Foreign Relations of the United States Diplomatic Papers, 1941, The British Commonwealth; The Near East and Africa, Volume III

711.452/40

Memorandum by the Chief of the Division of Near Eastern Affairs (Murray) to the Assistant Secretary of State (Acheson)

[Washington,] April 3, 1941.

Mr. Acheson: On March 30, 1941, Sir Firoz Khan, High Commissioner of the Government of India in London, accompanied by Mr. W. H. Mather of his office and Sir Nevile Butler of the British Embassy in Washington, called at the Division of Near Eastern Affairs to discuss matters relating to the draft of a proposed “Treaty of Establishment, Commerce, Navigation and Consular Rights Between the United States of America and India.”

The reasons for the desirability of such a treaty with India and the history of the preparation of the draft may be summarized briefly as follows: Following reports from the Consulate General at Calcutta regarding mounting resentment in India at restrictions imposed by our immigration laws against the entry of Indian business men into the United States, it was decided to negotiate a treaty with India in order that Indian nationals, like those of most other Oriental countries, would be accorded “treaty merchant” status under Section 3 (6) of the Immigration Act of 1924.³² It was considered desirable also to have a new treaty of commerce and navigation to replace the obsolete provisions relating to India in the American-British Convention of Commerce and Navigation of July 3, 1815.³³ Accordingly, when the British Ambassador subsequently took up the question of restrictions upon the entry of Indian business men, the Department proposed the negotiation of a treaty of establishment and commerce. The British Embassy stated that the Government of India was agreeable to the proposal and suggested that the Department prepare a draft of such a treaty, which was duly submitted to the Embassy on October 10, 1939.³⁴

The purpose of the visit of Sir Firoz Khan, who arrived in the United States a little over a week ago, is to submit the proposals of the Government of India for changes in the draft. Although most of these proposals present only minor problems for which it is believed solutions can be found, two issues have been raised which concern matters relating to the general foreign policy of the Government. These issues and the matters to which they relate are discussed briefly as follows:

1. Mineral Resources Article

It has been proposed that Article VIII (copy attached³⁵) consist only of the first sentence thereof and that the second and third sentences be deleted. Such a deletion would result in our acquiescence in the continued enjoyment by British oil companies of exploratory and extractive privileges in India not accorded to American firms by virtue of legislation existing in India since 1885 forbidding corporations controlled by foreign interests to engage in the extraction of petroleum. A similar situation prevailing in Great Britain was altered by the British Petroleum (Production) Act, 1934, under which oil-extracting rights were granted to foreign corporations on a reciprocal basis. This legislation opened the door to similar concessions in certain other parts of the British Empire, notably New Zealand, Papua, and New Guinea. In the United States, in accordance with the provisions of the Mineral Leasing Act of 1920,³⁶ foreign nationals may own stock in American corporations exploiting the oil resources of the public domain provided the countries of which they are nationals accord similar rights to American nationals. Sir Firoz Khan took the position that reciprocal treatment with respect to extractive and mining rights by the Governments of the United States and of India would constitute only theoretical reciprocity, because Indian corporations lack the capital to exploit American resources, and that such a concession would have an unfortunate effect upon public opinion in India. However, it may be said in reply to his contention that the petroleum industry in India is almost entirely in the hands of British, rather than Indian, firms and that the British Petroleum Act of 1934 grants American corporations only theoretical rights in the United Kingdom, where there is no oil to be extracted. Therefore, a provision in the proposed treaty between the United States and India would amount in fact to actual reciprocity on the part of Great Britain for privileges granted to British corporations under the terms of the American Mineral Leasing Act of 1920.

2. Definition of Most-Favored Nation Clause

It was also proposed that the words “including the United Kingdom of Great Britain and Northern Ireland” be deleted from Article XVI, Section 3, which is quoted as follows:

“The term ‘most-favored nation’ as used in this Treaty shall be construed to mean the most favored third country, including the United Kingdom of Great Britain and Northern Ireland.”

Sir Firoz Khan states that the clause which it is proposed to delete is in contravention of an agreement between Great Britain and India whereby preferential tariff treatment is accorded to importations of a large number of commodities from the United Kingdom and British colonies. It is also his opinion that by deleting the clause British dominions would not be included in the term “third countries”. The effect of such a deletion, therefore, would be to accord recognition in a treaty to preferential tariff treatment now accorded certain British and Colonial products, and it would open the door to the extension of the principle of preferential treatment to goods of the Dominions.

In the Trade Agreement between the United States and Great Britain, signed November 17, 1938,³⁷ this Government recognized the system of Empire preferences, but the British Government made a substantial reduction of the differences between standard and preferential rates. In this connection it may be stated that, although recognition was given to the system of imperial preferences, a material concession was granted in return for such recognition. Moreover the recognition of imperial preferences in a treaty is a recognition of a more formal character and the initial compulsory period is for a much longer time. It appears that the issue raised by the definition of “most-favored nation” is that of the attitude of the Government of the United States toward the entire system of Empire preferences.

Wallace Murray

32. 43 Stat. 155.
33. Hunter Miller (ed.), Treaties and Other International Acts of the United States of America, vol. 2, p. 595.
34. For the draft, see Foreign Relations, 1939, vol. ii, p. 354.
35. Ibid., p. 360.
36. 41 Stat. 437.
37. Department of State Executive Agreement Series No. 164, or 54 Stat. (pt. 2) 1897.