Foreign Relations of the United States, 1949, Western Europe, Volume IV

NAC Files, Lot 60D137

Paper Prepared in the National Advisory Council on International Monetary and Financial Problems¹

secret

[Washington, undated.]

United States Position on the Liberalization of Intra-European Trade and Payments

1. Relaxation of Intra-European Trade and Payments Barriers

In accordance with the policy enunciated by the Congress in Section 102 (a)^* of the Economic Cooperation Act of 1948, as amended, the United States should take the position that the maximum relaxation of trade and payments barriers within the OEEC countries is essential and must be considered an immediate objective. The abolition of quantitative restrictions and exchange controls on current transactions among the participating countries, their dependent overseas territories and the sterling area would provide a wide, competitive, internal market which would be conducive to an eventual lowering of European costs and prices through the increased productivity generated by competitive conditions and, therefore, to a permanent improvement in Western Europe’s competitive position in the world economy.

In view of the desirability of freeing up trade over as wide an area as possible, the general relaxation of trade and payments restrictions by the OEEC countries should apply to their imports of the products concerned from all countries, to the extent permitted by the ability of the importing country to pay for such imports from the exporting countries concerned. This does not however, preclude acceptance of such proposals for relaxation of trade and payments restrictions as are currently being considered among France, Italy, and Belgium. Such proposals must be judged on their individual merits.

The relaxation of restrictions should be consistent with the following principles:

(a) The trade controls should be operated so as not to protect the trade among soft currency countries at prices “substantially higher” than those quoted for comparable goods available from other sources. The U.K. is bound to this principle by GATT. The GATT also specifies that, where European countries are maintaining quantitative restrictions on specified imports from hard currency areas because of exchange stringency, at least minimum imports of all categories of goods be allowed, in order that consumers in soft currency areas may be aware of the price and quality of competitive products available in hard currency markets. In general, countries participating in plans for reduction of trade and payments restrictions will be expected to abide by their commitments under GATT.

(b) The relaxation of restrictions should be pressed without regard for protective considerations, and such relaxation should not be offset by adjustments in tariffs, exchange or other administrative controls, state trading export and import policies, or cartel practices;

(c) All practical measures should be taken to prevent the diversion of exports from hard-currency markets;

(d) The United States does not believe that elimination of trade barriers inside Europe must be delayed until it can be accomplished simultaneously with elimination of trade barriers against the dollar area. The United States will therefore tolerate discrimination against United States exports which arises not from increased barriers to dollar trade but from decreased barriers to intra-European trade. However the United States could not agree to the removal of intra-European trade and payments barriers if such removals made it necessary for participating countries to increase the existing barriers between the dollar and the non-dollar areas.

2. The Sterling Area

The British have indicated that, in view of their political and economic ties with the rest of the sterling area countries, that they could not enter into arrangements for reduction of trade barriers with OEEC countries without at the same time making similar concessions to the rest of the sterling area countries. The principles set out above for the OEEC countries are sufficiently broad to permit the United Kingdom to extend their program to the rest of sterling area.

3. Readjustment of European Exchange Rates

Reduction of barriers is not likely to be permanent as long as the present mutual imbalances and dollar deficits of the European countries persist on the present scale. A mutual readjustment of exchange rates among participating countries and devaluation against the dollar, particularly of the pound sterling, would tend to minimize intra-European and dollar imbalances and would thus appear to be essential to successful program for the reduction of trade barriers. Efforts to readjust exchange rates should therefore proceed simultaneously with the reduction of trade barriers.

4. Consistency with Section 9 of the Anglo-American Financial Agreement

The U.S. must regard such discrimination as may be involved in maintenance by the United Kingdom of quantitative restrictions on imports from the dollar area, while reducing barriers vis-à-vis soft currency areas, as temporary deviations from the Agreement necessitated by Britain’s current shortage of dollars. While complete absence of discrimination on a multilateral basis remains the agreed long-term goal, the United States believes that the measures proposed in the previous paragraphs have precedence in the short-term and are in fact essential to the eventual achievement of the aims of the Agreement.

1. NAC Document No. 876, Attachment A. A covering memorandum by the Secretary of the Council, August 24, indicated that it had discussed the subject in meetings on June 28 and June 30, and had expressed its views as follows: “The United States has consistently supported a reduction of trade barriers among OEEC countries and other steps toward effective economic integration of European economies that will contribute to a more efficient allocation of resources, provided that such steps are part of a program designed to restore multilateral trade on a world basis and global convertibility of currencies. Appropriateness of trade and payments arrangements within Europe must be viewed in the light of steps by the European countries with respect to trade and payments vis-à-vis other currency areas, especially the dollar area.
2. “Mindful of the advantages which the United States has enjoyed through the existence of a large domestic market with no internal trade barriers, and believing that similar advantages can accrue to the countries of Europe, it is declared to be the policy of the people of the United States to encourage these countries through their joint organization to exert sustained common efforts to achieve speedily that economic cooperation in Europe which is essential for lasting peace and prosperity.” [Footnote in the source text.]