Working Paper No. 602

Judith Goldstein | Robert Gulotty

June 2017

Opening Markets: Rules, Norms, and

Bargaining in Trade Treaties

OpeningMarkets:Rules,NormsandBargaininginTradeTreaties

JudithGoldstein

StanfordUniversity

RobertGulottyUniversityofChicago

Theemergenceoftradepolicyasadivisivepoliticalissue,bothintheUSandabroad,hasledtoacriticalre-interpretationthepracticeoftradenegotiation.Atissueisthenatureoftradeagreementsandwhetherornotoneside,ortheother,isthebetternegotiator.IntheUS,so-called“baddeals”havebeenrationalizedasthecostofinternationalleadership.But,isthisdefenseoftradetreatiesjustifiedormorefundamentally,acorrectdepictionofthecontentoftheagreements?Thispaperfocusesonthemicro-foundationsoftradetreaties,explaininghowandwhyparticularproductsendedupaspartofatariffbundle.TheanalysisisbasedonnewlyavailableinformationonwhatwasofferedandgiveninthefirstRoundoftheGeneralAgreementonTariffsandTrade(GATT).WhatwefindisscantsupportfortheUShavingfolloweda‘beneficent’tradepolicy.Rather,wefindthatpostWWII,theUSneitheroffered,norconcluded,atradeagreementthatputtradingpartnersfirst,eventhosethathadsufferedduringthewar.ThisfindingcastsdoubtontheconventionaldescriptionandthusexplanationforhowandwhytheUScreatedtheliberalinternationalorder.----------Earlyresearchforthispaperwaspresentedatthe2015APSAmeetinginSanFrancisco,theConferenceontheWTOatFiftyinBerne,Switzerland,UCSanDiego,theUniversityofPennsylvania,theUniversityofWisconsin,StanfordUniversityandattheUniversityofIllinoisatUrbana-Champagne.Wethankallcommentatorsforsuggestionsandcritiques.WeareespeciallygratefultoStephenChaudoin,JonPevehouseandPeterGourevitchforprovidingwrittencomments.Aswell,weneedtothankRafaelRamos,SungMiKim,ZuhadHai,MaxVerjares,andAlexNyefortheirableresearchassistance.

1. Introduction

Theemergenceoftradepolicyasadivisivepoliticalissue,bothintheUSandabroad,has

ledtoacriticalre-interpretationofthepracticeoftradenegotiation.Atissueisthenatureof

tradeagreementsandwhetherornotoneside,ortheother,entersintoanasymmetricdeal.In

theUS,thesesocalled“baddeals”havebeenrationalizedasthecostofinternational

leadership.ThustheUS,therisinganddominantpowerinthe20thcentury,provided

internationalpublicgoodsbysupportingmultilateralinstitutions,footingthecostsofcollective

securityandgivingasymmetricaccesstotheUSmarket(Kindleberger,1973;Krasner,1976;

Ikenberry,2011).ThisistheloreofAmericanglobalhegemony.But,isthisdefenseoftrade

treatiesjustifiedormorefundamentally,acorrectdepictionofthecontentoftheagreements?

Below,wetakeacloserlookattheoriginsofthecontemporarytradingsysteminorderto

answerthesequestions.WhatwefindisscantsupportfortheUShavingfolloweda‘beneficent’

tradepolicy.Rather,wefindthatpostWWII,theUSneitheroffered,norconcluded,atrade

agreementthatputtradingpartnersfirst,eventhosethathadsufferedduringthewar.This

findingcastsdoubtontheconventionaldescriptionandthusexplanationforhowandwhythe

UScreatedthe‘liberal’internationalorder.Todefendthisposition,weunpacktherulesand

normsoftheearlytraderegimeandassessexactlywhogainedandlostinnegotiations.

Aspreamble,scholarshavelongwrittenaboutthehurdlestheUSandotherdemocratic

nationsfaceinopeningupmarkettoforeigngoods.Simply,itisdifficulttobalancetheinterests

ofexportersandimportcompetinggroupsandthereisthefearthatthoseonthelosingendof

thebargainwillcausethedealtounravel.Ascriticshavenoted,agreementsareabouttrade-

offs,andthetaskofthenegotiatoristoassembleawinningcoalitionthatbenefitsfromthe

deal1.Marketopeningcreatescompetitionandarealocationofresourcesasaresultofshiftsin

prices.Everyonemaybenefitfromlowerpricesbutsomegroupsaregoingtofindthattheir

wagesandjobsareundermined.

Wearguebelowthattofacilitatethecreationofabundleofacceptabletradeoffs,theUS

adoptedaspecificsetofnegotiatingrules,aimedtomediatebetweendomesticconstraintsand

internationalopportunities.Theserulesallowedthecreationofbundledbilateral‘swaps’in

1See,Riker(1962),forarecentreview,seeMcLaren(2016).

marketaccess;tariffreductionswereunderstoodasachittobetradedinexchangefor

improvedexportmarkets.2Theproductsofferedinaswapwouldbethoseforwhichthe

partnerwasthelowcostproducer.Undertheserules,adealwassustainedbythemutual

politicaleffectofexportinterestsinthelowcostproducingstatethatenjoyedthebenefitsof

lowertariffs,andthegovernmentsoverallinterestinpromotingtradevolume.3These

exportersbecame“hostages”totheagreement,deterringgovernmentsfrombackingoutof

thedeal.Nationscouldrenegeonadealbypullingoutaproductfromthe‘bundle’butifnot

replaced,theothernationwasempoweredtoremoveaproductofsimilarvalueoftheother’s

choosing.Inthissense,thetariffreductionsinthe‘bundle’generatedhostagesforbothsides.

Oneimmediateandperhapsunderappreciatedconsequenceofthismechanismfor

tradecooperationwasthatthenegotiationsoftenconcludedsuccessfullywithouthaving

loweredtariffs.Ratherthanloweringtariffs,andtherebydisruptinglocalproducersand

garneringcriticismsfromdomesticpoliticalopponents,negotiators`bound’theirtariffatthe

preexistingrate.Acquiringassuranceofnotraisingtariffsisonlyadvantageousiftariffsare

expectedtorise,butgiventhepastbehavioroftradingnations,thisexpectationwasnot

unreasonable.Inanycase,thecommitmenttonotraisetariffsstillallowsgovernmentstohold

exportershostage,sustainingtheconcessionsabroad.

Fundamentally,theseswapsworkedbecauseofthetreatypartners’commitmentto

reciprocity.Reciprocityensuredthefeasibilityandstabilityofthedeal,andleftopenthe

pathwaybywhichgovernmentsagreedonthecompositionofaparticularbundle.

Governmentscould,forexample,demandasmallamountofmarketaccessinmanyproducts

ordeepcutsinjustafewproducts.Governmentscouldalternatively,makespecificdemands,

differentiatingratesacrossproducts,ortheycouldfocusonlyonthenumberofproductsinthe

bundleandnotthedepth.Thesedecisions,wearguebelow,areafunctionofdomestic

politicalpressures,bothathomeandabroad.

Toillustratewhytheserulesweresuccessfulinassuringbalancedandstabletreaties,

welookatthemicro-foundationsoftradetreaties,thatis,whatwasinthebundles,andexplain

2SeeGilligan(1997).3INRsorinitialnegotiationrightswasthemonetizedconcessionheldbyeachnation.Thesewereakinto‘chits’thatwereowedtoeachsideincaseoneortheotherwasforcedtoraiseatariffbecauseofdomesticpressures.

howandwhyparticularproductsendedupashostages.Ouranalysisisbasedonnewly

availableinformationonwhatwasofferedandgiveninthefirstRoundoftheGeneral

AgreementonTariffsandTrade(GATT).Thisuniquedataprovidesthebasisfornotonlya

deeperexplanationforthesuccessoftheearlyGATTbutalso,insightintowhyparticularrules

andproceduresbecameinstitutionalizedintoallsubsequenttradetreaties.Tobetter

understandwhathappenedatthenegotiatingtable,welookcloselyattheUStariffschedule

andthentheFrenchtariffschedule.IntheUScase,weareabletocomparetreatiespreand

postGATT;intheFrenchcase,welookatbothsidesofthenegotiationsandisolatetheeffects

ofpost-warreconstruction.

Webegininsectiontwowiththeexpositionofourapproachtounderstandingtariff

settingandthenhowthatisconsistentwiththeparticularrulesthattheUSinstitutionalized.

Wefollowinsectionthreewithdataonhowtheserulesfunctionedandtheoutcomeofthe

GATT47negotiation.Wethenturntoamorecomprehensiveexplanationforproductchoice

anddepthoftariffcuts.Insectionfour,wefocusontheUSchoiceofwhatproductstoreduce,

andweexamineanumberofpossibleexplanations,rangingfromimportpatterns,thepartners’

bargainingstrategy,theprevioushistoryoftradetalkswiththeUS,andthepoliticaland

economicstabilityofthepartnerregime.Wethen,insectionfive,takeupthequestionofpost

warsecurityconcernsandaskwhetherornottheUSgavespecialbenefitstowartornnations.

WedothisviaanexplicitanalysisoftheUS-Frenchnegotiations,trackingwhetherornottheUS

gaveaccesstohelprebuildareasofFrancethathadbeendisproportionatelydestroyedinthe

war.Weexploitdataonregionalbombingofindustriallocationstobetteridentifywhetheror

notcompetition,orlackofcompetition,explainsUSandFrenchchoices.Sectionsixdrawssome

conclusionsfromthestudy.

Foreshadowingthedata,wefindfirst,thatthenegotiatingstrategyofthepartnerwith

theUSwasakeydeterminantoftreatyoutcome.Specifically,whencountriescametothe

tablewithanopen-endedorunder-specifiedrequestsfortariffreductions,theyweremore

successfulthaniftheycamewithparticularisticrequestsforacut.Second,wefindthatthe

modalUSstrategywasnottoprovidedeeperaccesstotheUSmarketbutrather,toprovide

assurancesthattheUSwouldnotrenegeonthetarifflevelsfoundattheendofthewar.In

practice,thismeantthattheUSmoreoftenboundtheirtariffratethanreducedthatrate,even

whileaskingothernationstoprovideaccessinreturnforthecommitment.Third,therulesof

thenegotiationswerefarmoremercantilethan‘liberal’inthatalldealswerebalancedand

therewasnothirdpartyfreeriding.Overall,wefindthatthecutsintheUStariffschedule

reflectedhybridinterests,incorporatingbothdomesticsupportforparticularproductsandthe

morenationalgoalofincreasingtradevolume.

2.Whyatradeagreement?

Tradeagreementshavebeencreditedwithperformingmultiplefunctions.Among

politicalanalystswhoworryabouttimeinconsistencyproblems,treatiesenablegovernments

tocommittoaparticularcourseofaction,whethereconomicreformsortariffliberalization

(e.g.:StaigerandTabelini,1987;BacciniandUrpelainen, 2014).Forothers,treatiesareimportant

becauseofdomesticpolitics--atreatycancommitagovernmenttofollowthroughonits

domesticprogramandprotectgovernmentsfromtheirownirresolution(MansfieldandMilner,

2012).Andforstillothers,publictreatiesdirectlyaffectthepoliticalcapacityofdomestic

politicalactors,enablingtheorganizationofexportersorenableaccountabilitytodomestic

constituents(Bailey,etal.,1997;GrossmanandHelpman1994).Whiletheseapproaches

provideimportantinsightintowhenandwhyanationcomestothebargainingtable,none

focusattentiononthedetailsofthetreatyandanexplanationforspecificchangesinmarket

access.

Asopposedtoscholarsofpoliticswhoofferanumberofreasonsfortheexistenceof

tradetreaties,economistshavefoundtheirexistencemorepuzzling.Accordingtoeconomic

logic,governmentsshouldnotneedatreatytoreducetariffs—theycoulddosounilaterally—if

theyweredrivenbystandardconsumerwelfareconcerns.Yettheydonot.Onereasonthathas

beenofferedtoexplainthelackofliberalizationisthatthesegovernmentscanusetariffsto

leveragetheirnationalmarketpowerandimprovetheirtermsoftrade.4Improvementsina

country’stermsoftrade,ortherelativepriceofexportstoimports,arevaluedbyexportersas

foreignmarketaccessanddesiredbythegovernmentforitseffectontariffrevenue.This4See Bagwell and Staiger (1999, 2002a ); Bagwell, Mavroidis and Staiger (2002).

mercantilistinteresttemptsgovernmentstounilaterallyadopthighertariffs,despitethe

mutuallyimmiseratingeffectsonnationalwelfare.Nonetheless,tariffpolicieshavebeen

reduced,andKyleBagwellandRobertStaiger(2002)arguethatreciprocalagreements,suchas

thoseintheGATT,helpgovernmentsreducetariffsinconcertsothatneitherpartyfacesaloss

inrelativemarketaccess.Oncesigned,ifagovernmentsuccumbstotemptationandreneges,

theirpartnerislegallyauthorizedtoretaliatebyimposingtariffsontheoffendingparty's

exports.5Theheartofthetradingsystemisnottheeliminationofmercantilism,butratherthe

mutualdeploymentofmercantilismtoenforcecooperation.

Ifweassumethatthepotentialforretaliationstabilizesthedeal,wearestillleftwith

thepuzzleofexactlywhoandwhysomeindustries,andnotothers,havelandedinthetariff

reductionbundleandavailableforretaliation.Weneedtobetterunderstand‘bundle’creation.

Tothatend,webeginwiththeobservation,oftennotappreciatedbyscholarsoftradepolicy,

thatwhetherornotaproducerissubjecttoimportpressuresmaybeas,ormore,afunctionof

interestsinthepartnernationasthoseathome.Inpractice,negotiatorsweighdifferent

bundlesofcuts,makingtrade-offsbetweenimportcompetingandexporterinterestsinboth

thehomeandpartnercountry.Scholarsneedtoaccountnotonlyforwhyanationiswillingor

unwillingtolowerratesonparticularproductsbutalso,whythoseproductsaresoughtafterby

othersandtheprocessbywhichbothsidesagreetoafinaltariffschedule.

Whyisthisimportant?Accountingforthecompositionofthetariffswapsreconciles

BagwellandStaiger’sinsightthatafeasibleandsustainabledealwillbereciprocal,alongwith

thepoliticalunderstandingthatanycommercialpolicygeneratesdomesticwinners.With

regardstotheformer,productswapsarereciprocalandbalanced,offeringmutualhostage

takingofexporterinterests.Regardingthelatter,whichexportersareincludedinsuchadealis

fundamentallyconnectedtothepoliticalinfluenceofthosegroupsovergovernments.The

choicetoaddordropaproductfromadeal,andwhetheragovernmentadherestothe

provisionsofantreaty,dependsontheinfluencethatexportersofthoseproductshaveover

nationalpoliticswhentheyactashostagestotheagreement

5SeealsoCarnegie(2014).

Priorresearchonhowgovernmentscansustaincooperationwhenexposedto

protectionistpressureshasemphasizedthecoststhatretaliationwouldimposeuponexporters.

Thesearguments,however,assumethattheseexportersaregoingtobepartofthedeal,an

outcomethatisendogenoustopoliticalconstraintsamongthenegotiatinggovernments.

Theoriesofescapeclauses,forexamplethosedevelopedbyRosendorffandMilner(2001),

predictthatgovernmentscanobtaindeeperconcessionswhenthecoststotemporary

derogationoftheagreementarelower.6However,boththedepthoftheconcession,andthe

costsofderogation,arebothfunctionsoftheexporterinterestsheldhostageinthebundleof

productsincludedinagreement.Thefullexplanationoftradetreatiesmustaccountforproduct

choiceanditisthenatureoftheseproduct‘hostages’thatisattheheartofboththeabilityto

craftadealwithanothernationandwhetherornotthatdealisstable.

3.GATT1947:Norms,RulesandProcedures

Westartwithaqueryabouttheoriginofthe‘rulesofthegame’andhowtreaty

‘balance’washardwiredintothepost-WorldWarIItradeliberalization.Aswithmanyaccounts

ofUStradeliberalization,webeginwiththeimplicationsofpassageoftheSmoot-HawleyTariff

in1930.ThattariffraisedUStariffstotheir20thcenturypinnacleandwasfollowedbytheonset

oftheGreatDepression(Irwin2011).Asaresultofeconomichardtimes,theDemocraticParty

woncontrolofgovernment.Inordertoundercutlegislativelogrollingonindividualproducts,

thoughttobeacauseofthetariff,congressdelegatedauthoritytotheExecutiveOfficetoset

tariffrates.7

ThenewDemocraticmajority,longadvocatesoflowertariffs,couldhave,butdidnot,

grantpowerstotheExecutiveofficewithoutconstraint.Rather,congress’roleremained

central,withthelegislaturesettingtariffreductionproceduresandforcingtheExecutiveto

returnregularlytocongresstorenewauthoritytocontinuetonegotiatetradetreaties.

Congressmandatedthattariffsreductionsweretobemindfuloftheirconstituents’interests;

6SeealsoBagwellandStaiger(2005).7Congresscontinuedtolegislateloweredratesforparticularproductsattheendofthetariffschedule.The1930tariffactwasthelastcompleteoverhaulbycongressofratesthatforthemostpart,increasedratesovertheirprioramount.

productssubjecttonegotiationhadtobepre-authorized,hadtobenegotiatedwiththe

principalsupplierofthegoodandreductionscouldnotexceedaspecifiedamount.8Andall

agreementsneededtobereciprocalandbalancedtoprotectUSinterests.

Theseruleswereexpedientgiventheinterestsofelectedofficials.Theprincipalsupplier

rule,whichdictatedthatnegotiationsoccuronlywiththelowcostproducerofagood,

providedtransparency.Congressknewexantewhetherornotproductsintheirdistrictwould

beinthereciprocalbundle.MFN,notindiscussionbecauseithadbeenadoptedintolawin

1923,mergedAmerica’smultilateralaspirationswiththeprincipalsupplierrulethatfocusedon

tradingdyads.Thereciprocityruleassuredequityandlegitimacyandimportantly,motivated

exporterstopoliticalactivity.9

Thesecongressionalrulestranslateddirectlyintonegotiationprocedures,bothinthe

bilateralagreementsthatwereconcludedwithmajortradingpartnersintheinterwaryearsand

8Theprincipalsupplierrulemaintainedsupportfortradeliberalization,first,becauseitprovidedinformationtorepresentativesaboutwhetherornotproducersintheirdistrictwerelikelytobecutinaparticulardyadictreaty,andsecond,becauseitgavethepresidentinformationaboutwhichmembersofcongresswouldpotentiallyresistanagreement.TheprincipalsupplierrulewasofferedasacompromisebythenSecretaryofStateHulltocongresstoassurecontinuedsupportofMFNinclusioninthetreaties.WhileHulldidgetagreementtouniversalizeagreementsbyincludingMFNlanguage,thecompromiseactuallyunderminedhisintentbyprotectingmanyhighlytariffedproducts.ThereasonwasthatmanyproducerswereexcludedfromtheliberalizationforcessimplybecausetheprincipalsupplierandoftentertiarysupplierswerefromnationswithwhomtheUSdidnotenactatradetreaty.Forexample,in1934,alargenumberofhighlyprotectedproductscamefromGermany,acountryconvenientlyignoredasapotentialtreatypartnerinthebilateralyearsandintheearlyGATT.Theresultoftheomissionwasthatasignificantnumberofhighlyprotectedproductswereuntoucheduntilthe1960s.Whilethismayseemcounter-intuitivegivetheadministration’ssupportforwide-spreadtradeliberalization,theabsenceoftheseproductsintariff“bundles”actuallyfacilitatedprogramsupportbydampeninginterestgroupmobilization.

9The1934Actandsubsequentrenewalsstipulatedveryclearproceduresforvettingpotentialproductcuts.Accordingtolegislation,thePresidentneededtoseekadvicefromtheTariffCommission,theDepartmentsofState,AgricultureandCommerceandfromallotherappropriatesourcesbeforeloweringatariff.Toaccommodatethismandateaseriesofcommittees,theTradeAgreementsCommittee,country-specificcommitteesandtheCommitteeforReciprocityInformation,wereassembledtogiveinterestedpartiestheopportunitytopresentviews.Theytookbriefsandheldpublichearings.Until1937,aformalannouncementofintenttonegotiatewasaccompaniedbyalistoftheprincipalproducerswhocouldpotentiallygetatariffcut;afterward,thiswaslaterreplacedbythe‘public’list,whichsignaledallitemsthatwereunderconsiderationinanynegotiation.The1934Actalsodictatedtheformoftariffsetting.Allagreementswerebilateralwithsomeforeigngovernmentandalthoughtreatieshadonlytwosignatories,theireffectextendedbeyondthetwonations.After1923,theUSwasboundbyExecutiveOrdertograntMostFavoredNationprivilegestoourtradingpartners.Also,theExecutivewasboundbylawtonegotiatereciprocalagreements,extendingtopartieswithdrawingfromthetreaty.

postWWII,inwhatwouldbecometheGeneralAgreementonTariffsandTrade(GATT47).10

Whetherwithonenationormanysetsofdyads,participantssimultaneouslyprovidedeach

otherwithalistofproductsopenfornegotiationsandapreferredreductionamount.Although

theGATT47negotiationswerenevermadepublic,todaywecanseethatlistsvaried

dramaticallyacrossdyadsinnumber,productcontentandlevelofdemandedcuts.For

example,bothFranceandEnglandspecifiedproductsbutnottheextentofreductions;they

chosetofocusontheextensivemargin.TheUS,however,hadamuchmoredetailedrequest

listofdesiredcuts,focusingontheintensivemarginorthedepthofacutinaparticular

product.Reciprocitydidnotmandateoneortheother.Fromtheperspectiveofthe

negotiations,smallreductionsinalargernumberofproductswerenodifferentthanlarge

reductionsinfewerproducts.

Afterreceivingtheproductlistfromeachnation,countriesrespondedwithalistof

bilateraloffers.Thesewereavailabletoalltheparticipantnationsbut,again,notthegeneral

public.Offerswerefollowedbybilateralnegotiations.Theofferswerenotbindinginany

respectandareviewofthenegotiationsrevealsthatcounterofferswerechangedsubstantially,

bothupanddown.Inprincipal,theycouldhavealsobeensupplementedbyoffersonnew

itemsbutinpracticethatalmostneveroccurred.Wereturntothisobservationbelowand

suggestthatfortheUS,changeontheextensivemarginwasdifficultbecauseofadministrative

andpoliticalconstraints.Moreoften,offerswerewithdrawn.

Overall,thenegotiationstagewasmessyandthesecretariatlaboredtogetnationstonot

onlymeetbuttosimplyreportatleasttwiceamonthonthestatusoftalksandwhatproducts

werestillopenforpossiblecuts.ThetargetdateforcompletionofthisprocesswasAugust15th

of1947;thefirstnegotiationsbeganonApril23rd.Itwentslowly.Bymid-June1947,298

meetingshadbeenheldbythe93pairsofcountriesthatenterednegotiations.Somecountries

metoften(5pairsmetover10times)butmostmetonlysporadically.Bythecloseofthe

10EventhetimingofthefirstGATTRoundwasanartifactofcongressionaloversight—thetalkswerespurredbytheimpendingexpirationofthePresident’snegotiationauthorityandtheupcomingdebateonitsrenewalin1948.

negotiations,however,almostalldyadsdidconcludeanagreement.Theexceptionfor

sovereignstatesallinvolvedCuba:BeneluxandCuba,FranceandCubaandUKandCuba.11

Ofcourse,notalldyadsofnegotiationswereequallyimportant.Ifweusetradevolume

in1938toorganizethegroup,25dyadsaccountedfor87%ofalltradeofthegroup.Canada-US

tradealonewasabout11%;UK-UStradewasanother10%.Thenextsevenwereeitheramong

UKandcurrentorex-coloniesorbetweenEuropeannations.TheUStradeprofilewithEurope

wassmall—US-Beneluxtradewasabout3.6%oftotaltradeamongallthenegotiatingcountries

andthatwasthehighestfortheUS.Progresstowardagreementwasnotnecessarilyassociated

withtheamountoftrade.ThefirstcompletednegotiationwasbetweenCanadaandNorway,

whichranked55thintradeimportance.Everyothersetoftalksdraggedon.Still,theUS

footprintatthetalkswassignificant,withabilateraltradeproportionofalmost39%.

LookingattheUSdyads,therewasconsiderablevariationonboththescopeand

outcomeoftalks.TheUS’twotoptradingpartners,CanadaandtheUK,hadpreviousbilateral

dealwhichhadreducedmanyoftheeasytariffs.Talksnowweremoredifficultandoccurredin

theshadowoftheUK’spreferencesystem.TalkswithAustraliaweredifficultnotonlybecause

oftheinteractionwithUKpreferencesbutalsobecauseofUSdutiesonwoolproducts,butter

andbeef.Australia’soriginaloffersweretakenoffthetableduetotheperceptionofUS

unwillingnesstoreducerates.TalkswiththeBeneluxcountrieswereeasierfortheUSalthough

thedepthofcutswerelessthanintheAustraliacase.Finally,UStalkswithLatinAmerican

nationswerecompletedearlyonwithlittlefanfare.

OutcomesThebargainingrulesintheearlyGATTRoundsforcednationstomakedecisionsabout

requestswithlimitedknowledgeofthepoliticsoftheirtradingpartner,bothintermsofwhat

thepartnerwouldacceptandintermsofwhatthepartnerwoulddemandinreturn.Ifanation

wasunableorunwillingtoopentheirownmarket,theywerelimitedinwhattheycould

demandofothers.Unsurprisingly,theaggregatedatarevealssignificantdifferencesin

participantbehavior.Somenationsaskedforspecificreductionsandothersforjustthe

11SomeoftheUKcoloniesparticipatedintheearlystagesanddidnotcompletenegotiations.

deepestcutpossible.Participantrequestsvariedbothonthenumberofitemsspecifiedandon

thenatureofthereductionrequest.IntheUSnegotiationsweobservethatsomenationsasked

forbindings;otherforsharpreductions;otherlistedasmallgroupofproducts;othernations

listedalmosttheentireUStariffschedule.

ThepurposeofarequesttoreduceanAmericantariffistoeitherenableentrybyanew

foreignexporterintotheUSmarket,ortoenhancethemarketpositionofexistingexporters.

Insofarastariffsarethebindingconstraintonexporteractivity,wewouldexpectthat

governmentswouldseeklowertariffstothelargestextentpossible,butvalueanyconcession.

If,however,thetariffissohighastoexcludetradeandevenamarginallylowertariffwouldnot

enableexport,wewouldexpectgovernmentstoonlyvalueconcessionslargeenoughtoenable

entry.Governmentssoconstrainedmayhaveaninterestinsignalingthatconstraintthrough

thenegotiatingstrategy.

Thereviewofrequestsprovidesinformationbothabouttheinterestsofexportersas

wellastheperceptionofgovernmentleadersofexactlyhowimportcompetinginterestswould

respondtoaconcession.AnationrequestingareductionfromtheUSwouldhavebeenwiseto

considertheCongressionalchargetoAmericannegotiators.Accordingtothe1934legislation

thatallowedtheUSpresidenttonegotiatereductions,productsneededtobevettedbyaseries

ofdomesticcommitteesandindustriesweregiventimetorespondtotheirbeingconsideredas

partofatariffreductionbundle.Giventhatconstraint,arationalbargainingstrategywould

includeasmanyproductsontherequestlistaspossible.Thiswouldallowtheconstrained

partnertomakechoicesaboutwheretomakeconcessions.Ofcourse,reciprocityprecluded

thatstrategy.

Whatwasofferedandwhatweretheresponses?Table1liststheUSbargainswithother

GATTparticipants,organizedbyhowmuchGATTtradewascontributedbytheUSandtheother

nation.Viewedthisway,CanadiantradewasmostimportanttotheUS,representingabout

11%ofallitsGATTtrade.CanadaaskedtheUSforconcessionson686productsandtheUS

respondedpositivelyon263ofthoserequests.ThiswasnotCanada’sfirstbilateraltrade

negotiationwiththeUS—theyhadanexistingbilateralthatwasconcludedbeforethewar.We

seethattradedependencealonecannotexplainthepatternofrequestsandconcessions.For

example,Franceaskedforthemostproducts,1194,fromtheUSyetthatdyadwasonly2.9%of

GATTtrade.Likewise,iftradeflowsaloneexplainedthepattern,Francewouldnothave

receivedasmanyconcessionsastheydid.Welookmorecloselyattherelationshipbetween

importflowsandnegotiationsinthenextsection.

Table1:RequestsandconcessionsbypercentofallGATTtradebyUSandpartnernation,GATT47

No.ofRequeststoUS No.ofConcessionsGrantedbyUS

PartnerNation %oftotalGATTtrade(1938)

686 263 Canada 11.4442 559 UK 10.0212 156 Benelux 3.61194 148 France 2.9NA 44 Cuba 2.8153 34 Brazil 2.5NA 119 China 1.536 24 India 1.429 4 S.Africa 1.348 18 Australia 1.330 15 Chile 0.9218 31 Czechoslovakia 0.830 17 Norway 0.647 9 NewZealand 0.5NA 6 Lebanon/Syria 0.1

Countries’strategiesatthebargainingtablevariedonanotherdimension.Somenations

soughtsecurityincurrentrates,focusingmoreonthethreatthattheUScouldpotentiallyraise

ratesinthefuture.Othersfocusedonmarketaccess.Somenationsfocusedontheirmajor

tradingpartners;othershadalessspecificpolicy.Table2providesdataonthevariationin

requestsandoutcomewiththeUSandcomparesthatwithothernegotiatingpartners.Thefirst

column,TotalAsks,sumsthetotallistedrequestedtariffchangesbyeachcountryofallother

countriesinthefirstroundofnegotiation.Canada,forexamplemade1,030productlevel

requests.Thesecondcolumn,AverageAsk,showsthattheaveragenumberofrequestsvaried

acrossdyads,withstatesconcentratingtheireffortonparticularcountries.Thethirdcolumn,

TotalUSA,liststhenumberoftarifflinechangesaskedoftheUSA.Thenextcolumn,%USAsk,

computesthepercentageoftheaveragecountry’srequestrelativetothenumberaskedofthe

US.ThisisameasureofhowfocusedanationwasontheUSmarket.Somecountrieswere

completelyfocusedontheUSA,suchasChile,andsomecountrieswerefocusedelsewhere,like

Norway.Thefinalcolumn,%AverageAsks,istheratiooftherequestsoftheUStotheaverage

request,showingthatsomecountriesdemandedmuchmoreoftheUSthanothercountries,

suchasCanada,andsomecountriesdemandedthesameamount,suchasBenelux.

Table2:AsksofUSrelativetootherGATTmembers,GATT47

Country Tot.Asks Aver.Ask Tot.USA %USAsk %Aver.AskAustralia 105 26.25 48 46% 183%Benelux 567 189.00 212 37% 112%Brazil 290 20.71 153 53% 739%Br.Colonies 28 28.00 28 100% OnlyUSCanada 1,030 44.78 686 67% 1,532%Ceylon 49 9.80 12 24% 122%Chile 30 30.00 30 100% OnlyUSCzechoslovakia 430 35.83 218 51% 608%France 1,506 251.00 1,194 79% 476%India 85 17.00 36 42% 212%Leb./Syria 25 12.50 18 72% 144%N.Zealand 384 29.54 47 12% 159%Norway 108 12.00 30 28% 250%SouthAfrica 90 18.00 29 32% 161%UK 759 189.75 442 0.58 233%

Finally,Table3illustratesthattherewasconsiderablyvariationinthetypeandnumber

ofconcessionstheUSgrantedacrossproductgroupings.Here,thefirstcolumnindicatesthe

percentofasksthatwererefused,thesecondthenumberofproductsinthatcategorythat

wereboundandthethird,thenumberreduced.Thenumberofpossibleproductsthatwere

requestedbygroupislistedinthelastcolumn.TheUSrefusedasignificantpercentageof

requests.Inparticular,almost3/4softherequestsinnonmetallicmineralswererejectedand

almosthalfofthoseinchemicals.Thereissimilarlysignificantvariationinwhetherornotthe

outcomewasareductionofabinding.Textileproductswereboundbutnotcut;thelargest

numberofcutswasinanimalproductsandthehighestpercentageofcutswasinvegetable

products.Overall,primaryproductsweremoreofteninthefinaltariffbundlethanwerefinal

goods.

Table3:SpecificUScuts,byproductcategory

NoCut Bound Reduced Tot.ProductsAnimalsandanimalproducts 24% 49% 27% 533Vegetablefoodproductsandbeverages 40% 43% 17% 386Vegetableproducts 44% 23% 34% 231Textilefibersandmanufactures 15% 72% 13% 288WoodandPaper 32% 46% 22% 161Nonmetallicminerals 72% 13% 15% 54Metalsandmanufactures 37% 49% 15% 189Machineryandvehicles 27% 56% 16% 128Chemicalsandrelatedproducts 49% 25% 26% 265Miscellaneous 48% 41% 11% 214WhatexplainsthispatternofUSresponses?Wenowconsiderarangeofpossibleexplanations

rootedinthenegotiationprocess.

4:TheUSPattern:Negotiators’AskingforImportAccess

UStariffratesvarydramaticallyacrossproductsandproductgroupings.Evenunder

SmootHawley,rateswerenotuniformlyhigh.Rather,thehighaveragereflectedthe500orso

productsthathadadutyofover50%advalorem.OtherproductsenteredtheUSwithavariety

ofratesandmanyproductscameinfree.Toexplainvariationinthechangespost-Smoot

Hawley,weexaminehighlyprotectedproducts,thosewithagreaterthana50%advalorem

rateunderSmootHawley,whichweassumewouldbealogicaltargetforexportersduringa

tradetalkandarethosethatweexpecttoseereducediftheUSweredriventosupportits

tradepartners.Usingtariffdataandimportflows,wecanaskwhenandifcutsweremadein

responsetotheseinterests.

Importflowsarenotagoodpredictorofnegotiationactivity.Figureonedisplaysdeciles

of1930importlevelsagainstquintilesoftariffreductions.Heretariffchangesistransformed

intoadvaloremreductionsandsummedbetween1934and1963,bylevelofimports.Counter

ourexpectation,thepathofUStariffliberalizationdidnotappeartocounterdomestic

pressuresfromimportsensitiveproducts;themoreaproductwasimported,thelesswasthe

tariffcut.ThisisnottosaythattheUSdidnotshiftitspolicyovertimeandgrantaccesstothe

marketfortheseproducts,butrather,thatsimplemeasuresofimportvolumeappeartobea

poorpredictorofearlytreatyoutcomes.Toexplainwhogainedaccessandwhen,weneedto

unpackthepoliticsoftreatynegotiations.

Figure1:Analysisoftariffreductionsbyimportvolume

Whatdoesexplainoutcomes?Andhowareoutcomesrelatedtorequestsforaccessto

anothermarket?Tobetterunderstandtherelationship,welookmorecloselyatthenegotiation

processitself,examiningalltheUSdyadsrequestsandoffersmadeduringthe1947

negotiations.Figuredisplaystherelationshipbetweenasksandresults;Figurelooksatthe

variationintypesofrequestsandsuccess;Figure4addstradeflows.

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4

6

2.5 5.0 7.5 10.0Quantile of Imports (1929/1931)

Quan

tile of

Tariff

Red

uctio

n

Figure2:ReciprocityintheExtensiveMarginofOffers

BeginningwithFigure,weseeaclearrelationshipbetweenthenumberofproductson

the‘ask’listandtheUSresponse.TheXaxisisthenaturallogofthenumberofUStariffline

changesthatwereaskedoftheUS;theYaxisisthenumberofUStarifflinescommitmentsthe

USgaveinresponsetothoseasks.TheplotindicatesthatthemoreproductstheUSpartner

askedfor,thehigher,ingeneral,wastheconcessionthattheUSgave.Franceunderperformed

onthisfront,andtheUKoverperformed.

Wasthereabetter,orworse,strategyavailableforgainingaccesstotheUSmarket?

Thenextfigure,Figure3,depictstheratioofUSconcessionstothepartnerrequestsasa

functionofthetypeofrequeststhatweremade.Hereweorganizerequesttypebycomplexity,

thatis,didacountryaskforspecificreductionsasastrategyinalltheirrelationshipswithother

nationsin1947orweretheymorelikelytosimplyprovidealonglistofproductsandageneral

requestforareduction.Theformerwecodedasacomplexrequeststrategyandtheotheran

open-endedstrategy.Inthisfigure,theXaxesisameasurealongthecomplexitycontinuum

andtheYaxisisaratioofhowmanyconcessionsweregranted,giventhedemandsoftheother

nation.AhighratioindicatesthattheUSgaveahighershareofconcessionsforeveryreduction

orbindingthatthepartnerrequested;alowratioindicatesthattheUSgavefewerconcessions

thanthepartneraskedfor.Theplotshowsthatthemorecomplextherequest,thelesstheUS

Australia

Benelux

Brazil

Canada

Chile

Czechoslovakia

France

India

Lebanon−SyriaNew Zealand

Norway

South Africa

UK

0

2

4

6

8

2 4 6 8ln(Partner Asks)

ln(U

S R

espo

nse)

conceded.ItappearsthattheUSschedulechangedmostoftenwhencountrieslistedmany

productsbutwithoutspecifyingavarietyofdifferentreductionrequests.

Figure3:USResponsetoComplexRequests

Finally,weconsiderwhetherornottherelationshipweseeaboveissimplyafunctionof

tradeflows.Todothat,FigureprovidesthenaturallogofthepercentageofUStradetakenby

eachcountry,andthenaturallogofthenumberofproductsreducedbytheUS.Aswecansee,

USnegotiationsdidfocusonourprincipaltradingpartnersalthoughthatdoesnotexplainall

thevariationweseeabove.Insummary,wenowseethattheratioofthenumberof

concessionsgrantedvswhatwasaskedforishigherforcountrieswitheithercomplexrequests,

ahighportionoftradewiththeUS,orboth.

Australia

Benelux

Brazil

CanadaChile

CzechoslovakiaFrance

India

Lebanon−Syria

New Zealand

Norway

South Africa

UK

0.0

0.5

1.0

0.00 0.25 0.50 0.75 1.00Request Complexity

US

Con

cess

ions

/ Pa

rtner

Ask

s

Figure4BivariaterelationshipbetweennumberofreducedtariffslinesandUStrade

Whatotherfactors,outsidethenegotiationprocess,wouldexplainthisvariationintariff

outcomes?Partnerstrategiesinthecomplexityofrequests,thenumberofrequested

reductions,oreventhepercentageoftradeareendogenoustopriorexperiencesin

negotiationswiththeUS.By1946,manyofthepartnersintheGATThadnegotiatedprior

agreements.TotestwhetherornotnationswhohadengagedearlierwiththeUSweremore

successfulsubsequently,wecomparestrategiesandresponsesforthosewithandwithout

bilateralagreementswiththeUSpre-GATT.However,wefindnoevidencethatnationswith

bilateraltreatiesreceivedmoreofwhattheyaskedforthannewnegotiators,controllingfor

tradeflow.Thisissomewhatunexpectedgiventhatthechoiceofearlytreatypartnerwas

endogenoustoasetofrelationshiptheUShaddevelopedpriortothecreationoftheGATT.

Ofcourse,examiningtheUSresponseintermsofconcessionsalonemaymissvariation

intheintensivemarginoftariffconcessions.Inadditiontothenumberofbindings,theUS

variedinitsresponseintermsofeitherbindingattheexistingrateorofferinganoutright

reductionofthetariff.Thefactthattheformerwastreatedasaconcessionrevealsthe

importanceoftheUSmarket,andthedesiretoreducetheriskassociatedwithfutureUS

Australia

Benelux

Brazil

Canada

Chile

China

CubaCzechoslovakia

France

India

Lebanon−SyriaNew Zealand

Norway

South Africa

UK

0

2

4

6

−2 −1 0 1 2ln(Percentage of US Trade)

ln(U

S R

espo

nse)

protectionism.PartnersthatcouldextractoutrightconcessionsfromtheUS,ontheother

hand,benefitedfrombothareductioninriskandanimprovementinmarketaccess.

Tocapturethisvariation,weusetheshareofbindingsrelativetoreductionsasa

measureofthevalueof‘certainty’vsaccessforforeigngovernments.Somenationsmaynot

havepoliticalsupporttoreduceratesoralternately,mayhaveapreferenceforacertain

outcome,suchasabindingoverareduction.Toaccountforthefactthatproportionsare

restrictedtotheinterval[0,1],wefollowCribari-NetoandZeileis(2010)anduseabeta

regressionwithalogisticlinkfunction.Weusethismodeltoexaminetheroleofdomestic

politicaluncertaintyandinternationaleconomicuncertaintyindeterminingbindingvs

reductionsintheUSnegotiations.

First,totestwhetherdomesticpoliticaluncertaintymatters,weexaminethebehavior

ofdifferenttypesofgovernments–thosewithandthosewithoutsignificantcommunistparty

presenceinthelegislature.Second,weknowthatexchangerateswillinfluencethevalueofa

tariffreduction.Ifanationhasanunstableexchangerate,and/ortheirpricelevelsareshifting

outofsynchwiththeUS,theirinterestintariffcutsversusabindingmaywellalsovary.Thus

oursecondhypothesistestshowexchangeratevolatilityinfluencedthe1947tradetalks.

Figure5Coefficientsofshareofconcessionsasbindingsoncountrylevelcharacteristics

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●

(Intercept)

Percent US Trade

Proportion Communist

Currency Float

0 1 2Coefficient

Varia

ble Model

●

●

Comm. Legislature Model

Exchange Rate Model

Bindings as a share of concessions in GATT47

DomesticPoliticalContestation:nfluencedthe1947tradetalks.

Figureshowstheestimatesofamodelthatassesseswhethergovernmenttypeisapredictorof

tradeoutcomes.Asawaytomeasuretheconstraintsfacedbymanyofthepost-warregimes

whowerepartytotheGATT,wemeasurethesizeofthecommunistpartyasaproxyof

contestationlevels.12Whythismeasure?First,weassumethatnationswithlargeCommunist

partieswouldbemoreconstrainedandwouldaskforandofferfewerconcessions.Second,we

thinkitlogicalthattheywouldfocusonbindingsfromtheUSoutoffearthattheUScoulduse

tariffstosanctionstrongCPpresence.Wethenlookatbothreductionsandbindingsas

outcomevariables.

Toassessthechoiceofbindingvstariffcut,weregressthepercentofnegotiatedtariff

lineswithabindingontheproportionofCommunisttonon-Communistpartyseats,aswellas

thepercentofUSTrade.WefindthatgovernmentswithmoreCommunistParty

representationin1946aremorelikelytoreceivebindingsratherthanreductionsintariffs.

WhatisnotclearfromthiscorrelationiswhetherthisisaconsequenceoftheCommunistParty

12OurmeasureistheshareofCommunistseatsrelativetothelargestnon-CommunistpartyinthelowerhouseofeachUSnegotiatingpartnerasof1946.

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●

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●

●

(Intercept)

Percent US Trade

Proportion Communist

Currency Float

0 1 2Coefficient

Varia

ble Model

●

●

Comm. Legislature Model

Exchange Rate Model

Bindings as a share of concessions in GATT47

legislatorsorthesocialandeconomicconditionsthatenabledtheelectionofthese

politicians.13

ExchangeRatesFinally,welookatwhetherornotcurrencyshiftsandresultantchangingprice

levelsinfluencedbargaining.In1947,theexchangerateregimewasinfluxandtherewas

considerableuncertaintyaboutthetypeofregimeandtheroleofthedollarinthefuture.To

capturethisuncertainty,weexaminewhetherornottheUSpartner’scurrencywasrecently

devaluatedviaafloat,againdisplayedinFigure5.ItdoesappearthatthepercentageofUS

concessionsthattooktheformofabindingarehigheramongcountrieswithafloating

exchangerate.Wereturntoboththesefindingsinourdiscussionbelow.

5:US-FranceNegotiations

Ourobservationaldatailluminatesthevariablesthatareassociatedwithaproduct

endingupwithaloweredtariffratebutwestillcannoteliminatethepossibilitythatsomeother

factorco-varieswithproductchoices.Tobetterunpackthecausalrelationshipbetweenasks

andoffersduringthe1947GATTGenevaRound,wenowleveragevariationinAlliedbombing

duringWorldWarIIandindustrialgeographyinitsimmediateaftermath.Below,wedescribe

ourmeasurementstrategyforindustrialgeographyaswellasthetrajectoryofindustrial

developmentpriortothewar.Weconnecttheseestimatesofthegeographyofwartime

destruction,drawnfromrecentdigitizationoftheUSStrategicBombingSurveyTHORproject,

whichprovidesasystematicaccountofthelocationandextentofAlliedBombingthroughthe

war.Insofarasemploymentpatternsarerelatedtowartimedestructionratherthan

expectationsoftrade,wecanestimatetheeffectsofproducerpressuresonoffersand

concessionsexchangedbyFranceandtheUS.

AftertheUK,FrancewasboththeUSmainpartnerfornegotiationsandalynchpintoUS

securitystrategyafterthewar.Francewasabothanindustrialpowerandhighlyprotected.Its

industrialbase,evendevastatedbywar,wastheprincipalsupplierofhundredsofUSimports,13WesternEuropeanCommunistpartieshadastrainedrelationshipwithlabor.InFrancethespring1946CongressoftheCommunistdominatedGeneralConfederationofLaboursawpushbackagainstworker’seconomicgrievancesandtheliftingoftheprohibitionofunionofficersfromactiveparticipationinpolitics(Wall1991p.99).

includingchemicalproducts,textiles,andmachines.By1931,theaveragetariffinFrance(38%)

wasslightlyhigherthanthatoftheUS(35%)andbelowthatofGermany(40%)(Irwin2002p.

153).

WebeginwiththeexaminationofthespecifictradeswapsbetweentheUSandFrance

postWWIIfocusingontheFrenchtariffschedule.Again,anyreductionsinFrancewouldbea

responsetosomeUSdemand.France’sdecisionistherebynottochoosewhichproductsto

consider,butrather,amongtherequests,whichtogrant.OurdatafromtheFrance-US

negotiationon758Frenchtariffs;for744oftheseproductswewereabletocodethead

valoremratepre-negotiation,theUSasks,andtheFrenchrespondingcounter-offers.14

ThefastmajorityofUSrequestsconsistedofreductions—theUSonlyrequesteda

bindingatthepriorrateon36ofthe744products,andhalfofthose36requestswererequests

tobindat0tariff.Theremainingoffersandresponsesaredisplayedinthefigure6.TheUS

demandsaredisplayedonthex-axis,andthey-axisdepictstheFrenchrespondingcuts,bothin

termsofthenominaladvaloremrates,whichareboundbelowat0.The45degreeline

indicatesaFrenchresponseofexactlytherequestedreduction,thepointsaboveindicatethat

theFrenchtariffwashigherthanthatrequestedbytheUS.Asshowninthefigure,theFrench

tariffschedulegenerallyappliesratesrangingfrom10to50percent.TheFrenchcounteroffers

rangebetween10to25percentagepointshigherthantheUSdemands,anditisrareforFrance

toofferaratebelowtheUSdemand.

14InthecourseofnegotiationFrancealsolisted52separatetarifflinesforasilentfilms,impressionsandsoundtracks.Thesewereexcludedfromthefollowinganalysis.

Figure6:FrenchresponsestoUSdemands(%)

Toexplainthevariationinthecompositionoftheseswaps,weexaminethegeography

ofproductionwithinFranceimmediatelyfollowingthewar.Usingthe1946Census,wedivide

Frenchindustrialactivityacrossits90départments.15Thisgeographywillallowthejoint

analysisofindustrialgeography,tariffnegotiationsandwartimedestruction.16Table1,inthe

Appendix,providestheindustryemploymentandconcentrationfromthatcensusacross31

industries.

15Createdinthelate18thcentury,thesedépartmentsarefurtherdivisibleintoarrondissements,cantons,andcommunes.Eachdépartmentshasaradiusofroughlyoneday'straveltoageographicallycentralcity(byhorse),varyinginsizebetween4and8thousandsquarekilometers,approximatelyhalfthesizeofConnecticut.The1946census,reportedTableXIIofRecensementGenerale:1946etatciviletactiviteprofessionelle,providesemploymentdataacrosseachdepartmentin31industries.Thesecountsincludebothmenandwomenatalllevelsofemployment,management,employees,andworkers.16Attheendofthewar,thelargestemployerwasagriculture,whichincludesfishingandforestry;thesmallestwastheoilsector.Theindustrywiththehighestconcentration(HH)indexwasthefuel/coalsector,locatedinthenortherndépartmentsofPas-DeGalaisandNord,coalproductionwasexposedtoextensivebombing.Themostdispersedsectorwasagriculture,whichislocatedinmanyprovincesacrossFrance.

0

10

20

30

40

50

0 10 20 30 40 50US Demands %

Fren

ch O

ffers

%

French Responses to US Offers

Thedataonthebombingsortiesbetween1941-1945providesauniquemeanstoassess

whetherornottheFrenchchoiceofproductstoprotectwasinfluencedbytheneedtoprotect

fledglingindustriesorwhetherthedestructionoftheindustryprovidednegotiatorswith

flexibilitytousetheseproducersashostagesforadeal.17Toillustrate,Figure7displaysthe

Alliedbombingdatasuperimposeduponthe96moderndepartmentsofFrance.Thesizeofthe

circledepictsthenumberofbombingrunsinasinglereportedlatitudeandlongitudetargetin

France.Figures8and9thendisplaytheeffectsthatbombinghadonoverallemploymentin

eachdépartment.Theleftfiguredisplaysthechangeinthenumberofworkersbydepartment

between1936and1946.Therightfiguredisplaysthechangesinemploymentbetween1931

and1936,indicatingthatbombingwasnotassociatedwiththeoverallindustrialchanges

beforethewar.

Ouridentifyingassumptionisthattheextentofbombinginanindustryisexogenous

fromthe1946tariffnegotiations.Arethereanythirdfactorsassociatedwithboththewartime

bombingexposureandthepost-warnegotiationsthatunderminethisassumption?We

considertwopotentialomittedfactors.First,thecompetitionthatindustryposesonAmerican

producersmaybeassociatedwithwartimebombing.Second,ifsectorhappenstobelargein

France,itmaybemoreexposedtodisruptivebombing,butindependentofthatbombing,

employasufficientnumberofworkersthatwouldaffectFrenchnegotiators.Toaccountfor

theseinterestsamongFrenchnegotiators,wecontrolfortheUSdemandsfortariffreductions

aswellascontemporarymeasuresofemployment.

17Duringtheprocessofliberalization,theUSsponsoredalargeandsystematicsurveyoftheeffectivenessofbombing,theUSStrategicBombingSurvey.ThisSurveyincludesqualitativeaccountsofthedamage,interviewswithbombers,andnowwiththeTHORproject,includesanefforttoexhaustivelyidentifythelatitudeandlongitudeofeachbombingrunoverthecourseofthewar.TheTHORdatasetismaintainedbyAirForceResearchInstituteandisavailableathttp://afri.au.af.mil/thor/

Figure7:AlliedbombingofFranceinWorldWarII

Figure8:Bombingandpost-waremploymentinFrance

Figure9:Bombingandpre-waremploymentinFrance

TocalculateFrenchindustrialexposuretobombingduringWorldWarIIwecalculate

industrialactivityandbombingatthelevelofthe1946départments.Theshare𝜇"# =%&'

%&''of

workersinindustryrepresentedineachdepartmentismeasuredbytheFrenchCensuswhere

𝑗 ∈ {1…31}indexesindustriesand𝑘 ∈ {1…90}indexesthe90départments.TheBomb

(Sevres (Deux)

Ain

Aisne

Allier

Alpes (Basses) Alpes (Hautes)Ariege

AubeAude

Bouches-du-Rhone

CalvadosCantal

Charente

Corse (Corsica)

Finistere

Gard

Garonne (Haut)Gers

Gironde

HeraultIlle-et-Villaine

Isere

Landes

Loire-Atlantique

Lot-et-Garonne

Meurthe-et-Mos

Nord

Pas-de-Calais

Puy-de-Dome

Rhin (Bas)

Rhin (Haut)Rhone

Seine

Seine/Seine-et-Oise

Tarn

VaucluseVienne

-75000

-50000

-25000

0

25000

2 4 6 8ln(Bombing)

Cha

nge

in W

orki

ng P

opul

atio

n (1

936-

1946

)

War and Employment in France

(Sevres (Deux)Aisne

Allier Alpes (Hautes)Alpes-Martimes

AriegeBouches-du-Rhone

DoubsFinistere

Garonne (Haut)

IsereLandes

Meurthe-et-MosMoselle

Nord

Pas-de-CalaisRhin (Haut)

Sarthe

Seine

Seine/Seine-et-Oise

Tarn

Vosges

-4e+05

-2e+05

0e+00

2 4 6 8ln(Bombing)

Cha

nge

in W

orki

ng P

opul

atio

n (1

931-

1936

)

Prewar Employment in France

Shareindexforeachindustryj,displayedinthelastcolumnofAppendixTable1iscalculatedas

follows:

𝐵𝑜𝑚𝑏𝑆ℎ𝑎𝑟𝑒" = 𝜇"# ∗ 𝐵𝑜𝑚𝑏𝑠##

Weassumethattheworkersineachdépartmentwereunabletoswitchindustries,an

assumptionmotivatedbytheabsenceofsystematicchangesintheshareofworkersin

agriculture,commerceandindustryrespectivelybetween1936and1946.Thisistosay,we

assumethatplaceswithahighportionofworkersinasectorimmediatelyafterthewarreflects

thepresenceofthatindustryduringthewar.Wedonotobservemassivemigrationofindustry

acrossdépartmentsduringthewar,despitetheVichyindustrialpoliciesandtheGerman

occupation.

Figure10:BombingandUStariffs

UsingthisBombShareastheindependentvariable,wecannowaskaboutthe

relationshipbetweentariffoutcomesandthestateoftheindustry.Firstwelookathowtheloss

ofFrenchindustryinfluencedUSwillingnesstoallowFrenchproductsintotheUSmarket.

Figure10reportstheestimatesfor495highlyprotectedUStarifflines,indicatingastrong

negativerelationshipbetweenexposuretoalliedbombingandreductionsintheUStariff

-0.25

0.00

0.25

0.50

3 4 5Bomb Index

Gene

va R

ound

Cha

nges

French Product France RoW

Changes in US Tariffs in the Geneva Round

binding.Inparticular,theindustrywiththemedianexposuretobombingisassociatedwith17

percentagepointsmoreprotectionthantheleastexposedindustry.

Itispossiblethatproductswhoseindustriesweredamagedwerelesslikelytobenefit

fromanincreaseinUSmarketaccess,sotheFrancedidnotmakerequests,andsotheUSdid

notloweritstariffs.Lookingatthedata,however,themostdamagedindustry,textiles,asked

forandreceivedsignificantreductions.WesuspectthattheUSmadeconcessionsontextiles

knowingthattheincreaseinmarketaccesswouldnotbedamagingtoUSindustry,asFrance

wasunlikelytobecompetitiveinthatsector.Thefactthatfewerconcessionsaremadeon

morebombedsectorsmayreflecttheabsenceoforganizedindustrialexportinterestswithin

France,particularlyintheimmediateaftermathofthewar.

Figure11:CoefficientestimatesfromregressingUStariffchangesonFrenchdomesticconstraints

●

●

●

●

●

●France x Bomb^2

France x Bomb

Bomb Share^2

Bomb Share

French Product

(Intercept)

−1 0 1 2

Varia

ble

Reductions of highly protected products in US tariff schedule

Figure12:CoefficientestimatesfromregressingFrenchtariffsonFrenchdomesticconstraints

Lookingintheotherdirection,thatis,attheFrenchtariffschedule,allowsustoexamine

theFrenchresponsetoAmericanrequestsfortariffreductions.Again,weobserveastrong

negativerelationshipbetweenbombingandthewillingnesstomakeconcessions.Themorethe

productwasassociatedwithabombedFrenchindustry,thelesswillingtheFrencharetomake

concessions,evenwhencontrollingforUSdemands.Thisbivariaterelationshipisdisplayedin

Figure13,suggestingthatforallbutthemostbombedindustry,bombingreducesthelikelihood

ofatariffchangebytheUS.Highervaluesonthey-axiscorrespondingtoalargergapbetween

theUSrequestandtheFrenchresponse.

●

●

●

●

●log(Employment)

US Ask

Applied Rate

Bomb Share^2

Bomb Share

−1.00 −0.75 −0.50 −0.25 0.00

Varia

ble

Reductions of products in French tariff schedule

Figure13:BombingandFrenchtariffholdout

Wenowhaveasomewhatbetterguessaboutmotivation.Thedatasuggeststhatthe

Frenchstrategyintarifftalkswastorefrainfromopeningitsmarketstoallowaflowof

productsintoitswar-damagedsectors.WhilewardamagedidnotcauseFrancetoraise

protection,weobservebothlowerdemandsbytheUS,andlowerwillingnessofFrancetogive

intothedemandsthataremadebytheUS.Apparently,theFrenchpost-warresponseto

havinglostindustryasaresultofbombingwastoprotectthepotentialinfantindustrieswhile

theUSresponsewastobemorefavorabletothoseindustries,mostlikelybecausetheywere

lessofanimportthreat.

6:CreatingOpenBorders:WhatwelearnfromAmerica’searlynegotiatingpolicy

Tariffnegotiationsareamomentinwhichthenegotiatorsareaskedtomakeanalmost

existentialtrade-offbetweentheaggregatewelfareoftheirnationandtheparticularisticneeds

ofgeographicallylocatedproducergroups.Analystshaveofferedabevyoftheoriesabouthow

−4

−2

0

2

3 4 5bombshare

(US

Dem

ands−F

renc

h Of

fers

/ US

Dem

ands

andwhenthenegotiationsgoinfavorofoneortheother,butfewhaveexaminedthespecific

dealsthemselves,areflectionofthelackofdataonthemicro-processesofnegotiations.The

dataandanalysiswepresentbeginstofillinthatlacunaeandprovidessomenovelinsightsinto

whysomeproductsandnotothersmaybetargetedintradeagreements.

Tobegin,wefoundthattheoutcomesofthetariffbargainswerenotinlinewiththe

conventionalwisdom.First,weweresurprisedatthevastdifferencesinstrategyemployedby

nationswhoparticipatedinthefirstGATTRoundandhowsuccessvariedwithstrategy.Wehad

assumedthatdomesticproductionwouldinfluencedemandsfor,andagreementsover,access.

Yet,aswasevidentinthecaseofUS-Frenchnegotiations,productionalonewasnotagood

predictorofasksorresponses.Ourconclusionisthatthemandateofreciprocalaccesswasa

substantialconstraint,eveninthe“ask”stageoftheprocess.Further,whenwelookedatthe

US‘bundles’wefoundthattheothersidewasmostsuccessfulwhentheyaskedforalarge

numberofproductsbutthedepthofthecutswasopenended,areflectionoftheconstraintsof

theUSnegotiatingteam.ThiswasthecaseacrossalloftheUSbargainingpairs,evenwhenwe

controlforthesizeofthepartner’smarket.

Second,thecaseofUS-FrenchnegotiationssuggestsnotonlythattheUSdidnotgive

asymmetricbenefitstowartornnationsbutalso,thatFranceactedintheinterestofcertain

producers,evenwhentheyhadalimitedproductionprofile.Overall,insteadofbeingliberated

fromgrouppressuresasaresultofthewar,wefoundthattheFrenchresistedtradingthe

interestsofproducerswhohadsuffered.TheyneitheropenedupnorsoughtaccessintheUS

marketfortheseindustries.Asaresult,theUSretainedhighbarrierstothesameindustries

thattheywereprotecting.IftherewereexportinterestsinFrance,theyappeartohavebeen

stifledatthenegotiatinglevel.

Third,whilethetraditionalmetricusedforthesuccessoftheearlytradeRoundswas

thereductioninoveralltarifflevels,themoreimportantoutcomemayhavebeenlessabout

increasedaccessandmoreaboutsecurityofaccess.Infact,themajorityofUSconcessionsin

1947werenotcutsinatariffatallbutacommitmenttonotraisethetariffinthefuture,

reflectingtheveryuncertainpoliticalandeconomicerainwhichthesetalksoccurred,bothin

theUSandabroad.

Aretheregeneralinsightsfromthesespecificfindingsonthetariffsettingprocess?We

suggestfour.First,focusingonformalnegotiations,theGATTdatahighlightsthattherulesthat

guidetradetalksmustalignwiththeunderlyingpoliticalconstraintsfacedbypoliticiansat

home.Thismayseemobviousbutiftherulesatthetableareoutofsynchwithpoliticsat

home,treatieswillfail.TheUScasehereisinstructive.Whyaprincipalsupplierrule?Inintent,

therulewasthoughttoassurethattherewouldbenofreeridingbyaforeignproducer,ie.,if

younegotiatedwiththelowcostproducer,youcouldpredictthecompetitiononthemarket.

Buttherulehadapoliticalfunction–itprovidedinformationaboutwhetheraparticular

productfromaparticularnationshouldbeconsideredforatradeswap.IntheUS,

representativeswerewellawareofproducerinterestsintheirdistrictsandsupportedthose

interestsformanyreasons,spanningfromfundraisingtoassuringlocaleconomicgrowth.In

ordertosupporttariffcuts,theyneededtohaveknowledgeofwhetherornotaproducerin

theirdistrictwouldbeeffectedinthebilateraldeal.Therulewasfunctional,inthatthe

representative,ifnecessary,couldattempttopullproductsoffthenegotiatinglist.

Second,theoutcomeontheUSsideofthetablewasfarlessinfluencedbyforeign

policygoalsthanisoftensuggested.WhiletheUSsupportedpostwarreconstructionviaboth

WorldBankaidandIMFloans,theUSdidnotprovideasymmetricaccesstotheUSmarket.At

best,theUSprovidedsecureaccess.Suchaccesswasconstrainedbyasystemofpre-vetting

products,whichopenedthedoorfordomesticproducergroups,andtheirrepresentatives,to

undercuttheweightoftariffreductionsandtheprincipalsupplierrule,whichmadepotential

swapstransparent.Whileservingadomesticpurpose,theprincipalsupplierruleundercut

potentialtariffcutsinproductsproducedbynationswithsmallerexportfootprints.Since

Americannegotiatorswereunwillingtoofferdeeperreductionsonthefewerproductsthat

theytraded,thelesstradeintensivenationsobtainedmorelimitedaccesstotheUSmarket

thandidlargerexporters.

Third,whenbargainingdidoccur,theUSmorelikelyaltereditsoffersbutrarely

changeditsrequests;bargainingontheintensivemarginwasofatakeitorleaveitnatureand

theUSwasmorelikelytoengageinoffersandcounteroffersontheextensivemargin.From

otherwork,weknowthispatternrepeatedinintheTorquoyRound(Bagwell,etal.2015).Is

thissomethingfundamentaltoalltradenegotiations,reflectinghowexportandimport

interestsareevidencedinbilateraltalks?Wethinkso.Inbilateralnegotiations,therangeof

producttrade-offsinthetreatybundlesisconstrained.Nationscometotradetalkswith

specificdemandsandfornationswithatradinghistory,socialpressuresobviatethestrategyof

usingdeepercutsasawaytobalanceanoffer.

Fourth,theGATTtariffhistoryforcesustore-thinktheargumentthattheUSwaswilling

toprovidemarketaccessasacollectiveglobalgood.InsteadtheUSpursuedapolicyofspecific

reciprocity.WhataboutMFN?WhileweagreethatMFNwasaprovisioninalltradetalks,and

isintheory,theguarantorofdiffuse,asopposedtospecific,reciprocity,theprincipalsupplier

rulemeantthatconcessionswerelimitedtothosethatpaid.StudentsofUStradepolicy

historyshouldbeunsurprisedaboutthismercantilistbehavior.Formostofthe19thcentury,the

USnegotiatedtradetreatiesbasedonaprincipalof“conditionality”,thatis,theprovisionthat

tariffconcessionsbeextendedonlytocountriesthatgavetheUSthesameconcession.The

effectwas,inintent,discriminatory,inthatthebilateraltermsofaccessintotheUSvaried

acrosstradingpartners.ItisunsurprisingthatintheirmeasurementofpostRTAAtradeflows,

GowaandHicks(2014)findthatproductleveltradeflowsincreasedonlyamongthe

signatoriesofaUSnegotiatedtradeagreementandnottootherparties.

ThisbilateralfocusonspecificreciprocitydidnotchangewithrisingUSpower,eveninto

the1950sandthebeginningoftheColdWar.Bagwelletal.(2015)wholookatthetrade

negotiationsinthe1950s,provideaninstructiveexampleofUS-Italynegotiations,whereboth

countriesaddedanumberofproductsatthelastmoment–increasingtheextensivemarginof

theagreement.Whilethiscouldhavebeenacaseofathirdpartybenefittothebilateraldeal,

theyinsteadfindthat``these`add-ons’correspondedtotariffconcessionsthatwerealready

agreedtoinotherbilaterals’’toItaly(Bagwell:37,ft21).UnderMFNtheseconcessionswould

havebeenextendedtoItalyattheendofthenegotiationsinanycase,raisingthequestionof

whatvaluetheseadd-onswouldhavetoeitherparty–theseadd-onswerevaluablebecause

offersmadeexplicitinbilateralnegotiationsgrantadditionalrightstoretaliationinthelegal

disputesettlementprocess,thatis,theybecamepotential‘hostages’.18Negotiatorsdidnot

wanttograntanypartyany‘free’rightsthathadnotbeenreciprocatedbutrather,wantedto

makeexplicitjustwhatproductscouldbeheldhostageincaseofreneging.

Iftherewasnobargainingfailure,whatexplainscontemporarydifferencesinaccessthat

havebecomepoliticalfodderforanti-globalizationpolicymakers?Wesuggestfourpossible

routes,eachofwhichrequiresfurtherinvestigation.First,theprocessofaccessiontotheGATT

didnottotallyequilibratebenefitsofmembershiptothenewentrant.BagwellandStaiger

(2011)findevidenceofcountry-levelfreeridingintheaccessionprocess.Thiswasnotjusta

failureonthepartoftheGATTtodemanddeeperliberalizationbutarecognitionofthe

difficultyofgainingdomesticsupportforliberalizationintheabsenceofaprocessofiterated

reciprocity(DavisandWilf,2012).Second,theUSnotonlyallowedex-coloniestoreceiveMFN

privilegesasnon-memberparticipantsbutdidnotvetotheinclusionofpartIVoftheGATTthat

providednon-reciprocalpreferentialtreatmenttothedevelopingworld(Goldsteinetal.2007).

Third,theUSdidnotdissuadethecreationoffreetradeareas,evenwhentheywere

inconsistentwiththeGATTrules(Bartonetal,2007).Andfinally,asthenatureofinternational

productionchanged,MFNhadamultipliereffectandthebenefitsofaccesstotheUSmarket

spreadtonationswhowerenotthelowcostproduceratthetimeofthenegotiation(Imai,Kim

andLiao2017).Noneoftheseeventsneededlegislativeapprovalandnonecreatedthevisibility

thatwouldleadtothemobilizationofproducers.Infact,assupplychainsmultipliedintomore

nations,theinterestsofproducersthemselvesbecameattenuated.19

Returningtoourinitialquestion,wastheUSpartyto‘bad’tradedealsbecauseof

participationintheearlyGATTregime?Thesimpleanswerisno.Intheperiodcovered,wefind

18Insteadofdiffusereciprocity,theysuggestthattheGATTmembersfollowed`multilateralreciprocity’–ageneralizednotionofbilateralreciprocity,whichincludesthepossibilityofabalancedagreementbetweenthreeorfourcountries.InthislaterRound,severalcountriescouldtogetheractastheprincipalsuppliersoftheproduct,andjointlyexperienceanequalincreaseinthevolumeofexportsandimportsaftertheexchangeoftariffconcessions.Withthismodifiednotionofthebargainingunit,concessionsarepaidforinkind,justnotalwaysbyonepartner.19In1982,reflectingonpostwarpolicy,StephenKrasnernotedthatscholarsshoulddifferentiatepostwarmonetaryandtradepoliciesbythelevelofinterestgroupinvolvement.Hearguedthattheformerwasmoremalleableforforeignpolicygoalsthanwasthelatter,aresultoflegislativeinvolvement.ItappearsthatpolicyshiftsintradethatoccurredoutsideoftradeRoundsandisolatedfromlegislativeoversightmay,infact,bethearenainwhichscholarscanfindglobaltradeleadership.

littletofaultinGATTtreaties.TheearlyGATTcreatedaniterativebilateralbargainingsystem

thatassuredbalancedconcessions.Thecreationofequaltradebundleswasassuredbythe

vettingofproductsexanteandtheagreementsweresustained,expost,byeachholdingthe

productsoftheotherhostage.Renegingcouldoccurbutitwascostly,andrequiredonesideof

theothertoeitherofferaconcessiononanotherproductforthebundletomaintainbalanceor

topulloutofaconcessionandthushurtanexporterintheothernation.Thediffusionoftrade

acrosstheentiremembershipwasnotthegoaloftheearlyGATT.Rather,itsrulespushed

participantstoagreetodeeperaccessforspecificlowcostexporters;othernationshadlittleto

benefitfromtheoverallreductioninthetariffonproductstheydidnottrade.Thosewhosee

theearlyGATTasanythingmorearemistaken.

Appendix:DataCollection1947GATTNegotiationhistoryhasrecentlybecomedeclassified.Thenewpublicrecordincludesalloffers,responsesandfinalconcessions.Theproductlistsaretiffdocumentsandnotsearchableincurrentform.Forthisprojectwehandcodedtheinitialrequests,thecounteroffersforallpartiesandthefinalconcessionsbytheUS.Requests:AllthebilateralrequeststopartiestotheGATT47werecodedbyproduct,requesttypeandrequestamount.Beneluxcountrieswerecodedseparatelybutformostoftheanalysistheyweremergedintoonenegotiatingunit.Intotal,16countries’offerstoeachotherisincludedinthedataset.Offers:Allbilateralofferswherecodedbyproduct,offertype(reductionorbinding)andamount,ofthenationscodedforrequests.USTariffScheduleTheUStariffschedulepost-GATT(theUS’Protocol)wascodedbyindividualnegotiatingrights(INRs)fromtheRound.ThisincludesallproductsthatwerenegotiatedduringtheGATT49RoundandwhichnowwereavailabletonationswithMFNbenefits.Aseparatetariffschedulewascompiledofallproductsthathada50%AVtariffin1929-30.ThistariffscheduleincludedreductionsfromthebilateraltreatiesineffectbeforeGATTaswellastheGATTreductions.INRs,orthenegotiatingnationthatleadtotheloweredratewascodedalongwiththeamountofreduction.See[AUTHORS],2014,forafurtherexplanationofthecodingrules.

Frenchindustrialemploymentandconcentrationin1946

Industry Employment1946Herfindahl-

HirschmanIndex WWIIBombShare

AGRICULTURE 7589621 0.01 2.63

HEALTH 2282771 0.03 2.80

METALLURGICAL 1774087 0.05 2.78

TRANSMISSIONS 1460207 0.03 3.32

CONSTRUCTION 1190124 0.02 4.01

HYGIENE 897125 0.03 2.84

GroceryStores 796860 0.02 3.19

SHOPS 759794 0.05 2.77

IRREGULARCommerce 709215 0.02 3.02

ASSORTED 669817 0.05 2.43

CLOTHING 557316 0.03 3.01

HOSPITALITY 542403 0.04 2.91

MANAGEMENT 526619 0.08 2.26

OTHER 504011 0.05 3.15

FOOD 498446 0.02 3.61

TEXTILES 496563 0.08 5.37

COMMERCE 366599 0.04 3.14

LEATHER 324135 0.02 2.55

CHEMICAL 292112 0.05 2.74

FUELS 279478 0.23 15.20

WOOD 270333 0.03 2.35

PRINTING 195987 0.07 2.21

STEEL 183903 0.06 4.43

WATER 155105 0.04 3.25

LUXURY 113038 0.05 2.04

CERAMIC 101380 0.03 3.99

PAPER 93367 0.05 2.90

EXTRACTION 84939 0.05 2.37

BROADCASTING 63970 0.1 1.92

GLASS 48381 0.05 4.12

OIL 20353 0.06 3.68

RegressionofUSproductleveltariffsonFrenchdomesticfactors

French Products Highly Protected

Bombshare -0.559*** 0.114

(0.141) (0.091) Bombshare2 0.067*** -0.012

(0.017) (0.011) France 1.392***

(0.340) Bombshare *France -0.673***

(0.176) Bombshare2*France 0.079***

(0.021) Constant 1.177*** -0.215

(0.273) (0.172) Observations 154 495 R2 0.095 0.090 Adjusted R2 0.083 0.081 Residual Std. Error 0.124 (df = 151) 0.133 (df = 489) F Statistic 7.882*** (df = 2; 151) 9.730*** (df = 5; 489)

Note: *p<0.1; **p<0.05; ***p<0.01

RegressionofFrenchproductleveltariffsonFrenchdomesticfactors

Dependent variable:

French tariff concessions as a proportion of requests

(1) (2) (3) Bomb Share -0.44*** -0.76*** -0.76***

(0.16) (0.16) (0.16) Bombshare2 0.05** 0.09*** 0.09***

(0.02) (0.02) (0.02) Applied Rate 0.005*** 0.01***

(0.001) (0.001) US Ask -0.09**

(0.04) log(Employment) -0.05*** -0.05***

(0.01) (0.01) Constant 1.03*** 2.23*** 2.26***

(0.28) (0.31) (0.31) Observations 729 729 728 R2 0.03 0.14 0.14 Adjusted R2 0.03 0.13 0.14 Residual Std. Error 0.23 (df = 726) 0.22 (df = 724) 0.22 (df = 722) F Statistic 12.99*** (df = 2; 726) 28.99*** (df = 4; 724) 24.06*** (df = 5; 722)

Note: *p<0.1; **p<0.05; ***p<0.01

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