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Harvard Business School 9-798-057
February 27, 1998
Creating the International Trade Organization
[D]omestic interests will be safeguarded in this process of expanding

trade.... This government does not intend, in the coming negotiations, to
eliminate tariffs or to establish free trade. All that is contemplated is the
reduction of tariffs, the removal of discriminations, and the achievement,
not of free trade, but of freer trade.
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- President Harry S. Truman, 1947
In 1948, after two years of multilateral negotiations, the U.S. State Department presented
President Truman with a Charter calling for the creation of an International Trade Organization
(ITO). Such an organization would complement the International Monetary Fund (IMF) and the
World Bank, both of which were created at the Bretton Woods Conference in 1944. Whereas the IMF
was designed to address international liquidity imbalances and the World Bank to provide long-term
funds for post-war reconstruction, the newly proposed ITO would oversee international negotiations
on trade liberalization, foreign direct investment, cartels, and commodity agreements. Together, the
IMF, World Bank, and ITO would comprise a comprehensive system for the management of
international economic affairs.
Truman was well aware that he had an historic opportunity to shape the world economy.
The United States had emerged from World War II as the most powerful nation on earth, in both
economic and military terms. This fact, coupled with a willingness among the other major powers to
form international institutions, provided Truman with an unparalleled opening – and one that might
never come again. For more than a decade, leading U.S. policymakers had championed the
liberalization of world markets and especially freer trade as essential for assuring economic
prosperity and political stability around the globe. Within this context, the successful creation of an
International Trade Organization would represent an enormous triumph for American foreign policy.
Unfortunately for the President, however, many powerful interest groups in the United States
were hostile to the ITO Charter, which meant that he faced an uphill battle for Congressional
ratification in 1949. Americans had accepted the international financial arrangements that came out
of Bretton Woods without too much controversy. But the issues at stake in the ITO debate struck
much closer to home. One group of detractors, the protectionists, opposed the ITO because they
rejected the underlying principle of freer trade. For the most part, they made their livings in
industries susceptible to low-cost foreign competition; and they insisted that American producers
deserved protection. Another powerful set of opponents from the opposite side of the political
George Appling and Andy Archer (HBS MBAs 1998) prepared this case under the supervision of Professor David A. Moss
as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative
situation.
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permission of Harvard Business School.
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This document is authorized for use only in SHIRLEY ESTEFANIA HINOSTROZA CHUCO's Comercio Exterior (EPE 2022-II) at Universidad Peruana de Ciencias Aplicadas (UPC) from May
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798-057 Creating the International Trade Organization
spectrum were the so-called perfectionists, who objected to the ITO on the grounds that it would not
go far enough in liberalizing world markets. They were especially concerned that the United States
would be held to a higher standard than the rest of the world.
In the face of such widespread opposition, and with so many other important issues
demanding the President’s attention, Truman had serious doubts about how strongly to lobby
Congress for ratification of the ITO. Exactly how important was the ITO Charter, and could its
objectives be achieved in any other way? These were the sorts of questions that must have circulated
in the White House and throughout Washington once the ITO debate opened on Capitol Hill in 1949.
Background on the United States and the Global Economy, 1846-1933
Although the proposed ITO was designed to address a wide variety of international
economic issues, trade liberalization was by far the most important objective. Of course, free trade
was not exactly a new idea in the late 1940s. The so-called “golden age” of free trade dates to the
mid-nineteenth century. Britain took the first large step when it unilaterally repealed its Corn Laws
(protective trade barriers on imported grain) in 1846. Fourteen years later, the Cobden-Chevalier
Treaty practically eliminated trade barriers between Britain and France. Most of the major European
states soon followed by entering into bilateral agreements which sharply reduced tariff levels across
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the continent. (See Figure 1.)
Figure 1: Estimated Average Tariff Rates on Manufactured Goods in 1875

United States
Euro pe
Con tinental Europe
United King dom
The Netherlands
Switzerland
Sweden
Spain
Rus s ia
Portugal
Norway
Italy
Germany
Fran ce
Den mark
Belg ium
A us tria-Hu ngary
0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 45.0 50.0
Source: Adapted from Paul Bairoch, Economics and World History: Myths and Paradoxes (Chicago: University of Chicago
Press, 1993), Table 2.2.
The European free trade regime began to break down about twenty years after Cobden-
Chevalier. Germany sharply increased its tariff rates in 1879. Austria-Hungary and France also
hiked tariffs beginning in the late 1870s. Although Britain generally maintained its free trade
position, it began to construct preferential trading arrangements with its overseas empire near the
turn of the century. Worldwide, tariff rates increased from 1879 until the beginning of the First World
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War.
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Creating the International Trade Organization 798-057
For its part, the United States maintained very high tariff rates on dutiable imports before,
during, and after the so-called “golden age” of free trade. Indeed, the Americans pursued an import
substitution strategy throughout most of the nineteenth century (see Figure 2). In spite of the
strategy’s endurance (and perhaps because of it), tariff policy had always been a politically charged
issue in the United States, pitting the free traders of the agricultural South against the protectionists of
the industrial North. Other than slavery, the tariff was probably the most divisive issue in
nineteenth-century America. Even as late as 1890, the highly protectionist McKinley tariff quickly
became a defining political issue on the national level. One historian, who described the tariff as “the
single most important national issue” at the end of the century, noted that “after the passage of the
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McKinley Tariff, the Republicans of the 51 Congress experienced a landslide defeat, attributed by
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most observers to their passage of the tariff act.”
Figure 2: Average Tariff Rates on Dutiable Imports* in the United States, 1821-1948
7 0 %
6 0 %
5 0 %
4 0 %
3 0 %
2 0 %
1 0 %
0 %
1821
1829
1837
1845
1853
1861
1869
1877
1885
1893
1901
1909
1917
1925
1933
1941
*
Calculated as tariff revenues divided by the total value of dutiable imports.
Source: Historical Statistics of the United States, Colonial Times to 1970 (Washington: U.S. Bureau of the Census, 1975), Part
2, Series U 209, 210 (p. 888).
Another reason for the tariff’s importance in the United States was that the federal
government continued to generate the majority of its revenue from tariff collection through the early
twentieth century (see Figure 3). Ratification of the Sixteenth Amendment to the Constitution in 1913,
allowing the federal government to collect an individual income tax, removed some of the pressure.
It was no coincidence that one of the first major tariff-reduction laws, the Underwood-Simmons Act,
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was introduced at the same time as the income tax in 1913. Even then, however, the tariff remained a
hot-button issue in American politics, dividing protectionist Republicans from free-trade Democrats.
Figure 3: Tariff Revenues as a Percentage of Total Federal Revenues

in the United States, 1821-1948
1 0 0 %
9 0 %
8 0 %
7 0 %
6 0 %
5 0 %
4 0 %
3 0 %
2 0 %
1 0 %
0 %
1821
1829
1837
1845
1853
1861
1869
1877
1885
1893
1901
1909
1917
1925
1933
1941
2, Series Y 343, 344, 352, 353 (pp. 1105-1106).
America’s high tariff strategy finally began to unravel in the early twentieth century. One of
the driving forces behind the U.S. push to liberalize trade – both at home and abroad – was a
Congressman from Tennessee named Cordell Hull. Hull served in the House of Representatives from
1907 to 1930 (except for 1921-23) and was elected to the Senate in 1930. President Franklin Roosevelt
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appointed him Secretary of State in 1933, and Hull served in this position until late 1944. The fact
that he was from Tennessee was important at a time when trade debates often divided the nation
along sectional (North-South) lines. Hull supported freer trade from his earliest days in Congress,
when he chose to focus his efforts on “revenue, tariff, and other forms of taxation, economics, and
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finance.”
Historical data revealed that trade had grown continually in importance in the world
economy until 1913, but then sharply retreated in the aftermath of the First World War. World tariff
rates had actually begun rising in advance of WWI, and they continued rising after the war (see
Figures 4 and 5). Europeans, for example, aggressively protected their farmers from North American
and Australian competition. Even Great Britain, which had always been the world’s most vigorous
supporter of free trade, put in place a new system of colonial preferences in 1919 and adopted small
tariffs in 1921. For its part, the U.S. Congress raised average tariff rates on dutiable imports from
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26.8% to 38.2% under the Fordney-McCumber Act of 1922.
Figure 4: Average Tariffs on Manufactures, 1875-1950
60%
48%
45%
44%
50% 1 8 7 5
40%
30%
1 9 1 3
26%
23%
30%
21%
20%
18%
1 9 3 1
14%
14%
13%
20%
1 9 5 0
5%
10%
0%
0%
0%
0%
U S G erm an y F ran ce U K
Note: Tariff average weighted by percentage of value.
Source: Adapted from Paul Bairoch, Economics & World History: Myths and Paradoxes (Chicago: University
of Chicago Press), table 3.3, p.40
Figure 5: Merchandise Exports as a Percentage of GDP, 1870-1950

16.3%
2 0 .0 %
W es tern E u ro p e
1 8 .0 %
13.3%
U S
1 6 .0 %
1 4 .0 %
10.0%
9.4%
1 2 .0 %
1 0 .0 %
6.6%
6.4%
5.2%
8 .0 %
3.6%
6 .0 %
4 .0 %
2 .0 %
0 .0 %
1 8 7 0 1 9 1 3 1 9 2 9 1 9 5 0
Note: Percentages for Western Europe include intra-European trade and are calculated on a real over real basis. If the U.S.
percentages were calculated on a real over real basis, they would be considerably smaller (e.g., 2.5% in 1870 and 3.0% in 1950).
Sources: Data for Western Europe are from Angus Maddison, Monitoring the World Economy, 1820-1992 (Paris: OECD, 1995), p.
38; data for U.S. are from Historical Statistics of the United States, Colonial Times to 1970 (Washington: U.S. Bureau of the Census,
1975), Series U2 (Part 2, pp. 864-65) and F1 (Part 1, p. 224).
For those who supported free trade, the situation went from bad to worse when President
Hoover signed the Republican-sponsored Smoot-Hawley Tariff into law in June of 1930. This
legislation raised average tariff rates to their highest levels in at least a century, with the average tariff
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rate on dutiable imports reaching an astonishing 55.3 percent. The Republican leadership in
Congress had long touted the advantages of the tariff, particularly as a means of safeguarding and
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bolstering key domestic industries. High tariff rates appeared ever more attractive as the Great
Depression took hold. Naturally, the alternative of lowering rates and thus opening U.S. markets to
foreign competition proved exceedingly difficult to justify during a period of intense price deflation.
Frustrated at continually finding himself on the losing side of the tariff debate, Hull warned
that foreign retaliation was inevitable and that the ultimate cost to the United States would be high:
Instead of a new policy of moderate tariffs with fair and liberal commercial or trade
policy, based on the favored-nation doctrine in its unconditional form, [Republicans
propose] further to build all our economic policies around the doctrine of extreme
nationalism or isolation, with discrimination or retaliation as our chief commercial
policy, ignoring the patent fact that the future progress and prosperity of [the U.S.]
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requires expanding production and expansion of foreign markets.
As Hull predicted, numerous countries retaliated against Smoot-Hawley, driving up tariffs

worldwide and sending world trade downward (see Figure 6). Some pundits have actually blamed
the Great Depression on the Smoot-Hawley tariff, which was gaining strength in Congress at the
same time that the New York Stock Market crashed in late 1929. The leading proponent of this
theory, the supply-side economist Jude Wanniski, asserted unequivocally, “The stock market Crash of
1929 and the Great Depression ensued because of the passage of the Smoot-Hawley Tariff Act of 1930.
... [A]s country after country took retaliatory tariff actions against the United States, the stock market
sank lower, the Dow Jones Industrials finally hitting rock bottom on July 8, 1932, a few days after
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Franklin D. Roosevelt won the Democratic presidential nomination on an anti-tariff platform.” By
the time Franklin Roosevelt entered the White House in early 1933, total U.S. output was nearly 30
percent less than it had been in 1929, and one out of every four American workers was unemployed.
Figure 6: Value of World Exports, 1926-1938 (millions of 1990 dollars)

350
300
250
200
150
100
50
0
1926
1927
1928
1929
1930
1931
1932
1933
1934
1935
1936
1937
1938
Note: For purposes of comparison, the value of world exports in 1990 dollars was 236 billion in 1913, 376 billion in 1950, and 3.43 trillion
in 1990.
Source: Adapted from Angus Maddison, Monitoring the World Economy, 1820-1992 (Paris: OECD, 1995), p. 239.
With tariffs and joblessness rising and trade and income falling all around the world, many
observers feared that the international economic system had broken down. Others worried that
decreasing economic interdependence raised the likelihood of war. It was against this backdrop that
Cordell Hull became Secretary of State in 1933 and set out to sell his free trade vision to America and
the world.
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Reshaping the International Economic Order from Washington, 1933-1948
The Free Trade Vision of Cordell Hull
As Secretary of State, Hull regularly asserted that the restoration of global prosperity
depended fundamentally on the willingness of nations, including the United States, to open their
markets to foreign trade. Multilateral action to liberalize tariffs and stabilize exchange rates was
especially important. As he explained on one occasion,
... nations are substantially interrelated and interdependent in an economic sense

with the result that international cooperation is a fundamental necessity. ...
[M]utually profitable markets [can] only be obtained by the liberalization of the
commercial policies of other countries and this is only possible by the simultaneous
action of all governments stabilizing exchange and currencies and reducing to a
reasonable extent trade barriers and other impediments to commerce between
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nations.
In Hull’s view, movement toward free trade would bolster domestic employment and permit
the United States to exercise global leadership commensurate with the size of its economy. At the
same time, he argued that protectionism imposed harmful costs, including a shift in income and
employment to protected sectors, higher production costs, the fostering of monopolies, and foreign
retaliation against American products. Hull had declared in 1923 that a “protective tariff … is
immoral and dishonest, because its sole purpose is to increase prices artificially, in certain instances,
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thereby enabling one citizen to levy unjust tribute from another.” Although the United States ran
substantial trade surpluses throughout most of the 1930s, Hull believed that exports could not be
significantly increased without allowing imports to rise as well. Otherwise, America’s trading
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partners would lack the foreign exchange necessary to continue buying U.S. goods.
Of course, free trade was not just about economics. Hull firmly believed that trade policy
could be used as a diplomatic tool to promote international political stability and, ultimately, peace
over war. An open world economy – and the prosperity that went along with it – might even keep
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emerging political problems in Germany and Italy in check. “The truth is universally recognized,”
Hull explained, “that trade between nations is the greatest peacemaker and civilizer within human
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experience.” In his view, free trade “dovetailed with peace; high tariffs, trade barriers, and unfair
17
economic competition, with war.”
Reconciling the Free Trade Vision with US Policy
The first step in transforming Hull’s free trade vision into reality was passage of the
Reciprocal Trade Agreements Act (RTAA) in 1934. The RTAA allowed the President to take the lead
in negotiating bilateral tariff reductions with America’s major trading partners. The President was
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authorized to negotiate reductions of up to 50 percent without the approval of Congress. As such,
the RTAA reflected a major shift in power over trade policy from the Legislative Branch (Congress) to
the Executive Branch (the President). Prior to 1934, tariff legislation – including Smoot-Hawley –
commonly fell prey to complex patterns of Congressional logrolling. Rates were continually
ratcheted up as numerous congressmen agreed to higher tariffs across the board so long as they were
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guaranteed high tariffs on the particular goods that their constituents produced. Under the RTAA,
by contrast, the President and the State Department took increasing responsibility for international
trade negotiations.
Although the RTAA did help to bring down trade barriers, many American politicians
continued to believe that the goal was to pry open foreign markets for American exporters rather than
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to lower tariffs and quotas on all sides. President Roosevelt quickly recognized this, stressing that
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his trade reforms were in the best interest of American producers. Selling free trade as an abstract
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economic concept was essentially impossible. As a leading Democratic Congressman from Kentucky,
Fred Vinson, explained in 1934,
[Some] refer to the Democratic tariff policy as tending toward free trade. Since I have
been in Congress, I have never seen or heard of a free trader. I know of no one on the
Democratic side of the House who does not believe that American industry, labor,
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and agriculture should be protected against a flood of foreign-made goods.
Even so, the Roosevelt Administration did manage to bring down average tariff rates on
dutiable imports substantially – from the Smoot-Hawley levels of over 55 percent to approximately 37
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percent by 1939. Although U.S. exports did rise over much of this period, they failed to reach the
peak established in 1929, either in total value or as a fraction of GDP.
Toward the end of the 1930s, Hull began to show increasing interest in the most-favored-
nation principle, whereby bilateral trade agreements could be translated into multilateral tariff
reduction.* Particularly after the U.S. joined the Allied war effort in late 1941, Hull and his supporters
were able to envision a postwar political and economic environment grounded upon multilateral
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arrangements.
There was little doubt on the American side that British cooperation would be essential for
the success of any long-term, multilateral trade policy. In the face of a mounting German threat, U.S.
and British leaders signed a Mutual Aid Agreement in 1942, which provided war-related assistance to
Britain and defined a number of specific commitments “in defense of freedom.” Article VII, in
particular, addressed trade policy goals, committing both countries to the dual principles of long-
term trade liberalization and post-war economic stability.
As it turned out, however, postwar economic planning with the British proved more difficult
than many American officials had anticipated. Britain’s leaders were reluctant to adopt the most-
favored-nation principle since doing so would undercut the mother country’s well-established system
of “Imperial Preferences” for Commonwealth nations. Some of Britain’s most prominent economic
thinkers, moreover, feared that trade liberalization might compromise the nation’s full employment
policies. John Maynard Keynes was particularly outspoken on this point. As a result, the final
version of Article VII emphasized the importance of high domestic employment as well as the need
for trade and financial liberalization. But skepticism about the possibility of reconciling these policy
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goals remained widespread in both Britain and the United States.
Creation of International Institutions
Postwar economic planning reached a high point at the Bretton Woods Conference in July
1944. Delegates at Bretton Woods were determined not to repeat the economic mistakes of the 1930s
– trade wars, competitive devaluations, capital controls, and so forth. Under the leadership of the
United States, they established two new international institutions: the International Monetary Fund
(IMF) and the International Bank for Reconstruction and Development (later known as the World
Bank). They also devised an entirely new fixed exchange rate regime that would be anchored to the
U.S. dollar. The purpose of the IMF was to monitor the new exchange rate mechanism, to provide
liquidity when necessary, and to encourage countries to move toward free currency convertibility for
current account transactions. The idea was that the IMF would lend funds to countries that ran low
on foreign exchange so that they would not feel the need to employ trade restrictions or competitive
devaluations. The World Bank’s role was to finance post-war reconstruction in devastated economies
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and, thereby, to promote long-term economic stability.
* The most-favored-nation (MFN) principle requires the equal treatment of all designated countries, such that a
tariff reduction granted to one partner must be granted to all others.
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Although U.S. policymakers were willing to vest these new institutions with significant
power, they did not wish to see the United States cede its dominant position on the world political
stage. Voting power at both the IMF and the World Bank was therefore apportioned according to the
respective contributions of the various countries involved. Since U.S. contributions were by far the
largest, the United States was guaranteed a dominant voice in the direction of both institutions. Both
headquarters, moreover, were located in Washington, D.C. And, of course, the dollar was made the
centerpiece of the new international exchange rate mechanism, again highlighting America’s overall
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leadership. After officials of the Roosevelt Administration worked to build support for these new
international institutions among business and community leaders at home, Congress approved their
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creation with minimal controversy.
Secretary Hull and his supporters envisioned the International Trade Organization as the
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“third leg of the Bretton Woods stool,” a complement to the IMF and the World Bank that would
help to liberalize trade on a multilateral basis. They elected to use the debate in Congress over
RTAA-extension in 1945 as an opportunity to introduce the concept of an ITO to the legislative
branch. For many Congressmen, the most important questions about both the RTAA and a
prospective ITO involved the relationship between trade and employment. Opponents of trade
liberalization frequently argued that full employment should be achieved through domestic policy
measures before national attention was diverted to international trade. According to a State
Department study at the time, many Americans supported protectionism simply because they viewed
their country as a “producer” nation whose jobs were threatened by foreign imports, rather than as a
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“consumer” nation that could benefit from cheaper imports.
Figure 7a: U. S. Share of World Income, 1820-1950
30.0% 27.1%
25.0% 22.8%
20.0% 19.0%
15.8%
15.0%
10.0% 8.7%
5.0% 1.8%
0.0%
1820 1870 1900 1913 1929 1950
Note: U.S. share of population was 0.9% in 1820, 4.9% in 1900, and 6.1% in 1950.
Figure 7b: Country Share of World GDP in 1950 (based on conversion into constant dollars)
30.0% 27.1%
25.0%
20.0%
15.0%
10.0% 6.4%
5.0% 4.0% 4.1% 3.0% 2.9%
0.0%
US UK Germany France Italy Japan
Source: Adapted from Angus Maddison, Monitoring the World Economy, 1820-1992 (Paris: OECD, 1995), pp. 106-107, 181,
183,226, 227.
Advocates of trade liberalization countered that most American industries had achieved
dramatic productivity gains during and after WWII and thus no longer required the protection of
high trade barriers. The United States had emerged from the war with an incredibly powerful and
dynamic economic base, relative to both its enemies and its allies. By the late 1940s, the U.S. economy
accounted for over one-quarter of world GNP (see Figure 7b). Supporters of freer trade argued that
continuing to protect domestic markets would only serve to maintain existing levels of employment.
To create new jobs at home, they insisted, American producers would need increased access to
markets abroad. And this could only be achieved if the United States led the way in the opening of
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world markets by engaging in multilateral negotiations and by showing a willingness to bring down
its own tariff barriers if others would follow.
Congress renewed the RTAA in 1945, thus offering Hull’s supporters at least a modest
endorsement of their trade liberalization strategy. It was abundantly clear, however, that any attempt
to expand bilateral RTAA agreements into multilateral agreements under a prospective ITO would be
politically difficult, if not impossible. To make matters worse, Cordell Hull had resigned as Secretary
of State in late 1944, leaving ITO advocates without an obvious leader. Franklin Roosevelt himself,
Hull’s patron, died in April 1945, transferring the Presidency to Harry S. Truman. Nevertheless,
officials at the State Department and throughout the Truman Administration recognized that the ITO
would never emerge in the international arena without the active support and leadership of the
United States. U.S. officials therefore submitted their Proposals for the Expansion of World Trade and
Employment at the end of 1945, which became the first official public document calling for the creation
of the ITO.
Creating the ITO Charter
For the United States, the primary reason for drafting and circulating the Proposals was to
build international support for the principle of economic liberalization and, more specifically, for the
creation of an International Trade Organization. The Europeans, however, were much more
concerned with those provisions in the Proposals that dealt with the amount of financial aid the United
States was prepared to offer after the war. The Europeans also assumed that significant liberalization
would not occur until after a transitional reconstruction period, which would allow them to catch up
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with the Americans.
As the Proposals were debated and refined in numerous international conferences devoted to
formulating an ITO charter, several key issues surfaced. Although most countries appeared to accept
the underlying principles highlighted in the Proposals, there was significant disagreement about how
exceptions were to be granted and about the extent to which Charter clauses were, in fact, binding.
Britain and France, for example, favored escape clauses that would allow departures from negotiated
agreements whenever serious balance-of-payments difficulties loomed. Australia, on the other hand,
insisted on the creation of escape provisions that would facilitate the maintenance of full employment
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and the promotion of domestic industrialization.
Naturally, free-trade advocates at the State Department remained convinced that successful
reconstruction in Europe and around the world was contingent on multilateral trade and financial
liberalization. Clair Wilcox, a former Swarthmore economics professor who emerged as the State
Department’s lead negotiator in the ITO discussions, summarized this view:
Of the many tasks of economic reconstruction that remain [after the war], ours is by
all odds the most important.... If the peoples who now depend upon relief are soon
to become self-supporting, if those who now must borrow are eventually to repay, if
currencies are permanently to be stabilized ... the world must be freed, in large
measure, of the barriers that now obstruct the flow of goods and services. If political
and economic order is to be rebuilt, we must provide, in our world trade charter, the
solid foundation upon which the superstructure of international cooperation is to
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stand.
The first draft of the ITO Charter was written at an international conference in London in
1946, at which 15 nations were represented. During the second round of negotiations at Geneva in
the spring of 1947, Charter provisions were expanded to cover private foreign investment as well as
trade issues. Most debate, however, continued to focus on the conditions under which exceptions
would be provided – both for balance-of-payments difficulties and for the promotion of domestic
economic development and employment.
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In all, twenty-three countries sent representatives to the Geneva conference. Charter

revisions required more than six months of work. At the same time, national negotiators were able to
secure a series of complex bilateral agreements that achieved significant tariff reductions and formed
the basis for the General Agreement on Tariffs and Trade (GATT) in 1947. The GATT set guidelines
for trade negotiations and restricted the establishment of any new trade preferences. It applied to
countries representing more than 75 percent of world trade, and to more than 65 percent of the trade
carried out by the nations represented. Widely regarded at the time as anticipating an ITO chapter on
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trade, the GATT marked a new high point in international negotiation on economic issues. It should
be noted, however, that the GATT was originally intended only as a temporary device, to be
superseded in the future by the ITO. The GATT did not establish a well-defined governing
institution. According to one observer, the Agreement merely proposed a “process of liberalization
35
with no stated objective.” In the United States, the President retained the right to commit the nation
to GATT agreements through previously delegated RTAA powers. Involvement in the prospective
36
ITO, by contrast, would require the explicit approval of Congress.
The ITO Charter was finally completed in Havana, Cuba, in 1948, after almost two years of
tedious negotiations. Reflecting on events leading up to the Havana conference, Clair Wilcox noted
the extraordinary difficulty of trying to reconcile the ideal of free trade with the practical priorities
and concerns of fifty-six different countries:
Some eight hundred amendments [to the Geneva draft] were presented, among them
as many as two hundred that would have destroyed the very foundations of the
enterprise. Almost every specific commitment in the document was challenged.
Proposals were made for many broad escapes. Quantities of irrelevant material were
introduced. There were attempts to confine the new trade organization to purely
advisory functions. There were provisions designed to make it difficult, if not
impossible, to bring the Charter into force. With this beginning, the [Havana]
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conference went to work.
To the amazement of many, the Havana conference ultimately did produce a Charter. The
future of the Charter remained unclear, but the fact that it came into existence at all in 1948 was
regarded by numerous officials at the State Department as a minor miracle in and of itself.
Primary Charter Objectives38
Although in some ways similar to earlier international trade agreements, the ITO Charter was
much bolder than its antecedents because it attempted to encompass not only trade but also
numerous other international economic issues under one umbrella institution. In fact, six agreements
– dealing with international investment, cartels, commodity agreements, employment, economic
development, as well as trade – were embedded in the ITO Charter. Naturally, this rendered both the
creation of the Charter and the subsequent debate over its adoption exceedingly complex. The fact
that the Charter was supposed to be both comprehensive and sufficiently flexible to accommodate
39
country differences only exacerbated the problem. In Wilcox’s words, “The best that can be hoped
40
for is a workable compromise.”
The key question was precisely what type of a compromise the Americans wanted. Wrote
one analyst, U.S. leaders faced “a difficult choice: either to abandon the hope of universality [i.e.,
broad membership] or to accept a wide variety of exceptions and escape clauses, some of which
41
sanctioned practices which were deeply repugnant to them.” Officials at the State Department chose
the latter route, which generated a complicated agreement containing 106 clauses, 16 annexes, and 50
42
interpretative notes. What follows is a brief survey of the key issues addressed in the Charter (see
also Exhibit 1).
Trade Liberalization. Under the ITO Charter, all members were expected to negotiate jointly for
substantial tariff reductions on a most-favored-nation basis. That is, any reduction offered to one
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member would have to be offered to all other members as well. Existing preferences (favoring one
member country over another) could be maintained, but new preferences could only be extended in
forming a customs union or free trade area. Significantly, members were allowed to suspend
participation if particular tariff reductions seriously threatened domestic industries or undermined
national balance-of-payments positions.
The Charter also addressed non-tariff barriers, sometimes called “invisible tariffs.” ITO
members were prohibited from imposing discriminatory taxes, from establishing regulations that
required specific levels of domestic content in manufactures, and from implementing any of a variety
of restrictive customs methods. Although the Charter required the elimination of most quotas, two
large exceptions were granted. Member nations could apply quotas to agricultural imports if
domestic surpluses existed. They could also impose quotas in the event of a severe shortage of
foreign exchange reserves (see Exhibit 2). Even these quotas, however, were supposed to be
temporary and were required to be non-discriminatory. In an attempt to limit foreign-exchange
controls, which were often used as substitutes for explicit quotas, the Charter obligated all members
to join the IMF. Finally, the Charter required all member nations to report and justify their use of
export subsidies, with the goal of eliminating these subsidies entirely within two years of the
Charter’s adoption.
International Investment. The Charter also included provisions to make international investment
safer and to limit “unreasonable” requirements on foreign ownership. Member governments were
expected “to provide … adequate security for existing and future investments” and “to give due
regard to the desirability of avoiding discrimination as between foreign investments” (Chapter III,
Article 12, Section 2a). Clair Wilcox observed that if “industrialization is to be speeded [in
developing countries], capital must be imported from abroad. ... Unless there is reasonable prospect
of profit and an assurance of security, [foreign investment] simply will not occur. In many
43
undeveloped countries, though the prospect of profit is present, the assurance of security is not.”
This was the logic that lay beneath the international investment provisions of the Havana Charter.
Most business interests in the United States, however, ultimately opposed these parts of the Charter.
Having lobbied hard for clauses protecting their investments abroad, they found the final language
44
terribly disappointing. Especially disconcerting was Article 12, Section 2c, which permitted each
government “to determine whether and to what extent and upon what terms it will allow future
foreign investment.” Wilcox acknowledged that such clauses “will arouse little enthusiasm in the
United States,” but insisted that the “investment provisions of the Charter are but a beginning” and
45
that they would likely be strengthened in the future.
Cartels. Chapter V of the Charter required that all members agree to monitor and legislate against
restrictive business practices – such as the formation of cartels – that restrained international
competition. Wilcox observed that before WWII, “there were few industrialized countries, outside of
the United States, in which the production and sale of manufactured goods was effectively
competitive.” In most major industrialized countries, “the control of major industries was
concentrated in giant combines and the production and distribution of manufactured goods were
46
regimented by powerful cartels.” Officials at the State Department reasoned that international trade
could not truly be free if cartels continued to play a dominant role inside most national economies.
The anti-cartel policy embedded in the ITO Charter was thus seen as a necessary analogue to anti-
trust policy at home.
Commodity Agreements. Intergovernmental commodity agreements were seen as another major

obstacle to free international trade, and one which would not be diminished by ongoing efforts to
reduce tariffs. All over the world, governments commonly protected commodity producers by
negotiating agreements that effectively controlled both prices and quantities in the international
marketplace. Even the United States participated in these sorts of agreements. Although ITO
supporters freely admitted that it “would be futile to propose that nations agree to abandon all efforts
47
to assist [commodity] producers,” they were pleased that Chapter VI of the Charter developed a set
of rules delimiting what types of commodity agreements were acceptable. In general, Chapter VI
required that intergovernmental agreements be temporary and that they cover only primary
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commodities. According to the Twentieth Century Fund's Committee on Cartels and Monopoly,
“The chapter will be what the members of the ITO make it. Much depends on the United States. This
country should strongly support ITO in its attempt to regulate commodity agreements and should do
48
everything possible to strengthen its machinery.”
Employment. Cognizant of the importance that member nations placed upon the objective of full
employment at home, delegates to the Havana conference included a clause recognizing each
country’s right to address its own domestic employment needs, even when doing so might conflict
with other Charter principles (see Exhibit 2). Members also agreed to help struggling member
countries achieve high levels of employment, although the Charter explicitly permitted the struggling
countries to choose their own strategies for recovery.
Economic Development. Finally, the Charter recognized the right of each member nation to
ensure that its participation in the ITO was consistent with its overall path of economic development.
The ITO would act as a counselor for developing nations and would mobilize assistance from other
nations when necessary. Although infant-industry subsidies would be permitted, requests for trade
restrictions (particularly non-tariff barriers) would always require ITO approval. (See Exhibit 2.)
ITO Structure and Governance49
The ITO Charter envisioned an association of member states, each vested with a single vote,
that would be administered by an Executive Board of eighteen member countries. The Board would
always include eight countries that were deemed to have special economic importance. At the time,
the eight were supposed to be the United States, Britain, Canada, France, the Benelux customs union,
50
India, China, and the Soviet Union, assuming all joined the ITO. A Director-General would be
approved to administer day-to-day operations, assisted by various committees on technical issues.
The ITO would maintain key statistics on international trade and develop appropriate standards for
trade liberalization. The organization would facilitate negotiations between member nations and
would determine when exceptions to Charter provisions were allowable. Along with the IMF and the
IBRD (World Bank), the ITO would stand as a special agency of the United Nations, with the caveat
that it would serve only its own member nations.
The ITO’s Executive Board was authorized to settle disputes among members that they were
unable to resolve on their own. In cases where one member was judged to be seriously harmed by
another member, the ITO could grant the victim an exemption from its obligations to the other. In
fact, the Charter designated the ITO as the final arbiter on all economic and financial questions
related to international trade and investment flows. On difficult legal questions, the ITO could seek
opinions from the International Court of Justice, which would supersede prior ITO decisions. In this
way, it was expected that a body of international law would gradually evolve over time.
Not surprisingly, the ITO would not be empowered to compel its members to act in any
particular way. No military force would stand behind its pronouncements. The ultimate penalty for
non-compliance by a member nation was simply expulsion from the organization. Apparently,
delegates to the Havana conference believed that the threat of losing critical benefits associated with
ITO membership (including tariff concessions and most-favored-nation status) would be sufficient to
assure constructive participation over the long run.
Questions and Problems
Too Much Idealism or Too Much Compromise?
Most American critics of the ITO feared that the United States would be treated unfairly if the
organization ever came into existence. Pointing to a long list of specific commitments and exceptions
written into the Charter, they anticipated a world in which only the U.S. actually upheld its
obligations while most other member nations regularly utilized exceptions. The lead U.S. negotiator,
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Clair Wilcox, responded, “It is true that the Charter contains a great many exceptions. But these
exceptions are carefully defined; many of them are temporary; all of them are limited in extent; and
no nation will be able to use any of them unless it satisfies the conditions on which all nations have
agreed. If it were not for the exceptions, the Charter would not be practical, and it is because it is
51
practical that it can be expected to work.”
Many American critics also wondered whether commitments under the ITO would truly be
binding and whether there would be any meaningful penalties for non-compliance. In the absence of
tough penalties, they insisted, foreigners would be likely to break their commitments, further
disadvantaging the United States. Significantly, however, many foreigners expressed precisely the
opposite concern, questioning whether the U.S. government would ultimately abide by its stated
commitment to free trade. As was well known, U.S. agricultural interests had long benefited from
both protective import tariffs and export subsidies. What remained unclear was whether the United
States was willing to abandon such policies once an ITO was created. A partial answer came in 1947
when both houses of Congress approved bills intended to protect domestic wool producers against
price competition from major exporters including Australia. When the Australians threatened to
withdraw their support for the ITO, President Truman quickly put an end to this Congressional
initiative. But serious questions lingered about the depth of America’s commitment to free trade.
Would the United States support trade liberalization under the ITO unconditionally, or only on its
52
own economic terms?
Is Free Trade Good for All Nations All the Time?
Although U.S. representatives at the ITO negotiations consistently argued that freer trade
would benefit all nations, representatives from numerous other countries questioned whether trade
liberalization was consistent with the domestic goals of full employment and rapid industrial
development. Could activist economic policies at the domestic level be squared with free market
policies at the international level? In a letter to senior British trade officials in the early 1940s, John
Maynard Keynes expressed serious doubts about the viability, and even the rationality, of free trade:
As you know, I am ... a hopeless sceptic about this return to nineteenth

century laissez faire, for which you and the [American] State Department seem to have
such a nostalgia.
I believe the future lies with –

(i) State trading for commodities;
(ii) International cartels for necessary manufactures; and
(iii) Quantitative import restrictions for non-essential manufactures.
Yet all these future instrumentalities for orderly economic life in the future
53
you seek to outlaw.
Some economic thinkers also worried that an open global economy would allow crises in one
area to spread rapidly to the rest of the world. In the face of such arguments, even strong proponents
of the Charter like Wilcox were forced to concede that the free trade ideal would be a difficult one to
reach in practice. “There is no hope and no danger that [negotiations under the Charter provisions]
would result in the elimination of all protective barriers,” he admitted. “The world can move toward
freer trade without going all the way to free trade. No nation has proposed and none is ready to
54
adopt complete free trade.”
Would the ITO Compromise National Sovereignty?
One of the strongest arguments against the ITO – particularly in the United States –
highlighted the issue of national sovereignty. Opponents of the ITO charged that it would act as a
supranational government, taking precedence over national governments and effectively dictating
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domestic policies to them. Some detractors in the United States even claimed that adherence to the
Charter would result in global socialism. In a book provocatively entitled The Economic Munich,
Philip Cortney argued,
The State Department is right in asserting that the ITO Charter makes it possible for
state socialism and free enterprise capitalism to work together, but at a price. The
price is restriction of international trade, discrimination, and undermining of the free
enterprise capitalism. … We shall therefore have to examine whether the Charter
55
would help the existence of state socialistic economies, at our damage and risk.
Supporters of the Charter responded by stressing that all commitments made to the ITO were
entirely voluntary and that each member nation was free to formulate domestic economic policy
(covering wages, employment, and even industrial targets) on its own. They insisted repeatedly that
the ITO would open the world economy without undermining the sovereignty of national
governments, but opponents remained unconvinced.
The Debate in the United States
Although the Havana Charter was completed in 1948, President Truman (a Democrat) feared
56
sending it up to a Republican-controlled Congress in the middle of a presidential election year.
After winning a surprise reelection victory in November, Truman finally sent the Charter to the now
Democrat-controlled Congress in April 1949. The President must have known, however, that
ratification would not be easy. The world had changed considerably in the four years since the end of
World War II. Most notably, Washington policymakers had become nearly obsessed with geopolitics
and the threat of communism. The years 1945 to 1949 saw the creation of the United Nations, the
North Atlantic Treaty Organization (NATO), the Truman Doctrine, and the Marshall Plan. These
years also witnessed the triumph of Mao’s communists in China and the emergence of Soviet-
dominated systems across eastern Europe. In the face of these developments, many Americans lost
interest in trade issues; and even those who managed to maintain interest in trade were often
57
confused about the relationship between the GATT and the ITO. It was within this context that
President Truman finally sent the Charter up to Congress.
Lobbyists and other interested parties quickly sorted themselves out into three dominant
58
groups: perfectionists, protectionists, and ITO supporters. The perfectionists, who presented
themselves as champions of free trade, claimed to oppose the ITO Charter on the grounds that it did
not go far enough in opening up world markets. Many perfectionists complained that the exemptions
for balance-of-payments crises and high unemployment not only rendered the agreement
unnecessarily weak but actually invited unwise government activism in economic affairs. They also
charged that the Charter provided foreign direct investors with insufficient protection against
confiscation and discrimination.
The Interdepartmental Committee of the United States Chamber of Commerce summarized

the Chamber's criticisms of the Havana Charter this way:
1. The exceptions and escapes are so numerous as to subordinate and obscure the
general objectives of nondiscriminatory multilateral trade. Although ostensibly
intended as a medium for the elimination of quantitative restrictions, preferential
agreements, and discriminatory trade practices, these exceptions may be merely a
device for giving sanction to their continuance.
2. There was a failure to eliminate any or substantially mitigate the discriminatory

system of preferential tariffs. On the contrary, opportunity has been provided for
nations to establish new preferences.
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3. From the United States standpoint there is a grave danger in concessions in the
charter to the philosophy of state planning, control, and trading. We are especially
concerned by the implications of the provisions for intergovernmental commodity
agreements.
4. Foreign-investment provisions of the charter fail to provide positive incentive to a

flow of American capital to underdeveloped countries.
5. The United States is at a disadvantage in having only one vote. Particularly is this
true in the light of the number of charter provisions ambiguously drafted and
59
therefore subject to further interpretation by the [International Trade] Organization.
The former president of the U.S. Chamber of Commerce, Earl O. Shreve, added,
We believe the United States is the last great champion of the free enterprise
system. If so, and if we are sincere in our convictions, we should defend and advance
our ideals rather than compromise them. But, under the charter, nations whose
social-economic experimentation involve them in international economic difficulties
are awarded concessions and the conceding nations are forbidden to inquire in what
degree the social-economic experimentation may be responsible for the difficulties.
Nevertheless, it is made clear that economically sound nations will continue to
60
underwrite the planners and experimenters without question.
Similarly, Fortune magazine complained that “the greater part of the charter consists in
exceptions, enumerating all the ways in which governments so inclined can flout the objectives and
control their own trade. Every nationalistic trade-control device now in use, and every excuse for
using it, is somewhere in this document expressly invoked and permitted. It is one of the most
61
hypocritical state documents of modern times.”
The protectionist opposition, by contrast, claimed that the ITO would lead to too much free
trade. Protectionists tended to come from industries threatened by foreign competition and generally
asserted that the tariff was an essential and very valuable tool of national economic policy. According
to one observer,
Statements opposing the Charter were submitted to the House Foreign Affairs
Committee from a familiar array of protected industries: chemicals, dairy products,
livestock and allied industries, nut growers, makers of glassware and glass
containers, woolen manufacturers, independent petroleum producers, rayon
manufacturers, the paper and pulp industry, the makers of woven wire cloth, and the
National Labor-Management Council on Foreign Trade Policy in which a number of
62
protected industries are represented.
Ironically, the protectionists and the perfectionists found common ground in their opposition
to the Charter. Both sides, moreover, ended up complaining about “its one-sidedness, its alleged
support for governmental control and planning, [and] the freedom of most countries to use escape
63
clauses.”
Many of the strongest supporters of the ITO Charter were to be found inside the State
Department itself, the very agency that had promulgated the idea and had assumed responsibility for
negotiating the agreement in London, Geneva, and Havana. The Department had changed
considerably over the previous five years, however. For one thing, almost all of the original authors
of the ITO idea were now gone. Secretary Hull had resigned in late 1944 and had been followed by
four different Secretaries of State over the next half-decade: Edward Stettinius, James Byrnes, George
Marshall, and Dean Acheson. In addition, the two original leaders of the ITO team, Clair Wilcox and
William Clayton, both left the Department in 1948. Wilcox cited exhaustion as the reason for his
64
resignation. Undersecretary of State Clayton, while insisting that the Charter was “the best and
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2022 to Jul 2022.
most practicable agreement that can be devised at this stage of our international relations,” explained
65
that he needed to return to the private sector and tend to family matters.
In spite of these changes in personnel and, more importantly, the dramatic geopolitical events
that were occupying the State Department during the late 1940s, the new Secretary of State Dean
Acheson did urge Congress to approve the ITO Charter in 1949. In a memorandum to the President,
subsequently forwarded to Congress, Acheson argued that the ITO would
contribute to higher standards of living, to greater production and wider distribution

and consumption of goods and services, and thus to economic and political stability
throughout the world. It seeks to do this, first by reducing public and private
barriers that restrict and divert trade; second, by establishing the objective of
multilateralism and nondiscrimination in international trade and by providing means
and fostering conditions under which this objective can be achieved as rapidly as
possible; third, by providing a means for dealing with problems arising out of
surpluses of primary commodities; fourth, by promoting the economic stability and
the maintenance of employment so essential to liberalization of trade policy; and,
fifth, by advancing the economic development of underdeveloped areas, which have
66
so great a contribution to make to their own welfare and that of the world.
Although the crusading spirit that Cordell Hull and his team had brought to the fight had long since
faded, Secretary Acheson clearly remained a strong supporter of the ITO Charter.
The ITO also had numerous friends outside of the State Department. Dozens of private
organizations, including powerful labor unions such as the American Federation of Labor (AFL) and
the Congress of the Industrial Organizations (CIO), supported it. Stanley H. Ruttenberg, chief
economist for the CIO, explained at a Congressional hearing in 1950:
The CIO believes that the charter is a necessary step in the establishment of adequate
intergovernmental standards and machinery for effectuating the purposes of the
United Nations in the economic sphere and establishing a sound foundation for
peace and increasing world prosperity.
... Starting with the United Nations Charter, and the Bretton Woods agreements,
the United States has piece by piece been constructing the necessary machinery for a
free world. This machinery ... would not be complete without an organization that
dealt with the problems of trade, which are basic to problems of world economics. ...
It is important to remember that the alternative to the ITO is basically a reversion

to the worst, and not to the best, practices that preceded it. It is not a return to a
world of low tariffs, few restrictions, nondiscriminations, and a willingness to
negotiate permanent reductions in trade barriers. What we are likely to return to is
what we had before the war – a series of significant discriminations, many of them
against United States trade, extensive use of quotas and short-term bilateral deals
which were virtual barter trade, governmental-planned foreign trade. ...
We believe that the substance which the charter seeks to establish as the rules for
the conduct of world trade is sound. The downward negotiation of tariff rates is
already part of our own policy. The charter looks toward lower tariffs, but imposes
no requirement that a country push ahead with such a drastic lowering that harm
will come to particular weak spots in its economy. It looks toward lower preferences
under the same conditions. It provides the all-important escape clause.
... Many of our own members would prefer that we proceed even now on the
basis of a psychology of fear, in a restrictive direction. We are not, however,
proceeding in this direction; we believe that the better procedure, one which holds
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more promise, is to take all possible steps to expand trade, and to underpin that trade
with the demand and purchasing power engendered by full employment and
production that must be achieved both in the United States and in other countries if
this program is to succeed. If we fail to attain the goals of full employment and
production, the whole underpinning of our concept of increased foreign trade is
67
jeopardized and thus our whole foreign policy.
Proponents at the State Department no doubt found statements like this one reassuring. As
shown in Exhibit 3, however, the opposition remained substantial; and business interests that had
lined up against the Charter carried enormous clout. Together, the protectionists and the
perfectionists represented a large and formidable alliance. ITO supporters at the State Department
and across the country surely recognized that they faced a difficult fight.
Conclusion
With the fate of the international economy hanging in the balance, President Truman had to
decide how strongly to lobby for Congressional approval of the ITO Charter – or even whether to
lobby for it at all. Given the intense opposition of many organized interest groups and the fact that
public attention was now riveted on the threat of communism, Truman must have known that a
successful fight would require the expenditure of enormous personal energy and political capital. Was
this agreement worth the effort? Had the American negotiators compromised too much? The
President and the Congress had no choice but to consider such questions in 1949, and to consider as
well whether this sort of opportunity would ever arise again if they permitted the ITO Charter to die
an unceremonious death in the deep recesses of Washington.
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Exhibit 1
Clair Wilcox on the Essential Principles of the ITO Charter*
The principles that are recognized, explicitly or implicitly, in the text of the
Charter, are these--
That barriers to trade, other than tariffs, should be eliminated or

minimized.
That tariffs should be reduced and preferences eliminated.
That trading areas should be widened by forming customs unions and free
trade areas.
That, in general, member states should not discriminate among other

member states.
That members should not be required, however, to extend equal treatment

to non-members or to members who do not agree to reduce barriers to
trade.
That state-trading operations should be governed by the principles that

apply to private trade.
That subsidies should not be used to obtain more than a fair share of the
world market.
That international trade should not be restrained by public or private

monopolies or cartels.
That intergovernmental agreements with respect to trade in primary

commodities should conform to established principles.
That the maintenance of industrial stability and fair labor standards are
essential to the expansion of world trade.
That economic development and reconstruction will expand world trade

and increase real income.
That international private investment, if afforded security, will promote

economic development.
That the use of protective measures to promote economic development

may be justified.
That members should consider the effect of their trade policies on others
and consult with them upon request.
*Clair Wilcox, A Charter for World Trade (New York: Macmillan, 1949), pp. 54-55.
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Exhibit 2
“Escape Clauses”
Excerpts from the ITO Charter
Chapter II--Employment and Economic Activity

Article 3
Maintenance of Domestic Employment
1. Each member shall take action designed to achieve and maintain full and productive employment
and large and steadily growing demand within its own territory through measures appropriate to its
political, economic and social institutions.
2. Measures to sustain employment, production and demand shall be consistent with the other
objectives and provisions of this Charter. Members shall seek to avoid measures which would have
the effect of creating balance-of-payments difficulties for other countries.
Chapter III--Economic Development and Reconstruction

Article 15
Preferential Agreements for Economic Development and Reconstruction
1. The Members recognize that special circumstances, including the need for economic development
or reconstruction, may justify new preferential agreements between two or more countries in the
interest of the programmes of economic development or reconstruction of one or more of them.
2. Any Member contemplating the conclusion of such an agreement shall communicate its intention
to the Organization....
3. The Organization shall examine the proposal and, by a two-thirds majority of the Members present
and voting, may grant, subject to such conditions as it may impose, an exception to the provisions of
Article 16 to permit the proposed agreement to become effective.
Chapter IV--Commercial Policy

Section B--Quantitative Restrictions and Related Exchange Matters
Article 21
Restrictions to Safeguard the Balance of Payments
4. (b) The Members recognize that, as a result of domestic policies directed toward the fulfillment of a
Member’s obligations under Article 3 relating to the achievement and maintenance of full and
productive employment and large and steadily growing demand, or its obligations under Article 9
relating to the reconstruction or development of industrial and other economic resources and to the
raising of the standards of productivity, such a Member may find that demands for foreign exchange
on account of imports and other current payments are absorbing the foreign exchange resources
currently available to it in such a manner as to exercise pressure on its monetary reserves which
would justify the institution or maintenance of restrictions.... Accordingly,
(i) no Member shall be required to withdraw or modify restrictions which it is

applying under this Article on the ground that a change in such policies would
render these restrictions unnecessary;
(ii) any Member applying import restrictions under this Article may determine the
incidence of the restrictions on imports of different products or classes of products in
such a way as to give priority to the importation of those products which are more
essential in light of such policies.
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Exhibit 3
Selected Proponents and Opponents of the ITO, 1949-50
Proponents Opponents
Agriculture: Agriculture:
American Farm Bureau Federation American National Livestock Association
Dried Fruit Industry of California California Almond Growers Exchange
Farmers’ Educational and Cooperative Union of America California Walnut Growers Association
National Farmers Union Mushroom Growers Cooperative of Pennsylvania
National Board of Fur Farmers
Labor: National Cooperative Milk Producers Conference
American Federation of Labor National Grange
American Watch Assemblers National Milk Producers Federation
Congress of Industrial Organizations Northwest Nut Growers
Business: Labor:
American Book Publishers Council America’s Wage Earners Protective Conference
American Cotton Shippers Association Atlantic Fisherman’s Union
Cleveland World Trade Association Board of Governors of the International Allied Printing Trades
Colonial Trust Company Association (affiliated with the AFL)
Committee for Economic Development (ostensibly for ITO, but The National Labor Management Council on Foreign Trade
only if articles 11 and 12 removed) Policy
Eli Lilly International Corporation
Foreign Traders Association of Philadelphia Business:
H.J. Heinz Corporation American Bar Association
J.S. Schramm Co. (Iowa department store) American Glassware Association
Junior Chamber of Commerce of the United States American Paper and Pulp Association
Motion Picture Association of America American Tariff League
National Council of American Importers Candle Manufacturers Association
National Federation of Business and Professional Women’s Clubs Cotton Textile Institute
National Foreign Trade Council Export Managers Club of Chicago
Pitney-Bowes Glass Container Manufacturers Institute
R.M. Hollingshead Corporation Illinois Manufacturers’ Association
Seagram and Sons Independent Petroleum Association of America
W.R. Grace Industrial Wire Cloth Institute and Insect Wire Screening
U.S. Associates of the International Chamber of Commerce Bureau
Maine Sardine Packers Association
Other: Manufacturing Chemists’ Association and Chemical Alliance
American Economic Association National Association of Manufacturers
American Veterans Committee National Association of Wool Manufacturers
Americans for Democratic Action National Foreign Trade Council
Brookings Institute (ostensibly for ITO, but against
Carnegie Endowment for International Peace Havana charter)
Church Peace Union National Renderers Association of America
Federal Council of the Churches of Christ in America New York Board of Trade
General Conference of the Religious Society of Friends Pharma Chemical Corporation
General Federation of Women’s Clubs Quaker Oats Corporation
League of Women Voters Rayon Yarn Producers Group
National Council of Jewish Women Rubber Manufacturers Association
National Lutheran Council Synthetic Organic Chemical Manufacturers Association
National Peace Conference US Chamber of Commerce (ostensibly
National Planning Council (included representatives from the for ITO, but against Havana charter)
Textile Workers’ Union of American, McGraw-Hill, American Vitrified China Association
Federation of Labor, the American Management Association, and
the American Friends Service Committee) Other:
Society for Ethical Culture in the City of New York National Economic Council
Twentieth Century Fund National Society of New England Women
Women’s International League for Peace and Freedom
Young Women’s Christian Association
Sources: Susan Aaronson, Trade and the American Dream (Lexington: University Press of Kentucky, 1996), p. 120; Membership and
Participation by the United States in the International Trade Organization, Hearings Before the Committee on Foreign Affairs, House of
Representatives, 81st Congress, 2nd session (1950), H.J. res 236, pp. 1-793.
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Exhibit 4
US National Income Accounts: 1869-1949
(billions of current dollars)

Government
GNP Consumption Investment Spending Exports Imports
1869-1878 7.4
1879-1888 11.2
1890 13.1
1900 18.7
1910 35.3
1913 39.6
1920 91.5
1925 93.1
1930 90.4 69.9 10.1 9.2 5.4 4.4
1935 72.2 55.7 6.4 10.0 3.3 3.1
1940 99.7 70.8 13.1 14.0 5.4 3.6
1945 211.9 119.7 10.6 82.3 7.2 7.9
1946 208.5 143.4 24.2 27.0 14.7 7.2
1947 231.3 160.7 34.0 25.1 19.7 8.2
1948 257.6 173.6 41.3 31.6 16.8 10.3
1949 256.5 176.8 35.7 37.8 15.8 9.6
(billions of 1958 dollars)

Government
GNP Consumption Investment Spending Exports Imports
1869-1878 23.1
1879-1888 42.4
1890 52.7
1900 76.9
1910 120.1
1913 131.4
1920 140.0
1925 179.4
1930 183.5 130.4 27.4 24.3 10.4 9.0
1935 169.5 125.5 18.0 27.0 7.7 8.7
1940 227.2 155.7 33.0 36.4 11.0 8.9
1945 355.2 183.0 19.6 156.4 10.2 13.9
1946 312.6 203.5 42.3 48.4 19.6 11.2
1947 309.9 206.3 51.5 39.9 22.6 10.3
1948 323.7 210.8 55.9 46.3 18.1 12.0
1949 324.1 216.5 48.0 53.3 18.1 11.7
Note: The sum of individual expenditure acccounts may not reconcile exactly with total GNP due to rounding errors
and constant dollar conversions.
I, Series F-1 and F-3 (p.224), Series F 47-70 (pp. 229-230).
21
2022 to Jul 2022.
798-057 -22-
Exhibit 5 US Balance of Payments Accounts: 1820-1949
millions of current dollars

Net Net Long- Net Short-
Merchandise Merchandise Balance of Net Balance on Unilateral Current Term Term Balance of Official Net Errors
Exports Imports Trade Services Goods & Transfers Account Capital* Capital Payments Transactions and
Services Omissions
1820 70 75 (5) 6 1 1 2 -- -- -- -- --
1830 74 71 3 3 6 2 8 -- -- -- -- --
1840 133 109 24 2 26 4 30 -- -- -- -- --
1850 153 185 (32) (12) (44) 16 (28) -- -- -- -- --
1860 401 376 25 (26) (1) 8 7 -- -- -- -- --
1870 473 475 (2) (99) (101) 1 (100) -- -- -- -- --
1880 929 694 235 (121) 114 (4) 110 30 -- 140 (140) --
1890 921 866 55 (205) (150) (45) (195) 194 -- (1) 1 --
1900 1,623 869 754 (247) 507 (95) 412 (218) -- 194 (91) (103)
1910 1,995 1,609 386 (340) 46 (204) (158) 255 -- 97 (71) (26)
2022 to Jul 2022.

1920 8,481 5,384 3,097 426 3,523 (679) 2,844 (1,007) -- 1,837 68 (1,905)
1930 3,929 3,104 825 207 1,032 (342) 690 (221) (479) (10) (310) 320
1935 2,404 2,462 (58) 186 128 (182) (54) 437 1,075 1,458 (1,822) 364
1940 4,124 2,698 1,426 293 1,719 (210) 1,509 (73) 1,530 2,966 (4,243) 1,277
1945 12,473 5,245 7,228 (1,187) 6,041 (7,113) (1,072) (1,577) 2,093 (556) 548 8
1946 11,764 5,067 6,697 1,110 7,807 (2,922) 4,885 (3,469) (948) 468 (623) 155
1947 16,097 5,973 10,124 1,493 11,617 (2,625) 8,992 (5,120) (1,418) 2,454 (3,315) 861
1948 13,265 7,557 5,708 810 6,518 (4,525) 1,993 (1,986) 614 621 (1,736) 1,115
1949 12,213 6,874 5,339 879 6,218 (5,638) 580 (1,273) 242 (451) (266) 717
* Government component of Net Long-Term Capital Flow measure includes Government Short-Term Capital Flows
Source: Historical Statistics of the United States, Colonial Times to 1970 (Washington: U.S. Bureau of the Census, 1975), Part 2, Series U 1-25 (pp. 864-868).
Exhibit 6 Timeline Of Major Events Covered in the Case

Year(s) Event
1846 Britain Repeals Corn Laws (allowing free trade in grain)
1860 Cobden-Chavalier Treaty (free trade between England and France)
1880s-1890s Rising European tariffs
1890 U.S. McKinley Tariff (increased tariffs)
1897 U.S. Dingley Tariff (increased tariffs)
1907 Cordell Hull elected to the U.S. House of Representatives
1909 U.S. Payne-Aldrich Act (marginally reduced tariffs)
th
1913 U.S. ratifies 16 Amendment allowing collection of a federal income tax
1913 U.S. Underwood-Simmons Act (reduced tariffs)
1914-1919 World War I
1919 Britain adopts imperial trade preferences
1922 U.S. Fordney-McCumber Act (increased tariffs)
1920s Tariffs rise globally
1929 U.S. stock market crash
1930 Hull elected to the U.S. Senate
1930 U.S. Smoot-Hawley Tariff Act (increased tariffs)
1930s Great Depression
1932 Franklin D. Roosevelt elected President of the United States in November
1933 President Roosevelt appoints Hull as Secretary of State
1934 Reciprocal Trade Agreements Act (decreased tariffs)
1936 Roosevelt re-elected
1939-1945 World War II
1942 US-Great Britain Mutual Aid Agreement
1944 Bretton-Woods Conference creates IMF and World Bank
1944 Hull resigns as Secretary of State
1945 Roosevelt dies; Harry S. Truman becomes President
1946 London Round of ITO negotiations
1947 Geneva Round of ITO negotiations
1947 General Agreement on Tariffs and Trade (reduced tariffs globally)
1948 Havana Round of ITO negotiations (ITO Charter completed)
1948 Clayton and Wilcox, leaders of U.S. ITO team, retire from public service
1949 President Truman sends the ITO Charter to Congress
23
2022 to Jul 2022.
Endnotes:
1
Quoted in Alfred E. Eckes, Jr., Opening America’s Market: US Foreign Trade Policy Since 1776 (Chapel Hill: UNC
Press, 1995), p. 159.
2
Stephen Krasner, “State Power and the Structure of International Trade,” World Politics,Vol. 28, No. 3 (April
1976), p. 325.
3
Krasner, “State Power,” p. 325.
4
John Conybeare, “Voting for Protection: An Electoral Model of Tariff Policy,” International Organization, Vol.
45, No. 1 (Winter 1991), p. 60.
5
On the tariff as a revenue source, see John Mark Hansen, “Taxation and the Political Economy of the Tariff,”
International Organization, Vol. 44, No. 4 (Autumn 1990), pp. 527-549.
6
William Allen, “The International Trade Philosophy of Cordell Hull, 1907-1933,” American Economic Review,
Vol. 43, No. 1 (March 1953), p. 102.
7
Quoted in Allen, “International Trade Philosophy of Cordell Hull,” p. 102.
8
David A. Lake, “International Economic Structures and American Foreign Economic Policy, 1887-1934,” World
Politics, Vol. 35, No. 4 (July 1983), p. 534.
9
Lake, “International Economic Structures and American Foreign Economic Policy,” p. 534.
10
Quoted in David Lake, Power, Protection, and Free Trade: International Sources of U.S. Commercial Strategy, 1887-
1939 (Ithaca: Cornell University Press, 1988), p. 192.
11
Jude Wanniski, The Way The World Works (New York: Simon and Schuster, 1983 [1978]), pp. 136, 151.
12
13
14
Allen, “International Trade Philosophy of Cordell Hull,” pp. 103-111.
15
Arthur W. Schatz, “The Anglo-American Trade Agreement and Cordell Hull’s Search for Peace 1936-1938,”
Journal of American History, Vol. 57, No. 1 (June 1970), pp. 86-89.
16
Quoted in Schatz, “Anglo American Trade Agreement,” p. 86.
17
Quoted in Eckes, Opening America’s Market, p. 141.
18
Douglas A. Irwin and Randall S. Kroszner, “Interests, Institutions, and Ideology in the Republican Conversion
to Trade Liberalization, 1934-1945,” NBER Working Paper 6112 (Cambridge: National Bureau of Economic
Research, July 1997), p. 4.
19
See esp. Eric E. Schattschneider, Politics, Pressures and the Tariff: A Study of Free Private Enterprise in
Pressure Politics, as Shown in the 1929-1930 Revision of the Tariff (New York: Prentice-Hall, 1935).
20
Lake, Power, Protection, and Free Trade, pp. 204-206.
21
Eckes, Opening America’s Market, p. 142.
22
Quoted in Lake, Power, Protection, and Free Trade, p. 206.
23
Lake, Power, Protection, and Free Trade, p. 207.
24
Susan Aaronson, Trade and the American Dream (Lexington: University Press of Kentucky, 1996), p. 24.
25
Aaronson, Trade and the American Dream, pp. 25-31.
26
International Institutions (prepared by Lakshmi Gopalan under the supervision of Professors David A. Moss
and Louis T. Wells), HBS Case N9-796-116, February 13, 1996, pp. 1-5.
27
Raymond Vernon, “The U.S. Government at Bretton Woods and After,” in Orin Kirshner, ed., The Bretton
Woods-GATT System (Armonk: M.E. Sharpe, 1996), pp. 57-58.
28
29
William Diebold, Jr., “Reflections on the International Trade Organization,” Northern Illinois University Law
Review, Spring 1994, p. 335.
30
Aaronson, Trade and the American Dream, p. 58.
31
Diebold, “The End of the ITO,” p. 4.
32
Clair Wilcox, A Charter for World Trade (New York: Macmillan, 1949), pp. 41-42.
33
Quoted in Diebold, “The End of the ITO,” p. 4.
24
2022 to Jul 2022.
34
Wilcox, A Charter for World Trade, pp. 46-47.
35
William Diebold, Jr., “From the ITO to GATT – And Back?,” in Kirshner, ed., The Bretton Woods-GATT System,
p. 158.
36
Diebold, “From the ITO to GATT – And Back?,” p. 159.
37
Wilcox, A Charter for World Trade, pp. 47-48.
38
This section draws heavily on Wilcox, A Charter for World Trade, esp. Chapter 5 (“The Charter in a Nutshell”).
39
40
Quoted in Diebold, “From the ITO to GATT—And Back?,” p. 155.
41
Leicester Webb, “The Future of International Trade,” World Politics, Vol. 5, No. 4 (July 1953), p. 429.
42
Webb, “Future of International Trade,” p. 429.
43
Wilcox, Charter for World Trade, p. 145.
44
Diebold, “The End of the ITO,” pp. 18-19.
45
Wilcox, Charter for World Trade, pp. 147-148.
46
47
48
Quoted in Wilcox, Charter for World Trade, p. 125.
49
This section draws heavily on Wilcox, A Charter for World Trade, Chapter 15 (“The International Trade
Organization”).
50
It was recognized at the time that the Soviet Union was unlikely to join.
51
Wilcox, A Charter for World Trade, p. 188.
52
53
Quoted in Webb, “Future of International Trade,” p. 425.
54
Wilcox, A Charter for World Trade, p. 190-191.
55
Philip Cortney, The Economic Munich (New York: Philosophical Library, 1949), pp. 28-30.
56
57
58
Diebold, “The End of the ITO,” pp. 14-24.
59
Quoted in Membership and Participation by the United States in the International Trade Organization,
Hearings Before the Committee on Foreign Affairs, House of Representatives, 81st Congress, 2nd session (1950),
H.J. res 236, pp. 409-410.
60
Membership and Participation by the United States in the International Trade Organization, Hearings Before
the Committee on Foreign Affairs, House of Representatives, 81st Congress, 2nd session (1950), H.J. res 236, p. 427.
61
“The ITO Charter: It’s worthless, and it’s time for our foreign trade policy to take a whole new tack,” Fortune,
July 1949, p. 61.
62
63
64
65
66
the Committee on Foreign Affairs, House of Representatives, 81st Congress, 2nd session (1950), H.J. res 236, p. 5.
67
the Committee on Foreign Affairs, House of Representatives, 81st Congress, 2nd session (1950), H.J. res 236, pp.
270-273.
25
2022 to Jul 2022.

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Harvard Business School 9-798-057

February 27, 1998

Creating the International Trade Organization

[D]omestic interests will be safeguarded in this process of expanding

Background on the United States and the Global Economy, 1846-1933

Figure 1: Estimated Average Tariff Rates on Manufactured Goods in 1875

Con tinental Europe

United King dom

Figure 3: Tariff Revenues as a Percentage of Total Federal Revenues

Figure 4: Average Tariffs on Manufactures, 1875-1950

Note: Tariff average weighted by percentage of value.

Figure 5: Merchandise Exports as a Percentage of GDP, 1870-1950

As Hull predicted, numerous countries retaliated against Smoot-Hawley, driving up tariffs

Figure 6: Value of World Exports, 1926-1938 (millions of 1990 dollars)

Reshaping the International Economic Order from Washington, 1933-1948

The Free Trade Vision of Cordell Hull

... nations are substantially interrelated and interdependent in an economic sense

Reconciling the Free Trade Vision with US Policy

Creation of International Institutions

Figure 7a: U. S. Share of World Income, 1820-1950

Creating the ITO Charter

In all, twenty-three countries sent representatives to the Geneva conference. Charter

Primary Charter Objectives38

Commodity Agreements. Intergovernmental commodity agreements were seen as another major

ITO Structure and Governance49

Questions and Problems

Too Much Idealism or Too Much Compromise?

Is Free Trade Good for All Nations All the Time?

As you know, I am ... a hopeless sceptic about this return to nineteenth

I believe the future lies with –

Would the ITO Compromise National Sovereignty?

The Debate in the United States

The Interdepartmental Committee of the United States Chamber of Commerce summarized

2. There was a failure to eliminate any or substantially mitigate the discriminatory

4. Foreign-investment provisions of the charter fail to provide positive incentive to a

contribute to higher standards of living, to greater production and wider distribution

It is important to remember that the alternative to the ITO is basically a reversion

Clair Wilcox on the Essential Principles of the ITO Charter*

That barriers to trade, other than tariffs, should be eliminated or

That tariffs should be reduced and preferences eliminated.

That, in general, member states should not discriminate among other

That members should not be required, however, to extend equal treatment

That state-trading operations should be governed by the principles that

That international trade should not be restrained by public or private

That intergovernmental agreements with respect to trade in primary

That economic development and reconstruction will expand world trade

That international private investment, if afforded security, will promote

That the use of protective measures to promote economic development

Chapter II--Employment and Economic Activity

Chapter III--Economic Development and Reconstruction

Chapter IV--Commercial Policy

(i) no Member shall be required to withdraw or modify restrictions which it is

US National Income Accounts: 1869-1949

(billions of current dollars)

(billions of 1958 dollars)

Exhibit 5 US Balance of Payments Accounts: 1820-1949

millions of current dollars

2022 to Jul 2022.

Exhibit 6 Timeline Of Major Events Covered in the Case

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