Bretton Woods at 75
In July 1944, 45 nations met at Bretton Woods in New Hampshire to discuss plans for the post-war monetary order, and to create the International Monetary Fund and International Bank for Reconstruction and Development. Discussions on trade soon followed with the negotiation of the General Agreement on Tariffs and Trade in Geneva in 1947. This post-war multilateral order was largely an American creation to prevent ‘beggar my neighbour policies’ of currency depreciation and trade warfare, and to create a balance between economic nationalism and the pursuit of globalisation. Now, 75 years later, President Trump is challenging these multilateral institutions and threatening a return to economic nationalism. At the same time, Brexiteers appeal to article 24 of GATT which they (wrongly) claim will allow a transitional trade deal with Europe, and proclaim the virtues of ‘a bright future based on World Trade Organisation rules, the body that succeeded and incorporated the GATT.
There are a number of ironies in appealing to multilateral institutions at same time as Trump is undermining them. The WTO is weakened by Trump’s refusal to appoint new members of the appellate body which settles trade disputes; he is taking back control from Geneva. Yet Brexiteers are willing to surrender sovereignty to the WTO’s judicial body despite seeking to take back control from Brussels. As the United Kingdom leaves the EU it needs to join the WTO, with all the 164 members agreeing. It is likely to be a long-drawn out process that will allow other members to make demands as a condition for entry. Argentina, say, might agree to UK membership on condition that the oil around the Falklands belongs to them. And why would a country of 60 million inhabitants be able to secure a better deal than as a member of one of the largest trading blocs in the world? Why should leaving the EU allow the UK to secure larger markets in growing economies such as China when Germany already exports more to China within the EU. The UK will be in a weaker position outside the EU. For example, it will fall outside the deal between Japan and the EU which allows cars to be imported into the EU duty free. As a result, it becomes more advantageous for a Japanese car producer to shift production either to the EU or back to Japan than to pay duties on cars exported from the UK to the EU – particularly given the threat to integrated supply chains and just in time delivery. Unfortunately, the Brexiteers’ repeated appeal to WTO rules is not challenged by television journalists – and trade lawyers are rarely invited to provide a clear explanation.
Rather than the current obsession with leaving the EU, what we need is serious discussion about global public goods and how to cooperate with others in ensuring their delivery. In 1944, the focus was on currency stability as a precondition for growing trade. Now, we do not consider that fixed rates are necessary but the Bretton Woods agreement did allow controls on capital and was wary of financial liberalisation. The IMF is now returning to a more critical approach to finance, and also realises that there is a need to reform international taxation, control the rent-seeking behaviour of large tech firms, to take action on climate change. The EU is taking the lead on some of these issues, no least action against the large tech companies, and the UK would have a larger voice as a member. Action of taxation of global companies would produce more revenue than the spurious Brexit dividend, and could be used to rectify the balance between the winners and losers from globalisation, and to invest in education and health. The existential issue of climate change demands global cooperation, and again the ability to enforce a deal is more likely if the EU can act as a bloc. Brexit is detracting from these more significant concerns and marginalising the British voice.