www.ccsenet.org/jpl Journal of Politics and Law Vol. 5, No. 1; March 2012 ISSN 1913-9047 E-ISSN 1913-9055 56 The Failure of the International Trade Organization (ITO): A Policy Entrepreneurship Perspective Ivan D. Trofimov Department of Economics, Macquarie University NSW 2109, Australia Tel: 6-143-767-9827 E-mail: ivan.trofimov1@gmail.com Received: September 4, 2011 Accepted: September 13, 2011 Published: March 1, 2012 doi:10.5539/jpl.v5n1p56 URL: http://dx.doi.org/10.5539/jpl.v5n1p56 Abstract The paper aims to look at the developments that led to the demise of the ITO initiative in the years immediately after World War II. At the heart of the paper is the critical appraisal of the ITO episode from the policy entrepreneurship perspective. We identify six policy entrepreneurship functions that are necessary for the creation of the effective international economic governance structure and liberal international trade regime, and that have to tackle the issues of ideational consensus building, management of policy negotiations (by means of leadership and coordination), construction of appropriate and suitable negotiation proposals, attainment of ongoing political support of initiatives, and making policy formulation process commensurate with a broader economic and political context. It is shown that the failure of the ITO is attributed to inadequate exercise of policy entrepreneurship. Keywords: International Trade Organization, Policy entrepreneurship 1. Introduction The passage of the Smoot-Hawley Act in the USA (1930) is usually considered the event of crucial significance for the international economic order in the pre-World War II period and as the start of a tide of protectionism on a global scale (Sennholz, 1988). With the average tariff rate increased to 59% (the highest since 1830) for almost 12000 tariff lines, it led to a chain of retaliatory actions and “beggar-thy-neighbour” policies on the part of US trade partners, thereby causing disruption in international trade and markets, deepening Great Depression and prolonging recovery from it, as well as undermining international cooperation at the time when it was most needed (in light of threatening political developments in Europe). The subsequent efforts of the US government in the 1930s-1940s (in particular of the F. D. Roosevelt administration) were to prevent the repetition of this course of affairs. ITO negotiations in this respect were part of the “grand” post-war negotiations over a future non-contentious international economic and political order (Gardner, 1980) (Note 1). The policymakers of the 1940s envisaged the creation of a comprehensive institutional structure that would deal with international economic governance and cooperation. This structure was designed to include four bodies – the UN, IMF, IBRD (World Bank) and ITO. The UN was intended to be political structure to ensure the peaceful coexistence of nations, the IMF was created to provide a stable monetary regime based on the US dollar as the reserve currency, the IBRD was set up to facilitate post-war recovery and to otherwise assist economic development, whereas the ITO was envisaged to regulate international trade affairs. As shown below, this grand political undertaking was successful in all pillars except the last one. The failure to establish liberal trade order under the organizational umbrella of the ITO is not merely an antiquarian historical fact, but rather a critical juncture that has implications for contemporary policymaking and a case that necessitates theoretical explanation. As attested by the difficulties in constructing free trade order in the GATT/WTO system that have been experienced over a sixty year period following the ITO demise and also by the persistent failures in multilateral policymaking in other areas (e.g. climate change, international monetary affairs), the analysis of the ITO episode may provide answers as to what is required for building effective international governance. The purpose of this paper is therefore twofold: