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V

TRADE

The international trade regime constructed under American leadership after World
War II and now embodied in the World Trade Organization (WTO) has facilitated
the emergence of the most open international economy in modern history. After
World War II, political leaders in the United States and many other advanced
industrialized countries believed, on the basis of their experience during the Great
Depression of the 1930s, that protectionism contributes to depressions, depressions
magnify political instability, and protectionism, therefore, leads to war. Drawing
on these beliefs, the United States led the postwar fight for a new trade regime, to
be based on the economic principle of comparative advantage. Tariffs were to be
lowered, and each country would specialize in those goods that it produced best
and trade for the products of other countries, as appropriate. To the extent this
goal was achieved, American decisionmakers and others believed that all countries
would be better off and prosperity would be reinforced.
The American vision for the postwar trade regime was originally outlined in
a plan for an International Trade Organization (ITO), which was intended to
complement the International Monetary Fund. As presented in 1945, the American
plan offered rules for all aspects of international trade relations. The Havana
Charter, which created the ITO, was finally completed in 1947. A product of
many international compromises, the Havana Charter was the subject of
considerable opposition within the United States. Republican protectionists
opposed the treaty because they felt it went too far in the direction of free trade,
while free-trade groups failed to support it because it did not go far enough.
President Harry Truman, knowing that it faced almost certain defeat, never
submitted the Havana Charter to Congress for ratification. In the absence of
American support, the nascent ITO died a quick and quiet death. The General
Agreement on Tariffs and Trade (GATT) was drawn up in 1947 to provide a
basis for the trade negotiations then underway in Geneva. Intended merely as a
temporary agreement to last only until the Havana Charter was fully implemented,
the GATT became, by default, the principal basis for the international trade
regime. The GATT was finally replaced by the WTO in 1995.^1
Despite its supposedly temporary origins, the GATT was, for decades, the most
important international institution in the trade area. Trade negotiations within the
GATT—and now, the WTO—proceed in “rounds,” typically initiated by new grants
of negotiating authority delegated from the United States Congress to the president.
Since 1947, there have been eight rounds of negotiations, each resulting in a new