560.AL/4–2249

Memorandum by the Assistant Secretary of State for Economic Affairs (Thorp) to the Secretary of State

confidential

Subject: British Support at Annecy on a Most-Favored-Nation Agreement for Japan.

Discussion:

In recognition of the need for (1) a substantial growth in Japan’s foreign trade if a self-supporting status, and consequent relief to United States taxpayers, is reached in the foreseeable future, (2) the development of this trade along sound economic lines in the context of a multilateral trading system and (3) the avoidance of an increasing network of discriminations against Japan (already 10 of the 23 members of the General Trade Agreement discriminate against Japan) which might create the basis for dangerous economic and political frictions in the future, the Department strongly desires British acceptance of an agreement, substantively similar to that concluded last year for Germany, covering for the period of the occupation most-favored-nation treatment for Japan on a reciprocal basis and British [Page 667]support of acceptance of the agreement by other countries during the Third Session of the Contracting Parties to the General Agreement on Tariffs and Trade now being held in Annecy.

The Department of the Army considers such an agreement highly important; it has strongly pressed for aggressive action toward this end. In recent weeks Secretaries Forrestal, Royall, Draper and West have reiterated this position.1

Failure so far, covering two years of effort, is largely attributable to British opposition. This opposition stems from (1) fear of Japanese competition in world markets (textiles, ceramics), (2) the desire to trade within the aegis of sterling agreements and (3) uncertainties surrounding Japanese trade (lack of exchange rate, competitive practices). The Department rejects the thesis that bilateral arrangements of the sterling agreement type are acceptable as substitutes for the most-favored-nation trading principle, believes SCAP can assure fair trading practices during the occupation period and expects determination of a yen exchange rate in the near future.

The British Cabinet has now decided it can make no commitment until an exchange rate is established and sufficient time elapsed thereafter to see what happens. This indefinite postponement prejudices the chance for a general acceptance during the Annecy Conference.2

Recommendation:

It is recommended that you hand the attached aide-mémoire to the British Ambassador3 and take the occasion to emphasize the strong desire of the United States Government for a reconsideration of the British position on the ground that it is inconsistent with our agreed commercial policy objectives, that it is difficult for our people to understand British refusal to assure non-discrimination to Japanese trade while the United States is underwriting the occupation authority and at the same time is materially contributing to British recovery, and that British support is the key to success of the United States objective of general acceptance of an agreement at Annecy where the Third Session of the Contracting Parties to the General Agreement on Tariffs and Trade is now in session. The earliest possible response should be urged.

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  1. James Forrestal, Secretary of Defense; Kenneth T. Royall, Secretary of the Army; William H. Draper, Assistant Secretary of the Army for Occupied Areas.
  2. The conference had convened on April 8; for information regarding the organization and work of the conference and of the U.S. Delegation thereto, see editorial note, infra.
  3. Not printed. This draft was never presented. A subsequent draft, substantially similar, but modified to take into account events described hereafter, was eventually handed to the British Embassy on June 17.