Foreign Relations of the United States, 1947, General; The United Nations, Volume I

560.AL/7–3147

Memorandum by the Associate Chief of the Division of Commercial Policy (Willoughby) to the Deputy Director of the Office of International Trade Policy (Nitze)

top secret

[Washington,] July 31, 1947.

Following are our preliminary reactions to the Balfour letter setting forth the British Government’s position with regard to the Charter and the General Agreement on Trade and Tariffs.

Evaluation of the British Position

1. It appears from the general tone of the British letter, that the British may be taking a bargaining position. They are fully aware of the great importance we attach to the Geneva negotiations, and know we must use all the means at our disposal not only to conclude the negotiations successfully, but also to bring the General Agreement into force at an early date.

2. The British may be sincere in stating that they are not sure the measures they may have to adopt would be in conformity with the exceptions to nondiscrimination specified in the Charter. It appears to us, however, that Article 28 of the draft Charter (and the corresponding Article XII of the General Agreement) are sufficiently broad and flexible to permit almost any emergency measures which the British might have to take.

3. It appears probable that the British are also concerned about the necessity for making substantial reductions in imperial preferences if the General Agreement is to be concluded. From the standpoint of their internal politics this is, important. Reports from Geneva indicate that they have made no substantial offers on preferences and there is no indication that they are prepared to make any. In London there is strong support in Parliamentary and even certain Governmental circles for maintaining the preferential system as intact as possible.

4. In extenuation of the British proposal, it must be admitted that it will not be easy for them to explain their signing of an agreement committing them to lower trade barriers and to nondiscrimination when at the same time it is necessary for them to take advantage of all the exceptions in the agreement to control imports and to discriminate against the United States.

Significance of the British Proposal

The British propose that the General Agreement on Trade and Tariffs should not be put into effect on November 1, but should be initialled ad referendum without any commitment as to its coming into force. They state that on their part the agreement could not be brought into force “unless there is a substantial stability of international exchanges”. Under this proviso the agreement might not come into force for years.

It appears obvious that we must oppose the British proposal very strongly. The difficulties we will encounter in connection with Congressional opposition and the domestic political situation will become more and more serious as the present schedule is delayed. In my opinion any delay in concluding the Charter which would envisage Congressional action later than the first part of next year probably would preclude it ever being approved. It is likewise essential that the General Agreement be concluded and made public before the end of this year.

We must also make every effort to prevent the British from backing out of making reductions in preference. For many years we have been pressing for elimination of British preference. We obtained pertinent commitments from the British in the Atlantic Charter and Article VII of the lend-lease agreement about the fulfillment of which they have never been very enthusiastic. If the present opportunity is lost, it will not recur for a long time to come, if ever.

Recommendations

The views of Mr. Clayton and the Delegation at Geneva must be obtained before a reply is made to the British letter. On the basis of the considerations outlined above, our tentative position ought to be as follows:

1. We ought to resist as strongly as possible the attempt to delay the coming into force of the General Agreement or the Charter.

2. Instead of permitting the British to use the Geneva negotiations as a bargaining point in support of their requests for assistance, we ought to reverse the position and press for the successful conclusion of the Geneva negotiations, including our desiderata with respect to preferences, and the early entry into force of the General Agreement, as a prerequisite to our assistance program, or at least as a prerequisite to our concurrence in any relaxation of the nondiscrimination commitments in the Financial Agreement. Such insistence will not be unreasonable in view of the many concessions we are making to the British point of view, and in view of our belief that neither the Charter nor the General Agreement will prevent any necessary British import or exchange control measures.

3. We should be as liberal as possible under the Loan Agreement and Monetary Fund Agreement in allowing the United Kingdom to discriminate wherever it will assist in resolving their dollar shortage. If they can demonstrate, which I doubt, that the Charter or General Trade Agreement prevent them from taking action which would materially assist them in meeting their balance-of-payments difficulties, I would advocate broader exceptions in preference to postponement of the effective date.