Lot 65A987, Box 99
Memorandum of Conversation, by Mr. William Adams Brown 1
J2 opened the conversation by saying that the Conference needs all the good wishes for its success possible and struck a pessimistic note.
The basic reason for the lack of progress of the Conference is that the United States Delegation seems not really to know what it wants. [Page 938] It is pursuing two contradictory objectives: (1) To obtain a world in which there will be a minimum of trade restrictions and impediments to private enterprise; and (2) to obtain for every concession it makes on tariffs an equivalent concession in tariff and preference from other countries.
The reason these two are contradictory is that equal concessions in the tariff bargaining will not help to turn over the U.S. favorable export balance. The U.S. is working on the theory that the U.S. balance of payments position can be put right in an environment of generally expanding trade, but this is a fallacy as long as the U.S. does not make any tariff cuts which really hurt anyone in the U.S. The U.S. Delegation, which by the way has by no means offered a 50% reduction on all items, is trying to squeeze the water out of the protective system and leave the gold core of protection untouched. If the Americans really want to advance towards a regime of more liberal trade by the path of tariff bargaining, they must make unequal trades in this field and offer concessions which will really lead to greater international specialization through the shifting of some productive resources and capacity in the U.S. in favor of imports. A commodity which might illustrate this point would be raw wool.
I suggested that the bargain being struck at Geneva might not really be an equal exchange of tariff and preference concessions, but an acceptance of the principle of equal tariff and preference bargains on the one side against the acceptance of various exceptions permitting quantitative restrictions to be continued under Articles 25 and 26 under stated conditions on the other side. I asked whether this, coupled with the two provisions in the Charter providing for a review of all quantitative restrictions after a period and at a time when all countries would know a lot more about the economic situation following reconstruction, did or did not constitute the basis for an acceptance bargain. J replied that this was a basis for a bargain but that it was not the preferred basis in the eyes of the U.K. because an equal bargain on tariffs and preferences would prolong the period during which the U.K. would have to take advantage of balance of payment quantitative restrictions under Article 26. (This would be due to the fact that equal tariff bargains would not reduce or increase U.S. imports relative to exports.) The U.K. does not like this solution, because as long as the U.K. takes advantage of Article 26, many other countries will feel that they must do so also, and the U.K. objects to the system of balance of payment quantitative restrictions applied generally as contrary to her own export interests.
The U.K.’s preferred solution would be an unequal tariff and preference bargain (the U.S. making greater concessions, leading to more U.S. imports relative to exports) and a consequent shortening of the [Page 939] period during which Article 26 will have to be availed of. This, J said, is in the true U.S. long-run economic interest. The U.S. really ought to go in for free trade (or as near as makes no difference) in order to avoid a prolongation of the regime of quantitative restrictions, the necessity of continuous financing of a large export surplus, and an inevitable fresh period of debt repudiation and unpleasantness. Failing this, the U.S. ought at least to accept the idea of unequal tariff and preference bargains, which is the preferred solution from the U.K. point of view. (I gathered, but J did not say so, that the U.K. offers were made on the basis of this preferred solution.)
I asked if any other delegation had come to Geneva with the intention of making tariff deals which would cause serious injury to their own producers. J said, of course, not, but that it was not necessary for other countries though it was necessary for the U.S. It is high time, he said, that the U.S. should realize that there are some inconveniences as well as advantages connected with being a creditor country.
With respect to preferences, I asked whether it was not true that there were a few “key” preferences which were economically important and that the rest could be left without major economic effect. He said this might be true of preferences granted by the U.K. to the Dominions, but that it was not true of preference granted by the Dominions to the U.K. These latter covered a large and diversified number of products (reflecting the characteristics of U.K. export trade). The expert advice received by the U.K. Delegation (and the Delegation could only follow the expert advice which it receives) was that these preferences were actually important in diverting specific orders to U.K. producers and that their removal would definitely injure U.K. export trade.
J then suggested that even if we do not get at this Conference a Charter as rigid or tariff cuts as deep as the U.S. wants, we should still make a substantial advance, and could then take a further step at a later time. I suggested that it might very well be that the present opportunity of making an overall substantial agreement with the U.S. might not recur again, and that given the political situation in the U.S. (especially the possibility that the Charter might have to come up for ratification when the U.S. was experiencing a period of economic recession), it might be risky to pursue a policy of taking two bites to the cherry. Would it not be wiser to reach a general agreement now on the basis of equal tariff and preference concessions and with the danger of prolonging the period of use of Article 26 subject to the safeguards of a general review later of outstanding quantitative restrictions? J replied that if the U.S. persisted in misunderstanding its own long-run interests, that might be the best course. (On this point I felt that J’s tone justifies my underlining the word “might”.) He [Page 940] still felt that the U.S. spirit of competition was manifesting itself in Geneva in a very unfortunate way. Each of the twelve negotiating teams was exerting itself to bring back the best bargain; i.e., the least cuts with the greatest possible counter concessions, in order to win a gold medal from Mr. Clayton. The gold medals should be distributed to the teams making the worst bargains, as this would most quickly bring to an end the overriding dollar exchange shortage problem which is plaguing the world.
With respect to this general problem, J did not say how the ordinary economic forces expressing themselves in the price and market mechanism could bring about a condition of balance of payments equilibrium in the U.K. or in the U.S. except after a long period of time. The change in the position of the U.K. from creditor to debtor had been too rapid for this. Specific governmental measures to bring exports and imports into reasonable balance (i.e., where the financing problem would be manageable) would be necessary.
With respect to Australia, J said that Coombs would say in private conversation that Australia’s industrialization has already passed through the infant stage and is approaching maturity. Quite shortly Australia will find itself in the position of a very high tariff country, vitally interested in industrial exports. Australia will in fact be in the same economic dilemma as the U.S.
[Incidentally, J said that the political attacks to which Coombs has been subjected at home came about in this way: On his return from the London conference, the government asked him to report privately to the Labor Party. He did so and then the opposition demanded the same privilege. He reported to them, and after that meeting one of the opposition people quoted him incorrectly to the press as having said that Imperial preferences had been ended in London.]3
With respect to India, J agreed that none of the political, administrative or other prerequisites necessary to carry through a 15–year large scale industrialization plan existed in India. I asked whether in that case it would be sensible to make any further “underdeveloped country concessions” on the basis of claims and plans that are really not substantial. J replied that the present Chapter IV was the absolute limit to which the U.K. would go.
With respect to China, J said simply that China does not count.
With respect to employment, he said that both he and Coombs sincerely believed in Chapter III and that it is very little to ask that countries should pledge themselves to do what they would do anyway in their own interest. I asked whether Chapter III, when read in conjunction with Article 35 (nullification and impairment) was not really a good deal more than this—i.e., failure to implement the employment [Page 941] pledges might be grounds for claiming nullification or impairment. J said (I thought with some satisfaction) the change of the word “chapter” to “charter” in Article 35 had been a very “cagey” alteration (some British equivalent of “cagey” was used which I do not recall precisely).
I asked if J had heard of the “nosebag” theory of the Charter as expounded by Senator Millikin and he indicated that there might be something in it. The U.S. stands, he thought, virtually alone in the world in its belief that free enterprise can be a wise or even a major rule for the conduct of economic affairs, and that in fact in time of emergency, the U.S. does not live up to this article of faith. On the other hand, the USSR and satellites and India stand alone almost in denying the vital contribution of free enterprise to economic expansion. J thinks that we must all move towards some intermediate system and he feels that the U.K. has already learned a lot as to how to construct a viable “half-way house”.
The rest of this conversation was in the realm of long-run economic speculation and about people. He did, however, suggest that the exhaustion (relative) of some of our American natural resources, such as petroleum, might be a deus ex machina leading to new U.S. imports and its relief for the dollar shortage, but J said that by that time, the Americans would probably have upset the whole foreign exchange picture by being first to apply atomic power to industrial uses.
- Mr. Brown, formerly an officer in the Department of State, was then a member of the staff of the Brookings Institution and an informal observer at Geneva. The document bears the following marginal notation: “Memo of Conversation between Mr. Wm. Adams Brown and Mr. James Helmore handed confidentially to Mr. Wilcox.”↩
- James R. C. Helmore, of the British Delegation.↩
- Brackets appear in the source text.↩