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Max Planck Encyclopedia of Public International Law [MPEPIL]

Havana Charter (1948)

Giorgio Sacerdoti

History of international law — Technical barriers to trade — National treatment — Most-favoured-nation treatment (MFN) — Subsidies — Tariffs — International investment law

Published under the auspices of the Max Planck Foundation for International Peace and the Rule of Law under the direction of Rüdiger Wolfrum.

A.  Introduction

The Charter for an International Trade Organization (‘Havana Charter’) consisted of a series of extensive commitments between governments on substantive questions in trade covering disciplines such as employment and economic activity. Although the Charter never came into effect, the negotiations did produce the General Agreement on Tariffs and Trade (‘GATT’ [adopted 30 October 1947, entered into force 1 January 1948] 55 UNTS 187; General Agreement on Tariffs and Trade [1947 and 1994]), which laid the foundation for the multilateral trading system and the establishment of the World Trade Organization (WTO) almost 50 years later.

B.  Historical Background

World War II and the severe economic recession of the 1930s provided the impetus for negotiation of common principles favouring increased cooperation and non-discriminatory trade practices between nations. At the Bretton Woods Conference (1944), it was recommended that governments seek to reach agreement on ways and means to ‘reduce obstacles to international trade and in other ways promote mutually advantageous international commercial relations’ (United Nations Monetary and Financial Conference: Bretton-Woods, New Hampshire, July 1 to July 22, 1944: Final Act and Related Documents para. VII).

As such, during the war period, the United States engaged Britain in a series of negotiations wherein a list of objectives were developed for a post-war trade regime. The United States’ administration largely favoured private enterprise and viewed trade preferences and the practice of national planning in Europe as an impediment to market access for its exporters. The initial British reaction was one of scepticism towards the efficacy of these changes in helping facilitate the development of a stable global post-war economy. In particular, the British felt strongly about the need to retain their policy of imperial preferences amid concerns that their role as a world power was diminishing. Art. 4 Atlantic Charter (1941) ([signed and entered into force 14 August 1941] 204 LNTS 381) reflects a compromise; it committed the parties to ‘endeavour, with due respect for their existing obligations, to further the enjoyment of all States … of access on equal terms to the trade and the raw materials of the world’. Common Art. VII of the Lend-Lease Agreements concluded between the United States and allied nations between 1941 and 1945 went further by imposing an obligation on each recipient party of United States aid to ‘promote open trade and reduce tariffs’ and to eliminate ‘all forms of discriminatory treatment’.

It was in this context that the United States invited, in December 1945, 15 countries to negotiate tariff reductions. These countries included Australia, Brazil, Canada, China, France, India, New Zealand, South Africa, and the United Kingdom. Chile, Norway, and Syria-Lebanon joined the negotiations later. The Soviet Union was also invited but did not attend. It has been suggested that the Soviets were opposed to compromising their strict policy of State secrecy in matters relating to international trade and balance of payments. In any event, it is not clear that the Soviet Union with its State monopoly control on foreign trade, could have participated in any meaningful way in tariff negotiations (Irwin Mavroidis and Sykes 73).

Next, in February 1946, at the first session of the United Nations, Economic and Social Council (ECOSOC), the United Nations, Economic and Social Council (‘ECOSO’) United States called for the convening of a United Nations conference on trade and employment. The United States also published a Suggested Charter for an International Trade Organization of the United Nations, which formed the basis for the negotiations leading finally to the Havana Charter in 1948. The United States’ proposal was adopted and a Preparatory Committee was established (UN ECOSOC Res 1/13 [IV] [18 February 1946]). The idea was that the Preparatory Committee would work in parallel with the smaller group of 15 countries. The former would prepare language for a charter, while the latter would negotiate tariff reductions.

Four conferences were held between 1946 and 1948. Three of these involved meetings of the Preparatory Committee. The first meeting of the Preparatory Committee was convened in London in October 1946. It was guided by a second United States draft of the Charter for an International Trade Organization. However, due to its shortcomings a new draft was produced focusing on full employment, general commercial policy, restrictive trade practices, and international commodity arrangements (Jackson 42; Gardner 217). It was also suggested that a General Agreement on Tariffs and Trade would be necessary to preserve the value of the tariff concessions that were being negotiated separately.

In early 1947, after the first meeting of the Preparatory Committee, a Drafting Committee met in New York. It formulated the first full draft of the GATT, which was to be a specific trade agreement within the broader institutional context of the Charter of the International Trade Organization (UN ECOSOC ‘Report of the Drafting Committee of the Preparatory Committee of the United Nations Conference of Trade and Employment: Draft Charter and Commentary’ [5 March 1947] UN Doc E/PC/T/34, 3). The Drafting Committee also decided that obligations arising under the GATT would apply only after a transitional period.

The second session of the Preparatory Committee began at the Palais des Nations in Geneva on 10 April 1947. It pursued two goals in tandem: the completion of the draft Charter of the International Trade Organization and the negotiation of tariff reductions on particular goods. The GATT negotiations were completed and the Final Act of the Second Session of the Preparatory Committee was opened for signature by delegations on 30 October 1947. The GATT entered into force on 1 January 1948. However, the drafting of the Havana Charter itself encountered a number of difficulties.

Negotiators met in Havana to resolve these differences. The meetings began on 21 November 1947. The final version of the Charter was eventually signed on 24 March 1948 by 53 countries after almost two years of negotiations. As drafted, the Charter was nothing less than ambitious. It consisted, in effect, of a series of extensive commitments between governments on matters of trade, but covered disciplines such as employment and economic activity and regulated a number of substantive matters. These included fair labour standards in Chapter II; economic development, and reconstruction (including cooperation for development and international investment) in Chapter III; general trade and commercial policy in Chapter IV; restrictive business practices, as well as procedures relating to services, in Chapter V; and commodity agreements in Chapter VI.

10  Partly because of its ambitious provisions, the Charter was never ratified by the United States. A number of concessions made by the United States during the negotiations, including concessions relating to balance-of-payments restrictions and voting rights, appear to have effectively undermined support for the Charter internally. In addition, the separate signing of the GATT provided the United States with an alternative for many of its interests to be met without having to make the concessions that had been requested under the ITO. Moreover, with the advent of the Cold War (1947–91), the focus of United States policy makers had begun to shift away from a largely unsatisfactory Havana Charter to implementation of the Marshall Plan (European Recovery Program) in 1948 and the creation of the North American Treaty Organization (NATO) in 1949. In 1950, given little prospect of approval of the Havana Charter in by the United States Congress, President Truman decided not to submit the Charter to ratification. As the United States was the central figure in the trading system at the time, other countries also elected not to ratify and the Havana Charter never came into effect (Woolcock in Bayne and Woolcock 112).

C.  The International Trade Organization’s Main Features and Substantive Provisions

1.  Institution and Dispute Settlement

11  The structure of the International Trade Organization (‘ITO’) would have included a plenary body to which all members belonged and an executive body whose membership would be determined by periodic elections. Original Members were only those invited to take part in the Havana Conference; other countries could only join if there was a majority approval by the Members. The ITO organs were to be the Conference, which included all of the Member States; the Executive Board of 18 members elected by the Conference; various Commissions; and a professional Director-General; and Secretariat. The Executive Board was comparable to the International Monetary Fund (IMF) and World Bank (World Bank Group) models. However, the IMF and World Bank were financial organizations in that they were endowed with a capital to which members had to contribute with quotas reflecting their economic dimensions. Participation by Member States and appointments to their Executive Board depended on that respective quota. This did not apply in the case of the ITO.

12  As to the settlement of disputes, the Havana Charter provided for proceedings by which members could settle disputes and stipulated that members should not have recourse to unilateral action. These dispute settlement provisions were available to a member if it considered ‘that any benefit accruing to it directly or indirectly, implicitly or explicitly, under any of the provisions of th[e] Charter other than Article 1, is being nullified or impaired’ (Art. 93 (1)). Such a member could then request consultations with the concerned member ‘with a view to the satisfactory adjustment of the matter’ (ibid). If they wished to, the two parties could also submit the matter for arbitration. However, the decision of the arbitrator would only bind the parties to the dispute and would have no effect on the ITO or other members.

13  A member also had the option of referring a dispute to the Executive Board of the ITO. After investigating the matter and if it found serious nullification or impairment, or if it considered that its recommended action would not likely be effective in time to prevent serious injury, the Executive Board could, for example, release the member or members affected from obligations or the grant of concessions to any other member or members under or pursuant to the Charter. In making its finding, Art. 94 (4) Havana Charter stipulated that the Executive Board could, ‘in the course of its investigation, consult with such Members or intergovernmental organizations upon such matters within the scope of this Charter as it deems appropriate’ or consult ‘any appropriate commission of the Organization on any matter arising under this Chapter’. Art. 79 (2) Havana Charter provided each of the 18 members of the Executive Board with one vote and declared that any of its decisions ‘shall be made by a majority of the votes cast’.

14  Disputes could thereafter be referred to the Conference for review, at the request of either member. The Conference in turn could confirm, modify, or reverse the Executive Board’s decision. It could recommend corrective action, consultation, or arbitration. The Charter further provided for the possibility to refer cases to the International Court of Justice (ICJ). More specifically, Art. 96 (1) Havana Charter provided that the ‘Organization may … request from the International Court of Justice advisory opinions on legal questions arising within the scope of the activities of the Organization’. Moreover, Art. 96 (2) Havana Charter stipulated that any decision of the Conference under the Charter would be subject to review by the International Court of Justice, at the instance of any Member whose interests were prejudiced by the decision, by means of a request, in appropriate form, for an advisory opinion pursuant to the Statute of the Court. In this regard, it may further be noted that the ITO would have been bound ‘by the opinion of the Court on any question referred by it to the Court’ (Art. 96 (5) Havana Charter).

2.  Commercial Policy

15  Chapter IV, which concerned commercial policy, was central in the blueprint of the future activities that the ITO was to carry out. It consisted of 26 articles, including a provision governing general most-favoured-nation treatment (Art. 16; Most-Favoured-Nation Clause); the reduction of tariffs and elimination of preferences (Art. 17; Customs Law, International); national treatment on internal tax and regulation (Art. 18; National Treatment, Principle); general elimination of quantitative restrictions (Art. 20; Non-Tariff Barriers to Trade); subsidies (subsidies, International Restrictions); State trading (Arts 29–32; Government Procurement, International Restrictions); emergency action on imports of particular products (Art. 40); customs unions and free trade areas (Art. 44); and general exceptions (Art. 45). All of these provisions already featured in the GATT. However, as a result of the negotiations undertaken in Havana, certain changes were made, which for the most part were later incorporated into the GATT by means of formal amendments.

3.  Employment and Labour Standards

16  Gardner observes that no other issue was discussed more than the link between trade and employment at the London Conference. The Americans opposed its inclusion in the Charter while the British, and others, actively sought it (Gardner 271).

17  The American viewpoint was that employment was not a proper subject to be regulated under the Charter. The United States appears to have agreed that high employment and demand levels were essential to achieving trade expansion objectives but denied that it was possible to lay down specific obligations in the Charter. Gardner states that ‘[i]n the American view, the reduction of trade barriers was something a government could effectively promise to accomplish; the maintenance of full employment was not’ (ibid). By contrast, Britain, Australia, New Zealand, and others held the view that full employment was essential to the expansion of trade. They therefore sought ‘substantial expansion of the employment obligations’ in the Charter (Gardner 272).

18  However, despite these divergent views, the negotiators agreed to have provisions on employment as well as on labour standards. These are contained in Chapter II of the final draft of the Charter. Art. 2 (1) Havana Charter proclaimed that the avoidance of unemployment or underemployment was not a matter of domestic concern alone, but also necessary for achieving the expansion of trade. It also required members to collect and exchange information on their employment problems, trends, and policies.

19  Moreover, Art. 7 Havana Charter dealt directly with labour standards (Trade and Labour Standards). It required members to eliminate unfair labour conditions, especially in export production; through ‘whatever action may be appropriate and feasible’. In addition it obligated members to take into account workers’ rights under intergovernmental declarations, conventions and agreements and also mandated them to consult and cooperate with the International Labour Organization (ILO) in matters dealing with fair labour standards.

4.  International Investment

20  Art. 12 Havana Charter contained provisions on international investment. It established at the outset that ‘international investment, both public and private, can be of great value in promoting economic development and reconstruction, and consequent social progress’ (Art. 12 (1) (a)). However, it did not further develop principles to safeguard investments. Instead it proceeded to provide for exceptions and limitations that governments could use to curtail these same investments. In this regard, it provided members with the right to ‘take any appropriate safeguards’ (ibid) to ensure that foreign investments do not interfere in their internal affairs or national policies. It also provided that members would be free to decide if and how far they would be willing to allow investments. Moreover, there was no obligation not to discriminate between foreign investments; instead, members were required to ‘give due regard to the desirability of avoiding discrimination’ (Art. 12 (2) (a) (ii) Havana Charter).

21  Consequently, despite the fact that the inclusion of investment measures was motivated by a United States initiative to safeguard foreign investment, the negotiated text lowered the benchmark for investment protection. The provisions were seen by developing countries as overly protective of multinational enterprises while developed countries considered them too protective of host countries (Burt 1229).

5.  Restrictive Business Practices

22  Another interesting element of the Charter relates to its provisions on restrictive business practices. Art. 46 (1) Havana Charter obligated members to

co-operate … to prevent … business practices affecting international trade which restrain competition, limit access to markets, or foster monopolistic control, whenever such practices have harmful effects on the expansion of production or trade and interfere with the achievement of any of the other objectives.

23 ‘Harmful business practices’ were defined in Art. 46 (3) Havana Charter. They included: fixing prices, sales quotas or purchase quotas; discriminating against or excluding other enterprises from the market or territory or business activity; allocating customers; limiting production; and preventing technology application or invention through agreements. The organization was also granted authority to define other practices as falling within the ambit of ‘harmful business practices’ through a two-thirds majority vote.

24  The Charter also authorized the ITO to conduct studies on restrictive business practices and other wide-ranging issues; request information from members; make recommendations; organize conferences to discuss matters related to restrictive business; and to cooperate with other intergovernmental organizations. Members were obligated to take measures to ensure that enterprises did not engage in restrictive business practices and were encouraged to cooperate with each other in this regard.

25  Restrictive business practices in services were specifically dealt with in Art. 53 Havana Charter. This provision noted that certain services, such as transportation, telecommunications, insurance and the commercial services of banks, are substantial elements of international trade and that any restrictive business practices by enterprises engaged in these activities in international trade may have harmful effects (Traffic and Transport, International Regulation; Telecommunications, International Regulation).

26  The flexibility evident in many of the Charter’s provisions was also reflected in at least two instances with respect to restrictive business practices. The first was Art. 46 (1) Havana Charter which obligated members to ‘cooperate … to prevent’ restrictive business practices. The second was reflected in Art. 54 (2) (d) Havana Charter, which stated that the terms ‘decide’ and ‘decision’ ‘do not determine the obligations of Members, but mean only that the Organization reaches a conclusion’.

27  Interestingly, the problem for developing countries was not only finding a way of meeting their ITO obligations which simultaneously allowed them to catch up with the industrialized world, but also the fact that in their experience developed countries were more likely to use restrictive practices to the detriment of underdeveloped countries—see, for example, the statement of the Peruvian delegate (UN Conference on Trade and Employment Fourth Committee ‘Restrictive Business Practices: Summary Record of Ninth Meeting’ [15 January 1948] [E/CONF.2/C.4/SR.9]). In a similar tone, other countries expressed some concern about the anti-cartel and restrictive practices provisions (Irwin Mavroidis and Sykes 70).

28  Despite the ITO’s ill-fate, many lessons learnt in the negotiation of the Charter remain relevant in the contemporary world trading system. In this regard, it is interesting to examine those provisions of the Charter that were not eventually incorporated into the GATT, and to explore how the Charter had intended to deal with them.

D.  The Havana Charter Viewed from a WTO Perspective

29  The WTO maintains the one member one vote principle of the ITO but has moved away from the concept of an Executive Board, which the ITO would have had in common with the World Bank and the IMF.

30  In addition, the WTO provides a far more developed dispute settlement system when compared to the ITO, which is set forth in the Understanding on Rules and Procedures Governing the Settlement of Disputes (‘DSU’ [15 April 1994] in WTO, The Results of the Uruguay Round of Multilateral Trade Negotiations: The Legal Texts [GATT Secretariat Geneva 1994] 354). A key feature of the system is that decisions are taken on legal grounds and not on economic ones nor for political expediency by ad hoc panels and, on appeal, by a standing Appellate Body. The establishment of appellate review is a particularly rare feature in inter-State dispute settlement practices. The Dispute Settlement Body (composed of representatives of all WTO Member States) is entrusted with establishing panels, adopting both panel and Appellate Body reports, overseeing the implementation of recommendations and rulings, and authorizing the suspension of trade concessions and other obligations. The DSU provides detailed procedures and fixed timetables for dispute settlement and, through the adoption of the ‘reverse consensus’ rule, makes it in practice impossible for a member that loses a dispute to block the adoption of reports. The WTO provides for a unique system of multilateral monitoring of implementation; if implementation is not achieved within a reasonable period of time, the system provides for two ‘temporary alternatives’: compensation and retaliation. Implementation of decisions therefore is made effective through a combination of legal adjudication and political decision-making not envisaged in the Havana Charter but rather deriving from the unsatisfactory experience with GATT panels.

31  The WTO has also recognized the linkage between trade and investment in the form of the Agreement on Trade-Related Investment Measures (‘TRIMs’ [signed 15 April 1994, entered into force 1 January 1995] 1868 UNTS 186). TRIMs provisions have a narrow focus, requiring members to accord national treatment to, and prohibits quantitative restrictions on, foreign investments. The attempt in the 1990s to negotiate a Multilateral Agreement on Investment (‘MAI’) at the Organization for Economic Co-operation and Development (OECD) was abandoned in 1998 mainly due to strong objections from certain sectors of European civil society. The concern, as evidenced by the Resolution of the European Parliament Containing Recommendations to the Commission on Negotiations in the Framework of the OECD on a Multilateral Agreement on Investments ([1998] OJ C104/143), was that the guarantees contained in the MAI would give multinational enterprises undue preferential treatment over purely national companies. Today, broader investment protection is instead provided through the extensive network of bilateral investment treaties in place which are not connected with the WTO (Sacerdoti 1997).

32  The WTO does not deal directly with employment and labour standards and there is no on-going work at the WTO on this subject. However, there has been relevant debate on whether labour standards should be incorporated into the WTO framework. On the one hand, it has been argued that labour standards may have the effect of strengthening the WTO and increasing public confidence in the organization. On the other hand, certain WTO members consider the issue as being outside the ambit of the WTO and express the concern that labour standards may be used for protectionist purposes. Moreover, even human rights advocates may feel uncomfortable with the idea that an organization whose area of expertise is essentially trade may be empowered to become a central forum in the determination of the extent of labour protection at the international level (Alston 2002).

33  By way of contrast to the ITO, the WTO does not have a specific chapter dealing with restrictive business practices; however, it has several provisions dealing indirectly with specific aspects of such practices, such as Art. 3 Agreement on Subsidies and Countervailing Measures ([signed 15 April 1994, entered into force 1 January 1995] 1869 UNTS 14) and Art. 3 Anti-dumping Agreement (Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 [signed 15 April 1994, entered into force 1 January 1995] 1868 UNTS 201). The GATT, moreover, has rules on monopolies, and the General Agreement on Trade in Services (1994) (‘GATS’) on both monopolies and exclusive service suppliers (Janow [2005] 487–510). Discussion on whether the WTO needs strengthened rules on broader issues of competition has not yielded a concrete result. The opposing interests of developed and developing countries limited the possibility of finding common ground. Developing countries were concerned that any potential obligations developed with regard to domestic competition frameworks would constitute a heavy, if not unreasonable, burden on their resources given their limitations in this regard.

E.  Conclusion

34  The rise and fall of the Havana Charter holds many lessons that may assist the WTO in facing its future challenges. The riots seen during the Seattle Conference in 1999 highlighted the potentially explosive intersection between social standards and trade policy. The GATT preamble, declaring the determination of contracting parties to conduct trade and economic endeavour with a view to ‘raising living standards’ and ‘ensuring full employment’, constitutes a remnant of the ITO drafters’ bold vision of creating a multilateral trade organization that placed trade in its social as well as economic context. The WTO members have built on the GATT while keeping the new organization within the boundaries of what is currently perceived as constituting trade matters. At the same time they have recognized in the preamble to the Marrakesh Agreement that trade arrangements are meant to serve broader social and welfare objectives. They have accordingly extended coverage to include, for example, the Agreement on Trade-Related Aspects of Intellectual Property Rights (1994) (‘TRIPS’) and GATS, as well as adding an institutional framework endowed with an efficient dispute settlement system in order to promote the balance of respective rights and obligations for the future. On the other hand, WTO members have not been willing to agree on rules in further areas that were intended to be covered by the ITO such as employment and competition. In any case, the most significant legacy of the ITO, which has been taken over by the WTO after more than 50 years, is a multilateral, rules-based framework for the regulation of international trade: a vital feature with even greater significance in the current global economic setting where globalization without adequate rules and governance—such as in the financial sector—precipitates crises.

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