Why Was an International Trade Organization Not Established - Coursework Example

WHY WAS AN INTERNATIONAL TRADE ORGANIZATION NOT ESTABLISHED? Name Grade Course Tutor’s Name Date In 1945, the United States government put forward a proposal of an International Trade Organisation (Aaronson 1996, p. 7). The efforts put up by the US were to come up with a non contentious international economic and political order (‘United States Government’, 1946). The whole idea of coming up with this organisation was to complement the international monetary fund and the World Bank. This idea was to increase and expand world trade organisation employment (Diebold 1952, p. 90). The proposal set out rules to govern trading activities to be conducted between members’ states (Jackson 1994, p. 37). In addition to rules, the proposal set forth restrictive business activities, trade barriers, as well as intergovernmental commodity arrangements (Diebold 1952, p. 25). Towards the preparatory committee meeting in London 1946, a total of 19 countries backed up the proposal (‘United States Government’, 1946). The countries arranged for a conference to draft a charter that all the members’ states will sign into agreement. However, most countries were not in agreement with these suggested structures and policies (Trofimov, 2012, p. 56). This thesis will look into the reasons that lead to the decline of establishing the international trade union. The paper also looks at the development that led to the demise of international trade organisation initiative in 1944 (Trofimov, 2012, p. 56). The United Nations monetary and financial conference, which was known as the Bretton Woods conference was held at New Hampshire U.S. immediately the world war two concluded (Jackson 1994, p. 44). This conference was to come up with an international bank for reconstruction and development (IBRD) in the countries that were at war. The bank was to be supplemented by International monetary fund and General Agreement on Tariff and trade (Palmeter & Mavroidis 2004, p. 105). IBRD was later transformed to World Bank. These three entities were to marsh up and form the International trade organisation. However, post war reconstruction and political instability in most countries stalled the effort to establish the ITO (Diebold 1952, p. 84). In addition, the countries were reluctant to form the ITO because most of the currencies used in the European market were inconvertible (Bidwell & Diebold 1949, p. 221). It would be cumbersome for most countries to calculate exchange rates when trading with countries that have a weak economy and financial status. Despite the problem on exchange rate, there was the issue on deciding the main currency to be used in the trade (Trofimov, 2012, p. 60). The structure of ITO was to include four entities; the UN, IMF, IBRD and ITO (Palmeter & Mavroidis 2004, p. 10). With a clear mandate to revive political and economic strength of member states, the four institutions had specific roles to uphold. The UN intended to foster peaceful coexistence of nations after the world war two (Bidwell & Diebold 1949, p. 221). IMF was to facilitate stable monetary recovery based on the US dollar as the reserve currency (Aaronson 1996, p. 7). IBRD was to assist post war recovery and development. ITO was to deal with international trade affairs (‘United States Government’, 1946). All the other bodies picked up well except the ITO (Palmeter & Mavroidis 2004, p. 41). The failure to establish the liberal trade organisation for the world was a critical juncture in policy making and theoretical explanation to the key players in the international trade. The United Nations member states failed to establish ITO due to the disagreement in accepting free trade order on the global scene. This demise of ITO failure has been with these countries for sixty years (Palmeter & Mavroidis 2004, p. 55). Even after the establishment of GATT and WTO, the problem of agreeing about multilateral policy making still persists (Kenen 1999, p. 14). The initial idea of coming up with an international institution on trade came up at the Bretton Woods conference of 1944 (Palmeter & Mavroidis 2004, p. 213). The delegates who attended the conference at Bretton Woods were representatives of finance ministries. Hence the decision they made was largely criticized by trade ministries in the respective countries (Aaronson 1996, p. 48). These countries viewed the proposed charter as an individual effort put up by America to benefit in the international trade (‘United States Government’, 1946). The charter revolved around the competency of individuals in the job market, in the United States government (Palmeter & Mavroidis 2004, p. 70). The draft charter failed to clarify possible obscurity and the misunderstanding of the language used. In addition, the charter proposed that the members of the union would be those countries that are represented at United Nations conference on trade and employment (Trofimov, 2012, p. 60). All the represented countries hoped that the negotiations would be sealed in the United Nations conference on trade and employment (Bidwell & Diebold 1949, p. 221). However, the negotiations hit a snag in the 1947 conference, and they opted to settle for General Agreement on Trade and Tariffs (GATT) (Trofimov, 2012, p. 57). This was perceived as a temporary move as negotiations for ITO will be revived later. Another key concern was the issue on trade barriers that will be brought up by the International trade organisation (Bidwell & Diebold 1949, p. 221). Hence, they pushed for the improvements of the system before allowing it to take effect. (Palmeter & Mavroidis 2004, p. 261) The policies that the delegation in the United Nations finance conference came up with revolved around entrepreneurship and effective, economic governing structure (Bossche 2005, p. 19). These policies were perceived to bring up a liberal international trade regime, which will hold mandate in issues concerning management and leadership in trade affairs (Aaronson 1996, p. 97). Moreover, the institution will handle proposals negotiations and initiate a broad economic context. The main cause of the failure of ITO initiative is the lack of adequate exercise in entrepreneurship policies (Trofimov, 2012, p. 56). The international trade organisation failed to assure entrepreneurship framing which is a prime blueprint in the trade policy system (Trofimov, 2012, p. 57). The charter had clearly shown that the main actors who were pushing for this institution were pushing forward their desired frame. In the post war era, the main frames that were competing in the international economic scene were externalisation of the domestic economy in most countries and manifestation of profiles of trade tariffs as well as barriers (Trofimov, 2012, p. 58). ITO dissatisfied most member states simply because it never assured to correct devaluations of commodities and balance of payments on the market. It also had a considerable task of encouraging regional trades and lift prices of commodities. Entrepreneurship construction is another aspect that that ITO overlooked (Trofimov, 2012, p. 61). This entailed the technical and innovation of products in the market. The effectiveness of this aspect is to make the key players in the market to remain open and attract more actors to input. ITO had not provided this platform to the traders (Aaronson 1996, p. 67). Lack of entrepreneurial leaders in the meetings and conferences held to formulate the ITO charter was also a factor that led to the failure of this institution (Bossche 2005, p. 31). The representatives of member countries in those conferences used force to put up decisive matters and agendas. This sparked conclusion of wrong policies and ideologies that was not conducive to traders (Trofimov, 2012, p. 58). The crucial behavioural characteristics that are displayed by an entrepreneurial leader would have enabled them to come up with positive policies and a valid international trade institution (‘United States Government’, 1946). The lack of proper social order in conferences and negotiations had led to resignation of people who had the capacity to bring in new bright ideas in the talks. Those that took the positions of the resigned personnel did not hold the grand vision and foresight of an entrepreneurial leader. Thus, when the full scale talks and negotiations the leaders failed to come up with the right policies (Trofimov, 2012, p. 57). Due to lack of proper representation of trade ministries in the crucial conference at Bretton woods in 1944, there were further negotiations concerning the international trade organisation chatter. Year after year, the member countries kept meeting and negotiating on small details of the charter (Trofimov, 2012, p. 56). The most crucial agreement was the general agreement on tariffs and trade in Geneva. The slow pace in agreeing trade matters slowly shut down the idea of international trade organisation (United States Government. 1946, p. 757). Reluctance was still vivid in the member countries with only eight countries out of the possible 23 member states signing the protocol of provision application to be part of the general agreement on tariff and trade (Kenen 1999, p. 17). This was a big blow to the establishment of the international trade organisation since most countries kept pulling out of the charter. Furthermore, all countries who seek membership for ITO were obligatory to subscribe to IMF’s capital. This was rather a tall order to some countries hence they opted to fall out (‘United States Government’, 1946). The declining number of member states made it even difficult to conclude on policies to include and rules to govern the organisation (Bossche 2005, p. 64). This prompted them to resolve in having it as a voluntary membership affair. Another crucial set back in coming up with the International trade organisation was the reluctance in reducing customs duty in the world’s industrial market (United States Government. 1946, p. 758). The key players in the global market predicted a massive drop in profit once the ITO took effect. This was due to the upcoming larger cut in market proportion in terms of customs and revenue (Diebold 1952, p. 20). Despite their reactions, the leaders who led the negotiations and conferences failed to intervene into ITO affairs after the conflict over ICA (Bidwell & Diebold 1949, p. 199). The matter was completely politicised hence external players such as prominent economists and intellectuals stayed away from the matter (Kenen 1999, p. 167). Many of the countries in the initial conference felt that the international trade organisation did not fully satisfy the financial obligations handled by the IMF and the World Bank (Bidwell & Diebold 1949, p. 221). The ITO charter faced formidable legislation opposition in the countries represented (Trofimov, 2012, p. 58). The strongest congressional opposition came from the US. This made it difficult to ratify this charter in those countries (Bidwell & Diebold 1949, p. 189). After the Havana conference in 1947, the ITO was effectively declared dead (Diebold 1952, p. 55). Most of the countries’ Legislatures expressed their fears of having an institution that will control international trade affair (United States Government. 1946, p. 757). The main worry was with the vital commodity in the world market such as oil and farm produce. The main worry for the opposing factor was the high tariffs set forth in the ITO charter (United States Government. 1946, p. 758). They pushed for the elimination of preferences and reduction of these tariffs. The GATT relied much on two elements; allowing countries to join in terms with the agreement on paper and limiting the early rounds of reliance in tariff reduction procedures (Jackson 1994, p. 77). The main disagreement factor in agricultural trade policy was with food stuff. During the post-war period, food stuff was extremely influential in the reconstruction and stabilisation of the international agricultural trade (Trofimov, 2012, p. 57). Each country wanted to regulate agriculture and food provision. Hence, establishment of an organisation that will control foodstuff trade was not welcomed well by the member states. ITO was to coordinate food surplus and come up with farm policies that will ensure market access for food producers (Trofimov, 2012, p. 57). The opposition towards agriculture exemption in the ITO policies was a colossal demise to the success of ITO (Diebold 1952, p. 46). The prominent role of the US in international systems and control over resources such as energy was strongly questioned by countries such as Germany Britain and china (Aaronson 1996, p.94). However, this did not enable the US to ratify the establishment of ITO. US congress refused to back the motion of signing the ITO chatter (Trofimov, 2012, p. 56). This was relayed by the views of US citizens who felt that there was no connection between the adoption of ITO and raising their living standards (‘United States Government’, 1946). These apathetic approaches towards ITO lead to the disappearance of the ITO initiative from the US political agenda. Another aspect that led to the failure of establishing ITO was that the US underscored the public opinion and failed to communicate traders’ problem in the conference (United States Government. 1946, p. 757). In addition, the policy makers were condemned for doing little to educate the traders on this issue (Trofimov, 2012, p. 57). The proposed International Trade Organisation was supposed to lower barriers of trade and to monitor movement of capital within the global market (Kenen 1999, p. 96). This was seen as a big blow to the countries that mainly rely on international trade to raise their revenue hence they shot down the idea of coming up with a governing international trading institution. Most of these countries were in the verge of losing crucial trade blocks and economic spheres, which held the backbone of their economy (Trofimov, 2012, p. 59). The United States strongly rallied behind the outcome of the initial Bretton Woods Conference outcome. The bank of international settlement and reconstruction, which was to form the basis of International Trade Organisation, was faced with accusations of being behind crimes of war (Diebold 1952, p. 46). The Norwegian delegation, the Americans and several Europeans pushed for the dissolution of this bank (United States Government. 1946, p. 757). The other side was led by the British who were 100% for the inclusive of the bank into the formation of ITO. The Norwegian and the American s lost the motion to dissolve the bank (Palmeter & Mavroidis 2004, p. 91). The tussle between the two sides hindered the effort to see the ITO charter being singed and accepted by most countries (Diebold 1952, p. 29). The controversy facing the establishment of ITO decisions made concerning trade in the global market would rather be shunned or not considered (Bidwell & Diebold 1949, p. 192). The show off between the US and the British continued as the US through President Roosevelt approved the dissolution of the bank, but the British never gave up on that struggle (Aaronson 1996, p. 53). By the time, Roosevelt died the new president suspended the dissolution and had decided to liquidate it (Palmeter & Mavroidis 2004, p. 63). This prompted the need for an open system of trade and monetary order. The Bretton conference quickly concluded to synthesise Britain’s desire for full employment and economic stability after the war and the US agenda on capital movement in the global market as well as lowering trade barriers (Bossche 2005, p. 80). The ITO charter was the best possible channel to cater for these grievances. The charter was agreed upon reluctantly (Diebold 1952, p. 35). In a careful review it showed that the US businesses were to benefit more since they were not required to do more than other countries so as top promote competition in the market (United States Government. 1946, p. 757). The International Trade Organisation charter never came into force. The countries representatives in the conferences were afraid that this international institution would infringe on their internal economic issues (Jackson 1994, p. 71). In the absence of a governing international trade institution, they all turned to the general agreement on Tariffs and trade to handle most of their trade problems in the global market (Bossche 2005, p. 58). They were comfortable having GATT as the de facto international organisation. However, the members’ states never lost hope as more round of conferences were held under GATT (Aaronson 1996, p. 69). After seven rounds of negotiations, the eighth round in Uruguay 1994 bore fruits as they all agreed to establish world trade organisation to replace GATT. The WTO adopted the principles and policies that governed GATT (Bossche 2005, p. 29). The international chamber of commerce which represents business interests advocated for the removal of employment and planning policy from the ITO agenda and in the GATT (United States Government. 1946, p. 759). The success of GATT in the limited field gained the confidence to the earlier opposing factors that a global trade organisation will be an excellent idea in controlling trading activity in the global market (United States Government. 1946, p. 757). GATT had succeeded liberalisation of the world trade. The progressive multilateral agreements that were signed throughout the years also led reduction of the many contentious tariffs (Jackson 1994, p. 71). These tariffs’ reduction helped to spur exceptionally high rates of the global trade affair in the 1950’s. In the GATT era, international trade grew consistently that all the United Nations countries forgot about the ITO and focused on strengthening the mandate of GATT. The growth of the global market outpaced the production growth (Bidwell & Diebold 1949, p. 213). Most of the member countries increased ability to trade with each other (Palmeter & Mavroidis 2004, p. 28). This success also brought about the rush for new membership by countries that had fallen out previously (Jackson 1994, p. 101). This showed that the multilateral trading system was now being appreciated as a possible instrument of economic and trade reform in the world (Diebold 1952, p. 35). It is prudent that the success of the liberal trade policy initiatives relies on strategic decisions and actions by leaders of top policy makers (Bidwell & Diebold 1949, p. 201). The bureaucrats should also play their role in seeking organised interests by public opinion. Furthermore, entrepreneurship policies such as framing, construction, coordination, consensus building, contextualisation and leadership are examined well to ensure the adoption of trade policies succeeds (Kenen 1999, p. 67). This will also make the trade be effective, and its functions are well articulated. References Aaronson, S 1996, Trade and the American dream: a social history of post-war trade policy, Lexington: University Press of Kentucky. Bidwell, P. W., & Diebold, W 1949, ‘The United States and the International Trade Organization’, International Conciliation, Vol. 27, pp. 187-239. Bossche, P van den 2005, The Origins of the WTO, Cambridge University Press. Diebold, W 1952, The end of the ITO, Princeton Department of Economics Working Paper No.16. Princeton: New Jersey. Jackson, J H 1994, "Managing the Trading System: The World Trade Organization and the Post-Uruguay Round GATT Agenda", in Peter B. Kenen, Managing the World Economy: Fifty Years after Bretton Woods. Institute for International Economics. Kenen, P B 1999, ‘The Evolution of Trade Policy’. The International Economy (Vol. I 3rd ed). Cambridge University Press. Palmeter, N D & Mavroidis, P C 2004, ‘Overview’. Dispute Settlement in the World Trade Organization: Practice and Procedure. Cambridge University. Trofimov, I D 2012, ‘The Failure of the International Trade Organization (ITO): A Policy Entrepreneurship Perspective’, Journal of Politics and Law, Vol. 5 No. 1, pp 56-68. United States Government. 1946. ‘Basic principles in establishment of International Trade Organization’, Washington: US Department of State Bulletin, October 27, pp. 757-760. United States Government. 1946. Suggested Charter for an International Trade Organization of the United Nations. 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