560.AL/7–2947
The British Chargé (Balfour) to the Secretary of State
immediate
My Dear Mr. Secretary: Yesterday I left with you an Aide–Mémoire1 regarding the foreign exchange situation of the United Kingdom. I have since then received urgent instructions to refer to this communication and to state that His Majesty’s Government in the United Kingdom have been considering the effect of the dollar situation described therein on the negotiations now proceeding at Geneva for the establishment of an International Trade Organisation.
As was stated in my Aide-Mémoire of yesterday, His Majesty’s Government will, within the next few months, be faced with the necessity of having to take drastic action to enable them to secure the barest minimum of supplies from overseas by means of measures which would be quite inconsistent with the spirit of the Draft Charter unless they can be sure that the peculiar dollar situation of the United Kingdom is being met. Moreover, they could not be sure that the measures which they might be forced to adopt would be in conformity even with the most reasonable provisions in the Draft Charter relating to exceptions to the rule of non-discrimination.
The Geneva timetable, which looks to agreement on a Draft Charter for submission to a World Conference towards the end of this year, would clearly permit His Majesty’s Government, even in these circumstances, to agree to reasonable provisions on non-discrimination on the basis that by the time the World Conference met, the situation would be clear. But the Geneva timetable also contemplates that in September definitive agreement should be reached both on tariffs and preferences and on the necessary general clauses to accompany such concessions. It is contemplated that the appropriate articles from the Draft Charter would be used in this agreement about tariffs, so that in effect by the middle of August the form of the non-discrimination provisions of the tariff agreement would have to be settled.
There has just been circulated to the members of the Preparatory Committee in Geneva a first draft of the general agreement on tariffs and trade, in the drawing up of which the United States and United Kingdom Delegations have co-operated with a few others. This Draft agreement contains the following provisions as regards its coming into force:
- (i)
- It should come into force provisionally on 1st November between certain named countries (including the United States and the United Kingdom);
- (ii)
- It should come into force definitely between all the signatory countries when ratified by countries covering 85% of the total trade of the signatories;
- (iii)
- It should remain in force for three years unless replaced by the Charter of the International Trade Organisation.
His Majesty’s Government are therefore faced with the following dilemma. They can either
- (a)
- agree in September to bring into force in November an agreement containing provisions about non-discrimination which they might find themselves unable to carry out because they had no dollars,
- or
- (b)
- refuse to agree to any provisions about non-discrimination either in the Draft Charter or in the general agreement on tariffs and trade, in which case a mortal blow might have been struck at the whole project of bringing the world back to multilateralism. This is a project which His Majesty’s Government firmly believe to be in their long-term interest as much as that of any other country; but in the short-term situation the lack of dollars might be overriding.
In the light of this dilemma His Majesty’s Government have considered most anxiously how they might safeguard their most essential interests in the short term without losing the benefit of the years of constructive work which has been put in by so many countries but principally by the United States and the United Kingdom. As they see it, the only possible course of action is to postpone a definite commitment until it is known whether the immediate dollar shortage will be overcome, without at the same time causing negotiations at Geneva to be regarded by the world as having broken down.
His Majesty’s Government believe that this result could be achieved if, instead of an arrangement by which the general agreement on tariffs and trade came into force provisionally on the 1st of November, it should (assuming a successful result to the negotiations on tariffs and a satisfactory draft of the Charter including reasonable provisions about non-discrimination) be initialled ad referendum at Geneva without any definite commitment as regards coming into force. We must make it quite clear that for our part at least (and no doubt, as the situation develops, other countries will be forced to make some reservation) the agreement could not be brought into force by His Majesty’s Government until there is a substantial stability of international exchanges.
In proposing, as they do, that the Geneva negotiations should be finalized and a general agreement initialled in the manner suggested above, His Majesty’s Government have in mind not only the desire not to lose the value of the work done but also the feeling that if things go wrong and an acute crisis develops, we shall still have preserved for the future, when conditions become more normal, a vast measure [Page 969] of agreement from which we might in the longer term begin again to rebuild a multilateral world.
A communication similar to this letter is being made today to Mr. Clayton by His Majesty’s Ambassador in Paris.
Yours sincerely,