Lot 65A987, Box 99

Memorandum of Conversation, by Mr. Robert M. Carr of the United States Delegation Staff

Present: Dr. Holloway, South Africa;
Mr. Clayton and Mr. Carr, United States

Mr. Clayton referred to the chart,1 a copy of which had been given to Dr. Holloway, showing in terms of imports into the United States in 1939 the wide coverage of the United States offers of tariff concessions and the extent of the duty reductions involved. He pointed out that as the result of the Smoot–Hawley Tariff Act2 the United States had in the early ’30s perhaps the highest tariff in the world. Since about 60% of the duties were specific duties, its height varied in terms of ad valorem equivalents with changes in price levels. In 1932 or 1933, dutiable imports were subject to a tariff which on a weighted basis averaged about 52%. After 1934, many of the duties were reduced [Page 942] under the Trade Agreements program3 and also there was a moderate rise in prices, so that before the war the level of our tariff had fallen to about 34%. The level now, he thought, must be down at least to 25%. If duties were reduced to the extent shown in the chart, the level would, he was sure, fall well below 20% ad valorem at the present level of prices, and our tariff would probably rank among the lowest, instead of highest, in the world. It would be even lower than the Underwood tariff of 1913, the lowest United States tariff in Mr. Clayton’s lifetime, which averaged about 27 % ad valorem.

Mr. Clayton further observed that United States exports last year had reached a figure of about 16 billion dollars, whereas imports had been valued at hardly half that figure, that imports would have to be increased if exports were to be maintained and that the U.S. offers of tariff concessions represented a drastic downward revision of tariffs designed to bring about a better adjustment in the trade balance. The imports which would result would create, he argued, a greatly increased supply of dollar exchange which the rest of the world could draw on to buy more commodities, including wool. Even though wool would not benefit directly from a duty reduction, it would benefit substantially from the increase in world purchasing power which would result from the tariff concessions which we offered in respect of other commodities.

Tariff agreements of the scope represented by the American offers would greatly improve the economic condition of the world and promote economic peace. However, the concessions offered by the United States could not be defended at home politically without the elimination of preferences. The United Kingdom had in connection with the Anglo-American Financial Agreement agreed to elimination of preferences. One of the principle reasons for the preferences, the high tariffs of the Hawley–Smoot Act, would be removed. If the Southern Dominions should stand in the way of the successful conclusion of these negotiations, they would be doing the world a great disservice and would surely incur the disapproval of world opinion.

Mr. Clayton appreciated the political problems at home which the Southern Dominions would encounter as the result of obtaining only a binding of the United States wool duty, but he pointed out to Dr. Holloway that a reduction of the duty on raw wool would not greatly affect the price of finished wool products and would not result in greatly increased consumption in the United States of wool and, since the wool growers would be financially assisted by the Government, it would not serve to discourage wool production in the United States and thereby stimulate imports.

If the Conference failed, Mr. Clayton stated, the world would again [Page 943] revert to the laws of the economic jungle and no one in the United States would care much if the duty on wool were increased.

Dr. Holloway did not agree that a duty reduction on wool would be as of little value as indicated by Mr. Clayton. He believed that even a few dollars decrease in the price of a wool suit would be important to the lower income groups and would in such a vast market as the United States increase substantially consumption of wool. He observed that not only was the per capita consumption of wool in the United States extremely low but also that the quality of wool goods consumed in the United States was notably poor, due in large part, he argued, to the wool tariff. A reduction in duty would also be important in improving the position of wool in competition with synthetic fibres and fabrics.

Dr. Holloway found himself, however, in full agreement with Mr. Clayton regarding the importance of the Geneva negotiations in improving world economic conditions and promoting economic peace. It was on the basis of these broad objectives that he had urged his Government to join the Bank and the Fund, for it had little to gain directly from doing so. It would be difficult, however, to defend the ITO on the basis of those broad objectives, especially since wool is a logical candidate for a duty reduction and also since South African efforts in the past to develop an export trade with the United States, first in liquors and then in fresh fruits, had met with frustration. America’s sanitary regulations had operated so as to ruin the fruit and discourage further shipment and had given rise in South Africa to strong pressure for retaliation against United States trade, which did not subside until after the beginning of the war. While preaching the benefits of lower tariffs and of specializing in the production of goods which can be produced most efficiently, the United States now proposes to keep out of its market the most efficiently produced product of South Africa, wool, in order to preserve its own wool industry, the most inefficient of all its industries, but at the same time it expects South Africa to make more room in its markets for American exports.

South Africa can not afford to give up its preferences in the United Kingdom, Dr. Holloway stated, or to give up the opportunity of obtaining further preferences in the Commonwealth unless it can find markets elsewhere. The only opportunity for expanding its market for wool lies in the United States, the only large country with a wool tariff.

Dr. Holloway thought it unlikely that the United Kingdom would press the Southern, Dominions to give up their preferences in the United Kingdom for nothing or go so far as to estrange them by terminating preferences unilaterally.

[Page 944]

He argued that it was not the Southern Dominions, but the wool interests in the United States, which were standing in the way of the success of the Geneva Conference. It was inconceivable to him that the United States would sacrifice the global principles and objectives of its economic foreign policy to preserve an inefficient wool industry. He was sure that if the question could be decided by a Gallup poll, the wool industry would have no chance of winning.

Dr. Holloway was satisfied that the problem regarding wool had reached the level of high policy. The Minister for Economic Development,4 who is in charge of the South African Delegation, is expected to arrive in Geneva late this month or early in June. There will undoubtedly be a meeting of the Cabinet before he leaves to determine the South African position. Mr. Clayton told Dr. Holloway that he was leaving next Saturday for Washington to fight the inclusion of the import-fee provision in pending wool legislation but that he expected to be back by June 1. He agreed to inform the Minister for Economic Development through the South African Legation in Washington regarding the exact time of his return.

R. M. Carr
  1. Not printed.
  2. 46 Stat 590.
  3. 48 Stat. 943.
  4. Sidney F. Waterson.