International Trade Files: Lot 57D284, Box 106
Memorandum by the Vice Chairman of the United States Delegation ( Wilcox ) to the Chairman of the United States Delegation ( Clayton )
This memorandum deals only with the French proposals for amending Article 23. These proposals do not constitute our only problem on Article 23, because there are equally important amendments proposed by the UK, Belgium, Czechoslovakia, Norway, Denmark and Italy, all of which seem to have attracted a fair to considerable amount of support from the other European countries, plus amendments by Mexico and Syria-Lebanon which are still pending. The Subcommittee has rejected amendments by Argentina and Uruguay to this Article. Thus, any decision on the French points will not settle the question of this Article. All of the other proposals still pending would make serious breaches in multilateralism in favor of bilateralism.1
The two French amendments deal with what have come to be known popularly as “Little Two” and the “GATT Clause”. They will be disscused in turn.
I. “Little Two”
Article 23, paragraph 1(b) (ii), known as “Little Two”, provides that discriminatory import restrictions may be used under certain conditions, provided that:
“the Member taking such action does not do so as part of any arrangement by which the gold or convertible currency which the Member currently receives directly or indirectly from its exports to other Members not party to the arrangement is appreciably reduced below the level it could otherwise have been reasonably expected to attain.”
The first French attack on this provision consisted of a prepared statement in the Subcommittee (restricted document not issued to the press) arguing that this clause would permit the U.S., because of its financial position, to corner the world’s markets in important commodities either for military strategic reasons or for monopolistic purposes. It could be used for “unjustified profits” and “to acquire a powerful instrument for political domination.” In addition, they said the clause would prevent effective European cooperation as contemplated by the Marshall Plan and would give the U.S. an immoral [Page 842] monopoly of the opportunity to help its neighbors. Despite repeated explanations both in Subcommittee and in private, pointing out that the provisions could not in any way have that effect, the French have persistently reverted to this theme.
In order to avoid political misrepresentation of the provision, such as the French have resorted to, we have redrafted “Little Two” in four different ways and offered the French their choice. These new drafts avoid reference to gold and convertible currencies, thus taking the finger off the United States, but do not change the substance of “Little Two”. The four versions we have offered the French are attached as Exhibit A.2
The French formally submitted an amendment which would change this clause into simply a guarantee that France would provide the U.S. with its pre-war share of French exports. Later the French and British jointly submitted a redraft which is so obscure and qualified as to extract all real meaning from “Little Two”. These two proposals are attached as Exhibit B.2
The practical effect of “Little Two” which we have insisted upon in all of our redrafts is that bilateral agreements must not involve readily saleable commodities in good demand. Through our long discussions at Geneva, the justification offered by the European countries for bilateral trade arrangements was based purely on examples of unsaleable luxuries which cannot be disposed of in the open market because of austerity policies. Whatever justification there may be for limited and temporary permission for discriminatory bilateral agreements covering such commodities, there can be no justification for bilateralism applicable to coal, steel, heavy chemicals, timber, etc., which can be freely sold either on a competitive price basis or in accordance with international allocations for which adequate provision appears in the Charter (Article 43).
The French and the British would like to continue making bilateral trade agreements covering the whole field of their trade with the countries involved. By lumping together perfumes and steel in an overall bilateral agreement, it will be difficult for the ITO ever to point to any particular discrimination and condemn it. The net result would likely be that bilateralism would continue to constitute the whole basis of European trade, and multilateralism will be only a constantly receding hope. If the exportable surpluses of such commodities as coal, steel, chemicals, and timber, which are expected to appear in a number of European countries within the coming year are taken out of the field of bilateralism, we will have a real step toward the multilateralism which we have always said is the main aim of the ITO Charter.
[Page 843]The French argue that the Marshall Plan could not be carried out except through comprehensive bilateralism. They make this statement in the face of the report of the CEEC, which states that multilateralism is the aim of the ERP, and that it should supersede bilateralism during the progress of the ERP itself. If some break is not made in the near future, we may have lost our last real opportunity to get Europe started on the road to multilateralism.
II. The GATT Clause
You will recall that you agreed with Sir Stafford Cripps in Paris last July that there should be a one-year breathing spell, giving the UK a free hand on discrimination. What Cripps and you had in mind was that within the year we would know whether or not there would be a Marshall Plan.
On the day when Articles 21, 23 and 24 were scheduled for final action in Geneva, Baraduc of the French Delegation came to me and said France could not accept these Articles unless it were given a one-year breathing spell on discrimination. Apparently, the French did not know of the agreement you had already made with Cripps, else they would not have bargained for what you already promised Cripps. I agreed to the French conditions and at the French request, embodied the agreement in a written memorandum initialed by Baraduc and myself. This memorandum was vague on the length of the free period for discrimination but said explicitly that the agreement related only to the GATT and not the Charter. The same afternoon the British and French participated in the meeting at Geneva and joined in approving the text of Article 23 without any provision for a free period of discrimination.
Subsequently, in negotiating GATT, we went further than your agreement with Cripps and my agreement with Baraduc. The GATT provision covered almost one and one-half years (against the one-year we had earlier talked about), giving complete freedom for discrimination to January 1, 1949. In addition, the GATT went on:
“provided that this period may with the concurrence of the contracting parties be extended for such further periods as they may specify in respect of any contracting party whose supply of convertible currencies is inadequate to enable it to apply the above-mentioned provisions”.
We agreed to this clause in contemplation of the fact that our understandings with the British and French explicitly excluded any free period for discrimination in the Charter itself. However, it is true that under the terms of the GATT a country could refuse to sign the Charter and hold to this GATT provision. GATT is binding until [Page 844] January 1, 1951, after which any country can drop out on six months’ notice.
The British have proposed to us, but not in any formal amendment submitted to the Conference, that the date January 1, 1949 be changed to March 1, 1952. This obviously goes far beyond what Cripps asked for in Paris, and will carry the free period on discrimination to approximately the end rather than the beginning of the Marshall Plan, The French have simply asked to write the GATT provision into the Charter, which would mean that the proviso for the extension of the free discrimination period would permit the ITO to authorize unlimited discrimination forever for particular countries, which, by the process of log-rolling, might turn out to be everybody but the U.S.
I do not think we should agree to either of these proposals. I do not think it will be any easier for the European countries to make a first partial break away from discrimination in 1950 or 1951 or 1952 than it will be in 1949. Quite the contrary. The longer they continue with bilateralism the harder it will be ever to get them away from it. The proviso clause is extremely dangerous under a voting procedure where a majority of the votes will be cast by countries which have been engaged in bilateral trade.
If we have to make any concessions at all, I think the most easily defensible one would be an acceptance of the GATT clause with the January 1, 1949 date, but with the proviso clause limited to January 1, 1951, which is the period for which we may be said to have committed ourselves in the GATT. We are under no obligation to either the British or French to do this, and we have an explicit memorandum with the French covering the point. But it would be the easiest concession to justify in Congress because this memorandum is not public.
- Article 23 was intended to define the exceptions to the rule of nondiscrimination permissible to ITO members during the postwar transitional period. The Article 23 question was handled by Working Party 2 of Subcommittee F of Conference Committee III; the records of the committees of the conference are in Lot 57D284, Boxes 101–103.↩
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