Foreign Relations of the United States, 1948, General; the United Nations, Volume I, Part 2

International Trade Files: Lot 57D284, Box 105

Memorandum by Mr. William Clayton to the Ambassador in the United Kingdom (Douglas)

secret

[Washington,] February 11, 1948.

At the Conference now going on in Habana to develop a Charter for an International Trade Organization, the United States Delegation has been attempting to secure most-favored-nation treatment and the other benefits of the Charter for the occupied areas. This attempt has run into very strong opposition from the United Kingdom, France, Czechoslovakia, Poland and China. The Czechs have indicated that they could not accept a Charter with the occupied areas in it, and the United Kingdom and France have suggested that the problem of the treatment of the occupied areas should be left to a later date, France indicating that the question might appropriately be taken up at the Tripartite discussions in London. The legal competence of the Habana Conference to consider the problem has also been brought into question.

I have spoken with Lord Inverchapel and a representative of the French Embassy here, indicating in strong terms the importance of obtaining most-favored-nation treatment for the occupied areas by bringing them within the Charter and urging that their governments support our position at Habana. Our Embassy in Paris has also taken the matter up with the French Foreign Office. Despite these various representations, there has thus far been no change in the British and French position at Habana, It now appears that about the maximum we can get at this time with regard to the ITO Charter is a commitment to determine the relation of the occupied areas to the ITO after it is set up, probably in 1949 or possibly 1950, and a resolution by the Conference to the effect that trade relations between the occupied areas and the other members of the ITO should be conducted in accordance with the principles of the Charter and that the determination of the relation of the occupied areas to the ITO shall be made at the first meeting of the ITO. We may have to settle for something even less than this.

There is another way, however, in which we might accomplish our objective of getting m-f-n treatment for the occupied areas. Toward the end of this month the contracting parties of the General Agreement on Tariffs and Trade (GATT), recently concluded at Geneva, will convene at Habana to consider problems arising out of the Agreement. This Agreement contains provisions regarding most-favored-nation and general nondiscriminatory treatment similar to those already in the ITO Charter. If these provisions could be applied to the occupied areas, it would substantially accomplish the purpose intended by the original United States proposal at the ITO Conference, would help promote the purposes of the European Recovery Program, and would facilitate the reintegration of Germany into the European and world economy.

The attached paper, prepared as a preliminary position paper for the forthcoming GATT meeting, contains a proposal for bringing the occupied areas within GATT and obtaining m-f-n treatment for them. If this proposal or something similar is to be put across at the GATT meeting and be meaningful, it is essential that the British and French change their present attitude and support our position.

It is therefore requested that you take this matter up, either formally or informally as you see fit, with the British and French at the Tripartite discussions in London in an effort to obtain their support for our view. Since the GATT meeting will open shortly after the beginning of the Tripartite discussions and will probably be completed within a week or so, it will be necessary for you to take the question up at the earliest opportunity after the opening of the London discussions if your efforts are to be of any avail for the GATT meeting.

[Attachment]

Preliminary Draft Position Paper

secret

[Washington,] February 9, 1948.

GATT and Treatment of Occupied Areas

problem

What should be done to ensure that the benefits of GATT, including most-favored-nation treatment, are extended to the occupied areas of western Germany and Japan?

recommendations

The recommendations that follow are tentative and preliminary in character and subject to modification in the light of the results of the current discussions on the occupied areas problem at the ITO Conference at Habana.

1. At the meeting of the contracting parties of GATT at Habana a protocol or other form of contractual commitment should be entered into, whereby the occupied areas would obtain the assurance of general nondiscriminatory, m-f-n treatment from other countries in return for like treatment on their part. This commitment should be of the following character:

(a) Those contracting parties of GATT having responsibility, either singly or with other states, for the direction in Germany or Japan of matters provided for in GATT, would accept the obligations of the latter in respect of such area or areas for which they may have such responsibility, to the extent of and for the period of their responsibility. Exceptions to this undertaking should be provided to permit (i) measures relating to the security of the occupation forces, (ii) measures pursuant to peace treaties and related instruments in regard to such areas for the conclusion of World War II, and (iii) measures made necessary, pending the conclusion of a special exchange agreement in accordance with paragraph 6 of Article XV of GATT, by reason of the absence of an exchange rate.

(b) In return for the above undertaking, those contracting parties of GATT and other countries which might wish to adhere, would obligate themselves to extend general nondiscriminatory and most-favored-nation treatment and the other benefits of GATT to the occupied areas.

(c) The protocol or commitment providing such reciprocal treatment should be voluntary and open-end in character in the sense that (i) only those contracting parties of GATT which wish to extend to and receive from the occupied areas such treatment need adhere, and (ii) such countries as are not parties to GATT but wish to enter into a reciprocal arrangement of the above type with the occupied areas, would be free to adhere.

2. If in connection with a commitment along the above lines, contracting parties of GATT should raise the question of tariff negotiations with respect to the occupied areas, it should be indicated that at least the United States as an occupying power would be agreeable to undertaking such negotiations for its zone at the earliest opportunity. In this connection it should be pointed out, however, that at the present time no effective tariff structure is being maintained in the occupied areas and that it may be some time before it would be possible to undertake tariff negotiations for the occupied areas due to the prevailing abnormal circumstances.

discussion

At the current ITO Conference in Habana effort is being made to bring the occupied areas into the Charter so that they would have firm assurance of receiving the benefits of the Charter, particularly m-f-n treatment, when the ITO came into effect. For this purpose the U.S. Delegation at Habana has proposed an amendment to the Charter, similar to the undertaking suggested in sub-paragraph (a) of the first recommendation above, which is designed to bring the occupied areas within the Charter.

At Habana, however, strong opposition to the U.S. amendment has developed, particularly from the U.K., France, Czechoslovakia, Poland, and China. The Czechs have indicated that they could not accept a Charter with the occupied areas in it, and the U.K. and France have suggested that the problem of the treatment of the occupied areas should be left to a later date. The legal competence of the Habana Conference to consider the problem has also been brought into question.

The likely outcome of these discussions at Habana is not yet clear, and any conclusions reached now can only be tentative and subject to modification in the light of the results of the Habana deliberations. Mr. Clayton has indicated that if the present opposition to the U.S. amendment for the occupied areas continues, the amendment would be withdrawn and, instead, an effort would be made to obtain at the forthcoming GATT meeting acceptance of a commitment along the lines of recommendation 1 above. Even if the U.S. Delegation is successful in pushing through its amendment at Habana, it would be desirable to obtain a similar commitment at the GATT meeting so that the occupied areas could be assured of m-f-n treatment at the present time rather than several years hence when the Charter becomes effective.

Sub-paragraph (c) of recommendation 1 suggests that the protocol or commitment should be voluntary and open-end in character. The reason for this suggestion is to afford a procedure whereby such countries as Czechoslovakia and possibly China, which are strongly opposed to any m-f-n commitment for the occupied areas, to stay in GATT and abstain from such a commitment while other GATT countries accept such a commitment for themselves. The open-end nature of the proposed commitment would enable the occupied areas to obtain from countries not party to GATT a similar commitment for m-f-n and general nondiscriminatory treatment. Though the commitment may have to be worded differently for such non-GATT countries, an effort should be made to obtain their consent to applying to the occupied areas as much as possible of the general provisions of Article I and Part II of GATT.

It is possible that when a commitment for the extension of the benefits of GATT to the occupied areas is proposed at Habana, some countries may raise the question of tariff concessions from these areas. At present no effective tariff is being maintained in these areas, and it may be some time due to the prevailing abnormal circumstances before tariff negotiations for these areas could be undertaken. Subject to this qualification, however, the U.S. as an occupying power would not be averse to undertaking such negotiations for its zone at the earliest opportunity.