840.50 Recovery/6–1148
The British Embassy to the Department of State
Aide-Mémoire
His Majesty’s Government in the United Kingdom of Great Britain and Northern Ireland wish to draw the attention of the United States Government to the problem, raised in Geneva in 1947 during the negotiation of the General Agreement on Tariffs and Trade, in Havana during the discussions of the Charter of the International Trade Organisation, in London in February, 1948, during the Tripartite talks on Germany and more recently in the draft Economic Co-operation Agreement presented to His Majesty’s Government by the United States Government, of the granting on a reciprocal basis of most-favoured-nation treatment to goods the produce of certain ex-enemy occupied areas.
2. On previous occasions His Majesty’s Government have not felt themselves able to agree with some of the concrete proposals on this subject put forward by the United States Government. In adopting this attitude on those occasions His Majesty’s Government have been mindful, in the first place, of their international commitments under such instruments as the Potsdam Agreement and the terms of reference of the Far Eastern Commission and of the difficulties which they [Page 448] caused both for the United Kingdom and for certain other countries present in Geneva and Havana, secondly of the need for study of the implications of the reciprocal extension of most-favoured-nation treatment both on the economies of the occupied areas concerned and of the United Kingdom and its dependent territories and thirdly of the need for consultation with their fellow members of the Commonwealth. As the United States Government are aware certain members of the Commonwealth are opposed to any extension of most-favoured-nation treatment to ex-enemy occupied areas in advance of the peace treaties. In the case of Japan they point out that the requirement of reciprocity, by which the occupying authority in Japan would so far as practicable undertake to grant most-favoured-nation treatment to goods the produce of countries giving reciprocal treatment to goods the produce of Japan, is one which could only be undertaken by a policy decision of the Far Eastern Commission. It appears to His Majesty’s Government in the United Kingdom of Great Britain and Northern Ireland that there are grounds for agreeing with this argument.
3. At the same time, however, His Majesty’s Government recognise the importance to the United States, while it bears in large measure the costs of occupation, of being assured of equitable treatment for the exports of the occupied areas, in order to avoid placing an unfair burden on the United States. At Havana the United Kingdom representative stated that it was not so much the substance of the United States proposal on this subject which caused difficulty for the United Kingdom as the time and place of its introduction. At the request of the United States representative this statement was recorded in the minutes of the Conference.
4. In conformity with this general attitude His Majesty’s Government is anxious to comply with the United States desire to safeguard United States interests and to ensure that the costs of occupation borne by the United States of America are not unfairly increased by unjustifiable treatment of exports from the occupied areas. They have examined three methods of achieving this aim.
5. The first method is a protocol to be sponsored by the contracting parties of the General Agreement on Tariffs and Trade. This method seems unsatisfactory because, in the first place, Czechoslovakia is a contracting party. It appears that Czechoslovakia would resist the proposal on grounds similar to those advanced by the Czechoslovak delegation at Havana to the proposal put forward there by the United States delegation. While it might be possible to outvote the Czechs on this issue at a meeting of the contracting parties of the General Agreement on Tariffs and Trade, the incident might provide opportunity for mischief-making by Communist elements which it would be desirable to avoid. Secondly the contracting parties are not due to meet until [Page 449] August, 1948, and it seems desirable to proceed with the matter before then.
6. The second method is the provision included in Article V of the draft Economic Co-operation Agreement presented by the United States Government to His Majesty’s Government. A provision of this sort in the various Economic Co-operation Agreements which the United States Government will be concluding with countries which receive aid is, in the opinion of His Majesty’s Government, open to the gravest objection from the European point of view. It will provide material for effective propaganda by elements in Europe especially Communist elements, which desire to discredit and defeat the European Recovery Programme. They will be able to claim that as part of the price of aid the members of O.E.E.C. which conclude Agreements have laid their economies open to German and Japanese competition, which before the war, as is well remembered in Europe, and perhaps even more in the overseas possessions of European countries, was backed by innumerable malpractices, and in doing so have betrayed the interests of their countries to their recent enemies.
7. The provision in the draft Economic Co-operation Agreement refers to most-favoured-nation treatment not only for German, but also for Japanese exports. This particular aspect raises especial difficulties for His Majesty’s Government. In view of the close cooperation between His Majesty’s Government in the United Kingdom of Great Britain and Northern Ireland and the Governments of Australia and New Zealand, in particular, in everything that pertains to policy towards Japan, His Majesty’s Government do not feel able to run counter to the strongly-worded views of these Governments on this subject. The fact that the extension of most-favoured-nation treatment to Japanese goods was a condition of receiving aid would, furthermore, cause strong resentment in the United Kingdom and in many British colonies.
8. For these reasons His Majesty’s Government have come to the conclusion that a third method, consisting of a protocol providing for the extension on a reciprocal basis of most-favoured-nation treatment to goods the produce of occupied areas of Germany (not Japan) by any country wishing to adhere to the protocol, would be preferable. A draft protocol of this sort is attached to this aide-mémoire1. It would be entirely independent of any other instruments such as the General Agreement on Tariffs and Trade or the Economic Co-operation Agreements.
9. In the opinion of His Majesty’s Government such a protocol would have two important advantages over a corresponding provision in the Economic Co-operation Agreements. It would be open to adherence [Page 450] by any country, including U.S.S.R. on its own behalf and as occupying authority in the Soviet Zone of Germany, thereby counteracting many of the legal objections which the Communists might raise against a provision which could only apply to Western Germany and to the O.E.E.C. countries. It would also be open to adherence by Switzerland, Portugal and Latin American countries, which have convertible currency available to spend in German goods and might well prove more valuable customers for Germany than the countries which receive aid. A most-favoured-nation clause would have relatively little significance as between Germany and countries, which, because they lack dollars, can only afford to buy essentials from Germany on programmes designed to ensure that the payments balance. Countries receiving aid fall into this category. The clause would however have real significance for Germany’s trade with hard currency countries.
10. The draft protocol attached to this aide-mémoire contains various safeguards, which are considered necessary in view of the absence of an exchange rate for Germany, the consequent pricing of German exports by methods which might lead to large and unforeseeable influxes of German goods into other countries so as to cause serious injury to domestic producers, and the fact that in the case of Germany unlike other major trading countries, the general level of the tariff is not limited by the operation of tariff bindings incorporated in the General Agreement on Tariffs and Trade.
11. In concert with Government of France, with whom His Majesty’s Government have consulted, and with the support of other members of O.E.E.C., His Majesty’s Government presents this protocol to the United States Government for their consideration as the most effective means of achieving the aims which His Majesty’s Government share with the United States Government, namely that the burden of the costs of occupation on United States, and to a lesser extent, French and United Kingdom taxpayers should not be increased by unjustifiable discrimination against exports from Germany and that Germany should have full opportunity to rebuild its economy on sound and healthy lines.
- Not found in Department of State files.↩