Creating A Rules Based Framework For International Trade: Priya Anuargini

Creating a rules based framework for
international trade
Priya Anuargini
High Noon of Capitalism/ Trade
Golden Age of free trade- (1860-1914)
– Industrialization and technological change led by trade expansion led by
bilateral treaties
–Reciprocal tariff reduction and unconditional MFN
No multilateral conference or international institution underpinned the de

facto network of multilateral, nondiscriminatory trade arrangements
that emerged from the bilateral treaties among the leading trading
nations in the late nineteenth century
In the aftermath of First World War
• Economic consequences of War
• Beggar –thy-neighbour policies
• Smoot- Hawley Tariff Act, 1930
• 1932- Ottawa Agreement- Establishing the Imperial Preference System
• Worldwide Recession – Great Depression
The combined effect of inward turn of policy was collapse of international trade and
deepening of the slump in the world economy and complete breakdown in multilateral
trade
Origin of Multilateral International Trade
• “All international trade methods, practices, and policies which in their effects are calculated to create destructive
commercial controversies or bitter economic wars, and to formulate agreements with respect thereto, designed
to eliminate and avoid the injurious results and dangerous possibilities of economic warfare, and to promote
fair and friendly trade relations among all the nations of the world”(1916)
• “I will never falter, in my belief that enduring peace and the welfare of nations are indissolubly connected with
friendliness, fairness, equality and the maximum practicable degree of freedom in international trade” (1937)
• “You could not separate the idea of commerce from the idea of war and peace. Unhampered trade dovetailed
with peace; high tariffs, trade barriers, and unfair economic competition, with war. Though realizing that many
other factors were involved, 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”(1948)

Change in Approach
Reciprocal Trade Agreement Act
- Tariff negotiating power to the Executive
- Bolstered the bargaining position of exporters
- Tariffs could be lowered up to 50 percent
- 20 such trade agreements concluded during the 1930s

From bilateralism to multilateralism
• Bilateralism and Regionalism
– 2 or more participants
– Systematic Discrimination to third parties
– Trade Diversion
– Specific Reciprocity
• Multilateralism
– Large number of Participants
– Trade creation
– Non Discrimination for all contracting parties
– Diffused Reciprocity
– Dispute Settlement
Atlantic Charter – Trade in War’s Darkest
Hour
Clause 4.
• They will endeavour, with due respect for their existing obligations, to
further the enjoyment by all States, great or small, victor or vanquished,
of access on equal terms, to the trade and to the raw materials of the
world which are needed for their economic prosperity
Clause 5.
• They desire to bring about the fullest collaboration between all nations
in the economic field with the object of securing, for all, improved
labour standards, economic advancement and social security

The Master Lend– Lease Agreement of 1942
• This was the principal instrument through which the United States and the United
Kingdom set the terms of US assistance to UK during the war
• No financial settlement for the goods provided but Britain was required to provide
a “direct or indirect benefit which the president deems satisfactory”
• The United States decided to extract foreign policy promises from the United
Kingdom and require its participation in a new world economic framework.
• Article VII provided that the two countries would pursue an agreement “open to
participation by all other countries of like mind … [for] the elimination of all
forms of discriminatory treatment in international commerce, and to the
reduction of tariffs and other trade barriers”

Resistance of U.K- Led by Keynes
• Keynes strongly believed that government economic planning would be required
to ensure full employment in the postwar period. Such planning, in his view,
would necessarily include government controls on international trade
• U.S wanted non‐ discrimination as a key part of the world trading system, and also
wanted to ensure that most international trade would be left in the hands of
private enterprise, not government planner
• Views of Keynes guided the U. K’s stance which was otherwise divided
My so strong reaction against the word ‘discrimination’ is the result of my feeling so passionately
that our hands must be free to make something new and better of the postwar world; not that I want
to discriminate in the old bad sense of that word ‐ on the contrary, quite the opposite. . . . .But the
word calls up, and must call up ‐ for that is what it means strictly interpreted ‐ all the old lumber,
most‐favored‐nation clause and the rest which was a notorious failure and made such a hash of the
old world. We know also that won’t work. It is the clutch of the dead, or at least the moribund,
hand.
Multilateral Economic Order- From Economy to Trade
United Nations Monetary and Financial conference (Bretton Woods Conference)
• Key Architects:John Keynes and Harry Dexter
• Key Institutions
1. The World Bank Group, initially called the IBRD was established to provide assistance to countries that
had been physically and financially devastated by World War II.
2. International Monetary Fund (IMF) whose main objective was to seek stability in exchange rates was
established
3. The idea of ITO was mooted
Indian delegation was part of the Bretton Woods Conference. Its main objective was to ensure that the
development needs of countries such as India were central to the international negotiations at Bretton Woods
and to secure a satisfactory quota for India in the IMF. Also, India sought to get a permanent seat on the
boards of the major institutions that were to emerge from the negotiations.
Negotiating ITO, Creating GATT
• Bilateral and selective approach of the RTAA was too cumbersome and USA abandoned it for
multilateral approach
• After the second world war, time was of essence and a bilateral programme would take too long and
might allow protectionist forces to galvanise
• The main issues in the commercial policy discussions were tariffs and preferences, quantitative
restrictions, investment, employment, cartels, and state trading
• Canada supported the multilateral approach to reduction in trade barriers as a more efficient method
of reducing trade barriers than the bilateral approach, but insisted that any reduction in imperial
preferences should be contingent upon a significant, across‐the‐board, non‐selective reduction in the
high U.S. tariffs
• With respect to tariffs and preferences, the United States leaned toward bilateral negotiations to reduce
tariffs on a product‐by‐product basis, as had been the practice under the RTAA.
• The United Kingdom strongly favored multilateral tariff reductions on an across ‐the ‐board basis in
order to free up international trade to the fullest extent possible

u
• The U.K draft strongly favored a single international trade organization with subsections
on commercial policy, commodity policy, and restrictive practices, and a separate section on
employment
• The RTAA renewal granted the U.S. government authority to reduce tariffs only on a
selective basis and not on horizontal basis and so it proposed going ahead with a
“multilateral‐bilateral” approach wherein countries would negotiate on a bilateral, product‐
by‐product basis with the principal supplier of the good in question, and the resulting
tariff reductions would be generalized to other participating countries via the most‐
favored nation clause.
• It was suggested by Canada that it would be undesirable to attempt to negotiate tariff
reductions with many countries at the bargaining table: “judging from past experience, the
presence at a general international conference of the less important, and for the most
part protectionist‐minded, countries, would inevitably result in a watering ‐down of the
commitment which a smaller number of the major trading nations might find it possible
to enter into”
The chosen approach and implications
• Selective nuclear multilateral bilateral approach
• UN formed preparatory committee worked on the charter of ITO and wider aspects
of commercial policy while a small nuclear group of countries negotiated tariff
reductions
• US State Department released “ Proposals for Expansion of World Trade and
employment” and initially invited 15 countries in a meeting of “nuclear” countries
that would negotiate tariff reductions(Dec’1945-Jan’1946_
• The nuclear group of countries would negotiate tariff reductions and place it before
larger group of countries
• GATT was the provisional, skeletal framework for conducting tariff negotiations,
a protocol with definitive status (read tariff schedules) which would be attached to
the negotiated charter
• Protocol(GATT) was to come into existence before and independently of the charter
• ITO charter was never ratified but GATT with 23 contracting parties signified the
beginning of rules based multilateral system
GATT without ITO
• The text of GATT was drafted in 2 sets of pivotal meetings- first and second Session of the
Preparatory Committee of the UN Conference on Trade and Employment in Oct-Nov, 1946
and April-Oct, 1947 respectively
• On October, 30, 1947 delegates from 23 countries signed the GATT in Geneva
• The 23 signatories to GATT are the original contracting parties to GATT and founding
members of the contemporary world trading system.
• The modern multilateral trading system was born with entry into force of GATT
• In the first Geneva round, the 23 participating countries made no fewer than 123
agreements covering 45,000 tariff items related to about one‐half of the value of world
trade
• The negotiation for ITO charter continued in Havana, however, ITO never reached
fruition

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Creating A Rules Based Framework For International Trade: Priya Anuargini

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Creating a rules based framework for

No multilateral conference or international institution underpinned the de

• Economic consequences of War

• Beggar –thy-neighbour policies

• Smoot- Hawley Tariff Act, 1930

• 1932- Ottawa Agreement- Establishing the Imperial Preference System

• Worldwide Recession – Great Depression

reasonable chance for lasting peace”(1948)

Reciprocal Trade Agreement Act

- Tariff negotiating power to the Executive

- Bolstered the bargaining position of exporters

- Tariffs could be lowered up to 50 percent

- 20 such trade agreements concluded during the 1930s

further the enjoyment by all States, great or small, victor or vanquished,

world which are needed for their economic prosperity

labour standards, economic advancement and social security

Kingdom set the terms of US assistance to UK during the war

a “direct or indirect benefit which the president deems satisfactory”

Kingdom and require its participation in a new world economic framework.

forms of discriminatory treatment in international commerce, and to the

reduction of tariffs and other trade barriers”

United Nations Monetary and Financial conference (Bretton Woods Conference)

• Key Architects:John Keynes and Harry Dexter

had been physically and financially devastated by World War II.

3. The idea of ITO was mooted

might allow protectionist forces to galvanise

restrictions, investment, employment, cartels, and state trading

preferences should be contingent upon a significant, across‐the‐board, non‐selective reduction in the

high U.S. tariffs

order to free up international trade to the fullest extent possible

• Selective nuclear multilateral bilateral approach

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