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1.3 History 19441973 International systems and confrontation


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Title: 1.3 History 19441973 International systems and confrontation

1.3 History 1944-1973International systems and
  • 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
  • International monetary order, the IMF and the
  • 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

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.

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.

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.

World War II 1939-1945
Paris, 2. Mai 1945
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.

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

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.
2. San Francisco April 1945 momentous
ceremony at which the UN Charter was signed by
representatives of 50 delegations. USA
2. Bretton Woods, New Hampshire, Conference of
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.

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
  • 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.

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

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

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.

3. Meanwhile a divided Europe - 1945
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

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

4. Loopholes in GATT
  • GATT only applied to tariffs quotas and
    subsidies to exports were supposed to be
  • 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)

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.

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.

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-?

4.1 EEC-1957, EFTA- 1959 1960-1973, two
non-overlapping circles
West European Trade Arrangements in 1960s

The EFTA-7 and the EEC-6 form two
non-overlapping circles.
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.

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

4.2 UNCTAD- 1964, official aims
  • Aim to promote development-friend integration of
    LDCs into the world economy. GSPs is the main
  • 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.

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

4.2 UNCTAD Generalized System of Preferences -
  • UNCTAD II Conference (New Delhi-1968) stated
  • 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

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.

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.).
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
  • Asymmetric (EU cuts its tariffs faster) FTAs in
    manufactures, by 2010.
  • Turkey unilaterally in Customs Union in
  • 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

4. EU external policy Former Soviet republics
Western Balkans
  • Partnership and Cooperation Agreements (PCAs).
  • These are GSP (GSPGeneralised System of
  • Russia, Ukraine, Georgia, Belarus, Armenia,
    Azerbaijan, Kazakhstan, Kyrgyzstan, Moldova and
  • Stabilisation and Association Agreements (SAAs).
  • Former Yugoslavian states.
  • Croatia has started membership others likely to

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
  • 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).

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.

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
  • Chief negotiators Keynes (UK) and H.D. White (US)
    agreed scheme was accepted by the other 42
    countries represented.

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.

BW agreement
  • Aims
  • The nations should consult and agree on
    international monetary changes which affect each
  • 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."

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.

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.

BW agreement
  • Main terms
  • 2. Role of IMF and IBRD (also called the World
  • 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
  • The IBRD was instituted to give long-term loans
    for post-war reconstruction and development.

1.3 History 1944-1973International systems and
  • 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.
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