Foreign Relations of the United States: Diplomatic Papers, 1945, The British Commonwealth, The Far East, Volume VI

840.50/1–445: Telegram

The Ambassador in the United Kingdom ( Winant ) to the Secretary of State

London , January 4, 1945—7 p.m.
[Received January 5—7:35 a.m.]

118. Hawkins² and Penrose³ had a further conversation on commercial policy today with Liesching,⁴ Eady,⁵ Robbins,⁶ Fergusson⁷ and Shackle.⁸ The United Kingdom officials commented on the oral summary of the trend of thought among experts in Washington which Hawkins had given at a previous meeting. The substance [of] the British views follows:

(1) They think that our ideas are tilted in favor of countries whose main obligation would be to reduce tariffs as against countries whose obligations would involve extensive action not only on tariffs but also on preferences and quantitative restrictions. Any redress of this balance must be sought almost solely in escape clauses.

(2) As regards tariffs, they think that the draft convention⁹ treats high tariffs no more severely than low tariffs. United Kingdom officials had proposed to introduce X ceiling but they recognize its disadvantages and will not necessarily revert to it. They suggest for study a formula X divided by Y plus Z per cent where X equals duty on July 1, 1939, Y equals percentage initial reduction and QQ equals an ad valorem constant. The object of this formula is to achieve greater reduction of high than of low tariffs.

(3) They strongly object to our ideas from the viewpoint of the treatment of infant industries and “defense” industries, particularly the former. The basis of their objection is that countries in an early stage of industrial development, and especially those dependent largely on import duties for revenue, would react strongly against an attempt to veto any new tariffs and confine infant industry protection to subsidies and would demand a “tariff let out”. The United Kingdom officials refer to our oral summary of the substance of article XVII¹⁰ and say that under the convention a country would be forced to adopt quantitative restrictions and, would be debarred from raising tariffs to meet an emergency situation. They stress the “deep seated feelings” in countries which are largely agricultural in favor of developing subsidiary industries for purposes of diversification, and argue that proposals on the lines of the draft convention would at once arouse fears that sufficient revenue could not be raised for these purposes and suspicious [suspicions] that the developed countries were trying to restrict local development to gain or retain the market for their own manufactures.

We have pointed out that revenue duties could be imposed to raise revenue for subsidies to infant industries, but United Kingdom officials appear to favor some sort of exception, perhaps on a principle similar to that in our article XVII, or by permitting duties tapering off to zero according to a time schedule to meet the needs of infant industries. They were, however, extremely vague as to the criteria of an “infant industry”.

(4) United Kingdom officials also consider that subsidies alone are inadequate for the protection of defense industries and at first connected defense industries with infant industries. When we pointed out that defense industries are not necessarily infant industries, Liesching and Robbins suggested that decisions might be made in the security organization¹¹ on the question what defense industries might be protected in particular places to facilitate international security.

(5) Even apart from questions of infant and defense industries, United Kingdom officials argue that the cutting of duties and freezing them would involve hardship in countries where import duties constitute a large proportion of total revenue and where fiscal administrative organization is weak. They suggest that there should be an exception to meet such cases. We again pointed out that this could be met by revenue duties.

(6) The United Kingdom officials [feel?] that there should be provision for new duties exceeding the tariff floor to be substituted for quotas in cases where at present quotas without duties or with low duties are applied. It has become clear in the course of the conversations that in general they do not favor quantitative restrictions on any products except food and would like to facilitate a change from such restrictions of tariffs.

(7) As regards the floor they think it will probably be necessary to allow tariffs to rise to the floor.

(8) The United Kingdom officials consider that provision should be made to cover cases where substantial rises in prices have already reduced specific duties in real terms. Liesching referred to the 1939 level as “grotesquely inappropriate” by the circumstances of some countries, for example Iraq, and particularly countries whose governmental organization is unable to administer ad valorem duties.

Our impression from this discussion taken as whole is that the United Kingdom officials have departed widely from their approach in the Washington conversations, especially in regard to the part played by subsidies in relation to other forms of protection; that on major points their new position is likely to create serious obstacles to the attainment of satisfactory post war commercial policy; and that they have been drawn into this position under pressure from ministerial quarters and from the attitudes of India and Australia and the anticipated attitudes of other countries in a relatively early stage of development.¹²

We are continuing the conversations tomorrow.

Winant

2. Harry C. Hawkins, Minister-Counselor of Embassy for Economic Affairs at London.
3. Ernest F. Penrose, Special Assistant to the Ambassador in London.
4. Sir Percivale Liesching, Second Secretary, British Board of Trade.
5. Sir Wilfrid G. Eady, Joint Second Secretary, British Treasury.
6. Lionel C. Robbins, Director of the Economic Section of Offices of the British War Cabinet.
7. Sir David Fergusson, Permanent Secretary of the British Ministry of Agriculture and Fisheries.
8. Robert J. Shackle, Principal Assistant Secretary, British Board of Trade.
9. Draft Multilateral Convention on Commercial Policy, October 1944, not printed; for previous discussion concerning this draft convention, see Foreign Relations, 1944, vol. ii, pp. 1 ff.
10. Article XVII permitted the imposition of quotas on articles in “emergency situations” to protect domestic producers, subject to certain specified provisions.
11. For documentation on preliminaries to the establishment of an international organization for the maintenance of international peace and security, see Foreign Relations, 1944, vol. i, pp. 614 ff.; for documentation on the United Nations Conference on International Organization, held at San Francisco, April 25–June 26, 1945, see ibid., 1945, vol. i, pp. 1 ff.

12. Instruction 558 to Ottawa, January 19, enclosed a paraphrase of this and several subsequent telegrams with the following comment:

    “With reference to the penultimate paragraph of telegram no. 118, January 4, the Department is not entirely in accord with the Embassy’s feeling that the points mentioned in the telegram indicate a wide divergence from the previous British view or that they would be likely to develop into serious obstacles. It should be borne in mind that the comment on the British views expressed in this series of telegrams is that of individuals and does not necessarily reflect the Department’s opinion.” (840.50/1–1945)