Current Economic Developments, Lot 70D467
Current Economic Developments
No. 157
. . . . . . . . . . . . . .
The first of the bilateral agreements with the US for economic assistance were signed this week, with Ireland being the first and Italy the second country to complete arrangements. Under the provisions of the Foreign Assistance Act all participating countries must complete bilateral agreements by July 3 or assistance will be suspended until agreements have been completed. It appears now that all of the countries that need to do so will have agreements in order by that date. The Swedes are not pushing ratification particularly, inasmuch as they are not asking for a loan in the next quarter, but the agreement is expected to be signed there shortly also. Luxembourg is having some uncertainty as to how to proceed because of the political situation and reluctance to reconvene Parliament. Belgium doesn’t seem concerned with the time-table and it may be this agreement will not be signed as soon as some of the others. It is probable that Switzerland and Portugal (the two countries not needing actual financial help from the US but which are essential cogs in the ERP concept) will not sign agreements but merely exchange notes with the US, in which they accept the general undertakings and give us the rights of consultation and information.
The final draft of the agreements, which are quite similar for all European participants, are a considerable improvement, from their viewpoint, over the original US drafts. Multilateral negotiations were carried on in Washington with the UK, France, Denmark and Sweden. Ironing out the problems posed by these countries in a large measure resolved the complaints of the other states.
Most of the undertakings are specifically required in the Aid legislation, but the wording has been recast and implications eliminated of infringement on sovereignty—a point on which all participants were exceedingly touchy. The main changes from the original draft concerned most-favored-nation treatment, exchange rates, use of local currency, arbitration and termination provisions. The article on exchange [Page 460] rates was finally omitted leaving this to be dealt with under the general consultation clause; the arbitration clause was made reciprocal to the extent legally possible and a special reciprocal termination provision was added to take account of the possibility of a change in the basic assumptions underlying the agreement.
Most-Favored-Nation Treatment. While the legislation did not require that participants give most-favored-nation treatment to areas occupied by US forces, our position has been that these areas represent an economic burden on the US and, if they are to become self-sufficient and our burden reduced, their exports must be developed. Therefore it is to our interest that unwarranted discrimination against such exports should be eliminated insofar as possible. We felt that discrimination against these areas—Germany, Japan, Trieste and Southern Korea, represented, in a sense, discrimination against the US.
The UK took violent exception to this, even though we proposed that it should not be included in the bilateral but should be stated in an exchange of notes. We further pointed out that, since most-favored-nation treatment would be applied in accordance with the exceptions recognized by the General Agreement on Tariffs and Trade, and since the UK is in balance-of-payments difficulties and is likely to continue so for several years, the British Government would be relatively free during this period to discriminate against dollar exports from Japan as well as other occupied areas. The UK, however, had apparently made a commitment to the Dominions that it would not take any separate action with regard to trade with Japan. The Government had also made commitments that it would not take any abrupt action which might disrupt the British textile industry. These two factors combined to make the most-favored-nation question of such political importance in the UK that the Cabinet could not accept an undertaking with regard to Japan and Korea. There will be an exchange giving most-favored-nation treatment to western Germany subject to GATT exceptions. France and China objected also and finally we reluctantly agreed to omit Japan and Southern Korea from the exchange of notes with those countries.
In view of the assurances we had given all countries that the concessions granted to some would be offered to all, our Missions were authorized to omit Japan and Southern Korea from the notes but were instructed to make every effort to obtain agreement with the Governments to include these areas. The Irish and Italians included Japan and Korea in their note exchanges. The notes point out that it is recognized that the absence of a uniform rate of exchange for the currency of the areas of western Germany, Japan or Southern Korea may have the effect of indirectly subsidizing the exports of such areas. So long as such a condition exists, and if consultation with the US [Page 461] fails to reach an agreed solution, it is understood that it would not be inconsistent for the participating country to levy a countervailing duty on imports of such goods equivalent to the estimated amount of such subsidization if it is threatening material injury to an established domestic industry or materially retards the establishment of a domestic industry.
Bilateral Undertakings. The first article is a US undertaking to furnish assistance within the terms set by Congress. Aid is subject to US approval of all assistance and to our right to terminate it at any time in accordance with the Act. The participating country undertakes generally to exert sustained efforts to accomplish the aims of the recovery program. There is also an undertaking on the part of the participant, that in cases where supplies are procured outside the US with ECA funds, the state will cooperate with any arrangements the US may make to insure the use of a reasonable proportion of the dollar proceeds for private trade and financial transactions with the US.
The second article contains the general undertakings which are closely parallel to the mutual pledges contained in the report of the CEEC issued last September and in the Paris convention of April. These undertakings include agreement by the participant to make efficient and practical use of all its resources, including aid made available under the recovery program; to mobilize assets in the US belonging to the nationals of the participating country; to promote production; to take the necessary measures to establish financial stability; and to further the increase of trade. There are additional undertakings to cooperate in arrangements to make full use of the manpower available in Europe and to take action with respect to restrictive business practices, such as cartels, which would have the effect of interfering with the achievement of the recovery program.
Another article provides for consultation between the US and the participating government which is necessary in order that the US may, under the Act, guarantee the convertibility into dollars of new private American investments in projects in the participating country approved by that government.
Still another undertaking is made by the participating country providing that a special account will be set up to which there will be credited the local currency counterpart equivalent to the dollar cost of US grants. These local currency funds will be used for administrative expenses of the US arising under the program in the country concerned, for internal cost of transportation of relief packages, and for other purposes agreed between the two governments, including development of productive capacity of the participating country, exploration and development of production of materials of which the [Page 462] US is or may be deficient, the retirement of the national debt and for other non-inflationary purposes. The participating countries agree to work out with the US arrangements whereby we can obtain increased quantities of materials needed because of deficiencies or potential deficiencies in US resources.
There is also an agreement to cooperate in facilitating American travel to the country concerned and an undertaking to negotiate subsequent agreements regarding free entry of relief supplies, including private relief packages.
Under another article the participating countries agree to furnish the US Government full information necessary for planning and carrying out the recovery program. In addition, the two governments agree to consult at the request of either one regarding any matters arising out of the agreement. Recognition is given by the participating country of the necessity for full publicity for the program and assistance furnished by the US. Provision is made for a special mission in the participating country to carry out US responsibilities under the agreement, including observation and review of the program and makes further provisions for appropriate status of the Joint Congressional Committee on Foreign Economic Cooperation and its staff.
Arbitration of claims arising as a consequence of governmental measures may be presented either before the International Court of Justice or a mutually agreed arbitral tribunal. The undertaking is reciprocal in the cases of countries already submitted to the jurisdiction of the Court and in other cases—such as Italy—the undertaking will be reciprocal when it becomes a member of the Court. Submission of claims will be made only when the remedies available in the established court within the respective countries have been exhausted.
The agreements remain in force until June 30, 1953, a year after termination of the projected four-year recovery program. This allows a period after assistance ceases for the completion of the operating matters. There is a further provision that if either government considers that there has been a fundamental change in the basic assumption underlying the agreement—for example, termination of assistance earlier than anticipated—the governments shall consult as to modification or termination of the agreement. If there is no agreement, a six-months’ termination notice may be given, with termination subject to limitations. These limitations are that the agreement on scarce materials continues for two years from the notice of termination; the local currency deposits provision remains in effect until agreement has been reached as to the disposition of such deposits; and any subsidiary agreements will be governed by their own terms.