Richard Schüller, The ITO Charter (1948)

Richard Schüller’s journal article evaluates the International Trade Organization charter signed at Havana and the tariff agreements intended to give it practical effect. Written in anticipation of ratification and implementation, it offers a qualified defense of international trade cooperation. Schüller rejects the charge that the charter imposes inflexible liberalization on economies requiring reconstruction, development, or national planning. Its weakness is almost the reverse: exceptions dilute its principles so extensively that its success must depend on institutional supervision and negotiated concessions. The article’s three sections move from an examination of these exceptions to the ITO’s proposed authority and finally to the agreements incorporated in the General Agreement on Tariffs and Trade.

The first section distinguishes critics who regard the charter as ineffectual from those who fear its economic and political consequences. Against the latter, Schüller tests the purported rigidity of its rules against their actual provisions. Although quantitative restrictions are prohibited in principle, exceptions cover customary regulatory purposes, agricultural surpluses, and, most importantly, balance-of-payments difficulties. Since such difficulties affect nearly every country, the exception permits restrictions on a vast scale. Even nondiscrimination is qualified by allowances for monetary shortages, existing Commonwealth arrangements, and currencies declared scarce by the Monetary Fund. Dollar scarcity consequently permits discrimination against American exports.

Tariff obligations likewise preserve considerable national discretion. Existing preferences remain admissible; their reduction requires negotiated compensation; and new preferences can receive authorization for development, reconstruction, or movement toward customs unions. Schüller thus separates the charter’s stated objectives from its operative constraints. Most-favored-nation treatment cannot ensure equal market access where discriminatory quotas remain permissible.

The charter, as we see it, is far from enforcing on the member countries a rigid most-favored-nation formula with respect to tariffs.

His treatment of planning extends this argument. The charter accommodates state enterprises and trade monopolies, pledges members to pursue full employment, encourages industrial development and capital flows, and provides for intergovernmental commodity agreements. Commercial conduct and willingness to negotiate are, in his judgment, comparatively light obligations.

But the charter does not interfere with national planning; it takes account of state enterprises, of trade monopolies of certain products, and of complete trade monopolies.

Schüller then shifts from textual interpretation to a polemical explanation of opposition. He attributes convergent attacks from communist governments, Latin American representatives, and European politicians partly to resentment of American productivity and dependence on American assistance. This is his explanation of critics’ motives, distinct from his demonstration of the charter’s flexibility. He also challenges their economics: countries dependent on exports have an interest in expanding trade, while exchange controls and quotas need not be indispensable instruments of industrial protection. Recalling their use during the 1930s to prevent capital flight, preserve artificial exchange rates, and ration foreign currency, he argues that they diminished exports without replenishing reserves. Yet he acknowledges the charter’s tolerance of these instruments during transition and, conditionally, afterward.

The second section locates the charter’s possible effectiveness in the ITO’s power to govern exceptions. Drawing on twelve years of experience in the League of Nations Economic Committee, Schüller values international consultation while recalling its inability to arrest Depression-era protectionism. The proposed ITO would possess more specific responsibilities: reviewing restrictions, hearing complaints, recommending their withdrawal, and authorizing affected members to suspend obligations. It would also supervise commodity agreements, assess development-related exemptions, and respond to failures to negotiate tariff reductions.

This incomplete survey may suffice to show that the charter assigns to the ITO many important specific functions and thus provides it with the authority to rule on the exceptions and escape clauses, which could nullify almost all obligations assumed by its members.

The conceptual move is from liberalization through categorical rules to liberalization through administered discretion. Exceptions need not destroy cooperation if an international institution can judge their justification and organize reciprocal adjustment. The central dispute at Havana therefore concerned whether national commercial policy would remain entirely sovereign or become subject to meaningful international scrutiny. Compromise preserved an institutional role, but its exercise would depend on members’ interests, majority voting under state equality, and the competence of the executive board and staff.

The final section assesses material commitments rather than institutional promises. The 123 Geneva agreements involved 23 nations representing over two-thirds of world trade. American concessions covered roughly 88 percent of prewar imports, including duty-free bindings, unchanged tariff bindings, and reductions. Schüller distinguishes these commitments from their likely effects: a wheat-duty reduction matters little while the United States exports wheat, whereas lower duties on other goods may stimulate imports. Reciprocal concessions opened markets for American manufactures, but safeguards—including the American injury escape clause—qualified these gains.

Schüller’s conclusion remains conditional. Quotas and exchange controls matter more immediately than tariffs, so rapid liberalization is unlikely. The charter’s importance lies instead in establishing procedures and commitments that might prevent renewed destructive competition among national trade policies.

We should therefore not pitch our expectations too high.

The article presents freer trade as a possible long-term achievement of sustained cooperation, dependent ultimately on peace. Its distinctive contribution is to locate the charter’s promise neither in uncompromising rules nor in unrestricted national autonomy, but in the uncertain capacity of international institutions to discipline exceptions.