840.515 Gold Bloc/60

Mr. Oscar B. Ryder, United States Tariff Commissioner, to the Secretary of State

My Dear Mr. Secretary: I am transmitting herewith two copies of the letter which I have written to M. P. Stoppani, Director of Economic Relations Sections, League of Nations, Geneva, Switzerland, in response to his request for an expression of my views on the subject of clearing agreements. One copy is for your information and the other copy for transmission to Mr. Prentiss Gilbert, American Consul at Geneva.

I expect to sail on March 13 to attend the meeting of the Joint Committee of the League of Nations for the Study of Clearing Agreements. As you know, I am acting on this Committee as a substitute for Mr. Norman H. Davis.

I shall be pleased to receive any instructions or suggestions that you may desire to give me.


Oscar B. Ryder

Mr. Oscar B. Ryder, United States Tariff Commissioner, to the Director of the Economic Relations Section, League of Nations (Stoppani)

My Dear Sir: I have received, through the Department of State, your letter of February 212 addressed to me in care of Mr. Prentiss Gilbert and your radiogram of February 282 notifying me that a meeting of the Joint Committee for the Study of Clearing Agreements, on which I am to act as substitute for Mr. Norman H. Davis, has been called March 25, 1935. I have also received the documentation prepared by the Secretariat of the League on the subject of clearing agreements.3

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At the March 25 meeting, I shall express my views regarding clearing agreements, both as they affect world trade in general and as they affect the United States in particular. At present, I can only indicate in a general way my point of view.

Although the United States is not a party to any clearing or compensation agreements, and has not applied any form of unilateral exchange clearing or of compensation, it has an interest in these arrangements. In the absence of direct American experience with them, I shall not at this time offer any comment on the technique of their administration but shall confine myself to considerations of a larger order relating to the fundamental implications of these arrangements, implications which tend to be lost sight of if the emphasis is upon the minute details of procedure and administration.

A study of the genesis and operation of clearing agreements makes it clear that they invariably arise out of a situation of which rigid exchange controls and blocked balances are prominent features. Although intended to afford relief from some of the conditions prevailing in such situations, they do not lead to the reestablishment of freer trade relations and of a more liberal system of international exchange. Moreover, they differ from those methods of commercial policy, such as tariffs, which operate through their influence on competitive prices, and which vary in their effectiveness according to the nature of the changes, if any, in the other factors determining prices. Clearing agreements in their operation cause the distribution of a country’s foreign purchases to be influenced by considerations other than those of price and thus give rise to discrimination between countries.

When two countries conclude a clearing arrangement, a preferential status results in favor of the transactions coming within its scope to the detriment of the excluded aggregate of transactions, actual or potential, which depend for their liquidation upon the remaining supply of exchange. The special treatment of the transactions coming within the scope of the arrangement results in a greater reduction in the supply of exchange than in the volume of the transactions for which exchange is needed. The conclusion of a clearing agreement may generally be taken as implying that the supply of exchange was already inadequate, on the one side or the other, to meet the volume of claims upon it at the established rate. The effect, then, of a clearing agreement is to concentrate upon the excluded transactions the full burden of this inadequacy. Thus, the preference established by the arrangement is aggravated by the diminution of the means of liquidating the excluded transactions. Third countries, therefore, find themselves faced by discrimination in the payment of their claims and by an actual loss of markets.

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Clearing agreements, in any form, are essentially restrictive in that they tend to promote bilateral trade balancing at the lower rather than the higher level, and thus to cause the elimination of the surplus—the “favorable” or “unfavorable” balances—normally paid through the system of open international exchange. To be sure, a clearing agreement, if applied to a frozen exchange situation, may for a limited period cause some increase in the trade of one or both of the countries parties to it. In the long run, however, any gain thus obtained is practically certain not to constitute an increase in total trade, but, rather, to grow out of an artificial diversion of trade and to be offset by an equal, if not a greater, loss elsewhere. In any event, the gain secured is less than could be obtained under freer conditions of trade. This is true because bilateral clearing is narrowly restrictive as compared with the normal clearing off against each other of commercial and financial transactions from diverse sources.

As a result of the discrimination against them arising from clearing agreements, countries not party to such agreements are quickly brought under pressure to protect their trade or to retaliate. With each extension of the clearing and compensation system abroad and the resulting accretion to the discrimination against a country which does not enter into the system, the pressure upon the latter to react in kind is intensified and it becomes more difficult to resist the impulse to impose similar restrictive arrangements in those situations in which an apparent advantage would seem likely to accrue from such action. We, in the United States, despite our success up to the present in avoiding resort to these arrangements, have, nevertheless, had plentiful experience with the pressure that develops to follow suit when other governments conclude clearing and compensation agreements between themselves.

In conclusion, it should be said that I am not unaware of the situations and pressures out of which many of the clearing and compensation arrangements have developed. But recognition of the circumstances leading to their establishment should not be permitted to obscure the fact that all these arrangements are essentially makeshifts in an unsatisfactory situation. The point of view which I shall emphasize is that the primary object of our Committee should not be so much to perfect the technical details of these arrangements and to improve their operation as to examine them with respect to their essential causes and results and in order to ascertain the most appropriate means of return to freer conditions of international trade.

I look forward with pleasure to seeing you at the meeting of the Committee on March 25.

I have [etc.]

Oscar B. Ryder
  1. Not found in Department files.
  2. Not found in Department files.
  3. Not printed.