Towards an Open World Economy

Towards the end of World War II, many of the world’s most expert officials on commercial and monetary affairs, with many of the most highly qualified academics in the field, were engaged on a new and challenging exercise, the deliberate planning of institutional arrangements that would together constitute a viable framework for the re-establishment of a liberal international system of trade and payments. The Bretton Woods negotiations, as they were called, after the location of the exercise in the United States, produced two institutions. The International Monetary Fund (IMF) was established as a means of improving the system of payments and currencies. In order to augment the flow of capital from rich to poor countries, there was also established the International Bank for Reconstruction and Development (IBRD), otherwise known as the World Bank Almost concurrently, negotiations in Geneva produced, in place of the originally intended International Trade Organisation, the General Agreement on Tariffs and Trade (GATT) as an instrument for pursuing the liberalisation of world trade.¹

In a fundamental sense, the international monetary crisis precipitated by the United States—or, more specifically, by the announcement by President Nixon of his New Economy Policy—on August is, 1971, had been on the cards at least since 1958. It was that long ago that Robert Triffin, of Yale University, first began to warn his academic and official colleagues of the dangerous instability of the International Monetary Fund (IMF) system of organising international currency relationships.¹

Following six rounds of multilateral negotiations under the General Agreement on Tariffs and Trade (GATT) import duties on industrial goods have been reduced to very low levels.¹ In fact, the average level of tariffs on manufactured and semi-manufactured products, weighted by trade between member countries of the Organisation for Economic Cooperation and Development (OECD), is now 8.3 per cent for the United States, 8.4 per cent for the European Community, 10.2 per cent for the United Kingdom (ignoring Commonwealth preferences) and 10.9 per cent for Japan.²

Progress in reorganising the world market for temperate-zone agricultural products has come to be seen as a political necessity if the international trading system is to continue to develop in the interests of peace and prosperity. It also holds out the possibility for considerable economic advantage to both industrial and developing countries. A recent study by the Food and Agriculture Organisation (FAO) has attempted to estimate the loss in income resulting from agricultural protectionism. The study puts this loss at about 6 per cent of the income of less developed countries (see Table I).¹ From a narrower point of view, the United Kingdom has an interest in promoting, within Western Europe, sensible and responsible policies in the area of agricultural trade.

In response to a variety of factors, serious inter-governmental discussions got under way at the time of the monetary crisis of of 1971 on how trade between developed countries might be further liberalised. While fresh trade negotiations between developed countries are greatly to be welcomed, it is important that the effects of the resulting liberalisation on the trading interests of less developed countries should be taken into consideration, in order that they might be accommodated. Some aspects of trade liberalisation in the past have tended to harm such interests both relatively and absolutely.

“Escape clauses” are an accepted feature of all types of international trade agreement and are an expression of national sovereignty. Following the bitter experience of the 1930s, governments involved in the negotiation of commercial treaties since 1945 have been anxious to retain adequate powers to safeguard their economies from unexpected problems that might arise, either directly from their commitments to an agreement or indirectly from unrelated developments which adherence to an agreement might exacerbate. The actual contents of escape provisions therefore have a decisive influence on the scope of obligations undertaken in international trade agreements.

Virtually all developed countries find some aspect of international trading arrangements unsatisfactory. It is a moot point whether existing arrangements are creating bad blood or whether bad blood is creating an exaggerated dissatisfaction with existing relationships. Whatever the direction of causation, however, the problem is multi-dimensional, extending over agriculture, conventional tariffs, non-tariff distortions and multinational corporations. It seems likely that international negotiations will embrace all of these (and possibly others besides). Non-tariff distortions of international competition, commonly referred to as non-tariff barriers, would be only a small part of the whole. Nevertheless, their importance should not be underestimated.

With the increased tempo of initiatives for renewed multilateral negotiations aimed at the further liberalisation of international trade and the simultaneous fear that the world economy is threatened by renewed protectionism, the use of adjustment assistance policies, governed if possible by an international code of behaviour, has been widely suggested. The proponents of such programmes argue that they would tend to weaken the opposition of interests which feel threatened by further removal of protection. Even in cases where there was no question of trade concessions causing loss of markets, and the threatened parties sought protection with the intention of remaining permanently in the industry, the existence of an adjustment programme would have advantages in widening the range of production activities open to an enterprise that feels itself in some danger in its traditional line of production. Such a programme would also, by providing a temporary form of assistance, prevent other forms of protection which could prove more difficult to remove in the long run.

The first public sign that the United States Administration was giving favourable consideration to the principal recommendations of the Presidential Commission on International Trade and Investment Policy (the Williams Commission)¹ was a major policy statement in London by William Eberle, President Nixon’s Special Representative for Trade Negotiations, in the course of which he said: