Free Trade Free World: The Advent of GATT
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be a temporary measure, superseded by a formal international organization to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.