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International Trade Organization

The International Trade Organization (ITO) was one of the three institutions designed to maintain international economic cooperation after the Second World War. The Bretton Woods conference in 1944 provided a blueprint for the post-war international economy, which was to be regulated by the International Monetary Fund, the World Bank, and the ITO. The ITO’s proposed role was to facilitate a post-war era of free trade, which the US in particular saw as crucial for the maintenance of world peace and prosperity.

Multilateral negotiations about the precise remit of the ITO took place between 1946 and 1948 and culminated in the Havana Charter, which was signed by 53 countries. The Charter envisaged that the ITO would have an expansive mandate which ranged far beyond tariff reduction and extending access to restricted markets and would take it into areas normally classed as domestic policy. Its mandate would extend to issues such as employment and labour standards, economic development, restrictive business practices and commodity agreements. The Havana Charter also included detailed proposals both on the organisational structure of the ITO and on a dispute settlement mechanism which would allow it to enforce its decisions.

The far-reaching proposals of the idealists who saw the ITO as an instrument to deliver free trade, peace and stability were, however, undermined by the realities of the post-war world and the conflicting priorities of potential member countries. For example, the Charter accepted British demands that the imperial preference system be retained. It also allowed escape clauses for countries facing balance of payment difficulties. The failure to incorporate developing countries in the negotiations at an early stage meant that the Charter’s economic development provisions were not fully integrated into the final text, and appeared more as exceptions to the ITO’s rules. In the US, domestic political pressure meant that export subsidies for agricultural products stayed outside the ITO’s remit.

The Havana Charter was a compromise between the competing demands of the potential members and suffered as a result. In particular, it failed to satisfy the expectations of those who saw free trade as the vehicle which would deliver peace – the Charter amounted to little more than statements of the ideal undermined by a catalogue of exceptions. In the US, the political climate had changed between 1944 and 1950, when President Truman announced that he would not seek the Charter’s ratification in Congress. Free trade had become less of a priority in the face of the deepening Cold War and it became clear that the 1948 Republican-dominated Congress would not support the Charter. It was apparent that, without the US on board, the ITO would have been meaningless and, in the words of Richard Gardner, the ITO “did not have a chance to die: it was simply stillborn.”

The failure of the ITO showed that no trade organisation could be built unless it took account of what was achievable politically. The Havana Charter had reflected an uneasy compromise between lofty ideals and realpolitik and sank as a result. It also did not properly address the priorities of all its potential constituents, especially the smaller countries.

With thanks to Amrita Narlikar for allowing the use of her excellent study, The World Trade Organization: A Very Short Introduction, Oxford: Oxford University Press, 2005