Trade Multilateralism Set Back Yet Again Jomo Kwame Sundaram and Anis Chowdhury

As feared, the Eleventh Ministerial Conference (MC11) of the World Trade Organization (WTO) in Buenos Aires, Argentina, on 10-13 December 2017, ended in failure. It failed to even produce the customary ministerial declaration reiterating the centrality of the global trading system and the importance of trade as a driver of development.

Driven by President Donald Trump’s ‘America First’ strategy and his preference for bilateral trade deals, instead of multilateral or even plurilateral agreements, United States Trade Representative (USTR) Robert Lighthizer was key to the outcome. The USTR also refused to engage in previously promised negotiations on a permanent solution to the use of food reserves by India and other countries. Most importantly, the failure of MC11 undermines prospects for orderly trade expansion to support robust global economic recovery.

India’s National Food Security Act, the most ambitious food security initiative in the world by far, buys food grains from small-scale farmers for distribution to some 840 million poor, two-thirds of its people. Since 2013, US and other OECD countries, all subsidizing their own farmers, have frustrated WTO acceptance of Indian efforts.

In fact, US rejection of the WTO Doha Round began much earlier. The Obama administration undermined the 2015 Nairobi WTO ministerial. Then USTR Michael Froman derailed the Doha Round of trade negotiations by demanding inclusion of previously rejected agenda items which WTO members could not agree to after 14 years of negotiation. He claimed that the then recently concluded Trans-Pacific Partnership Agreement was the new gold standard for free trade agreements (FTAs), and insisted on including corporate-promoted issues, such as broadened intellectual property rights and investor-state dispute settlement arrangements.

Following the 1999 Seattle WTO ministerial failure, Doha Round negotiations began in late 2001 after 9/11, with the OECD promising to rectify the previous Uruguay Round outcomes inimical to developing country interests. Ending the Doha Round inconclusively will enable WTO members to renege on promised concessions to keep all countries at the negotiating table. Not surprisingly, most developing countries want the Doha Round to continue, hoping to finally realize the 2001 post-9/11 promises to rectify Marrakech outcomes which have undermined food security and development prospects.

The US had previously killed the attempt to create a pro-growth and development International Trade Organization (ITO) after the Second World War to complement the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), better known as the World Bank. These two international financial institutions were created at the 1944 Bretton Woods conference with broad supervisory and regulatory powers to provide short- and long- term finance to stabilize the international order.

A third international multilateral economic organization was deemed necessary for the regulation of trade, including areas such as tariff reduction, business cartels, commodity agreements, economic development and foreign direct investment. The idea of such an international trade organization was first mooted in the US Congress in 1916 by Representative Cordell Hull, later Roosevelt’s first Secretary of State in 1933.

In 1946, the US proposed to the United Nations Economic and Social Council (Ecosoc) to convene a conference to draft a charter for an ITO. The US State Department prepared a draft charter for the UN Conference on Trade and Employment. US officials then made significant concessions to accommodate ‘underdeveloped’ countries. Underdeveloped countries then were generally unwilling to guarantee the security of foreign investments, widely seen as a means for foreign exploitation.

The Havana Charter’s rule that the foreign investments could not be expropriated or nationalized except with “just”, “reasonable”, or “appropriate” conditions was seen by US business as weakening the protection that US investments previously enjoyed. US concessions on the use of quantitative restrictions for economic development were also seen as undermining free trade. Thus, the Havana Charter lost crucial support from US business.

The ITO Havana Charter’s final text was signed by 53 countries, including the US, on 24 March 1948. Sceptical observers viewed such efforts as part of a grand strategy to extend US hegemony, even if at the expense of its closest ally, Great Britain.

However, by 1949, US political elites and corporations believed that American interests and investment interests were not well protected by the Havana Charter. What had begun as an American project was out of control. Thus, the Republican-dominated Congress opposed ratification. What seemed a certainty only months earlier, ended in failure by December 1950.

Thus, the ITO did not survive American trade politics despite initial US sponsorship and signing the Draft Charter in Havana. A coalition of protectionist and ‘perfectionist’ critics of the Charter convinced President Truman to withdraw the draft treaty from Congress, reneging on his administration’s undertaking to support the ITO.

Different Trade Order

As envisioned, the ITO was quite different from the WTO, created almost half a century later. The ITO Charter was committed to full employment and free market cornerstones for multilateralism, and ‘sought to make finance the servant, not the master of human desires’ internationally. It was much more than a defence of investor rights.

Clearly, this strong commitment to achieving full employment was the glue for the post-war global consensus underlying the new post-colonial economic multilateralism. This global new deal became the basis for the post-war Keynesian Golden Age quarter century when inequality declined among nations as well as within many economies.

Negotiators at the Conference recognized the need for domestic and international measures, including international policy coordination, for “attainment of higher living standards, full employment and conditions of economic and social progress development”, as envisaged by Article 55 of the UN Charter. Security of employment would have become a critical international benchmark for international trade promotion. Thus, the ITO’s collapse represented a significant setback to prioritizing full employment, accelerating the transition to the imperial ‘free trade’ canon.

Richard Toye, a leading economic historian, has suggested a different order had the ITO survived: “The ITO might have been a more attractive organization for underdeveloped countries to join, which might, in turn, have promoted less autarchic/anarchic trade policies among them with additional growth benefits. This development might, in its turn, have given a further boost to the impressive post-Second World War growth in world trade … At the same time, the Havana charter’s exceptions to free-trade rules, especially those made in the interests of the economic development of poorer countries, might have helped to reduce global inequalities.” Thus, the ITO could have enabled a more inclusive, productive, orderly and just world economy.