Cablegram E4 LONDON, 8 July 1943, 11 p.m.
SECRET
Post War commercial policy discussions. [1] These talks have now concluded. No attempt has been made to secure a common Empire basis for an approach to the United States. Discussions revealed fairly wide differences of opinion between the Dominions participating.
The United Kingdom indicated at end of conference that they proposed to approach United States broadly on the basis set out in their aide memoire communicated to us in their No. 235 of 22nd April [2], but that they proposed as a result of the discussions to make following amendments to the aide memoire.
Point (i) Delete all words after ‘would have to be accompanied’ and substitute ‘by International policies conducive to a high level of employment, production and consumption, to improve standards of living, and in general to an expansive world economy.
It requires some system for the free convertibility of currencies for trading purposes.
Further, an essential condition of success is the development of effective political and strategic plans for the achievement of security’.
Point (ii) At end add ‘The multilateral convention would not of course exclude supplementary bilateral agreements within the framework of the multilateral agreement’.
Point (iv) At end add ‘The question should be considered whether special provisions could be devised to meet on a reasonable scale the temporary needs of infant industries’.
Point (v) In second sentence omit ‘which we do not regard as discriminatory in a strict sense of the word’.
Point (ix) Reword as follows. ‘Any multilateral commercial arrangement should be compatible with the conduct of external trade by the state or by state-sponsored organisations as well as by private enterprise. But it would be desirable that forms of trading promoted by state action should be conducted in accordance with a code to be agreed’.
United Kingdom circulated a summary of the discussions which, while not an official record of the conference, proved of value in bringing out the various points of view established. Following notes are selections from that report, copy of which is being despatched by air mail. [3]
1. Relation of Commercial Policy to Other Post War Measures It was agreed that all objectives of Article VII were interdependent and needed to be pursued concurrently. All delegations shared the view that particular emphasis should be placed not merely on those aspects of Article VII which were concerned with the reduction of barriers of trade, but also on the positive aspects of securing expansion by appropriate International and domestic measures of production, employment and exchange and consumption of goods.
2. United Kingdom Initiative for Multilateral Action United Kingdom argued that multilateral action was necessary.
Bilateral negotiations were slow and piecemeal, and benefits derived from them were restricted by the need to extend benefits without return to most favoured nations. Furthermore, possibilities of bilateral negotiations with United States have largely been exhausted and, at any rate, benefits to world trade were limited, while United States had to obtain equivalent concessions for tariff reductions. It is necessary to emphasise that United States Trade Agreements Act is not sufficient United States contribution to Article VII, particularly if preferences are to be brought into the field.
Some doubts were expressed whether multilateral convention could do more at this stage than lay down a code of good behaviour.
There was some difference of opinion about the place of bilateral negotiations if the United Kingdom approached United States for a multilateral agreement. Australian, New Zealand and South African delegates urged strongly that present bilateral negotiations should be brought to a conclusion as rapidly as possible. United Kingdom, while stating that they did not wish to obstruct negotiations, made it plain that these were of little interest to United Kingdom and a more comprehensive approach was essential.
3. Protection in General There was agreement that protection should not be conferred indiscriminately. Australia, South Africa and India particularly emphasised, however, the need for protection to bring about diversification and industrialisation for security and social reasons. It was also represented that tariffs were not always the most suitable instruments of protection and that latitude should be left to employ other measures.
4. Tariffs While it was agreed that some limitation of the use of tariffs was desirable doubts were expressed as to the practicability of a ceiling.
It was felt that a ceiling could not take into account:-
(a) The needs of new industries, particularly where habits of consumption have to be broken down.
(b) Protection against dumping.
(c) Protection against countries whose wage and other costs are difficult to determine.
Emphasis was placed on practical difficulties of getting an equivalent control for specific duties. We pointed out that a better test is often the nature of the industry protected rather than the degree of protection. Relevant tests for the former were qualitative such as the availability of raw materials, quantity and type of labour available, the size of the market in relation to the optimum output, etc. Reference was made to benefits derived from national tariff boards in restraining excess protection.
5. Preferences It was agreed that it would be unwise to claim that preference was not discriminatory, but attention was drawn to the fact that protection within the Commonwealth did not differ in principle from free movement of goods within so large an area as the United States. The essential point in negotiations was to ensure that for any modification of preference substantial concessions were secured from United States and other countries.
6. Regional Arrangements It was suggested that regional arrangements for preference might be desirable where based on geographical or political relationship, but it was recognised that difficulty would be experienced in laying down conditions under which such arrangements should be permitted. The test might be as to whether the arrangements tended to increase the volume of world trade.
7. Quantitative Regulation of Imports It was agreed that continuation of quantitative controls would be necessary for exchange reasons for some years after the war and might continue to be required:-
(a) In respect of International commodity agreements.
(b) To meet balance of payment difficulties.
(c) For security reasons.
It was pointed out that unless quantitative regulation was subjected to controls of the same kind as tariffs they could be used to make any International agreement ineffective and to introduce elements of discrimination elsewhere excluded.
Some attention was given to the advantages of quantitative controls as a more flexible instrument of protection in some cases than tariffs. South Africa emphasised that it had been possible, by the use of import restrictions, to give necessary protection without marked increases in price in the protected market.
7. [4] Subsidies It was generally felt that export subsidies were undesirable, particularly where they related to manufactured goods. United Kingdom expressed the view that subsidies to primary producing export industries could be given directly on an output basis, rather than by a higher home price. Such production subsidies they considered permissible under the form of agreement contemplated.
We emphasised conditions in which subsidies were economically or socially [5] justified and in which the home price might be the most effective method of providing such subsidies.
It was emphasised that it was necessary to bring in some control of subsidies because there was a form of protection particularly favoured in the United States which might otherwise attempt to retain freedom in this field while seeking every restriction on freedom to impose tariffs. Attention was drawn to the difficulty of controlling dumping by . . . [6]
8. State Trading It was agreed that the conduct of external trade by state and co- operative organisations would continue and that provision must be made for it. The objective should be to prevent the use of such trading to give an excessive degree of protection and to discriminate in ways not possible by tariffs. It was emphasised that a distinction should be drawn between the purchase of goods by an official organisation for its own use and for resale.
9. International Commercial Code and Institutions Some doubts were expressed as to how far a precise code could at this stage be drawn up and of the degree of authority an International institution administering such a code could be given. A difficult issue raised would be whether members of the Commercial Union would be required to withdraw most favoured national treatment from nonmembers. The extension of benefits derived from such a Union to nonmembers through most favoured nation clause might injure the interest of other member states. We expressed doubts as to whether an attempt should be made to make participation in other International plans such as the Clearing Union, conditional upon membership of the Commercial Union. It was pointed out, that if it proved difficult or impossible to give precision to the commercial code, any body set up could not have judicial functions, although it might prove of value in an advisory capacity and perhaps to arbitrate between disputing countries.
10. Conclusion At the conclusion it was stated that the delegations, while in no way committing their Governments, saw possible advantages in the United Kingdom taking the initiative in informal and explanatory discussions with the United States on commercial policy as part of action to promote positive aims of Article VII of the Mutual Aid Agreement. The delegations noted that the United Kingdom in taking this initiative would follow broadly the lines of the aide memoire. It was understood that the United Kingdom representatives would be speaking at this stage purely for themselves, though with the background of the provisional views expressed by the various delegations at the present discussions, and it would be open to other members of the Commonwealth to express their own views at the proper time.
It should be emphasised that no attempt was made to reconcile differences of opinion expressed in the discussion. After various points of view had been stated and examined the question was left.
Amendments given earlier in this cable to the aide memoire were made by the United Kingdom without reference to the conference and we are not in any way committed to an acceptance of the point of view of the aide memoire. The general opinion formed by our delegates was that only Canada was generally sympathetic with the point of view taken by the United Kingdom delegation.
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1 These discussions were held in London in late June. The Australian delegation consisted of Dr H. C. Coombs, E. J. McCarthy and Jacob Fletcher.
2 Document 166.
3 Dated 29 June. On file AA:A989, 43/735/57/1.
4 There were two sections numbered 7 in the original.
5 The original was here annotated ‘mutilated’.
6 The original was here annotated ‘word apparently omitted’.
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[AA:A989, 43/735/57/1]