Can Putin Survive?
The Lessons of the Soviet Collapse
IT is not to be expected that the work of rebuilding a world economic order can be completed overnight or that the economy of the nineteenth century, destroyed by three decades of war and depression, can ever be completely restored. Unfortunately, the conditions that are prerequisite to an early or unqualified return to freer markets do not now exist. There is pronounced imbalance in the world's trade. Many nations are compelled sharply to restrict imports in order to safeguard their monetary reserves; they cannot abandon administrative controls until better balance is restored. There is a widespread feeling of economic and political insecurity; nations hesitate completely to surrender their defenses against the risks that greater interdependence would entail. In a few countries, economic activity has been completely collectivized; in most others, there is increased reliance on public authority. In neither case are the policies or practices of a planned economy readily to be fitted into the traditional pattern of free markets. From all of the less developed countries of the world, moreover, there comes an insistent demand for rapid industrialization and for freedom to promote industrialization by restricting trade. Such forces are neither to be ignored nor completely to be denied.
It is in this context that the Charter for an International Trade Organization, completed a year ago at Havana, must be appraised. As is necessarily the case with any such agreement, the Charter is a product of compromise. It follows the pattern and, in general, retains the substance originally proposed, in 1945, by the United States. But it differs, in important respects, from the American proposals. In some respects it is strong, in others it is weak. But its admitted imperfections should not be permitted to obscure its real significance.
The Charter is the most comprehensive international economic agreement in history. It not only establishes the constitution for a new specialized agency of the United Nations, but it also deals, in minute detail, with tariffs, preferences, discriminatory taxes and regulations, methods of customs administration, quota systems, subsidies, state trading, cartels, commodity agreements, economic development, international investment and the relationship between domestic stabilization policies and international trade policies. Unlike the many agreements adopted between the two world wars, it does not confine itself to resolutions and recommendations, but sets forth a series of specific commitments with binding force on governments. The signature of the Final Act of Havana by 54 countries thus represents the widest area of agreement ever obtained on national commercial policies.
The Charter has come under fire from four separate camps. According to the Communists, it marks an attempt by imperialist American monopoly capitalism to enslave the economies of weaker states. According to the isolationists, it will involve the United States in global economic planning, require it to surrender its sovereignty to a superstate, and commit it to international Socialism. In the eyes of the economic planners, it fails to recognize fundamental changes in the structure of world trade and seeks to restore conditions of freedom and nondiscrimination that are forever lost. In the opinion of uncompromising liberals, its commitments are weaker than they should be and its exceptions are open to possible abuse; it therefore holds little of value for the United States.
The first of these criticisms is obvious nonsense. It is true, as the Communists have said, that greater freedom of trade and general adherence to the rule of nondiscrimination will serve the interests of larger states. But freer trade will also open the door of opportunity to smaller nations and equality of treatment will assure to them the right to buy and sell where they please, on terms as favorable as those afforded to stronger powers. Far from reducing them to slavery, the Charter affords a guarantee of economic liberty.
The second criticism is demonstrably false. The I.T.O. will have no power to determine the volume or direction of world trade, to tell any country how much and to whom it may export, or to tell any country how much and from whom it may import. It will have no authority to intervene in the domestic economic policies of member states. The Charter will neither promote the adoption of Socialism nor require its abandonment, though it should operate to restore an international environment that is congenial to private enterprise.
According to the third group of critics, the guiding principles embodied in the Charter are no longer applicable to the world in which we live. Relative freedom of trade and equality of treatment, it is said, are attainable only when international accounts are in balance and where governments abstain from intervention in domestic economic life. But it is possible that the world's trade may not be brought back into balance for a generation or more. And it is likely that economic regimentation, in most important trading nations, is here to stay. The attempt to restore a liberal trading system is thus condemned to end in failure.
So runs the argument. And it may turn out, in the end, to be true. But Americans are scarcely prepared, today, to agree that permanent imbalance of trade is inevitable, or that the tide is running so strongly toward collectivism, regimentation and restriction that we, too, must collectivize, regiment and restrict. We have already invested several billions of dollars in programs of reconstruction on the assumption that world economic order can be restored. In doing so, we have deliberately assumed the risk of failure. In joining the International Trade Organization, the risk will be identical; the cost, by comparison, will be insignificant.
It is true that the dominant philosophy of the Charter is the philosophy of economic liberalism. But its detailed provisions do not reflect a dogmatism that would render them inapplicable to the circumstances of the world today. The Charter is a flexible instrument. It accommodates itself to the necessities of the period of reconstruction. It is designed to meet the conditions both of prosperity and depression. It seeks to establish general principles that will enable diverse economies to meet on common ground. And, for these reasons, the Charter for an International Trade Organization may be expected to work.
The fourth line of criticism, it must be admitted, contains a considerable measure of truth. The commitments in the Charter do not go as far as an uncompromising liberal might wish, and many of them are qualified by exceptions and provisions for escape. But are the commitments so weak and the escape clauses so large that the document holds little of value for the United States? If this question is to be answered, the Charter's structure of obligations and its provisions for release from obligations must be briefly summarized.
The core of the Charter is to be found in commitments that limit the freedom of governments to employ restrictive and discriminatory measures to prevent foreign competition with domestic industry. In the main, these provisions are familiar: they follow recommendations made by committees of the League of Nations between the two world wars; they embody principles contained in the commercial treaties and trade agreements of the United States.
Countries joining the I.T.O. must agree to carry out negotiations directed toward the substantial reduction of tariffs and the elimination of preferences. The parties to the General Agreement on Tariffs and Trade, concluded at Geneva in 1947, have already gone far toward fulfilling this commitment among themselves. Under the terms of the Charter, comparable concessions must be made by other states. Unconditional most-favored-nation treatment is established as a general rule. Preferences surviving negotiations may be continued, but no new preferences may be created without the permission of the I.T.O. and no existing preferences may be increased.
Tariffs and subsidies are accepted in principle; quantitative controls and indirect or hidden methods of protection are condemned. Members of the I.T.O. will agree to abandon the use of license and quota systems in all cases other than those specifically excepted by the Charter or granted exemption by the Organization. Where such controls are permitted, they must be so administered, in general, as to avoid discrimination. Members of the I.T.O. may not evade the rules of the International Monetary Fund on exchange controls by using quantitative restrictions; they may not evade the Charter's rules on quantitative restrictions by using exchange controls.
In order to prevent resort to indirect or hidden methods of protection, members of the I.T.O. will agree, among other things, not to impose on imported goods internal taxes that are higher or regulations that are more onerous than those imposed on like domestic goods; not to impose any new requirement that a specified portion of any product be supplied from domestic sources; to adopt common definitions and procedures for determining the values of goods upon which customs duties are levied; to reduce the diversity of other customs charges and to limit them to the value of services rendered; to confine anti-dumping and countervailing duties to cases of actual injury and to limit them to the extent of the dumping or the bounty they are designed to offset; to afford freedom of transit to goods moving across their territories; to eliminate unnecessary marking regulations; to simplify import and export formalities and documentation requirements; to afford traders adequate opportunities for consultation with customs administrators; and to maintain independent tribunals for the review of administrative action.
Certain other commitments cover less familiar ground. Members maintaining state trading enterprises are required to carry out negotiations directed toward the expansion of their purchases and sales. In conducting such operations, they must act solely in accordance with commercial considerations, affording the enterprises of other countries adequate opportunity to compete for participation in their trade. A member may not subsidize the exportation of any primary commodity so heavily as to acquire for itself more than an equitable share of the world market; it may not subsidize the exportation of other goods; it must be prepared, on request, to discuss the possibility of limiting any subsidy that operates, directly or indirectly, to increase exports or to limit imports.
The Charter marks the first attempt, through international action, to curb the restrictive practices of international cartels. Each member of the I.T.O. will agree to take all possible steps to insure that private or public enterprises do not engage in practices, within its jurisdiction, which restrain competition, limit access to markets, or foster monopolistic control in international commerce, whenever such practices operate to interfere with the expansion of production or trade. Upon complaint by a member, the I.T.O. will make an investigation, hold hearings, and, if it finds that the practices in question have such an effect, may recommend remedial action.
The Charter also contains the first agreement on policy with respect to regulation of the international trade in primary commodities. Under its terms, members of the I.T.O. will agree substantially to limit their present freedom to enter into inter-governmental arrangements that control production, exports, imports or prices. Such arrangements will be permitted only in the cases of certain agricultural staples and of a few minerals that are produced in isolated regions. They must be limited in duration and subject to periodic review. They must afford consuming countries and producing countries an equal voice. They must assure the availability of adequate supplies. They must provide increasing opportunities for satisfying world requirements from the most economic sources. And each country participating in such an arrangement must adopt a program of domestic economic adjustment designed to render its continuance unnecessary.
The Charter recognizes, for the first time in an international agreement, the dependence of freer trade upon the maintenance of industrial stability and the importance of maintaining stability through measures that do not restrain trade. Each member of the I.T.O. will agree to take action designed to achieve and maintain full and productive employment and large and steadily growing demand within its own territory. And if pronounced imbalance in international trade persists, all of the members concerned must take action designed to correct the maladjustment. It is recognized that such action should be directed toward the expansion rather than the contraction of international trade. But the nature of the action to be taken by any member is for it alone to choose. No member is asked to guarantee that its efforts will succeed; the commitment is merely that such efforts will be made.
The Charter also contains provisions designed to promote the economic development of backward areas and to encourage the international flow of private capital for productive investment. Upon request, the I.T.O. may advise any member concerning its plans and programs for economic development and aid the member in obtaining technical advice and assistance. Members exporting facilities required for such development will agree to impose no unreasonable impediment to their exportation. Members importing such facilities will agree to take no unreasonable action injurious to the interests of those who provide them. They must afford adequate security for existing and future investments. They may impose no requirements as to the ownership of investments that are not just and no other requirements that are not reasonable. They must enter into consultation or participate in negotiations directed toward the conclusion of further agreements relating to opportunities and security for investment.
If any of the commitments contained in the Charter is not kept, the United States or any other member of the I.T.O. can complain that benefits promised it have been nullified or impaired. If it chooses to do so, it may request an advisory opinion from the International Court of Justice and such an opinion, when delivered, will be binding on the I.T.O. If a complaint is found to be justified, the complaining member may be released, on a compensatory basis, from its obligations toward the offender. The latter may then be faced with higher tariffs, quotas or other restrictions on its trade. A powerful deterrent to noncompliance is thus assured.
The Charter provides, finally, for the constitution of the I.T.O. The agency will have, as the basis of its organization, a Conference of member states, each of them casting a single vote. Continuing administration of its affairs will be in the hands of an Executive Board of 18 members, eight of whom will always represent the countries of chief economic importance, including the United States. It will be the function of the Organization to serve as an international center for information and as a source of advice and assistance on matters affecting trade, to encourage consultations and sponsor negotiations between governments, to receive complaints, settle disputes, and authorize withdrawal of benefits in cases of violation, and, finally, to act on requests for releases from obligations and lay down conditions to limit such releases as it may grant.
The commitments contained in the Charter are accompanied, of necessity, by a number of detailed exceptions and by provisions for possible exceptions. It is argued by the uncompromising liberals, among the critics of the document, that these escape clauses are so numerous and so sweeping that the commitments are likely to be nullified. It is even said that the Charter, in operation, will impose binding obligations exclusively on the United States. This is not the case.
Only eight of the escape clauses have real significance. All of these are defined with precision and safeguarded in detail by their terms. Four of them were included at the instance of the United States. Four were designed to meet the needs of countries in balance-of-payments difficulties and of countries whose economies are in the process of reconstruction or development.
The exceptions upon which the United States insisted are these: (1) Tariff or other concessions may be suspended or withdrawn if increased imports of a particular product cause or threaten serious injury to domestic producers. (2) Quotas may be imposed on imports of agricultural products when domestic production or sale is also controlled. (3) Exports of agricultural products may be subsidized. (4) Measures adopted for the protection of essential security interests are exempt.
The four other exceptions are more likely to be used by other countries than by the United States: (1) Import quotas may be imposed by a country that is found by the International Monetary Fund and the I.T.O. to be in balance-of-payments difficulty, during the period and to the extent necessary to protect its monetary reserves. (2) Exceptions to the most-favored-nation rule may be granted by the I.T.O. where they are incidental to the establishment of a customs union. (3) New preferences may be permitted by the I.T.O. for fixed periods, between two of its members, if found to be necessary to the promotion of their economic development. (4) Import quotas may be imposed to protect infant industries if permission is obtained, in the case of products covered in trade agreements (the great bulk of the world's trade) from the other parties to the agreements, and in the case of most other products (a minor part of the world's trade) from the I.T.O.
The four exceptions in the first group become effective without any sort of finding or approval by any international agency. Those in the second group do not come into operation until numerous obstacles have been surmounted, conditions fulfilled, criteria satisfied, procedures followed, and permissions obtained. Once this has been done, they impose a series of additional obligations that must be assumed. And finally, they provide in one way or another for the limitation of the period during which the exception may be enjoyed.
There is some virtue in the fact that the exceptions in the Charter are plainly labelled as exceptions to general principles whose validity every signatory of the document must recognize. Their legal status is that of release from obligations that have been voluntarily assumed. They do not condone unauthorized departures from general rules; they do permit departures with international sanction, under international control.
It should be emphasized that these exceptions will not enable any country to do anything that it was not already free to do. It is true that the commitments in the Charter, when qualified by the provisions for escape, have less value than they would if they stood alone. But it is equally true that the commitments, together with the escapes, give far greater assurance as to the future direction of national commercial policies than would exist if no commitments were to be assumed.
Taking its virtues with its defects, the Charter must be evaluated as a whole. Its provisions relating to tariff negotiations set up an effective mechanism for the reduction of barriers to trade. Those relating to discriminatory internal taxes and regulations and methods of customs administration constitute a common code of detailed rules to govern conduct in this field. Those relating to cartels, commodity agreements, subsidies and international investment are not as strong as could be wished. The commitments relating to state trading will be difficult to enforce. Those relating to quantitative restrictions are subject to important qualifications. But, in all of these fields, the I.T.O. will bring abuses into the full light of publicity. It will serve as a continuous forum where they can be challenged and condemned. Through the accumulation of decisions, case by case, it should develop a body of international law that will come to influence the commercial policies of governments. In the absence of the I.T.O., no mechanism to serve this important purpose would exist.
There is danger, of course, that members of the Organization will attempt to exploit the exceptions that may be permitted under the Charter while giving lip service to its general rules. If this should happen, an accumulation of decisions granting such exceptions might come to be regarded as a codification of accepted practice, endorsed by world opinion and given international sanction. Such a development is possible; it is by no means inevitable. Unreasonable exceptions will be sought; they will also be opposed; it is not to be assumed that they will usually -- or frequently -- be granted.
In some cases, countries requesting exceptions must obtain the consent of other parties to trade agreements; such parties may veto their requests. In the case of the balance-of-payments exception, the most important in the Charter, the I.T.O. must accept determinations made by the International Monetary Fund, in which the United States casts a weighted vote. In certain other cases, decisions taken by the Organization require a two-thirds vote. But even where issues are decided by a simple majority, it is unlikely that countries seeking to weaken the Charter would form a cohesive voting bloc. There is no single sharp division of interest that will appear in every case. The line-up of votes will be constantly shifting, from issue to issue and from time to time. When a particular country applies for permission to impose a restriction on imports of a particular product, every exporter of the product is likely to vote against the application. And when any two countries apply for permission to establish new preferences, every country whose trade would suffer is likely to vote in the negative. The influence of a major power, moreover, cannot be limited to the weight accorded to its vote. There is no reason to suppose that the United States would often find itself in a minority within the councils of the I.T.O.
It is true that the Charter fails to guarantee the restoration of conditions that would satisfy the ideal requirements of economic liberalism. But this complaint must be dismissed as academic. The real question to be asked is whether the Charter affords an opportunity to establish trade relationship better than those that are certain to obtain if it should not be approved. And here the answer is in the affirmative. Acceptance of the present terms of the Charter, moreover, is not irrevocable. Any member of the Organization may withdraw after three years. Provision is made for amendment. And all of the provisions of the Charter must be reviewed within five years after it enters into force.
The Charter is an integral part of a larger program of world economic reconstruction. If the loans extended by the International Bank for Reconstruction and Development are to be repaid, goods must be permitted to move more freely among nations. If the International Monetary Fund is to succeed in stabilizing currencies, steps must be taken to restore balance in the world's trade. If the Fund's efforts to remove exchange regulations are to have meaning, quantitative restrictions must also be subjected to international control. If the commitments as to long-run trade policy required by Congress of the countries participating in the European recovery program are to be carried out, a continuing agreement must take over where the recovery program leaves off. The instruments that have been designed to serve these purposes are the Charter for an International Trade Organization and the General Agreement on Tariffs and Trade.
The Charter and the General Agreement, while independent of one another, were conceived and negotiated as related parts of a common plan. The Charter obligates members of the I.T.O. to negotiate for entry into the Agreement. The concessions contained in the Agreement are safeguarded by incorporating those provisions of the Charter that prevent resort to other methods of restriction. When the Charter becomes effective, the common provisions of the two instruments are to be administered by the I.T.O. The Agreement, moreover, commits its signatories, pending approval of the Charter, to adhere to its general principles in so far as existing legislation may permit. It clearly contemplates the eventual establishment of the I.T.O.
The General Agreement, now in effect among 22 countries, has already made a substantial contribution toward the reduction of barriers to trade. It has reduced many duties, bound others against increase, bound the free entry of still other goods, eliminated a long list of preferences and reduced the margin of many other preferences. But the future of the General Agreement depends upon the fate of the Charter. It is in effect provisionally, not definitively; it can be denounced on short notice. If the United States were to renounce the Charter, many of the contracting parties might withdraw from the Agreement. If this were to happen, tariffs would rise, quota systems and exchange controls would be maintained and strengthened, bilateralism would persist and discrimination would be intensified. In almost every country, outside of the United States, detailed administrative regulation of exports and imports, instead of being the exception, would become the general rule. Under these circumstances, the Bank and the Fund would be condemned to futility; the commitments required of countries participating in the European recovery program would be nullified; the whole effort to restore a freer trading system would end in failure.
This is a risk that we, in America, cannot afford to take. Our prosperity, our freedom, our national security, and our hopes for peace are bound up in our efforts to rebuild a world economy. Instead of seeking a perfectionism that is unattainable, we should do well to lay hold on the measure of order that is within our grasp. The I.T.O. should be set up, strengthened in operation, and given a trial. The Charter should be approved.