Foreign Relations of the United States, 1947, General; The United Nations, Volume I

611.4131/9–2747: Telegram

The Chargé in the United Kingdom (Hawkins) to the Secretary of State

secret

London, September 27, 1947—3 p.m.

5218. For Clayton, Douglas and Wilcox.

(Part 1) Following is text of letter dated Sept. 25 handed to Clayton by Cripps:¹

“Dear Mr. Clayton: I have reported fully to the Cabinet what you told me and the Foreign Secretary with regard to our offers in respect of preferences which the United Kingdom enjoys in Dominion markets.

We have discussed in the light of the Prime Minister’s statement of December 1945, your contention that we were under an obligation to relinquish preferences in exchange, not for specific concessions in the United States tariff, but for the general benefits which would accrue, especially to the United Kingdom, from a multilateral trade agreement in which the United States and many other countries participated.

We recognize fully that we are committed to action by way of the elimination or reduction of preferences, as well as by the reduction of tariffs, in return for tariff concessions to us, and that the account cannot be balanced solely on a bilateral basis since both sides must take stock of the advantages that may be expected from a multilateral agreement.

We consider, however, that we have already offered concessions on the United Kingdom tariff, and by way of eliminations and reductions of preferences that we enjoy, which cover twice as much trade as the concessions offered by you to us. I enclose a note (see following headed ‘aide-mémoire’) of statistical analyses which shows clearly how far we have gone beyond the sort of arithmetical balance which would have been appropriate to a purely bilateral agreement. In our view what we offer is fully adequate compensation for both the bilateral and the multilateral advantages which we can expect to obtain. Insofar, moreover, as the concessions offered in the United States tariff are more generous on manufactured goods than on primary products, I must remind you that the latter are the key to any great increase in United States imports from the Commonwealth countries, which in turn are our principal export markets.

An agreement in the terms we have offered would make it sufficiently difficult for us to satisfy Parliament and public opinion that we have not bargained away more than we stand to gain. We hope that you will be able to present to your Congress and public an account of the positive action you will have secured in respect of preferences which will give them cause for satisfaction with the results of your negotiations. In the Cabinet’s view the offers we have made to you amply carry out what is required of us under the terms of the Prime Minister’s statement of 6th December, 1945, which you saw before it was made.

If we were to go still further in the sense requested in your aide-mémoire of 19 September² we should be promising now to take action in 3 years’ time in circumstances which cannot be foreseen and without adequate concessions in return. In the present uncertain state of the world and in the light of experience it would be wrong for us to accept an obligation, to come into force at a date in the future, which we might find when the time came we could only carry out at a cost we could not bear. What we can undertake, and indeed have already shown ourselves ready to undertake in the draft charter (Article 17), is to negotiate again for further reductions of preferences against concessions in return on a mutually advantageous basis at any time. And in the meantime there would be no increase of any preferences—an obligation which we accepted in the proposals and are ready to reaffirm in the charter without any corresponding concession in return. As far as we are concerned we can say, here and now, that we should be ready for further discussions on tariffs and preferences after as short an interval as 3 years and in the light of all the circumstances at the time.

Both our delegations in Geneva have collaborated successfully in carrying forward the proposals which we jointly agreed in 1945, and we are now at least [last] in sight of the charter for which we have all worked so patiently and so long. We feel for our part that it would be a great misfortune if this point of difference that has come up between us were to place in jeopardy all our efforts over the much wider field, and I venture to express the hope, which is shared by all my colleagues in the Cabinet, that you and your colleagues in Washington will agree, in the light of all the circumstances, that the offers we [have] made to you provide a sufficient basis for a mutually advantageous agreement. Yours very sincerely,” (Signed by Sir Stafford Cripps.)

“Aide-Mémoire”

• “1. In negotiating with the USA the United Kingdom can look for increased trade only as a result of concessions on the US tariff. The total value in 1939 of United Kingdom export trade to USA (and a small part is already exempt from duty) was only pounds 35.5 million (or $152 million).
• 2. On the other side of the picture, the USA can look for increased export trade both

  (I) As a result of United Kingdom tariff concessions, and

  (II) As a result of eliminations or reductions of preferences in other Commonwealth markets where USA and United Kingdom exports compete. Under (I) the total value in 1939 of US export trade to the United Kingdom which was subject to duty was pounds 87 million ($392 million) and under (II) the total value of United Kingdom exports to Canada, Australia, New Zealand and South Africa in respect of products where United Kingdom exports enjoyed preferential treatment was pounds 84 million ($378 million).

• 3. Thus the total field of established US trade where the USA might seek concessions in respect of tariffs or preferences is pounds 171 million ($770 million), while the corresponding field of established United Kingdom trade where the United Kingdom might seek concessions in respect of tariffs is less than pounds 33.5 million ($152 million) or, say, one fifth of the size of the field open to US attack.
• 4. It follows that any agreement between the two countries which showed equality of sacrifice in terms of percentages would give advantages in respect of five times as much established trade to the USA as to the United Kingdom; conversely, an agreement which balanced in terms of absolute amounts of established trade would necessarily cover five times as big a percentage of the field in which the United Kingdom could seek benefit as of the field open in which the USA could seek benefit.
• 5. For these reasons we could not contemplate working to a balance in terms of percentages, though we have never intended, as the annexed figures show, to stipulate a strict equality in absolute terms.
• 6. In annex A, we analyze the balance in absolute terms of coverage of US export trade. In annex B, as an alternative approach, we analyze the balance in absolute terms of coverage of US exports to the United Kingdom and exposure to risk of United Kingdom exports to other Commonwealth countries. It will be seen that on either analysis the United Kingdom stands to lose over a considerably wider field of established trade than she stands to gain.

A. (All figures are of imports from the USA into the United Kingdom in 1938 c.i.f. and converted dollars at $4.50 equals one pound.)

(Embassy Note: only million sterling figures quoted below. Dollar figures should be extended at arbitrary c.i.f. conversion factor of $4.50 equals one pound.)

(I) UK tariff offers.

UK tariff offers representing new action beyond the 1938 trade agreement: bindings 5.5; reductions 5.9; total 11.4.

(II) Preference concessions.

Other Commonwealth countries have, with our consent, made offers to eliminate or reduce preferences to the detriment of our trade with them. These offers, in terms of USA trade with the other Commonwealth countries concerned, amount to: elimination 7.2; reductions 17.0; total 24.2.

(III) Total UK concessions.

To get the total of what is offered at the expense of UK industry we combine the totals in (I) and (II) above: 35.6.

(IV) US tariff offers.

USA offers representing new action beyond the 1938 trade agreement. Here we use figures received from the US delegation. These relate to 1939 trade returns as against ours above for 1938; bindings 1.3; reduction 16.8; total 18.1.

(V) Balance.

It will be seen that the total offer at UK expense is about double that of the USA.

[B.]

(I) The USA have offered new concessions (over and above the 1938 trade agreement) on UK trade valued in 1939 as follows: bindings 1.3; reductions 16.8; and the total of 18.1 represents the field where UK exports may he increased.

(II) The UK has consented to the following concessions on preferences at the hazard of UK exports to other Commonwealth markets, in terms of UK exports to the Dominions in 1938: eliminations 2.7; and reductions 15.8; total 18.5.

(III) It follows therefore that as a result of the present state of the Geneva negotiations the UK’s exports stand to lose on as much trade in the Commonwealth markets as they stand to gain on in the USA markets.

(IV) However, consideration must also be given to the ‘quality’ of the concessions involved as well as to their range. In this connection it may be pointed out that the new bindings in the USA offers serve only to guarantee existing trade but not to afford an opportunity for increase and are akin to the binding of preference margins which the UK is offering over the whole preference field, under the terms of the charter. In fact the substantial USA reductions, namely those of reductions by from 36 percent to 50 percent account for only pounds 12.0 million (extend to column) (or $53.9 million) in terms of UK exports to the USA. (This figure includes pounds 7.5 million (or $33.8 million) in respect of a single item—whisky.)

(V) Compared with this the quality of the preference concessions to the hazard of UK export trade to which the UK has consented is as follows: elimination (i.e., reductions by 100 percent) 2.7; reductions by over 35 percent 7.2; total 9.9.

(VI) To offset the net balance between (IV) and (V) there are the UK offers on the UK tariff to the USA, over and above the 1938 trade agreement. These offers in terms of imports from the USA in 1938 are: bindings 5.5; reductions 5.9; total 11.4

It should be noted also that pounds 1.8 million (or $8.1 million) represents bindings of low duties (not over 10 percent), which the procedural memorandum and the draft charter say are the equivalent of the reduction of high duties.

Note: Figures in paragraphs (I) and (IV) are taken from USA sources.”

(Part 2) Above letter which Douglas returned to Bevin with request for revision at least to extent of giving flexibility to further negotiations has been handed back to us by Hall-Patch³ and Helmore without change but with oral explanation which they reduced to-writing as follows:

“It was explained that the purport of Sir Stafford Cripps letter to Mr. Clayton, dated the 25th September, was in the first place to set out the view of the Cabinet that the offers already made were at least in balance with the concessions received by the UK. In the light of this the Cabinet’s answer to Mr. Clayton’s aide-mémoire of the 19 September must be in the negative. Finally, the letter said that in the Cabinet’s view the offers already made by the UK provided a sufficient basis for mutually advantageous agreement. The implication of the word ‘basis’ was that, the offers already made were not immutable but were subject to adjustment and discussion within the Cabinet’s concept of a proper balance between the offers on both sides. It was therefore entirely open for the negotiators in Geneva to go through the lists and make suggestions but it could not be expected that the UK side would be able to depart from the overall balance as presented to the Cabinet.

It is, moreover, always open to the US delegation to put forward new suggestions. Any such proposal the UK were ready to consider on its merits, though the US side would naturally be able to appreciate what sort of proposal would be worth putting forward in the light of the views already taken by the UK side on the present state of the negotiations.”

(Part 3) I made it clear to Hall-Patch and Helmore that while greater fluidity in negotiations in desirable this would meet Clayton’s viewpoint only if the preference issue is dealt with effectively; that he would regard only this as fulfilling British obligations.

Above text airmailed Geneva for Brown.

Hawkins

1. The British Ambassador, Lord Inverchapel, also gave copies of this reply to Under Secretary Lovett in Washington on September 26, and to Secretary Marshall who was in New York on September 27.
2. Not printed, but its substance is covered in telegram 5126 from London, September 23, p. 993.
3. Sir. Edmund Hall-Patch, Deputy Under Secretary of State, British Foreign Office.