Foreign Relations of the United States, 1950, National Security Affairs; Foreign Economic Policy, Volume I

NAC Files, Lot 60D137, Box 362¹

Draft of Minutes of the 151st Meeting of the National Advisory Council on International Monetary and Financial Problems, Washington, February 28, 1950 ²

Washington, February 28, 1950

secret

[Here follow list of names of persons present (27) and discussion of a prior agenda item.]

2. South African Restrictions ³

Mr. Glendinning⁴ said that the United States Executive Director on the Fund had requested Council advice as to what attitude he should take in the Fund on the maintenance of exchange and trade restrictions by South Africa. The Fund would have to advise GATT within the next few weeks as to whether it considered the restrictions imposed by South Africa justified on balance of payments grounds.

Mr. Glendinning pointed out that about two-thirds of South Africa’s current earnings of foreign exchange were in the form of gold and hard currency, the greater part being derived from newly mined gold. In the postwar period South Africa had been running a substantial deficit on current account, financed by drawing down reserves and by a capital outflow from the United Kingdom, which in 1947 reached a peak of the equivalent of $700 million a year. This outflow declined in 1948, and for a short time reversed itself, but again appeared to be assuming important dimensions.

With reference to the system of controls in effect in South Africa, Mr. Glendinning added that South Africa expected to issue “universal” exchange permits, payable in gold or dollars, to the approximate equivalent of the total of its gold and dollar earnings. In addition, South Africa would issue permits which could be used only for purchases in the soft currency area and which presumably would absorb whatever resources came in the form of capital inflow from the United Kingdom. The commodities included in the list for which global permits would be issued were designed to insure a certain minimum gold earning for the United Kingdom. Mr. Havenga had estimated that this minimum would be $100 million and possibly might reach $200 million.

The United Kingdom apparently favored these arrangements on the assumption that if the capital outflow were permitted and South Africa maintained discriminatory import restrictions, the United Kingdom would obtain a larger proportion of South Africa’s gold than if South Africa’s restrictions were non-discriminatory. Presumably South Africa had entered into the arrangements in order to insure the continuation of capital inflow from the United Kingdom and also to insure that Britain would not restrict South African non-essential exports to the United Kingdom.

Mr. Glendinning pointed out that the problem raised far reaching questions with respect to sterling area arrangements, such as unrestricted capital outflow from the United Kingdom to sterling area countries, that went far beyond South African restrictions alone.⁵

With respect to the proposed action Mr. Glendinning stated that the majority view (Alternative A⁶) was that on the basis of the South African exchange position there was no adequate basis for the maintenance of discriminatory restrictions. The majority recommendation was also that the Fund should advise GATT that there was no adequate basis on financial grounds for the maintenance of discriminatory import restrictions by South Africa, and that the Fund should consult with South Africa in order to obtain a modification of the South African restrictions so as to eliminate the discrimination. The minority view (Alternative B) was that because of the complications arising in connection with the capital outflow from the United Kingdom and the implications involved for Britain’s dollar earnings the United States should be cautious about making a strong affirmation of principle in this case, but should question the adequacy of the grounds for discrimination and should seek to obtain an understanding as to the eventual elimination of discrimination over a period of time (NAC Document No. 965). Mr. Glendinning pointed out that the difference between these alternatives was a matter of degree and emphasis rather than a complete difference of view.

[Here follows some discussion of the merits of the two alternatives. Representatives of the Department of Agriculture (Loveland) and Commerce (Blaisdell), the Export-Import Bank (Gaston), and the Federal Reserve Board (Szymczak), and the Alternate U.S. Executive Director on the International Monetary Fund (Hooker) favored Alternative A. The Economic Cooperation Administration (ECA) representative (Locker) favored Alternative B.]

Mr. Stinebower⁷ said that the State Department’s views fell between Alternative A and Alternative B, but were closer to Alternative A. One difficulty was the uncertainty as to whether South Africa could find investment funds in the private market for the expansion of gold mining. There were some other minor points, and the State Department suggested that Alternative A be modified to read as follows:

“The National Advisory Council advises the United States Executive Director on the International Monetary Fund: (1) that he should seek a determination by the Fund that no adequate basis has been established for the maintenance on financial grounds of discriminatory restrictions by the Union of South Africa; (2) that he should advocate a report from the Fund to GATT that the Fund has not found adequate basis on financial grounds for the maintenance of discriminatory import restrictions by the Union of South Africa; and (3) that he should advocate consultation with South Africa to obtain appropriate modification of the South African restrictions.”

In connection with item (1) Mr. Stinebower commented that the State Department had some question as to whether we should be addressing ourselves exclusively to South Africa, since pressure may have been brought on South Africa by the United Kingdom with the price being accessibility to the British market. With respect to subdivision (3) he thought the position in the present Alternative A might be difficult to maintain. What appeared to be appropriate today was the elimination of restrictions. After there had been consultation with South Africa the Fund might have different views on what would be appropriate, and these could be brought back to the Council for subsequent consideration if necessary.

Mr. Szymczak thought it would be much better for the United [States] Executive Director to present his case in the Fund on the basis of the original Alternative A. To state that he did not think South Africa had “established a case” would indicate uncertainty. Mr. Szymczak believed that the position should be that on financial grounds there is no case for discrimination.

Mr. Hooker observed that he could not assure the Council that the Fund would agree upon the exact wording that there was no adequate basis for discrimination, but he would take that position and would try to get it adopted by the Fund. He added that the Fund was trying to establish jurisdiction and had reached a decision in the Committee that the South African restrictive system had, in addition to import restrictions, exchange restrictions. The probable course of events was that the Fund would shortly send a mission to South Africa to look into the system, and after consultation with South Africa, the Fund would make a definitive determination as to whether South Africa should remove the restrictions.

The Chairman observed that it was clear that the majority of the Council favored the general approach indicated by Alternative A. The Council was then polled on the choice between the version appearing in NAC Document No. 965 and the alternative presented by the State Department and voted in favor of the former.

Action. The following action was taken (Action No. 392):

The National Advisory Council advises the United States Executive Director on the International Monetary Fund: (1) that he should seek a determination by the Fund that there is no adequate basis for the maintenance of discriminatory restrictions by the Union of South Africa; (2) that he should advocate a report from the Fund to GATT expressing the view that there is no adequate basis on financial grounds for the maintenance of discriminatory import restrictions by the Union of South Africa; and (3) that he should advocate Fund consultation with South Africa to obtain a modification of the South African restrictions so as to eliminate the discrimination.

1. Master file of the documents of the National Advisory Council on International Monetary and Financial Problems (NAC) for the years 1945–1958, as maintained by the Bureau of Economic Affairs of the Department of State.
2. The National Advisory Council was an interdepartmental committee established by the Bretton Woods Agreements Act of July 31, 1945 (59 Stat. 512). The act provided for U.S. participation in the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD, or “the Bank”). The National Advisory Council was to coordinate policies and operations of the U.S. Government with respect to U.S. relations with the two Bretton Woods institutions, specifically to make “recommendations” to the United States Executive Directors on the two bodies.

3. Consultations under Article XII of GATT on discriminatory import restrictions which were to be imposed by the Union of South Africa had loomed large in U.S. initiatives at the third session of the Contracting Parties at Annecy (France) in 1949 (see Foreign Relations, 1949, vol. i, pp. 651 ff.). In January 1950 the Union Government introduced the new import regulations in furtherance of its restrictive system. In NAC Document No. 965, February 27, 1950 (Lot File 60D137, Box 366) the NAC Staff Committee defined the new regulations as taking “the following form”:

   “‘Universal’ import permits are issued by the Union for purchase in any country of certain specified classes of ‘essential’ commodities. Goods purchased with these universal permits will be paid for in gold and hard currencies, and the permits will be issued in approximately the amount of South African gold and hard currency availabilities. However, in addition to these universal permits, the Union will issue ‘restricted’ permits which may be used only for purchases of imports from soft currency countries. These restricted permits will be issued in approximately the amount of the Union’s soft currency availabilities. Although only fragmentary information has yet been made public, it seems clear that the dual system is designed to provide a net accrual of South African gold to Great Britain.”

4. C. Dillon Glendinning, Deputy Director of the Office of International Finance, Department of the Treasury, and Secretary, National Advisory Council.
5. For documentation with respect to U.S. policy regarding sterling area import restrictions, see pp. 810 ff.

6. The alternative was posed in NAC No. 965. There was general agreement in the Staff Committee that the restrictions being imposed by South Africa were discriminatory. There was, however, a range of views as to whether and to what degree the discrimination involved was justified. Alternative A incorporated the majority view of the staff and Alternative B the minority view. The texts, as set forth in NAC No. 965, read:

   “Alternative A: The National Advisory Council advises the United States Executive Director on the International Monetary Fund: (1) that he should seek a determination by the Fund that there is no adequate basis for the maintenance of discriminatory restrictions by the Union of South Africa; (2) that he should advocate a report from the Fund to GATT expressing the view that there is no adequate basis on financial grounds for the maintenance of discriminatory import restrictions by the Union of South Africa; and (3) that he should advocate Fund consultation with South Africa to obtain a modification of the South African restrictions so as to eliminate the discrimination.” (NAC Doc. 965, February 27, 1950, Lot 60D137, Box 366)

   “Alternative B: The National Advisory Council advises the United States Executive Director on the International Monetary Fund: (1) that he should make an affirmation of principle in the Fund that there is an inadequate basis for the maintenance of the discriminatory restrictions currently applied by the Union of South Africa; (2) that he should seek to obtain a modification of the South African restrictions looking towards the eventual elimination of their discriminatory aspects.” (Ibid.)

7. Leroy D. Stinebower, Special Assistant to the Assistant Secretary of State for Economic Affairs.