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

560.AL/2–2448

Mr. William L. Clayton to the Secretary of the Army (Royall)

confidential

[Washington,] April 2, 1948.

My Dear Mr. Secretary: This letter is intended to amplify and confirm the remarks I made in our previous discussions over the telephone regarding your letter of February 24, 1948¹ with reference to the problem of obtaining most-favored-nation treatment for the trade of the occupied areas.

The Department is completely in accord with your view as to the desirability of obtaining most-favored-nation treatment for the occupied areas. This feeling on our part stems not only from an appreciation of the financial and other responsibilities which our government has in the occupied areas but also from the fact that the principle of most-favored-nation treatment has been and continues to be a cardinal element in our foreign economic policy.

For these reasons we have made every reasonable effort to obtain most-favored-nation treatment for the occupied areas through a commitment in relation to either the ITO Charter or the General Agreement on Tariffs and Trade. To this end representations were made by our Delegation at Habana, by the Department in Washington, by our Embassy at Paris, and by our Delegation at the Tripartite discussions recently concluded in London. Agreement was obtained on inclusion in the ITO Charter of a provision which specifies that the Conference, which is to be the principal body of the ITO, shall determine the conditions upon which the rights and obligations of the Charter shall be extended to the occupied areas. As you have noted, this provision keeps the door open for bringing the occupied areas into the ITO and is thus desirable, but we agree that it is not enough. Hence, in the discussions on this question in Habana and elsewhere we have put the various countries concerned on notice that the United States will expect a provision according reciprocal most-favored-nation treatment for the occupied areas to be included in the aid agreements under the recovery programs for Europe and China.

The Department intends, in line with the suggestion in your letter, to seek to incorporate a commitment regarding most-favored-nation treatment in each of the bilateral agreements under the European Recovery Program and the Chinese aid program. It is expected that the commitment will be general in character, applying on a reciprocal basis to the commerce of the parties to the respective agreements but subject to the exceptions of the sort permitted under the ITO Charter, such as measures permitted for security or balance of payments reasons. It will be made clear that this commitment will apply to the occupied areas of western Germany, Japan and southern Korea for which the United States is responsible.

With reference to the last paragraph of your letter, I should like to make several comments. First, although the ITO Charter does not contain a specific obligation requiring the extension of most-favored-nation treatment to the occupied areas, it also does not contain any prohibition against the extension of such treatment by any Member if the latter should so desire. Hence, the “discrimination” against the occupied areas under the Charter to which you refer is one of omission, not commission. Secondly, without in any way minimizing the importance of obtaining most-favored-nation treatment for the occupied areas, I should like to stress the fact that the Charter in its present form contains a great number of far-reaching commitments of vital significance for the establishment of a mutually advantageous system of international economic relations and the achievement of the objectives of our foreign economic policy. These commitments cover the field not only of commercial policy but also of restrictive business practices, intergovernmental commodity agreements, employment and economic development. It would seem that the achievement of these extensive commitments is so important and the fulfillment of the objectives of the Charter so significant to the welfare of the United States that it would be a great pity to sacrifice or jeopardize them in any way because of the failure to obtain in the Charter a provision for most-favored-nation treatment for the occupied areas.

I am confident that through the agreements under the European and Chinese aid programs we shall obtain the most-favored-nation treatment for the occupied areas that you and I both agree is highly desirable. It is my sincere hope that the Department can count on your strong support for the ITO Charter and the program it represents.²

Sincerely yours,

William L. Clayton

1. Not printed.
2. In a carefully worded reply on May 11, Royall enumerated the advantages that would accrue from extending most-favored-nation treatment to the occupied areas; and urged the need to win acceptance of that position in the then-current negotiations for multilateral agreements under the European Recovery Program. Clayton sent a letter in reply on May 13 saying that Royall’s views had been communicated to the officers of the Department of State responsible for the ERP negotiations (560.AL/5–1148). This course of action was endorsed by Assistant Secretary of State for Economic Affairs Thorp in a memorandum of May 19, not printed (560.AL/5–1148).