Conventional wisdom relates that the 1970s witnessed a deep transformation of the world economy and that it was a change for the worse. In particular, a socially acceptable price rise rate in a few years turned into inflation which threatened to inflict a severe blow to the stability of many western economies; the world production growth rate declined, at times becoming negative; the rate of trade growth slackened, growth which in the previous two decades had appeared to be the engine of economic expansion. The apparently stable anchor of fixed but modifiable exchange rates established by the Bretton Woods Agreements was abandoned for the uncertain course of floating exchanges. As regards Western Europe, scholars have contended that 1973 marked the end of its golden age.1
Overall, the data confirm this pessimistic perspective. Consumer prices and wholesale prices for manufactures from an average below five per cent in the 1961–73 period increased to double figures in the main industrialized countries in 1974 and in 1975, even crossing the 20 per cent threshold in some of them and, with few exceptions like Germany, did not return in the following years to levels preceding the inflationary outburst (Tables 22–23). World commodity output doubled between 1960 and 1973 and its 1963–73 growth rate averaged 6 per cent; in the following seven years the yearly growth rate was halved to 3 per cent.2 Finally, the volume growth of world exports averaged 8 per cent between 1960 and 1972, sharply declining to 4 per cent in 1973–80.3
Common knowledge also claims that the 1970s saw the rise of protectionist tendencies. The report of the General Agreement on Tariffs and Trade on international trade in 1980 made a strong plea for ‘arresting protectionism’, arguing that the extent of protection was a major cause of the poor performance of the core economies, inhibiting the expansion of their potentially dynamic industries by reducing foreign demand for their products while locking up resources in the protected activities.
Yet, there are factors that, if they do not gainsay the validity of the above assessment, call for a more detailed analysis. For instance, pressures on the dollar date back to the 1960s, well before the abandonment of the Bretton Woods system in the early 1970s. Deficit marked many sectors of the US merchandise trade balance, from consumer goods to motor vehicles long before the oil crisis. The US negative balance with Japan dates back to the mid–1960s. With the relevant exception of the Federal Republic of Germany, the EC member states, including Denmark, Ireland and the UK, mostly had a negative trade balance not only in the 1970s but for most of the previous decade. Calls for protection on both sides of the Atlantic date back to the 1950s and by the early 1960s were legitimized and regulated by the GATT. On the other hand, the 1970s witnessed the apparently successful drive for an ambitious reform of the world trade system, the Tokyo Round, going beyond tariff reduction as in previous GATT rounds and addressing a set of non-tariff barriers of particular concern for the two main parties to the negotiation, i.e. the United States and the European Community (EC).
Indeed, this research focuses on the position and role in shaping the international trade of the 1970s of the two transatlantic blocs: the United States and the EC. The analysis, which is not confined to trade between the two partners, addresses the subject from different angles. The first one concerns the economic dimension of trade, that is, changes in the current account balance, factors that influence it and their impact on the national economy. The second and the third angles focus on the legal and political framework in which trade must be carried out. In the first place, measures taken at national levels, either unilaterally, or in agreement with a foreign counterpart, are examined. And this is where the question of protectionism enters this research. The word ‘protectionism’ refers to a set of trade-distorting policies shielding domestic firms from foreign competition. If measures in the so-called ‘grey area’, such as voluntary export restraints (VERs) and orderly marketing agreements (OMAs) are protectionist in nature, also antidumping and countervailing duty proceedings along with licences and product standards could result in unwarranted protection for domestic firms failing to stand up to foreign competition. The users of some of these measures might rejoin that they are the only way to counter trade-distorting practices followed by foreign competitors, often with financial support from their governments. The question is whether there was an upsurge of such measures in the course of the 1970s and, in the affirmative case, the nature of their economic or political causes. The third aspect of the research focuses on the negotiations, the Tokyo Round in particular, that took place in the framework of the GATT to reach a multilateral agreement that was to go beyond tariff concessions and to establish a legal framework offering greater opportunities for efficient exporters while guaranteeing fair play between domestic and foreign competing industries. The goal of this research is not to provide a comprehensive analysis of the Tokyo Round, as this task was already fulfilled a long time ago by Gilbert Winham.4 The research examines only the stance of the United States and the EC on the main topics of reciprocal interest in the negotiations.
As regards the economic angle of trade, this work tends to suggest that the US and EC positions in international trade were largely determined by factors predating the 1970s. The unrivalled predominance of the US as producer and, therefore, as exporter had been reversed by the 1960s as a result of the rise of the EC member states and Japan. US exports accounted for 29. 4 per cent of world trade in manufactures in 1953, but just exceeded 15 per cent by 1965, while the EC had gained a 34 per cent share, destined to grow further in the following nine years.5 On the other hand, factors that emerged only in the 1970s, in particular the first and second oil crises, altered the established trade context to the disadvantage of the industrialized nations and triggered recession. For several industries in the US and in Western Europe the contraction of demand engendered by the first oil crisis ushered in a period of prolonged decline even when the economy as a whole was getting back on its feet.
This research will therefore remind the reader that protectionist measures were not the offspring of the 1970s. Arrangements to control inflows of cotton textiles into developed economies were in force in the previous decade with the blessing of the GATT and other industries like steel and man-made textiles were soon subjected to various forms of more or less voluntary export restraints, boiling down to the imposition of quotas. Nevertheless, the aftermath of the first oil crisis witnessed an acceleration of protectionist measures under the strain of growing unemployment. These measures, however, did not concern all sectors of the economy. In the first place, they were, unsurprisingly, directed to buoy up only the growing number of industries in major difficulties and those suffering greater exposition to foreign competition. Secondly, both the American and the EC authorities carefully avoided straightforward unilateral imposition of tariffs and quotas as this was not consistent with the then established GATT rules. Instead, the authorities on both sides of the Atlantic artfully exploited the room for manoeuvre of legitimate remedies to force foreign competitors, allegedly guilty of commercial malpractices, to curb their exports. Therefore, it is arguable that there was no rampant increase in protectionist barriers, rather there was a quietly insidious rise of such barriers which did not run overtly afoul of existing multilateral trade rules.
As regards multilateral negotiations and the establishment of new trade rules, while allowing that the Tokyo Round achieved significant progress wherever the two main actors, the US and the EC, had a common view, this research contends that whenever there was the likelihood of a clash, the parties ended up by simply leaving aside or covering up the contentious issue, as was the case for agriculture, subsidization and countervailing measures. This allowed the parties to the negotiation to maintain their present practices undisturbed. On the other hand, it paved the way to prolonged and acrimonious disputes in the following decade.
In keeping with the above approach this book is divided into six chapters. The first chapter provides an overview of the economic and legal factors in the two previous decades that contributed to the developments of the 1970s. The second chapter deals with the monetary turmoil and reshuffle of the early 1970s and its impact on trade as well as with the negotiations between the EC and the US that led to the launching of a new trade round. The third chapter addresses the impact of the first oil crisis on the economy of the United States and of the EC member states and on their trade and provides an overview of the first stage of the Tokyo Round. The fourth and the fifth chapters focus on the rise of protectionist measures on both sides of the Atlantic and on the final negotiations and results of the GATT multilateral talks. The final chapter considers the impact of the second oil crisis, the aftermath of the Tokyo Round and the position in international trade of the US and the EC at the onset of the new decade.