550.S1 Economic Commission/31: Telegram
The Chairman of the American Delegation (Hull) to the Acting Secretary of State
121. For the President. Your numbers 102, July 4, 10 p.m.; 103, July 4, 11 p.m.;55a 121, July 7, midnight. I wish to submit for your consideration the results of the efforts to embody in immediate positive policy the general principles and ideas which were presented in the enumerated cables for the guidance of the delegation. I will transmit these suggestions in two separate cables. In this one I will sketch out that part in the field of action which seems to the delegation to be fairly assured ground in the sense, (1st), of meeting the requirements of domestic policy, (2d), of being administratively feasible and, (3d), of being a useful basis for the beginning of an effort to check international economic warfare. In a second cable I will transmit our attempts to formulate proposals connected with the idea of admitting goods up to some percentage, say 5% of domestic production (or consumption).
There follows an outline of a resolution56 that the American delegation might bring before the Conference if authorized;
Preamble
The Governments in conference are unanimously of the conclusion that trade barriers have been erected to an excessive extent; that these barriers have worked to the injury of all people; and that they have contributed to the depression. The Governments declare therefore that it is essential that all proceed early and simultaneously to the revision of the whole network of restrictions that has come into existence.
Section I—Negative Undertaking
Agreement not to increase trade barriers.
The participating governments agree not to introduce any new obstacles direct or indirect to the movement of international commerce. This agreement will be of indefinite duration but subject to denunciation 1 year after coming into force. It would apply to all governmental actions whether embodied in new legislation or brought into existence by administrative or executive exercise of power under [Page 707] existing legislation subject to the exceptions and reservations cited below;
Reservations and exceptions.
(a) The exceptions generally admitted in existing treaties for purposes of safety, sanitation, plant and animal protection, morals, etc., (such as are enumerated in article 4 of the Geneva Convention of 192757 and reproduced as an index to document Conference M.E.C.E. 24).
(b) Arrangements whether of duties, quotas or other forms applied in connection with multilateral agreements for the regulation of production and/or marketing of natural products such as have been under consideration in various committees of the Conference (for example, wheat, sugar, wine, etc.). Care would have to be taken in defining the nature or the characteristics necessary to qualify any agreement in order that it might come within this exception.
(The two preceding reservations would apply mainly if not entirely to prohibitions and quotas. The following reservation would apply mainly to tariff rate making).
(c) Customs duties imposed on imported products in such amounts as to just off-set corresponding increases in taxes on similar domestic products (for example, processing taxes under the Farm Bill).
(d) Additional duties imposed upon shipments found to be “dumped” in the strict sense of having been sold abroad at less than at home or “bounty fed” in the sense that the export industry benefits directly or indirectly by official or unofficial bounties.
(This seems to be required by the Anti-Dumping Act of 192158 and the anti-bounty provision in section 303 of the Tariff Act of 1930.59 It may be necessary in committee discussions to consider changes in the scope of the application of this exception).
(e) Additional duties imposed on products of particular countries which refuse to accord equality of treatment.
(This is the substance of the retaliatory authority in section 338 of the Tariff Act of 1930).
(f) General safeguarding clause to allow governments to impose in the event of special necessity new or additional duties or other restrictive measures for the purpose of protecting in extraordinary and abnormal circumstances the vital interests of the country.
Any new or increased duties or restrictions authorized under the above circumstances shall be imposed only in the event where over a minimum period of 2 months there is an increase in imports representing [Page 708] a drastic increase in the ratio of imports to estimated domestic production during the corresponding months of a previous base period (to be agreed upon).
(This reservation would take care of possible new or additional duties or restrictions resorted to by the President under the permissive authority embodied in the Industrial Recovery Act but would limit the exercise of the President’s power in accord with a minimum evidence of the increased competition constituting the emergency. Some such tangible test of emergency is required both as a safeguard to us against action by foreign governments under this reservation and as assurance to other countries.
Any adjustment of rate or other restriction made under this reservation should not be more than is Judged sufficient to meet the emergency and only for the period of the emergency. Any quantitative restrictions on foreign trade as may be resorted to under the above described circumstances should not be below 100% of the average quantity imported or exported during normal years (to be decided upon) the duration of such measures to be limited to the period of the causes which gave rise to them and they should not be operated so as to discriminate against particular products originating in one country as against the same products of other countries. Tariff changes as may be resorted to shall likewise be made so far as possible with due regard to the foregoing limitation and shall be designed not to reduce trade below the level of the predetermined normal years but shall be sufficient only to prevent drastic increases of importation above that level.
Before exercising the right conferred in this reservation governments are to give preliminary notice to the principal foreign countries interested in the trade in the particular commodities involved and allow representations of viewpoints of foreign governments with regard to conditions of application of such measures, each government having the right in case of unsatisfactory result to denounce the agreement toward the products of the country availing itself of this safeguarding provision.)
(g) The field of reservations outlined in the preceding section (f) would sanction changes made to off-set drastically increased imports facilitated by currency depreciation. It would probably be desirable from the point of view of American interest that no more specific reservation be introduced dealing with this point. However, it may prove advisable or necessary to embody a section specifically allowing an exception to off-set the temporary advantage arising from currency depreciation. The exercise of the exceptional rights contained in any such reservations should be subject to the same type of tangible test as is suggested in section (f) preceding.
[Page 709]Section II—Positive Undertaking
1. Agreement for the reduction of duties.
(It has been found difficult to formulate any feasible basis for a multilateral undertaking looking forward to a general reduction of duties both because of the inherent difficulties of any multilateral action and of the special circumstances set forth in your No. 121. There follows what in my judgment is the most feasible basis on which we might put forward a suggestion; even this I recognize is not without an element of inconsistency and would be difficult to carry through the Conference).
The governments might agree to undertake over a period of, say 3 years, to reduce their present duties and/or taxes of all kinds levied exclusively upon imports (or at a higher rate on imported than on the same domestic products). The average amount of reduction to be made over the 3 years might be such as to reduce the level by, say one-fifth, or perhaps with different fractions of reductions applying to different classes of duties or of goods.
Any such agreement would have to contain provisions allowing for the pertinent reservations and exceptions recited in connection with section I—to wit; (a) Any participating government may reserve the right not to reduce the duties or even to increase the duties on specific commodities produced in the country in appreciable quantities when over a minimum period of 2 months there has been a drastic increase in the ratio of imports to estimated domestic production during the corresponding months of a previous base period (to be agreed upon). (This is to meet action that may be found necessary in order to effectuate the purposes of the Industrial Recovery Act). (b) The same reservations as are covered in (d) and (e) of section I and the reservations given under (g) of section I intended to safeguard against depreciated currencies.
This proposal represents an attempt to reconcile an effort to lower trade barriers in general with a wish to afford protection against any disturbing increases of particular imports.
2. The abolition of quantitative restrictions.
The governments might be asked to agree to undertake to abolish all quotas or other non-tariff restrictions on imports within a period of 3 years assuming that monetary stabilization, the elimination of exchange controls and the restoration of order in the international, financial world are substantially attained within that period. In order that progress in this direction may begin soon on a fairly definite predetermined basis each nation should undertake in each of the 3 years to liberalize each existing quota by that fraction which would [Page 710] permit the entry at the end of a third year of a quantity at least equal to the 1929–32 average.
If the American Government adhered to any such agreement it would not of course be able to introduce quantitative restrictions as a regular means of effecting the purposes of the Industrial Recovery Act. The question which presents itself is whether the reservations outlined in regard to both the tariff truce and the positive tariff agreement (see reservation (f) under section I the general safeguarding clause) would be sufficient safeguard. If this reserved right to maintain or increase duties in order to prevent a flooding of the American market is not judged sufficient it is hard to see how the American Government can become party to a multilateral agreement dealing with quantitative restrictions.
It is very likely that the two parts of the positive program outlined above would have to be incorporated into a single agreement.
I realize that many features of the preceding suggestions will require further clarification of detail. I would be glad to be informed whether proposals along the above lines are approved and whether the delegation is authorized to introduce them on the receipt of alternative concrete formulations that have been worked out in Washington.
Since the question whether the Economic Committee can continue to operate effectively remains in the balance and our ability to put forward positive program may be a decisive factor in the decision it follows that a decision as to how far Washington would approve this program is urgently required. The opportunity to present this or any other positive program may soon pass.