The Eisenhower Administration and the Demise of GATT: Dancing with Pandora

By Friman, H. Richard | The American Journal of Economics and Sociology, July 1994 | Go to article overview

The Eisenhower Administration and the Demise of GATT: Dancing with Pandora


Friman, H. Richard, The American Journal of Economics and Sociology


Introduction

THE JAPANESE GOVERNMENT formally agreed, on January 16, 1957, to "voluntarily" restrict its exports of cotton textiles and apparel to the United States. According to a number of scholars and political analysts, this first, postwar, voluntary export restraint (VER) for a major manufacturing industry was an ideal solution to what had appeared to be an intractable problem facing the Eisenhower administration (Curzon and Curzon, 1976: 257-59; Yoffie, 1983: 49-50; Aggarwal, 1985: 74-75).

Through 1955 and 1956, domestic pressure from the American textile industry for protection against imports from Japan had threatened the Eisenhower administration's efforts to promote the liberalization of international trade as envisioned under the General Agreement on Tariffs and Trade (GATT).(1) The administration's efforts had included a push for Japan's inclusion in the GATT over European opposition as well as efforts to extend the president's authority to negotiate tariff reductions under the Reciprocal Trade Act. Although trade expansion was important in and of itself to the Eisenhower administration, top administration officials viewed expanded international trade under GATT as a means to strengthen European and Far Eastern allies against communist expansion from without, and communist subversion from within.

From the Eisenhower administration's standpoint, therefore, responding to the demands of the textile industry and its congressional supporters for tariff increases and unilateral quotas against Japan, would have severe political-military as well as international economic ramifications. In contrast, a Japanese VER would relieve the pressure of imports on American producers with limited international costs. Since the Japanese were "voluntarily" cutting back their exports, the Eisenhower administration would not have to overtly violate GATT by turning to unilateral quotas. Nor would the administration have to reinforce the practice of European countries, such as Britain and France, of invoking GATT articles to severely restrict Japanese imports (Zheng, 1988: 52-54).

Yet, the Eisenhower administration set another precedent in 1957: specifically, the United States legitimized the VER as a means of resolving trade disputes. Although saving GATT and Japan in the short run, the VER policies of the Eisenhower administration sacrificed the principles and rules of GATT in the long run. The result was the proliferation of managed trade through voluntary restraint and orderly marketing agreements (OMAs) by the United States, the European Community, and others that by the early 1990s covered sectors including textiles and apparel, steel, and automobiles.(2)

The irony of the Eisenhower legacy, however, lies deeper than this. This article argues that the dilemma of contending domestic and international pressures faced by the Eisenhower administration from 1955 to 1957, and thus the need to turn to a VER in the first place, could have been avoided. Specifically, the domestic pressure faced by the administration came about not only due to Japanese imports but as a result of the Eisenhower administration's flawed trade policy choices.(3)

II

Textile Trade Policy: The VER as the Ideal Solution

THE EISENHOWER ADMINISTRATION by 1955 faced domestic and international pressure over textile trade policy. This section briefly reviews the dynamics of such pressures and the predominant explanation in the historical and political science literature concerning how such pressures led the Eisenhower administration to the VER.(4)

The primary international concern of top officials in the Eisenhower administration was to counteract the spread of communism, especially in Europe and the Far East. Both Eisenhower and his Secretary of State, John Foster Dulles, viewed the expansion of international trade as a vital tool for integrating non-communist countries with the United States and also strengthening the war-torn economies in Europe and Asia. …

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