Foreign Relations of the United States, 1948, General; the United Nations, Volume I, Part 2

560.AL/12–1347

Memorandum by the Public Relations Officer of the U.S. Delegation (Dennison) to the Chief of the Division of Public Liaison (Carter)

Habana, December 13, 1947.

Subject: ITO Conference Summary, December 4–11, 1947.

Committee I—Employment and Economic Activity

The four major issues which have arisen in connection with the employment and economic activity chapter may be summarized as follows:

1. The desire on the part of several countries to broaden Article 4 to include detailed provisions regarding conditions of labor and treatment of migratory labor, the latter being of particular concern to Mexico. The United States is in sympathy with the desire for social legislation and improvement of labor conditions but believes that such provisions are not properly within the scope of the ITO.

2. Various proposals have been introduced which would have the effect of releasing a member country from its responsibilities under the commercial policy chapter if the country felt that it was being damaged by employment policies adopted by another Member—by competition from products produced under substandard conditions of labor and pay. The most extreme position is represented by Uruguay and a modified amendment has been put forward by Mexico.

3. Italy is particularly concerned with restrictions (by means of immigration laws) on migration of peoples from over-populated countries and has introduced a resolution to the effect that Members “recognize that the existence at the same time of the problems of unemployment and lack of manpower requires the gradual repeal of every restriction to international migration not justified by vital requirements of the country concerned …” While it is recognized that for Italy the question of excess population is a very pressing one, the United States does not believe that the solution to the problem lies within the scope of the ITO Charter.

4. Norway has introduced the question of permitting a member country to take price stabilization measures as a means of insulating itself against inflationary movements in another country, on the ground that problems of inflation are just as important as problems of deflation and that they should be equally covered in Chapter II. Norway has also proposed a phrase in Article 3 (obligating a Member to take action to achieve and maintain employment) which would also obligate each Member “to prevent wide fluctuations in the general level of demand or prices.” The implications of the Norwegian proposals are not yet entirely clear. They do, however, open up a whole new question, namely, inflation control. They would appear to be introducing not only a substantially new obligation but also a new escape clause for measures to be taken by countries operating under a controlled economy.

These questions are all under consideration in subcommittee meetings this week and consideration of subcommittee recommendations will begin in the full committee on Monday, December 15.

Committee II—Economic Development

Basic issues involved in the many amendments which have been submitted for this chapter center around proposals for the Organization to take positive measures to assist Members in their economic development. Of these perhaps the most important is an amendment proposed by Mexico for the establishment of an economic development commission. The proposal was actually made as an amendment to Article 70 in the chapter on organization but the purpose of creating the committee relates to the economic development chapter. The Mexican proposal involves the following ideas:

1. The committee should be permanent, on a level equal to the Tariff Committee, and should be composed of fifteen governments.

2. It should help any Member desiring assistance in obtaining it, either from the International Bank, from other Members of ITO, or through the ITO itself.

3. It would represent the interests of under-developed Members in the deliberations of the executive board, the Conference, or the Tariff Committee of ITO.

Mexico was supported by Venezuela, Cuba, Costa Rica, Egypt, China, Pakistan and El Salvador. Greece, Turkey, France and Italy stressed the need for reconstruction as well as development.

Other countries stressed the difficulties involved with the Mexican proposal including:

1. The undesirability of a top-heavy structure in ITO and the need for flexibility.

2. The danger of overlapping with other intergovernmental organizations.

3. The danger of an excessive budget for the ITO.

4. The view that this matter is premature until the work of other organizations has become more clear.

5. The need to consider the final draft of Chapter III.

6. The overall responsibility of ECOSOC.

7. The danger that such a body as a governmental committee within ITO would interfere with the other organs of the ITO.

8. The fear that such a body might lose sight of the primary duty of the under-developed nations themselves to take the major responsibility for their own development.

Delegations taking this view included Australia, U.K., Sweden, Belgium, Canada, Luxemburg and South Africa.

Since this question concerned both Committee II and Committee VI on organization, it was decided to have a joint subcommittee to consider this and related amendments. It was suggested that the committee be instructed among other things to examine the activities of other UN agencies or organizations in the economic development field.

Upon the suggestion that the proposal for a committee on economic development should be referred to the subcommittee, the Australian delegate made an effective statement along the following lines:

His country was under-developed and he considered Chapter III to be of vital importance to the Charter. Were the Organization not to fulfill its proper functions in the field of economic development, the rest of the Charter would fall. However, his delegation considered that it would not be desirable to give the Organization its “working instructions” in the Charter and thus to phrase an internal organization system which might, in the long run, prove to be unworkable. While in agreement, therefore, with the proposal to refer the Mexican amendment on a committee for economic development to a sub-committee, he wished to make clear that the Australian position was in favor of leaving the internal organization of the ITO in this regard flexible.

Investment: A number of suggestions have been made regarding Article 12. However, if the United States proposal to eliminate paragraph 2 of Article 12 is accepted, the amendments relating to this paragraph will automatically be dropped. Chile has introduced a new paragraph directed at increasing the flow of private investments to under-developed countries which would require Members to “prevent all speculation in consumer goods of vital importance to other member countries”; to facilitate the establishment of industries in other member countries; and to provide that Members “with a favorable balance of payments and plentiful supplies of capital shall take the necessary steps to facilitate the obtaining of adequate long and short-term credits … by countries which request them …” This and one or two proposals of a related character are considered by the United States out of line with the Charter and not feasible.

With respect to preferential arrangements for economic development, a number of amendments have been introduced which would have the effect of loosening up the present provisions of the Charter which currently require prior approval by the Organization before new preferential arrangements can be entered into. The general line of the proposals is to permit new regional preferential arrangements to be entered into on notification to the Organization but without prior approval.

Committee III—Commercial Policy

In connection with Committee discussion of Article 16 which provides for most-favored-nation treatment, an Argentine amendment to substitute reciprocity for the unconditional most-favored-nation clause received no support from any delegation. The effect of such an amendment would be to require a quid pro quo on a country by country basis for every concession made by each country with respect to customs tariffs, payments for imports and exports, methods of levying duties, etc.

Preferences: Article XVI also contains exemptions from MFN treatment for certain existing preferential arrangements including the one between the United States and Cuba. Peru, supported by Santo Domingo, urged deletion of the exemption for Cuban-U.S. preferences on the ground that there was no longer any justification for them.

The discussion on the exemptions clauses was closely related to arguments brought forward in the Economic Development Committee when it considered the restrictions on setting up of new preferential systems contained in the Development Chapter.

The Committee agreed to set up a joint sub-committee with Committee II to consider the problem of new preferences, including those for economic development, and the maintenance of existing preferences as exceptions to the MFN clause.

Mr. Leddy (U.S.)¹ made the following points on the preference question:

1. The U.S. had followed the debate with interest and with sympathy for both the countries which wished to eliminate certain preferential systems and those which wished new preferences.

2. The U.S. is wholeheartedly in accord with the principle of eliminating preferences because they tend to restrict trade and give rise to conflicts between countries.

3. Long consideration and discussion in meetings of the Preparatory Committee had led U.S. to conviction that elimination of all existing preferences overnight would create insuperable political and economic disturbances. The Draft Charter prevents increase in existing preferences and provides for their elimination through negotiation.

4. With regard to new preferences, U.S. is of the opinion that in general they do not form a suitable device for economic development but we recognize that there are special cases where new preferences may be justified. Hence we favor approach of Draft Charter requiring a case-by-case scrutiny by the Organization to see whether the proposed preferences would be likely to prove a net gain to the world.

Approximately 300 amendments have been introduced covering all of the sections of the Commercial Policy Chapter, and are now being analyzed, but the most controversial in addition to preferences center around the following issues:

1. Quantitative restrictions. Most of the proposed amendments look toward the establishment of escape clauses to permit a greater use of quota restrictions.

2. Exchange controls and balance of payments. Proposed amendments indicate a desire to liberalize the present provisions to permit freer action in establishing exchange controls by countries which find themselves in balance-of-payments difficulties with some pressure for not requiring approval by the International Monetary Fund that a country’s balance-of-payments situation does in fact require that it be granted an exemption from the control provisions.

3. Mixing regulations.

4. Subsidies. The U.S. has introduced amendments which would apply the ban on export subsidies to nonprimary products only. This would make unnecessary the elaborate series of exceptions in the Geneva Draft which in effect exempted most primary product subsidies other than those employed by the U.S.

Committee IV—Restrictive Business Practices

The principal points at issue which are currently under consideration in sub-committees are as follows:

1. General obligation of members towards restrictive business practices.

The Geneva Draft obligates a member to take appropriate steps to prevent business practices “which restrain competition … whenever such practices have harmful effects on the expansion of production or trade and interfere with the achievement of any of the other objectives set forth in Article 1”. A proposed amendment by Norway would insert a further condition which would in effect require a determination that the commercial enterprises in question “possess effective control of trade between two or more countries in one or more products”. This change was resisted by the U.S. as a serious watering-down of the obligations and of the purposes of the Chapter.

2. Exemption of Public Enterprises.

Argentina has proposed an amendment to delete all mention of public commercial enterprises from the Chapter on the ground that such an agency as the Argentine Institute for the Promotion of Interchange, being state-owned, might be affected although its function is to aid in the development of Argentina’s national economy, and not to restrict trade, and to include public enterprises would constitute an infringement of sovereignty.

The Argentine amendment involves the whole issue of state-trading operations and is the fundamental issue being raised in the chapter. The U.S. takes the position that public commercial enterprises must be subject to the same rules as private enterprise. In support of the Argentine position, Peru declared that the chapter condemns the applications of new business ideas such as are now in force in Sweden, New Zealand, the United Kingdom and the USSR, as well as other eastern European countries. Many nations, including those in Latin America, were developing their economies by means of public enterprises, under which they sought their own markets and controlled their own consumption in order to aid their development.

3. Exemption of Services.

Argentina has proposed that the whole of Article 50 which sets forth the procedure for dealing with restrictive business practices relating to certain international services, “such as transportation, telecommunications, insurance and banking”, shall be deleted from the Chapter.

Committee V—Inter-Governmental Commodity Agreements

Following are the main problems which have arisen in connection with the Commodity Agreements Chapter:

1. The respective roles of the FAO and ITO.

India has introduced an amendment to increase the role of the FAO in the making of inter-governmental commodity agreements by specifically establishing the right of FAO to call commodity conferences. There has been no substantial support for the Indian proposal. It was pointed out by the delegate from the U.S. that his government had always favored the inclusion of an FAO representative in a commodity commission and that no opposition had been expressed during the Preparatory Committee discussions. However, there had to be some central authority over the structure of the control agencies and it was logical that that authority should rest in the ITO.

The Canadian representative pointed out that the question of commodity agreements was closely linked to other provisions of the Charter, particularly to those regarding the subsidization of exports, and strongly supported the position that the authority to initiate commodity control agreements could not be allowed to rest outside the ITO. France, Cuba and the United Kingdom also supported the Geneva Draft on this point.

2. Conditions Governing the Use of Commodity Control Agreements (Article 59).

An amendment was introduced by Venezuela to add to the conditions, under which a commodity control agreement would be permissible, a clause that would permit any control agreement the purpose of which was to fulfill the objectives of Article 54(c), namely, the stabilization of prices in primary commodities. The two conditions in the Geneva Draft are, in brief, that burdensome surplus must exist or be threatened, or that unemployment in connection with a primary commodity has developed or is expected to develop. It was argued by Venezuela that disequilibrium in supply and demand and fluctuations of prices were not always caused by the conditions mentioned in Article 59, and that therefore these cases would not be covered under the present wording. Pakistan and Colombia supported this position.

It was the view of the United States, the United Kingdom, France, the Netherlands, and Australia that to insert the suggested provision would vitiate the purpose of the article by eliminating the burdensome surplus requirement and that when the Chapter was considered as a whole the problems of price fluctuations had been adequately covered. It was pointed out by the delegate from France that the Commodity Chapter provided an exception to the provisions of previous chapters, particularly the one on Commercial Policy; it permitted Members in exceptional circumstances to use measures otherwise debarred. There was a distinction between inter-governmental commodity agreements in general and commodity control agreements—the former were for the purpose of expanding production or consumption and need not fulfill very strict conditions since they did not constitute an additional barrier to international trade. But the purpose of control agreements was to limit production or to regulate prices and tended to place obstacles to trade. Therefore, such an agreement should take place only under specific circumstances.

3. Levels of Prices.

There are a number of proposals which would spell out criteria for price determination under an agreement, such as the costs of equipment, the prices of many products for consumption, etc., which would suggest higher prices for primary products than might otherwise be indicated by the present wording, “prices fair to consumers and remunerative to efficient producers”.

4. Extension of the term “primary commodity” to include manufactured articles.

Uruguay has introduced an amendment to have the term “primary commodity” include not only “any product of farm, forest or fishery or any mineral, in its natural form or which has undergone such processing as is customarily required to prepare it for marketing in substantial volume in international trade”, but also “the industrial equipment required for processing” such products (farm machinery, etc.). The amendment was supported by Argentina, Mexico, and Turkey.

The United States and the United Kingdom opposed the proposal largely on the ground that it would not achieve its purpose. The delegate from Australia pointed out that the great range of manufactured goods was not capable of being introduced into a Commodity Agreement, although an individual agreement could perhaps refer to certain related technical equipment.

Committee VI—Organization

The Mexican proposal to establish an Economic Development Committee which was discussed at length in Committee IV is summarized under Committee II, Economic Development. The other issue which was debated at great length is the question of weighted voting vs. one vote for each country. The position of the United States was outlined as follows:

1. That the changes in the substantive portions of the Charter since the original U.S. suggested draft have warranted a reconsideration by the U.S. of its original position against weighted voting.

2. There is general recognition that larger Members assume larger responsibilities in many respects, e.g., budget.

3. U.S. must view the question on the basis of eventual drafts of substantive articles of the Charter.

4. That formulae can be developed and might be practicable, e.g., formulae have already been developed in many inter-governmental organizations concerning budgetary contributions.

5. U.S. does not like British weighting formula (Formula “A”) or alternative “C” (setting up composite voting method).

At the conclusion of the discussion, the Chairman summed the position as follows:

Out of 58 delegations, 35 had favored unit voting, of which 3 (France, Netherlands and New Zealand) stated that they had an open mind. The U.K. had favored a light weighted voting, with support from Canada, Southern Rhodesia, Norway, and Sweden. The U.S. alone had spoken in terms of a heavy weighting. Two delegations stated that they had no preference—Belgium and Luxemburg. Finally China favored the composite arrangement provided under Alternative “C”.

No action was taken and the Chairman postponed the matter for further consideration at a later date when other questions, such as the composition of the Executive Board, had been covered.

Amendments

There are various methods of counting amendments so that figures will vary considerably. The U.S. analysis, however, shows 602 amendments introduced. Of these, the Latin American countries introduced more than one-half (341), with Mexico leading all countries with 85, and Argentina second with 73.

Countries which had participated in the meetings of the Preparatory Committee submitted a total of 166, of which 53 were accounted for by Chile and Cuba. Of the 602 amendments submitted, 432 would appear to be so generally or fundamentally in opposition to the Geneva Draft of the Charter as to necessitate their rejection.

1. John Leddy of the Division of Commercial Policy, was a technical advisor on the U.S. delegation.