-
https://clinton.presidentiallibraries.us/files/original/c522891648fe38613dd080ac2f26a317.pdf
c1ca1a86c8af66a0fa112786aec78ea5
PDF Text
Text
FOIA Number:
2006-0469-F (2)
FOIA
MARKER
This is not a textual record. This is used as an
administrative marker by the William J. Clinton
Presidential Library Staff.
Collection/Record Group:
Clinton Presidential Records
Subgroup/Office of Origin:
Speechwriting
Series/Staff Member:
Michael Waldman
Subseries:
14455
OA/ID Number:
FolderlD:
Folder Title:
WTO [World Trade Organization]: History - The Bretton Woods System
Stack:
Row:
Section:
Shelf:
Position:
S
92
4
4
1
�W T O - Summary
http://www.wto.org/wto/about/about.htm
HOME
Trade
Topics:
ABOUT TH E WTO
SITEMAP
*!m>w.
•••• •
SEARCH
ABOUT THI WTO
Continue: Introduction to the WTO
This part of the WTO web site is an introduction to the WTO, its agreements
and how it works. If you are looking for more detailed information, press
releases, or official documents, click on one of the other links on the left.
FACT F I L E
Dispute settlement
.Government Procurement!
Research & Analysis
Resources:
Location: Geneva, Switzerland
Established: 1 January 1995
Created by: Uruguay Round negotiations (1986-94)
Membership: 132 countries (as of September 1997)
Budget: $93 million (1996)
Secretariat staff: 500
Head: Renato Ruggiero (director general)
Functions:
On-line Bookshop
Legal Texts
News Releases
Media Newsroom
•
9
•
0
•
•
Administering WTO trade agreements
Forum for trade negotiations
Handling trade disputes
Monitoring national trade policies
Technical assistance and training for developing countries
Cooperation with other international organizations
International Trade
A word of caution: the fine print
While every effort has been made to ensure the accuracy of the text in this
"About the WTO" section, it cannot be taken as an official legal interpretation
of the agreements.
Download Files
In addition, some simplifications are used in order to keep the text simple and
clear. In particular, the words "country" and "nation" are frequently used to
describe WTO members, whereas a few members are officially "customs
territories", and not necessarily countries in the usual sense of the word (see
list of members). The same applies when participants in trade negotiations are
called "countries" or "nations".
Where there is little risk of misunderstanding, the word "member" is dropped
from "member countries (nations, governments)", for example in the
descriptions of the WTO agreements. Naturally, the agreements and
commitments do not apply to non-members.
In some parts of the text, GATT is described as an "international
organization". The phrase reflects GATT's de facto role before the WTO was
created, and it is used simplistically here to help readers understand that role.
I of 2
05/12/98 17:59:51
�WTO - Summary
littp://www. wto.org/wto/about/about. htm
As the text points out, this role was always ad hoc, without a proper legal
foundation. International law did not recognize GATT as an organization. For
simplicity, the text also uses the term "GATT members". Officially, GATT
signatories were "contracting parties".
Continue: Introduction to the WTO
Last updated:
14 January 1998
WTO Home About the WTO Site Map Search Registration Fran^ais Espa
Send comments or
questions by email.
2 of 2
05/12/98 18:00:06
�littp://www.wto.org/wto/about/factsO.htm
About the WTO
Trade
Topics:
Basics
Summary
What is the World Trade Organization?
! Environment
Development
Policy Reviews
| Dispute Settlement
Resources:
On-line Bookshop
The WTO is the only international body dealing with the rules of trade between
nations. At its heart are the WTO agreements, the legal ground-rules for
international commerce and for trade policy. The agreements have three main
objectives: to help trade flow as freely as possible, to achieve further
liberalization gradually through negotiation, and to set up an impartial means of
settling disputes.
Principles of the trading system
A number of simple, fundamental principles run throughout all the WTO
agreements. They are the foundation of the multilateral trading system. They
include: non-discrimination ("most-favoured-nation" treatment and "national"
treatment), freer trade, predictable policies, encouraging competition, and extra
provisions for less developed countries.
The case for open trade
The economic case for an open trading system based upon multilaterally agreed
rules is simple enough and rests largely on commercial common sense. But it is
also supported by evidence. Protectionism leads to bloated inefficient
companies and can in the end lead to factory closures and job losses. One of the
WTO's objectives is to reduce protectionism.
International Trade
The WTO's roots: from Havana to Marrakesh
The WTO's creation in 1995 marked the biggest reform of international trade
since 1948. During those 47 years, international commerce had come under
GATT which helped establish a prosperous multilateral trading system. But by
the 1980s an overhaul was due.
Download Files
The Uruguay Round
The Uruguay Round brought about that overhaul. It was the largest trade
negotiation ever. At times the talks seemed doomed to fail, but in the end, the
Uruguay Round was successful. The task was so immense that some people
wondered whether there would ever be another negotiation like it - was it the
round to end all rounds?
WTO and GATT: are they the same?
No. The WTO is GATT plus a lot more. GATT (the institution) was small and
provisional, and not even recognized in law as international organization. It has
now been replaced by the World Trade Organization. GATT (the agreement)
has been amended and incorporated into the new WTO Agreements. GATT
deals only with trade in goods. The WTO Agreements now cover services and
intellectual property as well.
Main menu
2 of 3
05/12/98 18:01:09
�.About tlie WTO
http://www.wto.org/wto/about/t'acts4.htin
YY 1 w
HOME
Trade
Topics:
ABOUT T-Hj§|||
ABOUT T H E WTO
SITEMAP
S E A B ^ H ^ ^
Basics
Roots: from Havana to Marrakesh
Environment
Development
Dispute Settlement
The WTO's creation on 1 January 1995 marked the biggest reform of
international trade since after the Second World War. It also brought to reality in an updated form - the failed attempt to create an International Trade
Organization in 1948. Up to 1994, the trading system came under GATT,
salvaged from the aborted attempt to create the ITO. GATT helped establish a
strong and prosperous multilateral trading system that became more and more
liberal through rounds of trade negotiatioiis. But by the 1980s the system
needed a thorough overhaul. This led to the Uruguay Round, and ultimately to
the WTO.
GATT: 'provisional' for almost half a century
Research & Analysis
Resources:
Media Newsroom
Intemational Trade
From 1948 to 1994, the General Agreement on Tariffs and Trade (GATT)
provided the rules for much of world trade and presided over periods that saw
some of the highest growth rates in international commerce. It seemed
well-established, but throughout those 47 years, it was a provisional agreement
and organization.
The original intention was to create a third institution handling international
economic cooperation, to join the "Bretton Woods" institutions now known as
the World Bank and the International Monetary Fund. The complete plan, as
envisaged by over 50 countries, was to create an International Trade
Organization (ITO) as a specialized agency of the United Nations. The draft
ITO Charter was ambitious. It extended beyond world trade disciplines, to
include rules on employment, commodity agreements, restrictive business
practices, international investment, and services.
Even before the charter was finally approved, 23 of the 50 participants decided
in 1946 to negotiate to reduce and bind customs tariffs. With the Second World
War only recently ended, they wanted to give an early boost to trade
liberalization, and to begin to correct the large legacy of protectionist measures
which remained in place from the early 1930s.
Download Files
This first round of negotiations resulted in 45,000 tariff concessions affecting
$10 billion of trade, about one-fifth of the world's total. The 23 also agreed that
they should accept some of the trade rules of the draft ITO Charter. This, they
believed, should be done swiftly and "provisionally" in order to protect the
value of the tariff concessions they had negotiated. The combined package of
trade rules and tariff concessions became known as the General Agreement on
Tariffs and Trade. It entered into force in January 1948, while the ITO Charter
was still being negotiated. The 23 became founding GATT members
(officially, "contracting parties").
of 5
05/12/98 18:01:50
�http://www.wto.org/wto/about/f'acts4.htm
About the WTO
XiATlffradie rounds
Place/name
Subjects
covered
1947
Geneva
Tariffs
23
1949
Annecy
Tariffs
13
1951
Torquay
Tariffs
38
1956
Geneva
Tariffs
26
1960 Geneva
-1961 (Dillon
Round)
Tariffs
26
1964 Geneva
-1967 (Kennedy
Round)
Tariffs and
anti-dumping
measures
62
1973 Geneva
-1979 (Tokyo
Round)
Tariffs,
non-tariff
measures,
"framework"
agreements
102
1986 Geneva
-1994 (Uruguay
Round)
Tariffs,
non-tariff
measures, rules,
services,
intellectual
property,
dispute
settlement,
textiles,
agriculture,
creation of
WTO, etc
Although the ITO Charter was
finally agreed at a UN
Conference on Trade and
Employment in Havana in
March 1948, ratification in
some national legislatures
proved impossible. The most
serious opposition was in the
US Congress, even though the
US government had been one
of the driving forces. In 1950,
the United States government
announced that it would not
seek Congressional ratification
of the Havana Charter, and the
ITO was effectively dead. Even
though it was provisional, the
GATT remained the only
multilateral instrument
governing international trade
from 1948 until the WTO was
established in 1995.
123
Year
Countries
For almost half a century, the
GATT's basic legal text
remained much as it was in
1948. There were additions in
the form of "plurilateral"
agreements (i.e. with voluntary
membership), and efforts to
reduce tariffs further continued.
Much of this was achieved
through a series of multilateral
negotiations known as "trade rounds" - the biggest leaps forward in
international trade liberalization have come through these rounds which were
held under GATT's auspices.
In the early years, the
GATT trade rounds
concentrated on further
reducing tariffs. Then,
the Kennedy Round in p i r Eric Wyndham-Whitc (UK) 1948-68
the mid-sixties brought ^Olivier Long (Switzerland) 1968-80
about a GATT
^Arthur Dunkel (Switzerland) 1980-93
Anti Dumping
f&Peter Sutherland (Ireland) GATT 1993-94; WTO 1995
Agreemenl. The Tokyo §
^
^
Round during the seventies was the first major attempt to tackle trade barriers
that do not take the form of tariffs, and to improve the system. The eighth, the
Uruguay Round of 1986-94, was the latest and most extensive of all. It led to
the WTO and a new set of agreements.
R e n a t 0 R u
e r o
, 9 9 5
The Tokyo Round: a first try to reform the system
The Tokyo Round lasted from 1973 to 1979, with 102 countries participating.
It continued GATT's efforts to progressively reduce tariffs. The results included
an average one-third cut in customs duties in the world's nine major industrial
markets, bringing the average tariff on industrial products down to 4.7%. The
tariff reductions, phased in over a period of eight years, involved an element of
2 of 5
05/12/98 18:02:01
�About the WTO
http://www.wto.org/wto/about/facts4.litm
"harmonization" - the higher the tariff, the larger the cut, proportionally.
In other issues, the Tokyo Round had mixed results. It failed to come to grips
with the fundamental problems affecting farm trade and also stopped short of
providing a new agreement on "safeguards" (emergency import measures).
Nevertheless, a series of agreements on non-tariff barriers did emerge from the
negotiations, in some cases interpreting existing GATT rules, in others
breaking entirely new ground. In most cases, only a relatively small number of
(mainly industrialized) GATT members subscribed to these agreements and
arrangements. Because they were not accepted by the full GATT membership,
they were often informally called "codes".
They were not multilateral, but they were a beginning. Several codes were
eventually amended in the Uruguay Round and turned into multilateral
commitments accepted by all WTO members. Only four remain plurilateral those on government procurement, bovine meat, dairy products and civil
aircraft remain "plurilateral". (In 1997, WTO members agreed to terminate the
bovine meat and dairy agreements from the end of the year.)
.
„
. . . . . .
Did GATT succeed?
The Tokyo Round 'codes
GATT was provisional with a
limited field of action, but its
success over 47 years in
promoting and securing the
liberalization .of .much of world
. , • •
, , Continual
trade is incontestable. ^ .- ,
, ..
. .taritis alone ,helped
,
, .
reductions in
spur very high rates of world
trade growth during the 1950s
and 1960s - around 8% a year on
f
trade liberalization helped
ensure that trade growth
consistently out-paced
P/ ^?^
S ?
the GATT era, a measure of
« International Dairy Arrangement
countries' increasing ability to
9 Trade in Civil Aircraft
trade with each other and to reap
the benefits of trade. The rush of
new members during the Uruguay Round demonstrated that the multilateral
trading system was recognized as an anchor for development and an instrument
of economic and trade reform. But as time passed new problems arose. The
Tokyo Round was an attempt to tackle some of these but its achievements were
limited. This was a sign of difficult times to come.
GATT's success in reducing tariffs to such a low level, combined with a series
of economic recessions in the 1970s and early 1980s, drove governments to
devise other forms of protection for sectors facing increased foreign
competition. High rates of unemployment and constant factory closures led
governments in Western Europe and North America to seek bilateral
market-sharing arrangements with competitors and to embark on a subsidies
race to maintain their holds on agricultural trade. Both these changes
undermined GATT's credibility and effectiveness.
9 Subsidies and countervailing measures
- interpreting Articles 6, 16 and 23 of
GATT
u
. . i
.•
A T ii uA • i ct • A n A - sometimes
Technical barriers to trade
tu
A
called the Standards Code
9 Import licensing procedures
O Government procurement
^
, .
.
.
« Customs valuation - interpreting
'
^ Anti-dumping - interpreting Article 6,
replacing the Kennedy Round code
Bovine Meat Arrangement
a v
A
n
d
t h e m
o
m
e
n
t
u
m
0
A r t l c l e
0
t h r o u
h
u t
0
The problem was not just a deteriorating trade policy environment. By the early
1980s the General Agreement was clearly no longer as relevant to the realities
of world trade as it had been in the 1940s. For a start, world trade had become
3 of 5
05/12/98 18:02:02
�About tfie WTO
http://www.wto.org/wto/about/t'acts4.litm
far more complex and important than 40 years before: the globalization of the
world economy was underway, trade in services - not covered by GATT rules was of major interest to more and more countries, and international investment
had expanded. The expansion of services trade was also closely tied to further
increases in world merchandise trade. In other respects, GATT had been found
wanting. For instance, in agriculture, loopholes in the multilateral system were
heavily exploited, and efforts at liberalizing agricultural trade met with little
success. In the textiles and clothing sector, an exception to GATT's normal
disciplines was negotiated in the 1960s and early 1970s, leading to the
Multifibre Arrangement. Even GATT's institutional structure and its dispute
settlement system were giving cause for concern.
These and other factors convinced GATT members that a new effort to
reinforce and extend the multilateral system should be attempted. That effort
resulted in the Uruguay Round, the Marrakesh Declaration, and the creation of
the WTO.
Trade Rounds: progress by package
They are often lengthy - the Uruguay Round took seven and a half years - but trade rounds
can have an advantage. They offer a package approach to trade negotiations that can
sometimes be more fruitful than negotiations on a single issue.
• The size of the package can mean more benefits because participants can seek and secure
advantages across a wide range of issues.
• In a package, the ability to trade-off different issues can make agreement easier to reach
because somewhere in the package there is something for everyone. This has political as well
as economic implications. Concessions (perhaps in one sector) which are necessary but would
otherwise be difficult to defend in domestic political terms, can be made more easily in the
context of a package because the package also contains politically and economically attractive
benefits (in other sectors). As a result, reform in politically-sensitive sectors of world trade
can be more feasible in the context of a global package - reform of agricultural trade was a
good example in the Uruguay Round.
• Developing countries and other less powerful participants have a greater chance of
influencing the multilateral system in a trade round than in bilateral relationships with major
trading nations.
But the wide range of issues that a trade round covers can be both a strength and a weakness,
leading to a debate on the effectiveness of multi-sector rounds versus single-sector
negotiations. Recent history is ambiguous. At some stages, the Uruguay Round seemed so
cumbersome that agreement in every subject by all participating countries appeared
impossible. Then the round did end successfully in 1993-94, and this was followed by two
years of failure to reach any major agreement in separate, single-sector talks on maritime
transport, basic telecommunications and financial services.
Did this mean that trade rounds were the only route to success? No. In 1997, single-sector
talks were concluded successfully in basic telecommunications, information technology
equipment and financial services. The debate continues. Whatever the answer, the reasons are
not straightforward. Perhaps success depends on using the right type of negotiation for the
particular time and context.
Basics menu Main menu
4 of 5
05/12/98 18:02:03
�http://www.wto.org/wto/about/tacts5.htni
About tire WTO
ABOUT
HOME
Trade
ABOUT THE WTO
Topics:
SITEMAP
Ti&m
SEARieHW-SiiUS.
Basics
The Uruguay Round
Environment
Policy Reviews
Research & Anal'
Resources:
It took seven and a half years, almost twice the original schedule. By the end,
125 countries were taking part. It covered almost all trade, from toothbrushes to
pleasure boats, from banking to telecommunications, from the genes of wild
rice to AIDS treatments. It was quite simply the largest trade negotiation ever,
and most probably the largest negotiation of any kind in history.
At times it seemed doomed to fail. But in the end, the Uruguay Round brought
about the biggest reform of the world's trading system since GATT was created
at the end of the Second World War. And yet, despite its troubled progress, the
Uruguay Round did see some early results. Within only two years, participants
had agreed on a package of cuts in import duties on tropical products - which
are mainly exported by developing countries. They had also revised the rules
for settling disputes, with some measures implemented on the spot. And they
called for regular reports on GATT members' trade policies, a move considered
important for making trade regimes transparent around the world.
A round to end all rounds?
Media Newsroom
International Tradt
The seeds of the Uruguay Round were sown in November 1982 at a ministerial
meeting of GATT members in Geneva. Although the ministers intended to
launch a major new negotiation, the conference stalled on the issue of
agriculture and was widely regarded as a failure. In fact, the work programme
that the ministers agreed formed the basis for what was to become the Uruguay
Round negotiating agenda.
Nevertheless, it took four more years of
The agenda
exploring, clarifying issues and painstaking
consensus-building, before ministers agreed to
The 15 original Uruguay
launch the new round. They did so in September
Round subjects
1986, in Punta del Este, Uruguay. They
eventually accepted a negotiating agenda which
Tariffs
covered virtually every outstanding trade policy
Non-tariff barriers
Natural resource products
issue. The talks were going to extend the trading
Textiles and clothing
system into several new areas, notably trade in
Agriculture
services and intellectual property, and to reform
Tropical products
trade in the sensitive sectors of agriculture and
GATT articles
textiles. All the original GATT articles were up
Tokyo Round codes
for review. It was the biggest negotiating
Anti-dumping
Subsidies
mandate on trade ever agreed, and the ministers
Intellectual property
gave themselves four years to complete it.
Investment measures
Dispute settlement
The GATT system
Services
Two years later, in December 1988, ministers
met again in Montreal, Canada for what was
supposed to be an assessment of progress at the
round's half-way point. The purpose was to clarify the agenda for the remaining
two years, but the talks ended in a deadlock that was not resolved until officials
met more quietly in Geneva the following April.
Despite the difficulty, during the Montreal meeting, ministers did agree a
of3
05/12/98 18:03:08
�About tlte WTO
http://www.wto.org/wto/about/t'acts5.htm
package of early results. These included some concessions on market access for
tropical products - aimed at assisting developing countries - as well as a
streamlined dispute settlement system, and the Trade Policy Review
Mechanism which provided tor the first comprehensive, systematic and regular
reviews ot national trade policies and practices of GATT members. The round
was supposed to end when ministers met once more in Brussels, in December
1990. But they disagreed on how to reform agricultural trade and decided to
extend the talks. The Uruguay Round entered its bleakest period.
Key dates
Despite the poor
political outlook, a
considerable amount of Sep 86 Punta del Este: launch
technical work
ministerial mid-term
continued, leading to the Dec 88 Montreal:
review
first draft of a final legal
mid-term review
Apr 89 Geneva:
agreement. This draft
completed
"Final Act" was
"closing" ministerial
compiled by the then
Dec 90 Brussels:
meeting ends in deadlock
GATT director general,
first draft of Final Act
Mr Arthur Dunkel, who
completed
chaired the negotiations Dec 91 Geneva:
at officials' level. It was
US and EC achieve "Blair
put on the table in
Nov 92 Washington:
House" breakthrough on
Geneva in December
agriculture
1991. The text fulfilled
Quad achieve market
every part of the Punta
Jul 93 Tokyo:
access breakthrough at G7
del Este mandate, with
summit
one exception - it did not
most negotiations end
contain the participating
(some market access talks
countries' lists of
Dec 93 Geneva:
remain)
commitments for cutting
import duties and
agreements signed
Apr 94 Marrakesh:
opening their services
WTO created, agreements
markets. The draft
Jan 95 Geneva:
take effect
became the basis for the
final agreement.
For the following two years, the negotiations lurched between impending
failure, to predictions of imminent success. Several deadlines came and went.
New points of major conflict emerged to join agriculture: services, market
access, anti-dumping rules, and the proposed creation of a new institution.
Differences between the United States and European Communities (EU)
became central to hopes for a final, successful conclusion.
In November 1992, the US and EU settled most of their differences on
agriculture in a deal known informally as the "Blair House accord". By July
1993 the "Quad" (US, EU. Japan and Canada) announced significant progress
in negotiations on tariffs and related subjects ("market access"). It took until 15
December 1993 for every issue to be finally resolved and for negotiations on
market access for goods and services to be concluded (although some final
touches were completed in talks on market access a few weeks later). On 15
April 1994, the deal was signed by ministers from most of the 125 participating
governments at a meeting in Marrakesh, Morocco.
The delay had some merits. It allowed some negotiations to progress further
than would have been possible in 1990: for example some aspects of services
and intellectual property, and the creation of the WTO itself. But the task had
been immense, and negotiation-fatigue was felt in trade bureaucracies around
2 of 3
05/12/98 18:03:19
�About tire WTO
http://www.wto.org/wto/about/t'acts5.htm
the world. The difficulty of reaching agreement on a complete package
containing almost the entire range of current trade issues led some to conclude
that a negotiation on this scale would never again be possible. Yet, the Uruguay
Round agreements contain timetables for new negotiations on a number of
topics. And by 1996, some countries were openly calling for a new round early
in the next century. The response was mixed; but the Marrakesh agreement
does already include commitments to reopen negotiations on a range of
subjects at the turn of the century.
Basics menu Main menu
Last updated:
15 January 1998
WTO Home About the WTO Site Map Search Registration Franyais Espa
Send comments or
questions by email.
3 of 3
05/12/98 18:03:19
�About the WTO
littp://www.wto.org/wto/about/t'acts6.htm
ABOUT T H i M
HOME
Trade
ABOUT T H E WTO
Topics:
SITEMAP
SEARCH
Basics
WTO and GATT - are they the same?
No. They are different - the WTO is GATT plus a lot more.
Intellectual Property
Environment
Development
Policy Re vie v(s
Dispute Settlement
Research a Are
Resources:
Two GATTS
It is probably best to be clear from the start that the General Agreement on
Tariffs and Trade (GATT) was two things: (1) an intemational agreement, i.e. a
document setting out the rules for conducting international trade, and (2) an
international organization created later to support the agreement. The text of the
agreement could be compared to law, the organization was like parliament and
the courts combined in a single body.
As its history shows, the attempt to create a fully fledged international trade
agency in the 1940s failed. But GATT's drafters agreed that they wanted to use
the new rules and disciplines, if only provisionally. Then govemment officials
needed to meet to discuss issues related to the agreement, and to hold trade
negotiations. These needed secretarial support, leading to the creation of an ad
hoc organization - that continued to exist for almost half a century.
On-line Bookshop
Documents- On-line
GATT, the international agency, no longer exists. It has now been replaced by
the World Trade Organization.
Legal Texts
News Releases
Media Newsroom
International Trade
GATT, the agreement,
does still exist, but it is
no longer the main set of
9 GATT was ad hoc and provisional. The General
rules for international
Agreement was never ratified in members' parliaments, and it trade. And it has been
contained no provisions for the creation of an organization.
updated.
The main differences
© The WTO and its agreements are permanent. As an
international organization, the WTO has a sound legal basis
because members have ratified the WTO agreements, and the
agreements themselves describe how the WTO is to function.
Download Files
What happened? When
GATT was created after
the Second World War,
international commerce
was dominated by trade
9 The WTO has "members". GATT had "contracting
parties", underscoring the fact that officially GATT was a
in goods. Since then,
legal text.
trade in services transport, travel, banking,
• GATT dealt with trade in goods. The WTO covers
insurance,
services and intellectual property as well.
telecommunications,
transport, consultancy
• The WTO dispute settlement system is faster, more
and so on - has become
automatic than the old GATT system. Its rulings cannot be
much more important. So
blocked.
has trade in ideas inventions and designs, and goods and services incorporating this "intellectual
property".
The General Agreement on Tariffs and Trade always dealt with trade in goods,
and it still does. It has been amended and incorporated into the new WTO
agreements. The updated GATT lives alongside the new General Agreement on
of 2
05/12/98 18:04:04
�http://www.wto.org/wto/about/t'acts6.1itm
About tlje WTO
Trade in Services (GATS) and Agreement on Trade-Related Aspects of
Intellectual Property Rights (TRIPS). The WTO brings the three together within
a single organization, a single set of rules and a single system for resolving
disputes.
In short, the WTO is not a simple extension of GATT. It is much more.
So, the GATT is dead, long live the GATT!
While GATT no longer exists as an international organization, the GATT
agreement lives on. The old text is now called "GATT 1947". The updated
version is called "GATT 1994".
Moreover, GATT's key principles have been adopted by the agreements on
services and intellectual property. These include non-discrimination,
transparency and predictability. As the more mature WTO developed out of
GATT, you could say that the child is the father of the man.
Basics menu Main menu
Last updated:
15 January 1998
WTO Home About the WTO
Site Map Search Registration Frangais Espa
Send comments or
questions by email.
2 of 2
05/12/98 18:04:09
�A. Brief History of GATT
http://www.itd.org/12eng_guide/ABRIEFHI.HTM
V History
Home
^FSSprtloiiS'
History
A Brief History of GATT
The GATT
Negotiations
The ITO
The GATT
the predecessor of the WTO, was established immediately after
WWII
to cut tariffs were begun almost immediately
an ambitious early attempt to extend trade cooperation beyond
tariffs
remained "provisionally" in force for almost fifty years
The WTO's predecessor, the GATT, was established on
a provisional basis after the Second World War in the
wake of other new multilateral institutions dedicated to
international economic cooperation notably the "Bretton
Woods" institutions now known as the World Bank and
the International Monetary Fund.
The original 23 GATT countries were among over 50
which agreed a draft Charter for an International Trade
Organization (ITO) a new specialized agency of the United
Nations. The Charter was intended to provide not only world
trade disciplines but also contained rules relating to
employment commodity agreements, restrictive business
practices, international investment and services.
Trade rounds
GATT & W I O
Uruguay Round
W 10 structure
In an effort to give an early boost to trade liberalization
after the Second World War and to begin to correct the large
overhang of protectionist measures which remained in place
from the early 1930s - tariff negotiations were opened
among the 23 founding GATT "contracting parties" in 1946.
This first round of negotiations resulted in 45,000 tariff
concessions affecting $10 billion - or about one fifth - of
world trade. It was also agreed that the value of these
concessions should be protected by early - and largely
"provisional" - acceptance of some of the trade rules in the
draft ITO Charter. The tariff concessions and rules together
became known as the General Agreement on Tariffs and
Trade and entered into force in January 1948.
of 2
05/12/98 18:23:28
�A Brief History of GATT
Although the ITO Charter was finally agreed at a UN
Conference on Trade and Employment in Havana in
March 1948, ratification in national legislatures proved
impossible in some cases. When the United States'
government announced, in 1950, that it would not seek
Congressional ratification of the Havana Charter, the ITO
was effectively dead. Despite its provisional nature, the
GATT remained the only multilateral instrument
governing international trade from 1948 until the
establishment of the WTO.
Although, in its 47 years, the basic legal text of the
GATT remained much as it was in 1948, there were
additions in the form of "plurilateral" voluntary
membership agreements and continual efforts to reduce
tariffs Much of this was achieved through a series of
"trade rounds".
http://www.itd.org/l2eng_guide/ABRIEFHI.HTM
Foundations
Rules
History
Home
Help
2 of 2
05/12/98 18:23:31
�Trade Rounds - the Package Route to Progress
http://www.itd.org/l2eng_guide/TRADEROU.HTM
S History
Home
iV 1 Foundations
Help
History
Trade Rounds - the Package Route to Progress
Rounds
Tariffs
Table
are the means by which GATT has achieved progress on a wide
front of trade liberalisation
were the focus of early trade rounds
of trade negotiations in GATT
The biggest leaps forward in international trade
liberalization have come through multilateral trade
negotiations, or "trade rounds", under the auspices of
GATT - the Uruguay Round was the latest and most
extensive.
A
of 2
Uruguay Round
Tokyo Round
WTO hislory
WTO & G A T T
Although often lengthy, trade rounds offer a package
approach to trade negotiations; an approach with a number
of advantages over issue-by-issue negotiations. For a start, a
trade round allows participants to seek and secure
advantages across a wide range of issues. Second,
concessions which are necessary but would otherwise be
difficult to defend in domestic political terms, can be made
more easily in the context of a package which also contains
politically and economically attractive benefits. Third,
developing countries and other less powerful participants
have a greater chance of influencing the multilateral system
in the context of a round than if bilateral relationships
between major trading nations are allowed to dominate.
Finally, overall reform in politically-sensitive sectors of
world trade can be more feasible in the context of a global
package - reform of agricultural trade was a good example in
the Uruguay Round.
Most of GATT's early trade rounds were devoted to
continuing the process of reducing tariffs. The results of the
Kennedy Round in the mid-sixties, however, included a new
GATT Anti-Dumping Agreement. The Tokyo Round during
the seventies was a more sweeping attempt to extend and
improve the system.
05/12/98 18:24:12
�Trade Rounds - the Package Route to Progress
1947
1949
1951
1956
19601961
(Dillon
Round)
19641967
(Kennedy
Round)
1973 1979
(Tokyo
Round)
Geneva
Annecy
Torquay
Geneva
Tariffs
Tariffs
Tariffs
Tariffs
23
13
38
26
Geneva Tariffs
26
Geneva
Tariffs and
62
Anti-Dumping Measures
Tariffs, non-tariff
102
Geneva measures and
"framework" agreements
Tariffs, non-tariff
measures, rules,
1986 services, intellectual
1993
property rights, dispute
(Uruguay Geneva settlement, textiles and
Round)
clothing, agriculture,
establishment of the
WTO etc
2 of 2
http://www.itd.org/12eng_guide/TRADEROU.HTM
123
Foundations
Rules
05/12/98 18:24:16
�The Tokyo Round - First Attempt to Reform the Trading System
http://www.itd.org/12eng_guide/THETOKYO.HTM
The Tokyo Round - a First Attempt to Reform
the Trading System
Tariff cuts
Several agreements
Codes adopted
were continued in the Tokyo round during the 1970s
were reached on limiting non-tariff barriers but there was no
progress on farm trade
in the Tokyo round provided the foundation of more fundamental
changes to GATT in the Uruguay Round
Conducted between 1973 and 1979 and with 102
participating countries, the Tokyo Round continued
GATT's efforts to progressively reduce tariffs. The results
included an average one-third cut in customs duties in the
world's nine major industrial markets, bringing the
average tariff on manufactured products down to 4.7 per
cent compared with about 40 per cent at the time of
GATT's creation. The tariff reductions, phased in over a
period of eight years, involved an element of
harmonization, bringing the highest tariffs down
proportionately more than the lowest.
n Trade rounds
• Uruguay Round
Elsewhere, the Tokyo Round had mixed results. It
failed to come to grips with the fundamental problems
affecting farm trade and also stopped short of providing a
new agreement on "safeguards" (emergency import
measures). Nevertheless, a series of agreements on
non-tariff barriers did emerge from the negotiations, in
some cases interpreting existing GATT rules, in others
breaking entirely new ground. In most cases, only a
relatively small number of, mainly industrialized, GATT
members ascribed to these agreements and arrangements
which, as a consequence, were often referred to as "codes"
They include the following agreements:
I of 2
05/12/98 18:25:13
�The Jokyo Round - First Attempt to Reform the Trading System
http://www.itd.org/12eng_guide/THETOKYO.HTM
Tokyo Round codes
• Subsidies and countervailing measures - interpreting
Articles VI, XVI and XXIII of the General
Agreement on Tariffs and Trade
• Technical barriers to trade - sometimes called the
Standards Code
• Import licensing procedures
• Government procurement
• Customs valuation - interpreting Article VII
n Anti-dumping - interpreting Article VI and
replacing the Kennedy Round Anti-Dumping Code
• Bovine Meat Arrangement
1 International Dairy Arrangement
:
1
• Trade in Civil Aircraft
Several of the above Codes were amended and extended
in the Uruguay Round. Those on subsidies and
countervailing measures, technical barriers to trade,
import licensing, customs valuation and anti-dumping, are
now multilateral commitments within the WTO
Agreement - in other words, all WTO members are
committed to them - while those on government
procurement, bovine meat, dairy products and civil
aircraft remain "plurilateral" agreements.
2 of 2
Foundations
Rules
History
Hm
o e
Help
05/12/98 18:25:16
�The Uruguay Round -Creating a New System
http://www.itd.org/l2eng_guide/THEURUGU.HTM
History
Home
Foundations
Help
History
The Uruguay Round - Creating a New System
Preliminary
The agenda
Minsters
Difficult
talks on starting a round of trade negotiations stalled on the issue
of agriculture
adopted in 1986 covered almost all outstanding trade policy issues
in the GATT
reviewed progress two years later at a meeting in Montreal
negotiations in the final three years focussed on agriculture,
services and market access
The seeds of the Uruguay Round were sown in
November 1982 at a Ministerial meeting of GATT
members in Geneva. Although Ministers intended to
launch a major new negotiation, the meeting stalled on the
issue of agriculture and was widely regarded as a failure.
In fact, the work programme that Ministers agreed formed
the basis for what was to become the Uruguay Round
negotiating agenda.
Nevertheless, it took four more years of exploring and
clarifying issues and painstaking consensus-building,
before Ministers met again in September 1986, in Punta del
Este, Uruguay, to agree to launch the Uruguay Round.
They were able to accept a negotiating agenda which
covered virtually every outstanding trade policy issue
including the extension of the trading system into several
new areas, notably trade in services and intellectual
property. It was the biggest negotiating mandate on trade
ever agreed and Ministers gave themselves four years to
complete it.
4
Uruguay Round t a r i l f cuts
(click)
I of 2
a
D
a
a
Trade rounds
Services
TRIPS
Agriculture
.
GATT to WTO
A
By 1988, the negotiations had reached the stage of a
"Mid-term Review". This took the form of a Ministerial
Meeting in Montreal, Canada, and led to the eLabouration of
the negotiating mandate for the second stage of the Round.
Ministers agreed a package of early results which included
concessions on market access for tropical products - aimed
to assist developing countries - as well as a streamlined
dispute settlement system and the Trade Policy Review
Mechanism which provided for the first comprehensive,
systematic and regular reviews of national trade policies and
practices of GATT members.
At the Ministerial meeting in Brussels, in December 1990,
disagreement on the nature of commitments to future
agricultural trade reform led to a decision to extend the
round.
05/12/98 18:24:36
�The Uruguay Round -Creating a New System
By December 1991, a comprehensive draft text of the
"Final Act", containing legal texts fulfilling every part of
the Punta del Este mandate, with the exception of market
access results, was on the table in Geneva. For the
following two years, the negotiations lurched
continuously from impending failure to predictions of
imminent success. Several deadlines came and went; farm
trade was joined by services, market access, anti-dumping
rules and the proposed creation of a new institution, as the
major points of conflict; and differences between the
United States and European Communities became central
to hopes for a final, successful conclusion. It took until 15
December 1993 for every issue to be finally resolved and
for negotiations on market access for goods and services
to be concluded. On 15 April 1994, the deal was signed by
Ministers from most of the 125 participating governments
at a meeting in Marrakesh, Morocco.
2 of 2
http://www.itd.org/l2eng_guide/THEURUGU.HTlVI
Foundations
Rules
05/12/98 18:24:40
�PAGE
100TH STORY o f L e v e l
Copyright
1 jointed
14
i n FULL f o r m a t .
1990 The Economist Newspaper L t d .
The Economist
September 22, 1990
SECTION: B u s i n e s s , f i n a n c e and s c i e n c e ; WORLD TRADE; SURVEY Pg. 7; (U.K. SURVEY
Pg. 7)
LENGTH: 2982 words
HEADLINE: N o t h i n g
t o l o s e b u t i t s c h a i n s ; The ITO t h a t n e v e r was
HIGHLIGHT:
The p o s t w a r d r i v e t o c r e a t e a l i b e r a l s y s t e m o f g l o b a l t r a d e has r u n o u t o f
steam. Our economics e d i t o r , C l i v e Crook, w e i g h s t h e i m p l i c a t i o n s ;
An u n f i n i s h e d h i s t o r y o f t h e GATT
BODY:
FOR most o f i t s 43 y e a r s , t h e GATT has w o r k e d r e m a r k a b l y w e l l .
That i s
s u r p r i s i n g , because t h e i n f a n t was f o u r - f i f t h s t h r o t t l e d a t b i r t h .
The o r i g i n a l
d e s i g n e r s , m e e t i n g a t t h e B r e t t o n Woods c o n f e r e n c e i n 1944, e n v i s a g e d a g r a n d
new i n s t i t u t i o n , t o be c a l l e d t h e I n t e r n a t i o n a l Trade O r g a n i s a t i o n ( I T O ) . I t
was t o have been a f u l l p a r t n e r t o t h e IMF and t h e W o r l d Bank, w i t h d e p a r t m e n t s
c o v e r i n g employment p o l i c y , economic d e v e l o p m e n t , r e s t r i c t i v e b u s i n e s s p r a c t i c e s
and commodity a g r e e m e n t s , as w e l l as c o m m e r c i a l p o l i c y ( t h a t i s , t a r i f f s a n d
trade).
B u t g o v e r n m e n t s t h o u g h t b e t t e r o f c r e a t i n g an economic o r g a n i s a t i o n
p o w e r f u l enough t o t h r e a t e n t h e i r autonomy. The c h a r t e r c r e a t i n g t h e ITO was
never r a t i f i e d .
As a s t o p - g a p , t h e g o v e r n m e n t s s e t t l e d on a compromise
agreement a b o u t i n t e r n a t i o n a l t r a d e .
Four decades l a t e r , t h i s i n t e r i m a r r a n g e m e n t i s s t i l l i n p l a c e .
A small
s e c r e t a r i a t -- f o r t h e GATT i s an i n s t i t u t i o n as w e l l as a t r e a t y -- m o n i t o r s
t h e t r a d e p o l i c i e s o f t h e members (23 o f them a t t h e b e g i n n i n g , now a l m o s t 1 0 0 ) ,
s e r v e s t h e v a r i o u s c o m m i t t e e s t h a t t h e y s e t up, and h e l p s t o s e t t l e t r a d e
disputes.
D e s p i t e i t s awkward s t a r t , GATT d i d a f i n e j o b d u r i n g i t s f i r s t 30 y e a r s . I n
a s e r i e s o f t r a d e r o u n d s , g o v e r n m e n t s c u t t h e a v e r a g e t a r i f f on m a n u f a c t u r e d
goods f r o m 4 0 % t o 1947 t o l e s s t h a n 10% by t h e mid-1970s. S i n c e t h e n t h e
average t a r i f f has f a l l e n even f u r t h e r , t o r o u g h l y 5% ( c h a r t 1 ) . I n a d d i t i o n ,
by t h e l a t e 1950s, t h e i n d u s t r i a l - c o u n t r y g o v e r n m e n t s had e s t a b l i s h e d a modern
system o f c o n v e r t i b l e c u r r e n c i e s . As a r e s u l t , , t a r i f f l i b e r a l i s a t i o n s p u r r e d
r e m a r k a b l y r a p i d g r o w t h i n w o r l d t r a d e . Between 1950 and 1975 t h e volume o f
t r a d e expanded b y as much as 500%, a g a i n s t an i n c r e a s e i n g l o b a l o u t p u t o f 220%.
The i n s t r u m e n t s o f t h i s s p e c t a c u l a r change i n t h e c h a r a c t e r o f t h e w o r l d
economy were t h e t h r e e g u i d i n g p r i n c i p l e s embodied i n t h e a r t i c l e s o f t h e GATT:
* R e c i p r o c i t y . I f one c o u n t r y l o w e r s i t s t a r i f f s a g a i n s t a n o t h e r ' s e x p o r t s , i t
can e x p e c t t h e o t h e r c o u n t r y t o l o w e r i t s t a r i f f s i n r e t u r n .
This p r i n c i p l e
r e g a r d s a m a r k e t - o p e n i n g measure as a c o n c e s s i o n , f o r w h i c h c o n c e s s i o n s i n
r e t u r n a r e r e q u i r e d . The i d e a i s economic nonsense -- as t h i s s u r v e y w i l l go on
t o a r g u e -- b u t i t has p r o v e d t e r r i b l y u s e f u l a l l t h e same. F o r t h e moment,
n o t e t h a t t h e p r i n c i p l e i s e x c l u s i v e l y c o n c e r n e d w i t h b a r g a i n s based on l o w e r
t a r i f f s a l l round.
I t does n o t a l l o w g o v e r n m e n t s t o t h r e a t e n t o r a i s e t h e i r
t a r i f f s , even i f such a t h r e a t m i g h t f o r c e o t h e r governments t o l o w e r t h e i r s ,
�PAGE
The
E c o n o m i s t , September 22,
15
1990
thus l e v e l l i n g t h e p l a y i n g f i e l d .
Because t h i s v a r i e t y o f r e c i p r o c i t y aims t o
match r e d u c t i o n s i n p r o t e c t i o n n o t l e v e l s o f p r o t e c t i o n , e c o n o m i s t s c a l l i t
"first-difference reciprocity."
* Non-discrimination.
T h i s p r i n c i p l e says t h a t c o u n t r i e s s h o u l d n o t g r a n t one
member o r g r o u p o f members p r e f e r e n t i a l t r a d e t r e a t m e n t o v e r t h e o t h e r s .
It is
known as t h e m o s t - f a v o u r e d - n a t i o n
(MFN) t h a t one o r more c o u n t r i e s a r e g i v e n as
e s p e c i a l l y f a v o u r e d s t a t u s . I t means t h e o p p o s i t e , t h a t e v e r y c o u n t r y i s
t r e a t e d as f a v o u r a b l y as t h e most f a v o u r e d .
* Transparency.
The GATT u r g e s c o u n t r i e s t o r e p l a c e n o n - t a r i f f b a r r i e r s ( i m p o r t
q u o t a s , f o r i n s t a n c e ) w i t h t a r i f f s , and t h e n t o " b i n d " t h o s e t a r i f f s ( t h a t i s ,
p r o m i s e n o t t o r a i s e them a g a i n ) .
F o r any g i v e n amount o f p r o t e c t i o n o f f e r e d t o
d o m e s t i c p r o d u c e r s , n o n - t a r i f f b a r r i e r s do more economic harm t h a n t a r i f f s .
T a r i f f s , e s p e c i a l l y when bound, f o s t e r a c l i m a t e o f g r e a t e r c e r t a i n t y . And
because t h e i r i m p a c t i s e a s i e r t o j u d g e , t h e y have t h e f u r t h e r a d v a n t a g e t h a t
t h e y a r e much more amenable t o n e g o t i a t e d r e d u c t i o n .
R e c i p r o c i t y and n o n - d i s c r i m i n a t i o n , w i t h a l i t t l e h e l p f r o m t r a n s p a r e n c y , a r e
an e x c e p t i o n a l l y p o w e r f u l d o u b l e - a c t .
Suppose a government i s w i l l i n g t o l o w e r
i t s t a r i f f s a g a i n s t i m p o r t s from a c e r t a i n c o u n t r y i n order t o g a i n access,
thanks t o r e c i p r o c i t y , t o t h a t c o u n t r y ' s market.
I f a d e a l can be s t r u c k ,
n o n - d i s c r i m i n a t i o n t h e n r e q u i r e s t h a t government t o l o w e r i t s t a r i f f s on such
i m p o r t s r e g a r d l e s s o f w h i c h GATT member t h e y come f r o m .
This, i n t u r n , sparks
a n o t h e r r o u n d o f t a r i f f - c u t t i n g , as t h e t h i r d p a r t i e s a r e t h e m s e l v e s o b l i g e d t o
reciprocate.
I n t h i s way, t h e b e n e f i t s o f b a r g a i n s s t r u c k by t h e g o v e r n m e n t s o f b i g
economies w i t h l o s t o f c l o u t a t t h e n e g o t i a t i n g t a b l e a r e a u t o m a t i c a l l y e x t e n d e d
out.
A t t h e same t i m e , t h e s y s t e m makes s u r e t h a t any i n i t i a l s p a r k o f l i b e r a l
i n t e n t i o n s i s fanned i n t o a h e a l t h y flame.
T h a t was t h e t h e o r y and, i n t h e
a r e a s o f t r a d e t o w h i c h i t was a p p l i e d , t h a t was how i t worked.
The w o r l d ' s e x t r a o r d i n a r y economic p r o g r e s s s i n c e t h e second w o r l d war owes a
g r e a t d e a l t o t h e f l a m e o f i n t e r n a t i o n a l t r a d e , and t h a t i n t u r n owes n e a r l y
e v e r y t h i n g t o t h e GATT. Those members o f A m e r i c a ' s Congress who nowadays d e r i d e
i t s h o u l d remember what a power f o r economic good t h e GATT has been.
Something happened
S i n c e t h e mid-1970s t h e volume o f t r a d e has c o n t i n u e d t o grow, b u t a t a s l o w e r
r a t e i n r e l a t i o n t o g l o b a l o u t p u t t h e n b e f o r e ( c h a r t 2 on p r e v i o u s p a g e ) .
That
i s a s i g n t h a t s o m e t h i n g i s a m i s s . The cause i s n o t h a r d t o f i n d .
The p a s t 15
y e a r s have seen a p r o l i f e r a t i o n o f new s o r t s o f t r a d e p r o t e c t i o n .
One o f t h e s e i s t h e d e v i c e t h a t i s c y n i c a l l y known as t h e " v o l u n t a r y " e x p o r t
r e s t r a i n t (VER).
I n c r e a s i n g l y , i f a p o w e r f u l government i s w o r r i e d a b o u t t h e
harm t h a t i m p o r t s a r e d o i n g t o i t s p r o d u c e r s , i t does n o t seek a remedy t h r o u g h
t h e GATT. I n s t e a d , e s p e c i a l l y i f i t happens t o be t h e A m e r i c a n g o v e r n m e n t , i t
r e q u i r e s a n o t h e r g o v e r n m e n t , on p a i n o f r e t a l i a t i o n , t o r e s t r i c t i t s c o u n t r y ' s
e x p o r t s o f t h e good i n q u e s t i o n .
I n t h e l a t e 1970s and 1980s t h e use o f VERS s p r e a d f r o m t e x t i l e s and c l o t h i n g
t o s t e e l , c a r s , shoes, m a c h i n e r y , consumer e l e c t r o n i c s and more. The GATT's
s e c r e t a r i a t has c o u n t e d n e a r l y 300 VERs and s i m i l a r a r r a n g e m e n t s . Most p r o t e c t
t h e A m e r i c a n and European m a r k e t s ; 50 a f f e c t e x p o r t s f r o m Japan and a n o t h e r 35
e x p o r t s f r o m S o u t h Korea.
�PAGE
The
16
E c o n o m i s t , September 22, 1990
Because VERs and o t h e r s o - c a l l e d " h a r d - c o r e " n o n - t a r i f f measures a r e
d i f f i c u l t t o m o n i t o r ( t h a t i s t h e p o i n t o f t h e m ) , t h e r e a r e no r e l i a b l e
e s t i m a t e s o f t h e i r i m p a c t on t r a d e . The W o r l d Bank r e c k o n s t h a t t h e c o v e r a g e o f
" h a r d - c o r e " measures i n c r e a s e d f r o m 15% o f t h e i n d u s t r i a l c o u n t r i e s ' i m p o r t s i n
1981 t o 18% by 1986. The I n s t i t u t e f o r I n t e r n a t i o n a l Economics i n W a s h i n g t o n ,
DC, guesses t h a t i f t h e i n d u s t r i a l economies e l i m i n a t e d t h e i r n o n - t a r i f f
b a r r i e r s , t h e i r e x p o r t s w o u l d r i s e by n e a r l y $ 200 b i l l i o n a y e a r and t h e i r
i m p o r t s b y more t h a n $ 250 b i l l i o n ( c h a r t 3 ) ; t h e w o r l d w i d e e l i m i n a t i o n o f such
measures m i g h t i n c r e a s e w o r l d t r a d e by $ 330 b i l l i o n a y e a r ( c h a r t 4 ) .
I n t h e r e c e n t use o f t h e VER, A m e r i c a has l e d t h e way, b u t o t h e r i n d u s t r i a l
c o u n t r i e s have h a p p i l y f o l l o w e d . The c o u n t r i e s s e l f l e s s l y v o l u n t e e r i n g t o
r e s t r i c t t h e i r e x p o r t s i n c l u d e Japan, t h e n e w l y i n d u s t r i a l i s e d East A s i a n
economies, p o o r e r c o u n t r i e s such as B r a z i l , M e x i c o and P o l a n d , and d e s p e r a t e l y
p o o r ones such as B a n g l a d e s h . Members o f t h e European Community, t h e m s e l v e s
d e v o t e e s o f t h e VER as an i n s t r u m e n t o f t r a d e p o l i c y , a r e r e l u c t a n t v o l u n t e e r s
i n one case: t h e Community has a g r e e d t o r e s t r i c t i t s e x p o r t s o f s t e e l t o t h e
United States.
So much f o r r e d u c i n g t r a d e . A m e r i c a a l s o has ways o f i n c r e a s i n g i t .
The
c r o w b a r i n A m e r i c a ' s t o o l b o x i s t h e n o t o r i o u s S e c t i o n 301 o f i t s t r a d e l a w .
This gives t h e p r e s i d e n t broad a u t h o r i t y t o r e t a l i a t e a g a i n s t f o r e i g n t r a d e
p r a c t i c e s t h a t u n f a i r l y d i s c o u r a g e A m e r i c a n e x p o r t s . A m e r i c a d e c i d e s what i s
u n f a i r ; t h e l a w i s vague on t h e p o i n t .
The p r o c e d u r e can be s t a r t e d e i t h e r b y a
p r i v a t e p a r t y ' s p e t i t i o n o r a t t h e r e q u e s t o f t h e U n i t e d S t a t e s Trade
R e p r e s e n t a t i v e (USTR).
Between 1974, when t h e Trade A c t became law, and 1985, 27 cases i n v o l v i n g
u n f a i r b a r r i e r s were b r o u g h t .
S i n c e 1986, however, t h e l a w has been used more
aggressively.
I n t w o y e a r s 11 cases were b r o u g h t i n v o l v i n g l a r g e amounts o f
trade.
By 1988 $ 4 b i l l i o n - w o r t h o f t r a d e was s u b j e c t t o S e c t i o n - 3 0 1 a c t i o n .
I f a VER i s t h e remedy f o r e x c e s s i v e i m p o r t s , t h e n t h e a p t r e p l y t o a
S e c t i o n - 3 0 1 c o m p l a i n t w o u l d seem t o be a VIE ( v o l u n t a r y i m p o r t e x p a n s i o n ) .
In
i t s g r e a t e r use o f S e c t i o n 301, A m e r i c a ' s t r a d e p o l i c y has b r o a d e n e d i n t h e
1980s f r o m a p u r e l y d e f e n s i v e s t a n c e ( c o n c e r n a b o u t h i g h i m p o r t s ) t o i n c l u d e a
more a g g r e s s i v e e l e m e n t ( c o n c e r n a b o u t l o w e x p o r t s ) .
The Omnibus Trade and C o m p e t i t i v e n e s s A c t o f 1988 made t h e o l d S e c t i o n 301
more p o t e n t and added a new "Super 3 0 1 . " The d i f f e r e n c e between t h e t w o i s t h a t
S e c t i o n 301 d e a l s w i t h d i s p u t e s about s p e c i f i c goods, where as Super 301 i s used
t o accuse c o u n t r i e s o f a b r o a d range o f u n f a i r t r a d e p r a c t i c e s .
Countries
"named" u n d e r Super 301 must r e a c h agreement w i t h t h e USTR w i t h i n 12 t o 18
months o r f a c e r e t a l i a t i o n .
Japan, I n d i a and B r a z i l were named i n 1989, t h o u g h
Japan and B r a z i l were l a t e r removed. E i g h t c o u n t r i e s were p u t on a " p r i o r i t y
w a t c h l i s t " because o f t h e i r a l l e g e d l y i n a d e q u a t e p r o t e c t i o n o f i n t e l l e c t u a l
p r o p e r t y , and a n o t h e r 17 were t o l d t h a t t h e y were b e i n g k e p t i n mind f o r s i m i l a r
treatment.
W i e l d i n g t h i s b i g s t i c k , America n e g o t i a t e d i t s r e c e n t S t r u c t u r a l Impediments
I n i t i a t i v e w i t h Japan. T h i s e x t e n d e d t h e i d e a o f u n f a i r t r a d e p r a c t i c e s i n t o
previously unexplored t e r r i t o r y .
The n e g o t i a t i o n s c o v e r e d Japan's
r e t a i l - d i s t r i b u t i o n s y s t e m , i t s p u b l i c s p e n d i n g on r o a d s and i n f r a s t r u c t u r e ,
h o u s e h o l d s ' s a v i n g h a b i t s , employment l e g i s l a t i o n and so on, t h e l i s t e x t e n d i n g
c o m p l a i n t h a t a l l t h i s i s m e r e l y " p r o c e d u r a l p r o t e c t i o n " -- u s i n g t r a d e p o l i c i e s
t h a t a r e supposed t o o f f e r r e m e d i e s f o r t h e abuses o f o t h e r g o v e r n m e n t s as a
�PAGE
The
E c o n o m i s t , September 22,
17
1990
way o f g r a n t i n g s p e c i a l t r e a t m e n t t o y o u r own p r o d u c e r s . A t any r a t e , a l o t o f
what A m e r i c a has been up t o i s i l l e g a l u n d e r t h e GATT, o r a t l e a s t t h r e a t e n s t o
be so i f c a r r i e d t h r o u g h .
Super 301 n e g o t i a t i o n s w i l l p r o b a b l y bypass GATT
procedures.
Remedies a r e l i k e l y t o v i o l a t e a l l t h r e e o f t h e p r i n c i p l e s
d e s c r i b e d above: r e c i p r o c i t y , because A m e r i c a i s n o t o f f e r i n g t o l o w e r i t s own
t r a d e b a r r i e r s ; n o n - d i s c r i m i n a t i o n , because A m e r i c a i s i m p l i c i t l y t h r e a t e n i n g t o
b l o c k i m p o r t s f r o m one c o u n t r y ; t r a n s p a r e n c y , because t h e outcome i s l i k e l y t o
i n v o l v e some n o n - t a r i f f i n t e r v e n t o n i i n t r a d e f l o w s .
A m e r i c a i s b y no means t h e o n l y e x p o n e n t o f p r o c e d u r a l p r o t e c t i o n -- a n d n o t
a l l t h e methods a r e i n c o n s i s t e n t w i t h t h e l e t t e r o f t h e GATT. A r t i c l e 19 o f t h e
GATT a l l o w s c o u n t r i e s t o t a k e " s a f e g u a r d " ( o r " e s c a p e - c l a u s e " ) a c t i o n s t o
p r o t e c t an i n d u s t r y t h a t i s b e i n g damaged b y a sudden s u r g e o f i m p o r t s .
Such
a c t i o n must be t e m p o r a r y , n o n - d i s c r i m i n a t o r y and t r a n s p a r e n t ( t a r i f f s , n o t
quotas).
A l l o f which i s j o l l y
inconvenient.
Far more p o p u l a r , t h e r e f o r e , a r e t h e r u l e s on dumping and c o u n t e r v a i l i n g
duties.
Governments p u t a n t i - d u m p i n g d u t i e s on i m p o r t s t h a t a r e b e i n g s o l d i n
t h e i r market, t h e y c l a i m , a t p r i c e s t h a t a r e t o o low i n r e l a t i o n e i t h e r t o c o s t s
o r t o p r i c e s i n t h e e x p o r t e r ' s home m a r k e t .
Similarly, countervailing duties
can be imposed on i m p o r t s f r o m s u p p l i e r s t h a t a r e deemed t o have been u n f a i r l y
s u b s i d i s e d by t h e i r governments.
I n t h e i r i n i t i a l e f f e c t , u n l i k e S e c t i o n 301
and Super 3 01, t h e s e r u l e s a r e i n t e n d e d s i m p l y t o r e d u c e t r a d e ; t h e y a r e n o t
concerned w i t h opening f o r e i g n markets.
Though a n t i - d u m p i n g and c o u n t e r v a i l i n g - d u t y measures a t t r a c t f a r l e s s p o p u l a r
a t t e n t i o n t h a n S e c t i o n 3 0 1 and Super 301, t h e y a r e much more o f t e n used.
Between 1979 and 1988 t h e a n t i - d u m p i n g p r o c e d u r e a c c o u n t e d f o r 77% o f a l l t r a d e
a c t i o n s m o n i t o r e d b y t h e GATT, and c o u n t e r v a i l i n g - d u t y cases a n o t h e r 18%.
Over
t h i s p e r i o d A m e r i c a b r o u g h t 427 a n t i - d u m p i n g cases, 371 c o u n t e r v a i l i n g - d u t y
cases, 44 S e c t i o n - 3 0 1 casses and 36 " o t h e r s " ; t h e European Community b r o u g h t 406
a n t i - d u m p i n g c a s e s , 13 c o u n t e r v a i l i n g - d u t y cases and 39 " o t h e r s . "
The GATT p r o v i d e s f o r a n t i - d u m p i n g and c o u n t e r v a i l i n g - d u t y r e m e d i e s , even
though these c l a s h w i t h the n o n - d i s c r i m i n a t i o n p r i n c i p l e .
They a r e a l e g a l way
t o s i n g l e o u t a n o t h e r member f o r h i g h e r - t h a n - M F N t a r i f f s .
(The European
Community makes no bones a b o u t t h i s .
I t has l o n g a r g u e d f o r a much g r e a t e r
r e l a x a t i o n o f t h e n o n - d i s c r i m i n a t i o n p r i n c i p l e . ) On a v e r a g e , a n t i - d u m p i n g d u t i e s
a r e f o u r t i m e s h i g h e r t h a n t h e c o r r e s p o n d i n g MFN t a r i f f s and one MFN t a r i f f i s
replaced by f o u r d i f f e r e n t r a t e s o f duty.
Many a c t i o n s l e a d t o p r i c e - f i x i n g o r q u o t a a r r a n g e m e n t s .
Two-thirds of the
VERs imposed by A m e r i c a and t h e European Community between 1980 and 1987 were
t h e outcome o f a n t i - d u m p i n g a c t i o n s .
The mere t h r e a t o f an a c t i o n may have a
b i g e f f e c t on t r a d e .
As Mr P a t r i c k M e s s e r l i n , an e c o n o m i s t a t t h e W o r l d Bank,
p u t s i t : " E n t i r e i n d u s t r i a l s e c t o r s -- s t e e l and c h e m i c a l s i n t h e U n i t e d S t a t e s ;
s t e e l , c h e m i c a l s a n d e l e c t r o n i c s i n t h e EC -- a r e i n c r e a s i n g l y moulded b y t h i s
i n s t r u m e n t . " A l l i n a l l , i t i s d i f f i c u l t t o b e l i e v e t h a t t r a d e w o u l d n o t have
grown a l o t f a s t e r t h a n i t d i d d u r i n g t h e 1980s i f t h e a c c e l e r a t i n g s l i d e
t o w a r d s p r o c e d u r a l p r o t e c t i o n h a d n e v e r happened.
Compare and c o n t r a s t
I n 1990 many A m e r i c a n s a g r e e w i t h Mr Thurow t h a t t h e GATT i s dead, and f a v o u r
"managed t r a d e " as t h e o n l y way t o meet t h e economic c h a l l e n g e o f t h e n e x t
decade. A t t h e same t i m e t h e c o u n t r i e s o f E a s t e r n Europe a r e f l e e i n g COMECON
�PAGE
The
18
E c o n o m i s t , September 22, 1990
-- managed t r a d e i n a f u l l y w o r k e d - o u t - f o r m -- and a s k i n g t o j o i n t h e l a r g e l y
open i n t e r n a t i o n a l t r a d i n g s y s t e m t h a t t h e GATT has b u i l t .
Odd, t h a t .
The d e v e l o p i n g c o u n t r i e s pose t h e same p u z z l e . As t h e i n d u s t r i a l c o u n t r i e s '
e n t h u s i a s m f o r l i b e r a l t r a d e c o o l e d i n 1980s, many o f t h e w o r l d ' s p o o r c o u n t r i e s
began t o see t h e a d v a n t a g e s .
T h i s was q u i t e a change.
From t h e o u t s e t , t h e t h i r d w o r l d e n j o y e d i t s " s p e c i a l and d i f f e r e n t i a l
s t a t u s " i n t h e GATT. A r t i c l e 18 o f t h e agreement gave d e v e l o p i n g c o u n t r i e s
b l a n k e t p e r m i s s i o n t o use t r a d e r e s t r i c t i o n s t o " p r o t e c t " t h e i r b a l a n c e o f
payments. L i k e t h e p r i n c i p l e o f r e c i p r o c i t y , t h i s i d e a i s an economic f a l l a c y .
Trade r e s t r i c t i o n s may succeed i n r e d u c i n g i m p o r t s , b u t s i n c e t h e y a r e j u s t as
l i k e l y t o r e d u c e e x p o r t s , t h e y have no r e l i a b l e e f f e c t on t h e b a l a n c e o f t r a d e .
U n l i k e r e c i p r o c i t y , A r t i c l e 18 has no m i t i g a t i n g r a t i o n a l e : i t i s t h e
u n a c c e p t a b l e f a c e o f t h e m e r c a n t i l i s m t h a t i s b u i l t i n t o t h e GATT. F o r y e a r s
the p o o r c o u n t r i e s e a g e r l y e x p l o i t e d t h i s p e r m i s s i o n t o s t a y p o o r .
As
s e c o n d - c l a s s c i t i z e n s , s p a r e d t h e f u l l , o n e r o u s d u t i e s o f GATT membership, t h e y
meanwhile l a c k e d t h e b a r g a i n i n g power t o c h a l l e n g e t h e t r a d e b a r r i e r s e r e c t e d
a g a i n s t them.
The t r a d e r e f o r m e r s o f L a t i n A m e r i c a and A f r i c a s t i l l have a l o n g way t o go,
b u t a r e a l change i n t h i n k i n g does seem t o be u n d e r way. The t h i r d w o r l d ' s
t r a d e p o l i c i e s a r e s t i l l h i g h l y p r o t e c t i o n i s t , i t must be s t r e s s e d .
Equally,
d e s p i t e i t s r e c e n t change o f d i r e c t i o n , A m e r i c a r e m a i n s one o f t h e most open
economies i n t h e w o r l d .
B u t i t i s s t r i k i n g t h a t t h e t r a d e - p o l i c y g u l f between
the
r i c h e s t economy i n t h e w o r l d and t h e s t r u g g l i n g economies t o i t s s o u t h i s
narrowing f a s t from both sides.
What makes t h i s even more s t r i k i n g i s t h e c e n t r a l r o l e p l a y e d i n b o t h cases
by t h e need t o c u t c u r r e n t - a c c o u n t d e f i c i t s .
America's d e f i c i t i n c r e a s e d
s h a r p l y i n t h e e a r l y 1980s, as t h e d o l l a r was d r i v e n up by h i g h A m e r i c a n
i n t e r e s t r a t e s ; L a t i n A m e r i c a ' s c u r r e n t - a c c o u n t d e f i c i t s were more d e e p - s e a t e d ,
r e f l e c t i n g y e a r s o f o v e r - b o r r o w i n g and u n d e r - i n v e s t m e n t d u r i n g t h e 1970s.
America's p o l i c y m a k e r s wanted t o reduce t h e i r c o u n t r y ' s e x t e r n a l d e f i c i t p a r t l y
t o a v o i d a d a n g e r o u s b u i l d - u p o f f o r e i g n d e b t , p a r t l y because t h e y saw i t as a
s i g n o f t h e p r e s s u r e on d o m e s t i c p r o d u c e r s , and p a r t l y because i t was an
embarassment; L a t i n A m e r i c a ' s g o v e r n m e n t s were c o m p e l l e d t o r u n c u r r e n t - a c c o u n t
surpluses t o s e r v i c e t h e i r debts.
A m e r i c a t u r n e d somewhat p r o t e c t i o n i s t ,
Mexico, C h i l e , V e n e z u e l a and o t h e r s ( i n c l u d i n g , more r e c e n t l y , B r a z i l ) opened
t h e i r markets t o f o r e i g n c o m p e t i t i o n .
Note t o o t h a t t h e i n d u s t r i a l c o u n t r i e s ' d r i f t t o w a r d s p r o t e c t i o n has happened
a l o n g s i d e a marked s h i f t i n t h e o p p o s i t e d i r e c t i o n i n t h e i r own d o m e s t i c
economic p o l i c i e s , f r o m i n t e r v e n t i o n i s m t o w a r d s g r e a t e r r e l i a n c e on m a r k e t
forces.
The i d e a o f managed t r a d e g a i n e d c u r r e n c y i n t h e age o f R o n a l d Reagan
and M a r g a r e t T h a t c h e r .
I t seems t h a t o v e r t h e p a s t t e n y e a r s economic
l i b e r a l i s m has won t h e argument e v e r y w h e r e -- e x c e p t i n t h e i n d u s t r i a l
c o u n t r i e s ' approach t o t r a d e .
Why? D u r i n g t h e 30 y e a r s when t h e GATT was d o i n g i t s j o b so s p l e n d i d l y ,
American l e a d e r s h i p p l a y e d the c r i t i c a l r o l e .
The U n i t e d S t a t e s was
u n c h a l l e n g e d as t h e w o r l d ' s f o r e m o s t economic power.
I t s businesses had
e v e r y t h i n g t o g a i n i f f o r e i g n m a r k e t s c o u l d be opened t o i t s e x p o r t s , a n d l i t t l e
t o l o s e , i t seemed, i f A m e r i c a ' s m a r k e t s were opened t o f o r e i g n e r s i n r e t u r n .
A l l t h a t has changed. The A m e r i c a n economy i s s h r i n k i n g i n r e l a t i v e t e r m s ,
�PAGE
19
The Economist, September 22, 1990
threatened from across t h e P a c i f i c by Japan and from across the A t l a n t i c by a
resurgent Europe. I t s economic supremacy, q u a n t i t a t i v e and q u a l i t a t i v e , can no
longer be taken f o r granted. America lacks the confidence t o champion the cause
of f r e e trade,- i t s government has l o s t the w i l l t o block demands f o r p r o t e c t i o n .
This, perhaps, i s the best answer t o the puzzle.
But as Maynard Keynes s a i d :
The ideas o f economists and p o l i t i c a l philosophers, both when they are r i g h t
and when they are wrong, are more powerful than i s commonly understood. . . . I
am sure t h a t the power o f vested i n t e r e s t s i s v a s t l y exaggerated compared w i t h
the gradual encroachment o f ideas.
In the 1980s a new body of economic theory began t o challenge the c l a s s i c a l
arguments f o r l i b e r a l t r a d e . P o l i t i c i a n s who had never opened an economics
textbook read about i t on the e d i t o r i a l pages of t h e i r newspapers, and embraced
i t g r a t e f u l l y . S t r a t e g i c trade theory d i d not "encroach." I t a r r i v e d w i t h a
bang, an idea f o r i t s time.
iGATT rounds
i$mm^^
1947
GRAPHIC: P i c t u r e , no c a p t i o n , Chart 1, Lower t a r i f f s , more t r a d e , GATT rounds
and the d e c l i n e i n i n d u s t r i a l c o u n t r i e s ' t a r i f f s ; Chart 2, Lower t a r i f f s , more
trade, World t r a d e and o u t p u t ; Charts 1 and 2 Sources: Centre f o r I n t e r n a t i o n a l
Economics, GATT, IMF; Chart 3, The new p r o t e c t i o n i s m , I n d u s t r i a l - c o u n t r y imports
subject t o "hardcoree" n o n - t a r i f f measures; Chart 4, The new p r o t e c t i o n i s m ,
E f f e c t s on trade o f t h e e l i m i n a t i o n o f n o n - t a r i f f measures; Charts 3 and 4
Source: Gary Clyde Hufbauer f o r The Free Trade Debate (Twentieth Century Fund)
LANGUAGE: ENGLISH
�PAGE
60TH STORY o f L e v e l 1 p r i n t e d
Copyright
11
i n FULL f o r m a t .
1993 The Economist Newspaper, L t d .
The Economist
December 4, 1993
SECTION: S p e c i a l ; GATT; Pg. 25
LENGTH: 10 07 words
HEADLINE: A g u i d e
t o GATT
BODY:
THE t r a d e t a l k s known as t h e Uruguay r o u n d a r e t h e e i g h t h i n t h e h i s t o r y o f
the G e n e r a l Agreement on T a r i f f s and Trade. O n l y 23 c o u n t r i e s t o o k p a r t i n t h e
f i r s t , w h i c h were h e l d i n Geneva i n 1947 and f i n i s h e d w i t h i n t h e y e a r . By
c o n t r a s t , t h e c u r r e n t r o u n d has 116 p a r t i c i p a n t s and has l a s t e d more t h a n seven
years .
Each r o u n d b u i l d s on t h e work o f t h o s e t h a t came b e f o r e i t . I n t h e e a r l y
days t h e main j o b was c u t t i n g t a r i f f s , and t h e n c u t t i n g them a g a i n .
The a v e r a g e
t a r i f f has f a l l e n f r o m a l m o s t 40% when t h e GATT was f o u n d e d t o 4.7% now -- and
w i l l be as l i t t l e as 3% i f t h e Uruguay r o u n d succeeds. GATT has g r a d u a l l y moved
i n t o o t h e r a r e a s t o o . The Kennedy r o u n d i n t r o d u c e d r u l e s a g a i n s t dumping
exports.
The Tokyo r o u n d made i t h a r d e r f o r c o u n t r i e s t o m a n i p u l a t e t e c h n i c a l
s t a n d a r d s , i m p o r t l i c e n c e s and customs r e g u l a t i o n s i n o r d e r t o keep i m p o r t s o u t .
Some c o u n t r i e s a l s o s i n g e d agreements on government p r o c u r e m e n t , c i v i l a i r c r a f t ,
and beef a n d d a i r y p r o d u c t s .
I f t h e r e i s a s i n g l e p r i n c i p l e a t t h e h e a r t o f GATT, i t i s t h a t
d i s c r i m i n a t i o n p o i s o n s t r a d e . E v e r y c o u n t r y i n GATT opens i t s m a r k e t s e q u a l l y
to every other.
I n p r a c t i c e , once a c o u n t r y and i t s l a r g e s t t r a d i n g p a r t n e r s
have a g r e e d t o c u t a t a r i f f , u s u a l l y i n exchange f o r an e q u i v a l e n t c u t
elsewhere, t h e cut i s a u t o m a t i c a l l y extended t o every o t h e r c o u n t r y (the
"most-favoured-nation" p r i n c i p l e ) .
The new t a r i f f c a n n o t l a t e r be r a i s e d e x c e p t
by n e g o t i a t i o n s i n w h i c h a l l o t h e r c o u n t r i e s a r e compensated. O t h e r , m u r k i e r
f o r m s o f p r o t e c t i o n a r e banned.
S m a l l c o u n t r i e s e n j o y b e t t e r a c c e s s t o b i g g e r c o u n t r i e s ' m a r k e t s t h r o u g h GATT
t h a n t h e y c o u l d e v e r have n e g o t i a t e d by t h e m s e l v e s .
Trade t e n s i o n i s d e f u s e d
because p r o t e c t i o n i s t l o b b i e s have l e s s o p p o r t u n i t y t o m a n i p u l a t e b i l a t e r a l
t r a d e ( t h o u g h A m e r i c a ' s t o r t u r e d r e l a t i o n s h i p w i t h Japan shows t h a t t h i s does
n o t a l w a y s h a p p e n ) . And GATT h o l d s t h a t c o u n t r i e s s h o u l d t r e a t f o r e i g n
businessmen as t h e y do l o c a l s , b a n n i n g bogus r u l e s d e s i g n e d t o c i r c u m v e n t t h i s
p r i n c i p l e of "national treatment".
There a r e f e w p e r m i t t e d e x c e p t i o n s t o d i s c r i m i n a t i o n , b u t t h e y a r e
i n c r e a s i n g l y prominent.
R e g i o n a l t r a d i n g a r e a s a r e a l l o w e d as l o n g as t h e y
c o v e r most t r a d e a n d do n o t r a i s e t r a d e b a r r i e r s t o o u t s i d e r s . C o u n t r i e s c a n
d i s c r i m i n a t e i n f a v o u r o f d e v e l o p i n g c o u n t r i e s ; and t h e y c a n i n c r e a s e p r o t e c t i o n
t e m p o r a r i l y i n e m e r g e n c i e s -- when an i n d u s t r y i s i n d i r e t r o u b l e , o r when a
c o u n t r y s u f f e r s f r o m an unmanageable c u r r e n t - a c c o u n t d e f i c i t .
The Uruguay r o u n d ' s seven p r e d e c e s s o r s have h a d a p r o f o u n d e f f e c t on t h e
w o r l d economy. Between 1950 and 1975 t h e volume o f w o r l d t r a d e expanded
f i v e - f o l d and t h e w o r l d economy more t h a n d o u b l e d i n s i z e .
But since growth
�PAGE
The
12
E c o n o m i s t , December 4, 1993
i n t r a d e and o u t p u t s l o w e d i n t h e 1980s, GATT'S r u l e s have been u n d e r m i n e d . The
Uruguay r o u n d seeks t o p u t t h i s r i g h t i n f o u r ways: f u r t h e r c u t s i n t a r i f f s ;
r e f o r m i n g GATT as an i n s t i t u t i o n ; e l i m i n a t i n g damaging e x c e p t i o n s t o GATT'S
u n i v e r s a l c o v e r a g e o f goods; and b r i n g i n g i n new i t e m s t o make GATT more
relevant.
N o t h i n g i n t h e Uruguay r o u n d i s a g r e e d on u n t i l a l l c o u n t r i e s i n i t i a l t h e
e n t i r e package. B u t much has been s e t t l e d p r o v i s i o n a l l y o v e r t h e p a s t seven
years.
The d e t a i l s a r e c o n t a i n e d i n t h e " d r a f t f i n a l a c t " , 450 pages l o n g and
c o m p r i s i n g 28 s e p a r a t e a g r e e m e n t s .
The a c t ' s main p r o v i s i o n s w o u l d a i m t o :
* W r i t e f o r t h e f i r s t time a s e t o f r u l e s t o cover t r a d e i n s e r v i c e s . A
framework w o u l d e x i s t f o r t h e l i b e r a l i s a t i o n , n o t o n l y o f t h e $ 900
b i l l i o n - w o r t h o f s e r v i c e s t h a t cross borders, b u t also t h e $ 3 t r i l l i o n - w o r t h o f
s e r v i c e s t h a t a r e p r o v i d e d d o m e s t i c a l l y a r o u n d t h e w o r l d -- i n s u r a n c e , f o r
example. The modest p r o g r e s s s o u g h t i n t h i s r o u n d w o u l d s u p p l y a p l a t f o r m f o r
more l i b e r a l i s a t i o n i n f u t u r e r o u n d s .
* Protect a l l kinds of i n t e l l e c t u a l property, including patients, copyright
and t r a d e m a r k s .
T h a t w o u l d be good f o r d e v e l o p e d c o u n t r i e s , w h i c h c a n c o l l e c t
h i g h e r r o y a l t i e s ; b u t some o f t h e d e v e l o p i n g c o u n t r i e s m i g h t l o s e .
* Phase o u t o v e r t e n y e a r s t h e b i l a t e r a l q u o t a s w h i c h make up t h e m u l t i f i b r e
a r r a n g e m e n t f o r t e x t i l e s and c l o t h i n g .
T a r i f f s w i l l be c u t .
Developing
countries should b e n e f i t .
* Forge a c o m p r e h e n s i v e agreement i n GATT'S a r e
u n r e s o l v e d , b u t t h e p r i n c i p l e s a r e c l e a r : r e p l a c e q u o t a s w i t h t a r i f f s ; and c u t
subsidies, e s p e c i a l l y export subsidies.
* Cut t a r i f f s by a t l e a s t a t h i r d .
T a r i f f s imposed by t h e b i g economies on
some i m p o r t a n t i t e m s w i l l be e l i m i n a t e d a l t o g e t h e r . S p e c i a l a t t e n t i o n has been
g i v e n t o a f e w v e r y h i g h t a r i f f s ; and t o h e l p i n g d e v e l o p i n g c o u n t r i e s by c u t t i n g
t a r i f f s on t r o p i c a l p r o d u c t s .
* Tryt o reform
* T r y t o curb
(successfully) therules against subsidies.
( m i n i m a l l y ) t h e misuse o f r u l e s on dumping.
* T r y t o p r e v e n t ( h o p e l e s s l y ) t h e use o f v o l u n t a r y e x p o r t r e s t r a i n t s - - a
s o r t o f i m p o r t q u o t a w h i c h i s o p e r a t e d by an e x p o r t e r u n d e r p r e s s u r e f r o m an
importing country.
* T i d y up r u l e s on s h i p m e n t , i n c l u d i n g i n s p e c t i o n , customs, i m p o r t
t e c h n i c a l s t a n d a r d s and r u l e s o f o r i g i n .
licensing,
* Phase o u t t r a d e - r e l a t e d i n v e s t m e n t measures, such as t h e r e q u i r e m e n t
f o r e i g n i n v e s t o r s buy s u p p l i e s l o c a l l y .
* B u i l d on e a r l i e r a g r e e m e n t s i n government p r o c u r e m e n t and c i v i l
* Speed up t h e a r b i t r a t i o n o f d i s p u t e s between GATT members.
a l s o f i n d i t harder t o d i s s e n t from judgments.
* C l a r i f y a r a f t o f GATT r u l e s .
that
aircraft.
Countries
will
�PAGE
The E c o n o m i s t , December 4, 1993
* T r a n s f o r m GATT f r o m a p r o v i s i o n a l agreement ( i t was n e v e r r a t i f i e d by
A m e r i c a ) i n t o a f u l l i n s t i t u t i o n c a l l e d t h e M u l t i l a t e r a l Trade O r g a n i s a t i o n .
Goods l e a g u e
Leading e x p o r t e r s o f
merchadise
1992
$ bn
United States
447
Germany
42 8
Japan
340
France
23 6
Britain
191
Italy
175
Holland
140
Canada
13 5
Belgium/Luxembourg
12 0
Hong Kong *
118
* I n c l u d e s r e - e x p o r t s and i m p o r t s f o r r e - e x p o r t
Source: GATT
Services league
Leading e x p o r t e r s o f
commercial s e r v i c e s
19 91
United States
France
Germany
Italy
Britain
Japan
Holland
Belgium/Luxembourg
Spain
Austria
Source: GATT
LANGUAGE: ENGLISH
$ bn
148
84
60
56
53
46
32
32
31
25
13
�PAGE
43RD STORY o f L e v e l
Copyright
1 p r i n t e d i n FULL
9
format.
1994 I n f o r m a t i o n Access Company, a Thomson C o r p o r a t i o n
ASAP
C o p y r i g h t 1994 U.S. Department o f A g r i c u l t u r e
Company
AgExporter
June, 19 94
SECTION: V o l .
6 ; No. 6 ; Pg. 2 1 ; ISSN: 1047-4781
LENGTH: 73 9 words
HEADLINE: F a c t f i l e :
Trade
a h i s t o r y o f t h e GATT; G e n e r a l Agreement on T a r i f f s and
BODY:
The G e n e r a l Agreement on T a r i f f s and Trade (GATT) i s a m u l t i l a t e r a l a c c o r d ,
s u b s c r i b e d t o b y 115 g o v e r n m e n t s . (However, 117 c o u n t r i e s p a r t i c i p a t e d i n t h e
most r e c e n t n e g o t i a t i n g r o u n d . ) T o g e t h e r , t h e s e c o u n t r i e s a c c o u n t f o r more t h a n
90 p e r c e n t o f w o r l d t r a d e . The b a s i c a i m o f t h e GATT i s t o l i b e r a l i z e w o r l d
t r a d e and p l a c e i t on a s e c u r e b a s i s , c o n t r i b u t i n g t o economic g r o w t h a n d
development.
E s t a b l i s h e d i n 1948, t h e GATT i s t h e o n l y m u l t i l a t e r a l o r g a n i z a t i o n t h a t
l a y s down a g r e e d - u p o n r u l e s f o r i n t e r n a t i o n a l t r a d e . I t a l s o f u n c t i o n s as t h e
p r i n c i p a l i n t e r n a t i o n a l body c o n c e r n e d w i t h m u l t i l a t e r a l l y n e g o t i a t i n g t h e
r e d u c t i o n o f t r a d e b a r r i e r s and o t h e r measures t h a t d i s t o r t c o m p e t i t i o n . So
GATT i s b o t h a code o f r u l e s and a f o r u m i n w h i c h c o u n t r i e s c a n d i s c u s s a n d
r e s o l v e t h e i r t r a d e d i s p u t e s and n e g o t i a t e t o e n l a r g e w o r l d t r a d i n g
opportunities.
The r u l e s o f t h e GATT a r e s e t o u t i n t h e f o r m o f a c o n t r a c t . N a t i o n s t h a t
j o i n t h e GATT, r e f e r r e d t o as c o n t r a c t i n g p a r t i e s , have an o b l i g a t i o n t o c a r r y
o u t t h e r u l e s a n d have t h e r i g h t t o seek a c t i o n a g a i n s t o t h e r members who f a i l
t o keep t h e r u l e s . The GATT i s n o t a government, i n d i v i d u a l c o u n t r i e s m a i n t a i n
t h e i r a b i l i t y t o d e t e r m i n e how t h e y w i l l make n a t i o n a l laws t h a t c o n f o r m t o
t h e i r i n t e r n a t i o n a l o b l i g a t i o n s u n d e r t h e a c c o r d . The GATT o r g a n i z a t i o n i s
h e a d q u a r t e r e d i n Geneva, S w i t z e r l a n d , and has a permanent s t a f f t o h e l p
i n t e r p r e t i t s t r a d e r u l e s , m o n i t o r members' p o l i c i e s , s e t t l e d i s p u t e s and
conduct t r a d e n e g o t i a t i o n s .
S i n c e i t s i n c e p t i o n , c o u n t r i e s have used t h e GATT t o i n i t i a t e r o u n d s o f
n e g o t i a t i o n s t o d e a l w i t h t h e m a j o r p r o b l e m s o f i n t e r n a t i o n a l t r a d e . Over i t s
h i s t o r y , t h e GATT has s p o n s o r e d e i g h t r o u n d s o f m u l t i l a t e r a l t r a d e n e g o t i a t i o n s .
The e a r l y r o u n d s a d d r e s s e d k e y t r a d e p o l i c y i s s u e s o f t h e i r t i m e , namely t h e
r e d u c t i o n o f t a r i f f s on i n d u s t r i a l goods and t h e e s t a b l i s h m e n t o f c l e a r r u l e s
f o r g o v e r n m e n t a l r e g u l a t i o n o f w o r l d t r a d e . S i g n i f i c a n t p r o g r e s s was made i n
both o f these areas, b u t t h e r u l e s provided s p e c i a l p r o v i s i o n s f o r a g r i c u l t u r e
t h a t l i m i t e d t h e e f f e c t i v e n e s s o f GATT d i s c i p l i n e s .
I n t h e 1960s, a t t e m p t s were made t o b r i n g a g r i c u l t u r e and o t h e r s e c t o r s
beyond m a n u f a c t u r i n g u n d e r GATT d i s c i p l i n e , as w e l l as t o a d d r e s s t h e emergence
o f n o n t a r i f f b a r r i e r s t o t r a d e . The D i l l o n Round ( 1 960-62) c o n c l u d e d w i t h o u t
s i g n i f i c a n t progress i n a g r i c u l t u r e , except t h a t the United States gained
d u t y - f r e e b i n d i n g s on soybeans, l i n s e e d , f l a x s e e d , o i l s e e d meal and c o t t o n i n t o
t h e European Community (EC), w h i c h as o f 1994 i s r e f e r r e d t o as t h e European
�PAGE
10
A g E x p o r t e r , June, 1994
U n i o n (EU). These commitments f r o m t h e EC were o f tremendous i m p o r t a n c e
agriculture.
I n 1963-67, t h e Kennedy
and t h e d i f f e r e n c e s between
wanted t o b r i n g a g r i c u l t u r e
t h e EC wanted t o e x c l u d e i t .
I n t e r n a t i o n a l Wheat C o u n c i l
products.
t o U.S.
Round a t t e m p t e d t o l i b e r a l i z e t r a d e i n a g r i c u l t u r e ,
t h e t w o b i g p l a y e r s were c l e a r : The U n i t e d S t a t e s
u n d e r t h e r u l e s a p p l i c a b l e t o i n d u s t r i a l products,The r o u n d r e s u l t e d i n t h e c r e a t i o n o f t h e
and some s m a l l t a r i f f c o n c e s s i o n s on a g r i c u l t u r a l
I n 1973-79, t h e Tokyo Round a g a i n t a c k l e d a g r i c u l t u r e , and a g a i n t h e U n i t e d
S t a t e s and t h e EC were on o p p o s i t e s i d e s . The U n i t e d S t a t e s w a n t e d a g r i c u l t u r e
i n c l u d e d u n d e r t h e same d i s c i p l i n e s as t h e i n d u s t r i a l s e c t o r ; t h e EC w a n t e d i t
s e p a r a t e . W h i l e no p a c t was r e a c h e d on a g r i c u l t u r e , t h e Tokyo Round a c h i e v e d
s e v e r a l codes on s u b s i d i e s , i m p o r t l i c e n s i n g and t e c h n i c a l s t a n d a r d s a p p l i c a b l e
to agricultural trade.
The Uruguay Round (1986-94) was t h e most a m b i t i o u s r o u n d o f GATT
n e g o t i a t i o n s . I t began i n t h e f a c e o f an i n c r e a s i n g number o f s e r i o u s p r o b l e m s
w i t h a g r i c u l t u r a l t r a d e . S u b s i d y - i n d u c e d o v e r p r o d u c t i o n by some c o u n t r i e s l e d t o
an i n c r e a s e d u s e o f e x p o r t s u b s i d i e s , w h i c h were d i s p l a c i n g e f f i c i e n t p r o d u c e r s
f r o m t h e i r t r a d i t i o n a l e x p o r t m a r k e t s . A t t h e same t i m e , n o n t a r i f f b a r r i e r s were
i n c r e a s i n g l y b e i n g u s e d t o d i s t o r t t r a d e . O t h e r s e c t o r s o f t h e w o r l d economy
a l s o needed i n t e r n a t i o n a l d i s c i p l i n e , i n c l u d i n g s e r v i c e s , p a t e n t s (and o t h e r
i n t e l l e c t u a l p r o p e r t y r i g h t s ) and t e x t i l e s . N e g o t i a t o r s r e c o g n i z e d t h a t
c o m p r e h e n s i v e t r a d e r e f o r m was needed, w i t h a g r i c u l t u r e a t t h e f o r e f r o n t .
A f t e r seven y e a r s o f n e g o t i a t i o n s , t h e GATT r e a c h e d an agreement on December
15,1993. W i t h t h e a p p r o v a l o f member g o v e r n m e n t s , t h e agreement i s s c h e d u l e d t o
t a k e e f f e c t i n 1995. Formal s i g n i n g o f t h e agreement t o o k p l a c e on A p r i l 15,
1994, i n M a r r a k e c h , Morocco.
IAC-NUMBER: IAC 15494972
IAC-CLASS: Trade & I n d u s t r y
LANGUAGE: ENGLISH
LOAD-DATE: September 07,
1995
�Managing the World Economy under
the Bretton Woods System: An
Overview
1
BARRY EICHENGREEN A D PETER B. KENEN
N
In the five decades following World War II, the world achieved a remarkable record of economic growth. In the first 25 years after the war, advanced industrial countries grew nearly twice as rapidly as in any comparable period before or since. In the next 25 years, a number of newly
industrializing countries joined the "convergence club." The productivity
slowdown in the industrial countries, the rise in unemployment, especially in Europe, and the challenges posed by the end of the Cold War all
raise the question of whether the postwar period constitutes an exceptional half century that has now drawn to a close.
We need to understand this remarkable period to anticipate what the
future holds and provide advice to those who will have to cope with it. In
this overview, we analyze the postwar period as a distinct historical
epoch, with the goal of identifying factors responsible for the persistence
and spread of economic growth. We argue that an adequate explanation
must focus on the intemational institutions that defined the framework for
the decisions, public and private, that fostered economic growth. We
distinguish Institutions with a capital "I" from institutions with a small
"i". By "Institutions" we mean the organizations that shaped and conditioned the behavior of governments, such as the International Monetary
Fund (IMF), the World Bank, and the General Agreement on Tariffs and
Barry Eichengreen is jolm L. Simpson Professor of Economiis ami professor oj political science at tlie
University of California at Berkeley ami Peter B. Kenen is Walker Professor of Economics and
International Finance at Princeton Universitu. The authors thank C. Fred Bergsten, William R. Cline,
jeffrey Frankel. Rex Ghosh, Robert Gilpin, joanne Gown, C. Randall Henning, Kenneth Rogoff, and
John Williamson for their helpful amiment.v
�Trade (GATT). These organizations served as the conservators of the rules
conventions and understandings that structured intemational economic
relations, although they were not always able to enforce them By
institutions" we mean the rules and understandings themselves, whether
articulated formally or acknowledged implicitly, that molded national
economic policies and fostered international cooperation.
Our emphasis on the importance of institutions echoes recent work by
North (1993) and others on the New Institutional Economics and by the
contributors to Krasner (1983) on international regimes, but departs from
it in significant ways. Postwar institutional arrangements were successful
we argue, because they effectively combined rigidity and flexibility Rigidity was needed to solve commitment and coordination problems Rules of
the game were needed to discourage opportunistic behavior such as the
beggar-thy-neighbor policies of the interwar years. The rules served to
coordinate the transition to current account convertibility and the liberalization of international trade, which allowed the industrial countries to'
rely collectively on export-led growth; no single country could benefit
from it unless others pursued it simultaneously. The framework served
to prevent individual governments from reneging on their initial commitments and also encouraged them to enter collectively into new
commitments.
1
2
We depart from previous work in arguing that the postwar institutional
order was not just sturdy but remarkably adaptable. It was sufficiently
flexible to cope with unanticipated events and rectify mistakes In response to unanticipated opposition, the plan for an Intemational Trade
Organization (ITO) was replaced by the General Agreement on Tariffs and
Trade. In response to the unanticipated size of the dollar gap, the task of
providing finance was transferred from the International Monetary Fund
and World Bank to the United States under the Marshall Plan. In response
to the unanticipated seventy of the coordination problem impeding the
move to current account convertibility-a problem dramatized by
Bntain s failed dash to convertibility in 1947-the European Payments
1. Political scientists debate whether international economic interactions simply reflect the
economic and military power of the contending nations or whether the understandings and
mstitut.ona) structures that constitute a regime serve as intervening variables between basic
power and ultimate outcomes, amplitving some influences, dissipating others and solving
commitment and coordination problems that might otherwise lock nations into a suboptimal
equilibrium. The importance we attach below to US economic power indicates that we see
some ment m both views, but it w,l! become clear that we are inclined toward the second
interpretation.
2. Throughout this paper, we use "coordination" ,n the way the word is commonly used bv
economists. It denotes the need for a synchronized change in behavior by governments or
other economic agents. This usage includes (but is broader than) the meaning attached to the
term in discussions of international policy coordination, which focuses on ways of obtaining
agreements among governments on mutually beneficial policy changes.
'
Union (EPU) was grafted onto the Bretton Woods system and was managed by the European countries rather than the IMF. What is most remarkable about the first half of the postwar period is that institutional arrangements, even those meant to be permanent, were successfully adapted to
new circumstances without impairing their integrity and hence their capacity to foster coordination and commitment. That was not always the
case in the second half of the period, when the Bretton Woods Institutions
were asked to take on tasks for which they had not been designed, with
adverse effects on their integrity and effectiveness.
Four factors, we argue, lent strength and flexibility to postwar institutions. The first was the capacity and willingness of the United States to
make side payments and apply sanctions. The United States emerged from
World War II as the world's dominant economic power; it was the source
of about 50 percent of global industrial production in the immediate
postwar years, and it had an exceptional capacity to make the side payments needed to bring other countries on board when the institutional
arrangements were designed and when it was necessary to change them.
And the advent of the Cold War gave the United States a powerful incentive to exert its influence and gave other countries reasons to be receptive.
The second factor contributing to the strength and flexibility of postwar
institutions was the small number of countries involved in designing them
and the economic and political homogeneity of those countries. Although
the countries of Latin America and those that became the Eastern bloc
were present at Bretton Woods in 1944, the United States and a handful of
European governments dominated the negotiations. In fact, they did
much of the work beforehand. Early institutional innovations, including
the Marshall Plan, the GATT, and the EPU likewise involved fewer than a
score of advanced countries. The interests and attitudes shared by those
countries, even before they were reinforced by the common security concerns of the Cold War, provided the common outlook and language
needed to establish and successfully adapt institutional arrangements.
A third factor responsible for the early success of postwar institutions
was the closed nature of domestic economies. The autarchic policies of the
1930s and the controls on trade and capital movements imposed during
World War II left countries less exposed to international trade and factor
flows than in the 1920s and even less open than before World War I. While
the contrast should not be exaggerated, the difference was there. Controls
on trade and financial flows allowed governments to pursue domestic
policy goals, most notably full employment, without seriously violating
intemational rules. They could tailor their fiscal and monetary policies to
domestic needs, take welfare-state initiatives, and still meet the objectives
and obligations embodied in the postwar institutions, including the commitment to liberalize their trade and payments.
The fourth factor was the success with which governments managed
change domestically. In most countries after World War II, domestic inter-
�est groups agreed explicitly or tacitly to a settlement concerning the distribution of income and the organization of the economy. The establishment of
welfare states and sodal-market economies created a web of domestic commitments and side payments that locked in cooperative behavior. The resulting political stability and support that governments enjoyed at home buttressed the credibility of their intemational undertakings. As economic
conditions evolved thereafter in response to many factors, including the
growing openness of national economies, governments could compensate
those interest groups that suffered negative repercussions without preventing change from running its course. The domestic settlements from which
governments derived support were not fatally undermined by their intemational commitments or by the domestic ramifications of those commitments.
These broad generalizations necessarily gloss over important differences in the efficacy of various institutional arrangements. The International Monetary Fund served as the embodiment of the rules and understandings that shaped the conduct of international monetary policies and
constituted the Bretton Woods regime. The GATT functioned similarly in
the trade domain. But policies toward economic development lacked a
comparable framework. There was neither a formal institution with a
capital " I " nor a set of informally accepted conventions to give them
coherence and prominence.
The World Bank was established to finance development as well as
reconstruction but was something of an afterthought at Bretton Woods, and
its domain was limited. It was meant to intermediate between the capital
markets of industrial countries and the governments of developing countries and to focus chiefly on the financing of individual projects. It did
undergo adaptation, acquiring two affiliates—the International Finance
Corporation (IFC) to engage in investment banking functions and thus
promote private investment and the Intemational Development Association (IDA) to provide concessional financing to low-income countries. Nevertheless, development policy operated in an ad hoc manner that worked to
no one's satisfaction. US aid programs evolved out of the Marshall Plan.
European programs focused on former colonies. No intemational agency
was charged with the comprehensive surveillance of long-term capital
flows and the stabilization of commodity prices, nor was there a consensus
among governments on the need or way to take on these tasks.
There are two explanations for these differences in these institutions'
effectiveness. One is the differing extent to which the main constituencies
for the "outputs" of the institutions were present at the creation of those
institutions. Much of the developing world was not directly represented at
the Bretton Woods Conference. It was not clear at that point, moreover,
that the advanced and developing countries had common interests and
concerns important enough to produce agreed objectives and obligations.
The other explanation is the differing extent to which the postwar institutions relied on formal structures (institutions with a capital "I") and
ideas (institutions with a small "i"). The International Monetary Fund was
a formal structure intended to enforce an explicit set ot rules; its Articles ot
Agreement contained a detaUed hst of international monetary do's and
don'ts and established enforcement capabilities. Some of the rules were
not enforceable, however, and they failed to anticipate all the subsequent
problems. The General Agreement on Tariffs and Trade, by contrast, was
an ad hoc agreement intended mainly to provide a framework for pursuing nondiscriminatory, multilateral trade liberalization. Many observers
would now conclude that the GATT was the more effective arrangement
The strength of a formal arrangement such as the IMF is its rigidity; that ot
an informal, ideas-based institution such as the GATT is its adaptability.
The greater success of the GATT thus illustrates the importance tor postwar economic performance of an adaptable institutional framework.
If the Bretton Woods institutions were so important to the economic
prosperity of the first 25 years after World War II, why then did they fail to
support an equally rapid rate of growth in the advanced countries over the
next 25 years? Part of the explanation, we will argue, is that the success ot
the postwar system gradually undermined the durability and adaptability
of the system itself. By promoting economic growth in the industrial
countries and its spread to much of the developing world, the system
reduced the capacity of the United States to make side payments in order
to gain support for existing institutions and for their further adaptation^
The United States was no longer the dominant industrial power. The end
of the Cold War reinforced this process bv diminishing the incentive for
the United States to make those side payments.
The success of the IMF, the World Bank, and the GATT also encouraged
more countries to join, complicating negotiations and sharpening cleavages between developed and developing countries, between exporters ot
manufactures and of primary products, and between international borrowers and lenders. These cleavages became manifest in calls tor a New
International Economic Order and other challenges to existing rules.
Again, the end of the Cold War, which has seen the admission to the GATT
and the Bretton Woods Institutions of new countries with new aims and
needs, is just the latest stage in a long process. The increased heterogeneity
of the international community is one reason tor the proliferation of regional arrangements; they represent a quest tor homogeneity at the expense of universality, which may be needed to achieve consensus, articulate new rules, and build new institutions.
The success of postwar institutions in fostering trade and financial liberalization also opened up individual economies, which made it more difficult
for governments to reconcile their international obligations with their domestic policy objectives. The early growth of intemational trade, the more recent
growth of intemational capital mobility, and the prospective growth of international migration have all heightened the need to choose between adherence
to intemational rules and independent pursuit ot domestic economic and
�lending to the defeated powers and the Eastern European successor states,
and it worked with committees of offidals and experts responsible tor
reconciling reparations with financial stability. The League also held a
series of tariff truce conferences designed to reduce trade banners. Ihe
Brussels and Genoa Conferences of 1920 and 1922 were convened to
reconstruct the international monetary system. Central bankers such as
Benjamin Strong of the Federal Reserve Bank of New York and Montagu
Norman of the Bank of England cultivated contacts with the goal ot
harmonizing international monetary conditions.
The failure of these initiatives can be attributed to a combination of
circumstances, prominent among which was the recalcitrance of the United
States. Although it emerged from the war as the world s leading industna
power the United States resisted responsibility for the development ot
intemational economic relations/ It refused to jotn the League of Nations,
robbing that institution of authority. It limited its representataves at Brussels and Genoa to observer status. Spokesmen for the Harding administration criticized Strong for his foreign entanglements. In the resulting vacuum the French and British vied for influence in Central and Eastern
Europe-France seeking control of the League's Financial Commission,
Britain attempting to capture its responsibilities for the Bank ot England.
At a superficial level, these manifestations of US isolationism all shared
a common cause: the fear that other countries would insist that the United
States forgive their war debts to restore intemational economic stability. A
deeper question, however, is posed by the sharp contrast with the postWorld War II period. Why was the United States willing to take this step
in the 1940s when it had been unwilling to do so in the 1920s? Learning
from experience is surely part of the answer. The United States emerged
from World War I with little if any experience in managing the international system and little appreciation of the implications of its economic
might for intemational stability. Two decades of living with its economic
power not to mention the international economic disasters ot the 1920s
and 1930s and the experience of being dragged into a world war tor the
second time in a generation, understandably transformed its outlook.
Furthermore, domestic interest groups standing to benefit horn more outward-oriented policies had learned to mobilize and lobby, and the very
scale of World War II helped to transform the domestic political balance.
Massive militarv procurement had stimulated the growth of the ship-
social policies. This conflict has weakened support for the existing institutions, has tended to make some of them more rigid and brittle, and has
made it harder to marshal support, domestically and internationally, for
the further reforms and adaptations needed to prevent obsolescence.
The opening of individual economies had another consequence. In its
early stages, opening chiefly concerned the dismantling of explicit controls
and restricdons on cross-border transactions. As those barriers came down,
however, it became increasingly apparent that other important barriers
lurk behind them—rules and arrangements deeply imbedded in domestic
legislation, as well as private-sector prachces, that have the effect of discriminating against international trade or investment. These are far harder
to bargain away bv the familiar methods used to reduce tariffs and other
explicit cross-border restrictions. As firms involved in trading goods and
services, in multinational production, and in intemational financial transactions encountered these more subtle barriers, they demanded measures
aimed at achieving a "level playing field" and expressed dissatisfaction
with the results of efforts to reduce conventional cross-border barriers.
Governments responded in various ways: by putting unilateral pressure on
their trading partners to modify domestic laws and practices, by finding
ways to negotiate reciprocal changes in domestic arrangements, globally
and regionally, and by trying to harmonize domestic regulations. '
The rest of this paper has four main sections. The first recalls how the
intemational system was organized at the end of World War II and the
adaptations made when its founders' expectations were challenged by
unforeseen events. The second examines the evolution of the system and
of the world economy during the 25 years after World War II. The third
section looks at ways in which the system changed over the next 25
years—and ways in which it failed to change. The concluding section tries
to look forward by drawing out the implications of this survey for adaptation and reform during the next half century.
3
Origins and Early Adaptations
The Historical Background
Governments had already tried once, after World War 1, to reconstruct
intemational economic arrangements. Almost as soon as it was created,
the League of Nations established a Financial Commission to oversee
4 This is the theme of Kindleberger's 11973) influential analysis of the mterwar period. It >
s
important, however, not to overstate the extent of US isolationism. Hogan (1977) provides an
account that portravs the US government as relatively active m the 19-0s.
3. The measures taken bv the United States under section 301 and 'super 301" to punish
other countries' unfair" trade practices illustrate the unilateral approach; the steps taken by
the European Communitv to create a "single internal market" under the terms of the Single
European Act and the effort to liberalize trade in services during the Uruguay Round
illustrate the reciprocal approach; and the Basel agreement on uniform capital-adequacy
standards for commercial banks illustrates the attempt to harmonize domestic regulations.
5 In fact, international engagement was not entirely unprecedented tor the United States. It
ad convened a number of the international conferences held to deal with bimeta lie. contrc
versies in the second half of the 19th century, but its lack ot a central bank and its dependence
on other countries for international financial support circumscribed its role.
's*
�9
government's commitment to full employment and the welfare state.
Having achieved agreements at home, in ways that were broadly compatible across nations and thus consistent in their implications for the conduct
of national economic policies, governments could enter credibly into international commitments. They could agree to create a single set of international economic institutions with which all could live.
wmm^m
The Bretton Woods Settlement
1920s. No mstitunon was established lo coordinate the stabilizalil „f
based reservearrangemems, with deflationary conLuences "So coun rJ
The disastrous depression of the 1930s made clear the huge costs of the
failure to develop rules and understandings as well as organizational
structures to guide the conduct of economic policies. The inabihty of
politicians and officials to agree on an appropriate response to the crisis
hindered intemational cooperation. The absence of an institutional framework allowed countries to pursue opportunistic policies that compounded
their neighbors' problems. The results included the deep and persistent
slump, the implosion of trade, the collapse of the international monetary
system, and the termination of intemational lending.
This experience, along with the difficulties of reconstruction after World
War I , influenced British and American officials from the start of World
War II. They saw the need to articulate rules and understandings to guide
national policies following the war, so as to facilitate the pursuit of common objectives and discourage beggar-thy-neighbor policies. They agreed
on the need to embody those rules and understandings in exphcit agreements to which other countries could subscribe and to establish international organizations, not only as repositories for those agreements but also
to enforce them. They viewed as vital a device for dissuading the United
States from again reverting to political and economic isolationism. Out of
their discussions emerged proposals for the IMF, World Bank, and ITO.
Nevertheless, the British and American negotiating positions were informed by the different situations of their countries and bv different concerns. The United States sought to avoid intemational problems like those
of the 1920s, when exchange rate instability and trade protectionism impeded the reconstruction of trade and finance. It favored fixed exchange
rates, the removal of quantitative import restrictions, and nondiscrimination in trade to prevent a recurrence of the problems of the 1920s. The
United Kingdom, in contrast, sought to avoid problems Uke those of the
1930s: high unemployment and an international system vulnerable to
collapse. It advocated adjustable exchange rates and the limited use of
trade controls to facilitate the pursuit of full employment at home, as well
as tariff preferences to strengthen ties among subsets of countries such as
10
diMgr,™™, .bou, thtm.
" " " " " T l » l ~ , , and there wes * , „ , ! „ « deep
L^-isrittiXtrji'i^rr
»
LWted S,„„ „ , „ ,h, , . ^ Z Z , £ " t o ^ X ' "
m
I " ihe gold standard in the linal eear. „, ,h i Z n
exchange^rves^me^S^rli^
i , : S
S. T hit is a iheme ol Eichengreen (1992).
10
,
a l , h 0 U 8 h
'hegold-evchangestandard
^
«
^
9. This is how one oi us (Eichengreen 1994.1) has characterized the rise of the welfare state.
10. O'Dell (1989) and Eichengreen (1992) emphasize hoiv the absence of common rules and
understandings blocked cooperative responses to the Depression.
MANAGING THE WORLD ECONOMY
AN OVERVIEW 11
�those of the British Commonwealth as an alternative to dependence on an
unreliable global trading system.
Given these differences, why did the negotiations succeed? Ikenberry
(1993) argues that a small group of British and American policy specialists
'articulated a set of ideas about monetary order and the organization of
the postwar economy" that helped them identify "a set of normative and
technical positions that was later embraced by wartime British and American leaders." Because these specialists were able to envisage a coherent
institutional order, the two countries' policymakers were able to find
common ground, despite their different concerns and the different circumstances of their countries. This is an important insight, but it is incomplete.
The fact that Ikenberry's own treatment focuses on just two countries, the
United States and the United Kingdom, points to another important factor,
the small number of countries that had to reach agreement. The United
States, as the leading player in the international arena, and the United
Kingdom, as its closest ally and the second kev-currencv country, hammered out many of the details even before chev |oined some 40 other
countries at Bretton Woods. Enemv powers such as Germanv and occupied countries such as France necessarily had little say. Nor did representatives from Latin America or what was to become the Eastern bloc have
much influence on the outcome. Both the small number of plavers and
their homogeneity facilitated negotiations.
While the United States did not control the negotiations completely—
Britain could influence the outcome by claiming to speak for most of the
globe^the dynamism of American leadership contrasted sharply with the
recalcitrance displayed after World War 1. In part, this difference reflected
belated US recognihon that political isolation could not insulate the United
States from future threats to world peace and that America's own prosperity' depended on recovery and prosperity in Europe and other parts of the
world. In part, the US role reflected the mobilization of American export
interests, which had suffered heavily from the protectionism and exchange
rate instability of the 1930s and the resulting implosion of trade.
International agreements once negotiated had to be ratified. They had to
enjoy sufficient support domestically to be regarded as credible commitments on the part of the participating governments. Here the domestic
commitment to full employment was key. Prominent among the ideas
articulated during the negotiations was the belief that postwar international institutions should accommodate and indeed promote Keynesian
stabilization policies and social welfare goals. This generalization glosses
11
11. Thus, Keynes's final speech before the House of Lords, in which he reassured his
colleagues that the Bretton Woods system was not a gold standard that would constrain the
government's pursuit of full employment, is said to have plaved a pivotal role in the British
ratification debate
over differences between US and UK negotiators; the Americans, having
the most room for maneuver within fixed exchange rates, evinced the least
sympathy for proposals to allow easy recourse to parity adjustments. Yet
the explicit commitment to full employment was a significant departure
from previous international agreements. It allowed governments to promise their citizens that they would pursue policies to minimize unemployment, thus subduing conflicts between capital and labor. It facilitated the
building of domestic coalitions that allowed for both ratification of the
intemational agreement and subsequent implementation.
Negotiators reconciled competing objectives by emphasizing a small set
of unifying principles: that trade liberalization should be pursued multilaterally and should eliminate discrimination, that transacdons on current
account should be freed of controls but capital movements could be restricted, that exchange rates should be pegged, and that their adjustment
was a matter of common concern. Significantly, however, the power and
scope of those principles differed across issue areas.
Success was most complete in the international monetary area. Many of
the officials who formed the transnational policy coalition were monetary
specialists, and their disagreements about the appropriate degree of exchange rate flexibility, the enforcement powers of the IMF, and its ability
to create international reserves were minor compared with the matters on
which they agreed. They agreed on the need for pegged exchange rates,
for flexibility under exceptional conditions (including circumstances
where the pursuit of full employment threatened a balance of payments
crisis), for capital controls, for multilateral oversight, and for a reliable
source of reserve credit. Under the Articles of Agreement, members of the
IMF were required to peg their currencies to gold or to the dollar (which
was pegged to gold at $35 an ounce). The IMF had to approve the initial
exchange rates and most changes made thereafter, and its approval of
such changes was to be conditioned on evidence that a country faced a
"fundamental disequilibrium" in its balance of payments. Convertibility
on current account was to be restored after a three- to five-year transition
period. Finally, the Articles of Agreement attempted to provide a reliable
source of reserves by endowing the IMF with a pool of national currencies
to be made available to deficit countries. Each member's contribution to
the currency pool was governed by its quota, which also determined the
amount it could draw and its voting power in the IMF.
In the trade area, by contrast, British and American negotiators were
deeply divided from the start. The US State Department subscribed fully
to the principle of free trade, as US industries were competitive internationally and their main problem was securing access to foreign markets.
The enthusiasm of British negotiators for free trade was tempered by the
specter of the dollar shortage, concern about the sterling balances, a desire
to preserve imperial preference, and fear of an inflexible external con-
AN OVERVIEW
13
�12
straint inhibiting the pursuit of full employment. This conflict had been
finessed in wartime negotiations by skirting it in favor of monetary issues,
in the vain hope that a consensus on monetary matters might spill over to
trade matters. The monetary provisions of the Bretton Woods agreement
did indeed provide some comfort for proponents of free and managed
trade alike. On the central matter of principle, however, the United States
and its negotiating partners remained as far apart after the war as they had
been during it.
Even in the postwar negotiations, an attempt was made to dispatch the
problem by avoiding it. Adopting the time-honored device of drafting an
agreement that was too ambiguous to offend anyone, the negotiators
succeeded merely in ahenating everyone. Some countries such as the
United States saw the ITO Charter as too interventionist. The US Congress,
in particular, feared that the ITO would meddle in domestic economic
affairs and refused to ratify its charter. Other countries objected to the
charter's numerous exceptions and qualifications, which deprived the
basic principles of operational effect.
We noted earlier that the World Bank received comparatively little
attention at Bretton Woods. Despite having formally christened it the
Intemational Bank for Reconstruction and Development, its creators underestimated the needs of European reconstruction and neglected those of
Third World development. The Bank's capitalization and operating procedures, decided in 1944, proved to be inadequate to the needs of postwar
reconstruction, largely because the United States, from which most of the
capital would have to come, wanted to minimize its financial obligations
(as it had by insisting on the White Plan for the IMF rather than Keynes's
more ambitious proposal for an Intemational Clearing Union). The prostrate economies of Europe were in no position to object, and much of the
developing world had not even gained the sovereign right to register an
opinion.
This last fact helps to explain the failure at Bretton Woods to deal
effectively with other North-South issues. Apart from establishing a presumption that the World Bank would not lend to countries in default on
their external debts, its constitution provided no mechanism for rescheduling debts or managing intemational capital flows. This omission is puzzling, given the importance that negotiators attached to the stabilization of
capital markets in light of their experience with debt defaults in the interwar period and the all-but-complete collapse of international lending in
the 1930s. And nothing came of Keynes's proposal for a fourth international institution to stabilize the prices of primary commodities, although
the ITO was meant to have some responsibilities in this realm. This was
perhaps because the price slump of the 1930s was seen to reflect a secular
Trend in commodity prices rather than a problem of short-term instability,
but it was also because many of the primary producers were not represented at Bretton Woods.
Early Adaptations
The adaptabihty of the Bretton Woods Institutions quickly came to the
fore When unanticipated problems arose, the operations of the organizations proposed to regulate trade, investment, and monetary affairs were
modified without undermining their abUity to resolve the problems they
had been designed to address. The resilience of the principles articulated
by wartime and postwar negotiators even allowed the organizations to be
bypassed temporarily without undermining adherence to those principles.
The Marshall Plan
The most dramatic illustration was the Marshall Plan. The IMF and the
Bank were obvious sources of the funds that Europe required: the ormer
insofar as the problem reflected the need for balance of payments financing the latter insofar as it reflected the need for long-term capital. Yet
leading histories of the period barely mention the Bretton Woods Institutions. In its first five operating years, the Fund's currency transactions
totaled only $851 million, of which $606 million was drawn in the first
year Although the Bank extended more credit to Europe than to any
other continent during its first seven operating years, its total loan commitments to Europe amounted to only $753 million between May 1947,
when its first loan was made, and December 1953, a period that bracketed
the Marshall Plan; thev amounted to little more than a twentieth ot Marshall aid. When the magnitude of the European problem was revealed
clearly and the advent of the Cold War impressed upon the United States
the importance of solving it, the Truman administration chose to extend
Marshall aid unilaterally rather than inject additional capital into the Bank
13
^ T o ^ v e funneled aid on the scale of the Marshall Plan through the Bank
and Fund would have required a fundamental recasting of those organizations rather than a marginal adaptation. The Bank was supposed to encourage international investment and supplement it at the margin It was
not supposed to suffer losses on its loans, which were meant to fmance
u r c e s
12. The sterling balances represented amounts acquired by other countries in the course of
helping Britain finance its war effort. British officials feared that their rapid liquidation under
a regime of unregulated trade would produce unmanageable balance of pavments deficits.
14
MANAGING THE WORLD ECONOMY
13 The IMF barred countries receivmg Marshall aid from using the Fund s ^ °
<
arguing that those countries should keep thea drawing rights intact tor use when the
monetary system was functioning normally, not use them to finance abnormal transitional
needs.
AN OVERVIEW
15
�individual projects shunned by imperfect capita] markets, and it was not
to make grants or highly concessional loans. The Fund was supposed to
provide short-term credit to finance temporary balance of payments deficits or buy time for countries to deal with long-lasting shocks. The Marshall Plan, m contrast, represented a large-scale, multiple-year commitment made m response to the recognition that Europe's problem could not
be solved quickly.
The Fund was supposed to possess some direct authoritv or influence
over .ts members' polices, but the Bank had none. Yet Marshall aid came
with conditionahtv of a sort that not even the creators of the IMF had
envisaged. Each recipient was required to sign a bilateral pact with the
United States, agreeing to balance its budget, restore internal financial
stability, stabilize its exchange rate at a reahstic level, and develop a
program for removing quotas and other trade controls. Each expenditure
of Marshall aid had to be negotiated with the American authorities a
process that allowed the latter to promote price decontrol and discourage
nationalization.
"^gc
Related features of the Marshall Plan are worthy of note. The United
States encouraged the recipients to pursue European integration. They
had to do more than affirm their support for this goal; they were obliged
to develop collaboratively a plan for allocating American aid. This requirement forced them to coordinate their national reconstruction plans and to
establish an institution for that purpose: the Organization for European
Economic Cooperation (OEEC), which became the Organizat.on for Economic CooperaHon and Development (OECD). The OEEC Secretariat became important as a venue for the exchange of information but also as a
repository of collective memory.
14
Furthermore, the United States was willing to countenance discrimination against Amencan goods. Although it required recipients of Marshall
aid to relax their restrictions on imports from the United States, it allowed
them to do that more gradually than they relaxed restrictions on intraEuropean trade. This should be viewed as a price that the United States
was willing to pay to achieve its Cold War objectives.
Three assessments of the Marshall Plan are found in the literature " The
hrst attached great importance to its role in stimulating the investment
fmanc.ng the imports, and repairing the infrastructure that were required
for the resumption of growth. The second, revisionist interpretation dismissed the plan as having been too small to contribute significantly to
recovery through these channels. The third, most recent generation of
studies has rehabilitated the Marshall Plan by arguing that US aid helped
14. The same functions can be ascribed to the secretariats of the oth
er intemational institutions under discussion.
15. Citations will be found in Eichengreen (1994b).
16 MANAGING THE WORLD ECONOMY
Europe to achieve the domestic consensus on which it based its subsequent growth and—not incidently—its support for the new intemational
rules.
That domestic consensus rested on three pillars. The first was the distributional settlement between capital and labor that had been so lamentably absent after World War I. Once there was agreement about who would
pay taxes and who would receive transfers from government, budgets
could be balanced and prices could be decontrolled. By providing aid
equal to 2.5 percent of European GNP, the Marshall Plan reduced the
sacrifices necessary for distributional compromise.
The second was an agreement that the European economies would be
based on the price system and private property. Nationalizations and
price controls there might be, but their scope was limited. In the turbulent
aftermath of World War II, when Socialist and Communist parties were
powerful in several European countries, this outcome was far from assured. The Marshall Plan was designed to promote market-oriented policies and helped to tip the balance in their favor.
The third pillar was the commitment by governments to pursue growth
as the best way to compensate those who were making the initial sacrifices
and to protect those who could not protect themselves from the chill
winds of the market. These goals were to be achieved through the pursuit
of full employment and the development of the welfare state. The Beveridge Report in Britain and the Full Employment Act of 1946 in the United
States symbolized these aspirations and committed governments to them.
The Marshall planners accommodated them by not objecting when European governments intervened more extensively in their economies than
was customary in the United States. They facilitated the pursuit of full
employment by acquiescing in the maintenance of exchange controls and
tolerating trade discrimination against the United States. They encouraged
European industry to reorganize along American lines by adopting the
management techniques and consumer-oriented products US enterprise
had developed, and they used Marshall aid to bring Europeans to America
to learn state-of-the-art techniques on the factory floor.
16
17
16. The program's very design—which established an independent US government agency,
staffed it with private-sector managers, linked it to private-sector groups by a network of
advisory committees, and then encouraged the recipient countries to replicate this administrative structure—sought to maximize the role of market forces (Hogan 1987,19).
17. .As Hogan (1987, 23) put it, "Greater productivity . . . would adjourn the redistributive
struggles that fueled extremist political parties in Western Europe. . . . [Blenefit would come
from translating the problem of economic growth into a technical problem soluble by
adopting American methods of private production, including American engineering,
manufacturing, and marketing techniques and American strategies of labor-management
teamwork."
AN OVERVIEW 17
�• . With political stability at home, European governments were free to
enter credibly into international commitments. And with the terms of the
domestic settlement broadly similar across countries and compatible with
the rules of the Bretton Woods system, they were able thereafter to make
the particular commitments required to draw on the Bretton Woods Institutions for the support of their domestic policies. It is likely that both more
extreme dirigiste and more extreme free-market policies would have
proved incompatible with the Bretton Woods Institutions. Planning that
was more than indicative would have clashed with the liberal trading
system, as revealed even bv France's limited experimentation with the
Monnet Plan. A dash to current account convertibility through the adoption of a floating exchange rate, as Britain contemplated in the early 1950s,
would have come into conflict with the essential provisions of the Bretton
Woods agreement and threatened the progress of European integration.
The European Payments Union
The story of the European Payments Union, another early adaptation, is
similar in many respects. Rather than moving quickly to restore current
account convertibility, Western Europe established a regional payments
union, which operated through the end of 1958. The IMF was largely
successful in getting its members to adopt and maintain par values, but the
rapid return to current account convertibility envisaged at Bretton Woods
was delayed, and official financing for intra-European payments deficits
was not provided by the IMF but by the EPU, which operated with the
help of the Bank for International Settlements (BIS) and OEEC.
The EPU facilitated the multilateral clearing of trade-related payments
within Europe and provided partial financing for net imbalances. Its
rules, however, minimized the risk of a country using EPU credits to
exploit its partners by remaining in persistent deficit. No conditions were
attached to a country's drawings on its EPU quota, which was equal to 15
percent of its intra-EPU trade (although the fraction of any deficit that it
could finance with EPU credit fell as its total indebtedness rose). But
additional credits could be obtained only if a country agreed to strict
conditions set down by the FPU's managing board. Discussions were
initiated before a country's quota was exhausted, and it was made clear
that the provision of exceptional assistance would depend on the
country's early adoption of adjustment policies. Officials of governments
15
19
18 On the establiihment and functioning of the EPU, see Triffin (1957) and Kaplan and
5chleiminger(1989)
19. It should be noted that EPU clearings and credits covered more than intra-European
trade, as they included transachons with Europe's colonies and with the rest of the sterling
area.
g u e s t i n g such assistance had to appear before the board for questioning
and submit memoranda regarding their progress.
wnmTnit
The essential function of the EPU, however, was to solve the commit
Jnt
coordination problems faced by European countries contem: S t i n e moves toward greater openness, first on a regional basis, then on a
i L n d S n a l o r y basl. I n v e s t ^ resources along l i n e s c o m narative advantage could prove to be an expensive mistake if one s trad
S T p a r ^ failid to do i L w i s e . Having incurred the costs of sh.f ing
Sour es into the production of exportable goods, countries might tmd
: S n markets blocked, rendering their investments uneconomical. Be>foe r e a l b c a t l resources in that fashion, each government therefore had
• toteconvScJthat its partners were committed to similar policies. Othl
country w o L be tempted to adopt an "a ter you, A £ h o « e
I stoteev leading to a classic coordination problem. The GATT, adopted as
I S n m arrangement pending ratification of the ITO Charter• cou dmo
*resolvethis problem perfectly because its scope was limited. It was con
i S S m a u S y with L f f reduction, and it did not requue he rap d
^Ssmantling of trade and payments controls imposed tor balance of pay
t r S n s Furthermo^, Europe faced two special obstacles to coordif
:
^ S n n a n
problem": recah.ng the Schachtian p o l i c ^
1930s and war years, other European countries were P a ^ l y s ^ P ^
of Germanv's commitment to openness. Yet Germanv had long been
Europ^s dominant supplier of capital goods. Therefore, other European
S n e s needed to be^ure that they could count on Germany to export
S S m e n t needed to expand and modernize their industries and to
tap^KLer
goods and other merchandise that their industries
hen export. Absent adequate assurances of this sort, it might be
| ^ b l to them to sacrifice efficiency in favor of self-sufficiency^^Ins ituS
that could lock in Germany's commitment to mtra-European trade
S
thus help importantly to reconstitute the traditional pattern of comparative advantage and end the dollar shortage.
„
:
i The other obstacle was Britain's hesitancy to restore convertibih y The
^ d a t X t of 1947 was traumatic, and the problem behind that failure,
S e r S b lances, remained even after the 1949 devaluation. Propos Is
w e r e ^ p e r i o d i c a l l y in Britain for a unilateral dash to convert^ y^
but J s e were rejected because it was believed that i would require
^ssive d e ' l a t i i n and an unacceptable erosion of working-class living
e r H h
*
I"
|
'~
m v
T
h
e
^ E P U provided an institutional solution to these problems of commitment and coordination. The participating countries proceeded simulta^
^
the elimination of quantitative ^
^
^
Z
Z
trade. To coordinate their initiatives, they negotiated a ^
^ " " f ™
S d e of Liberalization. By February 1951, less than a y « ' ^ ^
went into effect, discrimination within Europe was to be eliminated. In
h
e
d
u
AN OVERVIEW 19
18 MANAGING THE WORLD ECONOMY
�addition, participants had to liberalize their quantitative barriers to intraEuropean trade so that by 1955 no more than 10 percent of intra-European
trade would be burdened by quotas. The OEEC monitored compliance
with the Code of Liberalization. A country failing to comply or employing
policies aimed at manipulating the terms or volume of trade could expect
to be denied access to EPU credits.
Marshall Plan administrators supported the EPU by providing $350
million of working capital to finance its operations and by deflecting the
objections of the US Treasury to the discrimination inherent in EPU arrangements. In effect, the United States used its leadership to promote
flexible application of the rules it had advocated at Bretton Woods. The
lure of Marshall aid enabled the United States to convince a reluctant
Britain to participate in the EPU, and the supportive US role helps to
explain why the EPU did not fatally undermine the authority of the IMF.
The United States saw the EPU as a temporary arrangement, after which
the IMF agreement would come into full force. It made sure that the
provisions of the EPU, other than the departure from current account
convertibility, were compatible with Bretton Woods.
The acceptability of a regional payments union that discriminated in
favor of intra-European trade was enhanced by the fact that it operated in
the context of a GATT process that was gaining credibility and momentum. The United States organized the first GATT tariff-cutting round
long before acknowledging that the ITO Charter was dead. Delegates from
23 countries met in Geneva in 1947 to make product-by-product bargains
on a bilateral basis. The tariff cuts resulting from this process were then
generalized to the other participating countries via the most-favored nation (MFN) principle.
The General Agreement, signed on 30 October 1947, included the results
of 123 sets of negotiations covering 50,000 items, as well as a general code
20
of conduct based on multilateralism and nondiscrimination and requiring
the elimination of quantitative restrictions. These principles were not dissimilar from those embodied in the ITO Charter; some of the language
used in the GATT was in fact drawn directly from that document (see van
der Wee 1986, 349). Hence, the articulation of a set of commonly agreed
rules once again facilitated negotiations and was ultimately codified as an
. intemational agreement.
Although the Annecy Round of 1949 and Torquay Round of 1950-51 did
p not make tariff cuts comparable to those achieved at Geneva, further
progress was made, and the successive GATT rounds created a presumpH tion that trade liberalization would become a continuing process in which
[reputationwould matter and participants would hesitate to renege on
iprior commitments.
21
22
20. The Schuman Plan, which led to the European Coal and Steel Community (ECSC) and the
first steps toward European integration, can be seen in the same light. The ECSC created a
common market in coal and steel, and it established a high authoritv to monitor compliance
with the agreement. Within certain limits, the authority's decisions were binding on the
governments and private citizens of the participating countries. Hence, the ECSC enhanced
the credibility of Germanv's commitment to openness bv assuring the French steel industry
of access to Ruhr coal, which was indispensable to its survival, and assuring German steel
producers of access to the iron ore of Lorraine.
2] The IMF's consistent opposition to the EPU was nonetheless a major factor contributing
to the decline in the reputation of the Fund in the 1950s" (Kenwood and Lougheed 1971,263).
22. The same can be said of the ECSC and, later, the European Economic Community (EEC).
Extensive arrangements were made to ensure that the ECSC was GATT-compatible. The
waiver of the GATT rule against sectoral free trade arrangements, as distinct from comprehensive customs unions, was conditional on the adherence bv ECSC members to certain
rules and requirements. Their observance was reviewed annually by the GATT, to which
other GATT members could bring complaints of excessive discrimination.
20 MANAGING THE WORLD ECONOMY
|Early Achievements and Emerging Problems,
P945-70
^Economic Performance in the Industrial World
I Industrial production in Western Europe rose by nearly 10 percent per
tannum during the Marshall Plan years (1947-51). In Japan, where the
rheavy hand of the US occupation was similarly lightened by US aid,
|sustained recovery began after the apphcation of the Dodge Plan to constrol inflation in 1949, and it accelerated sharply during the Korean War,
fewhen Japanese industry was encouraged to supply the needs of UN
gforces. Table 1 summarizes the course of growth in Europe, North Amerlica, and Japan over many decades. It shows clearly that the postwar rise in
fjthe (unweighted) average annual growth rate of output in Western EuroI pean countries, which reached 4.4 percent in the 1950s and 4.8 percent in
Ethe 1960s, represented a dramatic break with the previous trend. In the
g: United States, where postwar growth was less rapid, the case for continuity with earher periods is easier to make. There can be no question, howIjever, that the postwar growth miracle in Japan was entirely different from
Jany earlier experience.
wr Rapid output growth and rising living standards helped to sustain
support for the postwar institutions. When incomes were rising and prosH' pects were bright, it was easier to call for the sacrifices needed to bring
jdomestic economic arrangements into line with intemational require||ments. Unemployment rates fell to low levels everywhere (except in Italy,
|where they averaged 7.9 percent in the 1950s and 3.3 percent in the 1960s);
U'with labor markets tight, the domestic adjustments imposed by external
^liberalization were less objectionable. Nevertheless, some countries re|sisted adjustment.
E
AN OVERVIEW 21
�Table 1 Average annual rate of growth of selected industrial
countries, 1870-1989 (percentages)
Table 2 Total gross domestic investment as a percentage of GNP
in selected industrial countries, 1900-93 (period averages)
Country
Country
Western Europe
1870-1913
1913-50
1950-59
1960-69
1970-79
1980-89
23.2
21.7
16.5
21.0
20.9
17.1
1.95
France
n.a.
n.a.
19.1
24.6
22.3
20.1
2.17
West Germany
n.a.
14.3
24.0
26.0
21.4
20.2
20.8
20.4
19.9
20.3
1.86
France
1.6
0.7
4.6
5.8
3.7
West Germany
2.9
12
7.8
4.8
2.8
3.2
1.94
2.1
47
5.1
2.9
2.2
2.7
3.2
5.0
4.7
Sweden
3.0
2.2
3.4
United Kingdom
2.2
1.7
2.7
4.6
2.8
Western Europe
1.33
2.2
Norway
2.0
1.8
19.9
21.0
2.00
3.3
Netherlands
1983-93
n.a.
3.1
4.9
5.7
1972-82
n.a.
4.8
2.9
5.8
1961-71
n.a.
4.4
1.0
1.3
1950-60
n.a.
1.6
2.7
1.4
1914-49
Belgium
2.3
Belgium
Italy
1900-13
2.39
1.92
2.41
.
Italy
15.4
13.5
Netherlands
v;
;|l
Iv-
n.a.
n.a.
24.2
25.6
20.7
20.1
Notway
12.7
15.4
26.4
26.9
30.3
24.3
Sweden
12.3
15.5
21.3
23 0
20.4
19.2
7.6
15.4
18.3
18.0
17.5
20.4
United Kingdom
7.7
25.5
16.0
24.8
22.2
22.7
H? Japan
n.a.
n.a.
24.0
35.1
32.1
29.6
3|i
United States
20.6
14.7
19.1
16.8
18.2
17.2
j|;
n.a. = not available
f*'
Source: van der Wee (1986, 196), and authors' calculations.
Canada
3.8
2.8
3.9
5.6
4.2
3.02
jgr
Japan
2.4
1.8
9.5
10.5
4.9
3.77
United States
4.3
2.9
3.2
4.3
2.96
3.0
Source: van der Wee (1986) and authors' calculations.
The obvious explanation for more rapid growth in Europe and Japan
than in the United States is the "catch-up" Abramovitz (1986) emphasized.
Two decades of depression and war had opened up gaps between growth
rates vis-a-vis both the United States and Europe's own prewar trend, and
these gaps offered exceptional scope for growth after 1945. -'
Aside from catch-up, the proximate cause of the postwar growth miracle was high investment. Investment rates in most countries after World
War II were fully 50 percent higher than those attained on average in
1914-49 (table 2). Japan's investment rate, while unexceptional in the
1950s, rose by about 50 percent in the 1960s, when growth was fastest. The
United States and United Kingdom, where growth was slowest, exhibited
the lowest investment rates. Clearly, there was two-way causality: investment stimulated growth but was particularly attractive in countries that
were growing rapidly for other reasons. Postwar growth was thus characterized by a virtuous circle.
2
23 But cross-section regressions relating growth rates io differences in levels of per capita
GDP show that "catch-up" and spring-back" explain only part of the postwar acceleration
in Europe; even after allowing for this effect, European growth from 1950 through 1973 was
still more than 50 percent faster than it became thereafter. Crafts (1992) calculates the growth
bonus due to "catch-up" vis-a-vis the United States and "spring-back" to prewar levels. His
results show that, purged of catch-up and spring-back, growth rates for eight European
countries fell from 3.1 percent in 1950-73 to 1.9 percent in 1979-88. For further details, see
Baumol, Blackman, and Wolff (1989).
22 MANAGING THE WORLD ECONOMY
Canada
One source of the productivitv growth that made investment so attractive was the expansion of trade. The volume of exports expanded faster
than output, by more than 8 percent per year in Europe 1950s and 1960s,
by an astounding 16.5 percent in Japan, and by 5.3 percent in the United
States. The growth of trade tended to concentrate investment in the sectors
where it made the largest contribution to productivity growth. As nations
could exploit their comparative advantage, the level and allocation of
investment was not constrained by the composition of domestic demand.
Here again, causality ran in both directions; it was, as we said, easier to
liberalize trade when rapid growth made it relatively easy to bear the
adjustment costs. But the dramatic contrast between export and output
growth rates suggests that other forces must have been at work. Table 3
shows that the elasticity of exports with respect to output was 1.5 in the
United States, higher still in every Northern European country other than
Britain, and a remarkable 6.6 in Japan. The obvious explanations are trade
liberalization in the frameworks of the GATT and the EEC and the relatively stable exchange rates of the Bretton Woods system, to which we
now turn.
Commercial and Monetary Achievements
Six rounds of GATT negotiations were completed by the beginning of the
1970s. The most important were the first—the Geneva Round of 1947,
AN OVERVIEW 23
�a
z
eg
d
2
d
iri
eg
c
S
eg
CM
° n
w Q.
3
8
o
£s
£
o
oo
ib
« «°E
3
1
c
ID
in
o
ID
ai
ID
OS
UJ
|1.
si:
<
>
/
T3
O
O
DI
O
>
ra S
I 5 «
eg
IO
cn
c
— c\j
*T
i s5
C C
M M
in a.
£
^
ID
o £
(0
CM"
p
C
O
"D
C
(0
i
j
f.
!
CM
o
O
eg
8^
™ E
-r
O — CO CD ID ID
CM CM r-' T- .- ~-
C
M
a
eg
1%
cn
* ' ID
T
T —
Si.
3
eg
o
eg
cb
Is
f8
O
o
m
a!
0)
Q.
!E
o uj
« !
oS
ID
<
n
c
O
.2
JS
LD
CD
CD
CO
r-.
ID
in
—'
UJ
O
0)
C
O
oiLu
IZ
<n
a>
ib
ID
00
00
CO
ra
c
co
G C
O M
o
.
2
P
2
O)
t
o
a
X
« OT i
i.3
=5 »
ID
co
00
o a>
o «
E a
o
^
C cn
M
cn
oi
T3 u)
CO
00
—
ib
co
U") C
O
ib iri
a
t:
^
c
5
TJ
o
c
ID
o
-
u
C
D
IW
w
—
it g s
0)
o
f S
5 ra
24
ro
H ro
O
I
c
ro
Q-LIJ
CO
A
"O
o
5 E
o S
2
as;
—^J
a
>
o
3
ro
•o .2
c
fl
0}
< S« n
(T > 2
0 1
• ra
ra x : ^2 o
when the United States reduced its tariffs by an average of 20 percent on
all dutiable imports—and the last, the Kennedy Round of 1967, when the
major participants reduced tariffs by about 35 percent on their nonagricultural imports (which represented about 80 percent of the industrial
countries' dutiable imports). These reductions were impressive by any
standard, but especially by contrast with the worldwide increase of tariffs
after World War I. The results for agricultural trade were less impressive;
apart from grains, which received special treatment, only half of the industrial countries' agricultural imports were affected, and the tariff cuts on
those were little more than half as large as the cuts on manufactures.
Two other achievements underscore the importance of the Kennedy
Round. For the first time, the negotiators sought to regulate antidumping
practices by agreeing to a code that led the United States to expedite its
antidumping procedures, Canada to adopt an injury requirement, and
EEC countries to harmonize their antidumping regulations. Other codes
were to be negotiated in subsequent GATT rounds. Furthermore, the
Kennedy Round adopted a new method for cutting tariffs. In previous
rounds, we have noted, bilateral agreements were negotiated product by
product and multilateralized under the MFN principle. This became cumbersome as the number of participants grew. (It had reached 82 in the
Kennedy Round.) Hence, the Kennedy Round aimed at "linear cuts" (i.e.,
across-the-board tariff reductions on industrial products), from which
only a small number of exceptions might be made by each country. In
effect, the negotiators bargained about the products on which cuts would
not be made rather than haggling over each and every cut. Here again, US
leadership was key. The US Trade Expansion Act of 1962 authorizing
American participation had given American negotiators broader tariffcutting powers.
More generally, the Kennedy Round can be understood as an American
response to the most important trade policy development of the period:
the advent of the European Economic Community. The United States had
encouraged European integration, viewing it as a source of economic
strength to fend off the Soviet threat and a means of binding Germany into
Europe. The Marshall Plan had encouraged Europeans to form the OEEC,
EPU, and ECSC to qualify for American aid. In 1957, the six members of
the ECSC signed the Treaty of Rome, committing themselves to establish a
full-fledged customs union as a way station on the road to deeper integration. Although the customs union was not completed until 1968 (albeit
ahead of schedule), and its common external tariff was not higher than the
previous national tariffs of the member countries, the United States had
become concerned about the potential for trade diversion, prompting it to
initiate the Kennedy Round.
The growth of international trade was accompanied by increasing capital mobility. American multinational firms had begun to invest heavily in
Europe in the 1950s (table 4). Intra-European direct investment was also
AN OVERVIEW 25
�Table 4 New US direct investment abroad, net outflows plus
retained earnings (millions of dollars per year)
United
Kingdom
Period
Total
1950-52
1,376
129
100
101
506
21
1953-55
1,572
271
107
127
694
19
1956-58
3,016
583
229
302
926
10
1959-61
2,687
1,032
375
453
746
37
1962-64
3.388
1.460
736
323
772
92
1965
4.960
1.867
854
559
1.452
68
1966
5.259
2.239
1.245
57i
1,626
80
Europe
EEC
Canada
Japan
Source Adapted from Cooper (1968. 83).
growing, stimulated by the formation of the EEC. There was also an
increase of international portfolio investment, and the mobilitv of shortterm capital had been encouraged by the restoration of current account
convertibility at the beginning of 1959 and the relaxation of controls on
banking transactions in Europe. These developments also facilitated the
growth of the Eurodollar market, in which London-based banks accepted
dollar deposits and thus bid funds away from American banks, whose
deposit rates were capped by Regulation Q. This is one reason for the
increase of net private portfolio capital outflows from the United States,
which rose from Sl.l billion in 1957 to S4.1 billion in 1964. All of these
innovations tended to tighten the links among national financial markets,
as is evident in the convergence of short-term interest rates in the 1960s
(Cooper 1968, 112 and 141).
With the restoration of current account convertibilitv and termination of
the EPU, the Bretton Woods system began to operate fullv, although
capital movements were probably freer than its architects had intended.
The exchange rates of the major industrial countries were kept within
narrow bands; they could not depart from their dollar parities by more
than 1 percent. The only significant parity adjustments in the 1960s were
the small revaluations by Germany and the Netherlands in 1961, the
devaluations by Britain and France in 1967 and 1969, respectively, and the
revaluation by Germanv in 1969 after a brief float.^ Even Canada, which
had allowed its currency to float in 1950, returned to a pegged exchange
rate in 1962. Devaluations by developing countries were more common
but typically taken under duress (see Cooper 1971).
The IMF assumed a more active role as a supplier of reserve credit. It
encouraged countries to draw on the Fund rather than tighten exchange
restrictions to deal with balance of payments problems, and it made extensive use of standby arrangements. These arrangements, pioneered in negotiations with France in 1956, made very large amounts of reserve credit
available to bolster confidence in a country's currency. In effect, the Fund
recognized that, with the easing of controls on capital movements, a
country seeking to defend a pegged exchange rate could quickly exhaust
its own reserves and would need large amounts of IMF credit. To supplement the Fund's own resources, the 10 largest industrial countries set up
the General Arrangements to Borrow, under which they would lend the
IMF as much as $6 billion.
These expanded resources, however, might not be sufficient if the dollar, to which the Bretton Woods system was anchored, came under attack,
and that possibility grew. In the late 1950s, the US balance of payments
had moved into persistent deficit. American exporters were not uncompetitive, but capital outflows were growing due to the factors described above.
i:: The new situation was dramatized in 1960 by a flurry of speculation in
gold and was met by a series of ad hoc measures designed to finance the
US balance of payments deficit by encouraging other countries to build up
their dollar reserves rather than buy gold from the United States. One of
these was the gold pool, under which the monetary authorities of the
major countries, including the United States, agreed to sell gold in the
London market to keep its price from rising above the official price of S35
an ounce. These measures, however, did not reduce the balance of payments deficit itself, leading the United States to take additional measures.
It sought to limit the costs of stationing US troops abroad and to reduce US
capital outflows. In 1963 it imposed an interest equalization tax on American purchases of foreign securities, in 1965 it imposed "voluntary" limits
on foreign loans by American banks and direct investments by American
firms, and in 1968 it made those limits mandatory.
Disquietude over these developments promoted discussion of changes
in the Bretton Woods system. The most prominent debate surrounded
proposals to create new reserve assets under IMF management, which
came to be known as Special Drawing Rights (SDRs). The US Treasury
opposed the idea initially because it wanted to preserve the reserve role of
the dollar but shifted its position sharply in 1965 and called for negotiations on an amendment to the IMF Articles of Agreement allowing the
Fund to distribute SDRs. The first distribution began in 1970, just as the
stock of international reserves was about to rise hugely, due to a sudden
widening of the US payments deficit.
Mounting Strains
24. The circumstances surrounding these exchange rate changes are described bv Solomon
(1982).
26 MANAGING THE WORLD ECONOMY
Despite the accomplishments of the 1950s and 1960s—or, more accurately,
partly because of them—the international system was beginning to experiAN OVERVIEW 27
�ence severe strains. The dismantling of controls on trade and payments
the GATT rounds of tariTf cuts, and the increase of capital mobility resulting from the restoration of convertibility rendered economies more open
to flows of goods and capital. Hence, the external constraint became
tighter, sharpening the conflict between internal and external objectives
In France, this conflict emerged as early as 1952, when dirigiste policies
specifically the Monnet Plan for investment in strategic sectors, ran up
against the balance of payments constraint, and the govemment was
forced to suspend its plan to meet the targets set forth in the OEEC Code
of Liberalization. France started again to remove import quotas in 1955
but the payments problem resurfaced, forcing France to devalue in 1957 '
In Britain, a series of balance of payments crises forced the government
to rein in demand, producing a sequence of "stop-go" episodes, and the
govemment decided belatedly to devalue in 1967.
The United States began to confront the conflict in the early 1960s- the
Federal Reserve was kept from cutting interest rates to the extent dictated
by the recession of 1960-41 because of the size of the capital outflow and
the weak balance of payments. Domestic agendas that might have been
viable in less open economies were increasingly constrained, and the
reluctance of governments to confront the new reality intensified the
strains on the Bretton Woods system of pegged exchange rates.
In France, dissatisfaction with the Bretton Woods system was manifest
m attacks on the dollar-based gold-exchange standard and calls for a
return to a traditional gold standard. Elsewhere, the dissatisfaction was
reflected in proposals for more exchange rate flexibility, but governments
disavowed them because thev were publicly committed to defending the
existing pegged rates. Official rhetoric in the vears leading up to the
breakdown of the Bretton Woods system m 1971-73 was uncannily similar
to ofticial rhetoric in the years leading up to the crises of the European
Monetary System (EMS) in 1992-93.
Import penetration, especially bv Japanese goods, led to protectionist
rumblings in Europe. Even in the 1950s, a number of European countries,
including Britain and France, had discriminated against Japanese goods'
When Japan gained full GATT membership in 1955, those countries invoked an exception allowing them to withhold MFN treatment from
Japan. Other developments underscored the limitations of the GATT. For
example, the EEC and the United States obtained waivers allowing them
to impose quotas on agricultural imports when thev restricted domestic
agricultural production, which is what EEC did under the Common Agricultural Policy (CAP).
With Europe growing half again as fast as the United States and Japan
growing three times as fast, the United States was no longer confident of
its industrial dominance. Even in the 1950s, Congress had broadened the
definition of injury that could be invoked by domestic producers to justify
relief from import competition, and a number of tariffs were raised as a
b
28 MANAGING THE WORLD ECONOMY
Result of findings of injury made by the US Tariff Commission in response
Sto petitions filed by domestic producers. In addition, the United States
aded its trading partners to adopt "voluntary" restraints on certain
:.their exports, including Japanese and European carbon steel exports.
I Congress came close to adopting the highly protectionist Mills bill in
Q These developments reflected the increasingly divisive nature of
.
stic trade politics, as interest groups learned how to manipulate
fpolitical levers in pursuit of their particular economic agendas.
~ 5Existing institutions were ill-equipped to cope with these pressures. The
^TT had achieved a significant reduction of tariffs and was fairly effecre in requiring the industrial countries to abolish outright import quotas,
t from those on agricultural goods. But it could do little to combat the
proliferation of "voluntary" agreements. The GATT even became inolved in managing the Multi-Fiber Arrangement (MFA), the framework
|for a network of national restrictions on imports of textiles and apparel
am the developing countries. The GATT was supposed to monitor and
^disseminate information about members' trade policies, but this became
^increasingly difficult as trade barriers took new forms whose tariff equiv|alents were not easy to measure.
Similarly, the Bretton Woods system of pegged exchange rates was
11-suited to withstand the pressures brought to bear by the increase in
jtcapital mobility. It had become far easier for investors and others to
^withdraw their capital from a country in anticipation of a devaluation to
jjTavoid capital losses. Hence, the first hint of an impending devaluation
I'could precipitate a crisis. Cognizant of the danger, weak-currency counJries became increasingly reluctant to contemplate exchange rate changes
C or even to acknowledge in principle that they may play a useful role in
correcting balance of payments problems. The monetary system became
rigid just when the need for adjustment was growing.
• The result was mounting tension in foreign exchange markets. Britain
staggered from one crisis to another until the pound was devalued in 1967.
Demonstrations and strikes in the spring of 1968 provoked capital flight
25
20
27
25. Protectionist coalitions were not the only groups active in this process. The very success
of the GATT produced new interest groups, such as dealers in imported cars, who lobbied
equally hard for continued liberalization.
26. The MFA was adopted in 1974 and grew out of bilateral restnctions imposed by the
United States, first on imports from Japan, then from other countries. Fearing that the
developing countries' exports might be diverted to their markets, other industrial countries
imposed similar restrictions. The MFA was designed to set standards for the bilateral restrictions and guarantee that they would be liberalized gradually, but the developing countries
have argued that this liberalization has occurred too slowly.
27. It was not until alter the Kennedy Round that GATT members, with the assistance of the
GATT secretariat, began compiling an information base on nontariff barriers (Winham 1986,
59).
AN OVERVIEW 29
�from France, which devalued unilaterally one vear later. These events, in
combination with rumors of a German revaluation, raised doubts about
the stability of the dollar. Even before the French devaluation of 1969,
governments participating in the gold pool had to sell $3 billion of gold
against dollars and then to dissolve the pool itself, so that a two-tier gold
market emerged in 1968. The failure of three large IMF drawings to prevent the British devaluation and France's decision to devalue without
consulting the Fund were blows to the IMF's prestige.
By this rime, however, the IMF had become a different institution than
the one foreseen at Bretton Woods. It never acquired the veto power over
parity changes on which American negotiators had insisted. France was
far from alone in failing to secure the Fund's advance approval for an
exchange rate change. Canada's decision to float its currency and Peru's
refusal to declare a par value are other examples of the IMF's limited
ability to enforce its Articles of Agreement. " While increases in IMF quotas and the use of standby arrangements had increased the Fund's financial leverage, many of the monetary innovations of the 1960s, such as the
gold pool and the swap agreements among industrial countries, were
developed and managed outside the Fund. The IMF was less an enforcer
of rules than a repository for the understandings on which international
monetary collaboration was based.
2
The Emergence of the Third World
In the early part of the postwar period, the inward-looking strategies of
many developing countries limited their integration into the international
system and their involvement in managing it. The merchandise exports of
developing countries had grown by only 3.1 percent per annum in the
1950s. By the end of the decade, however, a shift tow ard export promotion
had begun; developing countries' exports grew at a much more impressive rate—from the standpoint of certain industrial nations, a disquieting
rate. It averaged 5.9 percent in the 1960s (calculated from Reynolds 1985,
table 8). When they began to look outward, moreover, the developing
countries started to take an active role in the management and adaptation
of the postwar system.
Having failed to convince industrial countries of the need for a network
of commodity agreements to stabilize the prices of primary products, they
agreed somewhat reluctantly to the creation within the IMF of a Compensatory Financing Facility (CFF) to provide reserve credit without onerous
conditions to primary-producing countries that faced unanticipated short28. The most notorious instance occurred in 1971, when the IMF managing director learned
of the US decision to close the gold window only as President Richard .Nixon announced it in
a televised speech.
30 MANAGING THE WORLD ECONOMY
2
falls in their export earnings. " Shortly thereafter, at the start of negotiations that led to the creation of the SDRs, the developing countries demanded participation in the negotiations and a share of the new reserve
assets. The negotiations had been initiated by the industrial (Group of Ten)
countries, which sought internal consensus before presenting a proposal
to the entire IMF membership. Going further, they decided to propose that
the new reserve asset should be distributed to a small number of core
countries; all others would receive conditional credit facilities financed by
the core group. If given SDRs, they argued, the poorer countries would
splurge on imports, and all of the SDRs would then wind up in the coffers
of the industrial countries, which would, in the process, have to give up
goods and services. The developing countries objected strenuously, and
turned to the United Nations Conference on Trade and Development
(UNCTAD) for help with the liquidity problem. ' The negotiations stalled
until the G-10 countries dropped their plan and agreed on allocating SDRs
to all IMF members in proportion to their quotas.
The developing countries were equally active in matters pertaining to
trade. They protested the failure of early GATT rounds to reduce agricultural tariffs, a process that did not get under way until the Kennedy
Round. They complained that the GATT had failed to neutralize the political pressures in industrial countries that had caused them to make smaller
tariff cuts on imports of labor-intensive manufactures, in which developing economies had a comparative advantage, than on imports of capitalintensive goods. They charged that the GATT was poorly designed to cope
with the developed countries' reliance on quantitative restrictions for
protecting domestic producers of goods made by unskilled labor, such as
textiles and apparel.
The GATT responded to these complaints by appointing a panel of
experts, chaired by Gottfried Haberler, to study the trade problems of
developing countries. Its report to the GATT in 1958 led to the establishment of a series of committees. Their chief accomplishment was the 1964
decision to waive the GATT rule against new preferences in order to allow
advanced countries to discriminate in favor of imports from the developing economies. This was less than the developing countries expected, and
they sought redress outside the GATT, by having the UN General Assembly convene the first UN Conference on Trade and Development in 1964.
The second UNCTAD meeting in 1968 improved market access for the
: 0
29. The origins and operations of the CFF and other special-purpose IMF facilities are
examined in Kenen (1986).
30. They even tried to turn the tables on the G-10 countries by proposing that all of the SDRs
be given initially to the developing countries, so that the industrial countries would have to
eam their SDRs by exporting more to developing countries. This was the so-called "link"
between reserve creation and development assistance.
AN OVERVIEW 31
�developing countries bv initiating the Generalized System of Preferences
(GSP).
by liberalization itself and by one of its consequences—the tighter integration of national economies and resulting increase in their sensitivity to
changes in comparative advantage and other external shocks. Hence, governments became more vulnerable to domestic political pressures from
those who sought relief from the painful effects of international competition and economic change. It became harder for governments to abide by
the rules and understandings of the Bretton Woods system. Furthermore,
the deterioration of macroeconomic performance in the 1970s gave credence to the view that activist monetary and fiscal policies can do great
harm but little good, and an international corollary became influential in
the early 1980s: if each country would "get its own house in order," there
would be no need for governments to coordinate their policies.
These trends and views emerged gradually in the 1970s and 1980s, but
there was a sharp shock to the Bretton Woods system in 1971, due to the
change already apparent in the relative position of the United States, the
growth of intemational capital mobility, and the evolution of the monetary system in the 1950s and 1960s.
New Problems and Responses, 1971-93
Changes in the Economic Environment
The initial design of the Bretton Woods system and the adaptations after
World War II owed much to the unique situation of the United States. Its
economic and military strength, combined with other countries' concern
that the United States not relapse into isolation, gave it great influence
over decisions about the organization and functioning of the system. Its
strength gave it the self-confidence to make bargains and accept arrangements that were seen as being disadvantageous to its narrow economic
interests or those of particular sectors in the US economy.
This situation was bound to change with the recovery of other industrial
countries. Even in the early 1960s, the Kennedy administration had spoken
of the need for a better-balanced partnership between the United States
and Europe in defense and economic matters alike. By the end of the 1960s,
moreover, the Vietnam War had eroded US self-confidence and raised
questions abroad about the quality of US leadership, underscoring the
need to reassess roles and responsibilities.
Unfortunately, the attempt to redistribute burdens internationally took
place in an economic environment that posed a growing threat to the
postwar bargain about domestic distribution. Growth would slow in the
1970s. The oil shocks of 1973 and 1979 would reduce real incomes in the
oil-importing industrial countries. The costs of the welfare state would
rise, diminishing fiscal flexibility. And attitudes toward government
would shift sharply at the end of the 1970s, resulting in challenges to the
legitimacy and efficacy of tax and expenditure policies aimed at redistributing income, along with widespread attempts to reduce the size of government and its involvement in the economy. This ideological change had
mixed effects on the Bretton Woods system.
On the one hand, the ideological change favored the further freeing of
trade and capital flows in the 1980s. The most dramatic example was the
1985 decision of the European Community to create a single internal
market. It was based on a shared commitment to deregulation and was
facilitated by the substitution of "mutual recognition" for an attempt to
negotiate a common regulatory regime. The most fundamental effect,
however, was the change in the aims and policies of many developing
countries, which began to shift from inward-looking import substitution
and public-sector investment to outward-looking export promotion and
private-sector investment.
On the other hand, the ideological change impaired the ability of governments to respond constructively to rhe domestic dislocation produced
32 MANAGING THE WORLD ECONOMY
The Dollar Crisis and the Shift to Floating Exchange Rates
There were several balance of payments crises in the 1950s and 1960s, but
they were not systemic crises. In 1971, however, the United States tried to
solve its own balance of payments problem in a way that produced a
major change in the international monetary system. To interpret that episode, it is necessary first to recall how the system had evolved in the 1950s
and 1960s.
A system of pegged but adjustable exchange rates should meet three
needs. First, it should provide reserves and reserve credit in amounts
sufficient for governments to keep their exchange rates pegged. Second, it
should solve the " N country" problem, which arises because a system
covering N countries contains only N-l exchange rates, so that the N
countries cannot all pursue independent exchange rate policies, and there
is the risk of policy conflict. Third, the system should "anchor" its
members' monetary policies in order to prevent global inflation or deflation.
The system designed at Bretton Woods was able to meet the first need.
The IMF offered reserve credit, using the pool of national currencies subscribed by its member countries, and the size of the pool was to be reviewed periodically. The IMF Articles of Agreement also set out a procedure for changing the price of gold in terms of all national currencies,
which would alter the value of all reserves held in the form of gold. The
,h
31
4.
31. McKinnon (1993) uses a similar list of needs as the framework for his history of the
Bretton Woods system and for comparisons with other systems.
AN OVERVIEW 33
�First Amendment to the Articles of Agreement went further, authorizing
the creation of SDRs to supplement existing reserve assets. Yet most of the
actual growth in reserves took the form of dollar balances built up gradually by central banks and governments. Some of them bought gold from
the United States,'which was committed to buvand sell it at S35 per ounce;
the US gold stock fell from S22.7 billion in 1950 to SI 7.8 billion in 1960 and
to S10.7 billion in 1970. But foreign official holdings of dollars grew by
much more than foreign gold holdings, reaching S26.1 billion in 1970.
Under the arrangements adopted at Bretton Woods, the N country
problem was to be solved by requiring that governments obtain IMF
approval before changing their exchange rates. In other words, it would be
solved politically by intemational consultations in the IMF. We have
noted, however, that the obligation to obtain IMF approval was not taken
seriously, and the Fund had little influence over the exchange rate policies
of the industrial countries. Policy conflict was avoided in practice by the
passivity of the United States, which did not pursue an explicit exchange
rate policy until the mid-1960s. Even then, moreover, it sought to implement its policy by trying to discourage other countries, such as Bntain and
France, irom devaluing their currencies against the dollar, rather than
trying to achieve a general change in the value of the dollar against other
currencies. Under prevailing practices, there seemed to be no choice. As
most other countries pegged their currencies to the dollar, not to gold, a
general change in dollar exchange rates would have required a coordinated change in those other countries' rates.
There are three ways to anchor monetary policies: bv tying the value of
each country's currency to an outside asset, which was the rationale for the
gold standard; by imposing or adopting a policy rule or commonly agreed
procedure to coordinate national policies; or by following a leader whose
revealed policy preferences promise to provide the desired degree of
economic stability. Some interpretations of the Bretton Woods system
claim that it was meant to work in one or another of these wavs and
evaluate the system under that supposition, but those interpretations are
hard to defend. The primacy of the commitment to full employment, the
importance Keynes and others attached to the adjustability of exchange
rates, and the widely expressed fear that the United States might lapse into
recession after World War II all remind us that the architects of the Bretton
Woods system aimed at conferring autonomy on national policies, not at
imposing a common discipline." Yet the size of the US economy, combined with the practice of pegging to the dollar, produced an asymmetric
, h
52
32. For a gold-standard view of the system, see Bordo (1993); for a view doser to the one set
out in the text below, see Giovannini (1993).
33. The US Treasury- did insist on a prominent role for gold, but mainly to reinforce the
presumption m favor of exchange rate stability, not with any clear notion about anchoring
national policies.
34 MANAGING THE WORLD ECONOMY
4
3*.
system. Other countries did not gladly emulate US policies or, in the
language of the recent EMS literature, seek to "import credibility" from
the United States. Nevertheless, the United States became the macroeconomic leader, and the other industrial countries followed, sometimes
under protest.^
Many years before the 1971 crisis, Robert Triffin (1960) had warned that
the monetary system was intrinsically unstable. It could not rely on US
balance of payments deficits to meet the global need for reserves without
eventually impairing confidence in the US commitment to sell gold for
dollars, because other countries' holdings of dollars would come to dwarf
the US gold stock. This warning was the rationale for creating the SDR. But
eliminating the US payments deficit proved to be more difficult. Surplus
countries might try to force the United States to modify its monetary and
fiscal policies by refusing to build up their dollar holdings and demanding
gold instead; that is what France had tried to do in the early 1960s, but it
could not succeed by itself. Such pressures, moreover, might provoke an
unwanted response bv the United States. Instead of adopting expenditurereducing policies, it might adopt an expenditure-switching policy—an
attempt to engineer a general devaluation of the dollar by closing the gold
window. And that was the option it chose in 1971, after its balance of
payments deficit had increased sharply.
Even today, there is disagreement about the underlying causes of the
increase in the US deficit. It is often blamed on US monetary policy, which,
it is said, raised the US inflation rate relative to rates in other countries. It
is sometimes blamed on US fiscal policy because the Congress refused to
raise taxes to pay for the Vietnam War unless domestic social programs
were cut, and the Johnson administration would not agree to cut them. It
is sometimes ascribed to a gradual deterioration in the competitive position of the United States, resulting partly from the recovery of Europe and
Japan, partly from faster inflation in the United States, and partly from
other countries' devaluations. But it is less important to pinpoint the
causes than to recall the consequences. On 15 August 1971, the Nixon
administration closed the gold window and thus put other governments
on notice that any additional dollars they might purchase in an effort to
keep exchange rates from changing could not be presented for conversion
34. The leadership of the United States was reinforced in the 1950s by the dollar shortage. It
was not much weakened in the 19605, however, when the United States ran balance of
payments deficits, as some other industrial countries continued to run deficits of their own
and had to key their policies on those of the United States in order to limit or eliminate those
deficits. The global influence of US policies was amplified, moreover, by the increasing
rigidity of the exchange rate regime; countries with balance of payments deficits had to keep
their macroeconomic policies in line'with US policies if they were to avoid devaluations. Here
again, there is a striking similarly between the Bretton Woods system in the 1960s and the
EMS in the late 1980s. On the nature of the US role and the debates about it, see Solomon
(1982) and Artis and Ostrv (1986).
AN OVERVIEW 35
�into gold. At the same time, it imposed a 10 percent tariff surcharge but
promised to rescind it as soon as "unfair" exchange rates had been corrected.
The United States was not seeking to shift the world from pegged to
floating exchange rates. It was trying to solve the coordination problem
posed by the organization of the exchange rate regime. As it could not
devalue the dollar unilaterally, it had to resolve the N country problem
by negotiation and had thus to find a way of starting the bargaining
process. In December 1971 at the Smithsonian Institution in Washington,
the industrial countries agreed on an exchange rate realignment involving
a significant devaluation of the dollar. Some deplore the tactics and
rhetoric employed by President Richard Nixon and Treasury Secretary
John Connally. 'The dollar," said Connally, "may be our currency, but it's
your problem" (quoted in Volcker and Gyohten 1992, 81). With help from
intemational financial markets, however, their strategy broke an intractable deadlock.
Nevertheless, the US balance of payments was slow to improve after the
Smithsonian Agreement, and the US Treasury concluded that a larger
exchange rate change was needed. It negotiated a second devaluation of
the dollar in February 1973. By that time, however, foreign exchange
markets had little confidence in the sustainability of pegged exchange
rates. The pound had been allowed to float in June 1972, the Swiss franc in
January 1973, and the yen and lira in February 1973, and speculation
against the dollar mounted rapidly after the second devaluation. On 1
March 1973, European central banks, having bought more than $3.6 bilhon
to support the dollar in a single day, withdrew from the foreign exchange
market, allowing the dollar to float. The N country problem would
henceforth be solved by foreign exchange traders.
,h
35
l h
Adaptations in the 1970s
When they announced the Smithsonian Agreement, the industrial countries made two commitments: to begin a new round of GATT negotiations
and to reform the monetary system. They honored the first by starting the
Tokyo Round, although they did not complete it until 1979. They honored
the second by creating the so-called Committee of Twenty, which then
spent two full years drafting an outline for reform of the monetary system.
The Tokyo Round had an ambitious agenda. There were to be more
tariff cuts based on a variant of the formula used in the Kennedy Round,
another attempt to liberalize agricultural trade, an attack on nontariff
35. Solomon (1982) and Paul Volcker (in Volcker and Gvohten 1992) provide detailed accounts of the planning that led to the August decisions and of the negotiations that led
thereafter to the Smithsonian Agreement.
36 MANAGING THE WORLD ECONOMY
barriers, an effort to give "special and differential treatment" to developing countries' exports, and work on codes of conduct to deal with unfair
trade practices. When the results of the Tokyo Round are compared with
those of the Kennedy Round, they look substantial, but when they are
compared with the original objectives, they seem more modest. Average
tariff rates on manufactured goods were reduced by about 34 percent (a
figure close to the one for the Kennedy Round), but strict use of the new
tariff-cutting formula would have led to larger reductions. The Tokyo
Round failed to resolve the disagreement between the United States and
Europe about agricultural trade, displeased developing countries because
it did not fulfill promises to them, and it failed to halt the proliferation of
nontariff barriers such as "voluntary" export restrictions (VERs). It broke
new ground, however, by adopting several codes of conduct. One code
was meant to enforce more effectively the prohibition against export subsidies and extend it to domestic subsidies that resemble export subsidies.
Another was meant to eliminate discrimination against foreigners in
public-sector procurement and involved an important departure from the
unconditional MFN principle. A government subscribing to the code may
still discriminate against suppliers from countries that do not subscribe to
the code.
Although the Tokyo Round did not meet all its objectives, it was a huge
success compared with the Committee of Twenty, which did not meet any
of its objectives. It was supposed to design a system of "stable but adjustable exchange rates" and make that system more "symmetric" than the
one that had developed in the 1950s and 1960s. The attempt to combine
stability with adjustabUity was probably doomed from the start because of
the increase in capital mobility that had contributed to the collapse of the
Bretton Woods regime.
The attempt to build a more symmetric system was bedeviled by disagreement about the meaning of symmetry. Seen from the US standpoint,
the earlier system was asymmetric because it had deprived the United
States of the freedom to alter exchange rates when needed; having been
the advocate of exchange rate stability when the Bretton Woods system
was being designed, the United States was now the advocate of flexibility.
Seen from the European standpoint, the earlier system was asymmetric
because it had allowed the United States to postpone balance of payments
adjustment by accumulating reserve-currency debt to the rest of the
world. The debate was overtaken by events, however, when the govern36
37
36. Memories are short. After the 1992 EMS crisis, the Committee of Governors of the EC
Central Banks and the Monetary Committee both suggested that more timely exchange rate
realignments could combine adjustability with stability; see Eichengreen (1993).
37. Williamson (1977) casts the disagreement itself in a more symmetric way. The desire of
the United States for more freedom to change its exchange rate reflected its belief that surplus
countries had wanted to accumulate dollars and had opposed an exchange rate realignment to
AN OVERVIEW 37
�ments 'of the industrial countries came to agree that they could not to
return to pegged exchange rales, and they turned instead to the task of
amending the IMF Articles of Agreement in order to legitimize floating
rates, redefine the obligations of member governments, and recast the role
of the IMF itself.
The Second Amendment was approved in 1976 and took effect in 1978. It
used artful language to mask disagreements about the direction in which
the monetary system should evolve. Under the new version of Article IX',
members would "collaborate with the Fund and with other members to
assure orderly exchange arrangements and to promote a stable system of
exchange rates." (The odd location of the word "stable" masked the disagreement between France, which favored a system of stable rates, and the
United States, which favored floating rates.) Under the new version, moreover, a government merely had to notify the IMF of the "exchange
arrangements" it would apply rather than adopt a fixed parity for its
currency. The exchange arrangements themselves could include:
(i) the maintenance by a member ot a value for its currency in terms of the Special
Draw ing Right or another denominator, other than gold, selected bv the member,
or (ii) cooperative arrangements by which members maintain the value of their
currencies in relation to the value of the currency or currencies of other members,
or (iii) other exchange arrangements of a member's choice (Article IV)
But the Fund was supposed to exercise "firm surveillance" over exchange
rate policies and to adopt "specific principles" for its members' guidance.
The revision of the Articles of Agreement thus diluted the obligations of
governments, but the change in language was more dramatic than the
change in practice. The IMF did not have much influence over exchange
rate policies under the old regime, and the growth of intemational capital
markets would have reduced the future importance of access to its resources even without the shift to floating exchange rates. (The last large
drawings on the Fund by industrial countries were made bv Italy and the
United Kingdom in 1976. The United States made a small drawing in 1978.)
Furthermore, the major industrial countries were developing new ways
of dealing with their common concerns. The first economic summit took
place at Rambouillet in 1975 and paved the was' for the agreement on
amending the IMF Articles of Agreement. The London Summit, two vears
later, produced agreement on growth targets for Germanv, Japan, and the
United States. The Bonn Summit of 1978 replaced that agreement on
targets with explicit commitments regarding policy instruments—commitments by Germany and Japan to fiscal expansion in exchange for a
eliminate the US deficit He also argues that European views were heavily influenced bv the
events of 1971-73; European central banks bought large quantities of dollars on the eve of the
1971 crisis, and they bought even larger quantities in 1972 and 1973, under the Smithsonian
Agreement, when the US money supply was growing very rapidly.
38 MANAGING THE WORLD ECONOMY
commitment by the United States to reform its energy policies. There is
disagreement about the degree to which the summit process actually
affected policy decisions, and the fiscal commitments made at the Bonn
Summit are still blamed in Germany for the subsequent acceleration of
inflation, a view that conveniently ignores the effects of the increase in the
price of oil brought on in 1979 by the Iranian revolution.' Nevertheless,
studies of the summit process argue convincingly that it can focus attention on the need for making policy changes, provide opportunities for
making them, and foster the formation of domestic coalitions favoring the
changes (see Putnam and Henning 1989; Holtham 1989).
Proposals to increase the IMF's influence often suggest that policy coordination be lodged within the IMF. But there is no easy way of reconciling
the decision-making processes of the IMF, in which all of its members take
part, with the need to hold down the number of countries involved in
policy coordination. The durability of the summit process and the frequency of the lower-level meetings among representatives of the summit
countries reflect the importance that those countries attach to homogeneity and to the interdependence of their national policies.
Although high capital mobility might have made it impossible for the
Committee of Twentv to design a viable system of "stable but adjustable"
exchange rates, the actual acceptance of floating exchange rates was more
closely linked to the effects of the oil-price increase triggered by the Yom
Kippur War of 1973. Its price-raising and income-reducing effects help to
explain the depth of the 1974-75 recession and the stagflation that followed. It also sowed the seeds of problems that emerged in the 1980s—
high long-term unemployment in Europe, the ballooning of budget deficits that immobilized fiscal policies, and the debt crisis that began in 1982.
As the oil-exporting countries, especially those of the Middle East, could
not spend all of their oil revenues, they ran current account surpluses, and
the oil-importing countries as a group therefore had to run a deficit. But
the subsequent recession in the industrial countries shifted most of the
deficit to the developing countries, and thev began to borrow heavily
(figure 1). The excess revenues of the oil-exporting countries were
"recycled" bv the industrial countries' banks to finance the payments
deficits of the developing countries. There were at first modest efforts to
recycle some of the excess revenues through the IMF, but they were
abandoned when it became clear that the banks would do the job. Hence,
the claims of the banks on developing countries mounted rapidly in the
1970s and the early 1980s (table 5).
s
38. von Furstenberg and Daniels (1992) try to measure actual performance against summit
commitments and find that the record is rather poor. But their results are necessarily sensitive
to the wavs in which thev quantify policy commitments, and they fail to distinguish between
commitments concerning policy instruments, which are controllable in principle, and those
concerning policy targets, which may not be controllable.
AN OVERVIEW 39
�Figure 1
Table 5 Developing countries' debt, 1973-91 (billions of dollars)
Current account balances, 1973-90
1973
billions ot dollars
Total outstanding
1976
1979
1982
1985
1988
1991*
130.2
228.1
504.7
780.9
953.8
1,161.8
1,284.1
By maturity
Short-term
18.4
146.1
137.7
156.8
164.0
Long-term
111.8
194.9
416.6
634.7
816.1
1,004.8
1,120.1
51.0
82.4
163.5
239.7
342.4
485.5
590.9
b
33.2
b
88.1
b
By creditor
Ofticial agencies
Commercial banks
31.1
73.9
208.5
390.1
452.5
484.2
473.6
Others
48.1
71.8
132.7
151.1
158.9
192 1
219.6
a Estimated.
b. Allocation by type of creditor approximated.
Source: International Monetary Fund, World Economic Outlook (various issues). Data for
1973 and 1976 cover all developing countries except certain oil exporters; subsequent data
cover all net-debtor developing countries.
1973
1975
1977
1979
1981
1983
1985
1987
1989
The oil-price increase of 1973 had another effect. It encouraged the
developing countries to demand a New International Economic Order
(NIEO) that would redistribute income and power in the world economy.
The initial success of the Organization of Petroleum Exporting Countries
(OPEC) in improving its members' terms of trade and gaining influence in
intemational organizations, including the IMF, "crystallized the concept
of strength through collective action and 'solidaritv rather than charity.'
The developing countries also seemed to infer from the OPEC experience
that their commodity exports, which had been traditionally viewed as a
sign of weakness, could be turned instead into weapons of collective
action" (Bhagwati 1977).
The NIEO agenda included familiar proposals for stabilizing commodity prices, increasing the flow of development assistance, and granting
debt relief to low-income countries, but it made many new proposals. It
• - n.'. i us .-: •.hift ir i h.- i.».•;;> .v mamiiarrurinc ro thf- developinE countries,
-t sairt ut rrte oaianct j r power cvrween nosr-counrrv governments and
foreign firms exploiting their natural resources, the use of revenues from
deep-sea mining to finance economic development, and a larger role for
developing countries in the governance of the IMF and World Bank.
Many of these demands were endorsed by the UN General Assembly
and UNCTAD, but few of them got much further. The members of OPEC
40
MANAGING THE WORLD ECONOMY
had bargaining power—or seemed to have it at the time. Other developing
countries did not. And OPEC members were not greatly interested in
lending their bargaining power to others. Nevertheless, the controversy over
the NIEO served as another important reminder of the changes taking place
in the world economy—the strains produced by the inaease in the number of
participants and their heterogeneity and the resulting challenge to the basic
consensus that had produced the Bretton Woods system.
Adaptations in the 1980s
As the end of history approaches, or, at least, the end of this history, it
becomes tempting to chronicle events rather than trying to interpret those
with long-term imphcations. Otherwise, readers may wonder why nothing is said about events they remember most clearly or those involving
issues in which they are most interested.
There were, of course, dramatic events at both ends of the 1980s: the
debt crisis at the start and the collapse of the Soviet empire at the end, and
the EMS was born at the start and came near to perishing at the end. Along
the way, moreover, the Plaza and Louvre agreements altered exchange
rate arrangements among the key currencies, and the Uruguay Round
exU.'mk'd the GATT system to international trade in services and agreed to
establish a World Trade Organization (WTO) as the now iustituiiotuxl
home for the GATT, with better procedures for settling trade policy disputes At the same time, the North American Free Trade Agreement
(NAFTA) raised questions about the direction of future trade liberalization, suggesting that regional bargains might replace global GATT rounds,
and trends in US trade policies raised questions about the US commitment
AN OVERVIEW 41
�to the GAIT svstem. Fin^JIy, developing countries become partners, not
petitioners, in making decisions affecting the future of the trading system.
When examining the earlier history of the Bretton Woods system, it
made sense tp focus mainly on relations among governments. When looking at recent developments, it is important to focus on relations between
governments and markets. Deregulation accelerated in the 1980s, increasing the impact of private-sector decisions on the world economy. Key
decisions by governments, individually and collectively, represented responses to issues raised bv the globalization of financial markets, the migration of manufacturing to developing countries resulting in part from the
spread of foreign direct investment, and the rapid growth of international
trade in services. Furthermore, decisions that governments once took individually had now to be taken collectively. Tlie protection of intellectual property
was an important and difficult issue in the Uruguay Round. The prudential
supervision of large banks was the main issue on the agenda at the BIS, where
central bankers wrote common rules to measure capital adequacy. The need
for intemational cooperation on environmental issues was addressed comprehensively at the Rio Conference.
We look first at the ways in which the issues of the 1980s affected the IMF
and Bank, turn next to their impact on exchange rate arrangements, and
conclude with their influence on the GATT and national trade policies.
39
Debt Crisis and the Roie of the IMF
The debt crisis started with Mexico in 1982 and spread quickly to other
borrowing countries, especially m Latin America. Some accounts of the
crisis maintain that banks knew all along that thev would run into trouble
but had fed this possibility into their calculations. The earlier history of
intemational debt would have led anv prudent banker to do that. But three
phenomena cause us to question this hypothesis. First, the lending that
began in the 1970s was sustained by the entry of additional banks, not an
ongoing buildup of claims by the banks that started the process; hence, no
individual bank could regulate the risks it faced merely by controlling the
volume of its own claims. Second, it is hard to believe that banks could
M
41
39. On this and related issues, see Kapstein (1994).
40. It is ironic that the crisis began with Mexico, an oil exporter, when much of the lending
that led to the crisis represented intermediation between oil exporters and oil importers, but
Mexico had borrowed heavilv in the expectation of rising oil revenues. The account of the
crisis given here draws on Kenen (1992), for other interpretations, see Sachs (1989), Cooper
(1992), Cline (1994). Kapstein 11994), and Krugman (1994); on the role of the IMF, see the
papers by Jeftrev Sachs and Guillermo Ortiz in Gwm and Feinberg (1989).
41. The importance of this phenomenon is underscored bv the problem that faced the banks
and debtor countries when they began to sort out the problem: thev had first to determine the
size of the debt owed bv each debtor country.
42 MANAGING THE WORLD ECONOMY
have forecast the changes in the global economic environment that occurred at the start of the 1980s, including the sudden shift in US monetary
policy in October 1979, the depth of the subsequent recession in the industrial countries, and the large effect of the recession on the export earnings
of the debtor countries. Third, the spread of the crisis from country to
country, when banks halted their lending completely, suggests that the
banks were taken by surprise and revised their plans abruptly. We are
sympathetic to the suggestion made by Guttentag and Herring (1986) that
the banks suffered from disaster myopia—the tendency to underestimate
the risk of a rare calamity.
The banks had protected themselves from two of the three risks facing
them. The deposits of the oil-exporting countries were denominated
mainly in dollars, so the banks made most of their own loans in dollars,
protecting themselves from exchange rate risk. Interest rates on most of
the loans were tied to the London Interbank Offer Rate (LIBOR), the
interest rate paid on most of the deposits, protecting them from interest
rate risk. But the banks were exposed to default risk, and their way of
minimizing interest rate risk raised their vulnerabihty to default risk by
linking the debtors' debt-service payments to rather volatile interest rates.
Furthermore, the link to LIBOR, combined with the debtors' dependence
on export earnings from products with cyclically sensitive prices, made it
likely that many debtor countries would prosper or suffer together, reducing the protection usually afforded by diversification.
The international financial community responded rapidly to the crisis.
Central banks and other official institutions made large short-term loans to
Mexico, pending the completion of its negotiations with the IMF. The IMF
itself told the commercial banks that it would not approve a drawing by
Mexico unless the banks rescheduled Mexico's debt and made new loans
to Mexico to help it meet its interest payments. The Fund thus worked to
coordinate a concerted response to the crisis, and even before that task was
• completed, the arrangements made for Mexico became a model for dealsing with other countries' problems. By the end of 1983, the banks had
i reached agreements with 18 debtor countries, rescheduling $35 billion of
:debt and granting $14 billion of additional credit, and there was a huge
i increase in the use of IMF resources (table 6).
How can a debtor solve its problem by going deeper into debt? In
; imprecise but helpful terms, an insolvent debtor must pursue a debtjsreducing strategy, but an illiquid debtor should pursue a debt-raising
[strategy so as to make its interest payments and defend its creditworthi^ness. Projections made at the time supported the debt-raising strategy.
42
p
f.42. But we cannot dismiss the explanation advanced by Dooley (1993) that the banks ex?pected their governments to bail them out if they had trouble. That expectation was not
|totally unjustified, as the banks had been encouraged to recycle the OPEC surplus, a task from
|which the governments withdrew as soon as the banks took it on.
AN OVERVIEW 43
�»
•
01
if
~
i
O
<M
I!
I oi
ID
CM
d
d
U3
^
^
43
CO
CD
^
^
OJ
OJ
28S
i-'
tr>
o !
§1
OJ
(£)
T-
O)
CM
CO
IT)
CO
CO
o «
CT)
IT)
—
CD
CM"
8
44
^ '
co
cn
Tf
CO
CO
O
CO
T—
oa 9
| §
W
3
CC
Q
<
5
CD
^
ro
co
Oj C
O
C
O
o
cn
co
co
co co
' "
CM
C
M
co co
co co
oo r-.
or §
to
co m r— m OJ CM o j
O
O
C C
O D o
r^ co C
D
i - co
o
a
<
o
n
a>
c
•a
c
cp
oj
C
M
O p
CD
C
O
OJ
l111
it
oj
co
cn
C
M
co
in
CM
CM
oo
*-
O
J
C
D
C
^- oq
co co*
O
^
co
cn CM
CO
CM
.-
O
.
-
.
-
u
,
co
cn
cn co
CO
CO
CO
^
CD
o
-q-
C
CM
OJ
ro
8 r
c p c n c M C M c n m c o
co
in
-ro
co
—"
5
in
Q
CO
CO
CD
tfl
1
g ra
^
S
ra
O
^
w
0)
C
O
>.
a
>
> £
C
M
TT
CM
CO
^
CO
•-
CO
CO
.-
a> to i
O
CO
T
CO
CM
OJ
C
CO
TT
CO
C'
M
oc -
s
co
cn
C\f
CM
o
i-
tX)
to
iun
vn
n
CO
i -
.9?
c
o
ras — >,
^
O
OJ
T-
If)
un
CD
O
CO
O
cn
o
CM
LO
O
CO
CO
OJ C "
O
i -
o
CO
CO
••-
LD
CM
i -
<£)
T-
i r ^ u . §- »
?l
O)
Q
Q
(O
44
O "O
3
— n
CO
CD
CD
CO
CO
CD
TT
CO
CD
43. These are reviewed retrospectively in Cline (1994).
oi ra § Q
)
CD
5
2
.CD
£
a S a -D =: S
^ c ^ E
C
O
a
>
Z
45
It §
ii.
s
They said that some of the debtors could return to creditworthiness in
fewer than five years if the world economy grew steadily, interest rates
fell, and there were no large changes in exchange rates or the price of oil.
The projections were not far wrong in their assumptions about the world
economy, but they underestimated the internal problem many debtor
countries faced—the problems involved in raising the real resources they
needed for making their debt-service payments rather than those involved
in transferring real resources to their foreign creditors.
The first official acknowledgment of the need to revise the initial diagnosis and, therefore, to modify the debt strategy came in 1985, when James
Baker, the US secretary of the treasury, urged the debtor countries to
follow financial and structural policies aimed at fostering growth together
with balance of payments adjustment, asked the IMF and World Bank to
support those policies by structural adjustment lending, and asked the
commercial banks to increase their own lending. The IMF and World Bank
continued to build up their claims on the debtor countries, but the banks'
response was more selective; they built up their claims on some countries,
but used a number of techniques to cut back their claims on others. This
shift to a debt-reducing strategy was blessed formally by the IMF in 1988,
although it cautioned against any transfer of risk from private creditors to
official institutions. In 1989, moreover, Nicholas Brady, the new US secretary of the treasury, called for "measures to accelerate sharply the pace of
debt reduction and pass the benefits directly to the debtor countries." He
asked the IMF and World Bank to make financial resources available to
debtor countries that wanted to collateralize debt-for-bond swaps, replenish reserves used for cash buybacks, or earmark funds to underwrite
future interest payments. Thereafter, several developing countries had
help from the Fund and Bank in making debt-reducing agreements with
their creditors.
How did the debt crisis affect the Bretton Woods Institutions? Let us
look at the role of the IMF through the eyes of a participant in the Bretton
Woods Conference of 1944. The IMF was meant to provide short-term
1^.
CO
<D
CO
CO
(D
CD
CO
X
3
o
—
o
LU
6
fill 1
(f)
O
OJ QJ
•2 u o o
C
y
to
44. Furthermore, the devaluations frequently required to make external transfers complicated the internal problem. They raised the domestic-currency cost of debt-service payments,
adding to the debtors' budget deficits. Such deficits, moreover, had to be monetized because
the debt problem itself made foreign borrowing impossible and capital flight made domestic
borrowing difficult, and the higher inflation rates resulting from monetization nullified the
trade balance effects of the devaluations (see, e.g., Reisen 1989).
45. Some sold off their claims at substantial discounts in the secondary market that developed in the wake of the debt crisis. Others took advantage of arrangements proposed by the
debtor countries themselves. Chile offered debt-equity swaps to promote foreign direct
investment; Bolivia bought back half of its debt for cash at a price close to the one quoted in
the secondary market; Argentina, Brazil, and Mexico funded some of their debt into bonds.
AN OVERVIEW
45
�balance of pavments credit, which is what it did at the start of the debt
crisis. A Bretton Woods participant might have been surprised by the
comprehensive nature of the policv conditions attached to the use of IN/IF
credit, but this practice was not new, nur were the conditions more onerous than those faced by Britain and Italy in the 1970s.^
But the role of the IMF changed gradually thereafter, and the World
Bank was also affected. Both began to engage m new forms of lending. The
• IMF moved from short-term to medium-term lending, and the nature of
conditionahtv changed: instead of insisting primarily on changes in macroeconomic policies aimed at rather rapid external adjustment, it began to
insist on changes in microeconomic policies aimed at extensive domestic
reforms. This practice began before the debt crisis, with the creation of the
Extended Fund Facility (EFF) in 1974, but had been relatively rare. The
World Bank moved from project lending, with disbursements tied to
actual spending on the corresponding project, to various forms of structural adjustment lending, with an urgent emphasis on rapid disbursement. It became harder to insist that the IMF is still a monetary institution,
not a dev elopment institution, and should not therefore be combined with
the World Bank.
In the 1940s, the problem of postwar reconstruction was met bv creating
new programs and institutions to meet specific needs, and thev were
separately funded. In the 1980s, the debt problem was met by making ad
hoc changes in the policies and missions of the Bretton Woods Institutions.
In the process, moreover, there was a very large transfer of risk from
private creditors to official institutions, despite the IMF's earlier warning
against it. Between 1982 and 1991, the share of commercial banks in total
claims on the developing countries fell from 50 percent to 37 percent while
the share of official institutions rose from 31 to 46 percent (table 5). The
conversion of the Bretton Woods Institutions into instruments for crisis
management was carried further in the early 1990s, when they had to take
the lead in financing and managing the economic transformation of
Eastern Europe and of the former Soviet Union. Lacking the will to fund
that task through their own national budgets, the United States and its
partners looked again to the IMF and World Bank, which had again to
modify their policies and practices. The IMF's decision in March 1994 to
accept the very weak promises made by Russia is the latest step in a long
and troubling process.
It is easv to understand why the IMF is widely viewed as a development
institution. It had no role in the making of the Plaza and Louvre agreements, which altered the exchange rate arrangements of the major countries, and it plays only a limited role in their regular consultations.
Exchange Rate Arrangements
46. There might have been surprise, moreover, at the extent to which the Fund relied on
borrowing, not its own resources, to finance its activities and at the tlexibilitv it showed in
going beyond the strict quota-based limits on lending to individual members The extent of
IMF reliance on borrowed resources is shown in table b
At the start of the 1980s, the Reagan administration announced that the
United States would no longer intervene on foreign exchange markets.
During the next few years, however, the dollar appreciated hugely, and
the United States began to run large current account deficits. The Congress
responded in much the same way that it did at the end of the 1960s—by
drafting legislation to roll back imports—and the administration responded in turn by seeking once again to bring down the dollar. In
September 1985, it assembled the finance ministers and central bank governors of the Group of Five (G-5) countries—France, Germany, japan, the
United Kingdom, and the United States—at the Plaza Hotel in New York,
where they agreed on joint intervention to achieve what they called in
their communique "some further orderly appreciation of the main nondollar currencies."
The dollar depreciated sharply after the Plaza Agreement and continued to decline in 1986 (figure 2). In fact, the size of the decline caused the
Japanese authorities to intervene in support of the dollar. The United
States was not willing to join in, however, until Japan adopted a fiscal
policy package aimed at stimulating the Japanese economy and thus reducing Japan's current account surplus. Once that had happened, another
communique was issued. In February 1987, meeting at the Louvre in Paris,
the governments expressed satisfaction with the exchange rate changes
that had followed the Plaza Agreement, declared that exchange rates were
now consistent with the economic fundamentals, and thus "agreed to
cooperate closely to foster stability of exchange rates around current
levels."
But they did not cooperate closely enough. In October 1987, US Secretary of the Treasury James Baker criticized the Bundesbank publicly for a
small increase in interest rates, saying that it was inconsistent with the
understandings implicit in the Louvre Accord. The uncertainty generated
by this dispute was one proximate cause of the 1987 stock market collapse,
which led to a further depreciation of the dollar. Thereafter, officials were
more circumspect in their statements about exchange rates. Nevertheless,
47. The same thing would have happened under the proposal that one of us made to
establish a new institution to buv the banks' claims at a discount and issues its own obligations to pa\ for them iKenen 1990). But the new institution would have been designed
expressly to assume the risks involved: they would not have been shifted to the Fund and
Bank
48. For a detailed account of this and subsequent events, see Funabashi (1988); for a more
thorough treatment of US exchange rate policy, see Destler and Henning (1989); and for a
more recent critique, see Frankel (1994).
47
46 MANAGING THE WORLD ECONOMY
45
AN OVERVIEW 47
�Figure 2a
Deutsche mark exchange rate
US cents per DM
100
they continued to engage in concerted intervention to limit exchange rate
changes.
Advocates of intensive exchange rate management greeted the Plaza
and Louvre agreements as a fundamental change in the exchange rate
regime and called on governments to go further—to commit themselves
pubhcly to target zones defended by interest rate policies and intervention
(Wilhamson and Miller 1987; Bergsten 1988; Kenen 1988). They cited the
results of new research on the effectiveness of intervention and noted that
foreign exchange markets have shown a wary respect for the ability of
governments to influence exchange rates. This phenomenon has survived the reassessment of exchange rate management touched off by the
EMS crises of 1992 and 1993: when trade negotiations between Japan and
the United States broke down in February 1994, the yen appreciated
sharply, reflecting rumors that the United States might seek to engineer an
appreciation to put pressure on Japan.
Another, more fundamental change in exchange rate arrangements and
policies occurred in the 1980s. It began in Western Europe with the transformation of the EMS from a system of pegged but adjustable exchange
rates into a system of rigidly fixed rates, was reflected in stabilization
programs adopted in Latin America and in Central and Eastern Europe,
and has strongly influenced thinking in the IMF.
Under the influence of Nurkse (1945), Meade (1951), and others, the
exchange rate was viewed for much of the postwar period as a policy
instrument to be used for balance of payments adjustment and thus for
reconciling external and internal balance. As attention shifted in the 1970s
to the importance of fighting inflation and the need for central banks to
acquire credibility, an earher view reemerged. Exchange rate pegging
came to be seen as a device for conferring credibility on domestic policies.
This became the focus of European policies, especially those of France and
Italy, and the same policy was pursued by a variety of developing countries.
Along with the belief that a pegged exchange rate would enhance the
credibility of domestic policy, a second factor worked to increase the
rigidity of pegged exchange rates. The relaxation of capital controls made
it harder for governments to devalue without exciting the markets. This
problem was particularly severe in the context of the European Monetary
System, where realignments have to be preceded by international consultations, and it is hard to prevent news of the authorities' intentions from
leaking out. In an environment of high capital mobility, governments
resist even contemplating a devaluation for fear of precipitating a crisis.
49
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992
(date denotes end of year)
Figure 2b
Yen exchange rate
US cents per 100 yen
100
90
80
70
60
JV
50
40
30
20
10
49. On the effectiveness of intervenrion, see Dominguez and Frankel (1994) and Catti, Galli,
and Rebecchini (1994); on the markets' view of intervention, see Kenen (1988) and Frankel
(1994).
0
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992
fdate denotes end ot vear)
AN OVERVIEW
49
�The evolution of the EMS further illustrates the point. There had been
frequent exchange rate realigfiments in the early years of the EMS, but following the adoption of the Single European Act in 1986, which mandated the
removal of member countries' residual capital controls, that was no longer
possible. There were no realignments from January 1987 until September
1992, when the effects of German reunification and the policies it produced
were combined with doubts about the outlook for the Maastricht Treaty,
tnggenng massive speculation against the lira and the pound. It is too early to
assess the long-run effects of that crisis and the one that followed in 1993. It is
worth noting, however, that France continued stubbornly to defend the franc,
even after the widening of the EMS bands gave it the room to reduce French
interest rates and permit the franc to depreciate.
Table 7 Export-restraining arrangements,
1987 and 1989
Category
1987
135
289
48
Total number in effect
1989
69
69
173
By protected market
United States
European Community
1
3
Japan
All other countries
6
13
12
34
25
70
By restrained exporter
Japan
Other industrial countries
Turning finally to trade policies in the 1980s, three developments demand
attention. Although the decision to start the Uruguay Round involved an
explicit commitment to further liberalization, the main trend in trade
policy during the decade took some countries in the opposite direction.
Responding to allegations of dumping, the illegal use of export subsidies,
and other "unfair" trade practices, the United States and the European
Community erected additional nontariff barriers. The number of exportrestraining arrangements more than doubled from 1987 and 1989, and
many of the new nontariff barriers were aimed at developing countries
and at Central and Eastern Europe (tables 7 and 8). Ironically, the targets
of those barriers were moving rapidly to liberalize their trade regimes. The
Uruguay Round, moreover, proved to be the longest and most difficult of
all GATT rounds, partly because of the many issues it faced and partly
because it involved a very large number of countries.
The complex agenda of the Uruguay Round afforded opportunities for
cross-issue bargaining, but that was not the rationale for taking on so
manv issues. The agenda was set bv the United States, in an effort to forge
a new domestic coalition favoring further liberalization. The effects of
prev ious rounds, the appreciation of the dollar in the early 1980s, and
increasingly keen competition from Japan and other Asian countries had
undermined the old coalition. It was hard to find an American manufacturer, let alone a labor union, that favored freer trade. Even the multinational firms that need open markets at home and abroad to operate efficiently were reluctant to speak up for freer trade. Therefore, the Reagan
administration sought to recruit new supporters. It promised to fulfill the
pledge made two decades earlier to defend the interests of American
farmers against the effects of Europe's agricultural policies. It promised
23
57
Developing countries
Trade Policies and the GATT
66
121
Eastern Europe
20
41
a. Includes arrangements initiated by individual EC countries (which
rose from 20 in 1987 to 96 in 1989)
Source: International Monetary Fund. Issues and Developments in
International Trade Policy. 1992. table A8: excludes MFA arrangements.
to extend the GATT to international trade in services in order to recruit
support from the financial community. And it promised to obtain better
protection for intellectual property, ranging from patents on pharmaceuticals to computer software. At the same time, it sought to quell opposition
by acting or threatening to act unilaterally against countries with "unfair"
trade practices.
The United States also had to deal with opposition abroad. The European Community was far from enthusiastic about a new round of global
negotiations, partly because of its preoccupation with the completion of its
own internal market. Developing countries were apprehensive about the
inclusion of services, trade-related investment measures, and intellectual
property. But these reservations and apprehensions were overcome by
recognition of the need to prevent the United States from turning away
from the GATT system. We will not know for some time whether the game
was worth the candle—not even after Washington and Tokyo have
worked their way out of their current confrontation and the US Congress
lhas endorsed the outcome of the Uruguay Round.
50
50. When the promise was first made, however, the concerns of American farmers were
different from what thev were to be in the 1980s Their early concerns focused on the
50
MANAGING THE WORLD ECONOMY
_j restrictive effects of the CAP, which reduced US agricultural exports to Europe. In the 1980s,
I" fliey focused on the third-market effects of the CAP because the Communitv was subsidizing
exports of farm products in order to dispose of the surpluses generated bv the CAP.
AN OVERVIEW 51
�Table 8 Imports by major industrial countries in selected product
groups covered by'nontariff barriers, 1990
Percentages of imports f r o m :
Product g r o u p
Developed
countries
Developing
countries
Eastern Europe
and USSR
Food
41.8
28.7
56.7
Iron and steel
56.8
40.6
67.1
Fuels
23.8
12.6
43.8
Textiles
17.0
61 6
69.3
Clothing
27.6
71.6
75.1
Vehicles
58.6
0.7
11.1
17.1
19.9
30.4
All imports
3
a. Includes products not listed above.
Source: International Monetary Fund, Issues a n d Developments in Intemational Trade
Policy, 1992. table A7; uses "broad" group of nontariff barriers and covers Australia, Austria,
Canada, the EC, Finland, Japan. New Zealand, Norway, Sweden, Switzerland, and the
United States.
Conclusion
We have not reached the end of history, not even the end of the history we
were asked to write. We have not discussed the outcome of the Uruguay
Round, the negotiation and ratificadon of NAFTA, the formation of regional arrangements in Latin America and Asia, or the economic transformation of Central and Eastern Europe. We have not analyzed the EMS
crises of 1992-93, despite the intriguing parallels with the dollar crises of
1971-73 and the lessons to be drawn for the future of the intemational
monetary system. We have two excuses: our paper is too long, and the
events are too recent.
We have laid great stress on the contribution of institutions to postwar
growth performance. But how can we really know that the institutions
mattered, as opposed to other factors on which we have touched that also
affected economic outcomes? Some evidence is provided by comparisons
across time and space. Thus, we have provided comparisons with the
aftermath of World War I, when institutional arrangements and economic
outcomes were very different. Comparisons can also be made across countries that participated to different degrees in the international arrangements of the Bretton Woods system.
51
51. One of us has analyzed the connections between growth and institutional arrangements
such as the EPU, the European Coal and Steel Community, EEC membership, and IMF Article
VIII status using a panel data set of industrial countries after World War II (Eichengreen and
Vazquez 1994).
52
MANAGING THE WORLD ECONOMY
In emphasizing the salutary influence of international institutions, it is
important to resist the temptation to write a Whig history of the postwar
world. Not all postwar institutions were optimally structured at the start.
Not all the problems that they would confront were anticipated by the
framers of the Bretton Woods agreement. There was a significant role for
historical contingency in the postwar evolution of the world economy. But
this is merely another reason why, as we have argued, the adaptability of
the postwar institutions held the key to their success.
Our account has devoted considerable attention to the role and policies
of the United States. This does not imply tacit endorsement of the hegemonic-stability view that intemational regimes cannot outlive their leaders. We find that the United States played a more decisive role in the
design of postwar international institutions and in the early attempts to
adapt them than in their subsequent operation. A number of those institutions, the GATT prominent among them, continued to function successfully despite the absence of consistent, forward-looking US leadership to
guide the evolution of intemational economic relations. Procedures and
understandings (institutions with a little "i") embodied in formal structures (institutions with a capital "I") can sustain the momentum of international collaboration even when a leading country is unprepared to
provide the necessary guidance and the conditions for collective leadership remain underdeveloped.
Two further themes run through our account. The first is that the ability
of governments to manage change internationally has depended importantly on their ability to manage it domestically. This seemingly trite
' proposition has important implications. After World War II, domestic
•interest groups in each industrial country reached an accommodation
concerning the distribution of the national income and the structure of the
economy. Having achieved agreement at home in ways that were broadly
compatible across countries, governments could enter credibly into international commitments. They could commit to the creation of a set of
intemational economic institutions with which all could live, and the
credibility of their international commitments was buttressed by domestic
stabihty and support. The consequent growth of international transactions
fed back to the domestic economy, reinforcing support for the international system. Domestic institutions, in the sense of rules and understandings, provided support for their international counterparts, and vice versa.
Starting in the 1970s, partly as a consequence of the very success of the
Bretton Woods system, the situation began to change. Different domestic
arrangements became more difficult to sustain as economies became more
open to trade and factor flows. The growing amplitude of the business
cycle, slower economic growth, and wider income inequality frayed the
social fabric. Countries moved in different directions—some toward more
generous income support and labor-market regulation and others, such as
the United Kingdom and the United States, toward less generous and less
AN OVERVIEW
53
�interventionist programs. These strains on domestic institutions complicated efforts to reform international arrangements, and the consequences
undermined the effectiveness of existing international institutions. Trade
liberalization progressed more slowly because of this failure of institutional adaptation and because the domestic adjustments required by liberalization were more difficult to make when economies were growing less
rapidly. (It might have halted completely if the United States had not
forged a new domestic coalition favoring liberalization bv putting trade in
services on the GATT agenda.) Mobilizing resources to deal with problems such as the economic transition of Eastern Europe and the former
Soviet Union was rendered more difficult by the stagnation of real incomes in the industrial countries.
Our second theme is that these difficulties have been significantly exacerbated by the great gap in the original Bretton Woods system: the lack of
a coherent approach to economic development. Krueger (1993) shows that
there are, even now, serious inefficiencies and inconsistencies in the trade,
aid, and other policies of the industrial countries. As the developing countries have become participants rather than petitioners in the international
system, their different priorities have complicated efforts to reform the
system, a fact evident in the SDR negotiation of the 1960s and again in the
Uruguav Round. Liberalization in the developing world may attenuate
conflicts insofar as domestic objectives come to conv erge with those of the
developed world, but it will not reconcile the verv different priorities of
producers and consumers of primary products or intellectual property,
nor will it solve the large-number problem that has bedeviled the GATT
and similarly threatens its successor, the WTO.
Large-number problems can be solved in different ways. Regional
groupings provide one solution, whose attractions are already evident.
Mere proximity, however, does not always create a commonality of interests, and the quest for deeper integration may lead instead to a second
solution—namely, functional rather than regional groups. But functional
groups, like regional groups, tend to discriminate against outsiders and
close off opportunities for cross-issue bargaining. This is a reason for
shunning them or, at least, ensuring their compatibility with a third potential solution: adapting and strengthening the global institutional framework and insisting that both regional and functional negotiations take
place within that framework.
As the number and the diversity of significant plavers continue to grow
in the international arena, the need for rules of the road to frame the
conduct of domestic policies and international negotiations becomes more
pressing. The problems of commitment and coordination that provided
the motivation for establishing and adapting the Bretton Woods system
need to be addressed anew. While specific proposals are not our charge—
other authors at this conference have that responsibility—our historical
survey highlights the importance of strengthening the Bretton Woods
54
MANAGING THE WORLD ECONOMY
institutions if the next half century of economic progress is to be as successful as the last.
References
Abramovitz, Moses. 1986. "Catching Up, Forging Ahead, and Falling Behmd." journal of
Economic History 46: 385-406.
Artis, Michael, and Sylvia Ostrv. 1986. International Economic Policy Coordination. London:
Royal Institute of International Affairs.
Baumol, William ]., Sue Anne Batev Blackman, and Edward N. Wolff. 1989. Productivity and
American Leadership. Cambridge, MA: MIT Press.
Bergsten, C. Fred. 1988. America in the World Economy: A Strategy for ihe 1990s. Washington:
Institute for International Economics.
Bhagwati, Jagdish N. 1977. "Introduction." In Bhagwati, The Neu> International Economic
Order: The North-South Debate. Cambridge, MA: MIT Press.
Bordo, Michael D. 1993. "The Bretton Woods International Monetary System: A Historical
Overview." In Michael D. Bordo and Barry Eichengreen, A Retrospective on the Bretton
Woods System. Chicago: University of Chicago Press.
Catti, Pietro, Giampaolo Galh, and Salvatore Rebecchini. 1994. "Concerted Intervention and
the Dollar: An Analysis of Daily Data." In Peter B. Kenen, Francesco Papadia, and
Fabrizio Saccomanni, The International Monetary System. Cambridge, UK: Cambridge
University Press (forthcoming),
dine, William R. 1994. International Debt Reexamined. Washington: Institute for International
Economics (forthcoming).
Cooper, Richard N . 1968. The Economics of Interdependence. Mew York: McGraw-Hill.
Cooper, Richard N. 1971 Exchange Rate Devaluation m Developing Countries. Essays in Intemational Finance 86. Princeton: International Finance Section, Princeton University.
Cooper, Richard N. 1992. Economic Stabilization and Debt in Developing Countries. Cambridge.
MA: MIT Press.
Crafts, N. F. R. 1992. "Institutions and Economic Growth: Recent British Experience in an
Intemational Context." Western European Politics 15: 16-38.
Destler, 1. M., and C. Randall Henning. 1989. Do//.ir Politics. Exchange Rate Policymaking in ihe
United Stales. Washington: Institute for International Economics.
Dominguez, Kathryn, and jeffrey A. Frankel. 1994. Does Foreign Exchange lnten<ention Work
Washington: Institute for International Economics.
Dooley, Michael. 1993. "A Retrospective on the Debt Crisis." In Peter B. Kenen, Understanding
Interdependence. Princeton: Princeton University Press (forthcoming).
Eichengreen, Barry. 1992. Golden Fetters: The Gold Standard and the Great Depression, 1919-1939.
New York: Oxford University Press.
Eichengreen, Barrv. 1993. "The Crisis in the EMS and the Transition to EMU: An Interim
Assessment." Economic Policy Issues In Financial Integration, Helsinki: University of
Helsinki.
Eichengreen, Barrv. 1994a. "Institutional Prerequisites for Economic Growth: Europe After
World War 11." European Economic Rei-ieiv (forthcoming).
Eichengreen, Barrv. 1994b. "Mainsprings of Postwar Europe's Growth and Recovery." In
Barry Eichengreen, Europe's Postwar Recovery. Cambridge, UK: Cambridge University
Press (forthcoming).
Eichengreen, Barry, and Pablo Vazquez. 1994. "Institutions and Economic Growth in Postwar
Europe: An Empirical Investigation." Unpublished manuscript. University of California
at Berkeley.
Frankel, Jeffrey A. 1994. "The Making of Exchange Rate Policy in the 1980s." In Martin
Feldstein. American Economic Policy in the 1980s. Chicago: National Bureau of Economic
Research.
;
7
AN OVERVIEW 55
�Funabashi, Yoichi. 1988. Managing the Dollar: From the Plaza to the Louvre. Washington:
Institute for Intemational Economics.
Furstenberg, George M. von, and^oseph P. Daniels. 1992. Economic Summit Declarations,
1975-1989: Examining the Written Record of Intemational Cooperation. Princeton Studies in
Intemational Fmance 72. Princeton: Intemational Finance Section, Princeton University.
Giovannini, Alberto. 1993. "Bretton Woods and Its Precursors: Rules versus Discretion in the
History of International Monetary Regimes." In Michael D. Bordo and Barry
Eichengreen, A Retrospective on the Bretton Woods System. Chicago: University of Chicago
Press.
Guttentag, Jack M., and Richard Herring. 1986 Disaster Myopia m International Banking.
Essays in Intemational Finance 164, Princeton. International Finance Section, Princeton
University.
Gwin, Catherine, and Richard E. Feinberg, eds. 1989. The International Monetary Fund in a
Multipolar World- Pulling Together. Washington: Overseas Development Council.
Hogan. Michael I. 1977. Informal Entente: The Private Structure ot Cooperation in Anglo-American
Economic Diplomacy, 1915-7928. Columbia. MO: University ot Missouri Press.
Hogan, Michael J. 1987. The Marshall Plan America. Britain and ihe Reconstruction of Western
Europe, 1947-1952. Cambridge, UK. Cambridge University Press.
Holtham, Gerald. 1989. "German Macroeconomic Policv and the 1978 Bonn Summit." In
Richard N. Cooper et al.. Can Nations Agree? Washington: Brookings Institution.
Ikenberry, G. John. 1993. "The Political Origins of Bretton Woods." In Michael D. Bordo and
Barrv Eichengreen, A Retrospective on the Bretton Woods System. Chicago: University of
Chicago Press.
Kaplan, Jacob, and Gunther Schleiminger. 1989. The European Payments Union. Oxford: Clarendon Press.
Kapstein, Ethan B. 1994. Governing the Global Economy: Internationa! Finance and the State.
Cambridge, MA: Harvard University Press (forthcoming).
Kenen, Peter B. 1986. Financing, Adiustment, and the International Monetary Fund. Washington:
Brookings Institution.
Kenen, Peter B. 1986. Manaung Exchange Rates. London: The Ro\al Institute of Intemational
Affairs.
Kenen, Peter B. 1990. "Organizing Debt Relief: The Need for a New Institution." lournal of
Economic Perspectives 4, S-l S.
Kenen, Peter B. 1992. "Third World Debt." In Peter Newman et al.. Vie New Palgrave Dictionary of Money and Finance. New York: Stockton Press.
Kenwood, A. G., and A .L. Lougheed. 1971. The Growth of the International Economy, 1820-1960.
London: Allen & Unwin.
Kindleberger, Charles P. 1973. The World in Depression, 1929-39. Berkeley, CA: University of
California Press.
Krasner, Stephen D., ed. 1983. Intemational Regimes. Ithaca, NY, and London: Cornell University Press.
Krueger, Anne O. 1993. Economic Policies at Cross-Purposes. Washington: Brookings Institution.
Krugman, Paul 1994. "LDC Debt Policv." In Martin Feldstein, American Economic Policy in the
1980s, Chicago: University of Chicago Press.
McKinnon, Ronald I. 1993. "International Money in Historical Perspective." fournal of Economic Literature 31: 1—H.
Meade, James E. 1951. The Balance of Payment?. London: Oxford University Press.
North, Douglass C. 1993. "Institutions and Credible Commitment." journal of Institutional and
Theoretical Economic; 149: 11-23.
Nurkse, Ragnar. 1945. Conditions of International Monetary Equilibrium. Essays in International
Fmance 4. Princeton: International Finance Section, Princeton University.
O'Dell, John S. 1989. "From London to Bretton Woods: Roots of Economic Diplomacy."
journal of Public Policy 8: 287-316.
56
MANAGING THE WORLD ECONOMY
Putnam, Robert D., and C. Randal) Henning. 1989. "The Bonn Summit of 1978: A Case Study
of Coordination." In Richard N. Cooper et al., Can Nations Agree? Washington: Brookings
Institution.
Reisen, Helmut. 1989. PuMic Debt, External Competitiveness, and Fiscal Discipline m Developing
Countries. Princeton Studies in Intemational Finance 66. Princeton: Intemational Finance
Section, Princeton University.
Reynolds, Lloyd G. 1985. Economic Growth m the Third World, 1850-1980. New Haven, CT: Yale
University Press.
Sachs, Jeffrey, ed. 1989. Dei'eloping Country Debt and Economic Performance. Cambridge, MA:
MIT Press.
Seidman, Joel. 1953. American Labor from Defense to Reconversion, Chicago: University of
Chicago Press.
Solomon, Robert. 1982. Die International Monetary System, 1945-1981. New York: Harper &
Row.
Triffin, Robert. 1957. Europe and the Money Muddle. New Haven, CT: Yale University Press.
Triffin, Robert. 1960. Gold and the Dollar Crisis. New Haven, CT: Yale University Press,
van der Wee, Herman. 1986. Prosperity and Upheaval: The World Economy 1945-1980. New
York: Viking.
Volcker, Paul, and Toyoo Gyohten. 1992. Clianging Fortunes. New York: Times Books.
Williamson, John. 1977. The Failure of World Monetary Reform, 1971-1974. New York: New
York University Press.
, Williamson, John, and Marcus H. Miller. 1987. Targets and Indicators: A Blueprint for the
International Coordination of Economic Policies. Washington: Institute for International
Economics.
Winham, Gilbert. 1986. International Trade and the Tokyo Round Negotiation. Princeton:
Princeton University Press.
Zacchia, Carlo. 1976. "Intemational Trade and Capital Movements 1920-1970." In Carlo
Cipolla, The Fontana Economic History of Europe. Volume 5, Part 2: The Twentieth Century,
London: Fontana, 509-602.
AN OVERVIEW 57
�81 •>
.Managing the Trading System:
ihe World Trade Organization
pnd the Post-Uruguay Round
IGATT Agenda
3
ilOHN H. J C S N
AKO
|The Uruguay Round Achievements:
|A Watershed for Trade Policy?
&The Uruguay Round, the eighth round of broad trade negotiations under
Sthe auspices of the General Agreement on Tariffs and Trade (GATT), is
I'dearly the most extensive yet undertaken by the GATT system, and possi|bly by any similar body in history. The goals of the September 1986
fininisterial meeting at Punta del Este, Uruguay, which set forth the agenda
ffbr the round, were extremely ambitious. If only half those objectives had
Lbeen achieved, the Uruguay Round would still be the most extensive and
[Successful trade negotiation ever. In fact, despite the many years of delay
] and negotiating impasses, the Uruguay Round has achieved considerably
s more than half its objectives. As an example of the magnitude of the effort,
l i t was reported that the Final Act signed in Marrakesh, Morocco, on 15
r'April, 1994 weighed 385 pounds and included over 22,000 pages! Just the
[basic texts reproduced as part of the Final Act totaled 424 pages.
It is interesting to consider the Uruguay Round outcome in light of the
^objectives formally stated at Punta del Este. Those objectives shifted sometwhat over the seven-year negotiating period.'From the beginning, a most
^important objective of the round was to extend the rule-based disciphne of
tGATT treaties to three new subject areas: trade in services, trade in agricul' tural products, and protection of intellectual property^ Of these, only
&
lohn H.lackson is Hessel E. Yntema Professor of Law at the University of Michigan Scliool of Law. He
was formerly (1973-74) general counsel to the US Trade Representative.
131
�services and intellectual property were truly new territory for the GATT.
The GATT had always formally applied to agricultural trade, but for a
variety of reasons agriculture had escaped the GATT discipline in practice.
Attempts to bring agriculture into the GATT fold had failed in the two
previous negotiating rounds: the Kennedy Round of 1962-67 and the
Tokyo Round of 1973-79. In addition, the Punta del Este declaration gave
.priority to the negotiation of new rules governing subsidies, changes in
dispute settlement procedures, new attention to the problems of textile
trade, and further elaboration of rules relating to product standards. A
number of other issues were also targeted for attention.
The result fulfills the ministers' original intentions to a remarkable
degree, although with some gaps. An additional important result, the
charter establishing a World Trade Organization (WTO), stemmed from a
proposal that emerged only after the 1986 conference. If there is satisfactory implementation of the agreement, the Uruguay Round will have
made important achievements in the following 11 areas.
Services. The services agreement, known formallv as the General
Agreement on Trade in Services (GATS), is a major new chapter in GATT
history. Although in some wavs seriously flawed, this text now offers an
overall umbrella concept for trade in services to which, it is hoped, an
ongoing negotiating process will provide additional detail, probably over
at least a 50-year period. In this respect the structure of the new WTO (see
below) is vital.
Intellectual Property. The agreement on trade-related intellectual prop
erhes (TRIPs) is a splendid new achievement. It brings considerable new.
intemational rule-based disciphne to the level of protection accorded patents, copyrights, trade secrets, and similar intellectual properties, even
though some specialists and interest groups appeared disappointed by
certain gaps in the text.
Agriculture. The results of the round in agriculture are in many respects
meager, certainly as measured against the aspirations expressed at Punta
del Este (and in the United States). Nevertheless there is now, for the first
time, some realistic expectation of discipline in the form of rules over
agriculture trade (especially in the areas of subsidies and border restrictions). As with most other subjects of the Uruguay Round, further attention will be needed over the years and decades ahead, but the Uruguay
Round has achieved an important start.
Subsidies and Countervailing Duties. The results of the round include
a new subsidies "code," again not without flaw, but with an overall
conceptual approach that much improves on the Tokyo Round code.
Worries here focus on the ambiguity of several exceptions clauses that
could lead to abuse.
Textiles. Textiles are covered in the Uruguay Round in the form of an
agreement to phase out, over the course of a decade, the special textile
regime known as the Multi-Fiber Arrangement, which has always been an
132
MANAGING THE WORLD ECONOMY
embarrassment to the GATT. Again, many feel the textile agreement is
flawed—the phaseout is considered either too slow or too fast—but the
|" direction seems right.
Standards. Trade rules for product standards have been further addressed, building on the accomplishment of the Tokyo Round code. It has
become obvious that questions involving standards are much more com| plex than many had thought, and there are some fundamental pohcy
differences, such as the clash of environmental interests with trade pohcy
; goals. The Uruguay Round text provides the next group of improvements,
* although more attention will be needed.
Safeguards. One of the major failures of the Tokyo Round was its inabihty
fto achieve an agreement on safeguards and escape clause measures. In this
j|respect the Uruguay Round succeeded where the Tokyo Round had failed,
Sand a very impressive and ambitious safeguards code is part of the round's
Iresults. It not only provides guidelines and criteria for normal use of the
| escape clause but establishes a rule against the use of voluntary export re' straints of various kinds. If this agreement is satisfactorily implemented, it
could be an impressive addition to world trading discipline.
Market Access. The Uruguav Round results include impressive advances in those issues grouped under the rubric of "market access," including a reduction in the use of quotas (and a shift of quotas to tariffs), as
well as very substantial tariff cutting (some say the most of any round to
s date). Some of the most substantial tariff cutting has been on the part of
I developing countries, but in addition there have been some important
ladvances in reducing tariffs in certain sectors to zero,
r Developing Country Integration. As a result of the Uruguay Round,
sdeveloping countries are more fully integrated into the GATT/WTO sys1 tern than before. The agreement includes a requirement that all countries,
• including developing countries, have tariff and services schedules, and
^.constraints are placed on certain exceptions for developing countries. This
^measure could be one of the most important features of the Uruguay
Round result, bringing a discipline to at least the newly industrializing
| i countries (NICs).
& Dispute Settlement. One of the many achievements of the GATT, de; spite the institutional deficiencies ("birth defects") under which it has had
: to operate since its founding, has been the development over four decades
| of a reasonably sophisticated dispute settlement process. However, a cer1 tain number of flaws in those procedures have been widely recognized.
JiThe Uruguay Round agreement, for the first time, establishes an overall
jfiinified system of dispute settlement procedures for all portions of the
| agreement, and a legal text (rather than just customary practice) to serve as
f the basis for carrying out those procedures. The new procedures include
measures to avoid the blocking that occurred under previous consensus
decision-making rules, and a new appellate procedure to substitute for
some of the old procedures that were vulnerable to blocking.
MANAGING THE TRADING SYSTEM 133
�• ambiguity regarding the waiver authority and risks of misuse;
The WTO Charter. One of the interesting achievements of the Uruguay
Round is the development of an institutional charter for a new World
Trade Organization. This organization will help facilitate international
cooperation in trade and economic relations and will fundamentaUy
change the GATT svstem to accommodate the vast new terrain of trade
competence thrust on the trading svstem by the Uruguav Round. Some
have even said that the creation of the WTO mav be the most important
result of the Uruguay Round.
• its murky legal status, which led to misunderstanding on the part of the
public, the media, and even government officials;
• defects in the dispute settlement procedures;
• a general lack of institutional provisions, which made constant improvisation necessary.
In December 1991 the Uruguay Round negotiators, led by GATT DirectorGeneral Arthur Dunkel, prepared and released a draft text of treaty
clauses covering the entire set of negotiation results up to that point, with
indications of work yet to do. This was an important project with many
implications. Included in this draft was, for the first time, a tentative draft
of a new charter for a Multilateral Trade Organization, or MTO. This draft
had a number of flaws, which some governments recognized, but through
hard work the negotiators were able to revise the draft and iron out the
flaws. In the December 1993 draft the new organization was refilled the
World Trade Organization.
The Charter of the World Trade Organization
Genesis of the W O
T
It is well known that the GATT was never intended to be an organization.
It was negotiated in 1947-18, while negotiators were preparing the charter
for a proposed Intemational Trade Organization (ITO). The GATT was to
be a multilateral trade and tariff agreement, which would depend for its
organizational context and secretariat services on the ITO. The ITO never
came into being because the US Congress in the late 1940s declined to
approve it. The GATT, however, was negotiated under advance authority
eranted to the president in the 1945 extension of the Reciprocal Trade
Lreement, Act (the first such act had been passed in 1934). Compounding the anomalies of that period, the GATT 1947 treaty instrument was
appUed onlv "provisionally." At the time, it was contemplated that the
GATT would be applied for several years until the ITO came into force,
and then would be put under the umbrella of, and brought into conformity with the ITO charter. However, because the ITO was never brough .
into being, the GATT itself gradually became the focus tor international.,
governmental cooperation on trade matters.
Despite this inauspicious beginning, the GATT has been remarkably
successful over its nearly five decades of existence. Its success is partly due .
to its ingenious and pragmatic leadership, particularly in its ea rly;years as
the GATT struggled to fill the gap left bv the failure of the ITO. As the-:
decade passed, it was recognized that the GATT svstem was being i n
creasinglv challenged bv the changing conditions of international eco-.|
nomic activuv. including the greater interdependence of nationaleconc^
mies and the growth of trade in services. Concern developed that the ,
GATT was too handicapped to plav the role of the necessary third leg of,
the Bretton Woods system, complementing the International Monetary|
Fund (IMF) and the World Bank. Its problems and "birth defects in-j
eluded:
%
• its provisional application and grandfather rights exceptions;
. ambiguity about the powers of the Contracting Parties (the countriesj
that were signatories to the agreement) to make certain decisions;
-«
m
Mtv.ar-iNr. THF WORI n ECONOMV
W a Is the WTO?
ht
With the new WTO Charter, the Uruguay Round agreement, when implemented, should provide a better institutional structure to fill the gap
; left in the Bretton Woods structure. Several general characteristics are
^noteworthy.
pr, First, the charter for the WTO can be described as a "mini-charter." The
i.organization it establishes is not an ITO; rather, the charter is limited to
^setting up the institutional and procedural structure that will facilitate and
|in some cases be necessary for effective implementation of the substantive
fmles negotiated in the Uruguay Round. The WTO Charter itself is thus
Lentirely institutional and procedural, but it does incorporate, in its an^nexes, the substantive agreements resulting from the Uruguay Round.
Second, the WTO essentially will continue the GATT institutional ideas
[and many of its practices, but in a form that should be better understood
[by the public, media, government officials, and lawyers. To some small
lextent, the WTO overcomes a number of the GATT's birth defects.(Article
IXVI, section I of the charter expressly states the intention to be guided by
IpATT "decisions, procedures and customary practices" to the extent feafsible. The practice of consensus is better defined and for the first time
ames a legal procedure in some important decisions, rather than just a
ctice.j
jThird, the WTO structure offers some important advantages for assistiing the effective implementation of the Uruguay Round. For example, a
"GATT 1994" is created to supersede the old "GATT 1947." This
Iprocedure avoids the constraints of the amending clause of the old GATT,
r
M
MANAGING THE TRADING SYSTEM 135
�which might make it quite difficult to bring the Uruguay Round agreement into legal force. At the same time, the WTO ties together the various
texts developed in the Uruguay Round and reinforces the idea of the
negotiators that countries accepting the Uruguay Round must accept the
entire package (with a few exceptions). No longer will the Tokyo Round
approach of side codes, derisorily termed "GATT a la carte," be the norm.
The WTO Charter establishes for the first time the basic, explicit legal
authoritv for a secretariat, a director general, and other institutions such as
the General Council. It does this in a manner similar to many other international organizations, and it obliges nations to avoid interfering with the
officials of the organization.
Another important aspect of the WTO structure is that it facilitates the
extension of the GATT institutional structure to the new subjects negotiated in the Uruguay Round, particularly services and intellectual property. Without some kind of legal mechanism such as the WTO, this would
have been quite difficult to do, since the GATT itself only apphes to goods.
The new structure separates the institutional concepts from the substantive rules. The GATT 1994 will remain a substantive agreement (with
manv of the amendments and improvements developed throughout its
historv, including in the Uruguay Round). The WTO has a broader con-'
text. Similarly, the WTO will be able to apply a unified dispute settlement
mechanism and the Trade Policy Review- Mechanism (TPRM) to all of the
subjects of the Uruguav Round, for all nations that become members.
Fourth, the WTO Charter offers considerably better opportunities for
the future evolution and development of the institutional structure for
international trade cooperation. Even though the WTO Charter is minimalist, the fact that there is provision for explicit legal status and the .
traditional organizational structure helps in this regard. Since the WTO
focuses on the institutional side, it also offers more flexibility for future
inclusion of new negotiated rules or measures to help nations face the :
constantly emerging problems of world economics.
• Annex IA: This contains the GATT 1994, the revised and all-inclusive
GATT agreement with its ancillary agreements, and the vast schedules
of tariff concessions that make up the bulk of the pages in the official
treaty text. The schedules for each of the major trading countries—the
United States, Japan, and the European Union—each constitute a volume of printed tariff listings.
• Annex IB: This contains the GATS (the services agreement) and also
incorporates a series of schedules of concessions.
• Annex IC: This contains the TRIPs (intellectual property) agreement.
Annex 2 contains the dispute settlement rules, which are obligatory for
all members, and which form (for the first time) a unitary dispute settlement mechanism covering all the agreements listed in annexes 1, 2, and 4
(i.e., all but the TPRM procedures).
Annex 3 contains the TPRM procedures, under which the WTO will
review and report on the overall trade policies of each member country on
aperiodic and regular basis. The approach is not supposed to be legalistic,
: and questions of consistency with WTO and annex obligations are not the
| focus; rather the focus is on the genera! impact of the trade policies, both
••. on the country being examined and on its trading partners.
Annex 4 contains four "plurilateral agreements," acceptance of which is
|optional. This is a slight departure from the single-package ideal, but the
| agreements included tend either to be targeted to a few industrial counftries or to be hortatory in nature without real legal impact. Clearlv this
|aimex, which may be added to, leaves open some important flexibility for
f p organization to evolve and redirect its attention and institutional sup|pprt to new subjects that may emerge as important during the next few
glecades. The agreements currently included in Annex 4 are:
6
H the Agreement on Trade in Civil Aircraft
a the Agreement on Government Procurement
The Legal Structure of the Uruguay Round Results
The WTO charter itself is confined to institutional measures, but fourl
important annexes to it contain hundreds of pages of substantive rules.|
The annex structure is important; the different annexes have differentj
purposes and different legal impacts.
Annex 1 contains the large texts, termed "multilateral agreements," that!
constitute the bulk of the round's results. All these are "mandatory" in theg
sense that they impose binding obligations on all members of the WTOJ
This reinforces the single-package idea of the negotiators, departing from*
the Tokyo Round approach of "pick and choose" side texts. The annex-l|
texts include:
the International Dairy Agreement
I the International Bovine Meat Agreement
_ J A S already mentioned. Annex IA contains the GATT 1994, which is
psentially the old GATT as it has been modified by amendments and
|many of the Tokyo Round codes as updated in the Uruguay Round, as
|weU as some new Uruguay Round agreements. Thus, appended to the
^ATT1994 are such agreements as:
^the Agreement on Agriculture
|the Agreement on Sanitary and Phytosanitary Measures
MANAGING THE TRADING SYSTEM 137
�• the Agreement on Textiles and Clothing
• the Agreement on Technical Barriers to Trade
• the Agreement on Trade-Related Investment Measures
• the problem of integrating economies in transition (China, Russia, etc.)
into the WTO system.
Decision Making in the WTO
• the Agreement on Antidumping
• the Agreement on Valuation
• the Agreement on Preshipment Inspection
• the Agreement on Rules of Origin
• the Agreement on Import Licensing
• the Agreement on Subsidies and Countervailing Measures
!'• The governing structure of the WTO foUows the GATT 1947 model in
some respects, but departs from it substantially in others. At the top there
is a "Ministerial Conference," which is held not less than every two years.
Next there are not one but four "Councils." These include a General
| Council, which seems to have overall supervising authority, can carry out
many of the functions of the Ministerial Conference between sessions of
the latter, and presumably meets at least as often as the GATT 1947
Council (monthly with exceptions). In addition, however, there is a coundl for each of the Annex 1 agreements, thus:
• the Agreement on Safeguards
• a Council for Trade in Goods
In addition, the GATT 1994 contains a series of "understandings" that
further modify the GATT, as well as some ministerial "decisions and
declarations."
Two of the agreements that are now part of GATT 1994 concern what
are probably the most contentious of the "rules of conduct" clauses of the
GATT, namely, those on antidumping and on subsidies and countervailing duties. Another concerns product standards (technical barriers), also
addressed in the sanitary and phytosanitary agreement. The legal relationship of these various GATT additions to the core GATT agreement itself is
not always clear.
As impressive as the Uruguay Round results are, there clearly are a
number of issues left over that the WTO system will need to address in
coming years, in addition to overseeing a satisfactory implementation of
the Uruguay Round results themselves. The descriptions above hint at
some of these leftover issues, and others can be named. Together these
include:
• enhancing and extending liberalization of trade in agricultural products;
• future extensive negotiations on services;
• further elaboration of the rules on subsidies;
• further market access efforts;
• greater integradon of developing countries as well as monitoring of the
WTO and GATT rules to ensure fair treatment of those countries;
• attention to the problems of antidumping rules and the risks they raise
for undermining some of the Uruguay Round results;
138 MANAGING THE WORLD ECONOMY
• a Council for Trade in Services
a Council for Trade-Related Aspects of Intellectual Property Rights
There is also estabhshed a Dispute Settlement Body (DSB) to supervise
and implement the dispute settlement rules in Annex 2, but the General
| Council is also authorized to perform the DSB's tasks. Likewise there is a
|_TPRM Body for the TPRM.
It has been alleged that the WTO Charter is an important intrusion on
national sovereignty. Apart from the general problems of how to define
"sovereignty" in a world that is increasingly interdependent, the WTO
[ contains an elaborate matrix of decision-making procedures bounded by
important constraints. Basically there are five different techniques for
making decisions or formulating new or amended rules of trade pohcy in
the WTO: amendments to the agreements, decisions on various matters,
"interpretations," waivers, and finally, the negotiation of new agreements.
IA_careful examination of the WTO Charter suggests that, apart from the
addition of many new subjects to the substantive annexes, the WTO has no
more real power than what the GATT itself possessed under the previous
agreements.jThis may seem surprising, but in fact the GATT treaty text
contained language that was quite ambiguous and could have been misused (but fortunately was not) to provide rather extensive powers. For
example, in Article XXV of the GATT the Contracting Parties, acting by
majority vote, were given the authority to take joint action "with a view to
facihtating the operation and furthering the objectives of this agreement."
This is very broad and ambiguous language. Under the WTO Charter,
considerably more attention has been given to the question of decision
making in a number of different contexts, and certain restraints have been
MANAGING THE TRADING SYSTEM 139
�added, such as increasing the voting requirements for certain actions to
three-fourths of the members (e.g., for many waivers and for formal interpretations) there is also a provision in the amending clauses that a country
will not be bound by an amendment passed over its opposition if the
amendment would "alter the rights and obligations of the members."
Likewise, the waiver authority is more constrained and will be harder to
abuse. Furthermore, formal "interpretations . . . shall not be used in a
manner that would undermine the amendment provisions." Thus there
are more legal grounds than under GATT 1947 to challenge any overreaching on the part of the system's institutions. The protections of national
sovereignty built into the WTO Charter rules on decision making are
substantially enhanced.
The Uruguay Round and GATT/WTO Dispute
Settlement Procedures
One of the manv achievements of the GATT, despite its "birth defects,"^
has been the development of a reasonably sophisticated dispute settle?.|
ment process. The original GATT treaty contained very little about dispute;
settlement, although it did specifically provide (in Articles XXII and XXffi).
for consultation and then submission of issues to the contracting parties.^
As time went on, however, practice began to evolve toward a rule-oriented j
svstem. For example, in the late 1950s the practice was introduced o f j
setting up panels of individuals to make determinations and findings and|
recommend them to the contracting parties. Before that, disputes had thenj
been considered in much broader working parties comprising representa-f
tives of governments.
During the next several decades the contracting parties utilized thej
panel process more and more. Increasingly, the reports began to focus onl
more precise and concrete questions of violations of treaty obligations. AJ|
the end of the Tokyo Round in 1979, the contracting parties adopted anf
understanding on dispute settlement that embraced some of these coft|
cepts and formalized the practice concerning dispute settlement prc"
dures that had developed.
'
In the 1980s dispute settlement panels were for the first time assisted by|
a legal section of the GATT. The panels' reports became much more
precise and better reasoned. Many countries, including the United States
(which has been the most frequent single applicant in dispute settlemen'
procedures in the GATT), found it useful to take issues to panels as parte
their broader approach to trade diplomacy.
However, as might be expected given the history of the GATT, a nu
ber of defects and problems remained. Some of these were gradv"
overcome through practice. But the Uruguay Round December 1993 r
rue .«:^DI n crnMriMV
presented a major new text concerning dispute settlement procedures, the
"Understanding on Rules and Procedures Governing the Settlement of
Disputes." The new text solves many, but not all, of the issues that have
plagued the GATT dispute settlement system. It accomplishes the following:
• It estabhshes a unified dispute settlement system for all parts of the
GATT/WTO system, including the new subjects of services and intellec- tual property. Thus, controversies over which procedure to use will not
.:. occur.
• It reaffirms the right of a complaining government to have a panel
r process initiated, preventing blocking at that stage.
t It ingeniously establishes a new appellate procedure that will substitute
^for some of the process of council approval of a panel report. Thus, a
; panel report will automatically be deemed adopted by the council unIr-less it is appealed by one of the parties to the dispute. If appealed, the
3. dispute will go to an appellate panel. After the appellate body has ruled,
i/its report will go to the council, but in this case it will be deemed
adopted unless there is a consensus against adoption, and presumably
that negative consensus can be defeated bv anv major objector. Thus the
fg;presumption under previous procedures is reversed, with the ultimate
gtresult that the appellate report will come into force as a matter of
rinternational law in virtually every case.
ghe WTO as a Bretton Woods Partner
phe combination of events and institutional developments of the last few
ijears—the North American Free Trade Agreement (NAFTA), the evolupn of the European Union toward deeper and broader integration, and
: extraordinarily elaborate Uruguay Round results, as well as developtits in China and Eastern Europe—probably amount to the most prond change in international economic relations institutions and strucItnres since the origin of the Bretton Woods system itself. Inevitably, of
e, this raises the question of the role of the new WTO in the "new
tton Woods system," as a partner to the IMF and the World Bank,
pt is therefore significant that for the first time we will have an explicit
BBty-charter agreement establishing an international organization for
e, which can take its place beside the other Bretton Woods organizaThis may seem a mere formalism, but it can have importance in
benting public and official perceptions and understandings. It could
; a healthy influence in increasing the prestige of the trade organizapand treaty system, and clearly that is one of the hoped-for results. No
will government officials or the press have to run through the
MANAGING THE TRADING SYSTEM 141
�marginal cost, which can affect incentives to produce, especially during an
economic downturn. Likewise, differences regarding worker "tenure"—
that is, the degree to which employment is regarded as "permanent," and
thus the degree to which labor is a fixed cost—can affect the marginal cost
calculation. (Firms generally have an incentive to sell at any price that
exceeds short-term variable costs, since fixed costs have to be paid anyway. This can induce pricing "below average cost".)
This discussion is only illustrative of a much broader application of the
interface concept. Many other cross-country differences in economic structure can have a variety of consequences that cause trade tensions and thus
suggest a need for interface mechanisms. These can include:
lareelv based upon free market principles. It is not surprising, therefore
hat . is often difficult to applv the GATT's trading rules to nonmarket
^onom es But even among the Western industrial market economies,
despL their similarities, there are wide differences ,n the degree of government involvement in the economy and in the forms of regulation or
data
international economic relations, and particu larly in trad
relations, some interface mechanism may be necessary to allow different .
economic systems to trade with each other harmoniously
For example, part of the definition ot dumping is selling for export at
befow-cosZices. But in nonmarket economies are there meanmgful cos^
and pr cesMn the case of subsidies, it may be easy to identify cash p y-
tween countries
,
m a t t e r s
o f
d o m e s t l c
c o n c e r n
^
^ - 1 and oraiseworthv tool, useful in correcting income disparities
P
worw t S national prosperity, encouraging
"
^
^
^
^
ases even quantitative restrictions), which can be anticompetitiv^• j i d
deSmen al I world welfare. The exporting nations that are the^targets^A
fhese actions feel bitterness toward these restrictions on heir trade, and.
therargue that the rules on unfair trade are being manipulated by speoalj
S
^
E
S
T
S
=
of detinmg what is or is n |
unfafr Sav arise in the context of two economies that differ ° ^ ^ y m
then acceptance of bas,c free market economic
P " ^ ^
^
ca.es differences in the ways the two economies operate over the c o u ^
o a bu ness c
eate situations that one or the other c o n s i d j
un air even though these differences may not have resulted from any|
« S o u 1^unfan policies or practices^For e x a m p l e , . ^ ^ ^
equity ratios between corporations in the two countries have an effect onj
1
e
N
cle m
a
v
cr
• differences in banking and monetary institutions (e.g., the degree of
' independence of the central bank);
differences in the structure of retail sales markets;
differences in views, laws, and institutions relating to competition and
H antitrust policies.
Pr- There are no easy answers to these problems. Indeed, they are much
i more complicated than even the foregoing discussion indicates. For exam|ple, whatever general rules may exist, it is argued that special consideraItions should apply to developing countries. In addition, it must be recoglifuzed that economic structural characteristics vary from sector to sector
sLwithin a country, and that advantages that tilt one way for one sector
Imight tilt in the opposite direction for another sector. Furthermore, these
sdifferences may alter across time, and the direction of the tilt might re|verse.
[Market and Government "Failure" in an Interdependent World
momic interdependence" is a term commonly used today to describe
Iflie developing conditions of international economic relations. Manifestains of the galloping pace of new economic linkages are everywhere:
iterprises must cope with competition and developments from abroad;
[tional governments find it increasingly difficult to regulate their econo;; democratic political leaders find it hard to fulfill election promises
to satisfy constituencies because of forces beyond their control; resentt against foreign competition and influences stirs the electorate and
even endanger democratic governments.
Since the 1940s world economic relations have been guided but not
'emed by a set of institutions nobly put in place by visionary leaders
ing the years immediately after World War II: the Bretton Woods
m (the IMF, the World Bank, and the GATT), the United Nations
MANAGING THE TRADING SYSTEM 145
144
MANAGING THE WORLD ECONOMY
�complex of organizations and agencies, the Organization for Economic
Cooperation and Development, and others. Since then many thousands
of treaty instruments and organizations have been designed for com-;
modify regulation, transport regulation, taxation, and many other sub- •
jects. The 1948 draft ITO charter failed, but the GATT uneasily took its j
place. A number of regional trade arrangements have also developed. <
"Yet the operation of this system has not kept pace with actual economic ?
changes.
As the decades passed, leaders discovered that trends were hard to
control without important multilateral coordination, whether informal
(such as in the G-7) or formal (through the web of bilateral, regional, and
multilateral treaties). The seventh major GATT trade negotiation—the
Tokvo Round of the 1970s—was an ambitious effort to develop more rules
for the trading system, and the eighth—the Uruguay Round—has been an
even more ambitious attempt to enlarge and improve the system, so that
complex and multilayered new subjects such as trade in services and;
trade-related intellectual property will be covered.
Various suggestions for priority attention after the Uruguay Round
have already been made, with environment and trade concerns often
topping the list, and competition policy not far behind. These subjects in
particular have been perplexing informed participants in the world economic system. Although intense exploration of the relationship between,
environmental protection policies and trade rules and policies is relatively
new, alreadv within the last few years this exploration has led down
intricate paths with many twists and turns. These issues are intertwined
with many issues of government, such as:
• questions of rule making at the international level, and whether such
rules adequately consider some of the scientific and moral concerns
involved in the subjects that are now being linked to trade;
• questions of international dispute settlement procedures and to what
extent they adequately consider opposing policy goals, or provide for
appropriate advocacy from interested authorities and citizen groups;
• quesrions of whether intemational procedures adequately incorporate
democratic processes, including transparency and the right to be heard;
• the relation of international rules to domestic constitutional and other
laws;
T e W O Agenda after the Uruguay Round
h T
•Although it is environmental issues that have suddenly pushed the froni tiers of thinking about these various problems (and others), this thinking
[. can be viewed as a forerunner of comparable activity concerning a number
[of different "regulatory issues," including:
i competition policy
i labor standards
commodity agreements and regulation
product standards (food, pharmaceuticals, product safety, etc.)
insurance
banking and fiduciary institutions
investment protection
i U securities regulation and institutions
f
govemment procurement procedures and preferences
shipping and transport (including air transport)
intellectual property protection and regulation
taxation
Many of the regulatory "interdependence" questions faced in these
various and seemingly disparate subjects are similar. Among these questions are, for example:
i problems of regulatory competition, in which governments lower their
standards of regulation in order to attract economic activity within their
borders (sometimes called the "race to the bottom" or, in the United
States, the "Delaware corporation" problem, alluding to the legal headquartering of many corporations in that state);
i procedural requirements, "due process," avoiding abuse of power and
process, and, as previously mentioned, democratic principles including
transparency;
• the operation and procedures of national constitutional bodies and how
these promote or inhibit international cooperation;
questions of subsidiarity, or the appropriate allocation of regulatory
powers among national government bodies, subnational bodies, and
intemational bodies (to some extent the currently criticized concept of
"sovereignty" relates to these questions);
• the activity of interest groups, both those with broad concerns and those
more oriented to specific interests or single issues, and how this activity
relates to international institutions and procedures.
how to manage the transnational problems and tensions that arise in the
context of these different regulatory goals and procedures; various ideas
146 MANAGING THE WORLD ECONOMY
MANAGING THE TRADING SYSTEM 147
�include harmonization, reciprocity, the use ot interface mechanisms,
cooperation agreements (at least for procedure), and extraterritorial
unilateral measures.
Fundamental differences among societies and governmental structures
obviously affect some if not all of these questions. For example, when a
society's economy is organized according to market principles, many of
these questions, particularly as to competition policy, will be answered
differently than in a nonmarket economy.
Likewise, the governmental and institutional structures of a society,
such as the degree to which a government is democratic, the amount of
protection of human rights, the amount of social cohesion within the
sociery, the degree of corruption in the government or in nongovernmental structures., and the presence or absence of hierarchies and elites in the
society, all relate to these various questions. These differences among i |
societies make it very difficult to achieve the degree of international cooperation and coordination of economic regulation that would otherwise be
possible and that is increasingly essential in the face of interdependence.
The advocacy of the environmentalist movement during the debate over,!
the NAFTA with respect to the efforts at coordination represented in the
NAFTA draft agreement are a particularly interesting example of these-i
problems. The NAFTA also demonstrates how deep into national sover-J
eigntv seme international regulatory treaty clauses will go.
V arious theories and models of economics can help us in understanding'!
these problems. Obviously, the doctrines of comparative advantage are j
relevant. So also is the "prisoner's dilemma," which suggests the need
often for cooperation among actors (governments or otherwise). Publicj
choice theory, a subject of increasing attention, sheds interesting light oril
how governments actually go about regulating the economy.
• With respect to substantive rules should th.
tional treatment (nondiscriminaHnn h
W ^ c h be that of nagoods) or most-favored naTior^T nondl
^
P
goods and exporting c o u n S S r t w r
^
mum standards as the basis of a rule t f p p t y "
^
d 0 m e S t l C
] m
S 0 T t
0 r t e d
o f
Unilateral Approaches
l a U
t o
forei
cartels and other types of collusion in f
^
'
gn-based
(suck as the well-known rec"n case oiT^
'
^
'
statutes as Section 301 of th ^ US t r a d ^ ^ ^ ^ ^
^
of these unilateral US actions ha been e f f e S ^ T h " ^ T ™ ^
^ t many of these unilateral actions ha e " e v o k S ? ' ' f
trading partners, and in some cases retali, L
^
i 'dawback statutes" designed to neZte t r e Z ^
^antitrust cases, and ,n the
fo™XteS
7 ,
f •» which such unilateral action wiU C O ^ S K
8
Idebate, as is the extent to which it i ^ n
successful is a matter of
iUnited States to take such ac on The a m " " ' "
"^
^
|no, but rather somewhere in between "
^
* P
S
a
n
d
l n
0
S O m e
5 0
n 0 q U e S t i o n
C r i t l c i s m
f r o m
f
I
n
t h e f o r m
d a m a S e S
a C t l 0 n S )
0
T
h
e
d e
r e e
P 0 W e r
S l m
o f
a V V a r d e d
t h e
l e
|Bilaleral Approaches
Various Responses
Clearlv there are a number of different ways to approach the issue. Wecafl
group them roughly under the following headings: unilateral, bilateral
regional, and multilateral. Running through all of these levels are seve
general questions, such as the following:
ito ^ US- pa„ relafonship
Ja
''
h X U S S
"'"
5 a
"
d
havebeen
Bipnal Approaches
b d
• Should cooperative approaches be basically voluntary, or should the
be binding under international law? If binding, should there be
tions for violations?
^ i :frrop rsr
e
i n d e e d
j|onize and rationalS ^ c " v v S fh ^
fetaal or trilateral free trad7a reemenr
K
'
"^Agreementand the NAFTA havTsom
f ^
8
U P
0
i n
C 0 U n t r i e S
g
• Should the emphasis on cooperation be procedural, or should it re
more substantively to the rules being applied?
•-o
U
S
-
^
C
t 0
C e r t a l n
^ Free
MAM/sniMn THE WORLD ECONOMY
MANAGING THE TRADING SYSTEM 149
�deeper cooperation than that likely to gain broad multilateral agreement
among over a hundred nations. Regional approaches can also be used to
tailor rules more specifically to regional needs, and they can provide a
bench test for experimentation that might influence later multilateral efforts at cooperation. For example, the relatively deep cooperation and
Karmonization of hundreds of economic problems within the European
Union is a rich lode of experience that can often be instructive for broader
multilateral negotiarions.
The danger, of course, is that of developing tensions between regional
blocs. Another problem is that important trading relationships (like the
US-Japan or the Canada-Japan relationship) are often not embraced within
an adequate regional treaty framework, while less important ones are.
Therefore it is important that a credible and effective multilateral mediator, ;ibk- to apply multilateral rules, be available to inhibit dangerous
temptations in regional blocs.
Multilateral Approaches
Over the decades since World War II there have been a number of multilateral efforts to develop some harmonization or cooperative rules for
various regulatory policies. In particular the Organization for Economic
Cooperarion and Development, the United Nations, and UN Conference
on Trade and Development have worked on a variety of proposals and
voluntary rule guidelines, particularly concerning competition policy. Finally of course, the GATT with its uneasy origins, and now the WTO, must
be considered an important alternative or (more likelv) complementary
approach.
Conclusions
The subject we are addressing is part of a vastly broader question of how
governments can regulate economic behavior that crosses borders in the
interdependent world economy that we face now and in the future. A
series of perplexing institutional questions, as well as other pohcy questions, are part of this general subject. Approaches can be considered in
different groupings, such as unilateral actions, bilateral activity, and regional and multilateral activity and institutions. The new WTO Charter
and dispute settlement procedures offer an important step forward for the
multilateral institutions related to international economic matters. Certainly, these institutions should be part of an overall framework for trying
to address the questions of trade frictions, interface, and market failure,
and for some international relationships they should be the principal part.
Whether the multilateral system can successfully serve as the principal
vehicle for dealing with these problems, however, remains at issue. A
certain degree of evolution and experimentation seems inevitable, suggesting a need for empirical study and pragmatic approaches to the many
pohcy issues involved, while continuing to advance the notion of a ruleoriented system as central to the needed interface mechanism.
References
The reader may find it useful to consult some of the following works by this author.
Jackson, John H. 1967. "The General Agreement on Tariffs and Trade in United States
Domestic Law." Michigan Lari' Review 66: 249.
Jackson, John H. 1969. World Trade and the Law oj GATT- A Legal Analysis of the General
Agreement on Tariffs and Trade. Charlottesville, VA: Bobbs Merrill.
Jackson, John H. 1986. Legal Problems of International Economic Relations 2nd ed. St. Paul, MN:
West Publishing.
Jackson, John H. 1987. "United States of America." In Francis G. Jacobs and Shelley Roberts,
The Effect of Treaties in Domestic biw. London Sweet & Maxwell (7 U.K. Comp L Senes
141).
Jackson, John H. 1989. The World Trading System: Law and Policy of International Economic
Relations. Cambridge, MA MIT Press.
Jackson, John H. 1990. Restructuring the GATT System. London: Royal Institute for International Affairs.
i Jackson, John H. 1992. "Status of Treaties in Domestic Legal Systems: A Policy Analysis."
American fournal of International Law 86: 310.
Jackson, John H. 1992. "World Trade Rules and Environmental Policies: Congruence or
Conflict?" Washington & Lee Law Review 49: 1227.
Jackson, John H. 1993. "Regional Trade Blocs and GATT." World Economy 16: 121.
Jackson, John H. 1994. "Alternative Approaches for Implementing Competition Rules in
International Economic Relations." Aussenwirtschafl—Siciss Review of International Economic Relations no. 2/94 (forthcoming).
Jackson, John H. 1994. Testimony prepared for a US Senate Committee on Foreign Relations
hearing on "The World Trade Organization and U.S. Sovereignty" (14 June).
Jackson, John H. 1994. Testimony prepared for a US Senate Finance Committee hearing on
"Uruguay Round Legislation" (23 March).
Jackson, John H. 1994. "The Uruguay Round Results—Strengthening Cooperative Mechanisms for an Interdependent World." Common Market Law Revieiv (forthcoming).
MANAGING THE TRADING SYSTEM 151
�The Political Origins of Bretton
Woods
G. John Ikenberry
The Bretton Woods agreements, negotiated largely between Britain and the
United States and signed by forty-four nations in 1944, were remarkable in a
variety of ways. First, they represented an unprecedented experiment in international rule making and institution building—rules and institutions for postwar monetary and financial relations. Second, the Bretton Woods agreements
were the decisive step in the historic reopening of the world economy. Agreement was reached, at least in principle, whereby the world economy would
abandon regional currency and trade groupings in favor of a liberal multilateral system. Third, Bretton Woods created an entirely new type of open system—something that the capitalist world had not seen before. The AngloAmerican agreements established sophisticated rules that would attempt to
reconcile openness and trade expansion with the commitments of national
governments to full employment and economic stabilization. At its hean, the
Bretton Woods accord was an unprecedented experiment in international economic constitution building. Almost a half century later, as an unwieldy group
of formerly Communist states seeks to join the liberal world economy, many
look back at this experiment for guidance.
These pathbreaking agreements, however, were not inevitable. Indeed, it
remains a puzzle how the entire set of agreements, rules, and institutions was
cobbled together. To begin with, the two governments held markedly different
views during the initial negotiations over postwar trade and monetary relations. The most important differences were those between the American offiG. John Ikenberry is associate professor of political science at the University of Pennsylvania.
During 1992-93. he is a senior associate at the Camegie Endowment for International Peace.
Research suppon was provided by the Peter B. Lewis Fund and the Center for Intemational
Studies at Princeton University. An earlier venson of this paper appeared as "A World Economy
Restored: Expen Consensus and the Anglo-American Post-war Settlement," Inlernational Organization 46, no. 1 (Winter 1992): 289-321.
�156
G. John Ikenberry
F157
cials at the State Department, who wanted to reconstruct an open trading sys-5
tern, and British officials in the wartime cabinet, who wanted to ensure full!
employment and economic stability and were thus contemplating the contin-1
uation of the imperial preference system and bilateral trading. One vision was!
pf a nondiscnminatory, multilateral trading system; the other, although not|
fully articulated, was of preferential economic groupings.
The agreements were all the more surprising given the ravages and dislo
tions of war. World power balances were changing rapidly—the war had i
vealed Britain's precarious position, and most of the industrial world lay i n l
ruins. Moreover, the postwar period promised rising economic vulnerabilide
for all nations. Despite these obstacles, and the divergent and competin
agendas within and between Britain and the United States, an innovative seH
of postwar arrangements was engineered. Not surprisingly, the leading scholar
of Anglo-American economic diplomacy characterized the postwar settlement!
as a "political miracle" (Gardner 1985-86, 21).
Miracles aside, how do we explain this watershed agreement? Was the post^
war settlement a straightforward expression ol the prevailing distribution of^
power and interests at the end of the war, or do we need to look more closely!
at the forces at work? In its broadest outlines, the postwar settlement
reflect American interests and its overwhelming position after the war. If i
arc attempting to account for the fact that the postwar system was "op
rather than "closed," the structural variables are probably adequate. The <
tribution of power and interests within and among the United States, Britain}|
and continental Europe set the broad limits on the shape of the postwar inta
national economic order.
,?i
This structural explanation, however, leaves two issues unresolved. Fir
there was a range of postwar "orders" that were compatible with an American
interest in an open world economy. Indeed, a variety of designs for the ]
war order were advanced by officials within the American govemment.
did the system take on the features it did rather than a different set? To ask t
question is really to ask why interests were defined the way they weresb
officials at the highest level of govemment. Why did an American gover
with a State Department that championed laissez-faire and free trade end ,ug
backing a system more concerned with safeguarding welfare capitalism?a
Second, how did a transatlantic coalition in support of the Anglo-/
settlement get cobbled together? The alternative to the postwar settle
might not have been just another trade and monetary order, but it might L .
been stalemate and disorder—this, after all, was the experience of the ! ^
attempt at a postwar settlement after World War I . Agreement at BrettoS|
Woods might have failed or gone the way of the Treaty of Versailles, a well||
intentioned intemational agreement that fell prey to diverging national inter|
ests. How was agreement achieved amid the divergent and conflicting nation
and bureaucratic positions? What was the "glue" that kept the Anglg
American coalition—and the postwar settlement—together?
!
The Politica] Origins of Bretton Woods
Answers to these questions will not emerge from an exclusive focus on the
I underlying conditions of power and interest. 1 argue that a set of policy ideas
linspired by Keynesianism and embraced by a group of well-placed British and
gAmerican economists and policy specialists was crucial in defining govemement conceptions of postwar interests, building coalitions in support of the
|postwar settlement, and legitimating the exercise of American power, panicIblarly as these experts engineered a shift from the contentious trade issues to
^ihe monetary issues where there was an emerging "middle ground" created by
eynesian ideas. These experts and their "new thinking" were important in
Overcoming political stalemate both within and between the two governments.
t simply, this group of British and American experts intervened at a particularly fluid moment in history to help the British and American political estabIfishments identify their interests, thereby creating the bases of postwar economic cooperation. These arguments can be summarized as follows.
' 1 . As deliberations on the postwar order began during the war, divergent
lyiews within and between the British and Amencan politica] establishments
Pposed obstacles to agreement. The most important differences were between
sihe State Department's unalloyed free trade position and the British wartime
fcabinet's search for arrangements to secure postwar full employment and eco: stabilization.
M l . A community of policy specialists and economists assembled within and
Hjutside the British and American governments during the war articulated a set
J ideas about monetary order and the organization of the postwar world econpmy that cut through these differences and moved their governments toward
ent. In effect, these experts identified a set of normative and technical
positions that was later embraced by wartime British and American leaders.
~ " i experts articulated a more or less coherent governing philosophy of
ar economic order: that it should be a managed multilateral order, with
Ijnonetary and trade practices subject to international agreement, and that the
"1 system would work to facilitate Keynesian economic policy and social
fare goals.
3frThe British and American policy specialists came to form a loose transSipnal and transgovemmental "alliance" during wartime negotiations. This
lasatlantic community of experts proved important as it came to alter the
ence of Anglo-American negotiations. The initial negotiations on the
• economic order, led by the State Department, dealt with trade arents and deadlocked without agreement. British and American Treawofficials shifted these talks to monetary arrangements, where they shared
mnon views about the postwar order, and agreement was eventually
i , undercutting the State Department's more conventional, but also
oversial, free trade position.
| | * I n the broader political setting, the ideas articulated by these experts
^important as they defined a "middle ground" between old political diviS, opening up new possibilities for coalition building. What ultimately
�158
G. John Ikenberry
mattered in the ratification of the Bretton Woods agreement was not that it was
based on policy ideas advanced by an expert community but that the policy
ideas resonated with the larger political environment. The ideas on monetary
order advanced by British and American experts had political virtues: they
defined a middle ground between the old and contentious alternatives of
laissez-faire and interventionism. These ideas ultimately carried the day because they created the conditions for larger political coalitions within and
between governments—coalitions that themselves reflected a more general
postwar reworking of the sociopolitical order in the Western capitalist democracies.
I begin by sketching the characteristics of the Anglo-American postwar
settlement and discuss the range of factors involved in any attempt at explanation. Following this, I identify the group of experts who were active in
shaping the monetary agreement, situating the role of these specialists and
their policy ideas within the larger structural setting. In the following sections, I trace the course of Anglo-American negotiations—from early stalemate over postwar trade arrangements to the Bretton Woods settlement. Finally, 1 discuss the central ways that policy expertise mattered in shaping the
Anglo-American agreement. I emphasize the way that the community of experts served to articulate a "middle ground" between previously unbridged
positions and, as a consequence, provided opportunities for new political coalitions (both within and across nations).
3.1
Explaining the Anglo-American Settlement
The Anglo-American agreement on the intemational economic order, organized around a set of monetary and trade schemes, amounted to a truly
unique historical creation. The agreement embodied a distinctive blend of
laissez-faire and interventionism. It allowed the operation of a relatively open
system of trade and payments as well as arrangements to support domestic
full employment and a social welfare provision. This evolving synthesis of
liberal economic and social welfare goals is captured in John Ruggie's notion
of "embedded liberalism" (Ruggie 1983). The intemational economic regimes
of the postwar period were built on a historic political compromise: "Unlike
the economic nationalism of the thinies. the international economic order
would be multilateral in character; but unlike the liberalism of the gold standard and free trade, its multilateralism would be predicated upon domestic
interventionism" (Ruggie, 1991, 203).'
The forces that shaped this postwar settlement were obviously many and
complex. A "first cut" would focus on the underlying structures of power
1 For an excellent discussion of these political compromises and the economic lessons that
informed them see Cooper (1968).
159
The Political Origins of Bretton Woods
2
capabilities. According to this view, the postwar economic order reflected the
efforts of the United States, as an ascending "hegemonic" power and victor in
war, to build a system congenial to its interests. The most fundamental dynamic at work in the economic diplomacy of the 1940s, therefore, really involved attempts by the United States to break down the bamers to global
economic openness, making compromises where necessary. As Charles Maier
argues, "The central conflict defining intemational political economy from
World War I until about 1950 was not that between American and Soviet alternatives, between capitalism and communism. . . . Viewed over the whole
half century, the American intemational economic effort of the era of stabilization centered on overcoming British, Japanese, and especially German alternatives to a pluralist, market-economy liberalism" (Maier 1987, 183).
The commanding position of the United States, and the hegemonic resources available to it, did set the basic terms of negotiations. European governments, including Great Bntain, as we shall see, had very mixed views
about the postwar order. American efforts to overcome European obstacles
and induce acceptance of a liberal order required a series of compromises and
delays in the implementation of agreements, largely because of the economic
and political vulnerabilities of a war-ravaged Britain and continental Europe.
Nonetheless, the United States used its resources to influence the direction of
policy change. Moreover, American efforts to recast the political and economic institutions of Japan and Germany after the war reflected perhaps the
ultimate exercise of hegemonic power—interventions that in the years to follow had profound consequences for the stable functioning of a liberal multilateral order (see Ikenberry and Kupchan 1990). Hegemonic power, however,
has limitations as an explanation for the emergence of liberal multilateralism
after the war (see Odell 1989, 294-95). Coercive efforts, such as the British
Loan, were less successful than often thought. Moreover, as we shall see, the
substantive content of the system was shaped by Great Britain as well as by
the United States and in ways that would be unanticipated by simple considerations of power (Ikenberry 1989).
In addition to focusing on hegemonic power, explanations might also trace
Anglo-American agreement to convergent shifts in underlying national economic interests. As 1 will argue in a later section, there were underlying
3
4
2. Robert Gilpin (19S1) provides perhaps Ihe most powerful and parsimonious explanation for
the organization and reworking of the international order A prevailing international order is the
reflection of the underlying dislribution of material capabilities of stales within the system. Over
lime, thai dislribution of power shifts, leading to ruptures in the system, hegemonic war, and
an eventual reorganizaiion of the inlernational order thai reflects the new underlying power capabilities.
3. Hegemonic power is a term used to describe a slate that possesses a preponderance of power
resources—economic, political, and military—thereby occupying a commanding inlernational
position. This concept is discussed in Ikenberry and Kupchan (1990)
4. On the bargain struck between the United Slates and Europe afler World War II over multilateralism and regional imegration. see Cohen (1974).
�economic interests in both the United States and Britain that pointed in the
direction of a relatively open system, particularly if protections and safeguards could be provided. What is missing in this explanation, however, is an
account of how these structural conditions manifested themselves. To argue
that a particular outcome is economically functional or in the interest of a
group or nation is not, in itself, an explanation for that outcome. This is particularly important because, in both Britain and the United States, there were,
as economic planning and negotiations got under way during the war, substantial obstacles to agreement on even the most general outlines for the postwar
economic order.
The argument of this paper is that a transatlantic group of economists and
policy specialists, united by a common set of policy ideas and a shared view
that past economic failures could be avoided by innovative proposals, led their
governments toward agreement by identifying a set of common AngloAmerican interests. This argument builds on a body of literature that links
intemational cooperation to the activities of policy experts and evolving economic ideas. One strand of this literature argues that the convergence of conceptual frameworks among economic experts is a necessary precondition for
successful cooperation (see Cooper 1989; Eichengreen and Uzan 1990) . Another strand of the literature makes similar arguments but focuses on the role
)f transnational policy communities (or "epistemic communities") in fosterng cooperation. The argument here is that, under conditions of uncertainty,
vhen govemment leaders do not know what positions to take in economic,
cientitic, and other technical policy areas, transnational communities of exens can intervene decisively to shape policy and lead governments toward
nterstate agreement (Haas 1992). A final strand of this literature has sought
i explore the more general relation between evolving bodies of knowledge
nd political outcomes. Work in this area has emphasized the manner in which
leas help shape the interests of states, groups, and classes, thereby creating
ossibilities for new political coalitions and outcomes (Hall 1989; Goldstein
nd Keohane, forthcoming).
Agreement on the postwar monetary order was fostered by a momentary
immunity of experts engaged in negotiations who, despite the many differices between them, did share a view about the desirable organization of
onetary relations and the world economic order. In 1945, Alvin Hansen, a
iding American economist engaged in postwar planning, argued that
mong the many contrasts between World War 1 and World War 11 nothing is
ire remarkable than the profound change in economic thinking." After
>rld War 1. the main purpose of economic policy was to "reconstitute as
:)idly as possible the automatic forces in economic life. The drive all around
;s a return, in the broad essentials, to laissez faire" (Hansen 1945, 199). By
5
i These authors emphasize convergence of conceptual frameworks as a deierminant of coopiion, but they provide different stories of how such convergence does or does not take place.
the late 1930s, Hansen argued, all this had changed. A new social purpose
infused postwar planning the second time around. Understanding how this
"new thinking" got established and shaped govemment policy and the AngloAmerican agreement is our task.
3.2
The Emergence of an International Policy Community
The Bretton Woods agreement is often seen as the result of the ideas and
diplomacy of John Maynard Keynes and Harry Dexter White. Indeed, these
economists, particularly Keynes, were pivotal figures in devising monetary
plans, and they led their delegations in the celebrated Anglo-American negotiations during the war. But they were also part of a larger collection of economists and policy specialists who were located in the British and American
Treasury Departments, in other government offices, and in universities and
policy institutions. While many of the beliefs held by this loose community
of specialists reflected the evolving views of professional economists, the
community itself was given form by the demands of British and American
governments to deliberate on postwar economic matters. The process of postwar planning on both sides of the Atlantic served to organize and stimulate
the activities of these policy specialists. We can trace the contours of this
assemblage of experts and situate it within the larger institutions of British
and American govemment.
6
3.2.1
An Emerging Consensus
In both Britain and the United States, most of the ideas that made their way
into the Bretton Woods agreement were widely shared among what could be
called "liberal minded" intemational economists, many of whom were
Keynesians and whose views, more lhan anything else, reflected lessons
learned from recent historical experience as well as the ongoing evolution in
professional economic thought. This consensus among economists and monetary specialists was less the reflection of the common acceptance of a specific
economic doctrine or theory than it was a more or less common professional
reaction to the recent upheavals and malaise in the world economy. Out of
these lessons grew agreement on the broad outlines of a desirable postwar
economy and the general policies and institutions that would sustain it.
6. The definitive history of this episode remains Gardner (1980). Gardner's interpretation of the
events places much more emphaiss lhan mine does on the differences between the American and
the British plans as they were advanced, respectively, by White and Keynes. While Gardner sees
the Anglo-American negotiations more as a clash between officials representing different national
interests, I see the expert negotiators as finding common cause in devising a plan that would reflect
their economic thinking and that the American Congress would be willing to ratify. A more recent
history of this period also stresses British and American differences (see Woods 1990). For a
sophisticated political history of the events that also stresses the role of experts in promoting
agreement, see Eckes (1975). For a fairly straightforward and detailed history of the negotiations
relying primarily on British documents, see Van Dormael (1978).
�i nc rumiLaj wn^ius
This policy consensus included rough agreement on three essentials. First,
here was a common belief in the desirability of currency stability and the
onvertibility of currencies. Convertibility would be ensured by the abolition
>f exchange controls and restrictions. Disagreement could be found on the
ole of gold and other mechanisms for establishing stability in exchange rela10ns, but currency exchange adjustments, when necessary to correct paynents imbalances, were to be subject to intemational agreement. Behind the
(linking of these specialists was the view that monetary arrangements must
jek to avoid the political and economic instability of the interwar period.i'ln
he interval between the wars," Keynes argued in an early draft of his mcme£
ary..proposals<-~theworld e^loredMrrrapia^surcessio^aimost', as it'were, iir
.i),mtensive laboratory experiment all the alternative false approaches to the
olution" (Keynes 1980. 25:22). The painful adjustments of the gold standard
• led out policy ideas of this sort. The currency fluctuations, exchange conrols, and discriminatory policies of the 1930s also discredited ideas assolated with floating exchange rates (Odell 1989, 299).
Second, the American and British experts agreed that some form of interational reserves would need to be available as short-term assistance so as to
How expansionary solutions to balance of payments deficits. American and
(ritish experts, as we shall see, disagreed over how generous this fund would
e and over the obligations of creditor and deficit nations (disagreements that
merged more from divergent domestic circumstances than professional judglents). But they agreed that intemational stabilization funds should be avail^le so as to allow governments to pursue multilateral and expansionary sotions to capital and trade imbalances (Eckes 1975).
Third, and most generally, the Anglo-American specialists, some of whom
ere inspired by Keynes's pioneering work, agreed that new techniques of
itemational economic management should be devised that could reconcile
ie movement of capital and trade with policies that promote stable and full
nployment economies. There was need for new levels of intemational manjement and supervision of national monetary and trade policies. Thus, aliOUgh these experts generally favored an open world economy, it was also to
-• a managed world economy, and in this sense their ideas differed from the
>licy views found in the State Depanment favoring free trade. This differice was articulated by Harry Dexter White in 1942: "The theoretical basis
r the belief still so widely held, that interference with trade and with capital
id gold movements, etc., are harmful, are hangovers from a nineteenth cenry creed, which held that intemational economic adjustments, if left alone,
mid work themselves out toward an 'equilibrium' with a minimum of harm
world trade and prosperity. It is doubtful whether that belief was ever
und" (White 1942). In contrast to the thinking of Cordell Hull and the State
.-partment. these specialists agreed with White that intemational investM , capital movements, exchange rate parities, and commodity prices were
I potentially legitimate means for solving economic problems. An important
:
DICL
purpose of the intemational stabilization fund and the other proposed postwar
institutions was to separate legitimate from illegitimate economic practices
(White 1942).
These views shared by British and American specialists reflected changing
economic thinking, largely stimulated by the turmoil of the 1930s. But they
also reflected a broader confluence of intellectual and political thought. The
Keynesian policy revolution was still spreading in British and American policy circles, but its political consequences had already taken hold: politicians
and govemment officials, equipped with modem tools of economic policy,
were increasingly capable of managing national economies. As a consequence, they would need to attend, more than ever before, to policies that
promoted full employment and social welfare—a responsibility formally accepted by the British govemment in May 1944 with the publication of the
White Paper on Employment Policy (Beveridge 1944). Innovations in economic and social policy allowed politicians to promise more to the electorate,
but they also meant that politicians would need to deliver the socioeconomic
goods (Skidelsky 1977). Suth-new socioeconomic goals of govemment wen?
at odds with the deflationary discipline'drthi^gold standard: a'policy ^ c o n traction and. unemploy ment was not a satisfactory solution for deficit nations.
"Even if this policy had its advantages," Keynes wrote in 1944, "it is surely
obviously out:Of:the^question and^might easily mean the downfall of our present system of democratic govemment" (Keynes^l980, 27:373-74).
The ideas of British and American monetary planners also resonated with
the revival of American internationalism in the late 1930s, a process that involved the slow reorientation of American foreign policy. One benchmark of
the earlier thinking came in the first year of the Roosevelt adminisuation.
Whein, at the London Economic Conference of 1933, Franklin Roosevelt declared that the "sound internal economic system of a nation is a greater factor
in its well-being than the price of its currency," the message was that the
United States would take little responsibility for developments within the
world economy (quoted in Kindleberger 1986, 216). By the time the United
States joined the war, official thinking had changed, and Roosevelt advanced
the claim at the Bretton Woods conference in 1944 that "the economic health
of every country is a proper matter of concern to all its neighbors, near and
distant" (U.S. Department of State 1948, 71). The change in Roosevelt's
views reflected the renewal of internationalist thinking in American foreign
economic policy.
The rise of Keynesianism and American internationalism, still under way
as Anglo-American postwar planning began, provided a stimulus to that planning as well as a ready audience. These new attitudes contrasted sharply with
those that attended planning after the First World War, changes that were noted
by Jacob Viner, a leading American economist and postwar planner, in 1942:
"There is wide agreement today that major depressions, mass unemployment,
are social evils, and that it is the obligation of governments . . . to prevent
t
�164
, G. John Ikenberry
them." Moreover, Viner held, there is "wide agreement also that it is extraordinarily difficult, if not outright impossible, for any country to cope alone
with the problems of cyclical booms and depressions . . while there is good
prospect that with international cooperation . . . the problem of the business
cycle and of mass unemployment can be largely solved" (Viner 1942, 168). A
remarkable sense of economic possibility and social purpose infused the
thinking of Viner and the other American and British planners.
3.2.2
Amencan Policy Experts
The American group of experts was based, during the Roosevelt administration, in the Treasury Department. Under the leadership of Henry Morgenthau, a group of intemational economists was assembled within the department in the mid-1930s to work on exchange rate stabilization. Jacob Viner
and Harry Dexter White were leading members of this group (Rees 1973, 62).
The early effons of the group culminated in the Tripartite Agreement of 1936,
which established at least the principle of intemational monetary cooperation
(Blum 1959, 131-34). By 1941, White has risen at the Treasury Depanment
to take overall responsibility for foreign economic policy. Soon thereafter, in
December 1941, Morgenthau directed White to prepare a memorandum on
the establishment of an inter-Allied stabilization fund—a fund that would
"provide the basis for postwar intemational monetary arrangements" (Blum
1967, 228-29).
The ideas in White's original plan were ones generally shared by many of
White's professional and departmental colleagues. In the late 1930s, newly
trained economists, mostly from Harvard and embracing Keynesian ideas,
had begun to find places in the U.S. govemment (Galbraith 1971). This process of recruitment was set in motion by several key officials in the Roosevelt
administration, most important among whom were Marriner Eccles, chairman
of the Federal Reserve, and Lauchlin Currie, a Harvard economist whom
Eccles had attracted to the Federal Reserve. Currie, in turn, became an important conduit for the recruiunent of Keynesian economists into the federal bureaucracy (Salant 1989, 40; Stein 1969; Sweezy 1972, 116-24; May 1981).
By the start of the war, Keynesians had come to occupy positions in the Bureau of the Budget, the Department of Commerce, and the Treasury. During
the war, they also assumed positions at the Office of Price Administration and
the National Resources Planning Board; the latter was also involved in postwar planning (Weir 1989, 56; Clawson 1981). Although Henry Morgenthau
was not a Keynesian, key posts within the Treasury Department came to be
occupied by those who were (Block 1977, 39). Taken together, when work
began at the Treasury on postwar monetary proposals, the experts surrounding
White shared his basic views concerning the need for far-reaching and innovative economic proposals. After the White plan was drafted, interdepartmental technical discussions, in which pnmanly economists and lawyers (not
165
The Political Origins of Bretton Woods
businessmen or bankers) took part, provided a vehicle for expert deliberations
•within the govemment (Eckes 1975, 60).
This community of experts extended outside govemment as well. Most of
the important ideas that found their way into the White proposal were also
discussed during the war at a series of expert planning and discussion groups
sponsored by the Council on Foreign Relations. This study group, the Economics and Financial Group, which was part of the council's War and Peace
Studies Project, was lead by Alvin Hansen and Jacob Viner, and it provided
an exuaordinary vehicle for the concenuation of expertise and planning
(Domhoff 1990). The Economics and Financial Group also provided an imponant forum for discussions with British economists after monetary planning got under way in 1941.
Most of the experts who worked on postwar monetary planning (inside or
outside the Treasury Department) were associated in one way or another with
the Economics and Financial Group. Viner played a key role in developing
the rationale for the White plan, and Hansen, a leading Keynesian economist,
was involved in revising the proposals (Domhoff 1990). The group also commissioned its own studies dealing with various dimensions of postwar reconstruction and intemational economic relations. In both the specific ideas related to monetary stabilization and the broader discussions of postwar
economic reconstruction, the planners elaborated a vision of British and
American cooperation.
7
3.2.3
British Policy Experts
The British community of economic experts concerned with postwar monetary planning was overshadowed by John Maynard Keynes. After the First
World War, Keynes had written the well-known polemic The Economic Consequences of the Peace, which harshly criticized the terms of the postwar
settlement and forecast destructive trade and monetary policies and the eventual collapse of the European economy (Keynes 1920). Two decades later, the
prophetic nature of Keynes's views, along with the success of his own pioneering theory, left him in a commanding position to influence British postwar
policy. During the war, Keynes was given an office at the Treasury Depanment
to work on wartime economic administration and financial negotiations. As
postwar planning began at the Treasury, other economists, such as Lionel
Robbins and James Meade, were actively involved in the deliberations (Weir
1989, 55; Gardner 1972, 24).
British officials involved in planning shared the views of the American
economists at the Treasury Department that currency stability must be anchored in intemational agreement. "Exchange depreciation," Keynes wrote
7. Interview. William Diebold, Jr.. New York. 14 August 1990. (Diebold was research secretary for the Economics and Financial Group in 1941 and 1942 )
�' 166
G. John Ikenberry
167
Jacob Viner in 1943, "is nothing like as fashionable as it used to be, and
experience has taught many countries what a futile expedient it is except in
quite special circumstances" (Keynes 1980, 25:323). Yet the single most striking lesson that the British economists working on postwar monetary arrangements shared was the belief that the currency exchange commitments must
not undermine expansionary domestic policies. By the mid-1930s, British
economists (and many politicians as well) had come to believe that the return
to gold in 1925 was a decision that brought economic misery to the domestic
economy and that the departure from gold in 1931 was associated with recovery (Clarke 1977; Hall 1986, 49-50). The overriding view of British economists in govemment during the war was that social welfare and economic
management must dictate postwar intemational economic plans, rather than
the other way around.
While planning experts formed independent communities in Britain and the
United States, they were also connected as a transnational community. Interaction between British and American experts had several dimensions. First,
there were the official discussions (and later negotiations) between White and
Keynes and their associates that took place between 1942 and the Bretton
Woods conference. Many of these meetings were technical in nature and took
place after the British and American plans had been drafted (Eckes 1975,
chap. 4). Second, there were also more informal discussions among the relevant British and American economists, several of which took place under the
auspices of the Council on Foreign Relations' Economics and Financial
Group. In these and other settings, it appears that Viner and Hansen were
imponant in facilitating informal discussion between British and American
planners. Viner was a close friend of Lionel Robbins, a British economist who
was an associate of Keynes and who was also involved in postwar planning.
Hansen made an important visit to Britain in the fall of 1941, presenting proposals for Anglo-American economic cooperation of a very different sort than
those being advanced by the State Depanment (Harrod 1951. 527-28). The
discussions between British economists and members of the Economics and
Financial Group, which were carried out in 1941 and 1942, provided useful
communication between planners.
There were monetary specialists who were not part of this emerging policy
community. The American banking community was supportive of more traditional plans than those being fashioned at the American and British Treasury
Departments, such as proposals for ad hoc stabilization agreements tied to
gold. Another proposal, advanced by Professor John Williams, involved what
amounted to an extension of the 1936 Tripartite Stabilization Agreement (see
Horsefield 1969, 16-18). Regardless of their technical merit, specialists
wielding proposals of this sort tended to be vulnerable within the Roosevelt
administration, whose New Dealers were distrustful of the conservative bank8
8 Interview. Willam Diebold, Jr.. New York. 14 August 1990.
The Political Origins of Bretton Woods
ing community. It is revealing that these more conventional policy specialists
were not part of the loop. Morgenthau recruited not just specialists to the
Treasury but specialists with a New Deal planning orientation. Morgenthau
did not like Keynesian fiscal thinking, but he had an even stronger dislike for
the banking community. These considerations helped shape the character
of the experts who were positioned close to the center of policy-making within
the Roosevelt administration.
To sum up, a community of British and American economic planners
emerged during the war. The efforts of govemment officials in Britain and the
United States to get postwar planning staned helped stimulate the thinking
and give organizational form to the experts. The colonizing of parts of the
British and American bureaucracies by Keynesian economists also strengthened the sense of community among these experts. Many of the views that
these Anglo-American experts held, particularly those concerning past monetary experience, were also shared by a larger intemational community of
economists and policy-makers. As we shall see, there were also differences of
view among the British and American monetary planners, but even these differences did not always break along national lines. On the basic issues of the
postwar monetary order, the community of economic planners shared a core
set of beliefs.
9
3.3
Situating the Role of the Policy Community
To locate a role for the policy community that guided British and American
negotiations during the war, it is imponant to appreciate the wide-ranging and
frequently antithetical views on the postwar order that spilled across the British and American political establishments. In the United States, these views
ranged from the free trade proposals of the State Depanment to the views of
New Deal planners who favored expanded govemment management of the
economy over institutions to promote the free flow of trade and capital. Lurking behind American wartime debates was a domestically minded and tightfisted Congress. In Britain, the splits were even more profound, not least
because the virtues of a liberal multilateral system were less apparent. Conservatives were reluctant to abandon the imperial preference system, and
many on the left saw an open economy to be a dangerous threat to economic
planning and social welfare policies. Situated between these groups were the
economic advisers to the wartime govemment who were not eager to return to
bilateral trade and the preference system but who thought that such an option
might be necessary to protect Britain's postwar payments balance and, in any
event, might be used to extract concessions from the United States (i.e., to
agree to a more forgiving and expansionary system—precisely the "new
9. Williams was initially involved in the discussions of the Economics and Financial Group at
the Council on Foreign Relations, but, perhaps reflecting his absence of agreemenl with the "new
thinking," he soon dropped oui (interview, William Diebold. New York. 14 August 1990).
�168
G. John Ikenberry
thinking" that Keynes and his American counterparts were seeking to develop).
Before we examine those competing views and the initial deadlock in negotiations that they produced, it is important to establish a point made earlier.
That point is that the underlying structures of power and interests set the broad
parameters around which an agreement could be built, but they were not imperatives that inevitably produced the agreement.
The United States did have a basic and increasingly robust interest in an
open system, and key American economic and political elites recognized this
fact. In the 1930s, with the apparent collapse of the intemational economy
and the emergence of German and Japanese regional economic blocs, American statesmen and intellectuals debated the plausibility of regional alternatives
to an open world economy. These issues grew in importance in the early
1940s, as political elites debated whether the United States should get involved in the war. Could the United States remain a going concern within a
Western hemispheric bloc? The academic culmination of this debate came
with the work of Nicholas Spykman, who articulated what became the conventional wisdom, that a hemispheric bloc would not be sufficient to protect
American economic and geopolitical interests (Spykman 1942). Military
planners in the War and Navy Departments during the war also began to conceive of postwar American strategic interests in global terms (Leffler 1984).
Beginning in 1941, similar views emerged in discussions among economic
and political experts at the Council on Foreign Relations on the nature of the
Grand Area, that is, the core regions of the world that the United States depended on for its economic viability (Council on Foreign Relations 1941).
The attack on Pearl Harbor only strengthened this evolving view: that the
United States would need to work with Great Britain to reintegrate as much of
the world economy as possible. Moreover, in the two decades between the
world wars, the internationally oriented sectors of the American economy had
expanded considerably, increasing the nation's stakes in a wider liberal world
order (Frieden 1988). These economic and national security debates and
underlying economic shifts all pointed in the same direction and reinforced
liberal intemational thinking among political elites.
The underlying set of British interests is more difficult to specify. Fred
Block argues that British participation in an American-sponsored system was
not inevitable. He describes the central alternative to liberal multilateralism as
"national capitalism"—a closed system where state intervention and planning
would be used to sustain full employment and industrial capacity. Block argues that "there is good reason to believe that after the war, there might have
been substantial experiments with national capitalism among the developed
capitalist countries." He goes on to argue lhat "the reason these controls were
not elaborated into full-scale experiments with national capitalism was that it
became a central aim of United States foreign policy to prevent the emergence
169
The Political Origins of Bretton Woods
of national capitalist experiments and to gain widespread cooperation in the
restoration of an open world economy" (Block 1977, 9).
This view is invoked by those who argue that the British (and other European nations) had political values and economic interests that might have led
to alternative (e.g., regional or bilateral) postwar arrangements if not for the
hegemonic power of the United States. There remains a historical dispute on
this matter, but the strong version of the argument, that Britain could have
remained within its Commonwealth and imperial system, is probably incorrect (see contrasting views in Rowland 1976). The United States did confront
considerable resistance to liberal multilateralism in Europe (see Watt 1983).
European reservations about a liberal economic order were part of broader
differences between the United States and Europe over such matters as empire, spheres of influence, and regionalism.
The United States did meet considerable resistance to its liberal postwar
agenda, but it is less clear that Britain (and continental Europe) had viable
alternatives to participation in an American-sponsored system. What were the
alternatives? It would have been very difficult and costly for the British to have
constructed an alternative system organized around bilateral trade and the imperial preference system.
British political elites were of divided opinion; however, they had little
choice but to cooperate with the United States. For those British officials who
held this view, their task was to use what intellectual and political capacities
Britain had to shape the agreement in ways that served their socioeconomic
goals and to find ways to secure that agreement within a conflictual and fragmented political landscape.
Underlying structures of power and interest provide enough information to
explain the fact that the postwar system was more or less open. But this information is not enough to explain the character of that open system. Nor is it
enough to explain how the many conflicting politica] positions were reconciled in reaching an agreement, even if we agree that Britain and the United
States have common "objective" interests in a liberal multilateral system. It is
useful to sketch these conflicting positions within and between the British and
American governments and then trace the evolution of agreement between
Keynes and American negotiators.
3.4
Competing Anglo-American Plans for the Postwar Order
Economic and foreign policy elites in both countries ranged widely in their
views about the postwar economic order. The crucial antagonists in these debates were American officials, mostly in the State Department, who were intent on constructing an open and nondiscriminatory trading system and British
govemment officials who, for reasons of political expediency and economic
vulnerability, resisted the abandonment of the imperial preference system and
�170
G. John Ikenberry
the sterling bloc. The debate during the war was really a continuation of controversies that had emerged in the 1930s when various governments experimented with regional (or, as in the case of Britain, imperial) traded and currency blocs (Rowland 1976, 200).
The most vocal advocates within the Roosevelt administration of a system
of free trade and multilateralism came from the State Department, led by Secretary Cordell Hull, his assistant, Leo Pasvolsky, and the Division of Commercial Policy and Trade Agreements, headed by Harry Hawkins (Penrose
1953, 15). There is a consistency in the orientation of Cordell Hull and other
State Department officials that runs throughout the Roosevelt period. This was
the conviction that an open intemational trading system was central to American economic and security interests and that such a system was fundamental
to the maintenance of peace. These liberal ideas, well anchored in American
history, were given expression in the Atlantic Charter, signed by Roosevelt
and Churchill during the war.
The consistency of the State Department position could be found in its ongoing opposition to the British imperial preference system. According to Cordell Hull, the 1932 Ottawa Agreements represented "the greatest injury, in a
commercial way, that has been inflicted on this country since I have been in
public life" (Van Dormael 1978, 25). Hull believed that the bilateralism and
economic blocs of the 1930s, practiced by Britain (but also by Germany and
Japan), were a root cause of the instability of the period and the onset of war
(Pollard 1985, 11-12). Charged with responsibility for commercial policy, the
State Department championed tariff reduction agreements, most prominently
in the 1934 Reciprocal Trade Agreement Act and the 1938 U.S.-British trade
agreement (see Gardner 1964).
Another camp within the Roosevelt administration was composed of economic planners and New Dealers, and their central concern was the domestic
economy. This group, which included Harry Hopkins, Vice-President Wallace, and Keynesian economists within the National Resources Planning
Board, was interested in an expanded role for govemment in the management
of the economy in the service of full employment and social welfare. This
collection of officials, as Fred Block argues, had little sympathy with the State
Department's multilateral vision: "They favored a world system made up of
national capitalisms because of the priority they gave to the pursuit of full
employment. They believed that the maintenance of high levels of employment and the development of national planning throughout the world should
take precedence over the opening of economies to the free flow of investment
and trade" (Block 1977, 36-37). At the same time, these officials were not
isolationists. They favored intemational arrangements to foster expansionary
domestic economic policies and institutions to channel capital to underdeveloped areas. Thus, in the Roosevelt administration, there were these two competing camps of thought on the postwar order.
171
The Political Origins of Bretton Woods
Before World War II, British attitudes toward the imperial preference system split largely along party lines (Gardner 1980; Woods 1990). The core of
the Conservative party favored the maintenance of empire, and the Ottawa
preference system was part of these special relations: "A section of the Conservative Party valued the system of preferential duties on Empire goods as a
force making for solidarity within the British Commonwealth of Nations"
(Penrose 1953, 19). These individuals stressed the importance of Commonwealth ties: it was a symbol of Great Britain's power status. "In Britain," Roy
Harrod writes, "some resented the idea [of dismantling imperial preferences)
mainly on sentimental grounds that we should be asked to abrogate this valuable symbol of Commonwealth and Empire unity" (Harrod 1951, 515). Moreover, it was the Commonwealth nations, such as Canada, Australia, and New
Zealand, that had risen in suppon of a beleaguered Britain during the war.
These conservatives identified British interests with those of the Commonwealth (Penrose 1953, 20). Others in the Conservative pany were less enthusiastic about imperial preferences. Churchill and his followers were sympathetic with the free trade position. According to Penrose, although Churchill
"acquiesced in a certain degree of protectionism as a fait accompli, he still
thought there was a general presumption on the side of free trade and felt no
enthusiasm for the system of Empire preferences adopted at Ottawa" (Penrose
1953, 20). His major consideration was to protect the unity of his ruling coalition and to push on with the war.
The forces of support and opposition to the imperial preference system began to change during the war. The deterioration of the country's economic
position made preferences more attractive to some British officials who otherwise would not suppon discriminatory trade practices (Penrose 1953, 14). To
some of these officials the preference system might be a way of protecting
Britain's payments balance after the war, at least in the shon term, panicularly
if the intemational economy fell into recession. They realized that turning
away from multilateral trade and payments would mean relying on trade restrictions and cunency controls. While splitting the world into blocs, a bloc
system would insulate Britain from low-cost foreign competition and the deflationary effects of an American recession. Eckes points to the groups that
favored this option: "In Britain an unlikely coalition of socialists and conservative imperialists favored this alternative—the socialists to achieve full employment and domestic reform, the imperialists to preserve traditional ties
with the Commonwealth. But although these interests were articulate and enjoyed some support in the cabinet, where Churchill and Beaverbrook attached
considerable importance to preserving the empire, the rigid restrictionist view
had little appeal among official economists" (Eckes 1975, 64-65).
Other officials were more skeptical of bilateral trade and the preference system, even as a fall-back option, but they saw threatening recourse to that option as a way of gaining bargaining leverage with the United States (Hanod
�172
173
G. John Ikenberry
1951). To these officials, the only real option was to cooperate with the United
States, but they wanted to do so in a manner that would allow Britain to
achieve its economic objectives.
To sum up, as discussions began during the war, there were sinking divisions between and within the British and Amencan governments. In Washington the State Department articulated a remarkably stark vision of nineteenthcentury free trade. In London, the wartime govemment, womed about the
stability of its political coalition and the fragility of its impending postwar
economic position, entertained notions of regional and managed economic
arrangements. These differences became apparent in the earliest discussions
of the postwar order.
10
3.5
From Ttade Stalemate to Monetary Agreement
The first exchanges on postwar economic questions between the United
States and Great Britain were triggered in the summer of 1941 dunng negotiations over Lend-Lease, and disagreements surfaced immediately. State Depanment officials wanted to use this occasion to secure a Bntish promise that
they would open up the impenal preference system. Bntish officials resisted
and sought to tie the dismantling of discriminatory practices to a larger program of postwar reconstruction that assured economic expansion and employment stability. The principles and mechanisms of that larger settlement, however, remained obscure.
Discussions began in the summer of 1941 when John Maynard Keynes
who had been appomted as adviser to the chancellor of the Exchequer, amved
in Washington to negotiate the terms of the Und-Lease agreement. But the
visit only underscored the differences in official British and Amencan thinking
(Harrod 1951- Gardner 1964). Disagreement centered on the proposed terms
of Article VII, which set forth the framework for the postwar setdement of
mutual aid obligations. The article provided that, in meeung these LendLease obligations, no conditions should be laid down to obstruct commerce
and that measures should be taken to reduce uade bamers and eliminate preferential duties. In a meeting at the State Depanment, Keynes asked if this
provision -raised the question of impenal preferences and exchange and other
trade controls in the post-war penod" (Foreign Relanons of ihe United Stales
1941 3 11) Assistant Secretary Acheson acknowledged that it did, although
it was not meant to impose unilateral obligations on the British Empire.
Keynes strongly objected to this provision: "He said that he did not see how
the British could make such a commitment in good faith; that it would requue
an imperial conference and that it saddled upon the future an ironclad formula
from the Nineteenth Century. He said that it contemplated the impossible and
10 This was ihe position of most officials at the British Foreign Office and the I m ^ s e e
the Foreign Office report "Note on Post-War Anglo-American Economic Relations. 15 October
1941. London. Public Record Office. FO 371/28907.
The Political Origins of Bretton Woods
hopeless task of returning to a gold standard where international trade was
controlled by mechanical monetary devices and which had proved completely
futile" (Foreign Relations of the United States, 1941, 3.T2). Keynes argued
that, in order to maintain economies in balance without great excesses of imports or exports, counuies in the postwar period would need exchange controls, precisely the types of measures that seemed to be prohibited by Article
VU (Harrod 1951,512).
The disagreement was clear and seemingly fundamental, and Keynes left
Washington without conceding to the State Department position. The difficulty of Anglo-American negotiations over Article VII led some British officials to reconsider the virtues of bilateral bargaining and imperial preferences.
Leading economists in the British govemment voiced reservations over bilateralism in late 1941. About this time, Keynes was also rethinking his views.
An American official who knew Keynes during this period notes the change:
"In his own mind, Keynes had dropped, or was on the verge of dropping, the
argument that hard bilateral bargaining would have to be resorted to; and he
was replacing it by a plan for an intemational institution to deal with balanceof-payments questions" (Penrose 1953, 18). Throughout his career, of course,
Keynes had been of two minds on the vinues of unrestricted trade and monetary arrangements. One mind showed itself after World War I when he argued
that free uade was both an economic and a moral imperative. Keynes's other
mind argued that goods should be "homespun where it is reasonably and conveniently possible . . . a greater measure of national self-sufficiency and economic isolation among countries than existed in 1914 may tend to serve the
cause of peace rather than otherwise" (Robbins 1971, 194). Keynes was capable of articulating both restrictionist and expansionist positions on the postwar order. In the autumn of 1941, he moved vigorously in the expansionary
direction. He came to the view that perhaps an agreement could be reached
with the United States for a monetary order that would be expansionary, an
order that could keep the trading system open but safeguard against depression (Eckes 1975, 65). The search for a postwar settlement involving both a
relatively open trading system and measures to ensure employment stability
soon became the preoccupation of Keynes and other British planners.
On the American side, as we have seen, there were conflicts between the
Departments of State and Treasury over postwar planning. The stalemate on
the postwar economic order, arrived at in the discussions of trade anangements, did not prevent officials at the Treasury from proceeding with monetary
planning, and, in the process, monetary negotiations became the cutting edge
of postwar planning. The centrality of monetary planning was due to the initial contentiousness of Anglo-American discussions of trade and to the relative smoothness with which British and American monetary experts were able
to find common ground.
A fluny of monetary planning broke out on both sides of the Atlantic. In
Britain, Keynes listened to arguments from various quarters and retreated to
�174
G. John Ikenberry
the country to produce his famous plan for an Intemational Clearing Union.
What emerged was an ambitious plan for far-reaching cooperation in monetary relations, involving mechanisms for both the orderly adjustment of exchange rates and the mobilization of credit that would prevent the resort to
deflation as a means of correcting maladjustments." The Clearing Union
would have the authority to create and manage an intemational currency that
would be used to manage intercountry balances. This overdraft facility would
have the authority to create and manage $25-$30 billion of a new intemational currency to settle payments balances (Eckes 1975, 66). A key provision
of Keynes's Clearing Union was the pressure it sought to put on both deficit
and surplus countries to correct payments imbalances; this would take the
form of a tax on the excess reserves of creditor nations as well as other measures to ensure corrective policies in both surplus and deficit countries.
American planning got under way in early 1942 under the direction of
Harry Dexter White. The American plan was similar to Keynes's in its attempt
to eiunxoaix? excbanee cootrols and restrictive fmanrial practices, and ii pcovkkd rules for alterations inratesof exchange. Although it providedrelieffor
monetary authorities in intemational difficulties, it differed from Keynes's
plan by proposing relamely modest resources for this purpose and severely
limirino the obliganoos of crediior narions io contribuie to thai relief. The
Clearing Union scheme obligated creditor naiions to accept a clearing unitj
(bancor) up to the limit of the amount of this medium. The White plan re^
stricted the obligation of creditors to the amount of their subscription with I
fund.
These two plans formed the basic framework of negotiations that followed!
throughout 1943 and up to the Bretton Woods conference. Many of the con^
promises were made in favor of the less ambitious White plan, but many'off
the British demands were also met. The capital was to be subscribed under theg
compromise plan; there would not be a new international currency. Moreov
the primary responsibility for restoring intemational equilibrium would fa2|
on the deficit countries; it would not, as Keynes has proposed, be shared with|
surplus countries. The power of member nations to change their exchange
rates was increased in the emerging agreement, which addressed the BritisJ|
interest in flexibility. Finally, the attempt in the Keynes scheme to address^
shon-term postwar financial problems was left out of the plan. Wartime debtsg
as well as reconstruction loans would be dealt with in other bilateral ag
ments and a development bank (Penrose 1953, 55-60).
The crucial breakthrough in Anglo-American negotiations occurred in Se
tember 1943 when the British side agreed to abandon the idea of "unlimiti
liability" of creditor countries contained in the Clearing Union scheme. Lionejl
Robbins noted later that, "once we had recognized the political unacceptabig
11. The initial draft and subsequent versions of the Keynes plan are published in Keynes (198M
25:21-40).
175
The Political Origins of Bretton Woods
ity of the unlimited liability of the creditor, the rest was a compromise between essentially friendly negotiators" (Robbins 1971, 200). After this concession, much of what followed involved practical adjustments to specific
national interests and domestic politics.
3.6
Policy Ideas and Political Coalition Building
The "new thinking" embraced by the Anglo-American planners, with its
synthesis of interventionist and liberal goals, has a political resonance within
wider and more contentious British and American political circles. The Bretton Woods ideas played a politically integrating role—they allowed political
leaders and social groups across the political spectrum to envisage a postwar
economic order where multiple (and previously competing) objectives could
be met simultaneously. The alternatives of the past—of the nineteenth century
and of the interwar period—suggested options that were much too politically
stark. Outside the narrow transatlantic community of govemment economists,
politicians were looking for options that could steer a middle course. In the
end, the ability of policy experts to articulate ideas that spoke to the needs of
practical British and American politicians was the most consequeadaJ aspect
£of their work.
^.Throughout their discussions with American officials, the British were
poking for a middle ground between bilateralism (and the imperial preference
|gsteni) and laissez-faire. This was noted in a cable from Ambassador Halifax
^..v,
.
office in October 1942, following a visit from John
r Dulles (at the time a corporation lawyer in New York):
B r i t i s h
F o r
e i g n
: most interesting point on the economic side of the discussion was Mr.
|DuUes' exposition of the Cordell Hull school of free trade, and the place
|which it had in the plans of the Administration. I said to him that I thought
Mat we did not clearly understand what the significance of the Hull policies
^ras. There was a feeling in some quarters here that we were faced with two
|altematives, either we must revert to a completely 19th century system of
|laissez-faire, or else we must safeguard our balance of payments position
|by developing a bilateral system of Uade with those countries whose natural
jmarkets we were. It seemed to me that neither of these courses would work,
jphefirstwas clearly impossible, the second might be disasuous. I asked Mr.'
gDulles whether there might not be some middle course which would take
pccount of our special difficulties and which at the same time would satisfy
" 1f:
H^
^ question of discrimination, preferences, etc.
m
C o r d e 1 1
11 o n
12
^ f e s f e ^ f e ^ ^ a ^ ^ ^ ^ P O ^ ^ g * ^ openjfo
jlteUectuals and experts bearing new policy ideas, here i-ronfe. Later in the
g when Keynes and the British shifted negotiating partners—from the
;
g*j2: Dispatch from Ambassador Halifax to the Foreign Office, 21 (?) October 1942 London
^^licRecords Office, FO 371/31513.
�176 •
G. John Ikenberry
177
State Department (and trade policy) to the Treasury (and monetary policy)—
opportunities forfindingthat middle ground emerged.
In both Britain ^nd the United States, the onset of a major war stimulated
and widened political debate on the future of the world economic order. Even
before the war, politicians and editorialists on the left and the right had staked
but a wide range of positions on the proper direction of world uade and monetary order. In American liberal and progressive circles, as seen, for example,
in the pages of the New Republic and the Nation, wartime views affirmed the
goals of full employment and economic planning and included calls for postwar world economic federation and multilateral cooperation. Liberal and progressive spokesmen stressed different goals: some advanced vague commitments to liberals internationalism, others favored the primacy of economic
planning, and still others reaffirmed a commitment to free uade. Most commentators agreed that a new economic order must be built; there was little
agreement on what that meant.
Once the Bretton Woods proposals were on the table, however, the various
liberal and progressive commentators largely fell in line behind the agreement. Keynesian planners saw the agreement as an attempt to bring Keynesian
management to the world economy; free traders saw a commitment to trade
expansion; internationalists saw few alternatives. Indeed, it is striking how
quickly the various alternatives to Bretton Woods disappeared from public
debate after 1944. As both a practical and an intellectual matter, few economic
planners or internationalists saw any real alternative to Bretton Woods. Moreover, the coalition against Bretton Woods—New York bankers, high-tariff advocates, silventes, and isolationists—were soon seen as an odd bunch, outside the political mainstream (see "Support for Bretton Woods" 1945).
In Britain, the Brenon Woods proposals also played a politically integrating
role. This can be seen when tracing editorial commentary during the late1930s and the war in the Spectator, a conservative free uade journal. There is
no praise of economic planning and litde discussion of British full employment policy. Commentary on the great tools of planning and ending the business cycle are absent. Supported were free uade and a new economic order
for Europe (see Sterling 1941). Nonetheless, the Bretton Woods proposals
seemed to meet Spectator's needs. Only favorable discussions of the White
and Keynes proposals appeared in the two years leading up to the agreement
(see "Currency and Trade" 1943). As the war began, the Economist, another
conservative free trade journal, stressed the need for postwar economic cooperation with the United States. During the war, the editorial voice of the Economist was unclear in defining postwar economic problems and solutions. In
the end, the editors supponed Bretton Woods, but argued that its success
13
13. The Economist clearly favored multilateralism to blocs and bilateral trade. By the end of
the war, its editors argued that the world needed to move toward "managed free trade" (see "The
Multilateral Approach" 1944).
The Political Origins of Bretton Woods
would depend on all sorts of other adjustments and changes in the way nations
conduct their economic business.
In Britain and the United States, the Bretton Woods proposals represented
a "middle way" that generated support from both the conservative free traders
and the new prophets of economic planning. Wartime economic "new thinking" helped refine the political mainstteam, making possible new coalitions
Like a piece of crystal, the Bretton Woods agreement had many different surfaces—it projected different things to different groups. No other internationalist proposal could command such a broad coalition.
3.7 Conclusion
The question asked here is. How do we explain the Anglo-American setdement? Why did certain proposals become an effective basis for AngloAmerican agreement, and how, given the divergent and conflicting national
and bureaucratic positions, was agreement achieved within a wider and fragmented political setting? The argument is that agreement was fostered by a
community of experts composed of liberally minded British and American
economists and policy specialists who shared a set of technical and normative
views about the desirable features of the intemational monetary order and who
were given remarkable autonomy to negotiate a deal. This community of experts fostered agreement by altering the political debate about postwar policy:
they crystallized areas of common interest between the two governments, and
they elaborated a set of politically resonant ideas that served to build larger
coalmons within and between governments. These arguments can be examined further.
3.7.1
Shaping Govemment Conceptions of Interests
All increments of historical time are not equal. There are junctures or
"breakpoints" when possibilities for major change are particularly great and
the scope of possible outcomes unusually wide. In this century, the several
years surrounding 1945 would surely be one such moment. Nobody knew
how the world order would be reorganized, but everybody believed that reorganization was inevitable. The ending of a major war or the aftermath of a
large-scale economic crisis alters the parameters of policy-making: dissatisfaction with past policy creates a new willingness on the part of politica] leaders to reevaluate their interests, goals, and doctrines; disruptions and breakdowns of rules and institutions create a need for nonincremental decision
making; and the collapse of old political coalitions requires a search for new
coalitions. At these moments, the removal of obstacles of change occurs simultaneously with the presence of impulses to change. When this happens on
a global scale, fundamental change is possible.
At these critical turning points, the interests and capacities of the dominant
groups, states, and classes matter, as they always do, but uncertainties about
�178
G. John Ikenberry
power structures and dissatisfactions with prevailing definitions of interests
create opportunities for the recasting of interests. At the core of the postwar
senlement were British and American political leaders who were open to the
redefinition of national economic policy interests. Keynes, White, and the
other "new thinkers" were particularly well situated to shape the resolution of
these uncertainties: the transgovemmental "alliance" that they formed allowed
them to shape the agenda, taking the initiative away from the free uadeoriented State Depanment; the complexity of the issues gave them a privileged position to advance proposals; and their ideas were particularly well
suited to building winning political coalitions.
3.7.2
The PoUtical Origins of Brenon Woods
detect a desire on the pan of many oflicials to promulgate a postwar system
that would have a normauve appeal to elites in other nations. American officials realized that building the intemational economic order on a coercive basis would be costly and ultimately counterproductive. This is not to say that
the United States did not exercise hegemonic power; it is to say that there were
real limits to the coercive pursuit of the American postwar agenda. Historical
records do show that American officials wanted to avoid looking as if they
were imposing policies on the Europeans. This general observation helps explain why American officials paid more than insignificant attention to the normative bases of the postwar settlement and why they were willing to make
adjustments along the way to give the system a certain legitimacy.
Building New Political Coalitions
The consensus among British and American monetary experts provided a
basis for breaking through various layers of conflicts and deadlocks within
and between the British and American governments. Most immediately, the
consensus among Anglo-American experts cut through conflicts by shifting
the ground of debate from uade to monetary issues. In a more general way,
the monetary agreement served the purpose of political compromise by articulating ideas that created possibilities for new politica] coalitions. The policy
ideas embraced by Anglo-American experts, not fully available in an earlier
era, provided a solid intellectual foundation for a political middle ground between an unregulated open system and bilateral or regional groupings. This is
the point made by Albert Hirschman about Keynesianism: that economic
ideas "can supply an entirely new common ground for positions between
which there existed no middle ground whatsoever" (Hirschman 1989, 356). It
was the British (Keynes in particular) who were most intent on finding a
middle ground—something that in the early Anglo-American discussions of
postwar uade arrangements seemed so elusive. The Bretton Woods agreement
articulated a middle position between a nineteenth-century-style free trade
system andregionalor nadonal capitalist arrangements. The policy views of
the monetary experts were intellectually synthetic and politically robust: they
provided a respectable position between exuemes and thereby set the stage for
political compromise between British and American governments, and they
foreshadowed (and perhaps enabled) a broader sociopolitical reordering of
coalitions within postwar Western capitalist democracies.
Policy ideas do more lhan simply "enlighten" political elites. They have a
political as well as a cognitive impact. They provide opportunities for new
coalitions of interests, or at least they can give intellectual force or inspiration
to those groupings. Ideas do change minds, but it is their practical value in
solving political dilemmas that gives them a force in history.
3.7.3
179
Legitimating American Power
American leaders certainly wanted to promote American interests, and they
were willing to use the nation's power capabilities to do so. But one can also
3.7.4
A Question of Timing
Finally, it is reasonable to ask why this policy community did not emerge
earlier—after World War I or between the wars—and play a role in fostering
intemational economic agreement. There are several reasons. To begin with,
in these earlier periods, the range of legitimate policy views on monetary
relations was much wider. The experiences of the 1930s were crucial in discrediting monetary ideas associated with floating exchange rates (Odell
1989). The lessons learned by British economists and politicians from the
disasuous return to the gold standard in 1925 were also crucial in narrowing
the range of expert views. Moreover, the war itself gave economic planners
an opportunity for devising intemational rules and institutions in a way not
fully available in the 1930s. The war also served to atuact economists into the
British and American governments, most of whom were Uained in the "new
thinking." The formation of an influential community of Anglo-American
monetary experts had to wait for these developments.
Beyond these immediate factors, there were more diffuse shifts in thinking
among British and American elites concerning the virtues and necessities of
internationalism. Paradoxically, much of this new value attached to intemational institutions (and, in particular, the perceived necessity of suiking a deal
between the United States and Britain) sprang from the progressive rise in the
social obligations undertaken by the modem welfare state. Full employment,
economic stabilization, and social welfare—these were goals that repeatedly
found their way into discussions of the postwar economic order during the
early 1940s, in popular journals, in Congress and Parliament, and in AngloAmencan planning deliberations. Nothing similar was evident in 1918, where
the rapid return to laissez-faire and the automatic forces of economic life were
the order of the day. Between the wars, the sociopolitical underpinnings of the
modem suite had changed. As a result, the elites who commanded the British
and American governments in 1945 had a different set of perceptions of and
goals for the postwar order than their predecessors had in 1918. In this sense,
the "demand" for new ideas was greater the second time around. At the same
time, the size of the potential sociopolitical coalition in Britain and the United
�180
181
G. John Ikenberry
States that might favor internationalist solutions to problems of postwar reconstruction was also larger the second time around. What was needed was an
intellectual and political basis for coalition building on a grand scale, and this
is what the Keynesian "new thinkers" provided.
References
Bevendge. W 1944. Full Employment in a Free Society: London: Allen & Unwin.
Block, F. 1977. The Origins of International Monetary Disorder Berkeley. University
of California F^ess
Blum, J. 1959. From the Morgenthau Diaries: Years of Crisis, 1928-1938. Boston:
Houghton Mifflin.
. 1967. From the Morgenthau Diaries: Years of War, 1941-1945. New York:
Houghton Mifflin.
Clarke, S. 1977. The Influence of Economists on the Tripartite Agreement of September 1936. European Economic Review 10:375-89.
Clawson, M. 1981. New Deal Planning: The National Resources Planning Board.
Baltimore: Johns Hopkins University Press.
Cohen, B. 1974. The Revolution in Atlantic Economic Relations: The Bargain Comes
Unstuck. In The United States and Western Europe: Political. Economic and Strategic Perspectives, ed. W. Hanreider. Cambridge, Mass.: Winthrop.
Cooper, R 1968 The Economics of Interdependence : Economic Policy in the Atlantic
Community. New York: Columbia University Press.
. 1989. Intemational Cooperation in Public Health as a Prologue to Macroeconomic Cooperation. In Can Nations Agree Issues in International Economic Cooperation, ed. R. Cooper et al. Washington, D C : Brookings.
Council on Foreign Relations. 1941. Methods of Economic Collaboration: The Role
of the Grand Area in Modem Economic Policy. In Studies of American Interests in
the War and Peace. New York: Council on Foreign Relations.
Currency and Trade. 1943. The Spectator, 9 April, 331-32.
Domhoff, G. W. 1990. The Power Elite and the State. New York: Aldine De Gruyter.
Eckes, A. 1975. A Search for Solvency: Bretton Woods and the International Monetary
System, 1941-1971. Austin: University of Texas Press.
Eichengreen, B., and M . Uzan. 1990. The 1933 World Economic Conference as an
Instance of Failed Intemational Cooperation. Working Paper no. 90-149. University
of California, Berkeley, Department of Economics.
Foreign Relations of the United States, 1941. Washington, D C : U.S. Govemment
Printing Office.
Frieden, J. 1988. Sectoral Conflict and U.S. Foreign Economic Policy. 1914-1940.
International Organization 42 (Winter):59-90.
Galbraith. ] K. 1971. How Keynes Came to America. In Economics. Peace and
Laughter. Boston: Houghton Mifflin.
Gardner. L. 1964 Economic Aspects of New Deal Diplomacy. Madison. University of
Wisconsin Press.
Gardner. R. 1972. The Political Setting. In Bretton Woods Revisited, ed. A. L. K.
Acheson, J. F. Chant, and M. F. J. Prachowny. Toronto: University of Toronto
Press.
1980. Sterling-Dollar Diplomacy in Current Perspective: The Origins and the
11
The Political Origins of Bretton Woods
Prospects of Our International Economic Order. Rev. ed. New York: Columbia University Press.
. 1985-86. Sterling-Dollar Diplomacy in Current Perspective. International
/l#ai>j62(Winter):21-33.
Gilpin, R. 1981. War and Change in World Politics. New York: Cambridge University
Press.
Goldstein, J., and R. Keohane, eds. Forthcoming. Ideas and American Foreign Policy.
Ithaca, N.Y.: Cornell University Press.
Haas, P., ed. 1992. Knowledge, Power and Intemational Policy Coordinauon. International Organization, special issue (Winter).
Hall, P. 1986. Governing the Economy: The Politics of Slate Intervention in Britain
and France. New York: Oxford University Press.
, ed. 1989. The Political Power of Economic Ideas: Keynesianism across Borders. Princeton, N.J.: Princeton University Press.
Hansen, A. 1945. Stability and Expansion. In Financing American Prosperity: A Symposium of Economists, ed. P. Homan and F. Machlup. New York: Twentieth Century
Fund.
Harrod, R. F. 1951. The Life of John Maynard Keynes. New York: Harcourt Brace.
Hirschman, A. 1989. How the Keynesian Revolution Was Exported from the United
States, and Other Comments. In The Political Power of Economic Ideas: Keynesianism across Nations, ed. P. Hall. Princeton, N.J.: Princeton University Press.
Horsefield, J. K., ed. 1969. The International Monetary Fund. 1945-1965: Twenty
Years of International Monetary Cooperation. Vol. 1. Washington, D C : Intemational Monetary Fund.
Ikenberry, G. J. 1989. Rethinking the Origins of American Hegemony. Political Science Quarterly 104(Fall):375-400.
Ikenberry, G. J., and C. Kupchan. 1990. Socialization and Hegemonic Power. International Organization 44(Summer):283-315.
Keynes, J. M. 1920. The Economic Consequences of the Peace. New York: Harcoun,
Brace, & Howe.
. 1980. The Collected Papers of John Maynard Keynes. London: Cambridge
University Press.
Kindleberger, C. 1986. The World in Depression, 1929-1939. Rev. ed. Berkeley and
Los Angeles: University of California Press.
Leffler, M. 1984. The American Conception of National Security and the Beginning of
the Cold War, 1945-48. American Historical Review 89(April):346-81.
Maier, C. 1987. The Two Postwar Eras and the Conditions for Stability in TwentiethCentury Western Europe. In In Search of Stability: Explorations in Historical Political Economy, ed. C. Maier. New York: Cambridge University Press.
May, D. 1981. From New Deal to New Economics: The American Liberal Response to
the Recession of 1937. New York: Garland.
The Multilateral Approach. 1944. The Economist. 22 January, 94-96.
Odell, J. 1989. From London to Bretton Woods: Sources of Change in Bargaining
Suategies and Outcomes. Journal of Public Policy 8:000-00
Penrose, E. F. 1953. Economic Planning for the Peace. Princeton, N.J.: Princeton
University Press.
Pollard, R. 1985. Economic Security and the Origins of the Cold War, 1945-1950.
New York: Columbia University Press.
Rees, D. 1973. Harry Dexter White: A Study in Paradox. New York: Coward, McCann
& Geoghegan.
Robbins, L. 1971. Autobiography of an Economist. London: Macmillan.
Rowland, B. 1976. Balance of Power or Hegemony: The Interwar Monetary System.
New York: New York University Press.
�182
G. John Ikenberry
Ruggie, J. 1983. International Regimes, Transactions, and Change: Embedded Liberalism in the Postwar Economic Order. In Imernaiional Regimes, ed. Stephen D.
Krasner. Ithaca, N Y.: Cornell University Press.
. 1991. Embedded Liberalism Revisited: Institutions and Progress in Intemational Economic Relations. In Progress in International Relations, ed. E. Adler and
. B. Crawford. New York: Columbia University Press.
Salant, W. 1989. The Spread of Keynesian Doctrines and Practice in the United States.
\nThe Political Power of Economic Ideas: Keynesianism across Nations, ed. P. Hall.
Princeton, N.J.: Princeton University Press.
Skidelsky, R. 1977. The Political Meaning of the Keynesian Revolution. In The End
of the Keynesian Era: Essays on the Disintegration of the Keynesian Political Economy, ed R. Skidelsky. London: Macmillan.
Spykman, N. 1942. America's Strategy in the World: The United States and the Balance of Power New York: Harcoun, Brace.
Stein, H. 1969 The Fiscal Revolution in America. Chicago: University of Chicago
Press
Sterling, Mark. 1941. Peace by Economists. The Spectator, 24 July, 79-80.
Support for Brenon Woods. 1945. The Nation, 16 June, 661-62.
Sweezy, A. 1972. The Keynesians and Govemment Policy, 1933-1939. American
Economic Review 62(May).l 16-24.
U.S. Department of State. 1948. Proceedings and Documents of United Naiions Monetary and Financial Conference. Washington, D C : U.S. Govemment Printing
Office.
Van Dormael, A. 1978. Bretton Woods: Birth of a Monetary System. London: Macmillan.
Viner, J. 1942. Objectives of Post-War International Economic Reconstruction. In
American Economic Objectives, ed. W. McKee and L. Wiesen New Wilmington,
Pa.: Economic and Business Foundation.
Watt, D. 1983. Perceptions of the United States in Europe, 1945-83. In The Troubled
Alliance: Atlantic Relations in the 1980s, ed. L. Freedman. New York: St. Martin's.
Weir. M 1989. Ideas and Politics: The Acceptance of Keynesianism in Britain and the
United States. In The Political Power of Economic Ideas: Keynesianism across Nations, ed. P Hall. Princeton. N.J.: Princeton University Press
White 1942. March 1942 Draft. White Papers, box 8, Mudd Library, Princeton University.
Woods, R 1990. A Changing of the Guard: Anglo-American Relations, 1941-1946.
Chapel Hill: University of North Carolina Press.
Comment
John S. Odell
G. John Ikenberry argues that the Bretton Woods system, rather than some
alternative monetary arrangement, emerged at the end of World War I I because a transnational group of experts fashioned an idea that was able to attract larger, winning political coalitions inside the United States and Britain,
the dominant monetary powers. Political leaders of the time were seeking an
183
The Political Origins of Bretton Woods
as yet unspecified "middle ground" between other, flawed approaches, and the
expert community responded with an idea that would therefore succeed in
domestic politics. Presumably, Ikenberry means that, absent this community
and its idea, some alternative monetary arrangement would probably have
taken root.
Ikenberry accepts that states and politicians act more or less rationally in
their own interests, but he finds that interests are not identified sufficiendy in
simplified a priori models of public choice. Instead, our models must be enlarged to encompass how people choose one definition of their interests rather
than another and how politics works to produce new policies and institutions.
Ikenberry shows that actual Americans held more than one conception of their
nation's interests regarding postwar intemational economic arrangements—
conuary to the a priori assumptions of the hegemony theory of economic policy and institutions and other theories. The British were divided as well. Once
the plan was publicized, popular opinion tended to gravitate toward it and
away from other ideas that had been prominent until then.
Reading this paper led me to ask myself about other cases since 1944 in
which experts offered intemational monetary reform proposals, always in
their nation's interests, of course. Politicians have adopted some of these plans
too, but not others. For example, leaders eventually adopted the special drawing right (SDR), the European snake, the European Monetary System, and
1988 banking capital adequacy standards.' Among those not adopted (at least
not for many years) were Friedman's early and lonely advocacy of floating,
the late 1960s schemes for limited exchange rate flexibility worldwide,
Ethier's reference rate proposal for managing floating, Williamson's "target
zone" system, proposals to retire the dollar from its reserve role and to create
a substitution account in the IMF, and calls to return to the gold standard.
One wonders whether any general hypotheses could help differentiate between governments' varying responses to monetary reform plans and whether
the 1944 case generates any broader lessons in this regard. The balance of this
brief Comment is a set of speculations on this issue.
Of course, Ikenberry has noted that 1944 was an unusual historic juncture
in which "disruptions and breakdowns of rules and institutions create[d] a
need for nonincremental decision making." In later peacetime periods lacking
upheavals as fundamental as world war, it was naturally more difficult to enact
sweeping change. This difference might help us understand subsequent negative responses, but not positive ones.
Also limited as a generalization is one of Keynes's own notions that his
plan benefited from being "so damn boring," compared to more colorful issues
2
1. On the 1988 banking capital adequacy standards, see Ethan B Kapstein, "Resolving the
Regulator's Dilemma: International Coordination of Banking Regulations," International Organization 43 (Spring 1989): 323-47.
John S. Odell is professor of international relations at the University of Southern California and See Joanne Gowa, "Hegemons, 10s, and Markets: The Case of the Substitution Account,"
2.
International Organization 38 (Autumn 1984): 661-84
editor of Imernaiional Organization.
�184
G. John Ikenbern
such as trade policy on which much stronger opposing coalitions could be
mobilized. To be sure, difficulty in understanding which interests will be affected does change the political process of ratifying technical agreements. In
this 1944 case, however, some vested interests in the United States did fight
vigorously to block passage of the enabling legislation. Moreover, many later
monetary proposals, both those adopted and those overlooked, were surely as
boring as Bretton Woods, to the general public. There might be a long-term
trend at work, however, whereby at least interest groups and politicians, if not
the general public, pay increasingly sustained attention to international monetary and debt reform, for better or worse, than they did fifty years ago. This
speculation would require more investigation.
This said, one condition that did make the Keynes-White plan superior politically to its actual rivals was that most of the known alternative policies had
been severely discredited by the failure of policy experiments. The same
might not be said of all later reform contests. Of course, scientists can and
have interpreted the interwar experience differently. But it is quite predictable
that future public opinion, too, will crystallize around a particular interpretation of contemporary experience and that it will be biased toward preventing
one's own last "war" or debacle rather than reasoning from many other historical analogues available worldwide. While the 1944 weakness of monetary
alternatives was probably unusual historically, in both degree and comprehensiveness, generally one of the most favorable limes to promote any reform
plan is soon after an experience that can be consuued as disconfirming one or
more rival poUcies.
Second, according to Ikenberry, politicians of the day were looking for
a "middle ground," and the content of Bretton Woods was near the middle
of the relevant spectrum. Presumably, schemes that address leaders' current
demands will always be more influential than any that ignore the customer.
This is not to say, of course, that all designers should always disregard
issues that are below the top of the current political agenda. Those agendas
shift, sometimes quickly, and. when they do, a technically sound proposal ready to be advanced on short notice will enjoy a competitive edge.
Keynes, after all, had been preaching for years before his intemational
ideas—spelled out rather clearly in April 1933—were finally implemented
politically.
From the study of one case we cannot be sure whether the dominant influence was this match with current political demand or the centrist content of
the plan. Spatial models of choice would always imply some survey of the
political opinion spectrum and give the nod to the best-located plan. Such an
idea might atuact sufficient suppon away from itsrivalseven if the latter have
not been as discredited as the gold standard and floating rates were in 1944.
Nevenheless, a similar caveat applies. The actual process is a dynamic one,
in which advocates attempt to reshape the opinion curve itself.
On this second point, the paper would be more convincing, in my opinion,
185
The Political Origins of Bretton Woods
if it included more concrete evidence of the political demand for a middle
ground and more evidence of the degree of domestic support for the rival
plans. The evidence presented is consistent with the argument, but more thorough comparative research on this cenual point seems feasible.
Third, for Ikenbeny, the Bretton Woods plan was not formulated by a single
author; rather, it was influenced by a Uansnational community of experts, inside and outside the two governments. Research would be needed to investigate whether in general the presence of a transnational expert community is
systematically associated with policy success. Such a community seems to
have formed, more or less, on behalf of greater but limited exchange rate
flexibility in the late 1960s, but was evidendy not sufficient. Perhaps a key
difference was that the convinced community in that case included too few
members inside governments. In any case, Ikenbeny has not claimed that this
Uansnational community condition will be sufficient alone.
One special, fourth, condition in 1944 was that the plan was also identified
with an increasingly famous prophet. Keynes's 1923 Tract on Monetary Reform had probed the weaknesses of the gold standard, and "within a decade,"
Harrod writes, "Keynes' position had won the allegiance of at least half the
world." In the 1933 book The Means to Prosperity, Keynes proposed international cooperation in a form that foreshadowed the IMF. Likewise, in future
competitions among ideas, any plan that enjoys an association with accurate
past forecasts of alternative policies' failures will likely have an advantage
again.
The Bretton Woods case also hints at a fifth hypothesis, namely, that the
idea that prevails politically will be the one supported by the most skillful
negotiation suategy. Not all plans promoted by one or another govemment
have produced intergovernmental agreements, even when agreement could
benefit both sides. More is involved in the outcome than the negotiators' suategy choices, but this case does seem to suggest the utility of approaching one
or two dominant powers first, bringing them to agreement, and only then involving third governments. Most of the negotiating had been completed by
the time the delegates arrived at the Mount Washington Hotel. In 1987, the
Federal Reserve and the Bank of England followed the same "bilateral-first"
sequence in producing the Group of Ten accord on bank capital. To be sure,
multilateral negotiation may often be necessary, both for technical reasons and
to reflect adequately the interests of smaller parties. Cases such as the 1985
Plaza agreement indicate that "multilateral first" may also produce agreement.
More careful research would be needed to establish any firm generalizations
on this question as well.
Finally, Ikenberry's paper ends without discussing the sttuggle over the
3
4
3.R. F. Harrod. The Life of John Maynard Keynes (London: Macmillan, 1966), 339.
4 Sianiev W. Black, .4 Leviie among the Priests: Edward M. Bernstein and the Origins of the
Brenon Woods System (Boulder, Colo.: Westview, 1991). 42-47.
�186
G. John Ikenberry
187
Bretton Woods agreement's ratification, a stage that was decisive in producing
the monetary system we discuss today. This is not a criticism of the paper, but
the final act is also instructive. The Roosevelt administration submitted a bill
to Congress that would enable the United States to play the role that the exec.utive had designed for itself, but Congress's approval was not at all guaranteed. In March 1945, the chairman of the House Banking Committee told
Treasury Secretary Henry Morgenthau that a majority on this key committee
opposed the bill, and Winthrop Aldrich of New York's Chase Bank, one of the
harshest critics, was certain it would fail. A ratification failure would have
duplicated President Wilson's unhappy experience with the Versailles Treaty
twenty-six years earlier.
Precisely that historical analogy concenuated the adminisuation's mind,
which thus set about to avoid the same mistakes. In the first place, Roosevelt
and Morgenthau personally selected as members of the U.S. delegation suategic figures who. if inspued by diplomatic experience at the foot of Mount
Washington, could provide special assistance during the ratification phase.
Reversing Wilson's practice, they included members of Congress, including
Republican leaders of the committees that would have to consent. After the
conference, the Treasury staff retained a public relations specialist and
mounted a uuly amazing campaign in localities across the land to generate
grass-roots support. They helped journalists prepare supportive radio scripts
and articles, including one in Colliers magazine entitled "Bretton Woods or
World War HI." Secretary Morgenthau delivered speeches outside Washington
touting the local economic benefits that the "boring" reform would bring. The
American Federation of Retailers sent mailings to 1.8 million stores urging
citizens to contact Congress on behalf of Bretton Woods and an end to war.
As a result of this campaign, by mid-May Congress was receiving citizen mail
heavily in favor of this technical bill, and Congress responded accordingly.
Morgenthau also accepted minor amendments that would permit him to harvest additional favorable votes, in contrast to Wilson's rigidity. The amended
bill then passed each house by more than a two-thirds margin.
Advocates of rival policy ideas do not automatically mount equally powerful persuasion campaigns, and these political contests do affect actual outcomes. Politicians and citizens do not necessarily persuade themselves which
new idea to adopt or which new coalition to join. Therefore, not only careful
design of the reform itself, historical luck, and skillful intemational bargaining matter. In addition, the more extensive and sophisticated the campaign to
"sell" it to constituents, the greater the chances a reform will be implemented.
5
5 See A. E. Eckes, Jr.. A Search for Solvency: Bretton Woods and the Imernaiional Monetary
Svstem. 1941-1971 (Austin: University of Texas Press, 1975); and John S. Odell, "From London
10 Brenon Woods: Sources of Change in Bargaining Strategies and Ouicomes." Journal of Public
Pol,c\ 8 (July-December 1988): 287-315.
The Political Origins of Bretton Woods
Comment
L. S. Pressnell
Shortly before the Bretton Woods conference, a senior lawyer was loaned
from the Foreign Office to the small British delegation; just one lawyer. One
too many, Keynes thought. The lawyer, an ultimately Uagic figure, found the
pressure of work "great and thefinancialstuff very hard to understand" (Beckett 1944, entry for 6 July). Not surprisingly, he was subsequendy unsure
about the meaning of the Fund's critical Article VIII that he had helped draft
(Pressnell 1987, 176).
Then there was Keynes himself. For several months after Bretton Woods he
agitated himself, his colleagues, and the chancellor of the Exchequer over
whether, in the apparently uncertain light of that article, the British govemment should be recommended to adopt the agreements that he had helped
formulate (Pressnell 1987, 168-82, 401-8).
These reflections suggest some rejigging of John Ikenberry's stimulating
observations on the undoubtedly remarkable degree of expert AngloAmerican involvement in the negotiation of the Bretton Woods agreements.
Such rejigging may help explain why the Fund's early history did not match
the hopes at its creation.
Three points may be suessed. First, Anglo-American cooperation was very
much less securely based outside the small group of experts than within it.
Second, Uade policy requires more attention, by the opening of Ikenberry's
elliptical allusion to "stalemate." Immobilisme did indeed threaten after the
fierce Keynes-Acheson encounter of July 1941, but it did not fully emerge
until some two years or so later, when Americans and British reueated from
the high hopes of their experts' Washington discussions in SeptemberOctober 1943. Moreover, uade policy was not pushed aside; it remained "a
loose cannon," liable to roll dangerously over a heaving transatlantic deck.
Third is the question of alternatives to Bretton Woods. Although Ikenberry's
assertion that they disappeared from public debate seems appropriate in terms
of potential competition with the Keynes and White plans, it is less so for the
practical realities. As with more recent developments, non-IMF monetary arrangements after 1945 threatened to leave the Fund on the intemational sidelines.
To begin with the frail underpinning of the intellectual alliance, British experts at Bretton Woods had to hold back discussing Uade policy, about which
more is said below (Pressnell 1987, 136-37; Robbins 1971, 203-4). Far from
least, the British were reluctant to disclose their perplexity about how to deal
L. S. Pressnell. a monetary historian, has held appoimmems in economics and economic history in British universities. He is currently a member of the Cabinet Office Histoncal Section.
�188
189
G. John Ikenberry
with the massive overseas indebtedness, already some £3 billion ($12 billion)
of "sterling balances"; again, this is discussed more fully below.
No doubt this reticence reflected British unwillingness to admit to the
United States its junior partner's weakness lest the senior exploit that. Certainly, one detects that wariness in Prime Minister Churchill shortly after the
enactment of Lend-Lease. Although he no longer nursed his fears of 1927 of
a fuiure war with the United Slates (Gilbert 1979, 1033), he was apprehensive
of friction- In arevealingdispatch of April 1941, he considered the "suspicion
Had
reaiasnaaLBl'
A u t i - w m o tW- m i n r r e i l m r i m t W m p r i y s m m n m Ana hart
evolved between Britain and the United States. If such strains could afflict
cooperation in the current danger, he questioned whether they were likely tp |
be diminished when peace came.
There were difficulties enough at home, where, in Churchill's coalition cab-::
inet, there was strong opposition to the Uade and monetary plans that evolved |
from 1941. Indeed, as the time for Bretton Woods approached in 1944, the j |
hostile faction even sought—unsuccessfully—specific representation in the
British delegation (Pressnell 1987. 156 n. 67).
In this political sphere, however. Ikenberry suggests that Bretton Woods 3
was to have a unifying role. Was this perhaps more a dampening down of 'M
differing negatives than an onrush of shared and positive enthusiasm? The'Right was haunted by a concern never to be responsible for repeating the de- j
cision of 1925 to adopt an exchange rate apparently too high and too inflex-^
ible. The Left endured complementary torment: resistance to exchange ar?'|
rangements that had as trade-offs large-scale unemployment andrepetitionof&!
thefinancial-cum-politicalcrisis of 1931.
There was, indeed, not much enthusiasm in the parliamentary debates o f !
May 1944 on the "Joint Statement by Experts" that preceded Bretton Woods'.B
Keynes was sickened by the fierce anti-Americanism of the House of Com-^
mons debate (Keynes 1980, 3, 6). Subsequently, the govemment was able to.J
avoid parliamentary debate of the Bretton Woods agreements. Approval wasj
to be pushed through with that of the even more suongly disliked, but scarcely!
escapable, Anglo-American Financial Agreement of December 1945, whiclri
was to provide for Britain's postwar recovery an interest-bearing line of credit^
of S3.75 billion.
Even Keynes's own consuuctive role must be qualified. At the Atlantic City.|!|
meetings immediately preceding Bretton Woods, he was under insttuctions to j
secure that the Fund agreement would include the essence of "the Cattp^
clause" (Lord Catto, formerly an adviser to the chancellor, had recently be-|
come governor of the Bank of England). This was to safeguard a country's^
ultimate right over its exchange rate, which Article IV, sections 5(c)(iii), 5(f)|j
and 6, was to recognize (Pressnell 1987, 149-50, 160-61).
;
1
;
5
1. Dispatch from Mr. Winston Churchill to Viscount Halifax (Washington), 10 April 1941,i
London. Public Record Office. CAB 117/52.
The Political Origins of Bretton Woods
At Bretton Woods, Keynes similarly suuggled, although less successfully,
for a counuy's—that is, Britain's—discretion to restrict convertibility, not
only of accumulated balances, but also of current receipts in international
Uade. Britain's immediate concern was with the substantial sterling balances
still accumulating as aresultof an inability to export sufficiendy against goods
and supplies from sterling-using countries (the "sterling area") and others.
There was also concern about future accumulations that might be expected to
arise with a reserve currency such as sterling, the expenditure of which in a
balance of payments crisis might need to be conttolled. The British delegation
had been insuucted to secure provisions that the release of such balances
should be limited to those recendy acquired and only if needed for current
• transactions.
a-In the event, that is, in Article VIII, section 4, the intended twin conditions
tfor the release of balances became alternative and therefore weakened re| straints. Back in Britain after the conference, Keynes glimpsed unexpected
ihorrors in that article once he was persuaded that it would not allow Fundfapproved restrictions on convertibility of balances to apply also to current
transactions. Conclusive elucidation and assurances were eventually obtained
^ o m Edward M. Bernstein (via the secretary of the ueasury, Henry J. Mor|genthau). Further, it became apparent that loopholes had been left, pending
^agreement on an intemational uade charter, for escape from monetary confstraints by the use of Uade conuols. Only then, in mid-1945, almost a year
|after Bretton Woods, did he desist from recommending that the British
government reject the Fund agreement that he had done so much to produce
|(Pressnell 1987, 167-82, 401-8). Even so, by that time British officials were
^doubting whether, for Britain, the IMF had much of a future.
j What of the wider British public? Certainly it was emotionally predisposed to
|intemational cooperation. In pamphlets and books and discussion groups,
Jmany, echoing thoughts at governmental levels, looked back regretfully at the
^weaknesses of the old League of Nations and hoped for a much sttonger retplacement to provide some elements of world govemment.
|i:-Such wartime ruminations suessed intemational political arrangements
frather than economic, and in a more general sense than specifically with reaspect to Anglo-American relations. Indeed, the long-standing and widespread
tenthusiasm for President Franklin D. Roosevelt was only to a limited extent
lielated to international policies. Although there had undoubtedly been a desIperate prewar yearning for his leadership to reverse Europe's drift toward war,
ladmiration was attached rather to the presumed vinues of the New Deal.
|Away from domestic policy, recollection of the Great Depression fostered deStermination to be shielded from its source in the American economy.
With high tariffs since 1932 supplemented by wide-ranging conuols conIstructed during the war, the consensus in both major political parties placed
jjahead of any other economic commitment a determination to prevent a recur-
�190
G. John Ikenberry
renee of the mass unemployment of the interwar years. Coupled with that
would be greatly extended social services. The greater state intervention involved seemed a limited problem politically. Indeed, in 1946, Churchill, out
of power and leader of the Opposition, told senior congressmen that many
domestic policies of the Labour govemment were the same as those of his
own Conservative party.
The British public's postwar vision was predominantly inward looking in
economic maners. If the postwar Labour governments of 1945-51 appeared
similarly oriented, that reflected not just understandable concern to prevent a
recurrence of mass unemployment but also Labour economists' perplexity
about applying socialist principles to intemational economic policy. Traditionally, Labour had accepted orthodoxy until the departure from gold in 1931 and
resort to protection and preference in the following year. Pragmatism then
evolved (Durbin 1985, 251-54, 256, 262), reinforced after the war by surviving wartime controls in prolonged balance of payments difficulties. Bretton
Woods evoked wariness from Labour, as one of its prolix publicists noted, lest
domestic policies be compromised, and resentment that adherence to it had
been the price of the postwar American credit (Cole 1947, 406-8, 509, 664,
977-88).
2
A second major reflection on Ikenberry's paper concerns British attitudes
toward trade policy. He stresses the near impasse that resulted partly from
familiar tension between the U.S. Treasury and State Departments, partly
from Bntish resistance to the multilateral implications of .Article VII of LendLease. Were there not wider influences? Given inevitable horse-trading
among multiple players of multiple trading games, a slower pace in securing
agreement on commercial policy could have been expected. Moreover, there
was logical priority in concentrating on monetary stabilization, to ensure that
constraints on trade restrictions would not be circumvented by resort to equivalent currency restrictions.
Differences over Uade policy were nevertheless to cloud prospects for monetary liberalization. Here it may be noted that Keynes's ideas and influence
were less sharp, perhaps more devious, than on the monetary proposals. For
instance, to deal with balance of payments disequilibrium, he strongly favored intervention rather than dependence on market forces through exchange
variation. Notwithstanding his recognition of the ultimate importance of
Anglo-American cooperation, he sought to retain scope for direct conuols on
imports (Keynes 1980, 283-304).
A forward-looking outcome on trade policy had nevertheless seemed possible after the Anglo-American discussions of September-October 1943, with
the British-inspired agreement among experts on the "Washington principles."
2. Report from the British Embassy in Washington, D . C 14 March 1946, London, Public
Record Office, CAB 8/197.
191
The Political Origins of Brenon Woods
Very soon, however, apprehensive politicians on both sides yielded to their
respective pressure groups, notably from agriculture. The old suspicions reemerged: the British of U.S. tariff and subsidy policies, the American of British discrimination in Uade under the associated—although in American comment not always clearly distinguished—systems of imperial preference and
the sterling area.
John Ikenberry identifies a major element in this clouded cooperation when
citing Secretary of State Cordell Hull's view: that imperial preference, stemming largely from the imperial economic conference at Ottawa in 1932, was
"the greatest injury, in a commercial way," that had been inflicted on the
United States during his public life. We can first substitute for Cordell Hull
almost any British politician or economic historian. Then, for condemnation
of imperial preference, substitute that dramatic roll call two years earlier of
highly protected American industries, the Smoot-Hawley tariff of 1930. Although the Ottawa system, which discriminated against other countries
besides the United States, should not be viewed as simply a reaction to SmootHawley (Drummond and Hillmer 1989, 16), that undoubtedly became subsequently aritualisticjustification for Britain's swing toward the general protectionism that made preference possible.
Ikenbeny nghtly stresses that the likely difficulties in the postwar balance
of payments made imperial preference seem more atuactive. Except for vociferous zealots for a self-contained empire uading bloc, this was not predominantly imperial preference for its own sake. The underlying consuaint in relation to the possibilities of a liberal uading order was the expected
inadequacy of dollar earnings and of intemational reserves after the war; that
seemed to require, unavoidably, discrimination in Uade as well as through
continued exchange conuols.
There was, however, more to the matter than all this. Formal discrimination
by imperial preference seems only partially to explain the prewar advantage
of British over American exports to the British Commonwealth (MacDougall
1952, 506-7, 511). To diminish or dispense with it too abruptly would have
hazarded a much wider proportion of trade than that explicidy favored. Beyond lay much unformalized preference for British goods: from millions of
British emigrants or their descendants; from local subsidiaries of leading British businesses; from cenual and local governments and their purchasing agencies in London as well as the crown agents for the colonies.
One might reasonably ask whether the American crusade against British
discrimination in Uade and payments took insufficient account of what was
involved. Was it pushed too far and too fast for others' comfort and its own
success? In the context of Anglo-American cooperation on international economic problems, did it hazard the prospects of the new Intemational Monetary Fund? Such questions arise when considering Britain's first postwar financial crisis of 1947. Conventionally described as "the convertibility crisis,"
it was at least as much a crisis over discrimination.
�19
*2
G. John Ikenberry
What needs first to be brought into account is that, by the outbreak of war
in 1939, the formal imperial preference of only a few years previously was
already among the walking wounded. Just as the British attempt of 1931-32
at afree-rangemonetary policy had been capped by the new Roosevelt administration, so was the imperial preference structure from 1935: by U.S. uade
agreements with Canada in 1935 and with both Canada and Britain in 1938
(Drummond and Hillmer 1989). Although the war thrust the British agreement into a kind of limbo, efforts to eam dollars for American war supplies
were forcing Britain, even before the enacunent of Lend-Lease, to contemplate cuts in preference against the easing of U.S. resuictions on their exports
(Pressnell 1987, 21).
When Lend-Lease from spring 1941 ended that phase, the "Consideration"
required for that dramatic lifeline offered irresistible leverage against British
protectionism, specifically the discrimination of imperial preference. The resultant Article VII of the Mutual Aid Agreement in 1942 exacted from a
doggedly resistant British war cabinet resentful agreement to work toward
postwarreductionof trade barriers and elimination of discrimination. Shortly,
however, as Ikenberry has noted, British thinking found possibilities in multilateralism internationally if combined with stable employment domestically.
The eventual proposals for liberalized world uade, inspired largely by
James Meade, complemented the imaginative monetary proposals of Keynes
(who, however, was intensely skeptical about them) and underlay the Washington principles already mentioned (Pressnell 1987, 100-101). In the retreat
from those, American hostility toward imperial preference seemed to intensify, in endeavors to secure virtually its unilateral and uncompensated elimination. American attacks helped promote it to symbolic status as one of Britain's few bargaining counters, one that should not be yielded lighdy.
A fragile compromise was reached during the Anglo-American negotiations of September-December 1945 for a postwar line of credit, which was
tied to fulfillment of Article VII. Although the skilled British negotiators of
the uade policy aspects had insisted on reciprocity for cuts in preference and
withheld commitment on reduction, let alone unilateral elimination, they offered undertakings that there should be no new preferences or increases in
existing margins (Pressnell 1987, 277-78, 326-28).
A crunch on the underlying principle of nondiscrimination approached in
summer 1947, with the simultaneous culmination of the Geneva trade negotiations (which led to the signing in October of the General Agreement on Tariffs and Trade) and a British balance of payments crisis. As mid-July 1947
approached, when Fund convertibility was required by the Anglo-American
Financial Agreement of 1945, discrimination had been envisaged by British
officials and ministers as essential: to support that early convertibility and to
stem a gathering sterling crisis. In Geneva, however, U.S. representatives
pressed hard for acceptance of early consuaints on discrimination.
A senior British minister, knowing that they would have to be disregarded
193
The Political Origins of Bretton Woods
forthwith, flady refused. He rejected accommodation by some meaningless
fudge; that "would be a hoax." The British signature was secured only by
incorporation of clearly relaxed conditions (Foreign Relations of the United
States 1973, 970, 1022). By then, however, the fierce Geneva struggle over
discrimination had turned attention to the alternative of suspending Fund convertibility itself. That dramatic action, effectively immobilizing some 40 percent of the Fund's main resources, overshadowed the issue of discrimination
in which, notwithstanding all that had gone before, the United States acquiesced as a means of returning sterling eventually to convertibility.
My third query concerns the alternatives to Bretton Woods that, Ikenberry
remarks, were shunted to one side. Certainly, the "key currency" approach—
under which, in a blend of the interwar gold exchange standard and the Tripartite Agreement of 1936, the leading currencies would be stabUized, with
lesser currencies flexibly attached to them—seemed to be a nonstarter (Horsefield 1969, 1:17-18). Were there, however, serious miscalculations, stemming
partly from the frequently reiterated U.S. belief in a postwar Uansition much
briefer than considered feasible on the British side? Was there a particular
miscalculation by the U.S. Treasury, or at least by Harry White, shortly after
Bretton Woods?
In rejecting the key currency approach. White drastically understated the
significance of the pound sterling when he narrowly assessed its role as an
intemational currency in terms, not of the 50 percent of intemational uade
that itfinanced,but of the 15 percent represented by strictly British Uade. That
was to ignore the sterling-based arrangements of over one-third of world
uade. By doing that, and by adding America's 12 percent of world uade to
Britain's 15 percent. White reached the somewhat spurious figure for the 70odd percent of world uade for which he optimistically declared the new Fund
and Bank would provide necessary stability (White 1945, 206).
In practice, Britain was determined to sustain and indeed to extend the use
of sterling. Massive sterling balances, in default of significant cancellation or
funding or Uansfer to other and firm holders, might swamp Britain's exiguous
reserves and shrunken export capacity. Accordingly, well before the Bretton
Woods agreements were ratified and put into effect, the British Treasury was
developing prewar and wartimefinancialarrangements into a network of payments agreements, with substantial credit swings (Bank for Intemational
Settlements 1945,96-107).
American officials had realized that accumulated sterling balances might
tempt Britain to discriminate in favor of sterling rather than dollar uade,
underpinning the imperial preference system, and deplored such bilateralism
(Pressnell 1987, 84, 202). Why, then, did not Anglo-American proposals seek
to stave off that threat to postwar monetary and uade liberalization?
An early draft of the U.S. Stabilization Fund had indeed proposed a scheme
to deal with abnormal balances (Horsefield 1969, 1:23, 48, 52-53; 3:91-92).
�194
G. John Ikenberry
Britain, however, eventually held off, fearing to replace a sterling debt with
one in dollars, and apprehensive that to load the Fund with such debts would
immobilize it at the outset. An acceptable alternative solution did not emerge
either by the time of the 1944 conference or subsequently. During the conference, two of Britain's biggest creditors, India and Egypt, threatened an acrimonious debate on the issue. Their representatives were somewhat reassured
behind the scenes and onstage by the one definite commitment on balances.
Conveyed by Keynes on behalf of Britain's chancellor of the Exchequer, and
known later in India as "the Keynes pledge," it affirmed that there would be
no unilateral repudiation; they were debts to be settled honorably (Pressnell
1987. 162-67; The Transfer of Power 1976, 880-81, 917-19).
Intriguing from a British viewpoint was the American tendency to regard
cancellation of sterling balances as both appropriate and simple. Such treatment of the desperately poor countries that largely held them would have resembled the alleged exploitative behavior for which imperial Britian was routinely assailed. In India, for instance, that would have invited serious
disturbances.
Conceivably, the Keynes pledge explains the near insouciance of Treasury
Secretary Morgenthau and Harry White, after Bretton Woods, toward Britain's otherwise alarming overhang of debt (Morgenthau 1945, 189; White
1945, 207). Without that, Britain's balance of payments problem after the war
might have been more closely limited to the current account and less one of
increased burdens on capital account. Within less than a year, however, in the
Anglo-American financial negotiations of 1945, White (Morgenthau had recently handed over to Judge Fred Vinson) was displaying anxiety. He now
favored a drastic scheme for "discounting" sterling debt, comparable to proposals aired in recent years for dealing with Third World debt (Pressnell 1987,
288-92; Corden 1988). That proved a nonstarter for the U.S. Treasury and
would probably also have been for the British Treasury.
The absence of an acceptable scheme was to underpin the policy of running
sterling as a key currency. The convertibility failure of 1947 was to reinforce
that suess on using the sterling area to protect Britain's balance of payments.
These developments meant that the Anglo-American experts had failed to
sideline effectively a major alternative to Bretton Woods. Like Britain's hesitant support for the new intemational economic organization and its reluctance to abandon discrimination, that should cause little surprise. The experts
who devised the Fund and the Bank not surprisingly had more rapport than
the feuding politicians and divided electorates on whom fulfillment depended.
Can students of intemational monetary relations seriously expect more than a
few forward steps at any one time, or indeed over a very long period? Bretton
Woods was indeed a historic compromise. The Anglo-American experts
pointed the way to that in exceptional fashion, as John Ikenberry has so illuminatingly recounted.
195
The Political Origins of Bretton Woods
References
Bank for Intemational Settlements. 1945. Fifteenth Annual Report. Basle.
Beckett, W. E. 1944. Bretton Woods Diary. By courtesy of Her Majesty's Foreign
Office.
Cole, G. D. H. 1947. The Intelligent Man's Guide to the Post-War World. London:
Gollancz.
Corden, W. Max. 1988. An Intemational Debt Facility? International Monetary Fund
Staff Papers 35(2) :401-21.
Drummond, Ian M., and Norman Hillmer. 1989. Negotiating Freer Trade: The United
Kingdom, the United States, Canada, and the Trade Agreements of 1938. Waterloo,
Ont.: Wilfrid Laurier University Press.
Durbin, Elizabeth. 1985. New Jerusalems: The Labour Parry and the Economics of
Democratic Socialism. London: Routledge & Kegan Paul.
Foreign Relations of the United States, 1947: Volume 1. 1973. Washington, D.C: U.S.
Govemment Printing Office.
Gilben, Martin. 1979. Winston Churchill. Vol. 5, Companion Part 1: Documents: The
Exchequer Years, 1922-1929. London: Heinemann.
Horsefield, J. Keith, ed. 1969. The International Monetary Fund, 1945-65 . 3 vols.
Washington, D.C: Intemational Monetary Fund.
Keynes, John Maynard. 1980. The CoUected Writings. Vol. 26, Activities. 1941-46:
Shaping the Post-War World: Bretton Woods and Reparations. London: Macmillan.
MacDougall, Sir Donald. [1952] 1975. British and American Exports: A Study Suggested by the Theory of Comparative Costs: Part II. In Studies in Political Economy,
vol. 2. London: Macmillan.
Morgenthau, Henry, Jr. 1945. Brenon Woods and Intemational Cooperation. Foreign
Affairs 2i(2):\Z2-94.
Pressnell, L. S. 1987. External Economic Policy since the War. Vol. \,The Post-War
Financial Settlement. London: Her Majesty's Stationery Office.
Robbins, Lord. 1971. Autobiography of an Economist. London: Macmillan.
The Transfer of Power. Vol. 6, The Post-War Phase: New Moves by the Labour Government, 1 August 1945-22 March 1946. 1976. London: Her Majesty's Stationery
Office.
White, H. D. 1945. The Monetary Fund: Some Criticisms Examined. Foreign Affairs
23(2): 195-210.
General Discussion
Much of the discussion was over the role of the Soviet Union at Bretton
Woods. Edward M. Bernstein spoke at length on the subject and we include
his remarks.
The Soviet Union and Bretton Woods
Edward M. Bernstein
The Keynes and White plans for the intemational monetary system were proposed in 1943—the midst of the war. It was necessary, therefore, that all the
Edward M. Bernstein is a guest scholar at the Brookings Institution. H was the chief technical
e
adviser and executive secretary of the U.S. delegation at the Bretton Woods Conference, 1944,
and the director of research at the International Monetary Fund, 1946-58.
�
Dublin Core
The Dublin Core metadata element set is common to all Omeka records, including items, files, and collections. For more information see, http://dublincore.org/documents/dces/.
Title
A name given to the resource
Michael Waldman
Description
An account of the resource
<p>Michael Waldman was Assistant to the President and Director of Speechwriting from 1995-1999. His responsibilities were writing and editing nearly 2,000 speeches, which included four State of the Union speeches and two Inaugural Addresses. From 1993 -1995 he served as Special Assistant to the President for Policy Coordination.</p>
<p>The collection generally consists of copies of speeches and speech drafts, talking points, memoranda, background material, correspondence, reports, handwritten notes, articles, clippings, and presidential schedules. A large volume of this collection was for the State of the Union speeches. Many of the speech drafts are heavily annotated with additions or deletions. There are a lot of articles and clippings in this collection.</p>
<p>Due to the size of this collection it has been divided into two segments. Use links below for access to the individual segments:<br /><a href="http://clinton.presidentiallibraries.us/items/browse?advanced%5B0%5D%5Belement_id%5D=43&advanced%5B0%5D%5Btype%5D=is+exactly&advanced%5B0%5D%5Bterms%5D=2006-0469-F+Segment+1">Segment One</a><br /><a href="http://clinton.presidentiallibraries.us/items/browse?advanced%5B0%5D%5Belement_id%5D=43&advanced%5B0%5D%5Btype%5D=is+exactly&advanced%5B0%5D%5Bterms%5D=2006-0469-F+Segment+2">Segment Two</a></p>
Creator
An entity primarily responsible for making the resource
Michael Waldman
Office of Speechwriting
Date
A point or period of time associated with an event in the lifecycle of the resource
1993-1999
Identifier
An unambiguous reference to the resource within a given context
2006-0469-F
Extent
The size or duration of the resource.
Segment One contains 1071 folders in 72 boxes.
Segment Two contains 868 folders in 66 boxes.
Provenance
A statement of any changes in ownership and custody of the resource since its creation that are significant for its authenticity, integrity, and interpretation. The statement may include a description of any changes successive custodians made to the resource.
Clinton Presidential Records: White House Staff and Office Files
Publisher
An entity responsible for making the resource available
William J. Clinton Presidential Library & Museum
Format
The file format, physical medium, or dimensions of the resource
Adobe Acrobat Document
Text
A resource consisting primarily of words for reading. Examples include books, letters, dissertations, poems, newspapers, articles, archives of mailing lists. Note that facsimiles or images of texts are still of the genre Text.
Original Format
The type of object, such as painting, sculpture, paper, photo, and additional data
paper
Dublin Core
The Dublin Core metadata element set is common to all Omeka records, including items, files, and collections. For more information see, http://dublincore.org/documents/dces/.
Title
A name given to the resource
WTO [World Trade Organization]: History - The Bretton Woods System
Creator
An entity primarily responsible for making the resource
Office of Speechwriting
Michael Waldman
Is Part Of
A related resource in which the described resource is physically or logically included.
Box 30
<a href="http://clinton.presidentiallibraries.us/items/show/36404"> Collection Finding Aid</a>
<a href="https://catalog.archives.gov/id/7763296">National Archives Catalog Description</a>
Identifier
An unambiguous reference to the resource within a given context
2006-0469-F Segment 2
Provenance
A statement of any changes in ownership and custody of the resource since its creation that are significant for its authenticity, integrity, and interpretation. The statement may include a description of any changes successive custodians made to the resource.
White House Staff and Office Files
Publisher
An entity responsible for making the resource available
William J. Clinton Presidential Library & Museum
Format
The file format, physical medium, or dimensions of the resource
Adobe Acrobat Document
Medium
The material or physical carrier of the resource.
Preservation-Reproduction-Reference
Date Created
Date of creation of the resource.
6/3/2015
Source
A related resource from which the described resource is derived
7763296
42-t-7763296-20060469F-Seg2-030-004-2015