1.3 History 19441973 International systems and confrontation

1
1.3 History 1944-1973International systems and
confrontation

• Before WWII
• International Economic Order in the aftermath of
  WWII the set-up of the UN IMF, ITO and GATT
• IGOs in Europe
• Loopholes in GATT and its weakening
• Regionalism
• UNCTAD
• International monetary order, the IMF and the
  IBRD
• Sources Little, Ian M.D. (1982), Economic
  Development Theory, Policy, and International
  Relations, Basic Books, Inc., Part IV, specially
  Chapter 14.
• www.un.org and others internet sites

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1. Before WWII to end of 1930s

• Countries tended to isolationism on politics and
  international political economy, except for the
  colonial powers on their empires.
• Consequences of 1930 crash - sauve qui peut
  disorder - exchange rates instability,
  inward-looking policies.

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1. Before WWII

• Some Keynes among others saw a need for
  international agreements that .. produce a
  worldwide set of rules and conventions both to
  promote prosperity and avoid war.
• The German system of bilateral trade agreements
  with the Balkan countries and the Japans
  co-prosperity sphere were seen as part of the
  causes of the war.

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1. Before WWII

• LDCs, of which Latin America pursue import
  substitution policies and competing
  devaluation. List of prohibition of some
  imported goods, tariffs of more than 100, etc..
• India and other countries were firm believers in
  central planning, 5-year planning including of
  foreign trade.

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World War II 1939-1945
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Paris, 2. Mai 1945
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2. International order aftermath of WWII

• Even without certainty of winning the war - UK
  and USA designed the,
• UN Charter in 1941, sign by 50 in August 1944 in
  Dumbarton Oaks.
• 1944 - United Nations Monetary and Financial
  Conference, usually called Bretton Woods
  Conference to set up,
• Post-war payments system IMF and the IBRD
  Bretton Woods implemented in 1944.
• Post-war trade system, ITO-Havana 1947, as a UN
  specialized agency.

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2. August 1941 Atlantic Charter set up of UN
Charter
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2. International economic order under the UN
Chart

• Atlantic Charter A constructive purpose for the
  future international organization was also
  foreshadowed in the fifth clause, which declared
  that the two statesmen desired to bring about the
  fullest collaboration between all nations in the
  economic field with the object of securing, for
  all, improved labor standards, economic
  advancement and social security. Source UN page

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2. The Founding of the United NationsThe
Conference on Security for Peace in the Post-War
World held at Dumbarton Oaks. Washington , DC .
21 August 1944.
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2. San Francisco April 1945 momentous
ceremony at which the UN Charter was signed by
representatives of 50 delegations. USA
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2. Bretton Woods, New Hampshire, Conference of
1944
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2. Post-1945 trading rules

• UN-Economic and Social Council, Feb 1946
  Committee to prepare the ITO-International Trade
  Organization (15 countries)
• Begin of N-S conflict Havana Conference - 56
  countries of which 33 were LDCs.

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2. ITO the frustrated IGOHavana Conference, 1947

• UKUSA liberal position MFN treatment most apply
  to tariffs - quota restrictions and subsidies to
  exports outlawed and all countries should commit
  to a reciprocal tariff reductions. But not for
  agriculture.
• LDCs storm of opposition believe that free
  trade only harmed their economies and it only
  benefited MDCs. They reject MFN and demanded new
  preferences (political, geographical) Reject
  obligation of tariff reductions.

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2. ITO Havana Conference

• LDCs also wanted special access to capital, loans
  and the like without conditionality impinging
  on sovereignty. They also wanted to be able to
  exclude FDI and to expropriate foreign investment
  and pay compensation in national currencies.
• US wanted liberal rules for all (except in
  agriculture), the LDCs wanted do as I please.
  They were convinced that the US was only serving
  itself, where it had a CA on industrial goods and
  services.

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2. Tariff Conference in Geneva, 1947 GATT (1948)

• GATT rose from the ashes of the ITO
• Incorporate many of the commercial provisions of
  the ITO. It left out,
• objectives of economic development,
• control over restrictive business practices and
  above all
• commodity agreements.
• It excluded capital movements and other monetary
  aspects and also invisibles-IMF

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2. GATT, 1948-1970

• Based on MFN clause and reciprocity - always
  excluding agriculture
• Reciprocal bargaining bargaining may involve
  several countries not only bilaterally
• Mercantilist approach,
• Exports are good
• Imports are bad
• Everything else equal, when imports and exports
  increase is good.
• Helped by the need to maintain ERs stable.

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3. Meanwhile a divided Europe - 1945
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3. IGOs in Europe

• In Europe trade liberalisation was promoted by
  the OEEC and EPU
• OEEC and EPU set up in conjunction with Marshal
  Plan, 1947, 4 years - 1948 to 1952.
• OEEC
• coordinated aid distribution and
• prompted trade liberalisation including
  elimination of QRs.
• EPU facilitated payments and fostered trade
  liberalisation.

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3. Marshall-Plan European Recovery Program (ERP)
Bundesrepublik Deutschland, 1950
                                         

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4. Loopholes in GATT

• GATT only applied to tariffs quotas and
  subsidies to exports were supposed to be
  eliminated.
• MFN - exception regarding CU and FTA
• Otherwise favourable to LDCs
• Non-reciprocity allowed to LDCs in 1963
  tariffs very high, for instance in LA
• QRs and subsidies - exceptions regarding LDCs
• Early quotas were allowed when reserves were
  inadequate in a LDC.
• LDC could in practice use subsidies to exports
  although MDCs could not (1960)

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4. GATT and LDCs

• GATT and LDCs negotiated unilateral tariff
  reductions with LDCs especially in 1963.
• Although commodities and agricultural goods
  were excluded, in 1962-1973 there was the Long
  Term Arrangement on Cotton Fibres (LTA), later
  MFA, which lasted 1973 to 2002.

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4. Weakening of GATT late 60s

• After the Kennedy Round (1964-67), GATT revealed
  some weakness,
• Agricultural irrelevance important for LDCs
• Unable to control NTBs VERs, CVD, ADA
• GATTs concern with the right to sell and not
  right to to buy became important later on
• Political shifts such as loss of USA leadership
  or the entry of countries (Japan) with very
  different tradition (MITI), and strengthening of
  the EEC.
• GATT weakened by CM, FTA and UNCTAD.

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4.1 Regional arrangementsFree trade areas,
customs union, common markets

• Europe EEC-1957, EFTA-1959
• Western Hemisphere Andean Pact-1969, CACM-1961,
  Caricom-Caribbean, 1973, LAFTA-1960, later
  LAIA-1980, Mercosur-1991, NAFTA-1994
• ASEAN-1967, ANZCERTA-1983, APEC-1989, AFTA-1992.
• Africa ECOWAS-1975, CEAO-1994, UDEAC-??,
  COMESA-1994, PTA-?

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4.1 EEC-1957, EFTA- 1959 1960-1973, two
non-overlapping circles
IS
EFTA-7
NL
D
B
L
N
FIN
S
F
DK
I
UK
EEC-6
A
P
IRL
CH
West European Trade Arrangements in 1960s

The EFTA-7 and the EEC-6 form two
E
GR
non-overlapping circles.
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4.1 EEC and GATTs Art. XXIV

• Prefer to give preferential treatment to former
  colonies exports imperial preference
• Yaoundé Convention 1964 association of EEC-6
  with 18 former (mostly French) colonies duty
  free access even non-CAP products-involve
  reverse preferences. Also aid from the European
  Development Fund and European Bank (EBRD).
  1962-972 Agreement with most Mediterranean
  countries. 1971-Arusha Agreement with several
  1971 countries.
• Lomé Convention-1975 signed between EC-12 and
  ACPs-46. More generous than Yaoundé, it did not
  require reciprocity. It also incorporate STABEX
  to stabilize export earnings.

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4.2 UNCTAD - 1964

• Old view regard reductions of trade barriers as
  damaging unless reciprocated.
• LDCs thought that the MDCs should make unilateral
  concessions similar to aid. These were not
  possible in GATT where reciprocity was the base.
  So LDCs could not demand but only accept crumbs.
• UNCTAD demand for unilateral concessions were
  made.

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4.2 UNCTAD- 1964, official aims

• Aim to promote development-friend integration of
  LDCs into the world economy. GSPs is the main
  plank.
• It carry out 3 functions,
• Forum for intergovernmental deliberations
• It undertakes research, policy analysis and data
  collection for the debates
• It provides technical assistance to LDCs and
  transition economies.

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4.2 UNCTAD - History

• Group of 77 (UNCTAD I) In 1963, 77 LDCs members
  of the UN demanded unilateral, non-reciprocal
  concessions. Every scheme .. was designed to see
  that little expansion would result.. especially
  in sensitive areas.. of MDCs.
• There was discrimination against the most
  successful economies, Taiwan, HK,..
• Several products were excluded (such as TC-MFA).
• Those not excluded were subjected to quantity
  limitations, beyond which MFN tariff would apply.
  GATT-type safeguard clauses were included, etc

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4.2 UNCTAD Generalized System of Preferences -
GSP

• UNCTAD II Conference (New Delhi-1968) stated
  that,
• the objective of the generalized,
  non-reciprocal, non-discriminatory system of
  preferences in favour of the developing
  countries, including special measures in favour
  of the least advanced among the LDCs should be
• To increase their export earnings
• To promote their industrialization
• To accelerate their rates of economic growth.
• There are now 13 national GSP schemes
• Source www.UNCTAD.org

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4.2 UNCTAD - 1964

• Against GSP
• The EEC excluded most products covered in the
  Yaoundé, Lomé Conventions or Mediterranean deals
  or gave very little concessions
• USA scheme was designed for use partly as a
  lever to promote other foreign policy ends. Some
  other countries were excluded on several grounds.
  However USA accept some part of the GSP as way to
  undermine EEC preferences. See Little, p. 299.
• The value of GSPs was eroded since the 1st EEC
  enlargement to the UK, DN and Ireland and the
  overlapping of the EEC-EFTA circles see below.

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4. Today EUEFTA GSP with 139 nations often
more than one per partner. About 1/3 EU imports
are not granted some sort of preferential
treatment (US, Japan, etc.).
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4. EU External Trade Policy

• European-Mediterranean area
• West, Central and East Europe Single market in
  industrial goods
• EU EEA Swiss bilateral agreements
• Euro-Med Association Agreements
• Morocco, Algeria, Tunisia, Egypt, Israel, the
  Palestinian Authority, Lebanon, Jordon, Syria and
  Turkey.
• Asymmetric (EU cuts its tariffs faster) FTAs in
  manufactures, by 2010.
• Turkey unilaterally in Customs Union in
  manufactures.
• Asymmetric dependence (e.g. 70 of Moroccos
  exports to EU, but lt1 of EU to Morocco)
• EFTAs FTA union with EU EFTAns mimic EU to
  avoid discrimination against EFTA-based
  exporters.

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4. EU external policy Former Soviet republics
Western Balkans

• Partnership and Cooperation Agreements (PCAs).
• These are GSP (GSPGeneralised System of
  Preference).
• Russia, Ukraine, Georgia, Belarus, Armenia,
  Azerbaijan, Kazakhstan, Kyrgyzstan, Moldova and
  Uzbekistan.
• Stabilisation and Association Agreements (SAAs).
• Former Yugoslavian states.
• Croatia has started membership others likely to
  follow.

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4. GSP and Non-regional FTAs

• EU grants GSP to almost all poor nations.
• On paper, EU grants zero-tariff access all goods,
  except arms and munitions.
• Goods in which these nations are most
  competitive are in fact excluded from the deal.
• Tariffs on bananas, rice and sugar products
  where these poor nations could easily expand
  their EU sales are to come down only in the
  future.
• Moreover, even though all tariffs on these items
  will be gone by 2009, the exports quantities are
  limited by bilateral quotas.
• FTAs- non regional
• Mexico, Chile, and South Africa, done.
• Ongoing with Mercosur, the Gulf Cooperation
  Council (Bahrain, Kuwait, Oman, Qatar, Saudi
  Arabia and United Arab Emirates).

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4. UNCTAD, GATT and Regional agreements

• GATT was good for MDCs and also for LDCs.
• However, LDCs rather believed in UNCTAD that led
  to a proliferation of preferential weak schemes.
• The enormous negotiation and administrative
  effort involved could probably have been better
  used for the LDCs.
• In turn GATTs MFN principle could not be applied
  to worldwide level especially after 1970 with the
  strengthen of EU-world relations.

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5. International Monetary Order and the IMF, IBRD
in brief

• Negotiations for a monetary system were easier
  than for the trade system.
• 1944 - United Nations Monetary and Financial
  Conference, usually called Bretton Woods
  Conference.
• Chief negotiators Keynes (UK) and H.D. White (US)
  agreed scheme was accepted by the other 42
  countries represented.

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BW agreement

• The conference was held in July 1944 when the
  agreements were signed to set up the IBRD, the
  ITO/GATT, and the IMF.
• As a result of the conference, the Bretton Woods
  system of exchange rate management was set up,
  which remained in place until the early 1970s.

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BW agreement

• Aims
• The nations should consult and agree on
  international monetary changes which affect each
  other.
• They should outlaw practices which are agreed to
  be harmful to world prosperity and,
• They should assist each other to overcome
  short-term exchange difficulties."

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BW agreement

• Aims
• 4. The International Bank was created to speed up
  post-war reconstruction, to aid political
  stability, and to foster peace. This was to be
  fulfilled through the establishment of programs
  for reconstruction and development.

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BW agreement

• Main terms
• Monetary system (ERs, their adjustment,
  convertibility and reserves)
• Gold was the numéraire
• Adjustable peg FX rates system exchange rates
  were fixed, with the provision of changing them
  if necessary. Countries would choose a par value
  in terms of gold or US, and the actual rate
  would be maintained. However, exchange rates
  could be adjusted by up to 10 if not favourable
  to a country's BoP position.
• The US would comply by dealing in gold. The other
  countries by dealing in US.
• Currencies were required to be convertible for
  trade related and other current account
  transactions. There was an exemption for a
  transition period (5 years) but which became
  indefinite in practice. The governments had the
  power to regulate capital flows.

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BW agreement

• Main terms
• 2. Role of IMF and IBRD (also called the World
  Bank).
• All member countries were required to subscribe
  to IMF's capital, through a quota system - a
  quarter of which was paid in gold, or in currency
  convertible into gold (gold tranche).
• The IMF was supposed to provide support for a
  currency in temporary disequilibrium. Drawings on
  the IMF were conditional beyond the gold
  tranche. In other words, the IMF could exercise
  some surveillance over a borrowing countrys
  policies.
• The IBRD was instituted to give long-term loans
  for post-war reconstruction and development.

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1.3 History 1944-1973International systems and
confrontation

• Recommendation for Groups dealing with Essay 12
  and 13
• Read Chapters 15 of Little, Ian M.D. (1982),
  Economic Development Theory, Policy, and
  International Relations, Basic Books, Inc.