710 Conference W and PW/2–845
Memorandum by Mr. Merwin L. Bohan, a Technical Officer of the Delegation61
The Department is fully aware of the forces which are at work throughout the Hemisphere to destroy the unity characterizing inter-American relations during the war period. Undoubtedly, it was the realization of this danger which prompted us, in part, to favor another meeting of Foreign Ministers. If we come to the meeting without a realistic and effective program designed to meet the problems of the transition period, the enemies of inter-American cooperation will be given a new and powerful weapon with which to attack us. Conversely, if the United States can develop a practical program, the growing fissures in the inter-American structure will be repaired and the edifice of continental solidarity strengthened to withstand the inevitable stresses and strains of postwar economic readjustment.
The Latin American delegates to the Conference undoubtedly expect to discuss and to reaffirm their support of liberal trade principles. It is safe to assume, however, that few, if any, of those delegates will place much reliance on those principles as a means of solving the immediate and grave problems which will be troubling them at the time of the Conference. Each of the countries represented is faced with the need of assuring the production and sale of certain basic commodities upon which its economic stability depends. To disregard the foregoing would be to preclude the adoption of a program holding any real hope of meeting the problems of the transition period.[Page 97]
The Department, to judge by its telegram 217 of February 5, 7 p.m., has made much progress in evolving a general, or long term, program, but its thinking to date with respect to a short term, or transition program, leaves much to be desired. Specific comment regarding both programs is given below:
- Long term program. The proposal to present an economic charter for the Americas is a new and inspiring affirmation of the principles which should govern the American Republics in the cooperative development of our economies. In respect to point 4, it is hoped that the Department will approach the question of trade barriers in a more realistic fashion than has been the case during the last several years. There has been too great a disposition to consider our liberal trade policies as a religion or a creed rather than as a thoroughly practical and hardheaded commercial program. For example, the United States has promoted the industrialization of Latin America not only as a matter of general policy, but specifically through lending capital and technical assistance. However, when the governments of Latin America take measures to protect the industries thus created, there is a disposition to frown on all forms of protectionism. The importance of this problem has been magnified as a result of the many industries established during the war, and the United States should be prepared to define what it considers legitimate protection of industry. There are indications that this specific question may come up at the forthcoming Conference. Likewise, in our campaign against exchange controls, import controls, bilateral agreements, and other similar instrumentalities, more progress might be made if emphasis were placed on attacking and correcting the causes which lead to the imposition of such measures, rather than preaching against the evils flowing from them.
- Short term program. Section B of the Department’s telegram is disappointing. The main emphasis is placed on loans to finance surpluses. This approach is dangerous, unrealistic, and inflationary. It will not meet the problems of the transition period, but merely postpone them and complicate their eventual solution. There is no government in Latin America possessing the necessary stability or political courage to take the economic and fiscal steps which readjustment demands if there is even a hope of temporizing. The “stabilization” loan idea is an invitation to maintain production at levels exceeding demand. It will prolong, rather than shorten, the transition period. Furthermore, Latin American governments have sufficient resources at their disposal to finance surpluses if, individually, they wish to follow such an uneconomic and dangerous course. However, the United States should not be the one to suggest it. The real [Page 98] problem is the movement of certain basic commodities into consumption, and until it is decided that it is impossible to move a sufficient volume of such products at a sufficient price to maintain the economies of the Latin American countries, no consideration should be given to other and less sound methods of approach.
A draft of a resolution entitled “Economic Cooperation to Meet the Problems of the Transition Period” is attached.62 The following comments with respect to the provisions of that draft are given below:
The main emphasis is placed on the marketing of commodities rather than on the financing of production. Thus, international commodity arrangements are given a prominent role in the resolution. The tenor of the Department’s telegram 217 leads us to believe that the Department has certain reservations regarding such agreements and finds them somewhat distasteful, although we wish to make it clear that we have not proposed and are not proposing that the Department go any further than it did at the Hot Springs Conference. It is difficult for us to see how an orderly inter-American economy can be assured without commodity agreements being employed in a minimum number of cases, at least. In the pre-war, copper, tin, petroleum, sugar, and wheat were marketed under private or public commodity agreements. Since the outbreak of the war, the very effective inter-American coffee agreement was adopted and the United States only recently indicated its interest in a meeting to discuss cotton. In the post-war, it would appear as though the relative competitive position of certain Latin American products would be less favorable than in the pre-war. While costs in all areas have been increased, the growing demands in Latin America for better standards of living, stimulated in part by official American action, have increased costs to a considerable extent, and it is not desirable that wages be reduced to pre-war levels if this can be avoided. Hence, it will be all the more necessary that Chilean copper, Bolivian tin, et cetera, be assured of equitable world markets. If the United States does not assume leadership in the commodity agreement field, it would appear that either chaotic competitive conditions will develop in many instances, or private agreements, oftentimes disadvantageous to the consumer, will again be concluded.
Similarly, failure on the part of the United States to assume the leadership in obtaining for Latin America an equitable share of the import requirements of Europe, and cooperating in the financing of such trade, will almost inevitably lead to a renewal of the compensation agreement system which characterized trade between those areas throughout the 1930’s.[Page 99]
The foregoing serves to explain the inclusion of paragraphs 1 through 4 of the draft recommendations; paragraph 5 is drawn in such a manner as to commit the United States only to the orderly liquidation of procurement programs. The inclusion of such references as “on a gradual basis over an agreed upon time”, such as is contained in sub-paragraph 1 of Section B of the Department’s 217, are purposely omitted. Inclusion would not only arouse too extravagant hopes on the part of the Latin American countries, but would open the door to political considerations unduly influencing the settlement of essentially economic problems.
Thought has been given to the advisability of amending paragraph 6 by making it plain that the realization of immediate development projects is dependent upon the American supply situation.
Paragraph 7 is so drawn as not to commit the United States to any given line of action but to provide for immediate consultation with governments interested in specific commodities, to the end that the precise steps necessary to assure production levels can be determined upon by mutual agreement. The underlying theory of the proposal is that actual implementation of the foregoing program should be worked out bilaterally, since the United States will have the principal responsibility. However, it may well be that at the Conference a proposal would be made and receive considerable support for charging the Inter-American Financial and Economic Advisory Committee with the study of some or all phases of the program. In view of this possibility and on the assumption that we could control whatever recommendations might issue out of the Committee, it is recommended that a formula of limited reference be studied.
It will be noted that the entire program is directed towards the marketing of products rather than financing production or stockpiling. The Department, of course, realizes that the program outlined by us is suggestive only. We have no way of analyzing it to determine if it is a workable plan. However, it is to be noted that care has been taken to make the program complementary to, and in no sense opposed to, any later world action. It would be a great mistake if the United States failed to meet the practical problems of Latin America because of vague fears that such action might complicate plans for economic cooperation on a world-wide scale.