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The Eisenhower administration and the demise of GATT: dancing with Pandora
American Journal of Economics and Sociology, The, July, 1994 by H. Richard Friman
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).
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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. For these reasons, the United States was a major force behind the promotion of GATT and Japan's inclusion in the agreement.
With the "loss" of China to communism in 1949 and the onset of the Korean War under the Truman administration, the importance of Japan as a bulwark against communism in the Far East had increased by the early 1950s. Although Japan had applied for GATT membership in July 1952, United States pressure on Japan's behalf had led only to "provisional membership" for the country by October 1953. Efforts by the Eisenhower administration to gain full membership and subsequent tariff concessions for Japan had run into extensive opposition from European countries still wary of Japan's legacy of the 1930s of flooding markets through low-wage exports and mercantilist pricing strategies (Hunsberger, 1964: 231-34). By 1954, the Eisenhower administration needed GATT and Japan's inclusion in GATT for political-military reasons.
The dilemma facing the Eisenhower administration, however, was that strong domestic pressures emerged in 1955 calling for the same protectionist steps against Japan that the administration was trying to persuade the Europeans to avoid. Prior to 1954, the National Association of Wool Manufacturers (NAWM) was the most active producer association in the American textile and apparel industry calling for import relief but only a relatively small portion of the industry's employment and production were represented by NAWM. The association also was not specifically concerned with Japan. By late 1954, however, the textile alliance had expanded to include the primary associations of cotton textile mill-product producers and organized mill-product labor, the American Cotton Manufacturers Institute (ACMI) and the Textile Workers Union of America, and Japanese imports were on the top of its agenda.
