Foreign Relations of the United States, 1955–1957, Foreign Economic Policy; Foreign Information Program, Volume IX

69. Letter From the Executive Secretary of the General Agreement on Tariffs and Trade (White) to John M. Leddy¹

Geneva, July 18, 1956.

Dear John: In briefing myself for the informal discussions which you had suggested would be useful during the summer,² I drew up an appraisal of the present situation of the GATT. As it now appears unlikely that it will be possible to hold these discussions I am sending you for your personal information a copy of this appraisal. It is, I realize, pitched on the pessimistic side but the more I reflect about it, the more the pessimism seems justified. In any case its object was to provoke discussion and reaction, and therefore it is more important to address oneself to the issues raised rather than to the form in which they are expressed, or the validity of the judgment implied.

I am sending the paper to you now in the hope that it may stimulate thinking on your side and I leave it to your discretion as to what use you make of it.

Sincerely yours,

Eric³

[Enclosure]

An appraisal of the present situation of the General Agreement on Tariffs and Trade

1. Now that we have got the review out of the way⁴ and the 1956 Tariff Negotiations⁵ have been completed, it is perhaps useful to see where we stand with the GATT.

2. As regards tariffs, it is clear that we cannot look forward to much further progress in the near future. The United States has negotiated more or less all that it can under the present Reciprocal Trade Agreements Act. If, as we hope, there is a progressive relaxation of quantitative restrictions in other countries, it is unlikely that there will be much enthusiasm in the immediate future for further tariff reduction in these countries. Moreover, the possibilities are severely limited by the dissatisfaction of the low tariff countries with the procedures under which tariff negotiations take place. One consequence of this is that the centre of interest in the tariff question has shifted to Paris. We must, therefore, assume that there is not a great deal of scope, at any rate for sometime, for positive action in the negotiation of tariff reductions.

3. On the other hand, we are running into serious problems with the underdeveloped countries of Latin America on the tariffs which they have bound under the General Agreement. The most striking and immediate case is that of Brazil which has bound 1200/1300 items in its tariff and is now embarking on a general increase in the tariff. This move is partly due to revenue reasons and partly to the desire to restore to the tariff the protectionist role which it has lost and which is filled at present by currency manipulations and import controls. This is merely an illustration of a more or less general problem in Latin America. It seems to me that, consistently with the philosophy of the General Agreement, we should be encouraging countries to rely on the tariff as a normal means of protection and to abandon the use of quantitative restrictions and other administrative devices for protection such as multiple currency practices. On the other hand, Brazil and other countries have bound a considerable number of rates in the General Agreement, usually as a result of carrying over their previous bilateral agreements into the GATT, and therefore any general increase in tariff rates presents a very serious problem under the GATT rules which only contemplate the modification or withdrawal of concessions against equivalent compensation, or failing that, compensatory withdrawals. In the nature of the case, the possibility of compensation is extremely limited and if the situation is redressed by compensatory or retaliatory withdrawals, the content of the tariff commitment as between these countries and the others would be reduced to little or nothing. From a commercial point of view there would seem to be a clear advantage in trying to reach an understanding with these countries that in exchange for an alleviation of their tariff commitments, they would abandon other forms of protection through currency manipulation, quantitative restrictions, etc., which in their effects are more burdensome to trade than tariffs. As the Agreement stands, however, and failing a new approach, it seems difficult to see how these problems can be dealt with. The position is particularly complicated as regards the United States whose participation in the GATT is based upon the Reciprocal Trade Agreements Act.

4. In the field of quantitative restrictions an honest appraisal of the General Agreement can only lead to the conclusion that it has hitherto proved ineffective and that the present indications are that this ineffectiveness will continue. The only effective international action in this field has been the OEEC liberalization programme which proceeds on a very different basis from that contained in the GATT. The action of the OEEC is not confined to intra-European trade but has also been extended to the liberalization of import restrictions maintained by European countries in imports from the United States and Canada. Consequently the field remaining to the GATT is so limited as to be almost non-existent.

5. It can be argued, perhaps, that this is not a bad thing since the GATT action in relation to quantitative restrictions would in any case be almost completely inhibited by the way in which the quantitative restriction provisions are written and the construction which has been placed on the relative functions of the GATT and the Fund.⁶ Even though there were some improvements in the procedures adopted in the Australian consultations in 1955, the fact remains that consultations in the GATT are in general meaningless. In the first place, as far as discrimination is concerned, the GATT exercises no control whatsoever since contracting parties which are still availing themselves of the transitional provisions of the Fund Agreement have, in effect, a completely free hand with quantitative restrictions. Secondly, as far as Article XII is concerned, it suffices for a country to obtain a certificate from the Fund that it has balance-of-payments difficulties to secure complete immunity from action by the GATT on any particular restrictions. Even if another contracting party is prepared to make a formal complaint, it is doubtful whether the GATT could act effectively, since the blanket cover afforded by the Fund’s certificate is all-embracing.

6. We have also seen quite clearly that the relationships between the GATT and the Fund are such that, by virtue of Article XV:9 of the GATT, it is possible for a country in balance-of-payments difficulties by adopting various devices which do not attract express Fund disapproval, to make nonsense out of any and all of the GATT commitments. This of course may be logical insofar as it may be argued that the countries concerned are in such an acute state of financial chaos that the utmost flexibility is essential. It remains, nevertheless, that the participation of such countries in the GATT is fictitious and casts little credit on the organization.

7. As regards subsidies, the results of the Review were somewhat meagre but the fruits in practice are likely to prove even more so. Here again the only positive action that is being taken is in the OEEC and I am very doubtful whether in present circumstances—or in any circumstances which I can at the present foresee—the GATT can do much more than endorse such action as the OEEC may take. I doubt, however, whether such endorsement would be of any great value. The impossibility of reaching an agreement on banning subsidies in primary products during the Review destroyed any real chance of effective action on industrial subsidies. Developments since the Review make it questionable how far even the modest progress then made can be maintained.

8. There are many problems in the field of customs formalities which could be tackled by the Contracting Parties with benefit to international trade, but meanwhile most of the European governments which adhere to the Agreement, have established another organization—the Customs Co-operation Council—which is dealing with these questions from the point of view of customs administration. The membership of the Council is now being extended to countries outside Europe. In this way, the Contracting Parties are leaving to another body a sphere of activity which would rightly fall within their competence and have accepted that these matters be considered more from the point of view of administrative convenience than from the point of view of the requirements of trade.

9. So much for a brief analysis of the impotence of the GATT in terms of subject matter. If we look a little deeper into the fundamental position of the GATT it appears to be even weaker. In the course of the Review I ventured to suggest that some consideration be given to strengthening the Agreement by making membership more valuable, or at least non-membership more perilous. This suggestion received no support from the major powers who thought that the treatment of non-members was a matter within the competence of each country. I can see that there are very real difficulties in the way of penalizing non-subscribers. It is all the more important to try to maximise the attraction and advantages of membership. The present position is that for many countries non-membership in the GATT is a positive advantage. Let me cite an example, which could be multiplied a number of times, the position of a country like Mexico. Mexico has access to the resources of the Export-Import Bank, to the resources of the Bank and Fund, and full participation in the benefits of the Technical Assistance programme. She also enjoys most-favoured-nation treatment from the United States and other countries and therefore enjoys without counterpart the benefit of all GATT bindings. On the other side of the picture, Mexico has no commercial policy obligations whatsoever. The requirement that a contracting party shall also accept the disciplines of the Fund either by membership or by special exchange agreement finds no counterpart in the Articles of the Fund.

10. It should not be thought that this situation is not known and recognized. On the contrary the privileged position of Mexico has made a considerable impression on the other Latin American countries who at present somewhat dubiously participate in the GATT.

11. Of course, the effects of this somewhat sterile prospect would be to some extent offset if participation in the Agreement offered other demonstrable benefits. In this connexion however there has been strong opposition to any suggestions for liberally interpreting the functions of the Contracting Parties so as to include within the purview of the Agreement matters which, though not normally germane to a commercial treaty, are of primary concern to the less developed countries. We have made a modest effort to improve the position by instituting the Trainee Scheme. This was greeted with considerable enthusiasm by the under-developed countries but with indifference by some of the leading trading countries. At best it appears to have carried grudging approval provided that it involved no increase in the budget.

12. The attractions of the GATT to outsiders received a recent and striking assessment when we issued an invitation to negotiate for accession. Response: nil.

13. This narrow approach to the GATT has to be seen also in relation to the movement that has begun in the United Nations for more cooperation in the trade field. Whatever one may think of the motives which have inspired this movement, or of the results which may flow from it, the fact remains that there is a general consciousness of the need for and importance of a world-wide organization for dealing with trade problems. It had been my hope that when the Organization for Trade Cooperation was established, it would be possible to put it forward as the appropriate organization for sponsoring world-wide cooperation in the trade field. I am now beginning to have serious doubts about this in the light of recent developments. The Secretary-General of the United Nations has drawn attention to the gap in the existing international machinery for trade cooperation, and it would be difficult to argue in present circumstances that the GATT—or even the OTC if it were established—could fill that gap. Secondly, I had hoped that we could embody in the OTC a generous associate member clause which would have facilitated cooperation of countries which, though not desirous of subscribing to the specific GATT obligations, were anxious to take part in cooperative action in the trade field. It would then have been possible to channel suggestions, such as those that are being made for intra-regional trade consultations, along safer and more constructive lines than are likely to be followed in the United Nations. There are, moreover, very real problems lying ahead in relationships between the non-state trading countries and the state trading countries. These again it seems to me can be more constructively and safely handled in the GATT or OTC atmosphere than in the more political atmosphere of the United Nations. In any case they could hardly be ignored by an organization with any serious claim to be considered as responsible for initiating consultations on international trade problems and international negotiations on trade matters.

14. There would be some compensation for these apparent weaknesses in the GATT structure if one could discern elements of strength in other directions. These are not altogether lacking. I particularly have in mind the increasing support of the United Kingdom and the very striking change of front in Australia. Moreover, Canada continues to be a strong supporter of the GATT although clearly public support of this position is less strong than it was. The negative factors are, however, disturbing. Though the United States Administration continues to give strong public support to the GATT, it is constrained by reasons of internal politics to adopt a cautious line as regards the activities and development of the GATT.

15. So far as the continental European countries are concerned, although most of the countries express support at the GATT meetings, it is permissible to doubt how much hold the GATT has on these countries and on public opinion. It is notorious that GATT obligations are considered very light-heartedly in the OEEC. For example, governments in the OEEC refer without inhibition to quantitative restrictions which are maintained solely for protectionist purposes or for bilateral bargaining. This never appears to arouse any surprise even in the case of countries which are at the same time parties to the General Agreement. In fact a general air of polite scepticism regarding the GATT prevails generally in OEEC circles. More recently the discussion of the common market has dominated the thoughts of the principal European countries. It is significant but consistent with what is said above that there is little disposition to associate the GATT with the preparatory discussions of this project even though its realization would clearly have profound implications for the Contracting Parties. It is clear that if a waiver is eventually required in the GATT the discussion of it would be somewhat unreal since whatever European project is agreed upon will have such powerful political support that the Contracting Parties’ action is unlikely to be more than a formality.

16. The position of the rest of our countries is somewhat different. In the main I have the impression that the GATT is unknown except to a limited group of officials and that it is generally regarded as of only minor relevance to major problems in these countries. It has always been a matter of some surprise to me that these countries continue to find it worthwhile to send delegations to meetings, the agenda of which can be of very little concern or interest to them. An examination of these agenda would demonstrate how difficult it would be to explain in Santiago or Djakarta why money should be spent on sending delegations long distances to attend them. Some countries, such as Nicaragua, Peru and Uruguay appear already to have drawn this conclusion since they are usually not represented. The representation of others of these countries is more nominal than real.

17. In brief, therefore, I see few comforting elements in the present situation and a number of negative elements. In this situation it seems to me essential that the leading countries provide dynamic leadership which will revive and strengthen the interest of other countries. In the past this leadership has sprung in the main from the United States and related almost exclusively to tariff reduction. During the Ninth Session it appeared that new leadership would be provided by the United Kingdom as an essential part of a drive towards the restoration of convertibility. For the moment the steam appears to have gone out of this particular movement, although it might conceivably revive in the future. There is a risk, however, that meanwhile the somewhat shaky foundations of the GATT will be further weakened, in which case it would be a frail instrument indeed to deal with the difficult problems which would arise after restoration of a measure of general currency convertibility.

18. This appraisal of the present situation of the GATT led me to suggest in April that the first few days of each session should be devoted to an exchange of views, at ministerial level, on the trends and problems in international trade with a view to laying down broad general directives to guide the Contracting Parties in their work. The indifferent response I have had to this suggestion seems to indicate that my pessimistic appraisal is justified.

1. Source: Department of State, Central Files, 394.41/7–1856. Limited Official Use; Personal and Confidential.
2. Documentation on the meetings between Wyndam White and members of the Department of State, July 31–August 2, is ibid.,GATT Files: Lot 59 D 563.
3. Printed from a copy which bears this typed signature.
4. Reference is to the Ninth Session of GATT; for documentation, see Documents 17–25 and Foreign Relations, 1952–1954, vol. I, Part 1, pp. 208 ff.
5. The fourth round of tariff negotiations were conducted in Geneva, January 18–May 23. The 311-page report of the negotiations is in Department of State Publication 6348, Commercial Policy Series 158 entitled General Agreement on Tariffs and Trade: Analysis of United States Negotiations, Sixth Protocol, Geneva, Switzerland, January–May 1956. For a brief summary of the resulting agreement, see Department of State Bulletin, June 25, 1956, p. 1054.
6. International Monetary Fund.