The third Bretton Woods institution, intended to foster free trade and full employment, was not set up until 1947 at a meeting in Havana.[i] At that meeting an organization called the International Trade Organization, the ITO, was proposed. It was intended to reduce tariffs and other barriers, to broker inter-governmental commodity agreements, resolve trading disputes and take measures against restrictive practices both within nations and transnational companies. But the US Congress then refused to ratify the charter, despite the fact that 53 other countries had already done so. Instead of the whole institution, only one small part of the proposal, an agreement to work towards the reduction of tariff barriers, was finally set up, and so a stunted version of the original design, the General Agreement on Trade and Tariffs, was all that saw the light of day. Technically GATT was never an institution but simply a negotiating forum in which each country tried to get the best for itself. Its two main declared principles were both in practice hugely discriminatory against poor countries. The first principle was called, ironically enough, that of non-discrimination. According to it, only the main supplier of an export to a foreign country could request a tariff reduction in a particular commodity. Once it had been negotiated no other exporter of that commodity could be discriminated against, so all benefitted. The second principle, that of reciprocity, stated that any tariff reduction should be exchanged for an equivalent concession from a trading partner. It sounds wonderful. In practice it enabled the rich countries to bully the poor ones. As any poor country, taken on its own, was usually not the main supplier of any particular product, taken on its own, to a rich country, the poor countries were usually unable to demand tariff reductions. Secondly, the economies of the rich countries are so much more powerful they could frequently offer concessions which they could well afford to make, whereas a small country had so much to lose it was in practice without bargaining power. Thus the US has been able to maintain swingeing tariffs on textiles as no poor country, such as Bangladesh or Indonesia, could claim to be its main supplier, though ironically the western companies which in fact are the main suppliers are often based in these very countries, while on the other hand poor countries are unable to stop the EU nations dumping dried milk on them and putting their farmers out of business. When, in spite of these handicaps, the poor countries did start to become competitive in textiles the rich countries found ways round GATT, supplementing it with the Multifibre Agreement which, by threatening to close western markets altogether, forced the poor countries to agree to bilaterally agreed import quotas. In 1994 GATT was disbanded and replaced by the World Trade Organization, with a mandate to extend its remit beyond tariffs on commodities to service industries, foreign direct investment, intellectual property and resolving commercial disputes. Is this the ITO come at last? Or does it simply extend the fierce and unfair haggling which characterized GATT into yet more fields? In its power to override national laws and bilateral arrangements it is significantly and alarmingly more powerful than GATT. Despite instances in which the WTO has ruled in favour of poor countries, notably, for example, in the case of South Africa’s dispute with the pharmaceutical companies over generically manufactured AIDS drugs, there is much to suggest that the rich countries will use the WTO to turn world trade to their own advantage even more ruthlessly than they used the GATT.
Up until 1970 the Bretton Woods institutions, in spite of Keynes’s forebodings, served the world extremely well, probably better than the Clearing Union would have done. Largely because of the far-sighted generosity of American aid, delivered through the Marshall Plan and the vast investment in Japan, the countries which had been shattered by war were able to draw on the strength of the dollar to re-constitute themselves. Just as had been envisaged, money was lent to the former combatants through the World Bank, global demand soared and temporary balance of payments problems, such as that experienced by the British Labour Government in 1976, resolved through recourse to the IMF. It is difficult to see how these vast transfers of investment could have been made through Keynes’s Clearing Union, though, had its owner not had a heart attack on the way back from Bretton Woods, that adept brain would doubtless have solved that problem too. But after 1970, very swiftly, everything suddenly changed. The defects of the Bretton Woods institutions became apparent. They turned into instruments facilitating the very opposite of the mutual enrichment that their founding fathers had envisaged. What Keynes had foreseen was exactly what came to pass. How right he was. If the Clearing Union had been adopted there would be no problem of third world debt today.
[i] Reinaldo Goncalvez & Luis Carlos Delorme Prado Goncalves. “Alternatives To The World Trading System” in Cavanagh, Wysham & Udall op.cit. Pp. 212-220