Criticizing the “Free Trade Delusion”: Havana Charter’s Progressive Trade Vision Subverted

Jerri-Lynn here: The subject of this short post is UNCTAD’s 2018 Trade and Development Report, the subtitle of which – Power, Platforms and the Free Trade Delusion – suggests might itself  warrant closer scrutiny.

The post revisits the Havana Charter on its 70th anniversary. US corporate interests derailed that agreement over concerns it provided too many concessions to developing countries. Instead, the General Agreement on Tariffs and Trade (GATT) became the base agreement for the postwar world trade order – and also the name of the administering institution –  until it was superseded by subsequent agreements and the World Trade Organization.

By Jomo Kwame Sundaram, former UN Assistant Secretary General for Economic Development, and Anis Chowdhury, professor at University of New South Wales, Sydney, following a long UN career. Originally published at Inter Press Service

In criticizing the ‘free trade delusion’, UNCTAD’s 2018 Trade and Development Report proposes an alternative to both reactionary nationalism, recently revived by President Trump, and the corporate cosmopolitanism of neoliberal multilateral discourse in recent decades by revisiting the Havana Charter on its 70th anniversary.

From ITO to WTO

Instead, it urges reconsideration of lessons from the struggle from 1947 for the Havana Charter. Although often depicted as the forerunner of the General Agreement on Tariffs and Trade (GATT), the Charter was far more ambitious.

Initially agreed to 70 years ago by over 50 countries — mainly from Latin America, as much of the rest of the developing world remained under European colonial rule — it was rejected by the US Congress, with GATT emerging as a poor compromise.

As envisaged at Bretton Woods in 1944, over 50 countries began to create the International Trade Organization (ITO) from 1945 to 1947. In 1947, 56 countries started negotiating the ITO charter in Havana following the 1947 United Nations Conference on Trade and Employment in Havana, eventually signed in 1948.

The idea of a multilateral trade organization to regulate trade — covering areas such as tariff reduction, business cartels, commodity agreements, economic development and foreign direct investment — was first mooted in the US Congress in 1916 by Representative Cordell Hull, later Roosevelt’s first Secretary of State in 1933.

However, the US Congress eventually rejected the Havana Charter, including establishment of the ITO, in 1948 following pressure from corporate lobbies unhappy about concessions to ‘underdeveloped’ countries. Thus, the Bretton Woods’ and Havana Charter’s promise of full employment and domestic industrialization in the post-war international trade order was aborted.

In their place, from 1948 to 1994, the GATT, a provisional compromise, became the main multilateral framework governing international trade, especially in manufactures, the basis for trade rules and regulations for most of the second half of the 20th century.

The Uruguay Round from 1986 to 1994, begun at Punta del Este, was the last round of multilateral trade negotiations under GATT. It ended the postwar trading order governed by GATT, replacing it with the new World Trade Organization (WTO) from 1995.

Developmental Fair Trade?

The UNCTAD report urges revisiting the Havana Charter in light of new challenges in recent decades such as the digital economy, environmental stress and financial vulnerabilities. So, what lessons can we draw from the Havana Charter in trying to reform the multilateral trading order?

In light of economic transformations over the last seven decades, it is crucial to consider how the Havana Charter tried to create a more developmental and equitable trading system, in contrast with actual changes in the world economy since.

After all, the Charter recognized that a healthy trading system must be based on economies seeking to ensure full employment while distributional issues have to be addressed at both national and international levels.

Profitable, but damaging business practices — by large international, multinational or transnational firms, abusing the international trading system — also need to be addressed.

The Charter recognized the crucial need for industrialization in developing countries as an essential part of a healthy trading system and multilateral world order, and sought to ensure that international trade rules would enable industrial policy.

The GATT compromise exceptionally allowed some such features in post-war trade rules, but even these were largely eliminated by the neoliberal Uruguay Round, as concerns about unemployment, decent work and deindustrialization were ignored.

Paths Not Taken

The evolution of the international trading system has been largely forgotten. Recent and current tensions in global trade are largely seen as threatening to the post-Second World War (WW2) international economic order first negotiated in the late 1940s and revised ever since.

But the international order of the post-WW2 period ended in the 1970s, as policymakers in the major developed economies embraced the counter-revolutionary neoliberal reforms of Thatcherism and Reaganism against Keynesian and development economics after Nixon unilaterally destroyed the Bretton Woods monetary arrangements.

Besides international trade liberalization as an end in itself, financial liberalization and globalization were facilitated as financial markets were deregulated, not only within national economies, but also across international borders.

Industrial policy, public enterprise and mixed economies were purged by the new neoliberal fundamentalists as the very idea of public intervention for healthy, equitable and balanced development was discredited by the counter-revolution against economic progress for all.

With multilateralism and the Doha Development Round under assault, retrieving relevant lessons from the Havana Charter after seven decades can be crucial in steering the world between the devil of reactionary nationalist ‘sovereigntism’ and the deep blue sea of neoliberal corporate cosmopolitanism or ‘globalism’.

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  1. La Peruse

    Quinn Slobodian’s excellent book Globalists sets out both the circumstances and actors that undermined the Havana Charter and the creation of the ITO. The ITO was meant to be the third arm of the Bretton Woods agreement, along with the IMF and World Bank. But by the time the ITO proposal came up the UN principal of one nation, one vote had taken hold. Not only did this undermine the interests of the global powers who were represented proportionally on the former two institutions, it would have given opportunity for the more numerous ‘global south’ to influence the rules for global trade to take into account the global imbalance in development that has dogged the developing world.

    This was an ideological argument that is ongoing and which, as Sundaram notes, continued long after through, for example, Reagan’s and Thatcher’s adoption of monetarism and other aspects of the neoliberal agenda. The main argument of the globalists was that through the democratic process states were susceptible to the subversion of ‘free trade’ to protect the interests of voters, particularly in the areas of fuil employment and the standard of living (including health, education, social welfare and the environment). In his book Reclaiming The State, William Mitchell lays out the underlying reasons why a sovereign state should oppose the globalists, a position that is now deemed radical in light of the success of the neoliberal project.

    Sundaram finishes his article with an incantation against ‘the devil of reactionary nationalist sovereigntism’, which would imply that sovereignty is something to be avoided. What Trump is doing is not invoking the interests of the sovereign state to better the welfare of US citizens. He is following the route of the totalitarians, as note by Hannah Arendt in ‘The Origins of Totalitariansim’, where, along with the true totalitarians, after gaining power he uses his authority to break down the structures of the state to induce a form of chaos (and ultimately fear) that prevents the state from functioning in any form other than in response to his whim. Not that the US has become totalitarian, because Trumps power is not sufficient to achieve his goal, but that is where he is headed. As for the neoliberal’s, their time is probably coming to an end, not due to the rising of an alternative, but as Wolfgang Streek says, because they have been betrayed by their own excesses.

    1. Michael C.

      La Peruse, thank you for your valuable insights. Very helpful. Though I might disagree with the idea that the neoliberals time is “probably coming to an end.” Marx recognized and was impressed with the ability of capitalism to adapt to new circumstances, and I am not so sure the neoliberals will not adapt to this, unless of course across the globe enlightened populations rise up, as seems is happening in France at the moment, Critical consciousness focuses on achieving an in-depth understanding of the world, allowing for the perception and exposure of social and political contradictions. Critical consciousness also includes taking action against the oppressive elements in one’s life that are illuminated by that understanding. It is interesting to watch the mainstream media in the US is do everything it can to make it seem it is only about the price of gas and not about the whole neoliberal agenda of austerity..

      1. Ignacio

        +1 And thank you for your answer too.

        Few days ago I was comparing the french “yellow jackets” with the sans culottes speculating that the former could become the current version of the later. This weekend I read a piece by a french sociologist saying the contrary but I still believe that there are parallels between both movements.

        The interesting thing about the yellow jacket movement is how fast and unexpectedly appeared. It shows that in modern advanced societies there are large parts -a majority- of the population which feel angry and/or dissatisfied with the ruling class and their policies. A single, and not that important, event –the new carbon tax– was just the straw that broke the camel’s back.

        Whether capitalism can adapt to this as you and Marx suggest is something that will soon be checked.

  2. John B

    Good to see the Havana Charter mentioned — one of history’s great “what ifs.” The labor rights provisions alone could have resulted in a very different economy and society today. It’s hard now to imagine that capitalist elites would have seriously considered enacting either the New Deal or the Havana Charter. It shows how much intellectual work has been done since the 1940s to enshrine the idea that the pursuit of wealth is the only virtue.

  3. Cal

    How about some “free trade” in Cuban Pharmaceuticals?
    We Americans could use some less expensive drugs across the board(er)
    —-an infectious disease doc mentioned one dose of an anti-fungicidal drug “costing” $90,000 in a U.S. hospital as the worst outrage he’d heard of.

    From Pistachios to pills, the elite are using U.S. foreign policy to protect profits.

  4. Oregoncharles

    Because it’s relevant, especially to the conclusion, I’ll repeat here Herman Daley’s point that the case for “free trade” in finance, a key element of globalism, is based on intellectual fraud – probably conscious fraud. It always references Ricardo’s “comparative advantage,” which says that countries should focus on what they do best and depend on trade for the rest. But “comparative advantage” EXPLICITLY, in the original, depends on the assumption that “production factors,” capital and labor, do not move much from one country to another. In his day, that was a reasonable assumption, but as we know, it isn’t any more. Daley goes through the logic and shows that Ricardo was right in that assumption.

    Nonetheless, economists pervasively use “comparative advantage” as an argument for the free movement of capital (not labor, for some reason). That is the fraud: free movement of capital cancels comparative advantage, and they know that or should. In fact, comparative advantage simply doesn’t apply in our world. We’re back to absolute advantage, based mostly on geography and climate. It does make sense to trade apples for oranges, or for that matter (local example), soft white wheat for hard red – they benefit from different growing conditions. Or, of course, a mineral you have for one you don’t have.

    1. flora

      I think this is true, about the fraud part, and also I think most people have figured out it’s a fraud, or not what it was sold as. There’s the sense that things aren’t working for most people in our neo-liberal economic order. The Economist has an interesting interview with Adam Curtis, who talks about ‘hypernormalization’, among other topics.

      Adam Curtis: “HyperNormalisation” is a word that was coined by a brilliant Russian historian who was writing about what it was like to live in the last years of the Soviet Union. What he said, which I thought was absolutely fascinating, was that in the 80s everyone from the top to the bottom of Soviet society knew that it wasn’t working, knew that it was corrupt, knew that the bosses were looting the system, knew that the politicians had no alternative vision. And they knew that the bosses knew they knew that. Everyone knew it was fake, but because no one had any alternative vision for a different kind of society, they just accepted this sense of total fakeness as normal. And this historian, Alexei Yurchak, coined the phrase “HyperNormalisation” to describe that feeling.

      I thought “that’s a brilliant title” because, although we are not in any way really like the Soviet Union, there is a similar feeling in our present day. Everyone in my country and in America and throughout Europe knows that the system that they are living under isn’t working as it is supposed to; that there is a lot of corruption at the top. But whenever the journalists point it out, everyone goes “Wow that’s terrible!” and then nothing happens and the system remains the same.

      1. Oregoncharles

        Yeah, that sure applies. “Everything is like CalPers.”

        Eventually, of course, the precarious edifice comes crashing down because there is nothing supporting it. Then the big questions start.

      2. Briny

        Worldwide, not just in certain countries or regions, I see the exploitation of information asymmetries to extract wealth at insane levels of scale for the benefit of the few, or even just the one. Who would of predicted the globalization of kleptocracies.

        And they wonder why I keep killing myself, aside from extreme physical pain.

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