Reciprocity - 1922–1975



After World War I the nations of Europe began to assert a greater degree of economic nationalism. The unconditional most-favored-nation clause that had generalized bilateral tariff negotiations before the war was not effectively rehabilitated. After 1930 the Great Depression accelerated these trends, and a wide variety of new discriminatory economic tactics emerged. These included exchange controls, quotas, internal taxes on foreign goods, and the creation of vast preferential trading systems. The British created the imperial preference system in 1932, and Germany developed a similar structure using barter and a special currency that could be exchanged only for German goods.

Subject to the same pressures, the United States also exhibited some protective reactions. In the Fordney-McCumber Tariff Act of 1922 and the Smoot-Hawley Tariff Act of 1930, Congress pushed the tariff to the highest levels in American history. In 1920, Congress attempted to restrict the entire commercial treaty system by "authorizing and directing" the president to scrap the existing treaties and thereby reimpose discriminatory tonnage duties on foreign ships. During the 1930s, Congress authorized import quotas on agricultural products, and imposed these in some cases. It also levied excise taxes on imports.

Paradoxically, the executive branch began gradually and sporadically to move against the prevailing trends and toward a revitalization of equality of treatment and reciprocity. By the latter half of the 1930s, the United States had emerged as the leading (and perhaps only) exponent of an open world commercial system.

All of the Republican administrations of the 1920s refused to implement the act providing for merchant marine discrimination. The Tariff Commission under William S. Culbertson launched a campaign to revitalize reciprocity by shifting the United States to the unconditional most-favored-nation principle. President Warren Harding and Secretary of State Charles Evans Hughes accepted the argument that the conditional principle had produced "discriminatory reciprocity" and implemented the change. The tariff acts of 1922 and 1930 contained elastic clauses, advocated by the Tariff Commission, that authorized the president to raise or lower duties by 50 percent on a nondiscriminatory basis (that is, if the duty was reduced on an item, the reduction would apply to all nations, regardless of treaty status). This was not implemented because of the political conflicts involved.

The administration of Franklin D. Roosevelt divided into two factions over the issue of economic nationalism, and followed a vacillating and even contradictory policy for several years. The home market group, led by George Peek of the Agricultural Adjustment Administration, wanted import quotas and bilateral barter deals. In 1933 this group seemed to be winning the internal power struggle, especially when Roosevelt under-mined Secretary of State Cordell Hull's liberalization efforts at the London Economic Conference.

Hull was the leader of the trade liberalization group. In many respects, he and other officials of the period were intellectual descendants of the philosophes, who believed that an open world based upon reciprocity in all areas was the only prescription for a peaceful world. The international scene of the 1930s provided a powerful argument for this position. Hull believed that economic nationalism had produced the collapse of the world economy and was continuing to provoke a vicious cycle of economic retaliation, militarization, and a struggle for privileged positions that could end only in war. In the last analysis, it was a struggle between open and closed economic systems, and between freedom and tyranny. The two were indivisible.

Hull's position gradually, and with some difficulty, gained ground after 1933. The victories were limited and mixed with contradictory elements. The first breakthrough came with the passage of the Reciprocal Trade Agreements Act in 1934. This amendment to the tariff act of 1930 was a tactic that avoided a congressional battle over consideration of the entire tariff schedule. The president was empowered to conclude bilateral trade agreements that reduced duties as much as 50 percent. All such treaties were to incorporate the most-favored-nation principle, which was broadened to include negotiations over internal taxes, import prohibitions and quotas, and exchange controls. All treaties, however, were to contain the "Cuban exception" clause (allowing preferential treatment) and an "escape" clause.

Between 1934 and 1945 the United States concluded twenty-seven treaties, and tariff rates were reduced on average by 44 percent of their base rate. Hull's efforts to eliminate other forms of discrimination produced mixed results, and his attack on the British imperial preference system was shelved during World War II. Hull also used the reciprocity argument in demanding "equi-table" treatment for U.S. interests in Latin America, arguing that the Good Neighbor Policy of the United States required reciprocal behavior. However, the administration did relax the insistence on extraterritorial rights, as evidenced by U.S. policy toward Mexico's expropriation of the oil industry in 1938.

Planning for the postwar world by American officials cannot be comprehended adequately without an understanding of their intense belief, even to the point of obsession, that the United States must lead the way to an open world or face another cycle of depression and war. At times the intensity of this belief blinded them to other factors and produced a self-righteous image of the purity of American policies. The fears and ideological fervor engendered by the Cold War complicated and confused the push for an open world. In the years after 1945 many of the ideas and impulses associated with the imperial, open-door concept were reasserted, to coexist and compete with the open world view.

American officials wanted to make reciprocity an integral part of the postwar world order. Many hoped that the United Nations would lead the way in eliminating spheres of interest. In addition, the United States helped to create the International Monetary Fund and the International Bank for Reconstruction and Development as means to restore multilateralism and nondiscrimination in international economic relations.

In 1947, twenty-three nations took another important step toward a liberal trading system by concluding the General Agreement on Tariffs and Trade (GATT). This agreement provided for multilateral reciprocity and included a code for fair trading in international commerce. In 1948, the U.S. Congress refused to ratify a charter that would have institutionalized GATT in the International Trade Organization, because Congress opposed the creation of an international body that would exercise control over U.S. trade policies. But GATT has survived through periodic conferences. By the 1970s, eighty nations accounting for more than 80 percent of total world trade had joined. In 1963 the national representatives of GATT relieved the underdeveloped nations within the system of the necessity to reciprocate fully for concessions granted by the more developed countries.

Since 1945 Congress has periodically extended the president's bargaining power and authorized additional reductions in the tariff. However, protectionist sentiment has moderated reciprocity and preserved some areas of discrimination. A "United States exception" clause was added to the GATT charter, in deference to American desires to retain import quotas on some agricultural products. In the 1950s, Congress also directed the president to place import quotas and embargoes on various products in the interest of national security. Oil import quotas were imposed in 1959, and during the 1950s similar restrictions were applied to such goods as Gouda cheese, safety pins, and dental burs.

Cold War antagonisms also produced some retreat from complete reciprocity. In 1950 the United States placed an embargo on all trade with the People's Republic of China and North Korea, and most-favored-nation status for the Soviet Union and other communist nations was withdrawn in 1951. In 1960–1961 the government proclaimed an embargo on all trade with Cuba and tried to obtain European and Latin American cooperation; even to the point of blacklisting ships going to Cuba and forbidding them entry into United States ports. In August 1975 the Organization of American States abolished the "paper" embargo against Cuba. Subsequently, the United States eliminated the blacklist and other sanctions imposed on nations trading with Cuba. In May 1977, President James E. Carter began the process of restoring trade relations by authorizing Cuban purchases of food and medicine.

In August 1971, under mounting economic pressures, President Richard M. Nixon took several steps that seemed to imply a retreat from reciprocity and a shift to a decidedly nationalistic policy. The president suspended the convertibility of the dollar into gold, imposed a surcharge on imports and export quotas on soybeans, and threatened quotas on textile imports from Asia. Paradoxically, in June he had lifted the embargo on trade with China and removed some restrictions on wheat, flour, and grain shipments to the Soviet Union and Eastern Europe.

Subsequently, President Nixon removed or modified the restrictions imposed in 1971 and requested authority from Congress to enter a new round of GATT negotiations. In December 1974, Congress finally passed the Trade Act of 1974, an extensive bill that clearly revealed the duality of American policy. The Japanese described it as a "two-edged sword." The act gave the president broad new powers to bargain away various tariff and nontariff trade barriers, but it also provided for several retaliatory actions against "unfair trade practices." In the area of nontariff barriers, the president could negotiate pacts guaranteeing access to the products of other nations (with congressional approval required). This would allow the United States to enter a world food reserve program.

However, the president for the first time was given explicit authority to raise tariffs and tighten import quotas to deal with balance-of-payments deficits and import competition problems. The act also provided duty-free treatment (with some items excluded) for about one hundred underdeveloped nations, but the preferences were denied to nations enforcing export embargoes against the United States (aimed especially at those belonging to the Organization of Petroleum Exporting Countries) and not cooperating on expropriation and drug matters. Most-favored-nation treatment was authorized for communist nations that permitted free emigration (earlier acts had extended the principle to Poland and Yugoslavia). In 1975 most-favored-nation treatment was extended to Romania. The Soviet Union objected to the emigration provisions and withdrew the trade agreement (with most-favored-nation status) that had been negotiated earlier.



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