Current Economic Developments, 70D467
Extract From Bulletin 227, November 7, 1949
secret
Commercial Treaty Program Reviewed Continuing progress is being made in our commercial treaty program, both in the negotiations with specific countries and in improving the basic draft, principally with respect to the more technical features of investment. (See page 1, May 2, 19491 issue of Current Economic Developments.) Within the past six months proposals for the negotiation of treaties of friendship, commerce, and navigation have been made to Greece and Peru; arrangements have been made for instituting treaty projects with Denmark, Paraguay, Portugal, and Syria as soon as circumstances in those countries permit; and substantial further progress has been made in the current negotiations with France, India, Ireland, Lebanon, and Uruguay. In addition, other countries are studying draft treaties which we have submitted to them.
National Treatment Remains Problem The main negotiating problem continues to be the reluctance of many foreign countries to grant national treatment for a wide variety of economic activities. In a number of cases these countries desire to screen foreign investments, permitting [Page 648] the establishment of only the enterprises they deem beneficial. In more extreme cases, foreign countries wish to retain the right, subsequent to screening, to regulate the operations of legitimately established enterprises on a discriminatory basis. In any event, once screening has occurred, it appears difficult to avoid some measure of subsequent control at variance with the general rule of national treatment. In addition, the collateral problems of expropriation and exchange control have continued to present a substantial negotiating difficulty.
European Negotiations Negotiations with the Benelux, originally scheduled for August but postponed at the request of the Dutch, will probably begin the end of November. Both the Belgians and the Dutch are definitely interested in concluding a treaty with the US, but postponement has been necessary because of difficulties in completing arrangements for the Benelux union and pending settlement of the Dutch-Indonesian problem. The impasse which had developed in the French negotiations over the investment issue was apparently resolved by a mutually agreeable formula on screening which was worked out with Foreign Minister Schuman when he was in Washington last September and it is expected that negotiations may be concluded in the near future. The suggested settlement of the investment question calls for a special protocol permitting the French to screen American investments on balance-of-payments grounds. This reservation would be transitional in character, terminable when balance-of-payments difficulties are past, and applicable only to the entry of capital; and, once admitted, American business enterprises would receive full national treatment. The treaty negotiated with Ireland is now before the Irish Cabinet for approval, and Legation Dublin is optimistic about prospects for signature within the near future. The Greeks have shown definite interest in the draft presented them last August, and it is hoped negotiations may begin very soon. It was planned to present a draft treaty to Portugal last spring but in view of the unfavorable atmosphere resulting from the reduction in ECA funds for Portugal, presentation was withheld. Now, however, since Portugal’s financial position has improved as a result of OEEC allocations, the draft will probably be formally presented soon.
Negotiations with American Republics The FCN treaty negotiated with Uruguay has been under final consideration by the Uruguayan Council of Ministers for some months, but approval has been delayed, chiefly because of objections raised by the Bank of the Republic to the exchange control provisions. The Bank wishes to add a protocol provision reserving the right for Uruguay to discriminate against the US and in favor of third countries with respect to the issuance of import permits and the remittance of earnings when Uruguay possesses balance of currencies of such third countries and the free convertibility [Page 649] of currencies has not been re-established. We have proposed certain adjustments in the exchange control provisions which it appears Uruguay may accept, making early signature of the treaty possible. Although Brazil has not replied to our suggestion that we begin commercial treaty discussions on the basis of a draft submitted last June, there is evidence that, in contrast to the rather indifferent attitude displayed toward the draft treaty presented in 1946, the new draft is receiving active consideration. Brazil is known to be interested in the Point Four program and in joint action to stimulate the flow of private capital there. It may be possible to conclude a treaty with Brazil provided satisfactory arrangements can be worked out with respect to a double tax convention and with respect to their proposal for a joint guarantee fund. Chilean interest in negotiating an FCN treaty with us is questionable. During exploratory conversations last spring, the Chileans were unsympathetic to the idea. Recently, however, there have been some indications of interest in the Point Four program, which may mean that some change may be made with respect to treaty commitments. Colombia has indicated that the treaty provisions are acceptable in principle but is delaying actual discussions until we can take definite action with respect to the negotiation of a double tax convention. Cuba apparently wishes to make the conclusion of a treaty contingent upon incorporation of a provision which would stabilize the market for Cuban sugar in the US, probably in the form of a commitment not to reduce the present Cuban percentage participation in the US domestic sugar quota. Copies of the new standard draft have been furnished Peru, where it is believed to be under study, although there has been no indication from that government as to opening negotiations.
Negotiations with Other Countries The most recent version of the standard draft has been given Egypt as a possible replacement for the draft presented in 1946 and is currently under study. Meanwhile, Egypt has made its long-promised counter proposal to the 1946 draft. As anticipated, this counter proposal is limited to a draft establishment convention, the provisions of which seem generally inadequate, consisting mainly of most-favored-nation guarantees. We are now considering possible methods of obtaining Egyptian acceptance of a more satisfactory basis for negotiation.
The special conditions which precluded Afghan acceptance of the standard FCN draft have been discussed with an Afghan official, and a simplified draft prepared as a possible basis for negotiations is now under consideration in the Department. The new draft is designed to afford a substantial measure of protection to American nationals and enterprises in Afghanistan, while avoiding provisions likely to occasion embarrassing demands on Afghanistan by the Soviet Union, India, and other neighboring countries. In general, this draft is also [Page 650] designed to be readily adaptable to use in connection with other countries in a rudimentary stage of political and economic development.
Following an extended period of preliminary conversations between the Embassy at New Delhi and the Indian Minister of External Affairs, formal discussions were held at New Delhi during August and September. While substantial progress was made, these discussions raised the possibility of a serious divergence of views over the investment issue, as the Indians not only wish to reserve the right to subject American investments to extensive screening but also seek to continue discriminatory measures against American business enterprises after they become established in India. In addition, a number of secondary issues have been raised, principally in connection with exchange control, expropriation, and territorial preferences. Consideration is currently being given to the desirability of making a concession on screening and to the advisability of postponing further discussions for several months since there is a reasonable possibility that a more favorable attitude toward the main negotiating issues may develop within the Indian government in the near future. Informal conversations with Pakistan officials last August disclosed no serious objections to the draft of a treaty which is currently under study by that government. Agreement has been reached with Lebanon for the substitution of a new text, conforming with the revised basic draft, for the treaty text negotiated in 1947, so that early signature may be possible.
The Department has not been disposed to press the Philippine government for high-level political decisions on the critical issues which led to the suspension of these negotiations last year, until after the coming presidential elections. Recent reports from Manila indicate, however, that the Philippine government has been giving serious study to these issues, has apparently reconsidered its stand upon a number of them, and may propose resumption of the negotiations in the relatively near future.