Conflicts of Principle in Drafting a Trade Charter

IN September 1946, our Department of State presented a "Suggested Charter" for an International Trade Organization of the United Nations. A Preparatory Committee of the United Nations Conference on Trade and Employment, on which 17 countries (Soviet Russia abstaining) were represented, met in London in October and November 1946, discussed this Suggested Charter, and issued a new draft and a covering Report. The Charter was further revised at Lake Success. A second meeting of the Preparatory Committee is in process at Geneva at the time of writing, and the countries represented are negotiating reciprocal reductions of tariffs as well as working on the text of the Charter. The process of reciprocal negotiation of tariff reductions is later to be extended to the countries not represented at the London and Geneva meetings of the Preparatory Committee. In the fall of 1947 a full International Conference on Trade and Employment is scheduled to take place, when a definitive draft of the Charter is to be submitted to the member governments of the United Nations.

It is my purpose here to examine the issues of principle dealt with in the Charter as revised at London and in those American suggestions which at London were left for later consideration. The proposed Charter covers a great deal of ground, and it is possible to raise questions of principle with respect to most of its provisions. Attention will be confined here, however, to what seem to be five of the most important issues. These can be briefly formulated in five questions: (1) What level of trade barriers should be the goal for the postwar period? (2) Should trade barriers be, in general, non-discriminatory as between foreign countries? (3) Are ordinary tariffs preferable to, or less objectionable than, quantitative import restrictions such as import quotas? (4) Can international commitments with respect to the form and extent of trade barriers be made consistent with comprehensive national economic planning? (5) Can an international trade code be devised which can effectively bridge the gap between free-market economies and state-trading economies and will be acceptable to both?

II

Only the traditional free trader can deal with the problem of the desirable level of trade barriers as a clear-cut question of principle. He wants the reciprocal reduction of trade barriers carried as far as governments can be persuaded to carry it, even to the point of total elimination of tariffs, subject to a few debatable exceptions such as protection of infant industries and those which are strategically important. The free trader objects to trade barriers both as obstacles to international specialization of production in accordance with comparative national advantages for production, and as sources of international friction. But there are few free traders in the present-day world, no one pays any attention to their views, and no person in authority anywhere advocates free trade. The practical issue turns on whether existing trade barriers should be reduced, and, if so, how much; and on these points there is perhaps nearly as much division of opinion within countries as between countries. Despite the fact that the international negotiations were launched by the United States Government and undoubtedly would collapse if this country were to lose interest in them, intransigent American protectionism is at least as serious an obstacle to the successful realization of the American trade proposals as the protectionism of other countries, and it would be difficult to overestimate the extent to which the particular pattern which the American proposals have taken is the result of the fortuitous -- and fortunate -- circumstance that Cordell Hull's vision and drive came into action at a strategic moment in our history.

At this stage of the negotiations, a special difficulty arises out of the facts that the proposals were initiated by a Democratic Administration, that they involve reduction of the American tariff by executive action without reference to Congress, that the Republicans in both Houses of Congress voted against the Trade Agreements Act under which the Executive has the authority to negotiate reciprocal reductions in duty, and that the Republicans are now in a majority in both Houses of Congress.

Countries which have lower or younger tariffs than ours feel that they cannot reasonably be asked to make reductions of the same proportions, absolutely or relatively, as those which the United States, with its riches, its competitive ability, and its creditor status, should make. Many of them face formidable reconstruction problems. They are poor, or small, or industrially undeveloped, and they believe they face the prospect of chronic deficits in their balances of payments with the United States.

The State Department has at all stages of the negotiations carefully avoided taking a doctrinal position on the issue of free trade and protection. It has confined itself to advocating lower tariffs, without suggesting at any time that a complete absence of tariffs might be the superior solution. It has committed itself against any reductions in the American tariff which are not accompanied by equivalent reductions of the restrictions which other countries place on imports of American commodities. It has pledged itself to make only "selective" (as distinguished from "across-the-board") reductions in American duties, and to take into full account the effect that tariff reduction would have on the competitive capacity of American industries. President Truman and the State Department have given assurances that no reduction of duty will be made which would involve "serious injury" to any American industry. On American initiative, there was inserted in the draft Charter an escape clause -- known as the "Mexican Clause" because it was first introduced in the Hull Trade Agreement with Mexico -- under which a member may withdraw any particular concession on import duties if it brings an increase in imports threatening serious injury to domestic producers. Except possibly on issues turning on the rôle of Congress in the formation and administration of commercial policy, this should suffice for anyone who does not insist that the Smoot-Hawley-Hoover Tariff was the last word in American statesmanship in this field. Those who really want significant cuts in the American tariff have some warrant, in fact, for fearing lest these reservations result in only homeopathic doses of reduction of the American tariff. The old schoolmen distinguished between that grace which inspires good resolutions and that other grace which provides the will to fulfill them. There is great danger that the American supply of the latter will fall far short of the State Department's supply of the former.

The understanding that no country is to be expected to grant tariff concessions which are not counterbalanced by return concessions is mainly relied upon to overcome the reluctance of other countries to reduce their tariffs. Those countries whose tariffs are already comparatively low are offered the assurance that the freezing of low tariffs or of free entry will be recognized as a concession equivalent to the substantial reduction of high tariffs. Countries industrially undeveloped or with special reconstruction problems can appeal to the International Trade Organization for release from the tariff (and other) obligations they have assumed, and the ITO can grant such release at its discretion, where the obligations are general in character; if the obligations were incurred in negotiations with particular countries, the agreement of the countries substantially affected is required. The process of tariff reduction is thus, in effect, made a matter of bargaining and of ITO administration, rather than of the application of a rigid formula or even of an agreed principle.

On the tariff question, therefore, the Charter evades a conflict of principles by a complete avoidance of doctrine. Chapter II in the covering Report of the London meeting of the Preparatory Committee which deals with this question does, however, indulge in doctrine; it states the case for trade barriers and against international specialization, both in the long run and in emergency situations, at some length and con amore. If one were to take this chapter seriously one might easily be misled into thinking that the major purpose of the negotiations was to give international sanction to the tariff doctrines of Friedrich List and of Henry Clay. It is not clear, however, what was the intended function of this Report. I am not aware of any evidence that this chapter, or for that matter any other part of the Report, is exercising any influence on the course of the negotiations.

III

Since 1923, the United States has steadily supported the principle of unconditional most-favored-nation treatment of foreign commerce, that is, of equality of treatment of imports and of exports without regard to their source or their destination. Since the beginning of the depression of the 1930's, however, the trend over most of the world has been strongly in the opposite direction -- toward bilateralism, or the limitation by countries of the imports which they will permit from any particular other country to some agreed proportion of their exports to this country. The Charter gives unequivocal support to the equality of treatment principle. Provision, it is true, is made for exceptions from equality of treatment. But these exceptions are carefully limited and are for the most part applicable only in emergency situations or where their absence would make necessary an abrupt termination of preferential practices of long standing. Existing intra-imperial preferences, including our own, are not outlawed, but new ones are not to be established, and the existing margins of preference are to undergo automatic reduction as a by-product of tariff reduction. The right to discriminate against imports from "scarce-currency" countries, established by the International Monetary Fund Agreement, is reaffirmed and somewhat strengthened. The International Trade Organization is to have the authority to sanction limited departure from the equality of treatment principle in some other cases, as, for instance, in the case of regional agreements even if they do not completely meet the traditional criteria of "customs unions." Even where the Charter does sanction new discrimination it apparently withholds sanction from concerted bilateral arrangements of a discriminatory character for which the customs union provision cannot be invoked, although this could be made much more explicit. In general, ratification of the Charter in its present form would mean greater international sanction of the principle of equality of treatment than has ever existed. This is the one instance where the proposed Charter registers a definite victory of one doctrine over another one having substantial significance.

The case for equality of treatment as the general rule is a strong one. It is the only available rule in this field which is of general applicability, is relatively simple to administer, and distributes its advantages and burdens with some approach to mutuality. Tariff discriminations are invariably resented by the countries which are discriminated against, and three centuries of experience demonstrates that under all circumstances they operate to poison international relations and to make more difficult the task of maintaining international harmony. Any departure from equality of treatment involves a deviation from the weighty economic principle that imports shall come from their lowest-price sources and that exports shall go to the most eager markets. The trade which is forced into bilateral channels, moreover, will ordinarily be not only economically inferior to the multilateral trade which it displaces but also less in volume.

The opposition to the equality of treatment principle, however, continues to be strong, even within the United States, but especially abroad. Adherence to the principle presents an obstacle to rewarding friends or punishing enemies, whether in the economic or in the political field. If universally and automatically applied, its requirement that any tariff reductions made must be extended alike to high-tariff and to low-tariff countries strengthens the reluctance to reduce tariffs. Countries whose exports are lagging in volume behind their imports, or are exchanging for imports on unfavorable price terms, sometimes imagine that by resort to bilateral bargains they can force the countries mainly supplying their imports to accept their goods in larger volume or at better prices. During a world-wide depression, when fear of imports and aggravated dread of balance of payments deficits are endemic, bilateral bargains may cut channels for trade through the morass of emergency trade restrictions, and may thus give scope for some measure of mutually-profitable trade which otherwise would have succumbed both to the loss of monetary buying power and to the reinforcement of the customary tariff walls. It will thus be a major achievement if the American initiative succeeds in reversing the trend toward bilateralism.

Under the Suggested Charter not only will there be no obligation to extend most-favored-nation treatment to non-members of the ITO, but member countries will not be permitted to extend to non-member countries, unless the Organization grants special permission, the concessions which they grant to the other member countries as the result of the tariff-reduction negotiations. A provision of somewhat this character is desirable, since much of the opposition to the unconditional most-favored-nation principle in the past has resulted from the situation which arises when a high-tariff country refuses to make any reductions in its own tariff but automatically shares in the benefits of the tariff reductions which other countries make in their reciprocal bargains. This species of "free riding" on the unconditional most-favored-nation principle has been a major obstacle to the reduction of trade barriers, and unless it is stopped membership in the International Trade Organization will be deprived of much of its potential attractiveness to low-tariff countries.

IV

Quantitative restrictions on imports, such as import quotas and import licensing, are an ancient institution, but they became important again in times of peace only in the early 1930's with the coming of the depression. As a means of warding off balance of payments deficits by restricting the volume of imports to the amount of foreign exchange available to pay for them, as a means of guaranteeing to domestic producers a minimum share of the domestic market, as concessions in bilateralistic bargains and in barter transactions, they can be more effective, more predictable in some of their effects, and more flexible than ordinary tariff duties. This has won them many friends in a period when all of these considerations have loomed large in public opinion. Quantitative import restrictions, moreover, are an indispensable adjunct of domestic crop-restriction or price-support programs.

The State Department has since 1934 opposed quantitative restrictions on imports as inherently more objectionable in principle than ordinary import duties. The Congress and the Department of Agriculture have not seen eye-to-eye on this question with the State Department, and it has not been the State Department which emerged the victor. Congress has enacted some quota legislation. In a few instances the Department of State, seeking to avoid the introduction of import quotas which otherwise would have become legally or politically inevitable, has induced other countries to apply quotas on exports to the United States. This roundabout way of securing quantitative restriction of imports transfers to the exporting country both the obloquy and the burden of administration of the quotas, and compensates it by abandoning to it the gap between the market prices in the two countries.

Import quotas are open to the objections that as compared to ordinary import duties they lend themselves more readily to violation of the equality of treatment principle, and involve a greater degree of interference with the ordinary processes of the free market. If import quotas are allotted by countries, as is ordinarily the case, there is not much choice except between more or less arbitrary allotment and deliberately discriminatory allotment. There is no formula of allotment of quotas which can assure to each supplying country that share of the import market which would accrue to it if competitive processes in terms of available supply and price were the only determining factors. Global or unallotted import quotas, with imports admitted in order of entry until the maximum is reached, tend to favor neighboring countries and to result in a wasteful concentration of imports at the beginning of each quota period. Import quotas as usually administered result in an excess of the price in the import market over the laid-down cost (including import duties, if any) of the imported commodity, and this excess goes as a windfall profit to the exporters, or to the importers. To this last objection, import licenses sold in the desired quantity to the highest bidders would not be open and they conform most closely to the equality of treatment principle, but this procedure might offer too much facility for monopolization of the import trade by a few dealers. Import quotas, finally, are more rigid than import duties in the sense that until modified they constitute absolute ceilings for the volume of imports regardless of changes in business conditions. This, however, is partially offset by the fact that import quotas are usually made more subject to administrative discretion than are the levels of import duties, which, as revenue measures, often require legislation and are consequently more frequently revised than are statutory levels of import duty.

The treatment of quantitative restrictions in the redrafted London Charter reflects a cautious balancing of these conflicting economic and political considerations. The Charter proposes that import quotas shall be outlawed in principle, but that they shall be permitted as supplements to domestic crop-restriction or price-support or industrial development programs, as adjuncts of sanctioned intergovernmental commodity agreements, and as means of correcting actual or threatened balance of payments deficits. If any country uses quantitative restrictions on imports to safeguard its balance of payments, the ITO is empowered to investigate, to make recommendations, and to release other countries adversely affected from some of their obligations under the Charter to the member applying the restrictions.

The privilege of applying quantitative import restrictions to correct an adverse balance of payments can readily be abused. Any country can with the greatest of ease adopt monetary or other policies which will produce a balance of payments deficit. Any country which from other motives embarks on a full-employment policy, or on an investment policy, or on a wages policy, or on an inflationary monetary policy has some degree of choice as to the extent to which the necessary burden of economic adjustment shall be internal or, through special import restrictions, shall be made to fall on imports. The redrafted London Charter, in a paragraph added to the original American Suggested Charter, prohibits the International Trade Organization in such cases from recommending "the withdrawal or the general relaxation of restrictions on the ground that the existing or prospective balance of payment difficulties of the member in question could be avoided by a change in that Member's domestic employment, reconstruction, development or social policies."

For many countries, including such countries as Great Britain, France, China and India, this is likely to operate in practice to permit them to retain about as many of their existing import quotas and to impose about as many new ones as they please, while enjoying with respect to them a degree of international sanctification which was not available even in the bad days of the 1930's. There is widespread expectation -- and perhaps intention -- abroad that even in the absence of the generally-anticipated major depression in the United States many countries will have difficulties in paying for the volume of American and other hard-currency-country commodities which their peoples will want to import in the absence of special restrictions. Given the universal lack of confidence in the adequacy of the International Monetary Fund and the International Bank for Reconstruction and Development as sources of replenishment of dollars in short supply, it is probably not reasonable to expect that other countries could be persuaded to accept stronger general provisions against resort to quantitative restrictions than those contained in the revised Charter. The United States, on the other hand, is precluded from making their legitimacy a genuine question of principle, since it is unwilling to abstain from using import quotas itself.

By the terms of the Charter all existing quantitative restrictions of imports which cannot be brought under one of the exceptions referred to above must be eliminated. At the London Conference the issue was raised as to whether the removal of import quotas should not be treated on a parity with the reduction of import duties in the process of negotiation of balanced reduction of trade barriers. The texts of the revised Charter and of the rules adopted at London to govern the negotiations at Geneva for reductions in tariffs seem to indicate an acceptance of the American position that import quotas were inherently an illegitimate form of trade barrier and should be removed without compensation. The Preparatory Committee's covering Report, however, in rather characteristic fashion, blunts the edge of the text of the revised Charter. After stating that it was agreed that quantitative restrictions were to be dealt with by a general rule (that is, of uncompensated elimination) it proceeds as follows:

At the same time it was recognized that, in accordance with the plan for conducting tariff negotiations among the members of the Preparatory Committee, those countries would not be called upon to subscribe to the most-favored-nations and quantitative restrictions provisions until selective tariff negotiations had been completed and vice-versa. It was believed that this circumstance would assure that due weight will be given in the tariff negotiations to the benefits to be derived from the elimination of quantitative restrictions and the general grant of most-favored-nation treatment.

What this seems to mean is that it was understood that no country need subscribe to the Charter nor accept the results reached in the tariff negotiations unless it was satisfied with the two combined, but that in the tariff negotiations proper it will not be permitted to offer removals of specific quotas as compensation for removal or reduction of particular import duties. The way it will work out, presumably, is that if most countries are sufficiently satisfied to subscribe to the Charter after the tariff negotiations have been concluded, the remaining countries will in most cases also subscribe in order not to be excluded from membership in the International Trade Organization. Such procedures inevitably lead to compromise of principles, but practical statesmen have no alternative where action must wait upon consent, and where, in fact, they are far from ready themselves to adhere rigorously to the principles they proclaim. All that the ordinary citizen can reasonably ask is that the weight of the principle shall not be impaired by refusal to acknowledge that it has been compromised, and that if the use of quotas is given added respectability at Geneva, at least the range of quotas in actual operation shall be less.

An unregulated foreign trade is bound to create difficulties for a domestic economy regulated in conformity with a general economic plan adopted in advance. The major difficulties will take the form of balance of payments deficits, of the unavailability of essential imports in the needed volume, or of the unpredictable fluctuation of exports, with consequent scarcities and bottlenecks at home or embarrassing unemployment. The zeal of the United States for the elimination of special and flexible controls over foreign trade is in large part explained by the absence of any prospect that the United States will in the near future devise or accept a significant program for stabilization of employment or for the planning of investment, the confidence prevailing in this country that our competitive position in foreign trade and the exchange position of the American dollar will continue to be strong, and the availability of the cache of gold at Fort Knox to tide us over even a prolonged and substantial adverse balance of payments if perchance it should occur.

Many commentators on the American trade proposals, here and abroad, regard them as part of an American campaign in support of the free-enterprise principle and against the principle of national economic planning. There prevails abroad, moreover, a general apprehension lest the notorious instability of the American economy again manifest itself in a major depression which will spread to other countries if they surrender the right to impose special restrictions on imports from the United States and to make bilateral deals with other more stable countries.

The same issue arose in connection with the negotiation of the Articles of Agreement of the International Monetary Fund. That Agreement sanctions resort to exchange depreciation to remedy a continuing balance of payments deficit, and in addition sanctions the use of control of exchange transactions to restrict imports from any country whose currency has been declared by the Fund to be a "scarce currency." The London Charter provides additional sanction for these measures, and extends the range of internationally-approved measures, presumably on the ground that exchange depreciation may prove too slow and otherwise too ineffective a remedy for a balance of payments crisis.

Other countries are not satisfied with these concessions to their fears about the impact on their economies of the boom-and-bust pattern which they attribute to the American economy. It is true that there is already not much in the way of import restriction that they would be precluded from doing by either the Monetary Fund Agreement or the Trade Charter after a sharp reduction in the American intake of foreign commodities had resulted for them in adverse balances of payments with the United States. It may be taken for granted, moreover, that if a major depression occurs in the United States the Monetary Fund and the ITO will evaporate, and with them the international code of trade behavior laid down in their charters. Nevertheless, other countries are pressing for more positive protection against the threat of an American depression. They would like a firm undertaking from the United States that either by preventing a major depression from occurring here or by maintaining a minimum volume of American imports regardless of conditions in the American market it will see to it that it does not spread instability abroad. Failing this, they ask international sanction for long-run bilateral agreements which assure in advance a minimum volume of exports for the participating countries.

To sanction bilateralism would be an outright surrender of one of the main objectives of American economic foreign policy since the signing of the Atlantic Charter and the Lend-Lease Master Agreements. To undertake genuine advance commitments to maintain stability of American economic conditions through governmental action would go against the American political grain, especially after the results of the Congressional elections of last autumn. The United States, by offering participation in a large-scale anti-cyclical international investment program designed to promote economic stability in the world at large, might provide other countries with the assurance they crave that an American depression will not disrupt their economic planning. It might do so, moreover, without either sanctioning bilateralism or involving the adoption of a national stabilization program. I am not aware, however, that our Government has given any consideration to this alternative.

Given these limitations on American policy, the American negotiators have been impelled to agree to sanction important deviations from the general rules of outlawry of quantitative restrictions of imports (some of which may in practice be hard to distinguish from bilateralism) if these rules were to be acceptable at all. The net outcome is that pro-forma international acceptance of a substantial proportion of the original American program is on the way to being obtained, but that the existence or threat of balance of payments difficulties will suffice to provide an international sanction for substantial deviation from the pattern of international trade sought by this country.

VI

There remains for consideration the most perplexing question of all in the field of commercial policy: can an international code be devised which is applicable to the trade relations between free-market and state-trading economies or between state-trading countries themselves? Soviet Russia's great political power and growing economic importance make this a significant question. The growth of state trading elsewhere, as in Czechoslovakia and other Russian satellite countries, in Great Britain and in the Argentine, adds to its importance.

The failure of Soviet Russia to accept the invitation to the London Conference led the Conference to postpone consideration of the special article in the Suggested Charter relating to countries which exercise a complete state monopoly of import trade. This article proposed that each such country should undertake to import from other members of the International Trade Organization an agreed amount in the aggregate over a specific period, subject to periodic adjustment. If the minimum agreed upon were low, such an undertaking would be of little consequence. Yet it would be unreasonable and impracticable to expect the state-trading countries to guarantee sizeable purchases in the absence of correspondingly rigid commitments by other countries to make purchases from them. Under the Suggested Charter a country exercising a state monopoly of foreign trade would presumably be precluded, like other countries, from making special bilateral arrangements outside these general multilateral negotiations. It is not clear that acceptance of the Charter would in practice impose any other genuine limitations on the behavior of state monopolies. But this limitation is of itself of great importance and may perhaps largely explain the apparent coldness of Soviet Russia to the original American proposals.

The Suggested Charter contained also two provisions relating to particular state-trading "enterprises" which the London draft retains without substantial amendment. One of these provisions proposes that in its external purchases and sales such enterprise shall operate in a non-discriminatory manner and that "to this end such enterprise shall . . . be influenced solely by commercial considerations, such as price, quality, marketability, transportation and terms of purchase or sale." This association of "non-discriminatory" with "commercial" behavior is confusing, since there is nothing more "commercial" than the discriminatory practices of a monopoly operating with a single eye to profits. As an antonym to "political," "commercial" would make sense, but this does not seem to be its intended meaning here. In neither case, however, is there any attempt to make clear what the criterion of violation would be, how it could be objectively determined, and what its consequences would be. The other provision would make subject to international negotiation, in the same manner as tariffs, the maximum margin of protection against imports and the maximum excess of export price over cost of production which the monopoly would be permitted to maintain. It is highly doubtful whether the obvious practical difficulties of application of such a provision could be surmounted, especially where blending of domestic and imported materials and complex processing before sale of the imported materials are involved, as they often would be. This is not intended as a reflection on the craftsmanship of those who drafted these provisions, as there is as yet evident no solution of the problem of framing a code of practice for monopolies in international trade -- or in domestic trade, for that matter -- which shall be reasonably equitable, administratively workable, and acceptable. The draftsmen, however, should not deceive themselves or the public as to the extent of the contribution which the Charter makes to the solution of this problem.

There is even ground for the fear that the Charter would provide an artificial inducement to some countries to resort to, or to expand, state trading. It offers to state-trading member countries all the advantages of all-around reduction of trade barriers and of abstention from discriminatory practices by free-market countries, while leaving the state-trading countries effectively free, subject to one qualification, from corresponding obligations. There is one, but only one, significant restraint which the American Suggested Charter or the London draft would impose on the foreign-trade operations of state-trading monopolies, namely, the prohibition against overt bilateral deals with other countries, and this prohibition, of course, would apply with at least equal force to free-market countries. The problem of finding a suitable pattern of regulation of international trade for a world in which there exist state-trading countries, I repeat, still awaits solution.

It is not yet clear, however, that the special privileges which state-trading countries would be able to exploit under the Charter would have much economic importance for us. Soviet Russia, even with her enlarged territory, is not a major factor in international trade, and this narrowly limits the degree of monopoly power she can exercise, whether as buyer or seller. Even if a number of small European countries follow Russia's example in operating their foreign trade under state monopolies, it will still not matter much to us economically, so long as they act as national units and not in combination. It would be a more serious threat to us, to other countries, and to the significance of the Charter as a whole, if Great Britain should move much further in the direction of state trading, whether in the special form she is giving it of "bulk purchasing," or otherwise. But the most serious threat would arise if Soviet Russia were to incorporate in her foreign-trade monopoly the trade of her satellite countries, and if the number of her satellites were to grow.

The threat in these circumstances would be political as well as economic, given Soviet Russia's autarchic tendencies. The great political virtue of multilateralism, far exceeding in importance its economic virtues, is that it makes it economically possible for most countries, even if small, poor and weak, to live in freedom and with chances of prosperity without having to come to special terms with some Great Power. The greater the area embraced in Russia's economic system, the more difficult it would be economically for the countries adjoining to maintain an independent existence, and therefore the more susceptible they would be to Russian pressures or blandishments. It would be conceivable under these circumstances that the Charter would not effectively hinder a glacier-like advance westward and southward of Russian economic and political hegemony, regardless of whether Russia accepted membership in the International Trade Organization. It may well be that the only way of checking such a movement would be for the United States to offer both Soviet Russia and her neighbors such generous measure of commercial and financial aid as would induce her, and enable her satellites, to participate wholeheartedly in a program of international economic collaboration under which the pressure of sheer national power, economic or political, was reduced to a minimum. At present, however, such a program is neither practical nor desirable, given the tension and the mutual distrust between the United States and Soviet Russia.

VII

It has not been possible here to deal with all of the issues of principle raised by the Charter, still less with the areas of commercial policy with which the Charter does not even attempt to deal, such as, for example, the entire field of trade in services: shipping, banking, insurance, the tourist trade, movies, hydropower and so forth.

One range of problems omitted from the draft Charter calls for special comment at this time. Strong pressure is being exerted on the American Government by American business interests to press for inclusion in the Charter of provisions assuring American capital access to opportunities for direct investment in foreign countries and satisfactory treatment of such investments. There is need for an international investment code, but it should be drafted with the greatest care so as not to weigh the balance too heavily on the side either of creditors or of debtors. At the moment, it would be highly inexpedient, for obvious reasons, if we were to take any step which would provide any basis for charges by our numerous foreign critics that our trade negotiations are only one phase of our general pursuit of economic hegemony in the service of American "capitalistic-imperialism." We should take great care lest we are found to be asking other countries to grant legal privileges to American capital which our own laws withhold from foreign capital and business enterprise in this country. It seems wise not to enlarge the scope of the Charter in this manner, and to postpone multilateral negotiations on the problems of international private investment until careful preparation has been made in that field.

In the range of problems with which the Charter does deal, including problems not commented on here, it is generally true that the Charter makes no serious attempt to apply rigorously-formulated principles in a doctrinaire manner, but attempts instead to find a basis for general agreement on movement toward two goals: minimum trade barriers and non-discrimination. The extent of movement is left largely to a process of multilateral bargaining whose outcome cannot be predicted. Where rules of some degree of precision are proposed, they are invariably qualified by exceptions and escape clauses necessary to make them generally acceptable, but easily capable of becoming more important than the rules to which they are attached. Where the clash of principle is particularly sharp, as in the case of state monopolies of foreign trade, the problem is evaded or is postponed. In the process of evolution which the draft Charter has already undergone, there can easily be detected a general tendency toward blurring and relaxing its principles and rules; the effort to strengthen and expand the discretionary authority of the International Trade Organization is presumably intended to provide an offset for this tendency.

Ardent supporters of particular principles may find all this discouraging. But it was probably inevitable from the beginning of the program of negotiation. The pattern of international legislation on complex matters cannot reasonably be expected to be tidier than the patterns with which we are familiar in the field of domestic legislation. No economic principle has universal appeal. No government has objectives single enough and simple enough to enable it to avoid mixing its principles. Rules specific enough to have bite need qualifications and escape clauses if the hard cases are to be provided for. There must be accommodation to established patterns and varying circumstances, and allowance for future contingencies. An inflexible code would be immediately unacceptable. If accepted, it would probably crack under the first severe strain to which it was put. Complete reliance upon ad hoc diplomacy, at the other extreme, would in practice be very little removed from complete international anarchy. The Charter which is in process of negotiation seeks a middle way between the code too rigid to withstand strain and the near anarchy which would be likely in the absence of any code. Increasing reliance is being put upon the discretionary authority of the International Trade Organization to reconcile the need for international discipline with the aversion of the member countries to irrevocable commitments and to submission to rigid rules.

The Charter is, therefore, a compromise document. It could no doubt be improved upon, but not at the pleasure of the United States, and not without strong opposition from American sources. If adopted it will bring some, though by no means all, of the degree and type of order in the international trade field which our country needs and the State Department wants. If it is rejected, whether by us or by other important countries, the consequences are clearly indicated: a return to the systematic economic warfare which prevailed in the 1930's, with its political tensions, its economic wastefulness, and its favorable setting for the launching by desperate leaders, on behalf of despairing peoples, of ventures fatal to the world at large as well as to themselves. The International Trade Organization Charter is the only available safeguard against such a development. There are no alternatives. Without our full and active support even this safeguard will not be brought into operation. It is, in fact, by no means certain that our support will suffice. But it is as certain as such things can be that it is in our national interest to support it, and to support it vigorously and unreservedly.