American foreign economic and

diplomatic objectives” (p.5). GATT was flexible, because it facilitated a

global compromise on free trade and protection. And thus, Zeiler concludes,

because GATT was a protectionist/free trade compromise, GATT endure d.

Zeiler reviewed archival documents in the United States, Canada, Great Britain,

and Australia. Thus, he examined policy makers’ view of the same policies and

decisions with many different perspectives. By so doing he has raised the bar

for other historians attempting to assess the development of economic

internationalism. But Zeiler’s research is also incomplete. He ignored the

views of other important nations such as the Netherlands,

France or Brazil which were also involved in the development of the

GATT and the ITO.

Zeiler’s book focuses on how “free trade” theory and tools had to accommodate

political reality. He believes that the U.S. was thwarted in achieving “free

trade” by foreign policy realities–the economic and political problems of her

allies; the Cold War, etc. But “free trade” was never a goal of U.S. policy

makers or U.S. business. There is no evidence in the State Department files

that the policy planners sought free trade as a goal. And the best evidence of

this is the tools they used to encourage trade(trade agreements). The GATT

(and all trade agreements) are not designed to free trade–but to regulate it.

Such trade agreements regulate how entities may trade and how nations may

protect. They help forge “freer trade” but free trade is nonexistent. There

are always times (whether to protect consumers from unsafe food or producers

from dumped imports) that nations must protect. And in democracies, there is

always strong pressure for protection. Thus, the U.S. led global efforts to

free trade while protecting its textile, sugar and steel industries, among

other

sectors.

(The design of the GATT, as noted above, makes this clear).

Zeiler’s model hamstrings both his analysis and his presentation of the

characters in this complex story.

He lumps business, labor, and government leaders into two camps: protectionist

or free traders. Because he presumes that “free trade” was the only goal of the

postwar planners, he underplays other objectives valued by postwar planners

such as Harry Hawkins (a foreign service officer) and Clair Wilcox (an

economics professor serving the government) . These equally important goals

were to prevent a revival of the Great Depression and to find ways to encourage

full employment. He also mischaracterizes the views of senior leadership as

pure free traders.

Will Clayton, a businessman who served in government as the senior

Undersecretary of State responsible for trade) and President Harry S.

Truman had very different views about balancing trade and other economic

policies. And they had very different views about how best to encourage trade

while encouraging employment. Yet he lumps these four men into the same

category: free traders. For example, he describes Clair Wilcox as

“steeped in free trade doctrine” (p.7 1). Wilcox was more concerned with full

employment than with ensuring market access for American capitalists.

(One can get this understanding by interviewing one of his former

students–William Diebold–or by reading Wilcox’s own views in his Charter for

World Trade.) Or Zeiler cites Truman as committed to free trade (p.75).

But in none of his writing did Truman show how much he valued “free trade.”

He never went to any of the trade agreement conferences; and he made little

effort to defend trade agreements before Congress. Even businessmen Will

Clayton was not a doctrinaire “free trader.” Why simplify their complex views

if the goal is to enlighten the reader into the development of U.S.

trade policy?

Zeiler also misunderstands the relationship of the G ATT (an agreement

governing commercial policies–such as tariffs, quotas and exchange controls)

and the broader ITO, which was designed to subsume it. The ITO failed to gain

broad U.S. support because it was so comprehensive–it included rules governing

employment, business practices, and investment. It clearly was designed to

regulate both border measures (the traditional stuff of trade policy) as well

as national policies that can distort trade.

Thus, it affected national sovereignty and was bound to be

controversial,

as the WTO is today. Those people advocating for the ITO and the GATT were

creating rules and defending rules that delineated how nations could protect.

Thus, it is illogical to call them “free traders.” They were trade policy

realists–freer trade, not free trade was always the goal. But Zeiler persists

in believing “free trade undergirded a Free world.” (p.

180.)

This review was very difficult for me to write. Tom Zeiler is a superb

researcher; a good writer; a solid analyst; and a friend, who has generously

given of his time to critique and improve my own work. His first book,

American Trade and Power developed new insights into Kennedy

Administration foreign economic policy. However, we must await additional

studies of the global development of the GATT to understand its evolution and

limitations.

Subject(s):International and Domestic Trade and Relations
Time Period(s):19th Century