Foreign Relations of the United States Diplomatic Papers, 1936, General, British Commonwealth, Volume I

641.0031/60: Telegram

The Ambassador in the United Kingdom (Bingham) to the Secretary of State ²⁷

London, May 26, 1936—11 p.m.
[Received May 26—6:30 p.m.]

281. Your 179, May 26, 4 p.m.²⁸ The British memorandum reads as follows:

1. His Majesty’s Government in the United Kingdom have received Mr. Hull’s communications on the subject of commercial policy, and have noted with great satisfaction their broad outlook over the difficulties from which the world is suffering and especially the friendly language towards this country in which they are couched.

2. His Majesty’s Government welcome unreservedly the opportunity afforded by Mr. Hull’s communications for the exchange of views on the commercial policy of the two countries. They entirely share the view of the Government of the United States of America that the restoration of world trade through a lowering of trade barriers and the principle of equality of trade opportunity are objectives of great importance from the broadest point of view. They appreciate the significance of the suggestion that two great trading nations, such as the United Kingdom and the United States of America, which together transact about a quarter of the world’s foreign trade, should pursue a common policy so far as possible. They realize the importance of their keeping one another well-informed of the trend of their policy in commercial matters and of leaving other countries in no doubt of the enlightened objectives which are the ultimate aim of both. They share Mr. Hull’s desire to avoid the possibility that critical examination of the measures they have taken in any particular instance should mask the fundamental agreement which exists between the aims of the two countries. They note with appreciation his references to the economic difficulties which the British people have faced and with which they are still confronted.

3. His Majesty’s Government believe that not only the aims of the two Governments, but also the methods by which those aims are sought to be achieved, are substantially similar. In this connection, they think it desirable to recall the statement made by the Chancellor of the Exchequer at the World Economic Conference on the subject of economic policy.²⁹ In the course of that statement Mr. Chamberlain expressed the conviction that the full restoration of the world’s economic life could be achieved only if existing facilities for international trade were increased. He urged a reduction of excessive customs tariffs, saying that in the view of His Majesty’s Government this could best be achieved by a series of bilateral negotiations taking detailed account of the particular trade relations of the negotiating countries. He pointed out that by the application of the most-favoured-nation clause concessions granted to one country were shared by all countries entitled to most-favoured-nation treatment. He added that it had long been the policy of the United Kingdom to secure the widest and most unconditional interpretation of that clause. Dealing with quotas he said that the United Kingdom were strongly in favour of the progressive abolition of import quotas arbitrarily imposed for the protection of the home producer. Mr. Chamberlain also referred to the restrictive effects upon international trade of attempts to obtain a precise balance in the exchange of commodities between two countries, pointing out that, unless the tendency to adopt such arrangements, which was already apparent, could be checked, other countries which had hitherto avoided them would be compelled to adopt them. This statement of policy was reaffirmed by Dr. Burgin at Geneva in September 1935.

4. The World Economic Conference unfortunately failed to produce agreement with a view to rehabilitating the trade of the world, but His Majesty’s Government have continued to frame their own policy in commercial matters on the basis of the principles put forward by Mr. Chamberlain on that occasion for general adoption.

5. On this basis they have successfuly negotiated a number of commercial agreements; and this basis differs in no respect from that adopted by Mr. Hull in his recent no less successful commercial negotiations. The essential similarity not only of aim but of method may be obscured by differences of detail arising from the respective economies of the United States of America, of the United Kingdom and of the other countries with whom they negotiate. But the aim is in every case increase of trade, and the method is in every case equality of opportunity, in so far as present abnormal conditions permit.

6. With regard to quota restrictions, His Majesty’s Government have always taken a view which they believe to be shared by the United States Government. It is that such restrictions, whether their object is to control markets so as to restore and maintain a remunerative level of prices for primary producers, or, more arbitrarily, to give additional protection to home producers, should be based on a fair and reasonable division of the quota amongst suppliers, having regard to the trade in some recent period. They consider that any other method of allocation would not be in accordance with the principles of most-favoured-nation treatment. That principle must, in their opinion, be maintained if bilateral negotiations between countries are to serve the purpose of lowering the barriers to international trade.

7. His Majesty’s Government have adhered to this principle in regulating the United Kingdom market for agricultural produce. They have also done their utmost to urge its adoption on other countries where the method of quota restriction is in force as a means of protecting the home market. They have been not unsuccessful in checking the tendency to operate quota systems in a manner which could not be reconciled with the most-favoured-nation principle.

8. With regard to the third class of obstacles to international trade, namely, the control exercised by means of exchange restrictions, Mr. Hull will no doubt appreciate how different are the problems created for the two countries by such measures. The United Kingdom on the one hand has a large adverse balance of merchandise trade. The accounts of the United States on the other hand show a substantial favourable balance of such trade. His Majesty’s Government are far from desiring to add to the difficulties of international trade by seeking to canalise the commercial exchanges between the United Kingdom and other countries on the basis of bilateral balancing of payments through the establishment of clearing offices or the like.

9. It is however a matter of imperative importance from the standpoint of national economy, as Mr. Hull will no doubt recognize, that the position created by the country’s trade balance should not be made more difficult by an accumulation of frozen assets. It is this consideration and this consideration alone which has compelled His Majesty’s Government to seek means of freeing the debts due to United Kingdom traders which have become immobilized as the result of exchange restrictions imposed by foreign countries. They regard clearing agreements as a last resource and payments agreements as only one degree less objectionable. They desire most earnestly to assure Mr. Hull that they have no intention of allowing these expedients, which they have been forced to adopt in abnormal conditions, to become a permanent and accepted feature of a normal economy. It is no part of their general policy to initiate a system in which the sterling available from the sale of produce in the United Kingdom should be solely reserved for the payment of United Kingdom goods and services.

10. Where His Majesty’s Government have resorted to arrangements of this kind they have been compelled to do so by the action of foreign countries, which, ignoring the accumulation of payments due to the United Kingdom, have used the large sterling balances accruing to them to meet commitments in third countries. In such cases there has naturally been strong pressure on His Majesty’s Government to ensure that the frozen assets of United Kingdom traders are liquidated as a first charge on the sterling available. They have, however, sought while realizing this limited objective to reduce to a minimum the interference with the normal course of trade. Reference may be made in particular to the case of Spain. The proposal that the whole of the sterling obtained from Spanish exports to the United Kingdom should be allocated for payments due from Spain to the United Kingdom was put forward by the Spanish authorities. It was their desire that the arrears should be liquidated as rapidly as possible, and the agreement itself provides that, when a stage is reached at which payments are being made without delay, the clearing shall cease. The object of the agreement is the purely temporary one of liquidating arrears and the United Kingdom Government’s desire is that normal commercial methods of payment should be resumed as soon as possible.

11. Finally the United Kingdom Government feel it desirable to refer to the circumstances arising from the fact that the export trade of the United Kingdom is largely in manufactured articles which have to be disposed of in competition with the manufactures of many other countries. It is therefore much more vulnerable and sensitive to disturbed conditions than is the trade of countries exporting principally produce and raw materials with which purchasers cannot dispense. The problem created for His Majesty’s Government is thus both acute and diversified; it must be met by dealing with exceptional circumstances as each case demands. It should nevertheless be evident that they cannot, by reason of the great interests at stake, afford to slacken their efforts to reduce and to remove barriers to trade of all kinds by every means at their disposal. The wide variety both of the products and of the markets of the United Kingdom must necessarily determine the Government’s vigorous support of the most-favoured-nation principle.

12. His Majesty’s Government have permitted themselves these general remarks on the various aspects of their commercial policy in the hope that Mr. Hull will find that there is no real divergence either of interest or of policy on the part of the two countries, but rather that the objectives of His Majesty’s Government are virtually identical with those pursued by the United States Government under the Trade Agreement Act of 1934.

13. His Majesty’s Government have considered the particular proposal made in Mr. Hull’s communications that the objects common to both countries could be advanced by a statement to be made on their behalf. It appears to them that the public statements of the Chancellor of the Exchequer to the World Economic Conference and of Dr. Burgin on 23rd September last to the Second Committee of the Assembly of the League of Nations show very clearly the close agreement between the policies of the two Governments in regard to the improvement of the international trade position. His Majesty’s Government would nevertheless be glad to reaffirm at an early and suitable opportunity the principles set out in these public statements, if as they understand, this would be regarded by the United States Government as a useful contribution to the attainment of the objects which Mr. Hull has in mind.”

Bingham

27. Attached to the file copy is a memorandum by the President, dated May 28, 1936, reading as follows: “This is a most interesting reply from the British Government. I think there is no objection to a general statement between now and November, but I do not think it should be more than a general statement. In other words, we do not want to involve ourselves in the next few months in controversy over specific details which would narrow the field to specific commodities. It is, however, a very useful beginning. F. D. R.”
28. Not printed; it instructed the Ambassador to wire the text of the British memorandum (641.0031/59).
29. For correspondence concerning the London Economic Conference, see Foreign Relations, 1933, vol. i, pp. 452 ff.