GATT and the Goods Council
Clash of the GATT negotiators
September 1947: Following months of good progress in Geneva, GATT negotiators had entered a delicate phase where the most difficult issues had to be tackled. Chief amongst them was the US demand for the new multilateral system to be based on the "most favoured nation" (MFN) principle. With the proposed MFN clause, any privilege granted to any country would have to be granted immediately and unconditionally to all GATT contracting parties.
* Roy Santana
This short story is based on research undertaken by Roy Santana, WTO Counsellor. It is not an official WTO publication. It subsequently became part of a paper: Roy Santana, "70th anniversary of the GATT: Stalin, the Marshall Plan, and the provisional application of the GATT 1947", Journal of Trade Law and Development, Volume 9, pp. 1-20.
The man behind the idea
Mr. Cordell Hull, US Secretary of State and champion of free-trade internationalism, had been pushing for MFN trade well before the end of World War II and the GATT negotiations were launched. He was convinced that US exporters should not continue to be harmed by the large number of preferential regimes that had proliferated prior to the Second World War, and in particular the preferences stemming from the British Commonwealth of Nations, considered by the United States to be a protectionist perversion. Political support in the US for eliminating all discriminatory trade practices was strong, and extended to President Harry Truman himself. This is not to say, however, that the United States was completely free of protectionist sins. As an ill-conceived response to the Great Depression of 1929, US Congress had passed the Tariff Act of 1930, better known as the Smooth-Hawley Tariff Act, which had raised tariffs on more than 20.000 products.
The main obstacle for a deal
Since the conclusion of the Franco-British Commercial Treaty of 1860, Great Britain had been the main upholder of the MFN principle. However, over time, it progressively developed a system where exports originating in the Commonwealth benefitted from lower tariffs than those applicable to third countries. Designed in 1898 as a means for commercial integration, imperial preferences progressively evolved into a complex protectionist array. As a response to the Great Depression and the introduction of the Smooth-Hawley Act in the US, the system had culminated in the "Ottawa System of Imperial Tariff Preferences" of 1932.(1) Since US exporters had been particularly hurt by these preferences, Cordell Hull had made the MFN clause the cornerstone of his reciprocal trade agreements program. Well before the end of World War II and the London discussions of 1946, the US had unsuccessfully tried to eliminate the British imperial preferences through different agreements, including the "Atlantic Charter"(2) of 1941, the "Lend-Lease Agreement"(3) of 1941, and the "Anglo-American Financial and Commercial Agreement" of 1945.
The importance of eliminating preference was highlighted in statement by Mr. Clair Wilcox, from the US delegation, who stressed that:
"The members of this Committee will be judged, in the eyes of the world, not only by the words we have written on paper and sent forward to the World Conference, but also by the actions that we shall take, here and now, to give meaning to those words. Our-proposal to negotiate for the substantial reduction of tariffs and the elimination of preferences will be laid down side by side with the provisions of our General Agreement on Tariffs and Trade. Our promise in the one will be measured by our performance in the other".(4)
During the GATT negotiations, Sir Richard Stafford Cripps, President of the British Board of Trade, disagreed with the US vision as articulated by Cordell Hull. He strongly opposed the dogmatism of the "American free traders". For the UK, the immediate elimination of the "Ottawa System of Imperial Tariff Preferences" was a red line that could not be crossed, as it would severely impact the already weak post-war economies of the Commonwealth. While embracing the ultimate goal of eventually achieving MFN trade, the British felt their economy would need considerable time to adjust.. It was feared that an immediate elimination of tariff preferences would lead to a ruinous trade deficit and a balance of payments crisis, as had nearly happened at the beginning of 1947 with the "dollar crisis". Australia, Canada and other Commonwealth members were also concerned about the US proposal and were not ready to sacrifice their economies in the GATT negotiations. Even John Maynard Keynes, the famous economist, had publicly argued that the ongoing British problems required the United Kingdom to use tariffs to protect its domestic industries, expand output and increase employment.
Bilateral US - UK negotiations hit a wall
While the Americans were willing to bargain for a fair deal, they considered that the British position was unacceptable, as the United States would have to grant large-scale tariff concessions before Britain would take action to reduce its trade preferences. Frustration within the US delegation was growing. In a letter to capital dated 30 September 1947, US delegate Winthrop Brown described the situation as follows:
"It is an absolutely beautiful day. The lake is very blue, the hills look like a picture postcard, and the only blots on the landscape are British preferences about which I spend most of the night dreaming."
Following the departure of Cordell Hull in December 1944, the free-trade mantle had been picked up by Mr. William Lockhard "Will" Clayton, Undersecretary of State for Economic Affairs. Unfortunately for the British, Clayton was determined to achieve the immediate elimination of all preferences. Why should the US, the most important victor of World War II, be asked to make one-sided sacrifices? During one of the meetings, Sir Stafford Cripps told an infuriated Clayton to simply withdraw some of the tariff offers which had been tabled if he was unhappy with the British concessions. The Anglo-American alliance entered a tense phase, which was further complicated by the personal animosity between Clayton and Stafford Cripps.
Convinced of the fairness of their positions, the Americans and the British dug in their heels and grew deeply entrenched. Clayton had had enough with the British stubbornness and proposed to walk away from the negotiating table. Short of a miracle, the GATT negotiations appeared doomed to fail.
Continue reading the next short story in the series here.
* Roy Santana is a Counsellor of the Market Access Division of the WTO. His opinions should not be attributed to the WTO.
Acknowledgements: The author would like to thank Dolores Halloran, János Volkai and Trineesh Biswas for their insightful comments and suggestions on an earlier draft. This short story was inspired on research by Prof. Thomas W. Zeiler (1997), "GATT Fifty Years Ago: U.S. Trade Policy and Imperial Tariff Preferences", Department of History, University of Colorado at Boulder. For more detailed information on the issue, see Douglas A. Irwin, Petros C. Mavroidis, Alan O. Sykes, "The Genesis of the GATT", Cambridge University Press, 29 May 2009.
- Dana L. Wilgress, Imperial Preference and GATT, Empire Club of Canada 282, (Mar. 16, 1961), http://speeches.empireclub.org/61402/data?n=16. back to text
- The Atlantic Charter, formally named "Joint Declaration by the President and the Prime Minister", was a joint declaration by Franking Delano Roosevelt and Sir Winston Churchill, during a secret meeting that took place in Placentia Bay, Newfoundland, on 14 August 1941. The declaration sought to reaffirm the unity of the United States and the United Kingdom, and described their principles and hopes for a peaceful post-war world, including the policies they agreed to follow once the Nazi Germany had been defeated. back to text
- An Act to Promote the Defense of the United States, Pub. L. 77-11 (1941) (Agreement between the United States, Free France, the Republic of China, and the United Kingdom). back to text
- Press release, Second Session of the Preparatory Committee of the United Nations Conference on Trade and Employment, Speech to be delivered by M. Max Suetens at the Final Session of the Preparatory Committee, U.N. Press Release No. 475 (Oct. 29, 1947). back to text