Lot 60 D 137, Box 1
Minutes of the Sixty-Eighth Meeting of the National Advisory Council on International Monetary and Financial Problems, Washington, D.C., July 10, 1947
[Here follows consideration of unrelated material.]
2. British Plan for Colonial Implementation of Section 9 of the Financial Agreement
(a) Statement of the Problem
Mr. Schmidt said that the basic question was whether or not either Section 9 of the Financial Agreement or a letter of Lord Halifax, dated December 15, 1945,1 prevents the U.K., its colonial dependencies or its mandated areas from discriminating in favor of each other’s products in the administration of their quantitative import controls. In no case is there any question of discrimination against the U.S. in favor of any other area. Section 9 of the Agreement provides that, with certain exceptions, the United Kingdom will after December 31, 1946 administer its quantitative import restrictions in such a manner as not to discriminate against imports from the United States. On April 28, 1947, copies were informally made available by a British official of a draft telegram2 outlining the procedures by which the dependencies should implement Section 9. An essential feature of the plan is that any member within the group composed of the U.K. and the colonial dependencies may discriminate in favor of any other member of the group in administering its quantitative import controls.
The text of the Financial Agreement does not specifically mention the application of Section 9 to the British colonial dependencies, but Lord Halifax subsequently wrote a letter to Secretary Byrnes which stated that the United Kingdom Government would, so far as possible, seek “to use every endeavor to see that the practice of the Colonial dependencies accords in these matters with that of the United Kingdom.”3 American exports to the colonies have more than doubled [Page 35] since 1938, and exporters have indicated an expectation of further increase as a consequence of the termination of restrictions favoring the United Kingdom. However, it is probable that certain quota restrictions will be imposed which will cause exports to fall.
There is some justification for discrimination since the colonies are, for the most part, included in the United Kingdom quota in the International Monetary Fund. Britain must be prepared to supply the dollars necessary to maintain the par value of the currency of any part of such area which incurs a dollar deficit. It was the opinion of some Staff Committee representatives of member agencies that discriminations of this type were understood to be permitted under the terms of Section 9 of the Financial Agreement.
The situation is complicated with respect to mandated territories by the existence of agreements giving the United States equal access to the markets of the territories.
Section 9 does not contain any provision for relaxing the British commitment after consultation between the two governments. If the British proposal were deemed to include discrimination within the meaning of Section 9, the proposal could only be accepted after reference to the Congress and the Parliament under the provisions of Section 12 of the Financial Agreement.
It was the opinion of the Staff Committee that the British proposal did not involve discrimination but that without admitting such the United States should attempt to obtain as favorable conditions as possible in the administration of quotas or restrictions. The formal action recommended that representatives of the United States need not take the position that Section 9 of the Financial Agreement or the Halifax letter prohibit the United Kingdom, its colonial dependencies or its mandated areas from discriminating in favor of one another’s products in the administration of their quantitative import controls (NAC Document No. 4674).
The recommendation was accepted without objection.
(b) Action. The following action was taken:
The National Advisory Council is of the opinion that in their discussions with respect to the British plan of April 28, 1947, representatives of the United States need not take the position that Section 9 of the US–UK Financial Agreement or the Halifax letter of December 15, 1945, prohibit the United Kingdom, its colonial dependencies or its mandated areas from discriminating in favor of one another’s products in the administration of their quantitative import controls.[Page 36]
3. British Request for Postponement of Date on Which Sections 8 and 10 of the U.S.–U.K. Financial Agreement Must be Implemented in Certain Cases
(a) Statement of the Problem
Mr. Schmidt pointed out that under the Financial Agreement the United Kingdom is required to arrange by July 15, 1947 that sterling accruing to third countries after that date or released from sterling balances accruing before that date shall be freely convertible for current transactions. The date can be postponed in exceptional cases after consultation with the two countries. On July 7, 1947 the Secretary of the Treasury received a letter requesting postponement in certain cases and had requested the advice of the Council with respect to this communication.
British Requests.—The British letter concludes with the request for an indefinite extension of the date with respect to China and short extension in the case of nine other countries. In addition, it states that before July 15 a request may be made for an indefinite extension with respect to Switzerland and shorter extensions with respect to six other countries.
The British indicate that they would not request extension under Section 7 which requires that after July 15, 1947 “the sterling receipts from current transactions of all sterling area countries will be freely available for current transactions in any currency area without discrimination.”
Section 8 (ii) requires that the British “impose no restrictions on payments and transfers for current transactions” after July 15 for sterling acquired after that date. The British propose accomplishing this through the Transferable Accounts System which is an arrangement permitting countries having transferable accounts to approve all transfers for current transactions and placing the responsibility on the particular country to insure that the conditions are lived up to. The British say it would be impossible to make the technical arrangements with all countries before July 15 and ask for a brief extension with respect to Austria, Bulgaria, Greece, Hungary, Poland, Roumania, Siam, Turkey and Yugoslavia. They may be forced to ask for similar extensions with respect to Ethiopia, France, Paraguay, Sweden, Uruguay and the USSR.
Secondly, the British indicate certain areas, particularly Switzerland, may not be willing to accept sterling freely from all countries and they may, therefore, ask the United States to agree to an indefinite extension for Switzerland until that country agrees to set up a Transferable Accounts System.[Page 37]
Thirdly, the British do not feel that the authorities in China can guarantee that payments from Chinese sterling accounts will be for current transactions only or that the matter can be handled through London and they may ask for an indefinite postponement. For smaller areas they are willing to assume the administrative burden of control.
Analysis and Recommendations.—Mr. Schmidt said that the Staff Committee felt that some weight should be given to the British argument and that extension of time could be permitted without sacrificing the principles of the Financial Agreement by providing that all sterling after July 15 become freely available for current payment from the date when the agreement is signed. With respect to China the Staff Committee felt that the situation was not likely to improve in the near future and that it would be impossible to grant an indefinite extension. The British should be held to the Agreement and should be informed that the United States trusts that the British will make every effort to insure that applications to transfer sterling will be freely granted for current transactions. The Staff Committee also felt that the British should give assurances that applications will be granted for current transactions involving such non-sterling area countries as Afghanistan, Albania, Korea, Liberia, Nepal, Saudi Arabia and Tangier.
The Staff Committee was concerned with the Swiss case. The British state that “we cannot, of course, ask that a country should accept sterling freely from countries which will not accept sterling from it.” It was felt that this argument could not be accepted. So long, for example, as Belgium could use sterling for payments to the United States it would not matter whether the sterling came from Switzerland or from some other country. Secondly, the British say that the Swiss “may not be willing to accept sterling from all sources, in which case they cannot expect …5 to be entitled to transfer sterling in all directions.” The British, therefore, propose postponement until the Swiss change their minds. The Financial Agreement imposes a unilateral obligation on the United Kingdom to make current sterling available and it does not contain any provision that fulfillment of the obligations may be made contingent upon reciprocal undertakings.
With respect to certain countries that are heavily indebted to Britain (Czechoslovakia, Denmark and France) the British say that limitations might be placed on the transfer of sterling to assure that receipts are used for payment to the sterling area on current transactions or on accumulated debts. The Staff Committee felt that the British could accomplish this objective without imposing restrictions on the transferability of sterling for current transactions.[Page 38]
With respect to the Bizonal Agency and SCAP the British do not think the Transferable Accounts System need be extended since the obligations under the Financial Agreement will be lived up to in agreements they are negotiating with those agencies. It was not clear whether any further action should be taken until clarification is obtained of the provisions of the proposed agreements and assurances are received that there will be no deviation from the Financial Agreement.
The Staff Committee felt that the British letter left unanswered several questions concerning future sterling area arrangements and the settlement of accumulated sterling balances.
The Staff Committee recommended for consideration the action indicated in NAC Document No. 473,6 the substance of which had already been indicated.
Mr. Thorp7 thought that recognition should be taken of the extraordinary job the Staff Committee had done in preparing analyses and recommendations on such short notice. The Chairman commented that the British letter had not been received until July 7 but that fortunately the Staff Committee had been working on the problem so it was prepared to act promptly. He agreed that the Staff Committee had done an excellent job in presenting recommendations on a most difficult and involved problem. He felt that the United States should take a firm position vis-à-vis the British on future requests for action. The Council could not be expected to provide an answer with the rapidity which had been required in the present instance.
Mr. Thorp said that he did not disagree with the position taken by the Staff Committee with respect to China but thought that it left the matter rather completely in the hands of the British without indicating our concern as to how they proceeded. He thought we should indicate to the British that at some later time, a few months hence, we should like to review with them the operations and procedures in the Chinese case. He thought it was too lenient merely to urge them to take a particular action without requiring them to report back and consult with us. The Chairman8 agreed that the matter should be followed through. Mr. Overby9 commented that reviewing the steps taken was inherent in the whole Agreement. Any letter would indicate that the United States would want to be informed on what the British worked out in China. The Chairman added that the United States had indicated [Page 39] that it was not at all satisfied with the information so far furnished.
Mr. Martin10 said that he assumed that the Staff Committee’s recommendation constituted a general approach and was not intended to bind any postponement to two months. The Chairman observed that the two months’ period applied only to certain items. Mr. Martin thought the British should have some latitude in their discussions with respect to Switzerland. Mr. Eccles commented that the Agreement does not give the United States latitude to extend an indefinite extension.
Mr. Overby pointed out that the British in their letter had asked for an extension of “a month or two” and suggested that the matter might be worked out administratively. An extension of two months could be granted and a further extension proffered if necessary. Mr. Knapp pointed out that the two months’ period would lapse on September 15 and that there would be an opportunity to review the matter in London. The Chairman suggested, and it was agreed, to strike out the reference in paragraph (d) of the recommendation to “paragraph (a) above” so that the recommendation with respect to Switzerland would be that favorable consideration should be given to a request for a postponement of short duration without defining the latter term.11
Mr. Eccles stated that the Staff Committee had done an excellent job but as a member of the Council he was left rather unprepared. He had not had time to consider the problem adequately and he liked to have confidence in his own judgment. However, he was willing to vote his confidence in the Staff Committee by accepting the recommendation.
The Chairman said that his Staff had consulted frequently with him and he assumed that the Staff members had kept their principals informed. However, he did not wish to exert pressure on the Council and he inquired whether any member of the Council would like to postpone action. It was pointed out that very little postponement was possible and Mr. Thorp commented that the worst that could happen was to postpone some of the issues two months.
The recommendations were adopted unanimously with the one modification that with respect to Switzerland postponement of “short duration” should not be defined in terms of a maximum of two months.
The Chairman requested that a firm letter on the matter be prepared immediately for transmittal to the British. Mr. O’Connell12 in [Page 40] quired whether there would be any publicity with respect to the July 15 date, and possible postponements thereunder. Mr. Overby commented that questions had already been raised with him on this matter by the press. The Chairman suggested that a press release be prepared jointly with the British on this matter.
(c) Action. The following action was taken:
The National Advisory Council advises the Secretary of the Treasury in reference to the British communication of July 3, 1947, as follows:
- Favorable consideration should be given to granting the British request of a maximum of two months’ postponement of the July 15, 1947, deadline in those cases where it is impossible for the British to complete technical arrangments with the particular countries before July 15. In these cases, the Secretary of the Treasury should attempt to secure an agreement that all sterling accruing to these countries after July 15, 1947, shall become freely available for current payments retroactively upon the date of completion of the necessary arrangements.
- The British request for an indefinite postponement with respect to China should be denied. The British should be informed that, while the U.S. Government is conscious of the difficulties which will be faced in administering Chinese accounts, it trusts that the British Government will make every effort to ensure that applications to transfer sterling will be freely granted whenever the current nature of the transaction is established.
- The British should be advised that, in the case of other non-sterling area countries with which no formal transferability agreements are contemplated, the British will be expected to administer their foreign exchange control in such a way as to permit transfers freely for all current transactions.
- The British request for an indefinite extension for Switzerland until that country agrees to accept sterling and set up a Transferable Accounts System should be denied, but favorable consideration should be given to a request for a postponement of short duration which would allow the British time to complete whatever arrangements may be necessary.
- The British should be informed that arrangements relating to the debts of those countries which are indebted to the United Kingdom should be effected by means which do not limit the transferability of sterling for current transactions.
- In the event that additional requests are made by the British in the immediate future, the Secretary of the Treasury should, in considering [Page 41] his reply, take account of the general approach set forth above.13
[Here follows discussion of other subjects.]
- Not printed, but see Under Secretary Acheson’s reply to Halifax, January 11, 1946, Foreign Relations, 1945, vol. vi, p. 199.↩
- Not printed. Texts of the British memorandum of April 28, 1947, and the proposed circular telegram were included as attachments to NAC Document 467, July 7, 1947, which was circulated to Council members. (Lot 60 D 137, Box 7)↩
- An NAC staff study had pointed out that: “Although the Halifax letter was not made public, it provided the basis for certain statements which have tended to lead American exporters to think that when Section 9 came into force the United States would receive equal treatment with the United Kingdom in colonial markets, and with the colonies in the United Kingdom market.” (NAC Document 467, July 7, 1947)↩
- Not printed.↩
- Omission indicated in original minutes.↩
- Not printed.↩
- Willard Thorp, Assistant Secretary of State for Economic Affairs.↩
- John W. Snyder, Secretary of the Treasury.↩
- Andrew N. Overby, Special Assistant to the Secretary of the Treasury.↩
- William M. Martin, Jr., Chairman and President, Export-Import Bank of Washington.↩
- The recommendation of the NAC Staff in NAC Document 473, paragraph (d) read: “but favorable consideration should be given to a request for a postponement of short duration as in paragraph (a) above, which would allow the British time to complete whatever arrangements may be necessary.”↩
- Joseph J. O’Connell, Jr., General Counsel, Treasury Department.↩
- Under Secretary Clayton was informed of the actions taken by the NAC on July 10 in telegram 784 to Geneva, July 11, 1947, and the same information was repeated to London in telegram 2985. (841.51/7–1147)↩