Foreign Relations of the United States: Diplomatic Papers, 1945, The British Commonwealth, The Far East, Volume VI

841.50/7–945

Memorandum of Conversation, by Mr. John M. Leddy, Assistant Adviser in the Division of Commercial Policy

[Washington,] July 9, 1945.

Informal Discussions on Commercial and Financial Policy Between Officials of the United States and Canada

The following persons were present at this meeting:

For the United States:	For Canada:
Mr. W. L. Clayton, Assistant Secretary for Economic Affairs	Mr. Norman Robertson, Under Secretary of State for External Affairs
Mr. Harry C. Hawkins, Minister Counselor of the Embassy at London	Mr. Hector McKinnon, Chairman of the Tariff Board
Mr. Clair Wilcox, Director, Office of International Trade Policy	Mr. Lester Pearson, Ambassador to the United States
Mr. E. G. Collado, Director, Office of Financial and Development Policy	Mr. Dana Wilgress, Ambassador to the U.S.S.R.
Mr. Leroy Stinebower, Deputy Director, Office of International Trade Policy	Mr. Thomas A. Stone, Counselor of Embassy
Mr. John D. Hickerson, Acting Director, Office of European Affairs
Mr. Winthrop Brown, Division of Commercial Policy
Mr. T. C. Achilles, Chief, Division of British Commonwealth Affairs
Mr. James Earley
Mr. J. M. Leddy

The Canadian officials came in at our request for the purpose of discussing informally: a) commercial policy, with particular reference to the proposed international conference on trade and employment and b) financial policy, with particular reference to the possibility of granting post-war credits to the United Kingdom.

Commercial Policy

The discussion on commercial policy, which was led by Mr. Clayton for the American group and by Mr. Robertson for the Canadian group, related almost wholly to the question of how to effect tariff reduction. The main issue was whether tariffs should be reduced by horizontal, nonselective reduction, as had been contemplated in earlier discussions between officials of the United States, the United Kingdom and Canada, or whether they should be reduced selectively. The following are the main points which were brought out by each group.

By the American group:

1. The Trade Agreements Act contemplates tariff reduction by the selective process. The recent action of Congress in renewing and strengthening the Act²³ was accomplished only after great efforts by the Administration and by Congressional leaders. In the course of the Congressional hearings and debates it had been necessary both to emphasize the principle of selectivity and to stress the essentiality of the Act to our post-war foreign economic program. For all these reasons it would now be extremely difficult, even if it were desirable, for the Administration suddenly to change its course and adopt the completely different approach to tariffs inherent in the formula for horizontal tariff reduction.

2. Even if the domestic obstacles created by the passage of the Trade Agreements Act did not exist, it would probably be very difficult to obtain approval by the American Congress of the proposal for horizontal tariff reduction. It would, in fact, be impossible if, as is believed, the proposed agreement incorporating horizontal tariff reduction should have to be presented as a treaty requiring the consent of two-thirds of the Senate.

3. The proposal for horizontal tariff reduction also presents grave negotiating problems. The chances of getting a considerable number of other countries to adopt the proposal would probably be not greater than 50–50.

4. It seems desirable, therefore, to make every effort to work out a multilateral plan under which tariff reduction could be carried out selectively. One plan would be the multilateral-bilateral approach, in accordance with which each country would, in effect, institute a trade-agreements program and negotiate bilateral agreements with its principal suppliers. Another plan, still in the exploratory stage, would be multilateral agreement containing a commitment to reduce the tariff selectively in accordance with rules to be agreed upon. These rules would be designed to bring down the overall ad valorem equivalent of each nation’s tariff by an agreed extent.

By the Canadian group:

1. The Canadian group had not until that moment realized that there were commitments in connection with the renewal of the Trade Agreements Act which would be an obstacle to the adoption of the plan for horizontal tariff reduction by the United States. This was an extremely significant development since what the rest of the world could do in the way of liberalizing trade would be limited by what the United States did.

2. The adoption of the selective tariff method by the United States would, therefore, require a complete reappraisal of what could be expected to be accomplished in the trade-barrier field as a whole. The Canadian officials had had definite hopes for the horizontal formula because they considered it as the most practicable method, politically and economically, of solving the trade-barrier problem. The proposal for horizontal tariff reduction would represent a fresh approach designed to concentrate emphasis on expanded world trade and international cooperation. Its very magnitude, and the fact that it would deal with all tariffs in all countries with an even hand would assure for it strong support and would weaken the vested minority interests in every country. Selective tariff reduction, on the other hand, tends to emphasize the sanctity of protectionism. Its adoption by the United States would have reverse effects in other countries which will inevitably adopt the same careful and cautious attitude toward the reduction or removal of tariffs and other restrictions against United States exports. Finally, the selective tariff method would probably make impossible any thorough-going action for the elimination of tariff preference. The plan for a horizontal tariff cut might have made possible the substantial wiping out of British preference system but nothing like this could be hoped for if the selective process were used.

3. The selective method of tariff reduction, as carried out by the United States under the Trade Agreements Act, had tended to strengthen the belief that trade barriers should be reduced only under the bargaining process and to obscure the truth that trade barrier reduction is also of benefit to the country doing the reducing. For example, it was virtually becoming impossible for the Canadian Government to reduce its duties unilaterally even though many of them should be reduced in the best interests of Canada.

4. With regard to the difficulties of negotiating the plan for horizontal tariff reduction, it is true that these difficulties exist, but in the Canadian view they are not likely to be as great as they seem. It was almost certain that the plan would obtain the full support of Canada and, unless other British countries should refuse to go along, of the United Kingdom. Of the British countries Australia and India offered the biggest obstacles, but it is believed that these could be overcome. The countries of Western Europe are also likely to be favorable to the plan for the reason that tariff reduction now would not have more than incidental effects as compared with the disruption arising from the war. If the United States, the British countries, and the Western European countries should support the plan, the attraction to other countries would probably be irresistible.

5. It should be recognized that the proposal for multilateral-bilateral action suggested by the American group would require a multiplicity of bilateral negotiations and would take many years to complete. The present opportunity for effecting trade-barrier reduction while opposition to it is at a low point would thus be lost.

6. With regard to the alternative proposal for selective multilateral tariff reduction, it is believed that apart from the general disadvantages of selective tariff action, this proposal would have major technical disadvantages which could not be easily overcome.

7. On the whole, therefore, the Canadian group was of the opinion that horizontal tariff reduction represented the most promising approach to the whole problem. If the United States could not at present see its way clear to sponsor this approach actively, perhaps after the same sort of careful preparation by public and Congressional opinion which preceded the San Francisco Conference, then perhaps the problem might be met if other countries should sponsor the proposal and thus bring it up for public debate. It was clear, however, that no such proposal could finally be made effective without the support of the United States.

8. With regard to the view of the United States group that the horizontal cut would be almost certainly rejected by the American Congress, the Canadian group felt that the approach should be tried even if it should eventually fail. Mere trial of the bold approach would tend to give impetus to the carrying through of a more moderate scheme, such as the multilateral-bilateral plan.

In addition to the general discussion regarding tariff policy, there was a brief review of the plans for a general conference on international trade and employment. The Canadian group was of the opinion that a general conference of all countries might be dangerous, since the views of the many small countries might unduly weaken the bolder measures which the large trading nations might find it possible to agree upon. It would seem preferable to confine the arrangement to the large trading nations and then throw it open to adherence by others.

On the question of employment, the Canadian and American groups appeared to be in agreement that it was important to give the trade policy measures an employment slant, and to reach general agreement that countries should not adopt employment measures detrimental to other countries. They also agreed that adoption of the extreme views put forth by the Australians, favoring a rigid international commitment to maintain employment and advocating an “escape” clause from international commitments if employment were not maintained, would be impracticable and unwise.

At the close of the discussion on commercial policy, it was agreed that each group would appoint three people to meet in Canada during the coming weekend for the purpose of exploring further the possibilities of selective tariff reduction in a multilateral setting.

Financial Policy

The discussion of financial policy was relatively brief. Mr. Clayton stated that the United States position was that UNRRA²⁴ was the proper agency to finance relief requirements of war-torn areas and that, if appropriate general agreement could be reached at the London Council meeting,²⁵ we would be prepared to ask Congress to appropriate our share of the additional funds required to finish its job.

Mr. Robertson expressed agreement that UNRRA was the proper agency for this purpose and stated that Canada would no doubt be willing to contribute its additional share if there is general agreement to go ahead. He stressed, however, the Canadian feeling that members of the United Nations who had not contributed should be required to do so. He particularly cited Argentina as a nation which should not enjoy the privileges of the United Nations without paying its way in this common program. He also expressed the Canadian view that UNRRA’s reputation needed resuscitation and that a change in UNRRA’s top management would be desirable.

Mr. Clayton reviewed the position of the Export-Import Bank legislation and expressed confidence that the $3.5 billion appropriation would soon be available.²⁶ He was asked how far we had gone with respect to credits to Russia and stated that the Russians had not yet asked for a loan but that he expected such a request would be made and we were prepared to consider it seriously.²⁷

Mr. Robertson referred to the possibility that transitional or postwar credits might be confined to members of the “club” which joined in open-end international trade arrangements. The United States representatives did not express an opinion on this question but indicated it might be considered further.

Although the matter was not discussed directly, there was some indication in remarks by Mr. Robertson that the Canadians are thinking of post-war loans, at least those of a semi-relief or reconstruction character, in terms of financing country by country the direct import needs of borrowers in Canada. The United States representatives did not express their attitude towards this policy or its relation to proposed multilateral trade and financial arrangements.

Mr. Robertson indicated that the Canadian attitude on credits to the United Kingdom was still substantially as expressed in our last conversations with them on March 10,²⁸ and in their telegram of two weeks before that date to London. The Canadians are willing to go ahead on a joint credit program designed to ease the British transition problem and favor the generous credit terms they suggested earlier. Mr. Robertson stated that recent Canadian discussions in London had not gone very far, so far as credits were concerned, mainly because it was recognized that the aid the Canadians could give could go only a short way towards solving the British problem.

In answer to questions, Mr. Robertson stated that the Canadians felt that transitional credits to the United Kingdom could well be part of general arrangements accelerating British relaxation of war-time financial controls, but said that the British had not directly expressed themselves on such a program. This was natural, Mr. Robertson pointed out, in as much as they were not prepared to proceed on the basis of solely Canadian aid.

23. Approved July 5, 1945; 59 Stat. 410.
24. United Nations Relief and Rehabilitation Administration; for documentation regarding participation by the United States in the work of UNRRA for the year 1945, see vol. ii, pp. 958 ff.
25. Reference is to the third session of the UNRRA Council, London, August 7–24, 1945.
26. The Export-Import Bank Act of 1945 was approved on July 31, 1945; 59 Stat. 526,
27. For documentation on this subject, see vol. v, pp. 937 ff.
28. See footnote 75, p. 32.