560.AL/12–3046
The Director of the Office of International Trade Policy (Wilcox) to the Secretary of State 3
Confidential Report to the Secretary of State From the Chairman of the United States Delegation to the First Meeting of the Preparatory Committee for an International Conference on Trade and Employment
London, England, October 15–November 26, 1946
This Confidential Report is supplementary to the formal Report4 of the United States Delegation to the First Meeting of the Preparatory Committee for an International Conference on Trade and Employment. It sets forth (1) the principal issues considered at the meeting, (2) the attitudes of other countries toward the American proposals, (3) the strategy adopted by the United States delegation, (4) the outcome of the negotiations, and (5) the prospects of the program for international trade.
It should be emphasized that the work of the meeting was carried on at the expert level, that the negotiations were preparatory rather than conclusive, and that the positions taken involve no final commitments. It is nonetheless true that the Committee has carried the work of drafting a world trade charter to a stage that should make possible its approval without major changes in form or substance.
(1) The Principal Issues
The major objective of the United States was the adoption of a rule that would outlaw the use of import quotas and other quantitative restrictions as a matter of principle, permitting them only with international approval in exceptional cases and requiring that they be administered, in such cases, without discrimination. In the absence of such a rule, it is virtually certain that all other nations will impose quotas on imports and that many nations will so administer these quotas as to discriminate against American goods.
A second objective was an agreement to reduce tariffs and a rule that such reductions would operate automatically to reduce or eliminate margins of preference.
Other nations would like to require us to purchase larger import quotas and narrower margins of preference by reducing our tariffs. We insisted that import quotas be outlawed by rule and preferences [Page 1361] be cut automatically so that we could use our tariff concessions to purchase equivalent tariff concessions abroad. On both of these points, we were successful.
The Australians argued that our Proposals were negative rather than affirmative, consisting of prohibitions rather than positive measures to expand trade. They and the British emphasized the importance of employment policy. Superficially this appeared to be a major issue. Actually no delegation proposed any positive international measures to expand or maintain employment. The opposition on this point was satisfied with recognition of the fact that a persistent export surplus in the United States or a sudden, sharp decline in our demand for their foods would put them in balance-of-payment difficulties and with a provision permitting countries in such difficulties to use quantitative restrictions to protect their monetary reserves. Such a provision had been included in our original proposals. On this point, we made no concession of substance.
The Australians, with the support of the Indians, Chinese, Lebanese, Brazilians, and Chileans, urged that affirmative provision be made for the industrialization of undeveloped areas. It was the real purpose of this drive to obtain freedom to promote industrialization by using import quotas. Initially this appeared to be the most difficult problem before the Committee. It was resolved, however, when the United States delegation drafted and introduced a new chapter on economic development. In the course of this chapter a procedure is provided whereby the International Trade Organization can grant an undeveloped country, in a particular case, permission to make a limited use of import quotas. This was the only important concession made by the United States during the meeting and it was this that brought about the virtually unanimous acceptance of the charter as a whole.
On cartel policy, our whole position was opposed by the Belgians and the Dutch and the formulation set forth in our Suggested Charter was opposed by the British. Our only real support came from the Canadians. Wtih their help, however, we obtained a revised chapter that is stronger than our original proposals and far stronger than we had thought was possible.
On commodity policy the Committee was confronted with the effort of the FAO to separate agricultural commodities from other commodities and to separate agricultural commodity policy from trade policy by setting up a comprehensive buffer-stock, surplus-disposal, and relief operation under a World Food Board. The U.S. delegation insisted that a common policy apply to agricultural and non-agricultural commodities and that commodity policy be kept in relation [Page 1362] with commercial policy under the International Trade Organization. We succeeded in obtaining general support for this position. We defeated a British drive to obtain specific endorsement for buffer stocks as a preferred device. And we came out with a revised chapter that retains all of the safeguards contained in our original proposals.
With respect to organization, the only important issues relating to weighted voting and to the membership of the Executive Board of the ITO. These issues were not resolved.
(2) Attitudes of Other Countries
The Russians did not attend. They consistently attributed their absence to a shortage of trained personnel. This would indicate, at least, that they are not ready to oppose the program. Their absence was fortunate, since it made it possible for us to organize the meeting promptly and to devote our attention almost exclusively to issues with which they would have had little concern. Klentzov, head of the U.S.S.R. trade mission in London, had Kunoci, vice-chairman of the Czech delegation, invite me to lunch and then suggested a subsequent lunch where I outlined the American program and the progress of the London meeting. He said that the U.S.S.R. would have to study the program carefully and determine whether it was in their interest to participate.
The Czechs were the only eastern Europeans at the meeting. They were well represented, entirely cooperative, and gave every evidence of a sympathetic interest in the American program and a desire to see the negotiations succeed. We avoided embarrassment for them and others, in their relations with Russia, by postponing consideration of the articles of the Charter dealing with complete state monopoly of foreign trade and with relations with non-members. They were plainly grateful.
The most striking development at the meeting was the unexpected vigor of the support given us by the countries of western Europe: Norway, The Netherlands, Belgium, and France. They appear to be motivated by a strong desire to follow the U. S. line on trade policy. Aside from these countries, our most helpful support came from Canada and Cuba.
Our strongest opposition came from India and Australia. These countries had two of the most effective delegations at the meeting. The Indians came with a chip on their shoulder. They regarded the Proposals as a document prepared by the U. S. and the U. K. to serve the interest of the highly industrialized countries by keeping the backward countries in a position of economic dependence. They left the meeting in a much better frame of mind. But it is clear that they [Page 1363] feel themselves under pressure to push their industralization by all possible means and with the utmost possible speed.
The Australians were able, intelligent, and reasonable. The head of their delegation, Dr. Coombs, displayed a real capacity for economic statesmanship. The differences between us were more a matter of emphasis than of substance and we succeeded in meeting their political necessities without surrendering anything that we regarded as a matter of fundamental principle. We were fortunate that the nominal leadership of the opposition was in such good hands.
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The United Kingdom lived up to the letter of its commitments to us and was scrupulously correct in its public statements of formal support. In the closed negotiations, however, it did not assume a role of leadership in support of our program, but took a fairly independent line, supporting us on some issues, opposing us on others, and acting as a mediator between us and our opponents on still others. It had an able delegation and made a major contribution to the outcome of the meeting. One gets the impression that the commitments which the United Kingdom has made to us are highly unpalatable to important segments of British opinion and that the Government, in living up to these commitments, is having to swim against a strong current of public sentiment.
(3) Delegation Strategy
It was the purpose of the United States to advance as far as possible the project of drafting a charter for an international trade organization and promoting definitive negotiations for the reduction of barriers to trade. To this end we had prepared a Suggested Charter elaborating our original Proposals, circulated it to the other members of the Committee, discussed it with all of them (except the Russians), and published it on September 20, 1946. In the meeting our procedural objectives were: (1) acceptance of the American draft as the basis of the Committee’s deliberations, (2) completion and publication of as large a part as possible of a revised draft, (3) appointment of an interim drafting committee to carry the drafting work forward between the first and second meetings of the Preparatory Committee, and (4) sponsorship by the Preparatory Committee of the reciprocal trade agreement negotiations projected in December 1945 by the United States.
The British and French had strongly opposed the publication of our Charter. The Australians took the position that it was too early to draft detailed provisions for a charter; that the first meeting of the Committee should produce a more tentative document, similar in character [Page 1364] to our original Proposals. We made it clear at the outset that we would not insist upon our particular formulation of the articles in the Charter and that we were prepared sympathetically to consider the proposals made by other countries. The Norwegians and the Dutch then urged the adoption of our Charter as the basis for the Committee’s work and the Committee accepted their proposal, set up a series of subcommittees, one to deal with each of our chapters, and took the articles of the relevant chapter as the agenda of each subcommittee.
From then on all of the work of the Committee was directed toward our document. This gave us a great advantage in the negotiations. We had stated the problems, suggested the solutions, established the general pattern of the charter, and provided large sections of text that have not been and will not be altered in any way. Our careful preparation had built up a momentum that carried through the meeting. Our open-minded attitude in the opening sessions allayed the fears of our opponents. The willingness of sixteen other nations to accept a purely American draft as the basis of their work indicates their confidence in our fairness and objectivity and is a tribute that could scarcely have been paid to any other power.
There was considerable reluctance among other delegations concerning the publication of revised texts, the appointment of an interim drafting group, and Committee sponsorship of the tariff negotiations. In each of these cases we waited until the progress of the negotiations had reached a point sufficiently encouraging to indicate a favorable outcome and then proposed the procedure we desired. In each case we obtained unanimous support.
The key to general agreement on substance was an understanding between the heads of the U. S. delegation and the Australian delegation. It became clear that some expansion of the Employment Chapter and the insertion of an Economic Development Chapter would suffice to satisfy Dr. Coombs and that the other members of the undeveloped-nations bloc, with the possible exception of India, would follow his leadership. Coombs finally accepted a radically modified version of his proposals on employment and industrialization and, in return, acquiesced to our insistence on the general rule against import quotas and the automatic reduction of margins of preference. This was the basic bargain in the meeting. The other agreements were collateral.
(4) The Outcome of the Negotiations
Among the 89 articles for the trade charter proposed and discussed, the Committee reached general agreement on 74. These included all substantive issues of major importance. Reservations as to eleven of these articles were recorded by one, two, or three delegations. Each [Page 1365] of the present articles thus has the approval, at the expert level, of 14, 15, 16, or 17 countries. The Committee divided on only two articles—those relating to voting and to membership on the Executive Board of the ITO. It failed to complete its work on 11 articles, dealing mainly with customs administration and formal matters, and referred them to the Interim Drafting Committee. It took no action on two articles—state monopoly of foreign trade and relations with non-members—postponing consideration of these issues until its second meeting.
The Committee approved some 200 pages of subcommittee reports reviewing the questions discussed, outlining the positions taken, and explaining the agreements reached. It also approved a memorandum setting forth in elaborate detail the procedures to be followed in the forthcoming reciprocal trade agreement negotiations. And it adopted a series of resolutions relating to the future phases of its work.
It should be recorded that the Committee carried the project of writing a world trade charter much farther than any of its members had believed possible when it met. It completed its work within the six weeks originally assigned to it. And it carried on its deliberations throughout in an atmosphere of cordial cooperation without a bitter exchange or a major division on any matter of substance.
The resulting draft is, in many respects, an improvement on the Charter suggested by the United States. But it closely follows the pattern of that document, making no important concessions on any matter of fundamental principle.
(5) The Prospects of the Program
The success of this project will depend (1) upon the attitude of the U.S.S.R., and (2) upon the future attitude of the other countries on the Preparatory Committee, but, most importantly, (3) upon the support that it receives within the United States.
If the Russians stay away from the second meeting of the Committee, or if they attend the meeting and fight the program, it will be difficult if not impossible to persuade many neighboring states both in Europe and in Asia to go along with plans establishing an effective ITO. It is therefore desirable that they be persuaded to attend the next meeting and that the substantive matters covered in the first meeting be explained to them in detail. The ITO could function effectively without Russian participation. But an ITO opposed by the U.S.S.R. might draw an economic line farther to the west than would otherwise be necessary.
The other nations on the Committee have their fingers crossed. They will go along with our program if we give evidence that we are prepared to practice what we preach. They will abandon it if we don’t. [Page 1366] The outcome of the whole enterprise will depend upon the sort of offers that we make at the trade agreement negotiations beginning in Geneva in April 1947. If they are adequate, the rest of the world will follow our leadership. If they are not, our program will be lost.
The success or failure of our international trade policy thus depends less upon the attitude of other countries than it does upon the sort of support that is forthcoming within the United States. If that support is to be effective, it must be vigorous, widespread, and bipartisan. To this end, the Department must be prepared, during the coining months, to devote a considerable part of its time and energy to a program of public information and Congressional relations.
The program to which sixteen other nations have now tentatively agreed is an American program. It was at our insistence that a commitment with respect to trade policy was written into the Atlantic Charter in 1941 and that Article VII was written into the lend-lease agreements in 1942. It was the United States that published the Proposals for Expansion of World Trade and Employment in December 1945 and persuaded the Governments of the United Kingdom and France to go on record in support of these Proposals. It was the United States that invited seventeen [15] other nations, in December 1945, to enter into definitive negotiations for the reduction of tariffs and other barriers to trade. It was at our initiative that the Economic and Social Council of the United Nations set up the Preparatory Committee and agreed to call an International Conference on Trade and Employment. It was our Government that published and circulated The Suggested Charter, sent its representatives to sell the Charter to fifteen other nations in the summer of 1946, and urged the adoption of its provisions upon the Preparatory Committee in the fall of that year. If we do not now go through with the program that we have proposed, we cannot again, in this generation, expect any other proposal that we may make to be considered seriously by the other nations of the world.
Respectfully submitted,