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Trade, security and GATT:

The United States, Western Europe and the political economy

of trade liberalisation (1947-1972)

Lucia Coppolaro

Unpeaceable Exchange:

Trade and Conflict in the Global Economy, 1000-2000

16-17 July 2010

Instituto de Cincias Sociais - Universidade de Lisboa

Email: [email protected]

Introduction

World War I brought the liberal economic order of the late nineteenth century to an

abrupt halt, representing a dramatic and exogenous shock to the international economic

system. It reinforced existing trends towards increased protectionism and, above all, it caused

the disintegration of the international commodity markets. When the system was hit by the

second major shock of the Great Depression, the result was wholesale protectionism. World

War I and the Great Depression heavily contributed to the international disintegration of traderelations and to the sharp contraction of trade that followed. With the outbreak of World War

II in 1939, trade between the belligerents ceased and by 1942 there was virtually no trade

between the three major blocs, Germany-controlled Europe, Japanese-controlled Asia, and the

rest of the world. War War II was even more devastating than the first and had implications

which were just as damaging for international trade. (Findlay and ORourke, 2010). At the

end of the war, the drift towards protectionism continued. The only region not to follow this

protectionist trend was that of the northern Atlantic economies of Western Europe and North

1
mailto:[email protected]:[email protected]


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America. Here, under the U.S. leadership, governments slowly started to liberalise. The

opening of the Atlantic economy constituted an important exception to the generally

projectionist rule as it involved the most advanced economies.

This paper illustrates how trade between the United States and Western Europe was

liberalised in the new era of the General Agreement on Tariffs and Trade (GATT)

established in 1947. The period under review stretches from the creation of GATT to the end

of the implementation period of the Kennedy Round of GATT negotiations (1972), the first

post-war trade conference between western Europe and the United States to meaningfully

reduce trade barriers. First, the paper shows how the political economy of trade liberalisation

across the Atlantic was shaped by U.S. policy aimed at favouring, at the same time, the

reduction of trade barriers at a multilateral level and the strengthening of the western

European allies through regional integration. Thanks to its economic superiority and

prosperity, the United States was disposed to bear discrimination coming from Western

European countries so that they could pursue their policy of reconstruction and economic

growth in a regional context. It was in this peaceable context that trade relations between

Western Europe and the United States were reconstructed and trade was liberalised. Second,

the paper illustrates how regional and multilateral institutions played an interdependent role in

liberalising trade. It was only when a powerful commercial bloc, the European Economic

Community (EEC) was established in 1957 that GATT started fully playing its role in the

liberalisation of international trade.

Setting up regional institutions and neutralising GATT

After World War II, the United States engaged in reconstructing the world economy by

attempting to stabilize exchange rates and to liberalise international trade through the

implementation of a multilateral system based on non-discrimination and the unconditional

most-favoured nation rule. The U.S. position in favour of multilateralism and freer trade was

grounded by the belief that pre-war protectionism had been a leading cause of the World War

2


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II. In 1947 GATT was established to enhance freer trade and trade cooperation, both

considered essential for the maintenance of peace.1

Despite U.S. intention to shape GATT as a global actor with universal membership,

the beginning of the Cold War represented a fundamental change. First, it broke the

universalistic perspective of the GATT, with the consequence that multilateralism had to be

adapted to the new bipolar strategic perspective.2 Second, it definitely led Washington to

foster western European regional integration. Already by 1946 the Western European

governments had appeared to be unconvinced that worldwide competition, multilateral

liberalisation, and the full convertibility of their currencies represented the path to follow for

their postwar reconstruction. In 1947 Western Europe opted for a regional and, therefore,

smaller and discriminatory framework, to pursue its policy of reconstruction. It was in this

regional context, and not in that of GATT, that Western European governments started to

gradually and slowly liberalise trade. European regionalism had the full support of

Washington. As early as World War II, the U.S. government had considered the question of

whether to encourage European integration and, in particular, a customs union, as a way of

promoting economic growth and prosperity that would, in turn, advance political stability. The

break out of the Cold War definitely moved Washington to support Western European

integration as a way of reinforcing the area politically and economically, and integrating West

Germany in the Western camp.3

The recovery of intra-European trade required the return of Germany to full

production through a return to statehood and a reduction of trade barriers among the Western

European nations. It was with these two goals in mind and with the broader objective of

strengthening western Europe politically and economically that in 1947 Washington launched

the Marshall Plan. Then the Organization for European Economic Coopearion (OEEC)

established in 1948 and the European Payments Union (EPU) set up in 1950, among many

other things, promoted a common reconstruction program, the removal of trade quantitative

3

1 For a description of the Bretton Woods negotiations the classical account remains Gardner (1980). On the creation of GATTsee Zeiler (1999) and Irwin, Mavroidis and Sykes (2008). For a description of the GATT system see: Curzon (1965) Kock (1969)Jackson (1992) , J.H. The World Trading System. Law and Policy of International Economic Relations (Cambridge, MA, MITPress, 1992).

2On Cold War and GATT see Kostecki (1979).

3On U.S. policy on Western Europe see, among the others, Lundestad (1998).


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restrictions and the convertibility of the currencies between the participating countries. With the

Marshall Plan, the western Europeans were stimulated to take those steps that would enable

them not to just grow economically, but to move towards open trading policies with each

other and with the rest of the world. The U.S. initiative was a key moment in western

Europes path towards internal freer trade, and more generally towards a broadly liberal trade

policy stance.4

U.S. economic superiority led Washington to encourage discrimination of Western

Europe in order to strengthen the area economically and politically. In so doing, any general

principles averse to West European governments' own reconstruction principles were pushed

into the background. In 1947, in the same year that the Truman government signed the GATT,

it also launched the Marshall Plan. While the GATT represented U.S. support for a

multilateral, non-discriminatory and global trade system, the OEEC and EPU endorsed the

principle of discrimination by the recipients of the Marshall Plan. The liberalisation of

western European trade started on a regional basis and through regional institutions, therefore,

bypassing the Bretton Woods multilateral institutions. In particular, by concentrating on

quotas in the framework of the OEEC, the Europeans neutralised the multilateralism of

GATT. In the U.S. plan, in the long run European integration would reinforce Western Europe

economically and in so doing would finally make possible the realisation of the multilateral

trade and payments system. For the time being, however, western Europe would discriminate

and would do so with the full encouragement of the discriminated ally.

As a consequence of the Western European decision to follow a regional path, during

all the 1950s GATT was ineffective in reducing tariffs. Still, the obstacle was not only western

European policy. The cumbersome reduction procedure used in Geneva did not favour a

major scaling down of tariffs. Governments bargained bilaterally on an item-by-item basis

and then, if agreement was reached, the reduction was multilateralised. This bilateral-

multilateral method had been designed by the U.S. drafters of GATT presuming that the

United States, being the major supplier of most goods, would take the lead in offering major

tariff cuts. The plan underestimated the impact of the protectionist mood of the Congress.

Like the Europeans, the United States was not in a tariff-cutting mood either. Following the

4

4The best account on the reconstruction of western Europe remains Milward (1984). See also Eichengreen (1996) and (2007).


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State Departments lead, the US government advocated open markets, but a clear-cut support

for free trade did not exist in the United States. During the 1950s, the U.S. Congress

legislative body attached protective clauses to the Reciprocal Trade Agreement Act (RTAA),

which authorised the U.S. government to enter into trade negotiations. Responding to requests

of protection coming from different trade sectors, the legislative body qualified its

commitments to liberal trade. This policy made tariff rates inherently unstable and tariff

negotiations precarious, offering few prospects of long-term benefits to trading partners

(Curzon 1965 and Kock 1969). In effect, something appeared evident in western Europe: one

of the conditions to join sweeping and across-the-board tariff reductions was that the United

States would have to be able to offer substantial and, above all, long-term and stable export

benefits that would permit the Europeans to increase their exports. However, during all the

1950s the U.S. government never obtained the authority to reduce tariffs from Congress. 5

Unwillingness to reduce tariffs and cumbersome procedure accounted for the stalemate

of GATT in the 1950s. Tariffs remained fairly stable between the Annecy round (1949) and the

preliminary phase of the Dillon round (1960-2), when the Common External Tariff (CET) of

the EEC was submitted in Geneva under GATT article XXIV (Table 1).

Table 1 GATT Rounds and their main results

Year Round and number ofattending countries

Average Depth of Tariff Cuts in % AdValorem in the industrial sector

Number of concessions exchanged

1947 Geneva 23 19 45.000 tariff concessions

1949 Annecy 29 2 5.000 tariff concessions

1951 Torquay 32 3 8.700 tariff concessions

1956 Geneva 33 2 2.700 tariff concessions

1960-2 Dillon Round 39 8 4,400 tariff concessions

Source: Asbeek Brusse (1997), 118; Hoeckman and Kostecki (2009), 101.

Still, GATT was not irrelevant. As noted by Irwin (1996) and Asbeek Brusse (1997), its major

contribution in the 1950s was to secure binding agreements on early tariff reductions and,

consequently, impeding the Europeans to set higher tariffs, as quotas and foreign exchange

controls were progressively removed at regional level.

5

5 On the US trade policy see Baldwin and O Krueger (1994) and Eckes (1995).


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From regional to multilateral liberalisation: from the EEC to GATT

President Eisenhower maintained Trumans policy on European integration as he also

held that the reasons for the support were still valid and urgent. As such, when in 1955 theGermany, Italy, France and the Benelux countries - the so-called Six - decided to start

negotiations leading to the creation of the EEC, the Eisenhower administration gave its

support. Washington was aware of the potentially discriminatory effects of the new regional

bloc. In addition to the customs union, the Treaty of Rome aimed at setting up a common

agricultural policy (CAP) and a preferential trade agreement with the former colonies.

Washington deemed that the political advantages European integration would provide were

worth U.S. support. In any case, it would bepossible to ensure the development of the EEC

into an open regional area through rounds of GATT negotiations that would lower trade

barriers.6

As a result, when the Treaty of Rome was presented in Geneva in 1958 in order to

ensure its consistency with GATT, the Eisenhower administration gave its full support despite

the inconsistency of the Treaty to GATT rules. Flexibility and pragmatism was the approach

adopted to try to conciliate multilateralism and European integration. Consequently, during

the debate in Geneva, the U.S. government elaborated a pragmatic solution along which

GATT would verify whether the Treaty of Rome could lead to the implementation of a liberal

customsunion, rather than scrutinize the legal consistency of the Treaty. No formal decision

was acquired, rather it was decided to observe the development of the EEC and to resolve

pragmatically any problem that could arise.7 Thanks to the U.S. support the Treaty went

unchallenged in Geneva, despite its inconsistency with GATT rules and the opposition of the

United Kingdom, Canada, New Zealand and Australia. As Romero put it, this new, crucial

advancement of European integration was allowed to entrench itself behind the shelter of the

USAs friendly diplomacy.8

Despite the full support in Geneva given to the EEC, latent concerns existed in

Washington. The Treasury, Commerce and Agricultural Departments together with the Federal

6

6On the attitude of the Eisenhower administration towards the EEC see Winand (1993), Lundestad (1998).

7Kock (1969).

8Romero (1994) 165.


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Reserve had a more critical position on the discriminatory effects of the EEC and the

consequences on the balance of trade. But the U.S. President and the State Department were

in full support and with the U.S. economy in good conditions, it was unproblematic for them

to affirm that European integration was worth some economic sacrifices. As in 1947,

Washington decided to bear economic discrimination for the sake of long-term geopolitical

and economic interest.9

In fostering European regional integration in 1947, Washington had aimed at

strengthening Western Europe economically and so that the area could finally join the

multilateral system. In effect, the formation of the EEC gave the right impetous to reactivate

GATT and deal with tariff reduction at the multilateral level. Against the new developments in

western Europe, Washington changed its tariff policy. From the U.S. perspective, the EEC

was both a challenge and an opportunity. It was a challenge as it could develop into an

inward-looking and discriminatory trade bloc. The concerns about the discriminatory aspects

of the EEC that had existed with Eisenhower increased by the time Kennedy entered the

White House in 1961 because of the policy of the French President Charles de Gaulle and the

deficit in the balance of payments. As for the first aspect, U.S. relations with France were

becoming strained due to divergences over the governance of the Atlantic alliance and

monetary issues.10 As for the second aspect, in 1958 the U.S. deficit in the balance of

payments began to increase, seemingly, as a result of the combination of economic recession,

overseas military spending, investments abroad and a decrease of the trade surplus. The

deficit, combined with the erosion of the U.S. gold reserve, caused concerns on both sides of

the Atlantic regarding the stability of the international monetary system. Against this situation,

it became paramount to develop initiatives to deal with the evolutions of the relations between

Western Europe and the United States.11

At the same time the EEC represented an opportunity to reduce tariffs. For the first

time since 1947 on the other side of the Atlantic it existed a credible negotiating partner,

7

9Winand, Eisenhower, Kennedy, 112.

10Lundestad (1998). For de Gaulles foreign policy see Bozo (2001) and Costigliola (1992).

11The literature on monetary problems for this period is vast. See Harold James (1995). For the debate within the Eisenhower

and Kennedy administrations over the balance of payments see Zimmermann (2002). Gavin (2004) .


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capable of making valuable counter-concessions thanks to the size of its market. It was

because of the existence of a strong and equal partner capable of credibly offering reciprocal

concessions that in 1962 Kennedy was able to obtain from the Congress the authority to

launch a new Round for a sweeping liberalisation of trade. The Trade Expansion Act

authorised the reduction of tariffs in the industrial sector in a linear way up to fifty percent

and, in some cases, even to eliminate duties, so abandoning the item-by-item negotiations

used in the previous rounds. The very existence of a regional bloc provided the decisive push

towards a far-reaching reduction of tariffs, a genuinely multilateral negotiations, reactivating

GATT multilateralism.12

The U.S. government stated its intention to include the agricultural sector in the

negotiations, for the first time since the creation of GATT. The United States responded to the

establishment of the regional CAP with the request to deal with this sector at a multilateral

level with the aim of moderating the discriminatory aspects of this common policy. The U.S.

government was aware of the difficulty of obtaining a substantial result in this sector as it

lacked bargaining power. In GATT, reduction of protectionism occurred when a reciprocal

interest in enhancing exports existed and this was not the case for agriculture, as the EEC had

no exports to enhance. Moreover, its own protectionism made Washington an unlikely

sponsor of trade liberalisation in agriculture. In addition, support for European integration

further weakened the U.S. stance. Washington backed the CAP as an instrument to give unity

to the EEC and, under the lead of the Europeanists of the State Department, never took a

challenging attitude by, for instance, questioning the consistency of the CAP variable-levy

system to GATT. The aim was therefore not to dismantle the CAP, but to moderate its

protectionism impact. Inorder to put pressure on the Europeans and at the insistence of the

U.S. Department of Agriculture (USDA), Washington stated that it would not conclude the

GATT talks in the industrial sector, unless meaningful results were achieved in agriculture.

Actually, the White House and the State Department however had no intention of risking the

non achievement of a bargain in the industrial sector, which was poised to provide the biggest

8

12 On the US initiative for the Kennedy Round see Zeiler (1995) and Preeg (1970).


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gain, for the sake of agriculture. And the European negotiators were undoubtedly well aware

of this reality.13

In promoting the new Round, Kennedy set a clear link between trade, security and

monetary questions. Burden sharing of military expenses had to take place by increased

European military spending and by augmenting the already favourable trade balance with the

Western European countries to a level high enough to compensate for military commitments.

In short, Western Europe, which was growing at a higher rate than the United States, had to

share the military burden by accepting more imports from the United States. In Washington,

support for European integration and tolerance for its discriminatory aspects still went

unchallenged. Yet, the time had arrived for the Europeans to contribute to the expenses of the

Alliance.14

On the other side of the Atlantic, the EEC members agreed to attend the GATT Round

in order to reduce protectionism and have the opportunity to increase their exports to the

United States and to the EFTA countries. To this end, they were ready to reduce the CET so as

to obtain the reciprocal reduction of U.S. and EFTA duties. Improvements in European

competitiveness made liberalisation on the multilateral plan finally bearable. The growth of

EEC members exports to the United States and the rest of western Europe led them to

complement tariff reductions at a regional level with tariff reduction at a multilateral level in

order to further sustain this flow of exports. Moreover, negotiating with the EEC single voice

gave the bargaining power to question U.S. tariff policy, and to push Washington to make

large tariffcuts and attack U.S. non-tariff barriers. Negotiating as a trading unit provided the

Europeans with the power to bargain with the United States that they had lacked in the 1950s.

From behind the protection of the CET, the EEC was ready to start competing with

Washington and reduce tariffs multilaterally.15

9

13 Components of a Strategy for the Kennedy Round written by George Ball, Preliminary Draft, December 10, 1963. HerterPapers, Box 7 JFKL.

14Report to the Honourable John F. Kennedy, dated 31 December 1960. Pre-presidential papers transition files, Task Forcereports, Box 1073, John F. Kennedy Library (hereinafter JFKL). On the Kennedys administration debate over the balance ofpayments deficit and the relations with the European allies see also Zoumaras (1999).

15 Archives of the Council of Ministers of the European Union, Brussels (hereinafter CM2)1963 946, Note S/628/62, 30November 1962.


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While accepting to attend a sweeping liberalisation of trade, the EEC tried to reshape

U.S. trade initiative to its own trade interests. Thus they refused a drastic reduction of trade

barriers, as this would weaken their regional integration, which they considered essential for

their economic growth. Furthermore, the Six did not wish to see their Community dissolved

in an Atlantic free trade area the purpose of which was to enable the Americans to rectify the

deficit in their balance of payments.16. They rejected the link between security, monetary

matters.17The United States already enjoyed a favorable trade balance with the Six, (see Table

2 and Figure 1) and US exports to the EEC were growing at a faster rate than US imports

from the Common Market (see Figure 1). This trade surplus with the EEC was proof that the

Six were already doing their part in sharing the American burden, they argued, and that they

could not be asked to do more.

Table 2

Trade of the Six with the United States, 1954-1963 (in millions of USD)

1954 1955 1956 1957 1958 1959 1960 1961 1962 1963

Germany Exports 295 387 498 601 643 913 897 870 966 1051

Imports 532 764 952 1351 1005 1094 1423 1516 1758 1988

Balance -237 -377 -454 -750 -362 -181 -526 -646 -792 -937

Italy Exports 129 160 202 231 255 345 387 383 441 480

Imports 299 405 522 684 526 373 668 863 884 1028

Balance -170 -245 -320 -453 -271 -28 -281 -480 -443 -548

France Exports 156 210 226 246 304 470 401 417 426 421

Imports 381 458 682 831 563 429 746 737 775 901

Balance -225 -248 -456 -585 -259 41 -345 -320 -349 -480

The Netherlands Exports 158 159 179 159 181 209 196 192 200 203

Imports 336 435 521 540 410 435 599 566 607 649

Balance -178 -276 -342 -381 -229 -226 -403 -374 -407 -446

BLEU Exports 191 246 304 267 287 444 358 371 414 411

Imports 263 314 409 426 310 325 391 375 451 471

Balance -72 -68 -105 -159 -23 119 -33 -4 -37 -60

Source: Direction of Trade Statistics Historical, 1948-1980(Washington, D.C.: International Monetary Fund,2002).

10

16Public Record Office of the United Kingdom (hereinafter PRO) T 312/621 Telegram 3, from United Kingdom Delegation inBrussels to Foreign Office, 21 January 1963 reporting words of Belgian officials to the British.

17

Ministre des Affaires Etrangres (Quai dOrsay), Paris (hereafter MAEF), Secrtariat Gnral, Entretiens et Messages, Vol. 19Rencontre entre Pompidou et Erhard, 21 November 1963.


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Figure 1

US exports to and imports from the EEC, 1958-1963 (in millions of USD)

0

1250

2500

3750

5000

1958 1959 1960 1961 1962 1963

$million

Year

imports exports

Source: Direction of Trade Statistics Historical, 1948-1980(Washington, D.C.: International Monetary Fund,2002).

As for agriculture, all of the Six agreed to include this sector in the GATT talks as

they held wise not to openly challenge this U.S. request. Still, their priority was to set up the

CAP and not to deal with agriculture in GATT.18

Despite the differences, both sides of the Atlantic agreed to star a far-reaching

liberalisation of international trade. The EEC members held that they were now competitive

enough to reduce duties multilaterally, whereas negotiating as a trading bloc give them

bargaining power to face the United States. Washington saw in the EEC a discriminatory bloc

whose protectionism had to be reduced, but also a credible partner able of making valuable

concessions. In short, both the United States and the EEC had concluded that the time for

playing the multilateral game had arrived.

11

18

CM2 1963/947 PV de la 101me session du Conseil de la CEE, Bruxelles, 8-10 May 1963. On the negotiations between theSix on the CAP see Ludlow (2006).


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Fostering GATT multilateralism and the EEC regionalism

The first far-reaching liberalisation across the Atlantic was launched at the GATT

Ministerial meeting of May 1963. It was soon labelled the Kennedy round by the British

and the German Minister of Economy Erhard, to the dismay of Kennedy, who started

complaining that the trade negotiations bore his name and wondering why they were not

called de GaulleorAdenauerRound.19

The new Round was launched from a starting point broader than the previous

negotiations, showing that the willingness to reduce trade barriers existed on both sides of the

Atlantic. The EEC and the United States agreed to reduce duties by 50% across the board, but

with exceptions, to include the agricultural sector in the negotiations and make reductions to

trade barriers to those products of most interest to the developing countries. The EEC and the

U.S. were able to launch a trade negotiation with a broader impact than the previous GATT

Rounds, showing that willingness to reduce protectionism existed on both sides of the

Atlantic.20

Despite this valuable starting point, the trade negotiations advanced in a nervous

atmosphere that seemed to pull the Atlantic alliance apart rather than bring it together. The

Round soon became a harsh bilateral confrontation between the U.S. and the EEC. U.S.

negotiators put pressure on the GATT members to push them to adopt the U.S. standpoint and

isolate the EEC. The EEC was surprised and taken aback by what it considered a U.S. tough

negotiating stance and by the anti-EEC attitude of U.S. negotiators, who campaigned strongly

against the EEC and, the French claimed, above all against Paris.21

In truth, the Americans hardness did not derive from the opposition to the EEC itself.

Rather it was caused by the responsibility to move ahead and lead a difficult GATT talk and

by the fear that the EEC would eventually not consent to a sweeping liberation of trade.

12

19FRUS 1961-1963, IX Foreign Economic Policy, 72. Memorandum of Conversation between Kennedy, Rusk, Adenauer andErhard, 24 June 1963.

20 Archives Europen Commission Brussels (hereinafter AECB) BAC 506 026/1969 CEE Conseil Rapport du Comit spcial delarticle 111 GATT, 30 April 1963. On the negotiations of the Kennedy Round in addition to Zeiler (1995), se also Preeg (1970)and Evans (1971).

21Historical Archives European Union Florence (hereinafter HAEU) EM 16, MAE , Svolgimento dei lavori presso il GATT. A tutto il

21 maggio 1963; CM2 1963/948 CEE Conseil, Cinquime Runion de Coordination, 20 Mai 1963; MAEF, Cabinet de Couve deMurville 1961-1966, n.160 Tlex 170 de la dlgation franaise a MM. Decarbonnel, Clappier, Ortoli, 20 May 1963.


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Moreover, EEC internal quarrels and crisis slowed the negotiations in Geneva to the point of

putting the entire Round at risk. Against this situation, the U.S. negotiators adopted a

confrontational attitude with the EEC negotiators in Geneva, seeking a showdown and setting

up a crisis atmosphere in order to raise the possibility of failure. The U.S. harshness was also

caused by the de Gaulle factor - notably the fear that protectionist and anti-U.S. France

would attempt to deadlock the Round and that the other EEC members would bow to French

interests in order to keep the Community intact.22

Despite the tough bargaining stance towards the EEC, support for European

integration still represented a strong factor in the U.S. foreign trade policy and conditioned the

U.S. negotiators during the entire Round. During all the quarrels and crises between the Six

that hampered the EECs effective participation to the Kennedy Round and in which

Washington came to be involved, this latter considered not only its trade interests, but also

how to better support European integration and ease the tension between the EEC members.

This stance was clear from the very beginning of the negotiations in Geneva.

Washington had subordinated progress in the industrial sector to some valuable results in

agriculture. The U.S. stance complicated the EEC preparation for the Kennedy Round as it

came to interfere with the elaboration of the CAP. In Brussels the Germans refused to set the

unified grains prices, necessary to define the CAP and negotiate as a trading unit in Geneva.

In turn, the French threatened to leave the EEC and not to negotiate in Geneva in the

industrial sector. The U.S. link between the industrial and the agricultural sectors deepened

the existing tension within the EEC over the elaboration of the CAP and risked to stall the

entire Round. In order to move the Round ahead and ease the tension between the French and

the Germans, in November 1964 the State Department and White House assistants Bundy and

Bator decided to drop the link between the industrial and the agricultural sectors and to start

the bargain in the first sector, despite the lack ofprogress in the second. The move provoked

the tough opposition of the USDA which held that, under the lead of the State Department,

U.S negotiators in Geneva were conceding too much to the EEC and were not defending U.S.

trade interests. When the EEC in December 1964 eventually set unified grains prices at some

60% above world market prices, the USDA bitterly complained once more on what it

13

22Memorandum of telephone conversation between Herter and Tuthill, 29 May 1963, Herter papers Box 1, JFKL.


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considered to be the unwillingness of Washington to obtain concessions and reduce the CAP

protectionism.23

By the same token, during the EEC crisis of the Empty Chair crisis (1965-1966) which

seemed to threaten the very existence of the Community at risk, and stalled the bargain in

Geneva, Washington considered how to enhance its trade interest and move the Round ahead,

but also how to protect the EEC from the crisis. Against this situation, President Johnson took

the decision to go ahead with the negotiations, and in particular to table offers in the

agricultural sector, despite EEC absence from Geneva. The decision was taken following the

request to do so by U.S. Trade Representative Herter, the State Department, Bator and Bundy

who maintained that should the Geneva negotiations be formally halted to wait for the crisis

to be over and the EEC to be ready again to negotiate, they would later be difficult to revive.

With its decision, the intention was also to support European integration. For the Europeanists

in the State Department, persevering with the GATT talks could be of crucial importance for

the EEC. Once the crisis was over, negotiations in Geneva could well emerge as a major

opportunity for the Six to find and maintain their cohesion as a Community. Moreover, given

the hostility de Gaulle was displaying towards the European Commission - the EEC

supranational institution which represented the EEC in Geneva - it was important not to

undercut this institutions role. Since GATT was an important framework in which the

Commission negotiated on behalf of the Community, the Rounds continuation could play a

significant role in this institutions survival as a political force.24

It was for this reason that Washington refused the proposal from GATT Director

General Wyndham White to continue the Round by replacing the Commission with the six

Member States, who would negotiate on an individual basis. The Kennedy Round had to be

negotiated by the Community, represented by the Commission. With this decision,

Washington was attempting to reconcile its trade interests with its support for European

14

23 FRUS 1964-1968, Volume VIII, International Monetary and Trade Policy 260. Telegram From the Department of State toCertain Posts, 2 November 1964; NARA 364 Records of the USTR on the Kennedy Round, Box 1, Memorandum for the Presidentfrom Herter, 9 November 1964; Memorandum for the President from Bundy and Bator, 16 December 1964, Bator Papers, Box 1,LBJL.

24NARA 59-250-57, 1964-1966 Ecin 3 Box 793 Telegram n. 37, From American Embassy in The Hague to State Department, 13July 1963; Memorandum from Klein to Bundy, De Gaulle and the Common Market, 7 July 1965, NSF Country File UnitedKingdom, Box 215,LBJL; Memorandum Impact of EEC Crisis on the Kennedy Round, 12 July 1965, Bator Papers, Box 12, LBJL.

On the crisis of the Empty Chair seeLudlow (2006), 71-94. On the Johnsons administration policy towards Western Europe seeSchwartz (2004).


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integration, hoping to bring the Round to a successful conclusion, encourage the Six to regain

unity, help the Commission to maintain its role in international trade and shelter the European

integration process from the fallout of the crisis.25

Once the crisis over in January 1966, the Kennedy Round moved to its final phase in

July 1966. In this last phase, the Six were able to set a common stance to bargain in Geneva.

The paramount interest they had in attending the Kennedy Round with a view to lowering

EFTA and U.S. tariffs, and to do so as a regional trading unit led the Six to maintain their

unity. The EEC members were able to reach a common position to negotiate in Geneva with

a single voice and, most importantly they were able to negotiate as a powerful trading unit

and on equal foot with the United States.26

It was in this last phase that U.S. support for the European integration started to raise

problems in Washington. De Gaulles decision to withdraw French troops from NATO in

March 1966, his policy on the U.S. dollar, and his open criticism of Johnsons military effort

in Southeast Asia strained Franco-American relations to the point that the Treasury

Department concluded that France was practicing economic warfare against the United

States.27 The quarrel over the financing of U.S. troops in Germany produced tension in

American-German relations and the formation of the Grand Coalition did nothing to improve

the situation.28

With the U.S. balance-of-payments deficit increasing and all the strains this had on the

monetary system, the Treasury Department reproached the Europeans for failing to share the

security burden in a way proportionate to their economic strength. Moreover, while Johnson

had relied on the increase in exports through the Kennedy Round to improve the balance of

payments, the Europeans had slowed negotiations. Meanwhile, the American trade surplus

with the EEC started declining in 1965, as imports grew at a higher rate than exports. The

15

25 Memorandum from Leddy and Solomon to Ball and Mann, The EEC crisis, agriculture and the KR, 30 July 1965, Batorpapers, Box 12 LBJL; NARA 59-250-57, 1964-1966, Box 460 Telegram n. 3063 from Rusk to US mission in Geneva, 15September 1965.

26On this aspect see also Ludlow (2007).

27Memorandum from Winthrop Knowlton to Fowler France, 11 July 1966, Fowler Papers box 68, LBJL.

28

On U.S.-German tension on the financing of U.S. troops in Germany see Schwartz (2004), Zimmermann (2002), 209-229 andGavin (2004), 135-165.


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elaboration of a full protectionism CAP increased the concerns for what was considered an

insufficiently liberal attitude of the EEC. Moreover, the Johnson administration could not

ignore that the deteriorating domestic economic situation reinforced the protectionist stances

in the U.S. Congress, where mistrust for the selfish European allies and European integration

mounted. By 1967, as the Kennedy Round drew to a close, with the mood of the Congress,

the U.S. deficit in the balance of payments and the tension over monetary and security issues,

it became difficult for the State Department to continue to impose its readiness to subordinate

economic interests to security considerations.29 Support for European integration and

acceptance to bear European discrimination still characterised U.S. policy, but the change of

policy then brought about by Nixon was already in the air. In this sense, the U.S. support for

the EEC in the Kennedy Round was the last hurrah of the Europeanists of the State

Department.

Enhancing freer trade, with some notable exceptions

It was against this tense background that the Geneva bargain was concluded. In the

industrial sector, in comparison to the previous GATT talks, the Kennedy Round was

launched from a starting point of far more liberal initial offers, both in terms of trade coverage

and extent of tariff reductions. The reciprocal interest in enhancing their exports worldwide

led the western European countries and the United States to follow a liberal tariff policy

contributing in this way to the liberalization of international trade, even if important sectors

remained well protected.

Machinery and transport equipment represented 36% of OECD members imports in

manufactured items and was the most dynamic and biggest sector for value of exchange

between western Europe and the United States. The shared interest in reducing protection in

this sector both across the Atlantic and in western Europe in order to enhance exports led to

an average reduction of tariffs of 45%.30Chemicals saw the toughest confrontation across the

Atlantic. The EEC conditioned the reduction of its tariffs to the removal of the U.S. system of

customs valuation of the American Selling Price (ASP) that heavily hit the sector. Yet, the

16

29Draft Telegram from the State Department to all diplomatic posts US policy on EEC Association, January 1967.

30

For the negotiations in this sector see CM2 1964/143 PV de la 149mesession du Conseil de la CEE, 10-15 November 1964and CM2 1967/28 PV de la 216merunion du Conseil de la CEE, 10-11 May 1967.


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U.S. negotiators were reluctant to agree to the removal of the ASP. They faced the opposition

of the U.S. chemical industry to relinquish this massive protection and the uncertainty of the

position of the U.S. Congress. Ultimately, it was because of the toughness with which the

EEC required the elimination of the ASP and the anachronism of this system of protection that

undermined the credibility of the U.S. liberal stance, that the U.S. negotiators accepted to

eliminate it. The final compromise consisted in accepting an average reduction of 45 percent

on the condition that the United States did the same and, moreover, abolished the American

Selling Prices (ASP).31 While in the two previous sectors the reciprocal interest to increase

exports led to an agreement to reduce tariffs, the situation was totally different for the

aluminium and paper sectors. France and Italy had the major goal of setting up a preferential

EEC market for their products, uncompetitive at the world level. They were making

investments to strengthen their national industries and aimed at protecting their regional

market. The fact that a member state firmly intended to set a EEC preferential market, rather

than increasing exports outside to third countries, impeded the reaching of a compromise to

reduce duties. As a result, the EEC made no relevant offer, to the dismay of the United States,

but above all, of the EFTA countries 32

The reduction of barriers concerned mainly trade between the industrialized countries,

rather then trade between them and the LDCs. The case of textile is a clear example. The

industrialized countries had assured that the Round would represent an opportunity for LDCs

to increase exports and, consequently, to foster economic growth. To prove their goodwill,

they had also agreed that LDCs would not be required to grant reciprocity in the exchanges of

concessions with developed countries. Being under the pressure of the UNCTAD conference,

the industrialized countries hoped with their assurance to get rid of the critics who contended

that GATT was merely a rich mens club that only favoured its own interests. However, when

promises were to be transformed into facts, the industrialized countries did not appear to

intend to concede a great deal. Quota restrictions on the imports from the LDCs were

17

31 Trade Talk Review, Vol. XI, No.2, 26 February 1964 in Herter Papers, box 13, JFKL; Memorandum for the President fromRoth, 5 October 1965, Roth Papers, box 1, LBJL. The U.S. delegation to GATT accepted the elimination of the ASP, but in 1970,the U.S. Congress did not ratify the agreement. As a result the United States reduced duties on the entire chemical sector by45%, but maintained the ASP, while the EEC reduced its tariffs by 25%.

32

CM2 1964/143 PV de la 149me session du Conseil de la CEE, 10-15 November 1964 and CM2 1967/28 PV de la 216 merunion du Conseil de la CEE, 10-11 May 1967.


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maintained so that it was not competitiveness to determine trade patterns but quotas and

regulation to the advantage of the inefficient importers. 33

As for agriculture, negotiations centered on grains, the commodity with the largest

volume of trade involved and the bulk of U.S. exports to the EEC. Most importantly, grains

represented the test of how the EEC variable-levy mechanism would be lodged in the world

trading system and would show the place the EEC would take in world trade for farming

products. 34 The negotiations in the agricultural sector started in July 1966. The problem,

however, was that at this point there was not much left to negotiate. The Six gathered in

Geneva after having established a CAP characterised by a variable-levy system and set

common prices for grains at a 60% higher level than world prices. Washington asked for

quantitative assurances and for lower EEC prices, two requests that the Six rejected. In short,

the EEC had established a fully protectionist and non-negotiable CAP, leaving no room for

further negotiations in Geneva. 35 The EEC ended the Round with its protectionist common

policy intact. The GATT talks were not able to overcome EEC protectionism with major

consequences on world trade in this sector. During the following ten years, the EEC shifted

from being the prime importing bloc to becoming the prime exporting bloc. It would only be

during the Uruguay Round (1986-1994) that agriculture was seriously discussed and some

initial results were achieved.36

The Round was successfully concluded in mid-May 1967. Its achievements were

remarkable. Duties were cut by an average of 35% and applied to $40 billion worth of goods.

Even if the 50% linear cut had not been achieved, the reductions were higher than in the

previous rounds and dealt with the most dynamic sectors of world trade.37The average level

of the CET, that in 1963, was 12%, was reduced by 33,4% so that at the end of the Kennedy

18

33AECB BAC 122/1991-5 Rapport n.70 de la dlgation de la Commission pour les ngociations du GATT, 16 June 1966; PROBT 241/845 Note by Hughes of discussion with Mr. Wyndham White in Geneva on 23 September 1965; Administrative History ofthe Department of States, Volume 1, part VIII: International Economic Relations 1963-1969, LBJL.

34Department of State Administrative History Volume I-Part VIII, LBJL.

35CM2 1966/34 188me session du Conseil de la CEE, 13-14 June 1966.

36For a description of agriculture treatment in GATT the best account remains Josling, T.E, Tangermann, S., Warley, T.K.Agriculture in the GATT (London: Macmillan/St.Martin Press, 1996) and Avery, W.P. (ed.) World Agriculture and the GATT

(Boulder: Lynne Rienner, 1993).

37For an analysis of the Round achievement see Ernest H. Preeg (1970), 204-236.


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Round implementing period in 1972, it would be placed at a new average of 8,2%. In 1972,

Japan would have an average tariff level of 11.5%, the United Kingdom of 10.4%, and the

United States of 9.4%. Achievements varied across the sectors and the major results were

reached in the mechanical sector and chemicals, the two most relevant parts of trade among

industrialised countries.38 To appreciate the reduction of tariffs, Tables 3 shows the national

level of duties of EEC members in 1958, and the CET in 1958, 1964 and 1967; Table 4

illustrates the level of duties of the United States before and after the Kennedy Round and

Table 5 the reductions made by the United Kingdom.

Table 3 National tariffs before CET, CET in 1958, before and after the Kennedy Round

(Average tariff on dutiable imports, as percentage of c.i.f. value)

SITC Products BNL France FRG Italy CET in1958

CET pre-KR CET post-KR

5 All Chemicals 7 16 8 17 14,3 14,3 7,6

61 Leather manufactures 11 11 12 18 12 10,2 5,7

62 Rubber manufactures 17 17 10 19 18 16 7,8

63 Wood and cork manufactures,except furniture

11 19 7 22 16 12,9 8,8

64 Paper and Board manufactures 14 16 8 18 15 12,7 9,5

65 Textile, except clothing 14 19 11 20 16 16 15,6

66 Non -metallic mineralmanufactures

12 16 6 21 13 10,4 5,5

67 Silver, platinum, gems, jewellery 5 13 3 7 6 6 5,5

681 Iron and steel 5 13 7 17 10 9,4 6,7

6841 Primary aluminium 0 20 0 25 9 7 7

691 Ordnance 9 14 7 17 11 10 6,2

699 Manufactures of metal 11 20 10 23 16 13,8 7,2

71 Machinery other than electric 8 18 5 20 13 11,1 6,4

72 Electric machinery 11 19 6 21 15 14,2 9,1

73 Transport equipment 17 29 12 34 22 17,4 9,9

81 Building parts and fittings 15 19 8 25 17 15,6 9,2

821 Furniture 13 23 8 21 17 15,8 12,5

84 Clothing 20 26 13 25 21 20 18

851 Footwear 20 21 10 21 19 17,8 12,4

86 Instruments 13 25 8 20 16 13,3 8,4

Source: GATT archives, INT(67)201 Preliminary Assessment of the Results of the Kennedy Round, 11 August1967.

19

38The results of the Kennedy Round have been illustrated by Preeg (1970).


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Table 4 US Tariffs before and after the Kennedy Round

Before the Kennedy Round After the Kennedy Round

All Chemicals 17,8 9,3

Leather manufactures 16,2 10,4

Rubber manufactures 11,3 6

Wood and cork manufactures, except furniture 7,1 6,8

Paper and Board manufactures 10,9 5,5

Textile 21,4 20,1

Mineral manufactures 9,9 7,5

Iron and steel 6,5 5,7

Manufactures of metal 14,7 7,7

Machinery other than electric 11,9 6

Electric machinery 13,6 7,1

Transport equipment 7,1 3,5

Footwear 21,1 12,1

Instruments 21,1 13,1


Table 5 UK Average tariff on dutiable imports as percentage of c.i.f. value before and

after the Kennedy Round

SITC Products Pre-KR Post-KR

5 All Chemicals 18,8 9,4

61 Leather manufactures 17,7 13,1

62 Rubber manufactures 13,6 7,8

63 Wood and cork manufactures, except furniture 15,2 7,3

64 Paper and Board manufactures 16,6 13,2

65 Textile, except clothing 20,6 16,9

66 Non -metallic mineral manufactures 9,3 4,8

67 Silver, platinum, gems, jewellery n.a. n.a.

681 Iron and steel 11,3 9,2

6841 Primary aluminium 6 5,5

691 Ordnance n.a. n.a.

699 Manufactures of metal 12,8 9

71 Machinery other than electric 14,2 8,6

72 Electric machinery 20,1 12,4

73 Transport equipment 20,1 11

81 Building parts and fittings 15,8 9,2

821 Furniture 14,3 8,4

84 Clothing 19,1 17,8

851 Footwear 22,8 14,7

86 Instruments 26,4 13,5


20


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Conclusions

Since 1947 the United States engaged in reconstructing world trade by promoting the

establishment of a multilateral trading system and, at the same time, western Europeregionalism. Thanks to its economic prosperity, the United States was disposed to bear

western Europes discrimination as a way of strengthening the area politically and

economically. As a result, in the same year of GATTs establishment, the Marshall Plan was

launched. As a result, GATT was ineffective during all the 1950s.

The setting up of the EEC reactivated GATT. It was because of the existence of the

EEC that Washington eventually adopted a liberal stance and promoted a far-reaching

liberalisation of trade. Thanks to the increase in its competitiveness, the EEC accepted to

reduce tariffs in the Kennedy Round in order to further enhance exports. Once a regional

institution was secured to sustain the growth of trade at regional level, the Europeans got

ready to negotiate at multilateral level a reduction of tariffs with the United States and the

EFTA countries. In this sense a clear interconnection existed between the multilateral and the

regional dimensions.

In the Kennedy Round, Washington negotiated trying to move the Round ahead and to

strengthen European integration. The U.S. negotiators tried to enhance the international role

of the EEC and of the European Commission, and worked to ease internal Community

tensions. Even the CAP was never challenged by U.S. negotiators. U.S. policy of supporting

European regional integration was successful. Johnsons choice to continue to support

European integration, despite the disadvantages this brought, shows that the Johnson

Administration's policy toward Europe was both forward looking and, arguably, successful.

The very success of the American support for European integration created problems

in Washington, while tensions in other areas strained transatlantic relations to the point that

not even the conclusion of major trade negotiations was enough to diminish them. CAP

protectionism, the EECs strength, the deficit in the balance of payments, and the tensions

over monetary and security affairs made it more complicated for the American government to

justify to a domestic audience its toleration of trade discrimination on the part of as

Congress put it powerful, healthy and selfish allies. Consequently the economic sacrifices

the United States would have to bear in the name of European integration lost ground. Under

21


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