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

560.AL/2–2548: Telegram

The Ambassador in the United Kingdom (Douglas) to the Secretary of State

secret   us urgent

London, February 25, 1948—8 p. m.

726. For Thorp¹ from Douglas. At a meeting this morning with Cripps, Harold Wilson, others of the Board of Trade and Hall-Patch of the Foreign Office, an aide-mémoire² was handed to me and discussed. The following is a relevant extract:

“Agreement is apparently very near at Havana on a charter which most of the countries participating would accept, some with varying degrees of reluctance. The charter text now emerging has, however, a number of most unsatisfactory features and it is very doubtful whether the United Kingdom can accept it.

2. The main difficulties relate to (a) non-discrimination, (b) protective use of quantitative restrictions for developmental purposes, and (c) creation of new preferences.

3. The main objections to acceptance are:

(1) (b) and (c) above the provisions concerned fall far short of the protection which we have looked for in working on the charter, are radically inconsistent with the “Washington proposals” of December 1945,³ and may seriously prejudice our position under existing commercial treaties by setting the seal of respectability upon practices which may seriously affect our exports.

(2) On (a), the difficulty is that the provisions concerned are obscure and ambiguous and, above all, that they may involve acceptance of an obligation which we may not be able to fulfill with consequential dangers of misunderstandings, accusations of bad faith, political and other implications, etc. Given sufficient time, these obscurities and difficulties could, no doubt, be removed, particularly if the discussion could take place in an atmosphere totally different from that ruling in Havana (preferably in Washington where the practical implications of the Section Nine complications can be more readily assessed).⁴ In any case, however, the United Kingdom would be incurring very serious risks if it accepted these provisions in their present form.

4. The following are supplementary notes on the three main points at issue:

(a) Non-discrimination.

The full implications of the United States draft,⁵ which now holds the field, have not been worked out. The main difficulties are its possible ambiguity and its grudging acknowledgment of the possibility of discriminatory imports. The draft provides no clear-cut way out of the Section Nine problem since its provisions are not capable of being substituted for the existing Section Nine provisions. One main difficulty is that the non-discrimination provisions are [as] now drafted appear to cover satisfactorily all countries except the United Kingdom. This is because in effect they permit the continuation and modification of discriminatory arrangements in force on 15th February, 1948, when we alone were bound by the non-discrimination provisions of Section Nine. Apart from other objections to further attempts to settle this complex issue in the atmosphere of Havana, it is unthinkable that the conference could be prolonged to give time for a satisfactory settlement of very special and difficult problem, complicated as it is by the existence of the Section Nine difficulty.

(b) Protective quantitative restrictions for developmental purposes.

The general principle of prior approval for use of quantitative restrictions has been maintained in form, but only subject to serious loophole that quantitative restrictions which meet certain objective (but, in reality, largely subjective) criteria qualify automatically for such prior approval thus removing in those cases even the relative safeguard of subsequent disapproval by the organization. It is symptomatic of the subjective nature of these criteria that in certain cases measures which are merely “designed” for particular purposes (as distinct from being “necessary” for those purposes) must be automatically approved by the organization without any provision for subsequent complaint.

The detailed provisions are extremely complicated but there is no doubt that they involve a very substantial breach in the provision of the charter to which we attach major importance i.e. that protective quotas should not be applied without the prior approval of the organization on their individual merits.

(c) New preferences.

Here again the principle of prior approval for any new preferences has been maintained in form but in practice new preferences which are claimed to be necessary for developmental purposes qualify for approval on a number of loose “automatic” criteria provided that they are between territories which are geographically contiguous or form part of one “economic region”. In other words regional preferences may be instituted without close control or even subsequent check, whilst new preferences with e.g. the Commonwealth would require approval by two-thirds of the members of the organization. On merits, arrangements of this kind might be extremely damaging to our export interests (e.g. in South American—cotton preferences in neighbouring countries to be enjoyed by Brazil) and politically any such arrangements which put our own preferential system at a distinct disadvantage are obviously most vulnerable to severe criticism, however unlikely the contingencies envisaged might be in practice.”

I informed Cripps of the contents of cable to me from Havana, repeated Department as 235, February 23. In the light of this cable, Cripps and I felt that possibly the difficulty of non-discrimination arose out of different interpretations of the language of charter in the form in which it is being written at Havana.

If this is the case, then the ambiguity which gives rise to the different interpretations can be clarified and should be no insurmountable obstacle.

As to protective quantitative restrictions for development purposes, it is Cripps’ view that the language drafted at Havana in effect releases all of the less well developed countries from the provisions of the charter, for it enables them by unilateral action to impose such restrictions as they may themselves deem necessary as “designed” to achieve certain purposes, without in advance receiving the approval of the ITO organization, or indeed afterwards obtaining its sanction.

As to new preferences, it is Cripps’ view that the language presently being drafted at Havana discriminates against the UK and Commonwealth on the sole grounds that the members of the Commonwealth and the Crown colonies are not contiguous. This he suggests can be cured by extending to the UK, Commonwealth and the colonial colonies the same rights to establish new preferences which are contemplated under the present draft of the charter. (I would point out, however, as I did to Cripps, that if this were done, it would have the effect of voiding, at least in part, the agreement previously made with the British in regard to Empire preferences.)

Cripps says that in its present form it would be politically impossible to present the charter to parliament. I suggest that it might be desirable to invite HMG to send a strong man to Washington to reconcile the divergent views, and subsequently, if time permits, to proceed to Havana to present the British view to the conference, after having settled the difficulties in Washington. If this is not possible, or for some reason is considered inadvisable, and if difficulties are not resolved prior to March 10 when I understand the Havana conference now plans to adjourn, then Cripps suggests that the Havana conference be adjourned without taking final action of [on] the charter, and be reconvened in two or three months time for the purpose of settling the problems which Cripps raises.

The only other course which Cripps informs me his government can take is to refuse to sign the charter. This he is very reluctant to do, because of the significance of multilateral trade to the UK, and indeed to the whole world, but he informs me that there would be no other course for him to take if the alternatives suggested above are not acceptable.

I am not repeating this to Havana, since I understand Clayton is now in Washington.

Douglas

1. Willard L. Thorp, Assistant Secretary of State for Economic Affairs.
2. Not printed.
3. Reference here is presumably to Department of State, Proposals for Expansion of World Trade and Employment (Publication 2411), November 1945.
4. Section 9 of the Anglo-American Financial Agreement of December 1945, entitled “Import Arrangements”, provided that “If either the Government of the United States or the Government of the United Kingdom imposes or maintains quantitative import restrictions, such restrictions shall be administered on a basis which does not discriminate against imports from the other country in respect of any product.…” (60 Stat. (pt. 2) 1843, 1844). This had the effect in 1946–1948 of freeing U.S. trade from British discriminatory restrictions but at the same time of making more difficult Britain’s export and foreign exchange problems.
5. See footnote 2, p. 802.