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

394.31/8–1150

Memorandum of Conversation, by Mr. James H. Lewis of the Division of Commercial Policy

confidential

[ Washington ,] August 11, 1950.

Subject: British Proposal for Unilateral Tariff Reduction by the United States at Torquay

Participants:	Mr. Robert Burns, Counselor, British Embassy
	Mr. K. R. C. Pridham, Third Secretary, British Embassy
	Mr. Leddy, ITP
	Mr. Vernon, CP
	Mr. Lewis, BNA

The British representatives called at our request. Mr. Leddy said that in view of the doubts which appeared to exist about the U.S. attitude toward the suggestion made by Sir Leslie Rowan on July 7 (See CTC D–1/13)¹ we thought it would be desirable to give a somewhat fuller explanation of our position. He then gave Mr. Burns a copy of the attached informal memorandum.

After reading the memorandum, Mr. Burns said he thought there were two separate issues involved, (1) the immediate question of what was to be done at Torquay, and (2) the question whether the policy as stated in Mr. Leddy’s memorandum was as sensible as it seemed to be in 1915. On the first point, he felt both sides were tending to exaggerate the views of the other—the U.K. had not suggested unilateral tariff reduction tout court, but the U.K. did consider that it would be consonant with the position taken in last September’s tripartite conversations “if a considerable part of the concessions granted by the U.S. at Torquay were not counterbalanced by U.K. concessions”. The U.K. intended to “play along” and would make some concessions but its main interest would be in “making the program work” rather than in buying market values in concessions to the United States. Mr. Burns added that the September discussions had certainly been taken by other people at least to mean that creditor nations would reduce their tariffs faster than debtor nations.

Mr. Leddy pointed out that conditions today were not greatly different than they had been in 1947 or 1945. The imbalance of payments situation had been clearly recognized at that time, as evidenced by the GATT–ITO exceptions for quantitative restrictions. The U.K. was now asking the U.S. to go even farther and accept the argument that it was justifiable for a debtor country to maintain restrictions in addition to balance-of-payments restrictions. He asked how under such a situation it would be possible to achieve the results we had been trying to reach.

Mr. Burns said that when the loan agreement and GATT–ITO had been drafted neither of us had realized how difficult it was going to be to put their provisions into effect (e.g., the convertibility problem in 1945). He thought that last September it had been shown that the struggle would be difficult and long, that progress would be slower than expected, and that there was need for faster action on one side. The U.K. had taken the extreme action of devaluation, but could not be expected to contemplate continued devaluations and the resultant forcing down of its standard of living.

Mr. Vernon thought there was nothing in the U.S. advocacy of reducing tariffs and preferences that looked toward such a result. On the contrary the U.S. had been stressing the need for improved technological methods and greater productivity. Discussing the use of quantitative restrictions he pointed out that at the Fourth Session of the Contracting Parties the U.K. had agreed that all possible pressure would be put on U.K. industry to lessen its reliance or assumption of reliance on protection from such restrictions.

Mr. Burns agreed but said the dispute was over the question of timing. The U.K. did not like QR’s as protective measures, but they inevitably became such in the eyes of the industries affected. If a country moved away from tariffs and preferences it would find its industries more than ever convinced of the need for QR’s. Mr. Leddy said that U.K. industry must be aware that the U.K. is committed to remove the balance-of-payments QR’s. Mr. Burns asked whether we had seen the reports of the violent reactions which had been expressed in the House of Commons on the subject of possible tariff reductions at Torquay. Mr. Leddy pointed out that we had the same sort of problem in the U.S. Mr. Leddy went on to say that he frankly did not see how the U.S. could move in the right direction unless there was cooperation on both sides. If the U.K. had the right to maintain further protection and preferences, the U.S. would have no justification for carrying forward its program of tariff reduction.

Mr. Burns said that if, for example, the U.K. made tariff reductions to the extent of eliminating preferences, the impact of unrestricted competition from the U.S., when quantitative restrictions were removed, would be very violent indeed. There was an enormous pent-up demand for dollar goods in the U.K., and there would be a flood of imports, with the result that the U.K. would be back in balance-of-payments difficulties immediately. Then QR’s would be back for good, he thought. Mr. Vernon pointed out that QR’s would go by progressive stages, and would not be removed at the same time for all products. He said there had been no flood of imports after the recent OEEC liberalizations. Mr. Burns said it had so happened that these liberalizations took place at a time when there was no difficulty in selling British exports in the U.S. Mr. Vernon said there was some assurance that such a condition would prevail for some years to come.

Mr. Burns, reverting to the Torquay negotiations, said that if in fact at Torquay the U.S. wanted pretty strict equivalence there were very few things the U.K. would be willing to give away for the concessions the U.S. would have to offer. He said: “If you are prepared to use substantial concessions on the U.K. side to include on the U.S. side significant unrequited concessions, the U.K. will maintain its present request list intact and will make a substantial body of offers. If we do not indulge in such screening, our people will weed out concessions which are not of great importance, e.g., whiskey.” There was some discussion of the meaning of equivalence, and Mr. Lewis pointed out that in the past equivalence had not been defined in terms of the value of trade covered, but various other factors such as levels of duties, extent of reductions, et cetera, had been taken into account. The U.S. would certainly not expect to make a statistical balance without taking all factors into account.

Mr. Leddy said the fundamental question remained, that is whether the U.S. would give economically more significant concessions than the U.K. would give us. Not only was there no economic justification for such a position, but it would be politically impossible for the U.S. He referred in this connection to certain unilateral measures the U.S. was already taking, such as the Customs Simplification bill.

Mr. Burns said he thought that in the circumstances the U.K. would want to “prune down” its request list sharply. He said that on preferences, for instance, he doubted that the U.K. could give us anything significant. Mr. Leddy said we got the impression that the U.K. attached great importance to preferences not because of any economic significance but because of their political importance in Commonwealth relations. Mr. Burns said he did not think the effect of preference reductions should be discounted so much. Other countries would get very significant advantages—for instance if Australia reduced the preferences it gave to the U.K.

Mr. Burns said he thought it would be desirable to study the Department’s memorandum carefully and to send it to London. He said he would doubtless be getting in touch with us again on the subject.

[Attachment]

Informal Department of State Memorandum

[ Washington ,] August 10, 1950.

Proposal for Unilateral Tariff Reduction by the United States at Torquay

1. The three ultimate objectives in the trade field on which the United States and the United Kingdom reached agreement in the Proposals and the Charter were 1) the substantial reduction of tariffs, 2) the elimination of preferences and 3) the elimination of quotas (and exchange controls). The proposal for unilateral tariff reduction by the United States would in effect mean sacrificing the first two objectives in order to help speed up attainment of the third. This is so because once the negotiating process had been completed and the United States had brought about a substantial reduction of its own tariff to a moderate level, excessive tariffs and preferences would continue to exist in other countries. Thus, even assuming that such action would materially hasten the elimination of quotas and exchange controls by the British and others, which is problematical, we would be left with a continuing system of Commonwealth preferences and continuing instances in which excessive tariffs were imposed by other countries on United States exports.

2. The United States is prepared to live up to its responsibilities as a creditor nation. This means that it is prepared to continue the process of reducing its tariff to a moderate level. However it does not mean that merely because the United States is a creditor nation other countries should be entitled to maintain high tariffs or continue tariff preferences. If the United States affords adequate outlets for foreign exports to its market, and if nevertheless there continues to be a general imbalance in world trade and payments, the proper remedy lies in the adoption by foreign countries of appropriate internal and exchange policies (such as the prevention of inflation, the development of greater mobility of resources and the adjustment of exchange rates) rather than in the maintenance of protection to individual domestic industries through high tariffs or preferences.

3. The proposal for unilateral tariff action by the United States, in seeking a solution of the balance-of-payments problem, would place the main emphasis on restriction rather than expansion and on adjustments by the United States alone rather than on adjustments by all countries concerned. The solution of the problem along expansionist lines argues for the development of greater ability of the United Kingdom and other Western European countries to compete in dollar markets and third markets and less reliance on the protection of home industries or on export markets protected by preferences and discrimination. The proposal for unilateral tariff reduction by the United States implies a great deal in the way of adjustment by the United States while making no provision for adjustment by the United Kingdom or other Western European countries.

4. Unilateral tariff reduction by the United States would be less effective in attracting United Kingdom exports to the dollar area than would joint action involving both United States tariffs and Commonwealth preferences. This is so because continuation of the Commonwealth preferences exerts a pull on British exports to Commonwealth markets and away from American markets. Simultaneous action on both the United States tariff and the Commonwealth preferences would do the maximum in stimulating exports to the United States and thus permit a balance of trade at a higher level than would otherwise be possible.

5. Unilateral tariff reduction would be a political impossibility for the United States. The trade agreements program is solidly based on the concept of reciprocity. We have been able to maintain this concept, despite the existence of severe quota and exchange restrictions against our exports, only on the ground that through foreign tariff reduction and preference elimination we were buying long-run benefits which in time would make themselves felt. Failure to obtain these benefits in future negotiations would leave us without any defense whatsoever and would not provide us with any greater commitments than we already have for the removal of foreign quotas and exchange controls. The serious criticisms which have been voiced in the United States with respect to the balance of payments exception in the GATT would be redoubled, and justifiably so.

6. In view of the foregoing, it would be impossible for the United States to take substantial action with respect to its tariff at Torquay except in return for substantial action by other countries on their tariffs and preferences.

1. Not printed. At a meeting between United States, British, and Canadian financial experts in Washington on July 7, 1950, which this document records, Sir Leslie Rowan, the British spokesman, had indicated the strong British hope that at the forthcoming Torquay meeting the United States would grant substantial and at least in part unmatched tariff reductions as a contribution to the general solution of the problem of the balance of payments imbalance between the sterling and dollar areas. The July 7 meeting was one of a series in continuance of tripartite consultations between the United States, Britain, and Canada agreed upon by the three countries in their Joint Communiqué of September 12, 1949, terminating their talks at Washington, September 7–12, 1949, in which they examined trade and financial relationships between the sterling and dollar areas (for text of the Joint Communiqué, see Department of State Bulletin, September 26, 1949, pp. 473 ff.; for documentation on the Washington Tripartite Talks, see Foreign Relations, 1949, vol. iv, pp. 799 ff. Sir Leslie asserted at this July 7 meeting that the United Kingdom felt that the forthcoming Torquay tariff negotiations Would be a major test of the ideas and spirit of the Joint Communiqué of September 12, 1949. The United States reaction and point of view are printed below. (Doc. CTC D–1/13, July 7, 1950, International Trade Files, Lot 57D284, Box 138, Folder “UK 1950 TN/8100/Preliminary Negotiations”)