711.932/7–2848: Telegram

The Secretary of State to the Ambassador in China (Stuart)

1230. Urtel 1380 July 28; Deptel 1039 July 16. Dept concurs handling Senate reservation and two exchanges notes (Deptels 1036 and 1037 July 16, and 926 June 25) as unit and identifying same with exchange ratifications, at Emb’s discretion. Suggested protocol of exchange ratifications to this effect will follow. Dept desires every reasonable effort be made to secure Chinese acceptance of the ITO-GATT and Trust Territory understandings in this way. If, however, after discussions with Chinese officials prior submission Legislative Yuan, Emb feels strongly that our insistence on inclusion understandings might jeopardize treaty ratification at this time, Dept should be promptly informed.

Dept had not expected Chinese would make difficulties re Trust Territory exception, already included in text Ital treaty. Our obligations in trust area defined by agreement with UN, on whose behalf US acts as administering authority. Conversely, Chinese interests there protected by same agreement; and US can hardly be expected, through bilateral treaty, to modify this multilaterally-established regime. In any case, economic importance of territories under our strategic trusteeship not sufficient to warrant their becoming issue in such treaty.

Dept trusts Chinese will appreciate that our desire for statement concerning ITO and GATT is by way of clarifying mutual intent [Page 763] that treaty is not to be interpreted or applied in such way as to hamper multilateral regime established by these two instruments, in formulation and development of which China as well as US fully participated. It is worth repeating that we are not seeking here to commit Chinese either to join or not join projected ITO. Wording proposed in Deptel 1036 primarily calculated assure that the rather rigid rules of nondiscrimination set forth in treaty (principally those set forth in Art XVI, paras 1, 3 and 4) may be relaxed to extent and in manner provided in GATT and ITO.

Dept rather believes that understanding to this effect may be even more necessary for China than for US. Perhaps most important relaxation is in connection with balance of payments difficulties; and it is China, rather than US, which is in situation of possibly needing to avail itself of the special privileges set forth in GATT and ITO Charter (Art XIV of former, Art 23 of latter). Emb may have noted that Dept had to make a special arrangement on this subject with Italians, in as much as at time of negotiating Ital FCN treaty (Autumn 1947), Italy was not yet participating in either GATT or ITO. (See Additional Protocol to Ital treaty, paras 1, 2 and 4). By proposing to Chinese a statement re ITO and GATT, US is inter alia giving assurance that we do not intend treat Chinese less favorably in this regard.

Other specific provisions of ITO and GATT to which proposed statement is relevant include following:

Art 24, para 8(b) of Charter, and Art XV, para 9 (b) of GATT, which is a residual assurance of right to apply import and export restrictions complementary to exchange restrictions such as are permitted under IMF reservation of treaty (Art XXVI, para 1 (e)).

Art 44 of Charter makes more ample provision for development of customs unions (and free-trade areas) than does Art XXVI, para 3 (b) of the treaty. Compare Art XXIV of GATT.

General exceptions in Art 45 of Charter, and in GATT, are more amply designed to bridge dislocation of post-war period than those in Art XXVI of treaty. See especially in para 1 of former, items under ix and x of (a), and those under (b). Reference to GATT will also pick up necessary fissionable materials reservation (Art XXI, para b (i), which in Ital treaty is spelled out (see Art XXIV, para 1 (c) of Ital treaty).

It is true that Charter contains rules which are not in treaty, just as treaty contains rules which are not in Charter, and that, moreover, where same subject-matter is covered in both instruments, Charter usually deals with it in much more elaborate and detailed fashion. But this does not mean conflict between two, nor does it mean that both instruments cannot be fully effective according to their own [Page 764] terms. Dept, therefore, feels no useful purpose would be served, in so far as ratification of treaty is concerned, in attempting supply Chinese with exhaustive paragraph-by-paragraph comparative analysis.

Ital Parliament not expected act on US–Italy FCN treaty until about Oct 1. Foreign Office states it has no objection exchange notes on ITO and GATT similar to that proposed to China, and that it will probably not be necessary submit matter to Parliament.