560.AL/12–1545: Telegram
The Acting Secretary of State to the Ambassador in the Soviet Union (Harriman)
2648. Dept appreciates considerations advanced urtel 4184 of Dec. 15. However, participation by USSR is deemed of great importance. Political importance of USSR as member of Big Three alone would provide compelling reason for invitation. Moreover, spring negotiations and later general conference will provide medium for discussion of methods of establishing an international trade framework designed to encompass both private enterprise and state-trading systems. Because the USSR is the major representative of the state-trading system, it seems clear that participation of USSR is essential in formulating this framework. Additional reason is desire to maintain in ITO,34 as agency of UNO,35 full representation of parent agency. This Govt hopes USSR will accept invitation and will participate fully.
2. “Proposals” incorporate this Govt’s current thinking, resulting from studies over last two years, on intermeshing two economic systems. Other valuable suggestions may arise at conference or prior thereto, and this Govt’s views on state trading as reflected in “Proposals” [Page 1356] are open to modification. Preferred suggestions now center around global purchase commitment and principle of commercial considerations. Reasons supporting incorporation of these suggestions on agenda as promised in my telegram 2572 of December 1836 follow.
3. Global purchase commitment. Dept agrees with your observations that purchase commitment for the USSR should not exceed its capacity to purchase abroad. In any event, such commitment would be subject to appropriate escape clauses.
While Dept agrees with you that there is probability that Soviet Union would purchase the maximum even in the absence of a commitment to do so, such a commitment would nevertheless appear to be the most satisfactory one which can be asked of countries having a complete state monopoly of foreign trade. The knowledge that the USSR was prepared to purchase a given amount of goods during a given period would contribute to the stability of world trading conditions by providing advance information to other countries regarding magnitude of foreign trade operations of USSR. The evidence which such a commitment would give of Soviet participation in the proposed trade arrangements would stimulate confidence here and elsewhere in the general success of the program. Finally, it is believed that a commitment of this kind would be valuable from the viewpoint of general public opinion in the United States and elsewhere outside the USSR.
The idea of a purchase commitment on the part of the USSR is not new. It was first suggested by USSR at the London Economic Conference of 1933.37 The principle is also included in a bilateral form in the commercial agreements which the US has concluded with USSR.
The subject of the size of the global purchase commitment which might be asked of the USSR is now being studied. A memorandum outlining various proposals which have been made with respect to the global purchase principle will be sent to the Embassy as soon as possible.
4. Principle of commercial considerations. This principle relates to all state trading operations, whether in USSR or elsewhere. It is recognized that the principle would be difficult to administer in particular cases; yet it is a pledge which, if carried out in good faith, would prevent the use of a state monopoly for purposes of exerting political pressure upon other countries. The pledge of fair and equitable treatment of which the principle of commercial considerations [Page 1357] is a standard is analogous to the pledge of most-favored-nation treatment on the part of private-enterprise countries.
These assurances of non-discriminatory treatment in respect of govt, monopolies and state trading operations have been included in earlier trade agreements concluded by the US, although designed in such cases only to deal generally with individual products which might be monopolized. These provisions appear to be the best that could be devised for a country having a complete state monopoly of foreign trade as well as those cases of single-product monopolies.
The provisions regarding non-discrimination would be applicable to the countries of Eastern Europe and thus would serve to limit the economic instruments available to the USSR in dealing with these countries. For example, the USSR would implicitly be required to refrain from discriminatory clearing agreements and barter arrangements. It would also be unable to accord special treatment or privileges to the commerce of the countries of Eastern Europe without specific exception in the commercial policy principles of the International Trade Organization. ITO would provide valuable forum for discussing deviations from rules. Likewise, the countries of Eastern Europe, if they become members of the International Trade Organization, would be required to abide by certain principles in the conduct of their foreign trade. It is believed that the program will serve to mitigate the effect on other countries of the exclusive position which the USSR now has in that area.
It is recalled that the USSR has on two occasions proposed a pact for economic non-aggression which provided that the Contracting Parties would “abstain in their mutual relations from all forms of discrimination.” (For text see annex 11, page 68 of the minutes of the 4th Session of the Commission of Enquiry for European Union Sept. 3–5, 1931 League of Nations number C.681.M.281.193 LVII and Monetary and Economic Conference, London June 20, 1933, League of Nations number C.M.E/C.E./15.)
The general subject of Soviet cooperation in the formulation of programs for feeding Europe, economic rehabilitation of Eastern Europe etc. could not be properly included on agenda for spring negotiations or general conference which would be concerned with establishing the ITO and formulating broad policies relating to world trade and employment. It is hoped that Soviet cooperation in this program will, however, be a step toward the objective of Soviet contribution to world economy commensurate with what they receive from it.
4. [sic] It should be noted in general that while certain of the provisions of Proposals (e.g., reduction of tariff levels) would not be applicable to the Soviet Union, certain other provisions (e.g. export [Page 1358] subsidies, transit duties, cartels and commodity policy) would appropriately apply even though no specific mention is made of their application to controlled economies. The Soviet Union will in all probability be particularly interested in questions of cartels and commodity policy which would be under ITO. Soviets have frequently stated opposition to cartels and could be concerned in carrying out program of imports with proposed controls over cartels. With respect to commodity agreements the USSR would undoubtedly wish to have a voice in any arrangements restricting trade in products of which it is a consumer, as well as products of which it is an exporter.
5. You may communicate to the Soviet officials as an explanatory statement such of the foregoing as you in your discretion consider necessary for an adequate understanding by them of the portions of the Proposals relating to countries having a complete state monopoly of foreign trade. Advise Dept of what Soviets are told. You should also communicate a statement along the lines of that contained in Deptcirtel of Dec. 7,38 which makes it clear that the Soviet Union, if it should decide to participate in the negotiations, would request tariff and other trade-barrier concessions on its export products from each of the other participating governments. Your statement should include mention of the paragraph in the instruction under reference which deals with the possibility of withholding tariff reductions and other benefits from the trade of nonparticipating countries.
We realize that the Proposals are open to some of the objections which you have raised. Dept would appreciate receiving any suggestions which you may have for their improvement.