Here are two posts on the original GATT negotiations, from Roy Santana of the WTO:
CLASH OF THE GATT NEGOTIATORS
Sir Richard Stafford Cripps, President of the British Board of Trade, disagreed and strongly continued to oppose the dogmatism of the "American free traders". For him, the immediate elimination of the "Ottawa System of Imperial Tariff Preferences" was a red line that could not be crossed, as it would severely impact the already weak post-war economies of the Commonwealth. Members of the British Empire enjoyed tariff preferences (i.e. a lower duty of rate than third countries), which had been designed in 1898 as a means for commercial integration, and further developed in the Ottawa agreement of 1932 as a response to the Great Depression. Back in Britain, the immediate implementation of the MFN clause was perceived as naïve dogmatism and a selfish idea by the US negotiators. While embracing the ultimate goal of eventually achieving MFN trade, the British considered that considerable time would be required for their economy to adjust. It was feared that an immediate elimination of tariff preferences would lead to a ruinous trade deficit and a balance of payments crisis, as it had nearly happened at the beginning of 1947 with the "dollar crisis". Australia, Canada and other Commonwealth members were also concerned about the American proposal and were not ready to sacrifice their economies in the GATT negotiations. Even John Maynard Keynes, the famous economist, had publicly argued that the ongoing British problems required the UK to use of tariffs to protect its domestic industries, expand output and increase employment.
While the Americans were willing to bargain for a fair deal, they considered that the British position was unacceptable, as the US would had to grant large-scale tariff concession before Britain would take action to reduce its trade preferences. Frustration within the American delegation was growing. In a letter to capital dated 30 September 1947, lead negotiator Winthrop Brown described the situation as follows: "It is an absolutely beautiful day. The lake is very blue, the hills look like a picture postcard, and the only blots on the landscape are British preferences about which I spend most of the night dreaming."
Secretary of State Cordell Hull was replaced in the midst of the negotiations by Will Clayton who, unfortunately for the British, continued insisting on immediate MFN conditions as the only possible outcome of the GATT. Why should the US, the most important victor of World War II, be asked to make one-side sacrifices? Sir Richard Stafford Cripps told an infuriated Clayton to simply withdraw some tariff offers if he was unhappy with the British concessions. The Anglo-American alliance entered a tense phase which was complicated by the personal animosity between Clayton and Stafford Cripps.
Convinced of the fairness of their positions, the Americans and the British dug their heels and grew deeply entrenched. Clayton had had enough with the British stubbornness and proposed to walk away from the negotiating table. Short of a miracle, the GATT negotiations appeared doomed to fail...
Source: Thomas W. Zeiler (1997), GATT Fifty Years Ago: U.S. Trade Policy and Imperial Tariff Preferences, Department of History, University of Colorado at Boulder.
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GATT 1947: How Stalin and the Marshall Plan helped to conclude the negotiations
Last week's post (read here) described the clash between Will Clayton, lead US negotiator, and Sir Richard Stafford Cripps, lead UK negotiator, who profoundly disagreed on the level of ambition that had to be achieved by the GATT negotiations. I went through the internal photo archives of the WTO and was lucky to find a picture of one of those bilateral meetings, a historical jewel that perfectly illustrates the tension between them.
So, what happened? How did they manage to overcome such a profound difference?
Clayton's problem with the GATT went beyond the MFN clause and Starfod Cripp's defense of the Ottawa Imperial Preferences. Several key provisions that appeared to set strong rules prohibiting or regulating protectionist measures were then followed by exceptions that, in practical terms, nullified their value. For example, Article XI of the GATT was meant to prohibit introducing or maintaining quantitative restrictions, broadly defined as prohibitions or restrictions other than tariffs or taxes, but was immediately followed by Article XII which would allow Contracting Parties to restrict the quantity of the value of imports in order to safeguard its external financial position and its balance of payments. At the time, many of the countries negotiating the GATT faced acute balance of payments problems, including key markets such as the UK and practically all other European countries, which meant that the General Agreement would allow them to legally stop American exports. Even worse, the Protocol of Provisional Application contained a grandfather clause that would allow Contracting Parties to continue applying GATT inconsistent legislation preceding the General Agreement. What then, was the point of having a trade agreement that would open the American market to imports without achieving reciprocal access in the other markets?
Clayton was not shy in expressing his frustration and was concerned that such a deal would not be approved by Congress. On 6 August 1947, he tasked Clair Wilcox, his deputy, to prepare a "short list" of margins of preference that the UK would have to eliminate, or else the US would be walking away from the negotiations. Anticipating a negative answer from the stubborn Stafford Cripps, Clayton advised the administration to drop the negotiations with the UK and to seek a multilateral deal with the others. Politically, the blame would lie squarely on the British for not moving enough on the preferences.
While the strategy was arguably sound from the trade perspective, there were several other geopolitical elements that had to be considered by the US administration. Two people had the ultimate responsibility of deciding to walk away from the GATT: President Truman himself and Robert Lovett, Undersecretary of State who was closely following the discussions. The political dimension was infinitely more complex than the relatively straight forward trade aspects. Only two years before the deadlock with the UK, the leaders of the three victorious powers of World War II -Truman, Churchill and Stalin- had failed to reach consensus at the Yalta Conference of 1945 on how to reconstruct Europe and maintain post-war security. The western allies aspired to a security system based on democratic governments and the peaceful resolution of conflicts through international organizations, while the Soviet Union was determined to protect itself by dominating the internal affairs of the countries bordering it, a strategy that eventually became known as the "iron curtain". A Cold War was emerging from the midst of growing tensions between the Soviet and the Western allies. In 1947, the "Truman doctrine" was developed as a countermeasure to the Soviet Union's growing influence and with a view to containing communism. A key part of this doctrine was the Marshall Plan, which would assist in the reconstruction of all European countries willing to participate.
These major political events not only impacted on the GATT negotiations but, in fact, sealed its faith. When considering Clayton's proposal to walk away from the negotiations with the UK, the Department of State was keenly aware that the Soviets had been closely monitoring the discussions, and seemed ready to fully exploit the emerging disagreement to their advantage. A collapse of the GATT negotiations would have been disastrous to the American foreign policy plans and weakened one of its most important strategic relationships. Based on derestricted US internal communications from that time, Prof. Thomas W. Zeiler concluded that it was national security officials, and not trade experts, who made the ultimate call. According to him, Robert Lovett successfully convinced President Truman that a "thin agreement" that would preserve international trade co-operation was instrumental to U.S. foreign economic and security policy. As weak as it was, a General Agreement was "better than none".
Later in September 1947, as expected, the UK refused to accept the final "short list" that had been prepared by Wilcox. Following instructions of the highest order, the US delegation came ready to accept the UK proposal to rebalance the deal by withdrawing concessions that they had been initially tabled, thereby diminishing the US contribution. But even then, Clayton and his team were not ready to give up. Mindful of the leverage given to the US by the Marshall Plan, Clayton made a final attempt to convince the UK to eliminate at least some of those preferences. Unmoved, Sir Stafford Cripps replied that the UK Cabinet had a "large number of people who would not shed tears if the negotiation broke down altogether". According to Prof. Zeiler, Sir Stafford Cripps had correctly guessed the political importance that the Americans attached to the GATT and had bet that Secretary of State, Gorge Marshall, would prevent Clayton from walking away. In the end, Stafford Cripps was proven right as Marshall instructed Clayton not to insist on the immediate elimination of the imperial preferences and to accept what the UK was able to offer. With those instructions, technical officers were sent to Geneva in October 1947. Winthrop Brown, from the US, fleshed out the final details with James Helmore, from the UK Board of Trade. Ultimately, the "Brown-Helmore proposals" set the basis on which the GATT negotiations were concluded by late October 1947. For those with a passion for details, the formal exchanges between the US and the UK were recently derestricted by the WTO and can be consulted here.
The text of Article I of the GATT 1947 remains a testament of Clayton's lost battle against the Ottawa Imperial Preferences: paragraph 1 sets the rule that his team would have liked to prevail, but is then followed by 4 paragraphs and six annexes with exceptions freezing the preferential rates under different arrangements. Article I:2(a) of the GATT expressly states that the MFN clause shall not require the elimination of any preferences among territories in Annex A, which lists the Commonwealth. Prof. Zeiler believes that Clayton had such a hard time digesting what he considered a terrible deal that he resigned shortly after the conclusion of the talks citing personal reasons.
Although it is highly tempting to draw lessons from these often-ignored historical events, it is perhaps more enlightening to focus on how quickly things changed afterwards. The tariff preferences that Stafford Cripps so ardently defended were quickly dismantled in the first three rounds of tariff negotiations that followed (Annecy 1949, Torquay 1951 and Geneva 1955-56), once the Commonwealth economies began recovering. This was largely made possible by the Marshall plan and the increased security, transparency and predictability for traders that resulted from the General Agreement. Moreover, fortune had bigger plans for that "thin agreement" that Clayton so much despised. When the US Congress refused to ratify the Havana Charter in 1950, it not only killed the possibility of having an International Trade Organization as had been originally envisaged, but also placed the GATT as the last bastion of multilateral trade. The GATT was not the perfect agreement, but rather the agreement of what was possible. The rest is well-known: the GATT morphed into the bedrock on which the multilateral trading system was built and developed, including through the establishment of the World Trade Organization in 1994.
As we approach the 70th anniversary of the signature of the GATT, let's not forget how difficult it was to conclude it and, more importantly, how perceived losses can be transformed into major victories.
PS: The signature of the GATT was also challenging in many ways, and I found some nice historical pictures, but I don't know if there is enough interest out there to write about it.
