Extract From Bulletin No. 200, May 2, 1949
secret
Commercial Treaty Program Reviewed Our program for modernization and extension of commercial treaties has moved forward during [Page 637] the past nine months with ratification by the two governments of the treaty of friendship, commerce and navigation with China;2 active negotiations with Australia, France, Ireland, the Philippines, and Uruguay; and presentation of draft treaties to the Benelux countries, Colombia, Costa Rica, and Ecuador, and a revised draft to Cuba. The treaty negotiated with Italy is now under consideration by the Italian parliament.3 (See page 9, August 23, 1948 issue of Current Economic Developments.4) Chief problems in negotiating the treaties have arisen over the provisions for national treatment and foreign investment.
Proposals for FCN negotiations have been widely disseminated during the past few years, partly to determine as far as possible the reactions of various countries or groups of countries such as the Near East, the British Commonwealth, and Latin America, and partly in recognition of the possibility that a long period of education might prove beneficial in some of the economically under-developed countries. As a long-range matter, the ultimate conclusion of treaties appears possible with many of the 24 countries to which we have proposed negotiations. Treaties with Ireland, Lebanon, and Uruguay may be concluded during 1949, and, granted the satisfactory solution of certain important issues, treaties may also be entered into with France and the Benelux countries this year. The conclusion of a treaty with any one of these countries in the immediate future is a matter of considerable importance, since it would represent the first successful negotiation of the new, improved, standard draft and might have a salutary effect on a number of other negotiations.
Draft Improved The basic treaty draft has been rewritten to give it a uniform style, to strengthen its provisions by the elimination of loopholes and the removal of damaging reservations, and to incorporate new material, including provisions on social security, freedom of information, commercial arbitration, government participation in business, and withdrawal of earnings.
National Treatment is Main Negotiating Problem The experience of the past six or eight months in particular has shown that the main negotiating problem is the reluctance of many foreign countries to grant national treatment for a wide variety of economic activities. This reluctance is the cause of the present impasse in the French negotiations, has prolonged the Irish negotiations, and may possibly [Page 638] delay conclusion of a treaty with Uruguay. For the most part, the attitude of foreign countries is determined by their fear of undue American influence in their economies or of undue economic penetration by other countries through operation of the most-favored-nation principle. The fear of US interference may develop either through “colonization” of important segments of their industry to the detriment of vested domestic interests or through exchange stringencies caused by extensive withdrawals of earnings. Even when quite liberally inclined, these countries tend to insist on the right to withhold national treatment during emergency situations. In some cases foreign countries realize Americans are unlikely to avail themselves of these treaty rights to a great extent but fear that they would be forced to give the same rights to neighboring countries which would extensively use them, probably with undesirable results. The French fear Italian and Spanish penetration, particularly in the petty retail trade; the Filipinos fear similar penetration by the Chinese; the Irish fear Great Britain; the Uruguayans, Argentina.
Investment Problem Another problem that has caused major negotiating difficulties arises in connection with investments. Nearly all foreign countries profess to welcome US capital but nearly all of them also consider themselves as being in difficult economic circumstances and needing protection for a considerable time against economic dislocations which might develop as a result of relaxed exchange controls or liberal treatment of foreign corporations. Accordingly they desire that the investment provisions of the treaty afford them adequate protection while they complete the adjustment of their national economies to postwar conditions, feeling in this regard that the US, by virtue of its wealth and economic strength, is able to export capital without needing an immediate return on its investment.
US has Little Bargaining Power As a practical matter, much of the difficulty in negotiating FCN treaties results from the relatively small degree of bargaining power such treaties possess. The main reason for this lack is that, notwithstanding many popular notions to the contrary, State and Federal laws governing the treatment of aliens in the US are quite liberal. Consequently the US is in the position of seeking through the FCN treaties to secure for its citizens abroad a reasonable approximation of the rights aliens already enjoy in this country. It was thought that the interest of foreign countries in obtaining US investments would improve our bargaining position. Since, however, foreign countries foresee difficulties in permitting extensive investment by foreign interests and do not consider themselves able to take advantage of treaty rights for investment in the US, this inducement has not yet proved especially effective.
- Master set of the Department of State classified internal publication Current Economic Developments for the years 1945–1969, as maintained in the Bureau of Economic Affairs (FRC Accession No. 72 A 6248, boxes 218–224).↩
- Negotiations for this agreement had been initiated in 1943. The treaty and protocol were signed at Nanking, November 4, 1946; and exchange of notes was signed and ratifications exchanged at Nanking on November 29 and November 30, respectively, the agreement entering into force on November 30. For texts, see TIAS 1871, or 63 Stat. (pt. 2) 1300.↩
- As noted above, ratifications were exchanged with Italy on July 26, 1949.↩
- Not printed.↩