In reality the Havana Charter for an International Trade Organization was only ratified by two countries (not including the United States), but what if it had gained acceptance and been ratified by all the signatories? Would the last 60 years of economic development differ greatly with an ITO? To answer these questions return to the 1940’s of Asia and its developing economies. With an emphasis on China it is important to understand what was happening economically and politically at the time of hypothetical ratification. Once the ITO has been ratified a look must be taken at the immediate changes that take place among the participating members and non-members. What pressure does exclusion from the Charter place on countries of Asia?
The world of the 1940’s was marked by worldwide political and economic upheaval. The United States and its Western allies were battling the Soviet Union all around the globe to win the hearts and minds of the people. The ‘West’ offered freedom, liberty, and free markets, while the Soviets offered equality and protection from the capitalist invaders. Nowhere was this issue more prevalent than in East Asia.
East Asia of 1949 was undergoing significant changes and was beginning to emerge on the international scene as a major point of conflict between the Soviets and their Western enemies. Communist and Nationalistic thought began to permeate throughout the entire region as the citizens of Asia attempted to throw off their European Imperialist shackles. It is important to look at the major players in the region and see how they arrived at their political and economic state of 1949.
In the 1930’s Japan was beginning to emerge as a global economic and military power and desired most of all to rid itself of the European and American Colonialist. One of the main problems that Japan faced was its lack of natural resources and its dependence on imported food. To solve these problems the nation’s leaders developed a plan to create a ‘Greater East Asia Co-Prosperity Sphere’ meaning an Asia without ‘Western’ participation. This sphere of prosperity was of course to be headed by Japan as the hegemonic power of the region. Each country would cooperate economically within the specified area with an aim to promote peace and prosperity. The anti-communist government of Japan would support the nationalist movement without provoking ‘premature independence movements’.
With the growing scale of war the Japanese government realized that it would need to acquire from these regions the resources necessary to meet their needs. The problem they faced was how to achieve this without stoking the already fiery anti-Japanese sentiment that existed in most of Asia. In the end though, the most successful tool used was that of invasion and occupation.
The jewel of Japan’s eye was the large resource rich territory known as Manchuria. Even early commentators saw the importance of controlling this area. In Japan’s Dream of World Empire: The Tanaka Memorial Premier Baron Tanaka asserts, “The important appurtenant enterprises of the South Manchuria Railway are: 1. Iron and steel. Iron and steel are closely connected with national development. Every country today attaches great importance to it.” Premier Tanaka goes on further to explain the other vast resources contained in Manchuria and the benefits they would provide to the Japanese effort. The emperor was eventually convinced of the advantages and the Japanese plans of conquest began.
With the beginning of World War II Japan was presented with more opportunities to expand its empire. From late 1940 to June of 1941 the island nation was able to establish control over most of the East Asian nations. Appeasing the controlled territories by promoting their own customs and religions was one of the better accomplishments of the Japanese government during the war. The biggest problem faced during the conflict was that same governments inability to ‘substitute for the world economy and keep trade going at its customary level’. With many of the occupied nations experiencing malnutrition and a lower standard of living it is easy to see why the Japanese war machine eventually broke down.
The end of World War II brought shame and embarrassment to the Japanese people and damaged their belief in their own superiority. Soon the country would be faced with the occupation forces of the United States under General MacArthur and many feared retaliation by the Americans. After time though, as Shigeru Yoshida states, “…another was the fact that the American Military personnel who came to Japan with the occupation were well disciplined and friendly. This made a deep impression upon the Japanese people, who-in a phrase often heard at that time-“had expected the worst and it never happened.””. With some of the animosity dying and the threat of communist Russia strengthening the United States and Japan embarked on the rebuilding of the historic nation.
The years leading up to the hypothetical ratification of the Havana Charter for an International Trade Organization were hard on the Japanese people. Immediately following the war the black market began to rear its ugly head and many of the government stockpiles were stolen either by military officers or by large corporations. The result of this was the majority of people were living on less than 2000 calories a day. The Premier of Japan at the time reflected later that, “To make matters worse, 1945 proved a bad crop year for rice; it was widely feared that before the harvest of 1946 became available as many as 10 million people might die of starvation or malnutrition.” It is important to realize that directly after the war, Japan’s naval and maritime fleet was non-existent, thus making it nearly impossible for the country to import the goods it needed. The first priority for the new Democratic Japan was to provide sustenance for its people.
1947 was the year that many agree the Japanese economy began its initial turnaround. Not the least because of visionary thought such as the following statement by Premier Yoshida:
I initially felt that Japan’s domestic economy must necessarily be profoundly
influenced and shaped by world economic conditions. Japan had lost nearly
half its territory and dissipated much of its accumulated wealth…The economy
could be restored to health only by exposing it to the international environment
and by enabling our industries to compete with other trading nations on their
own terms.
The recognition that Japan’s economy could not grow at the desired rate without participation in international markets is a key turning point in Japanese economic thought.
If the signatory countries had ratified the ITO in 1949 I doubt that Japan could have avoided the economic follies that would have immediately followed. One such policy mistake was the ‘Dodge Line’, which sought to increase Japanese exports, increase taxes on the working people, decrease the size of the working force, all in an attempt to balance the country’s budget deficit. As history shows the result of this failed plan was a deep economic recession.
The outbreak of war on the Korean Peninsula and Japan’s modernization of its manufacturing facilities shifted the Japanese economy into full force. The ‘Korean war procurements’, which mainly came from Japan, helped stimulate production on a large scale. Seiyama Takuro gives a great example of this in Japanese Capitalism Since 1945 when he states, “By June 1951, one year after the outbreak of war, the index of manufacturing production (in real terms) was 50 percent higher than it had been in June 1950.” This extraordinary growth and the economic independence that the Korean War helped foster no doubt would have eventually led to Japan’s ratification of the ITO.
Korea in a little over a century went from a little known ‘Hermit Kingdom’ to the center of Western versus Chinese-Soviet conflict. Before 1945 the kingdom was unified as one country, but after the war ended the United States and Soviet Union decided to divide the country along the 38th parallel. With little thought of the desires of the Korean people or the economic interdependence of the land, the line was drawn, and a march toward war had begun.
In 1949 the Soviets placed Kim Il Sung in power who was widely regarded as a ‘Stalinist of the Stalinist’ and was quoted as saying, “All the most precious and best things in life of the Korean people are related to the name of Stalin”. So devoted to the communist thought was Kim Il Sung that his country even adopted the hammer and sickle of the Soviet Union as its symbol. As many regard his son in the present, Kim Il Sung may have suffered from delusions of grandeur. At one point there was a 60-foot tall statue built in his likeness, which was overlaid in gold and faced his enemies to the south. As Stanley Sandler so eloquently puts it, “as hack party-line scriveners later solemnly proclaimed that the trees on mountain tops would bow in respect as Kim’s airplane passed overhead.” It is important to understand this element of the ruler of the north when the hypothetical effects of the ratification of the ITO are explained. The South is a whole different animal than the north. With the larger of the two populations and very little of the manufacturing ability, its rise economically will be crucial in showing the benefits of the ITO and the free-market theory.
As with the ‘Dodge Recession’ it doesn’t seem that the Korean War could have been avoided just one year after of the ratification of the ITO. So it will have to be assumed that the outcome of that conflict would not have changed. The communist momentum in the north and in China were too great to have shown those people the benefits of international trade on a Most Favored Nation basis.
China is one of the main reasons for the inability to avoid war on the Korean peninsula. Since China and the effects of the ratified ITO are the main focus of this paper a more in-depth study of the years prior to 1949 is necessary. The political and economic turmoil in this nation were arguably the greatest among all Asian nations. Communist Mao was involved in a bitter struggle with his nationalist rival Chiang Kai-shek for complete control of Mainland China.
The 1920’s and 1930’s were a tale of two different China’s. One the one hand you had the rapidly developing costal regions and on the other you had the poorer agrarian population. China was a developing country and was in desperate need of foreign investment in its infant industries. Unfortunately it was also during this period that the world was in a deep economic depression and larger nations such as the United States were virtually uninterested in investing in the Chinese economy. The foreign banks that were operating in the country were only willing to loan to the coastal and larger cities and not to the poor peasantry. It is this type of disregard for the poor farmers of the region that lent strength to the communist movement and gave rise to a man such as Mao.
Chiang Kai-shek was Mao’s greatest rival and head of the Nationalist movement in China. His government was aided by American interest and this was a problem for the average Chinese. China was quickly becoming irritated by the colonial powers that were occupying its land and consuming its natural resources. Edwin P. Hoyt describes Chinese attitudes towards the United States when he writes, “But just as large an impact in China was made by American businessmen, who sold oil and groceries, ran newspapers and insurance agencies, shipping lines and cable companies, and who were perceived by the Chinese to be part of the Colonial establishment of Europeans who dominated the treaty ports in the nineteenth and early twentieth centuries.”
Not only was Chiang Kai-shek’s government unable to address the needs of the average person in China it was also ineffectively dealing with the Japanese threat. Japan had already conquered Manchuria and renamed it Manchoukuo and was now pressing further into all of Asia. Chiang’s government lacked the resources to fight an effective campaign against a developed nation such as Japan. Nearly 50 percent of the revenues collected by his government came from Maritime Customs, and he found it virtually impossible to collect any tax revenue from the countryside. With Chiang’s lack of finances, ineffective government and military, Mao began to look to the future and the collapse of the Kuomintang. People in China were tired of the divided nation and sought unity to end the oppression of the Japanese. Robert Kuhn states some of the atrocities of the Japanese in The Man Who Changed China, “In 1943 Nanjing was under the tight control of the Japanese, who employed the infamous Three All policy-Burn All, Kill All, Take All-to control the Chinese.”
Another aspect of failure by the Nationalist movement was their insistence on not cooperating with the communist in a joint effort to defeat the Japanese. A good example of this was the November 1944 draft that was sent to the Communist and Nationalist. It stated five points of agreement between the two parties and they were as follows; Unification of military forces, Coalition government, Return to the Sun Yatsen Three Principles of the People, Obedience of the military forces to the coalition management, Recognition of the legality of the Communist Party. With Mao and the Communist already agreeing to the draft. The prudent thing to do would have been to accommodate the demands for unity in the face of the Japanese invader, but instead the Kuomintang and Chiang not only refused the draft but also demanded that the Communist turn over their forces to the Nationalist Party.
Mao saw the divisiveness that was spreading throughout China and devised a brilliant campaign for the eventual Communist takeover. Japan was in control of Manchuria and Mao decided to approach the peasantry living there and ask for their help. By establishing strongholds in occupied lands and pursuing the average farm workers in China the Communist were in perfect position to make their move upon the ending of the war. Although the Communist and Mao claimed to be for the common worker, there were darker sides to the Party’s actions.
In October of 1949 Mao announced before a large crowd in Tienanmen Square that ‘Never again will the Chinese be an enslaved people’ and proclaimed Communist victory. The next year and a half would be a traumatic time for the Chinese people as the Communist implemented their ideas of change. According to David Pietrusza in The Chinese Cultural Revolution, “Immediately after seizing power, the Communist sent twenty million people-convicted of being landlords, rich peasants, counterrevolutionaries, or bad elements-to prisons and labor camps.” With brutal tactics such as these the Chinese Communist Party seized control with an iron grip on the country. Land and Industry were wrested away from the middle-class and wealthy and redistributed to the people working the land and the government respectively. The counterrevolutionaries were not so lucky. Some reports estimate that the Communist government executed anywhere from one million to two million of those who had fought against Mao’s army. With China under Communist rule, it is now important to see how China and Asia would have changed with the ratification of the ITO.
One of the greatest and most important differences between the GATT and ITO is the ITO’s clause mandating Most Favored Nation treatment to all members. Article 16 of the Havana Charter states the following:
…any advantage, favour, privilege or immunity granted by any Member to
any product originating in or destined for any other country shall be accorded
immediately and unconditionally to the like product originating in or destined
for all other Member countries.
This fact is crucial when the future interactions between China and the rest of Asia are investigated. Countries goods that are traded among signatories of the Havana Charter will be far more competitively priced in comparison to those countries that chose not to participate.
Another economic advantage to countries participating in the ITO, that was not present unilaterally in the GATT, is the attraction of Foreign Direct Investment. Whereas the GATT left countries to bargain amongst themselves, the ITO provided the following in Article 12, Section 1, Sub-sections (a) & (b):
(a) international investment, both public and private, can be of great value
in promoting economic development and reconstruction, and consequent
social progress;
(b) the international flow of capital will be stimulated to the extent that
Members afford nationals of other countries opportunities for investment
and security for existing and future investments;
Even though there are later clauses that allow countries to protect themselves, the benefits received by allowing Foreign Direct Investment (FDI) and protecting that investment are key to the development of the global economy.
The following two Articles of the Havana Charter are going to play a central role in the analysis of the future of China, East Asia, and the ITO, if the ITO had been ratified in 1949. The economic pressure the Charter will place on non-signatories will be great and will change the future of Asia as a whole.
One of the first major changes in history that would have occurred if the ITO had come into existence would have been Japan’s ratification and joining of the organization. As former Premier of Japan Shigeru Yoshida states, “On April 28, 1952, at 11 P.M.-the hour at which the treaty became effective-the occupation ended and Japan regained its independence.” There are many reasons to think Japan would have joined the ITO following gaining independence from the United States and its allies. One such reason is the United States’ heavy influence in the Japanese economy and politics. If the United States pushed hard enough for the Havana Charter it would seem almost impossible for the government of Japan to refuse.
The United States was very influential in the rebuilding of Japan following World War II. As the authors in Japanese Capitalism since 1945 state, “It is a fact, however, that the development of Japanese capitalism in the high-growth era was based upon access to the raw materials, energy resources, technology, and markets of the United States, and that even today the relationship between the two countries is a close one.” Given the highly involved economic nature of the relationship between these two countries it is evident that Japan’s future was inextricably linked to that of the United States.
With the Most Favored Nation (MFN) treatment being offered to Japan it products would be given access to more than fifty markets around the globe without unfair tariffs. It may also be assumed that with the growing export market now afforded to the Japanese economy, that the industrial complex would have been switched from a militarized base to a civilian products base.
The recovery of Japan would have happened much more rapidly with the infusion of FDI that would have occurred following joining the ITO. Even before ratification Japan witnessed the benefits of allowing its economy to be influenced by international markets and the credit and investment they contained. The technological and financial investment that would have occurred during the 1950’s would have soon made the Japanese economy a competitor of the United States much sooner than actually occurred.
North and South Korea will only be dealt with shortly here, as there futures would have likely been tied closely with those of China and the United States respectively. Following the end of the war, Korea was split into two separate countries with the North following the Communist economic system and the South adapting to American Capitalism. With the signing of the ITO Charter by countries such as Australia, India, and Japan, it would seem probable that the South Koreans would follow suit and join the ITO. If they elected not to ratify and join, their goods would be discriminated against in member territories and likely hurt their economic growth. So for arguments sake it will be assumed they have joined the ITO.
China of the 1950’s will look much the same as it did if the Havana Charter had not been ratified, but it is important to look at the reasons why little change would have occurred. 
Following the takeover of China by the Communist many reforms were undertaken that the majority of people applauded. China had a long history of the subjugation of woman, but the Maoist government sought to change that. In 1950 the Communist passed The Marriage Law which according to Jean Chesneaux in China: The People’s Republic, 1949-1976, ‘Through the institution of marriage, which from now on was based on equality and free mutual consent, the position of women in society was vastly improved.” Women of China were now free, for the most part, from their historical second-class position, and this undoubtedly strengthened their admiration for the Communist Party.
Another tactic used in 1951-52 by Mao’s party was the ‘reshaping of the intellectuals’. Mao sought to teach the intellectuals about the revolutionary movement by having them meet with the farmers and peasants and learn the story behind their struggle. The intellectuals were to learn that these same peasants were their equals, and that the positions they had occupied prior to the Communist takeover were ‘privileged’. This position by the government would have accomplished the same as its position regarding women had accomplished, and that is the support of the vast peasant and farming population.
Much of the proceeding is an explanation of why China would have stayed on the course it had even if the ITO had been ratified by fifty-four (hypothetically fifty-six) countries, but there are more economic reasons for its inaction. China was experiencing a period of explosive economic gains and people’s quality of life was increasing.
The Communist government was able to strengthen the industrial base by repairing old plants and building new ones. From the year 1949 to 1952 the following table shows the growth in industrial production of several industries:
PRODUCTION 1949 1952
Steel (tons) 158,000 1,350,000
Coal (tons) 32,430,000 66,490,000
Crude Oil (tons) 121,000 436,000
Cement (tons) 660,000 2,860,000
Electricity (Kwh) 4,310,000,000 7,300,000,000
The government also greatly increased the capacity of China’s infrastructure by repairing roadways and increasing the amount of railway from 21,715 to 24,232 kilometers. Astronomical growth such as this gave legitimacy to Mao’s party and helped to solidify Communist rule.
Although there were many advances by the Chinese government during this period it was not without its shortfalls. One of the main problems that Chairman Moa encountered was that of an inefficient food supply. Many of the peasant farmers were starving and this was becoming a problem for his government. As a way to combat this problem Mao’s government put more pressure on farmers to join the collective farming communities. As the authors in EAST ASIA: The Modern Transformation state, “Within less than a year, by May 1956, nine-tenths of the peasantry were reported to have joined the cooperatives, which were soon being asked to move on to the “higher” level of socialized agriculture by turning themselves into full collective farms.” This Mao hoped would help ease the problem of starvation that was plaguing his nation.
Setting aside the food shortage issue, the Communist government had made many economic strides and was insistent on even more and broad change. The new brainchild of Chairman Mao was to be called ‘The Great Leap Forward’. This disastrous policy in combination with the ratification of the Havana Charter would have forever changed China’s future.
‘The Great Leap Forward’ and the emotion behind it are best characterized by Jean Chesneaux, “a people that was active, free of prejudice, animated by a just political orientation, and therefore capable of accomplishing in two or three years of exceptionally hard work “a general transformation toward better conditions in almost all regions of the country,” and quantitative and qualitative leap that would allow China to overtake the most advanced countries in Western Europe.” Unfortunately for the Chinese people this was a sad overstatement of the ability of the policy to enact such great change.
The problem with the decentralization of economic management was that it lacked the benefits of economies of scale. While the Western world was building larger and larger factories that required less human capital input, China’s ‘Great Leap’ tried to increase the output of such commodities as steel by using small and inefficient backyard smelters. But these weren’t the real evil behind Chairman Mao’s new future for China.
The ‘Great Leap’ was filled with tragedy and death. Mao put pressure on local authorities to overestimate their ability to produce food and once the harvest came in they were again force to lie about output. The lies didn’t end there. In order to maintain the appearance of success and to pay for his dream of China becoming a superpower, Mao confiscated what food he needed from the malnourished countryside and sold it on the world markets. The end result of this policy of ‘starvation for the good of the nation’ was the death of 38 million Chinese peasants. It is on this backdrop that the changes brought by the ITO must be examined.
As noted earlier Japan’s economy and that of South Korea would have developed much more rapidly with their participation in the ITO. The economies of India, Australia, Japan and South Korea would be engaging in trade on a MFN basis with each country enjoying the benefits of lower prices and increased competition. The economic benefits each countries infrastructure would have received from FDI would help accelerate the growth of industry.
With that in mind, the Chinese people were in a state of chaos after ‘The Great Leap Forward’ failed to come close to its goals. It is based on this fact, coupled with the newly emerging economic powerhouses of the region (Japan, South Korea, Australia and India), that the Chinese people would have been pushed to revolt.
The Chinese economy could no longer compete with the ITO members in price or production capabilities, and their products would not have received the same tariff treatment as participants in the ITO would have received. The member countries of East Asia and India would have already been receiving FDI from wealthier Western countries for more than a decade, which would have enabled their respective economies to grow at a much faster rate than the Chinese. The Chinese on the other hand suffered from a lack of government funds, which left many industries without the capital necessary to improve and grow. These market forces and the will of the people would have been enough for the people to rise up and overthrow the Communist regime in around 1962.
Once the Communist regime had been overthrown the next couple of years would have been a struggle for the Chinese people as they attempt to revert to the capitalist system in place before Mao and the Communist. Once this occurred it is certain that the new Chinese government would want to fast track its ratification of the Havana Charter for an International Trade Organization.
Once ratification had taken place the Chinese economy would have finally been able to benefit from international trade on a MFN basis. The production elements of their economy would have been subject to Article 5 and ‘Exchange of Information and Consultation’ of the ITO Charter, and would thus have provided some insurance to foreign investors. With investor’s worries of transparency soothed, the FDI in China would have increase exponentially as markets began to see the potential of the Chinese people. China would have been set on a path toward modernization and its economy would have begun to catch up with its Western counterparts.
The implications of the fall of Communist China in the early 1960’s are overwhelming. Not only would its fall have put great pressure on the Soviet Union, but also altercations, such as the Vietnam War, may have been minimized or avoided altogether. The economic prosperity that would have been enjoyed by the Asian economies that were members of the ITO would have in effect forced non-members to join the organization. In time, with all of Asia now members of the ITO, the Soviet Union would undoubtedly begin to feel the crush of the market forces and eventually fall as happened in Berlin in the late 1980’s.
With the ITO now attaining near worldwide participation its functions and scope would need to change. Once the world’s economies have adopted the rules and principals that are contained within the Charter it is fairly certain that many if not all barriers to trade would fall within time. After this has occurred, the ITO would likely cease to exist and be swallowed up by the United Nations, or be relegated to a Dispute Settlement Body that would occasionally deal with certain trade issues.
If the ITO had been supported by the United States the world would have been a drastically different place than it is today. Communism would not have maintained a strangle hold over so much of the globe for such a great period of time. With trade issues being the one of the main reasons for war, peace would have likely been much more of a commonality. While there would definitely have been a great disparity in the gap between rich and poor, the overall quality of life and political stability around the globe would have much greater than it is at present.
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