Foreign Relations of the United States, 1946, General; the United Nations, Volume I

560.AL/10–746

Memorandum Prepared in the Division of Commercial Policy

confidential

[Washington,] February 6, 1946.

Preparations for Preliminary International Meeting on Trade and Employment

The Government of the United States published, on December 6, 1945, a document entitled “Proposals for Expansion of World Trade and Employment”, copies of which were transmitted to other governments of the world for their consideration.

These Proposals urged the view that world security and well-being require the adoption by all countries of a code of commercial conduct embracing the fields of governmental barriers to trade, cartels, intergovernmental commodity agreements, and permanent international machinery to deal with these matters on a continuing basis. Recognizing the close relationship between levels of trade and conditions of employment, the Proposals also made clear the importance of domestic measures to maintain employment and the need for continuing international consultation on employment policies.

With a view to bringing about the implementation of the Proposals, the Government of the United States suggested that the United Nations Organization convene a general world conference for this purpose. At the same time, in order to assure adequate preparation for the world conference, the Government of the United States extended invitations to the governments of fifteen other countries to participate in a preliminary meeting on the subject.

The purpose of the present memorandum is to indicate the views of the Government of the United States regarding a) the objectives which should be sought at this preliminary meeting, b) the procedures which appear to be necessary before and at the meeting in order to achieve these objectives, and c) the methods whereby the results of the preliminary meeting can be broadened internationally at the general world conference on trade and employment which it is hoped the United Nations Organization will convene later on.³⁵

Objectives of the Preliminary Meeting

It is considered that the best means of preparing for the general world conference would be to develop in advance a body of definite and concrete international commitments on the various aspects of the Proposals which a broadly representative group of nations, including the major trading nations, would be prepared to support and adopt.

Accordingly, it is believed that the objective of the preliminary meeting should be to negotiate, and reach substantial agreement upon, a detailed international instrument incorporating such commitments. It is suggested that this multilateral instrument should be called the Charter of the International Trade Organization of the United Nations. This Charter, like the Articles of Agreement of the International Monetary Fund, would contain not only provisions relating to the machinery of the Organization but also provisions embodying positive and substantive commitments as to the reduction of trade barriers of all kinds, as to the procedures to be followed in dealing with cartels, as to the principles and procedures which would govern the negotiation and operation of intergovernmental commodity arrangements, and as to the international aspects of domestic employment policies in the member countries. As explained below, the provisions of the Charter dealing with trade barriers would have a more definitive status (in respect of the countries participating in the preliminary meeting) than would the remainder of the Charter.

As an essential part of the undertakings for the reduction of trade barriers, provision must be made for the reduction of tariffs. However, in view of the thousands of tariff items involved, and the need for proceeding with tariff reduction on a selective, product-by-product basis, provisions effectuating actual tariff reductions cannot be incorporated in the Charter itself. It is proposed, therefore, that to the Charter there be appended a Protocol in which each country participating in the preliminary meeting (except, of course, countries having a complete state monopoly of foreign trade^*) would agree to reduce individual import tariffs, or bind them against increase, in accordance with a schedule setting forth and describing the various products on which that country would grant tariff concessions and the agreed maximum rate of duty for each such product.

It has been the past international practice, with few exceptions, to confine negotiations on tariffs to agreements between two countries. In these bilateral agreements, such as those heretofore concluded by the United States under the reciprocal trade-agreements program, each of the two countries parties to the agreement granted reductions or bindings of its import tariffs on products of which the other was a principal or important supplier. While these concessions were as a rule generalized to third countries, either by virtue of most-favored-nation obligations or as a matter of policy, third countries had no contractual right to them independently of the existence of the bilateral agreement in which they were embodied. In other words, tariff reductions have been effected in the past either unilaterally or by means of a network of bilateral instruments, each separate from the other and dependent for its existence and continuation in force upon the policies and decisions of the particular pair of countries concerned.

It is now suggested that the purely bilateral method of negotiating tariff concessions should be modified in connection with the proposed negotiations relating to the Charter of the International Trade Organization, and that a multilateral procedure be developed under which tariff reductions effected in conjunction with these negotiations may stand on all fours with the multilateral commitments relating to other trade barriers which would be incorporated in the Charter itself. In this way each country subscribing to the relaxation of trade barriers other than tariffs under a multilateral plan affecting many products and many countries, would also be assured that equally broad and precise action would be taken with regard to tariffs.

It is proposed, therefore, that the tariff schedules which it is envisaged would result from the negotiations at the preliminary meeting would be multilateral, both in scope and in legal application. Under this plan, there would result from the negotiations a total of 14 schedules of tariff concessions, each schedule setting forth a description of the products and of the concession rates of duty thereon which would be applicable in respect of the imports into a particular country. The products listed in the schedule pertaining to the imports into each country would include those of which the other countries are or are likely to become, principal suppliers, individually or in combination. Each country participating in the arrangement would be contractually entitled, in its own right and independently of the most-favored-nation clause, to the concessions in each of the schedules of the other countries.

It is clear from the foregoing that the negotiations contemplated with regard to tariffs represent an undertaking of considerable magnitude and will constitute a main task of the preliminary meeting. The tariff aspect of the negotiations will accordingly require particularly careful and extensive preparation in advance of the meeting. Suggestions as to certain preparatory steps which might be taken are set forth elsewhere in this memorandum.

The Government of the United States hopes that within the next six or eight weeks it will be able to transmit to the other governments intending to participate in the preliminary meeting, for their study and consideration, a detailed draft text of the proposed Charter of the International Trade Organization³⁶ and of the general provisions of the Protocol. Meanwhile, it may be noted that under the Protocol certain Articles of the Charter (e.g. those relating to most-favored-nation treatment, quantitative restrictions, national treatment in respect of internal taxes, et cetera) would be susceptible of being brought into force independently of the remainder of the Charter and in conjunction with the entry into force of the tariff schedules. The purpose of this arrangement is to assure that the tariff schedules, together with those related trade-barrier provisions of the Charter which are designed to safeguard the value of the tariff concessions and which have customarily been included in trade agreements in the past, can be made effective as a separate international instrument in the event of any delay in the general acceptance by the legislatures of the various countries of the Charter as a whole.

The procedures for conducting the tariff negotiations at the preliminary meeting should be such that failure of any pair of countries to reach satisfactory agreement on particular tariff rates would not obstruct the completion of a broad multilateral agreement. In such cases provision might be made for continuing or supplementary negotiations between the countries concerned.

Preparatory Steps in Advance of the Meeting

The following suggestions are made as to the steps which it is believed should be taken to assure adequate preparations for the preliminary meeting:

1. Each Government should endeavor to formulate, with a view to definitive discussion at the meeting, its position and views as to the various principles set forth in the Proposals published by the United States and as to the provisions of the detailed draft Charter, referred to above, in which these principles would take concrete form. The Government of the United States would be glad to receive, in advance of the meeting, the views of any of the other Governments regarding any aspect of the Proposals or the draft Charter.

2. The Government of each country should transmit to the Government of each other country from which it wishes to receive tariff concessions a statement setting forth (1) a list of the products on which it will request concessions of that country, and (2) the actual reductions or bindings of tariff rates which it plans to request in respect of such products. This statement containing both types of information should be transmitted as soon as possible. However, since it is relatively easy to prepare a list of products alone, without an indication of the tariff concessions to be requested, and since even such a list would provide some assistance to the various countries in preparing for the negotiations, it is suggested that a list of this kind might well be sent in advance of the more complete statement containing detailed requests for tariff concessions. The work of all concerned would be facilitated if, in preparing the list of products and the concessions to be asked, use would be made of the statistical or tariff nomenclature of the country of which the concessions are requested.³⁷

3. In preparing requests for tariff concessions, it is suggested that the participating Governments may wish to apply the principles outlined in the Proposals relating to cases in which there is a state monopoly of the trade in an individual product (Chapter III, Section E, paragraph 2 of the Proposals). These principles suggest that, in the case of such monopolies, the protection afforded domestic producers by means of price disparities similar to those caused by import tariffs can be effectively reduced or bound against increase by negotiating a maximum margin between the landed price at which the monopoly can buy the foreign product and the price at which the monopoly sells the product in the home market. Such negotiated margins would be set forth and provided for in the tariff schedules along with the negotiated rates of customs duty. These margins would, of course, be exclusive of transportation, distribution and other expenses incident to the sale of the imported product.

4. In addition to import tariffs, each Government should also examine the export tariffs or taxes which may be maintained by certain of the other governments participating in the meeting with a view to determining whether it wishes to request concessions on individual export tariffs affecting its sources of supply. As in the case of import tariffs, requests for concessions on export tariffs should be communicated to the appropriate government or governments in advance.

5. The requests for tariff concessions which each Government would have made of the others, and the requests which each Government would have received from the others, should make it possible for each Government to have formulated, by the time the meeting begins, a schedule of the offers which it would be prepared to make to all of the other governments as a group in the light of what it would expect to receive from each of them. It is suggested that, for convenient reference in transmitting requests for tariff concessions prior to the opening of the preliminary meeting, the Schedules which would pertain to the various countries might be numbered in alphabetical order, as follows:

Name of Country	Schedule
Australia	Schedule I
Belgo-Luxembourg Economic Union and Belgian Congo	Schedule II
Brazil	Schedule III
Canada	Schedule IV
China	Schedule V
Cuba	Schedule VI
Czechoslovakia	Schedule VII
France and French Empire	Schedule VIII
India	Schedule IX
Netherlands and Empire	Schedule X
New Zealand	Schedule XI
Union of South Africa	Schedule XII
Union of Soviet Socialist Republics	Schedule XIII†
United Kingdom, Newfoundland, Southern Rhodesia, Burma and colonial dependencies	Schedule XIV
United States	Schedule XV

Procedures for Conducting Negotiations at the Preliminary Meeting

In order that the work of negotiating arrangements of the complexity and scope of those under consideration may proceed in an orderly and expeditious fashion, it is essential that the preliminary meeting be well organized. The following suggestions bearing upon the make-up of the delegations and the committee structure of the meeting are advanced for consideration:

1. Make-up of the Delegations. It is believed that the main considerations to be borne in mind with regard to the make-up of the delegations are that a) the meeting is intended to be preliminary to the world conference on trade and employment and would not therefore be of the same order of importance as the world conference, and b) the primary work of the meeting would be highly technical in character, requiring the services of persons competent in the various specialized fields embraced under the following headings:

i) Employment policies;

ii) Tariffs (including tariff policies in respect of individual products as well as technical tariff, tariff nomenclature, and customs administrative problems);

iii) Exchange and international financial controls;

iv) Agricultural policies bearing on international trade;

v) Policies in respect of intergovernmental controls over the production of, or trade in, primary commodities;

vi) Cartels;

vii) Commercial policy in general (including broad questions of tariff policy such as most-favored-nation treatment, generalization of duties, et cetera); and

viii) International organizational problems.

2. Organization of the Meeting. The first task of the meeting will be to agree upon the committees or other groups which will need to be established in order to conduct the negotiations on substantive matters. In the light of the various subjects to be discussed, and the need for proceeding more or less simultaneously over a broad field, it is suggested that committees consisting of representatives from each of the participating governments may need to be established to cover the areas indicated below. The outline which follows is intended to be tentative and suggestive only, and is merely put forward for the purpose of indicating the organizational problems involved.

A. Committee on Employment Policies. (This Committee would deal with provisions relating to the international aspects of domestic employment policies.)

B. Committee on Tariffs. (This Committee might deal with questions of most-favored-nation treatment and generalization of duties as well as with the broad aspects of the detailed negotiations for the reduction of tariffs. Since the matter of a particular tariff concession, offered by one country in respect of a product of which another is the principal supplier, is not usually of primary interest to countries other than the two countries immediately concerned, it is probable that the detailed negotiations for tariff concessions would be very largely conducted in the groups representing pairs of countries. In other words, although the tariff schedules, as finally worked out, would be multilateral in scope and would be subject to general approval by the Committee on Tariffs, decisions as to the particular concessions on particular commodities would be taken in the small negotiating groups, which would usually be of a bilateral character.)

C. Committee on Non-Tariff Trade Barriers. (This Committee might deal with quantitative restrictions, exchange controls, and subsidies.)

D. Committee on General Commercial Provisions. (This Committee might deal with such questions as customs formalities, marks of origin, tariff valuation, freedom of transit, and miscellaneous commercial provisions.)

E. Committee on Cartels. (This Committee would deal with provisions relating to the curbing of restrictive business practices.)

F. Committee on Commodity Policy. (This Committee would deal with provisions relating to the principles and procedures which should govern the negotiation and operation of intergovernmental agreements which restrict the production of, or trade in, primary commodities.)

G. Organization. (This Committee would deal with provisions relating to the functions and structure of the International Trade Organization.)

In addition to the foregoing, there would appear to be need for 1) a legal and drafting committee, and 2) a general committee, consisting of the heads of delegations, to pass upon the work of the meeting as a whole.

Relation Between Preliminary Meeting and Proposed World Conference on Trade and Employment

If the negotiations at the preliminary meeting are successfully carried forward along the lines indicated above, there would emerge from the meeting the draft Charter of the ITO and the Protocol.

It is proposed that the draft Charter should be submitted to the world conference on trade and employment for its consideration and that the provisions of the Charter should be open to amendment at that conference in the light of the new considerations introduced as a result of the larger number of countries participating.

With regard to the tariff schedules provided for under the Protocol, however, it seems clear that these cannot practicably be reopened, as among the countries participating in the preliminary meeting, for consideration and possibly renegotiation at the general world conference. Nor would such action seem to be required or appropriate on grounds of equity.

It is proposed, therefore, that the Protocol, consisting of the tariff schedules and of the non-tariff trade barrier provisions of the draft Charter which it may be agreed to incorporate in the Protocol by reference, should, at the close of the preliminary meeting, be signed and published by the countries participating in that meeting and should come into force, independently of the Charter, in accordance with provisions to be worked out. In order to make perfectly clear the relationship between the Protocol and the Charter, provision might be made whereby the Protocol could later be adapted to any changes in the provisions of the Charter relating to non-tariff trade barriers which might result from the action of the world conference.

The question will arise at the preliminary meeting, and later at the world conference, as to what treatment should be accorded to the commerce of countries which fail to adhere to the Charter of the ITO or which, having adhered, fail to carry through tariff reductions comparable in scope to those which it is expected the countries participating in the preliminary meeting will have effected as a result of the prior negotiations.

Related to the foregoing is the question as to what procedure should be followed in conducting tariff negotiations a) between those countries which have participated in the preliminary meeting (and which have, therefore, already agreed upon tariff concessions over a wide range of products) and newly adhering countries, and b) between the newly adhering countries themselves.

With regard to the first question, it is suggested that any final decision involving the concerted withholding from the trade of non-adhering countries of the benefits of the provisions of the charter relating to non-tariff trade barriers, or involving the denial of tariff concessions to the trade of countries which, having adhered to the Charter, fail to carry out adequate tariff reductions, can only be taken at the general world conference in the light of the views of all interested countries. It is clear, however, that the countries participating in the preliminary meeting should formulate and make recommendations to the world conference on this point. The following suggestions are put forward as to the policy which these recommendations might urge for adoption:

1. The members of the ITO, i.e. those countries which adhere to the Charter, should pursue a common policy regarding the generalization to the trade of non-members of the benefits of the trade provisions of the Charter, including tariff concessions granted pursuant to the Charter.

2. In order to facilitate the foregoing, the countries participating in the world conference should agree, at the conference, that they will not invoke prior most-favored-nation obligations for the purpose of obtaining the benefits under reference.

3. Subject to exceptions authorized by the International Trade Organization, and to any temporary or conditional exceptions which the world conference may agree to make in respect of countries that may not have had an opportunity to participate in the formulation of the Charter, countries adhering to the Charter should, after a reasonable period, withhold the benefits of the Charter from the trade of countries which refuse to adhere to it. Similarly, and subject to exceptions authorized by the ITO, those countries adhering to the Charter which have completed adequate tariff negotiations might, after a reasonable period, become entitled to withhold the tariff concessions resulting from such negotiations from the trade of countries which, although having adhered to the Charter, fail to negotiate tariff reductions judged by the ITO to be in conformity with the spirit of the commitments to negotiate tariff reductions contained in the Charter.

4. The policy suggested in 2 and 3, above, should also apply, of course, in respect of member countries which withdraw from the ITO or which terminate the tariff concessions they have made.

With regard to the related question of the procedure for assuring, by negotiation, the reduction of tariffs on the part of adhering countries other than those which have reduced their tariffs in connection with the preliminary meeting, the following possibilities occur to the Government of the United States:

1. Countries which have completed tariff negotiations among themselves at the preliminary meeting would negotiate separate bilateral tariff-reduction agreements with adhering countries not present at that meeting, and the latter would negotiate such agreements between themselves. The requirement would be made that these negotiations must proceed as soon as practicable upon the request of either party.

2. It may be possible to establish within the ITO a mechanism whereby the multilateral tariff negotiations initiated at the preliminary meeting may be continued on a multilateral basis with adhering countries not present at that meeting. Under this procedure, each adhering country which had not yet undertaken tariff negotiations would offer to negotiate with those that had, a multilateral schedule of concessions similar in scope and legal application to the schedules emerging from the preliminary meeting; and the countries already having such multilateral schedules in effect would offer to amend them to the extent necessary to assure appropriate concessions on products of which the newcomer was a principal supplier.

Whatever procedure is adopted, due weight should be given in the negotiating process to concessions already made as a result of prior negotiations.

35. Regarding the conveyance of copies of this document to the governments of the fifteen “nuclear” countries, see the Department’s circular telegram of February 12, 6 p.m., infra.
36. With regard to such countries, it is suggested that, in lieu of reducing its tariffs, the country having a complete or substantially complete state monopoly of foreign trade might agree to purchase annually from the other countries concerned products valued at not less than an agreed amount. This commitment would be the subject of negotiations at the preliminary meeting and would, like the tariff schedules, be provided for in the Protocol. [Footnote in the original.]

36. This optimistic prognostication fell far short of fulfillment in respect of the projected time-table. It was not until February 28 that first drafts of the proposed Charter (none of which have been found in the Department’s central indexed files) were completed in the Department, and forwarded to the appropriate interdepartmental committee which in this case was the Executive Committee on Economic Foreign Policy (hereafter cited as ECEFP). The ECEFP about March 15 distributed the various chapters of the draft Charter, based on the Proposals of December 6, 1945, to the interested subcommittees of the ECEFP, for consideration and revision as required. For the progress of this item in the work of the ECEFP, see footnote 73, p. 1328.

    The Executive Committee on Economic Foreign Policy was established on April 18, 1944 under authority of a letter from President Roosevelt to the Secretary of State dated April 5, 1944. Its terms of reference were to examine problems and developments affecting the economic foreign policy of the United States and to formulate recommendations in regard thereto for the consideration of the Secretary of State, and, in appropriate cases, of the President. Its membership included two members from the Department of State, at the Assistant Secretary or comparable level, to act as chairman and vice-chairman of the committee, one member each with an alternate from the Departments of the Treasury, Agriculture, Commerce, Labor and the United States Tariff Commission, and one observer each from the Bureau of the Budget and the Office of War Mobilization and Reconversion. The secretariat of the committee was drawn from the Department of State.

37. In a circular telegram of February 26, 4 p.m., to the fifteen missions concerned, the Department asked that the “need for treating as confidential requests made by one country of another for tariff concessions on specific items” be emphasized to the appropriate officials of the government to which they were accredited (560.AL/2–2646). On March 11 the Department transmitted under instruction to the interested missions copies of a publication entitled “Statistical Classification of Imports into the United States”. It was requested that this document be handed informally to officials of the government concerned “stating that it may be found useful in identifying particular commodities upon which tariff concessions may be requested of the United States in connection with the preliminary trade meeting”. (560.AL/3–1146)
38. If the principles indicated in Chapter III, Section E, paragraph 3 of the Proposals should prove to be acceptable to the USSR and to the other participating countries, this Schedule would relate, not to tariff concessions, but to an undertaking to purchase annually products valued at not less than an aggregate amount to be agreed upon. [Footnote in the original.]