Foreign Relations of the United States, 1947, General; The United Nations, Volume I

Lot 65D987, Box 101

Statement Made by Mr. Glair Wilcox to Representatives of the British Commonwealth, Geneva, Switzerland, September 15, 1947

Geneva, September 15, 1947

secret

Gentlemen, when we met here last week I said that we would look at the revised offers that you handed us with respect to preferences and let you have our reaction. “We were prepared to do that Friday or Saturday, but postponed the meeting until today so that Dr. Coombs could be here.

We have examined with care the suggestions that you made to us and have analyzed them in every way we can, and this is where we come out:

In the first place, it appears that as a result of the suggestions you have made there would be retained within the Commonwealth and Empire, unaffected by any action with respect to preferences, the following percentages of trade, measures in terms of percentages of imports subject to imperial preferences from the United States into these areas.

In the case of preferences received in the United Kingdom, 80 percent; in the case of preferences received in Canada, 61 percent; in Australia, 69 percent; in New Zealand, 35 percent; in South Africa, 76 percent; in Burma, 62 percent; in Ceylon, 82 percent; in Southern Rhodesia, 100 percent; in India, 93 percent; in Newfoundland, 98 percent; in the British Colonies, 100 percent. If we were to take as our basis not our shipments into those areas but shipments from British sources into these areas, the percentages would be higher.

Secondly, in the cases where preferences would be reduced, they would typically be reduced by less than one-third or one-fourth, that is about a third or a quarter of the margin would be shaved off and two-thirds to three-fourths of the margin would be retained. For instance, two-thirds of the existing margin would be retained on two-fifths of our trade in the products affected by the reductions in Canada, on three-fourths in the United Kingdom, on four-fifths in Australia, and on nine-tenths in New Zealand.

But the matter with which we are most concerned here is the question of eliminations of preferences. Here again the measurement is in terms of percentage of pre-war imports from the United States that were subject to imperial preferences. The eliminations of preferences in the tariff of the United Kingdom, that is preferences enjoyed by the rest of the Commonwealth, as a percentage of United States sales subject to preferences, in the United Kingdom, is 5 percent. In Canada, the figure is 9 percent; in Australia, 4 percent; in New Zealand, 19 percent; in South Africa, 13 percent; in Burma, 35 percent; in India, one percent; in Ceylon, 1/10 of 1%; in New Foundland, 1/10 of 1%; in Southern Rhodesia, nothing and in the Colonies, nothing. If this were to be measured in terms of British trade rather than United States trade the figures would be very much lower.

The effect of the suggested action on the preference system as a whole, as nearly as we can compute it, appears to be this. Again these figures are in terms of a percentage of United States pre-war imports subject to preferences. In the United Kingdom and Dominions, no action on 71% of preference trade, reductions or eliminations on 29% of preference trade, eliminations on 7% of preference trade and non-eliminations on 93% of preference trade. Elsewhere in the Empire, no action on 97%, reductions or eliminations on 3%, eliminations on less than 1% and no eliminations on more than 99%. That is the statistical picture as best we can get it.

You suggested that certain conditions might be attached to such additional offers as you might be prepared to make. In the case of Australia and New Zealand, the things that Australia has offered us in the new list are largely restorations of offers previously made and subsequently withdrawn. I don’t think that it would be possible for us to add a plus on our side of the agreement on this basis. If there is to be a plus on our side, there must be a plus on the other side. I should very much like to come to agreement with Australia, and I would prefer a strong agreement to a weak one. In the case of New Zealand, the points involved I think are the same as they are in the case of Australia. In the case of South Africa, the question of preferences is less significant then elsewhere. We still have before us some straight tariff bargaining with which we are prepared to continue. In the case of Canada, as I understand it, it is the Canadian view that any agreement arrived at should be based upon mutual advantage and that negotiations should preferably be left in the hands of the negotiating teams. We are entirely prepared to proceed on this basis.

In the case of the United Kingdom, it was argued that there must be a plus on our side of the balance because there already exists a satisfactory balance. I should like to examine the nature of that balance. We already have a trade agreement with the United Kingdom which presumably would be permitted to stand if we did not conclude a new agreement, unless, of course, it were denounced by one party or the other. So, I think that what we must look at are the changes that our present negotiations would make in the situation that already exists. That eliminates from the calculations all bindings on both sides on things already bound. What is there in our proposed agreement in the way of new reductions and new bindings on both sides? On that basis, it appears that United States offers apply to 81,500,000 dollars of prewar United Kingdom sales to the United States, and U.K. offers apply to 55,500,000 dollars of prewar US sales to the UK.

The condition that was suggested to us was the negotiation of the regulations in the US with respect to the mixing of synthetic rubber with crude rubber. Crude rubber is produced in the British Colonies and sold to us from the British Colonies. We have not included any figures with respect to the Colonies in our discussion of the balance between the US and the UK. I should like to examine the question of balance between the US and British Colonies.

There is one thing that we have been offered with respect to the Colonies that would be of some value to us. That is a change in the situation under which the export taxes on tin ore and tin are so arranged as to provide protection for domestic tin smelting and to make tin more expensive to smelters located outside the British Empire. On our side we were to bind free entry and this we are prepared to do. But a condition has been attached to that, namely that we will not subsidize the Texas City Tin Smelter and that at any time when we pay a subsidy to the Texas City Tin Smelter, the arrangement making tin more expensive to people outside the Empire than to people inside the Empire will be restored. This is a condition that we are not prepared to accept. We do not know whether it is going to be necessary to subsidize the Texas City Tin Smelter. But if we maintain the Smelter, it will be purely for reasons of our military security, and that is a thing which we cannot bargain away.

Now aside from the tin issue, on our other offers with respect to exports from the Colonies, we have offered a binding on rubber sales which before the war were worth 100,250,000 dollars and, in addition [to] that, we have offered concessions on another 18 million dollars worth of colonial exports. This adds up to a total of 118,250,000 dollars. The figure on the other side of the balance is zero. We are asked to rectify this balance of 118 million dollars to zero by adding something to the 118 million dollar side of the balance, namely negotiated percentages of synthetic in the rubber products manufactured in the US. We will not do this.

In the first place, it is our policy in the US, as I explained to you the other day, to cut synthetic rubber production to the minimum essential to our security needs. We have unilaterally determined, not on the basis of representations by any other country but by our own decision, to cut synthetic rubber production down from one million tons a year to one-fourth of a million or less. I have complete confidence that the market for crude rubber in the US will be greater after the war than it was before the war. The sale of synthetic rubber will be less than the increased consumption. I don’t think any commitments are required with respect to this matter.

In the second place, mixing of synthetic with crude rubber will be on a product-by-product basis, according to product specifications. That means that, in some products, there will be no synthetic required whatsoever; in other products there may be a high percentage required and in others a low percentage. The determination is to be made entirely in terms of the military significance of the products involved. If we were to attempt to negotiate this with another country, it would be a terrific nuisance and it would involve interminable delay, because it would require finding answers to questions that are as yet unanswered with respect to specific qualities and sizes and character of tires for particular military vehicles and these determinations have to be made by the Army and the Navy and we certainly are not in any position to make them here. Let me say, however, that even if it were physically possible for us to handle such negotiations I have serious misgivings as to whether we should do it. As a matter of national policy, I do not believe that our military security requirements should be fixed through tariff negotiations.

If we do seek a balance here in this unbalance of 118 million dollars to zero, there are two ways in which it could be achieved. One is by some action on the side of the Colonies, particularly with respect to preferences enjoyed by the rest of the Empire in the Colonies. The other is by withdrawing our binding on crude rubber and withdrawing our other offers on colonial exports. We would prefer to achieve a balance in the first way, but we are prepared to achieve it in either way.

So much for the factual picture. I would like to talk to you now in more general terms. What does the US seek in these negotiations? The phrase has been used at various times that we are seeking scalps for our belts. I think it should be perfectly clear that reductions in our tariffs will remove barriers to your exports to us immediately the day they take effect. But the concessions in the tariff of the UK and the concessions we get with respect to the preferences that the Dominions enjoy in the market of the UK will not. The UK is in a position, because of its balance-of-payments situation, to employ quotas on imports and to discriminate against imports from the US. Such concessions will therefore have no value for the US and no costs for the UK or the Dominions for an indeterminable period of time.

On the basis of this fact, I think it should be recognized that we are not now seeking an overall increase in exports from the US. We recognize perfectly well that we are exporting too much, not because we are pushing exports but because the rest of the world is begging us for the goods. And we are importing too little, not because our tariff is high, but because other people simply are not producing the goods that we would buy if they were offering them for sale. We recognize that this unbalance must be corrected. But the immediate step that must be taken toward its correction is by getting Europe back into production, so that the countries of Europe will buy less from us, will stop depending on us, for instance, for their fuel and their food, and so that they will sell more to us. In semantics, the term “dollar shortage” is an interesting one because it is a way of putting on the US the blame for the failure of Europe to solve its political and economic problems and get back into production. If there was not a serious production problem in Europe, you would not have the present shortage of dollars. Less important now, but more important in the long run, is the reduction of the American tariff, so that in the long run we shall buy more from abroad.

What we are trying to do now is to reverse the international economic policy that the US has pursued for the past century and a half. Our record since the war in this respect is one of which I believe we can justly be proud. After the last war we attempted to collect the war debts. After this war we cancelled lend-lease. After the last war we simultaneously made loans and raised our tariffs. After this war we have been giving and lending and we are attempting to reduce our tariffs. Since this war, we have put out in the form of gifts and loans 20 billion dollars to assist the rest of the world. We are now being asked to put out another 20 billion dollars for this purpose. We are seeking to commit the US to a low tariff policy and to international cooperation in trade policy.

Some of you have said to us sometimes that you would like to help us with our political problem. I would suggest that it is also your political problem. We have been told repeatedly in the course of these meetings that the most important factor in the rehabilitation, stabilization and expansion of the world’s economy is the future economic policy of the US. I dare say that determinations on this issue may have more significance for the well-being of many other countries than any decisions that they can make for themselves. I suggest that we are talking about a common problem and we should approach it as such.

The problem is whether American people and American Congress will acquiesce in what may amount temporarily to a unilateral reduction of the US tariff, to the numerous escape clauses in the ITO Charter, to the provision of another 15 or 20 billion dollars of aid for Europe, when they can see no immediate gains for the US. The only thing that they can take hold of is the hope that our trade relations, in the future, are going to be improved.

Our whole policy has been to exchange concessions of tangible and immediate value for commitments as to policy in the future. We have agreed to the revision of the Charter Article on non-discrimination in order to permit the UK to discriminate among other countries and specifically against us. We have agreed to postponement of the effective date of this Article of the General Agreement so that such discrimination will be subject to no criteria and to no right of complaint. We have under consideration relaxation of the Anglo-American Financial Agreement with respect to non-discrimination. We are considering the provision of further financial aid. The one argument that we need to-be able to use is that trade policies, after the transition, will be better. But in the light of the extremely limited action which you have so-far been prepared to take on elimination of preferences, this is an argument that we cannot use.

We should not forget the basis upon which these negotiations have proceeded. We begin with Article VII of the Mutual Aid Agreements, concluded in 1942, which said that the settlement of the Lend-Lease account should include provision for agreed action by our governments directed “to the elimination of all forms of discriminatory treatment in international commerce and to the reduction of tariffs and other trade barriers”.

The conclusion of the Lend-Lease settlement and the Anglo-American Financial Agreement in December 1945 followed upon negotiations between the United Kingdom and United States which resulted in the publication of the American Proposals. In these Proposals, it was provided that members of the projected International Trade Organization “should enter into arrangements for the substantial reduction of tariffs and for the elimination of tariff preferences, action for the elimination of tariff preferences being taken in conjunction with adequate measures for the substantial reduction of barriers to world trade, as part of the mutually advantageous arrangements contemplated in this document”. At the same time the governments of the United States and the United Kingdom published jointly an “Understanding Reached on Commercial Policy”. In this statement the United Kingdom expressed its “full agreement on all important points in these Proposals” and the two governments undertook to enter into negotiations “for the purpose of developing concrete arrangements to carry out these proposals including definitive measures for the relaxation of trade barriers of all kinds”. And it was agreed that these negotiations would proceed in accordance with the principles laid down in the Proposals.

When he presented this understanding to the British Parliament the Prime Minister said:

“The statement makes it clear that in pursuit of the objectives of Article VII of the Mutual Aid Agreement, we for our part are ready to agree that the existing system of preferences within the British Commonwealth and the Empire will be contracted, provided there is adequate compensation in the form of improvement in trading conditions between Commonwealth and Empire countries and the rest of the world.”

And he went on to make the following points: “There is no commitment on any countries in advance of negotiations to reduce or eliminate any particular margin of preference”. We have always understood that to be the case. Second, “the reduction or elimination of preference can only be considered in relation to and in return for reductions of tariffs and other barriers to world trade in general which would make for mutually advantageous arrangements for the expansion of trade”. We have always understood that to be the case. Third, “the elimination of all preferences would be such a step as would require a most substantial and widespread reduction of tariffs and other trade barriers by a large number of countries”. We have never asked for the elimination of all preferences.

Again, at the conclusion of the first meeting of the Preparatory Committee at London, representatives of our governments joined with other members of the Committee in recommending an article for inclusion in the Charter of an International Trade Organization which provided that each member of the Organization “shall, upon the request of any other Member or Members, enter into reciprocal and mutually advantageous negotiations with such other Member or Members directed to the substantial reduction of tariffs and other charges on imports and exports and to the elimination of import tariff preferences”.

And, finally, in the draft of the Charter which the Preparatory Committee has adopted at its second session at Geneva, the representatives of our governments have again joined in recommending to the International Conference an Article which provides that “each Member shall, upon the request of the Organization, enter into and carry out with such other Member or Members as the Organization may specify, negotiations directed to the substantial reduction of tariffs and other charges on imports and exports and to the elimination of the preferences referred to …¹ on a reciprocal and mutually advantageous basis”.

These statements represent a thorough discussion and a clear understanding existing over a period of five years. They have been repeatedly presented to the American people and to the American Congress as a program to which the United States and the United Kingdom were both committed and in which they both believe. They have been put forward to the world as a joint enterprise in which we were in full partnership. Compared with this promise the prospective outcome at Geneva will be one of failure.

On the side of the tariff offers made by the United States, there are wide and deep cuts which, on top of the reductions made since 1934, will carry our average level of protection to a point below where it stood before the first World War. I want to acknowledge the validity of the point made by Dr. Coombs that this action does not effect all products equally and that the protection remaining on particular agricultural products which Australia exports does not carry the situation back to that which existed before the first World War. But I repeat that our proposed action would establish the lowest average level of protection the United States has had in 40 years. We call that action substantial. On the other side, it is only in the geological sense of the word that the action so far proposed can be said to be directed toward the elimination of preferences.

Now, under the circumstances, what alternatives are opened to us? We have considered them very carefully and they seem to be as follows:

First, we could ask that the tariff negotiations be adjourned indefinitely. This we are very reluctant to do. If this were done, I fear that the projected tariff cuts would never be made. The authority delegated to the Executive in the United States expires in June. We do not know whether or in what form the Act will be renewed. The policy of the present Administration we know. We do not know whether this Administration will be continued. And if there is a new Administration, we do not know what its policy will be.

The second possibility is that we ask that the tariff negotiations be adjourned to New York or to Havana until sometime in the near future. We cannot see that there is any greater likelihood of results being achieved there or then. For one thing, this action would be a confession of failure and would seriously imperil the Havana meeting. For another, it runs the risk of throwing our tariff negotiations into the Presidential campaign.

The third thing we can attempt to do is to get a balance between the United Kingdom and United States by withdrawing some of our offers and reducing others. This has twice been suggested to us by Sir Stafford Cripps. This would immediately prove injurious to the export prospects of the United Kingdom. It is the one suggestion that has been made in these negotiations that would hurt the United Kingdom. The other thing that bothers us is that if we start withdrawing proffered concessions, other people to whom those concessions have been offered directly or who had expected to profit from them indirectly will also start withdrawing concessions. And if we once start unwinding this thing, I can’t see where it would stop. It seems to me that it would run down in a declining spiral, and destroy the prospect of agreement anywhere. It would certainly imperil the Havana meeting. It would make the price of admission into the ITO a very cheap price. My own view is that it is better for us to make the full cut or almost the full cut that we have projected or not cut at all.

We have decided that we are not yet ready to acknowledge failure. We shall make at least one more effort, with a new approach. Mr. Clayton will seek to talk to Sir Stafford Cripps again, I believe, on Wednesday, and he will make a proposal which relates only to those preferences which the United Kingdom enjoys throughout the Commonwealth and the Empire. This proposal will be that we accept the offers of reductions and eliminations made prior to September 9 and that we take from our past requests a wider list than the list that we last gave you on eliminations and agree that after three years these preferences will be eliminated over a period of ten years. This elimination, therefore, would not be complete until the 14th year. We will suggest that this list be made up by working through our requests in triangular or multilateral meetings. We suggest that these preferences be eliminated, after the 3-year postponement, within a decade, in one of three ways: first, preferably, by reducing the most-favored-nation rate. But if the country according the preference is unfortunately unwilling to do this, we suggest that action be taken, second, by raising the preferential rate, or third, by bringing the two together, raising the one and reducing the other.

I cannot agree that the latter course would be inconsistent with the spirit of these negotiations. In all of the basic documents which are relevant to these negotiations, the elimination of preferences has the same status as the substantial reduction of tariffs. The phrase “elimination of preferences” is not in a dependent clause, but is joined to the phrase “substantial reduction of tariffs” by the conjunction “and”.

This approach of gradual action was first suggested to us by Sir Stafford Cripps and was then rejected by him for reasons that we do not know. Its advantages are, I think first, that it would cost the United Kingdom nothing whatsoever for the first three years of the agreement and very little for the first 5 years or 6 years. It would completely dispose of the argument that the financial difficulties of the United Kingdom prevent it from taking action at the present time. It would also dispose of the argument that American concessions are made for three years and the United Kingdom concessions forever. This argument was never valid. But under this plan, it would be crystal clear that if the United States denounced the agreement at the end of its third year, the United Kingdom would not have to eliminate these preferences at all. If we cannot approach the elimination of preferences even on this basis, it is seriously to be questioned whether it is intended that we should ever approach it.

If we are thus faced with failure in this matter, the alternatives open to us appear to be two. First, we could acquiesce in a thin agreement that makes no real progress towards the elimination of preferences. Second, we could terminate negotiations with the United Kingdom, announce this fact to the Geneva Conference, and make a public statement outlining the reasons for our action. We would then push our other negotiations to agreement. We are not clear whether these agreements would take the projected multilateral form or be bilateral. In the first case, the contemplated multilateral agreement would contain no concessions on the part of the United Kingdom or United States to each other. But the schedule of each country would appear in the agreement and the general terms of the agreement would stand. The other possibility is the complete abandonment of the idea of getting a multilateral agreement and the conclusion of bilateral agreements in the familiar form. We have not concluded negotiations or have the conclusion of negotiations in sight which will give us satisfactory bilateral agreements with almost every other member of the Preparatory Committee.

I should now like to explore with you the implications and probable consequences of each of these courses of action. First, suppose we accept a thin agreement. We should have to confess to the American people that our negotiations with the UK were a failure. We could not attempt to hide the truth. The consequences of this would be, I believe, that it would jeopardize the Havana meeting, imperil the renewal of the Trade Agreements Act, and probably prevent the ratification of the Charter. It would make it difficult if not impossible to get the money to finance the Marshall Plan. If we say, in connection with the Marshall Plan, that the aid we seek is only temporary, designed to get Europe on its feet and hold out hope for the future based on a promise of internal rehabilitation, economic unification and the restoration of economic health, our critics are bound to claim that promises made in the past have been ignored and that there can be no assurance that promises made in the future would be observed.

The second course would be to suspend negotiations. For this we have a precedent. When Australia and South Africa were dissatisfied with our offers, they suspended negotiations. Suppose we were to follow the example that they have set for us. What would the consequences be? First, I think it might make it impossible to conclude a multilateral agreement. Second, it might kill the Havana meeting. This is certainly a risk that we should have to take. Third, it might very well kill the ITO and the Charter. And fourth, it might put an end to the prospects of the Marshall Plan. But these risks are risks that we run if we take either course.

There is one thing, however, that we could retain. If we return home with a number of good trade agreements elsewhere in the world and if we break off where we can not get satisfactory agreements; that action, I believe, would insure the retention of the tariff making power in the hands of the Executive through the renewal of the Trade Agreements Act. And this is a matter by which we set great store.

Aside from this we would face failure in taking either course. Our choice would necessarily lie between breaking off negotiations at Geneva and courting repudiation at home. We should follow the former of these courses with the greatest reluctance and deepest regret. We see no advantage to be gained in following the latter. The American people will know in any case that our hopes for the future have been condemned to failure and they will know why.

The one remaining obstacle to the success of the Geneva meeting is the British position on preferences. This is true not only for the US but for other countries as well. The issue upon which all our hopes for eventual return to multilateralism and non-discrimination may stand or fall is the issue of preferences. This is why we have decided to make another appeal to the government of the United Kingdom. This is why we are prepared to do everything in our power to make it easier for you to carry out your part of the program to which we both have pledged ourselves repeatedly during and since the war. But the final decision on the success or failure of this program rests with you.

1. Omission indicated in the source text.