Foreign Relations of the United States: Diplomatic Papers, 1943, General, Volume I

840.50/3345a: Telegram

The Secretary of State to the Ambassador in the Soviet Union (Harriman)

Washington, December 2, 1943—2 p.m.

1316. There follows an outline of the topics which emerged from the discussions with the British as the principal items for inclusion in an orderly agenda for discussion under Article VII:

A. Commercial Policy

I. Tariffs

a. General effectiveness of multilateral method of reducing tariffs compared with the bilateral method.

1. Relative time required to achieve results

2. Suitability of each method as a part of a general multilateral commercial policy convention providing for the reduction or removal of other barriers to trade as well as tariffs

b. Alternative methods for tariff reduction

1. Multilateral formulas

(a) Reduction of all duties by a given percentage of their height at a given time, or to a given percent ad valorem (or its equivalent in the case of specific duties), whichever may result in the lower duty, but no duty need be reduced below a given percent ad valorem (or its equivalent in the case of specific duties)

(b) Uniform reduction of all duties in all countries by a given percentage of their height on a given date

(c) Reduction of all duties by a given percentage, except that no duty need be reduced below a specified ad valorem rate

(d) Uniform reduction by a given percentage of the over-all ad valorem equivalent of each country’s entire tariff calculated in comparison with its total imports, with provision that there would be no increase in duties

2. Bilateral method

(e) Provision whereby each country would agree to negotiate with its principal suppliers bilateral agreements providing for tariff reduction on its dutiable imports.

3. Foregoing alternatives from viewpoint of

(a) Technical feasibility

(1) Uniform tariff valuation

(2) Conversion of specific duties

(3) Effect on tariff structures, i.e. relationships between duties

(b) Equitability

(1) Effectiveness in reducing excessive tariffs

(2) Relative effects on high-tariff and low-tariff countries

c. Possible exception of revenue duties from a multilateral tariff-reduction formula—definitions of revenue duties

1. Duties imposed to compensate for internal taxes

2. Duties imposed on products not produced domestically

3. Ancillary charges on imports commensurate with the cost of services rendered

d. Possible exceptions from a tariff-reduction formula for “infant” and “security” industry tariffs

1. Availability of methods other than tariffs for this purpose (subsidies)

2. Special cases of countries finding it difficult to afford subsidies

e. Other tariff measures (e.g. countervailing and anti-dumping duties) requiring exploration in the light of the most feasible particular tariff-reduction proposal

II. Preferences

a. Action directed toward elimination—relation to reduction of tariffs

b. Possible exceptions to provisions for equality of trade treatment

1. Frontier traffic

2. Existing customs unions

3. Preferences leading to a customs union

c. Possible review by an international commercial policy organization of future customs unions—criteria

1. Likelihood of benefits of larger-scale and more specialized production

2. Height of external duties

d. Political considerations affecting acceptability of future customs unions

III. Prohibitions and Quantitative Restrictions on Imports

a. Desirability of abolishing prohibitions and quantitative restrictions on imports

1. Possible exceptions to general abolition

(a) “infant” and “security” industries

(b) To redress acute balance-of-payments difficulties—suggested criteria

(1) Definition of circumstances for instituting and removing the exception.

(2) Prior approval of an international commercial policy organization.

(3) Limited unilateral action with subsequent approval of the international commercial policy organization

(4) Alternative methods for restoring equilibrium to balances of payments

(5) Special measures to deal with scarce currencies which may be included in an international currency stabilization agreement

(c) Quantitative regulations imposed to implement international commodity agreements

(d) Other possible exceptions (sanitary regulations, et cetera)

(e) Temporary emergency exceptions

(1) To meet shortages of supplies, shipping or foreign exchange in immediate post-war period

(2) To aid the disposal of surplus stocks

b. Rules of fair conduct—nondiscriminatory administration of permitted quantitative import restrictions

IV. Export Taxes and Restrictions

a. Desirability of abolishing prohibitions and quantitative restrictions on exports

1. Possible exceptions

(a) Restrictions on imports (see above) applicable to exports

(b) Severe domestic shortages

(c) Trade in military supplies

b. Abolition of export taxes and other governmental action resulting in sales abroad at prices higher than domestic prices—possible exceptions (e.g. revenue export taxes)

c. Nondiscriminatory application of permissible export taxes and permissible quantitative restrictions on exports

V. Subsidies

a. Domestic subsidies

1. Direct subsidies versus tariffs to assist domestic industries

2. Least objectionable uses

(a) “Infant” industries; “security” industries

3. Means of controlling

(a) Desirability of limiting subsidization in deficit areas of world surplus commodities—relationship of this to prohibition of export subsidies in surplus areas

b. Export subsidies

1. Effect on trade relations

2. Possibility of abolishing

3. Possible review by international organization

VI. State Trading

a. Kinds

1. Complete state monopoly of foreign trade

2. State monopoly of trade in single products only

3. Nonmonopolistic state trading

b. Objectives

1. To harmonize commercial interests of state-trading and private-enterprise countries

2. To eliminate discrimination

3. To expand trade

4. To discover provisions designed to achieve these objectives which would be suitable for inclusion in a multilateral convention on commercial policy or in bilateral trade agreements

c. Creation of government-trading organizations by private-enterprise countries

Would it be desirable for governments of private-enterprise countries to create state-trading organizations to handle trade with state-trading countries, or should they use only the ordinary trade-control measures which set the conditions for trading with other private-enterprise countries?

d. Possible types of trade arrangements between state-trading countries and private-enterprise countries

1. A commitment by the state-trading country to buy a specified amount of goods from a particular private-enterprise country, in exchange for the relaxation of the trade barriers of the latter

2. Provisions for the allocation of purchases by state-trading countries on the basis of multilateral consultation with supplying countries

3. Provisions whereby state-trading countries would agree that, in making their foreign purchases or sales, they will be governed solely by commercial considerations

4. Provisions whereby countries would agree not to give greater protection to home industries by means of state-trading methods than they would be permitted to give under other provisions of a multilateral commercial policy convention—possible helpful criteria

(a) Comparison of the price paid foreign suppliers with that charged home consumers or paid domestic producers

(b) Determination of whether the trade monopoly is satisfying the full domestic demand

5. Provisions whereby a state-trading country, in exchange for tariff and other trade concessions from private-enterprise countries, would agree to purchase abroad not less than a specified amount of goods (i.e., of particular products if the agreement is bilateral, and of total imports if the agreement is multilateral) without allocation between the supplying countries. These provisions would be coupled with an agreement by state-trading countries to make foreign purchases solely on the basis of commercial considerations (see point d.3. above)

(a) Possible need for an escape clause regarding exchange availabilities

(b) Suitability of provisions of this kind for inclusion in a general multilateral convention for the reduction of tariffs and other trade barriers

e. Temporary emergency exceptions from any provisions regarding state trading which might be included in a general multilateral commercial-policy convention

1. To meet shortages of supplies, shipping, or foreign exchange in the immediate post-war period

2. To aid the disposal of surplus stocks

VII. International Commercial Policy Organization

a. Functions in relation to a multilateral commercial policy convention

1. Implementation and interpretation; e.g., future customs unions, permissible quantitative regulations, et cetera.

2. Investigative and fact-finding

3. Adjustment of differences arising under the convention

4. Modification of the convention in the light of experience

5. Determination of membership (e.g. ex-enemy countries); treatment of nonmembers

b. Administration

1. Council, representing all member countries

2. Small operating commission, assisted by staff of experts

c. Coordination with other international economic organizations

B. International Commodity Policy

I. Objectives

a. Elimination of excessive short-term fluctuations in prices of primary commodities which may give rise to serious surplus conditions

b. Mitigation of excessive cyclical fluctuations in prices of primary commodities to help moderate the business cycle

c. Provision of a transition period to enable surplus primary producers to shift to other production without serious economic and social dislocations

d. Substitution of international cooperation for unilateral measures, such as subsidies and import restrictions, which may for all concerned in the long run aggravate rather than relieve surplus problems

e. Establishment of an international organization to guide commodity arrangements in accordance with agreed principles

II. Methods

a. International buffer stock operations (i.e., intergovernmental buying, selling and storing of individual commodities to maintain their market price within an agreed range which would be changed periodically in accordance with changes in basic conditions of supply and demand)

1. Possible conflict in attempting to mitigate at same time both short-term and cyclical fluctuations.

2. The limitations of buffer-stock operations in respect of commodities subject to basic production maladjustments or to unrestricted subsidies and import restrictions

3. The organization and financing of buffer-stock operations

b. International quantitative regulation of exports and/or production of certain primary commodities, either in connection with or apart from buffer stocks.

1. Conditions under which such regulations may be necessary

2. Representation under regulation schemes of importing and exporting countries

3. Provision, under such schemes, for increasing opportunities for supplying world needs to countries in a position to supply them most effectively

4. Other principles and objectives for governing quantitative commodity regulation

III. International Commodity Organization

a. Functions and constitution

b. Its relation to other international economic organizations

Hull