Lot 65A987, Box 99

Memorandum of Conversation, by the Assistant Chief of the Division of Commercial Policy (Beale)

Participants: Mr. Clayton, Chairman, U.S. Delegation
Mr. Helmore, Chairman, U.K. Delegation
Mr. Beale, U.S. Delegation

Mr. Clayton informed Mr. Helmore that we were disappointed in: the British offers as compared with the U.S. offers. Mr. Clayton pointed out that we were offering concessions which affected 95 per cent of U.K. imports into the U.S. in 1939, that the U.S. concessions on dutiable items affected 70 per cent of U.K. Imports into the U.S. and the U.S. concessions in the form of free list bindings covered 75 per cent of U.K. imports into the U.S. Furthermore Mr. Clayton noted that 57 per cent of the trade was covered by reductions in dutiable rates, and 50 per cent of the trade was covered by direct concessions to the U.K. He also pointed out that of the reductions in dutiable items covered by the U.S. concessions on 92 per cent reductions of 36–50 per cent were offered, on 17 per cent reductions of 25–35 per cent were offered and on 11 per cent reductions of less than 25 per cent were offered.

Mr. Clayton pointed out, on the other hand, that with respect to duty concessions offered by the U.K., about 48 per cent of total dutiable imports on which concessions were offered were affected by reductions of less than 25 per cent, about 41 per cent by reductions of 25–35 per cent and only one per cent reductions of 50 per cent. Mr. Beale stated that the U.K. offers covered only 34 per cent of total U.S. imports into the U.K., although the U.K. statistics indicated that this figure should be about 42 per cent. Mr. Helmore agreed that a figure between 34 and 42 per cent might be taken as representing the probable figure for the purposes of the discussion.

Mr. Clayton then said that the U.K. offers were particularly disappointing with respect to offers of elimination of preference, pointing out that in only one instance had the U.K. offered to eliminate the preference. In this connection Mr. Clayton noted that “on 15 items the U.K. offered to bind the rates, etc.”

In reply Mr. Helmore pointed out that the U.K. duties were already low and it could not be expected that the reductions offered would be equivalent within the percentage brackets. He also emphasized that the Procedural memorandum provided that bindings of low tariffs should be taken as representing concessions in the same way as reductions of high tariffs. With regard to the elimination of preferences accorded by the U.K., Mr. Helmore stated that the U.K. offers should [Page 930] be taken as the combination of reductions in U.K. tariffs as such plus the reductions in preferences accorded to the U.K. in Commonwealth markets. So far as the items of interest to the Commonwealth countries in the U.K. market on which preferences are accorded by the U.K., Mr. Helmore pointed out that such preferences were not the concern of the U.K. but of the countries benefiting by such preferences. Mr. Helmore said that the U.K. was to be regarded as making her offers partially in the form of reduced preferences in Empire and Commonwealth markets and that such reductions in preferences represented costs to the U.K. He instanced as an example the case of linseed oil, which is dutiable at 10% and on which the margin of preference is bound to India. Mr. Helmore said that from the U.K. standpoint the U.K. would be advantaged by having freedom of action, since conceivably they might use their freedom in bargaining with Argentina, if an agreement were ever negotiated with that country. But, he stated, it would be extremely difficult to persuade India to give up their preference and if it were to be done the U.K. would have to pay India. Mr. Helmore concluded by saying that whereas on the one hand, as Mr. Clayton had pointed out, the U.S. offers represented a totality so the U.K. offers could only be assessed by taking a look at all the offers made by the U.K. in the form of reduced preferences accorded the U.K. by the Commonwealth countries.

Mr. Clayton stated that this was not his understanding of the case. He pointed out that the U.S. and U.K. had agreed, as part of the Financial Agreement, that they would undertake the reduction of tariffs and the elimination of preference and the question was therefore one of the fulfillment of a commitment by both sides. He pointed out that the U.S. offers represented their contribution, and he felt that no one could dispute the degree of that contribution. On the other hand the U.K. offers did not represent any substantial contribution to the objective of eliminating of preference. Mr. Clayton then explained that the procedure, as he understood it, was for the U.K. to undertake the reduction or elimination of preferences accorded by the U.K. and on the other hand for the Commonwealth countries to reduce the preferences which they respectively accorded. Only in this manner, could we expect to affect the preferential system. He pointed out that it lay within the power of the U.K. to take their own action with respect to the preferences accorded by the U.K.

Mr. Helmore replied that the extent to which the preferential system would be affected by the offers made by all countries within that system could only be judged by examining the offers with respect to preferences proferred by the various countries concerned. In this connection he reminded Mr. Clayton of Sir Stafford Cripps’ statement for the press regarding the elimination of preference. Mr. Clayton replied that our requests would not in fact result in the dissolution of [Page 931] the preferential system, and Mr. Beale pointed out that our requests to the U.K. were in fact selective so far as preferences were concerned and the U.S. requests for bindings would not in fact result in any reduction in the margin of preference. Mr. Helmore then pointed out that under the provisions of the Charter margins of preferences would be bound and in the view of the U.K. and commonwealth countries this represented an important contribution. Mr. Helmore stated that, whereas circumstances might arise under which a country such as the U.S. would withdraw from the organization and take steps to increase their tariffs, it would be infinitely more difficult to expand the preferential system once the margins of preference had been bound since such a move would require agreement among six countries rather than unilateral action by one.

During the conversation the part played by wool in the offers made by the Commonwealth countries was discussed. Mr. Clayton stated that in his view a reduction in the duty on wool by the U.S. would not result in any substantial increase in the U.S. market for wool and that the importance attached to the concession by Australia was greatly exaggerated. Mr. Clayton and Mr. Helmore discussed the probable effect of a reduction in the duty on wool upon the cost of woolen textiles and Mr. Clayton emphasized that in his view the result would be slight.

In this connection Mr. Clayton again stressed the point that the U.K. was responsible for offers on preferences accorded by the U.K., and he pointed out that this was made clear when one considered the possibility that no agreements might be reached with the Southern Dominions. Mr. Helmore stated that he had considered this possibility and had in fact discussed the matter during the talks which the Commonwealth countries had been having recently. He said that, in the event of the withdrawal of the Southern Dominions it would be necessary to review the whole problem, but that he felt that an opportunity would remain for agreement between the U.S., U.K. and Canada, as well as other countries, though on a reduced scale. Mr. Helmore said further that during the discussions referred to, Mr. Nash1 had pointed out that no government could be expected to resign at the request of another government, and that a failure to secure a concession on wool would almost assuredly result in the fall of the Australian Government. Mr. Clayton replied that he recognized the political implications of the wool problem for Australia as well as for the U.S., but that he could not agree with the Australian view as regards the economic aspects of the problem.

Mr. Clayton then referred again to the U.K. offers in contrast to the the U.S. offers. He pointed out that, as a result of the proposed reductions, the U.S. tariff would be lower than at any other time within his [Page 932] memory, lower even than under the Underwood Tariff,2 which was a low tariff. He emphasized the level of the tariff as a result of previous reductions and pointed out that this level would be substantially lower as a result of the present U.S. offers.

Mr. Helmore then raised the question of the actual advantages to> trade which might be expected to result from the U.S. offers. Mr. Clayton pointed out that the over-all U.S. offers would undoubtedly result in an expansion of trade to the benefit of all the countries concerned. Mr. Beale stated that so far as advantages were concerned it was important, in evaluating the U.K. offers, to realize that bindings of relatively low duties, although given due importance, could not be expected to result in any substantial improvement in the U.S. position in the U.K. market. On the other hand, for example, it was anticipated that the U.S. offer on woolen and worsted goods would be of great advantage to the U.K. He noted that whereas average annual imports during the period 1930–38 were valued at 5.3 million dollars, the quota, if filled, could represent a value to the importing countries of 66 million dollars. He also pointed out that in absolute amount the quota was several times greater than imports into the U.S. in the year in which their volume was greatest, and was several times greater than U.K. exports to the U.S. in their best year. Mr. Helmore said that they viewed the quota as most undesirable since it would open the door to pressure for other similar quotas on manufactured goods. Mr. Clayton agreed that tariff quotas are undesirable but emphasized that the U.S. offer was the only means by which the U.S. could make a reduction in the duties. Mr. Helmore recognized that the offer on woolen textiles presented an opportunity for the expansion of U.K. trade. He pointed out however, that the quota applied to all countries. In reply, Mr. Beale informed him that the U.K. accounted for the greater part of imports of woolen and worsteds.

In conclusion, Mr. Clayton again pointed out that the U.K. offers were disappointing and did not represent a fulfillment of their commitments with respect to the elimination of preference. Mr. Helmore replied that before the U.S. reached any final conclusions he would ask that they look at the total offers with respect to preferences. Mr. Beale pointed out that the U.K. offers as such, if taken as representing part of that total picture, did not reflect any substantial contribution on the part of the Commonwealth countries concerned, and that the main concern was with the situation as represented by the U.K. offers. He pointed out that, for example, the U.K. offers reflected negligible contributions on the part of South Africa and New Zealand.

W[ilson] T. Beale
  1. Walter Nash, New Zealand Minister of Finance.
  2. The Underwood Tariff, enacted during the first administration of President Woodrow Wilson (1913–1917), was considered the lowest tariff since the 1860’s.