The South African Ambassador (Andrews) to the Secretary of State

The Ambassador of the Union of South Africa presents his compliments to the Honourable the Secretary of State and in reference to the Department’s note of the 7th January, 1949, has the honour to state, by direction of his Government, that prior consultation with the Contracting Parties to the General Agreement on Tariffs and Trade was impossible at the time the Union of South Africa instituted exchange control. It should, however, be borne in mind that prior consultation is not a prerequisite in terms of Article XII of the Agreement, which clearly indicates that in circumstances which make such consultation impossible, consultation after the institution of restrictions will meet the requirements of the Agreement.

As the United States Government are aware, consultations of this nature have been in progress with individual contracting parties for some time, resulting in some cases in modifications of the restrictions applicable to all contracting parties affected. In addition, the Union Government have furnished the Contracting Parties as a group with full information regarding their exchange restrictions and the Third Session of the Contracting Parties will undoubtedly provide a suitable opportunity for joint discussions on the matter.

It should be emphasized that the undertaking contained in Article XII(3) (c) (ii) of the General Agreement is intended solely to permit exporters to keep their products before the eye of consumers in the Union of South Africa and to enable them to maintain their contacts in the Union market. Before the institution of exchange control by the Union Government, however, local importers had placed orders abroad on such an abnormally large scale that they possess ample stocks to meet the demand for some time. Goods, the import of which is prohibited under the Union’s Control Scheme, will therefore be available to a reasonable extent for some months to come and there is consequently no need to introduce a scheme to permit the import of minimum commercial (“token”) quantities of such goods at this juncture.

When local stocks have declined and specific articles are no longer available on the Union market, the Union Government will be prepared to consider representations from contracting parties regarding the import of minimum commercial quantities. It is not, however, the understanding of the Union Government that Article XII (3) (c) (ii) of the General Agreement requires that the initiative must necessarily be taken by the country applying restrictions. On the contrary, a scheme of this nature can only be introduced after the Union Government have been acquainted of the wishes of the interested contracting [Page 666]parties and it is considered that the readiness of the Union Government to consider such representations at a suitable time should be sufficient evidence of their sincere efforts to fulfill their obligations under the General Agreement.

In regard to the matter mentioned in the final paragraph of the State Department’s note, the Union Government have been in communication with the International Monetary Fund and the following is an extract of a letter which has been received from the Managing Director of the Fund:—

“As you are aware it has been recognised in the Fund that the sharp increase which took place in South Africa’s adverse balance of payments on current account in 1947 and 1948 made it necessary for the Union to take corrective measures. Accordingly the Fund noted with satisfaction that South Africa took steps last November to reduce the large deficit in its current account balance of payments, and, in these circumstances, I am able to inform you that the Fund approves the exchange restrictions which have been put into effect.

The Fund also authorises South Africa to adapt these restrictions to changing circumstances without prior consultation with the Fund. To determine whether an exchange measure constitutes no more than an adaptation of restrictions may occasionally be a difficult question to decide. If any such borderline case should arise, the Fund would be happy to discuss it with you”.