Foreign Relations of the United States, 1950, National Security Affairs; Foreign Economic Policy, Volume I

International Trade Files, Lot 57D284, Box 110

Position Paper for the United States Delegation to the Fourth Session of the Contracting Parties to GATT

confidential

[Washington,] February 23, 1950.

TAC D–95/50

Intensification of Import Restrictions

problem

Position of the United States in regard to the consultation under Article XII–4(b) on intensification of restrictions by the United Kingdom and certain other Commonwealth countries.

recommendation

1. The United States Delegation should accept in principle that the general level of intensification of restrictions on dollar imports by the sterling countries (not including South Africa) which has taken place pursuant to the decision taken by Commonwealth countries last July is consistent with the GATT obligations of these countries. While the Delegation may participate in discussions as to what other alternatives may have been available in the circumstances, it should not seek to press such alternatives upon these countries. (The position to be taken with respect to South African restrictions is covered in a separate paper.)

However, the United States Delegation should make clear that it regards this consultation as being for the sole purpose of determining whether recent measures of intensification of restrictions against dollar imports on the part of sterling countries are consistent with GATT obligations, without prejudice to the question whether they are consistent with any other obligations which the countries involved may have under other international agreements.

2. Unless the replies to the Article XIV–1(g) questionnaire should produce the information,^* the Delegation should indicate that available information concerning the new restrictions, the resulting modifications in trade with soft-currency countries and administration of import restrictions does not appear to be adequate to judge the consistency with GATT obligations of the particular methods by which the intensification is being effected.

The Delegation should seek to develop as clear a picture as possible of how the restrictions are applied, of the conditions under which additional soft-currency imports are being obtained and seek a modification of restrictions in whatever respects they appear to cause unnecessary commercial or economic damage. The right to raise further questions, after the meeting, concerning measures arising out of intensification should in any event be reserved. The Delegation should, for example, seek to secure for the record detailed information of the sort suggested by Article XIII 3 (a). The Delegation may also seek as much information as possible on prices paid for imports from soft-currency countries and on the direction of exports. The Delegation may also complain if insufficient time is allowed in which to act upon licenses granted or if, in the case of Annex J countries, clear cases of the payment of excessive prices for soft-currency imports come to light. These complaints might also be pressed, if appropriate, in connection with the general review of import restrictions under Article XIV–1(g).

3. The consultation under Article XII–4–(5) should not be used as a basis for a general review of all import restrictions with a view to eliminating their protective features. Any such investigation should be taken up under the agenda item dealing with quantitative restrictions for protective purposes and should not be confined to sterling countries. Should there develop instances of particular restrictions which were intensified for protective rather than balance-of-payments reasons, the Delegation may, of course, raise the matter under the XII–4–(b) consultation as well as under the general agenda item dealing with protective import restrictions.

discussion

History

Early in July [1949] the United Kingdom suspended all dollar purchases on government account except those provided for under existing contracts or commitments required in the “urgent national interest”, and on July 14, 1949 the United Kingdom announced intention to make a reduction in dollar imports of $400,000,000 or about 25 percent from the 1948 level. On July 18 the Foreign Ministers of the dominions except South Africa and Canada recommended to their Governments action comparable to that of the United Kingdom. The United Kingdom action was regarded by the United States as constituting intensification of restrictions of a kind which would call for consultation with the CP’s under Article XII–4–(b) of GATT but in view of the forthcoming financial talks it was considered desirable to defer the consultation until after the talks. The British submitted a letter to the CP’s then in session at Annecy, indicating that only interim measures had so far been adopted and expressing willingness to provide particulars, when available, on the basis of which consultation, if desired, could proceed. (CP.3/68)

Subsequently, the Chairman of the CP’s proposed to place this consultation on the agenda of the Fourth Session without further procedural steps, but the United States suggested that a circular inquiry be sent to the CP’s asking their approval of such a postponement. This suggestion was followed (GATT/AIR/17) and the United States replied before December 31, as requested, that it had no objection to deferring the consultation on the understanding that the item would be on the Fourth Session agenda. A majority of CP’s have presumably so indicated as the item appears on the preliminary agenda.

The Department requested its missions to send in information on measures of intensification instituted by the United Kingdom, India, Pakistan, Australia, New Zealand and Ceylon some time ago. Replies from this circular and other information available leave large gaps in our information as to what has actually taken place, so that it is not possible at this stage to assemble all of the basic data concerning the means by which the different countries have intensified restrictions or the extent of the restrictions. The United Kingdom will apparently effect a reduction of about 13 percent in its dollar purchases in the year ending July 1, 1950, as compared with 1948, and has published a commodity breakdown of its planned purchases. The fact that Australia, New Zealand, and Ceylon have no lists of commodities which will or which will not in principle be considered for licenses to import from the United States or other hard-currency countries and do not even publish the overall amounts of dollars to be made available, complicates evaluation of their restriction. Further both Australia and New Zealand have stated that they will try to save dollars for the sterling area by expanding exports to the United States and, if necessary, by borrowing here or in Canada instead of relying on import restrictions alone. Pakistan apparently is interpreting her obligation to curtail imports as an obligation to reduce imports by 25 percent in 1949–50 as compared with 1947–48 so that 1950 imports may be no smaller than 1949 imports. Nevertheless, Pakistan also appears to be intensifying restrictions on imports from dollar areas. Southern Rhodesia was a party to the agreement to intensify but apparently indicated her imports had already been cut to the bone so that she may not actually be intensifying by as much as 25 percent. As Southern Rhodesia has a common quota with the United Kingdom in the Fund, discrimination against all other countries in favor of United Kingdom would not be inconsistent with GATT, but this is not true with respect to other independent sterling-area countries. The import restrictions imposed by South Africa are covered in a separate position paper and are thus excluded from consideration here.

Criteria in GATT Applicable to All Import Restrictions for Balance-of-Payments Reasons

Under GATT, all restrictions imposed for balance-of-payments reasons, whether or not discriminatory, are subject to the requirement that they be necessary under Article XII–2–(a) “to forestall the imminent threat of, or to stop, a serious decline in… monetary reserves, or in the case of a contracting party with very low monetary reserves, to achieve a reasonable rate of increase in its reserves”.

As shown in the table in Annex A, the gold and dollar reserves of the sterling area declined between March 31, 1949 and June 30, 1949 by about 14 percent and between June 30 and September 30 declined a further 12 points to about 74 percent of their March 31 figure in spite of interim measures of increased restriction on imports taken during the third quarter of the year. As of December 31 reserves had increased to slightly better than the June 30 figure but were still about 12 percent below last March, although in terms of devalued sterling they were well above the amount held during the first part of 1949.

It is understood that the International Monetary Fund will very likely take the position that the British balance-of-payments and reserve position warranted, under the GATT, an intensification of import restrictions of the magnitude undertaken by the United Kingdom and other Commonwealth countries, and it does not appear necessary to raise any question concerning the consistency of increased restrictions with the provisions of GATT. Though there has been some increase recently in the level of British monetary reserves, made possible by ECA assistance, it does not appear sufficiently substantial to require, under GATT, relaxation of the restrictions imposed. The United States should not press for early relaxation of restrictions.

Under GATT, consultation regarding import restrictions also envisages a consideration of alternatives. These might include devaluation, increased borrowing from hard-currency countries, in the case of the United Kingdom limiting the flow of payment to other sterling countries on outstanding debts which results in an unrequited diversion of exports to sterling countries, a decrease in the outflow of capital, domestic measures to limit consumption of exportable goods, and other internal monetary and fiscal measures. The possibility of such alternative measures was thoroughly considered in connection with or during the recent Tripartite talks, and some of them, notably devaluation, have been adopted. While the Delegation may feel free to participate in discussion at Geneva regarding alternatives it would not appear necessary for it to take the initiative in such discussion or to seek to press specific alternatives upon the United Kingdom and the other countries concerned. In particular the Delegation should be careful to avoid statements which imply a critical attitude toward domestic social services and other aspects of the welfare state. The United States should favor the expansion of exports which will earn convertible currency as an alternative to import restrictions.

Furthermore, the delicate situation between India and Pakistan would make it highly unneutral for this country to suggest within the GATT framework the devaluation which India is already pressing Pakistan to adopt.

Article XII of GATT also requires that restrictions imposed not prevent unreasonably the importation of token quantities of goods, a requirement which most, of the sterling countries are not observing. The same is also true for a number of other countries, however, and thus any raising of this question should be done generally with respect to all those contracting parties totally excluding certain classes of imports and not with respect to a select few contracting parties only. Since it has been decided not to raise this question generally at the Fourth Session, it would be inappropriate to raise it only with respect to the sterling countries.

Another requirement of GATT is that restrictions avoid unnecessary damage to the commercial interests of other contracting parties. The total exclusion of American leather belting from India may be mentioned in this connection; this case has already been brought to the attention of India which has promised reconsideration of it.

Furthermore, while GATT permits deviation from the standards of Article XIII, it is questionable whether resort to the use of licensing instead of quotas, as envisaged in Article XIII, paragraph 1 (a), is necessitated by balance of payments difficulties. The Delegation may therefore inquire whether it is not practicable to use and publish quotas for imports of different commodities. With the exception of the United Kingdom none of the countries which have intensified restrictions do so, and Australia, New Zealand and possibly Ceylon do not even publish lists of commodities which are “licensable”.

Should it develop that ad hoc licensing as distinct from the use of quotas is the only practicable procedure in any particular case, the Delegation may still wish to request additional relevant information concerning the administration of the restrictions, import licenses granted over a recent period and the distribution of such licenses among supplying countries as contemplated in Article XIII 3 (a). Reference may also be made in this connection to Article X–1, which requires the publication, among other things, of regulations pertaining to restrictions or prohibitions on imports.

Complaints of the kind outlined above are likely to go far beyond the intensification as such and apply to the general application of import restrictions by the countries concerned. Hence, the Delegation may also take these matters up, if appropriate, in connection with the general review of import restrictions under Article XIV–1(g).

Criteria in GATT Applicable to Discriminatory Import Restrictions for Balance-of-Payments Reasons

GATT contains two alternative bases of discrimination for balanceof-payments reasons, one under paragraphs 1(b) and (c) of Article XIV (the so-called “Havana” option) and the other under Annex J (the “Geneva” option).^† The recent intensification of restrictions on dollar imports may be examined for conformity to these standards, though bearing in mind our acceptance of the general proposition that increased restriction of dollar imports was necessary and attempting to cite only cases of unauthorized discrimination.

Even in this relatively narrow framework, it will be necessary to avoid being placed in the position of having to indicate what alternative restrictions we would prefer to those to which we may take exception. This Government might be involved in difficulties with various United States domestic interests if it secured the removal of an unauthorized discrimination but, in the process of doing so, indicated that another restriction, affecting adversely some other American industry, was preferable.

A further general consideration is the situation resulting from the fact that the United Kingdom is bound by Section 9 of the Anglo-American Financial Agreement to administer import restrictions “on a basis which does not discriminate against imports from … [the United States]¹ in respect of any product” with certain exceptions. In view of this commitment the Delegation should make clear that the United States regards the discussion of discrimination as being solely for the purpose of determining the consistency of the restrictions in question with the obligations of GATT, without prejudice to the obligations any of the countries involved may have under other international agreements. Also, although key Congressmen have been consulted regarding the Financial Agreement and its relation to measures taken by the United Kingdom for balance-of-payments reasons, it would be desirable to conduct any discussion of the extent of British discrimination with a minimum of publicity.²

British intensification of restrictions on dollar imports is the case about which the most information is available, but even in this case we lack information of the kind needed to determine whether British practice conforms to GATT, and particularly to Annex J (the Geneva option). We do not even know to what extent there will be substitution of imports from soft-currency countries. We do not know, moreover, at what prices such increased imports are being purchased or the extent to which they may be paid for under arrangements providing for increased exportation of products which cannot compete on world markets or which otherwise might be available for earning convertible currencies.

Because the original British import program was presumably drawn up with a view to obtaining from the United States and other hard-currency countries mainly commodities not obtainable from sterling areas, some of the intensification may result in reduction in consumption rather than in new discriminations. Furthermore the one class of commodities which the British might most easily replace from soft-currency countries, namely agricultural commodities, is the class which has been cut the least of all, so that there would be little ground for contending that our interests have been unnecessarily damaged in this area.

As concerns prices, early in 1949 considerable effort was made by an NAC working group and by the Embassy at London to proving cases of this sort at the request of the Department of Agriculture, with very little success. The plan to hand the British a note on the subject was dropped.

One point on which the Delegation may want to make further investigation is whether the intensification has been effected equitably as among hard-currency countries. There should be no discrimination among hard-currency countries in the procurement of goods which all of the countries are able to supply. Where an essential product is available in one hard-currency country and not in others there would appear to be grounds for differences in overall proportionate reduction in imports from different hard-currency countries.

The Department of Commerce has prepared a table showing, by main commodity groups, 1948 actual imports from United States, Canada and the dollar area compared with the original and final 1949–50 import programs. A second table shows the proportion of total imports supplied by the United States and Canada in 1937, which was chosen as a representative prewar year, and in 1948. Both tables are in Annex B.³ The first table shows that, in the final 1949–50 program as compared with the original program for the same year, the United States bears on an overall basis relatively less reduction than Canada, namely a reduction of 17 percent on purchases from the United States as compared with a reduction of 21 percent on purchases from Canada. Other dollar areas appear to take very little cut, chiefly because sugar purchase figures in the two programs are not comparable, the final program including a large amount of sugar to be used in manufactures for reexport. If the sugar figures are made comparable, the percentage cut on other western hemisphere purchases is at least as sharp as that on Canadian purchases. A sizeable amount of dollar purchases is to be bought wherever in the dollar area the best price can be obtained, but even if all of this amount were finally purchased outside the United States it is not likely that any area would fare better than the United States in overall percentage of reduction of purchases.

Should the Canadians take exception to this situation, claiming that the British have discriminated against them, the United States Delegation may wish to point out that the overall differential as between Canada and the United States does not necessarily indicate discrimination among dollar sources of supply, since discrimination must be evaluated not in terms of total purchases subject to cut but in terms of individual commodities. As a second table in Annex B shows, between 1937 and 1948 Canada gained on an overall basis as a supplier to United Kingdom relative to the United States. Also Canada fared better than the United States as a supplier of nearly all agricultural commodities, especially wheat. Only in nonferrous metals, machinery, chemicals and petroleum did the United States make substantially greater improvements than Canada in the share of total United Kingdom imports supplied. Unquestionably these are categories in which many products would not be available from Canada.

Annex A

Gold and Dollar Reserves of the Sterling Area

exchange equalization account holdings of gold, united states and canadian dollars

	In Millions of U.S. Dollars	In Millions of £ at cld rate	In Millions of £ at new rate
December 31, 1948	1,856	457
March 31, 1949	1,912	471
June 30, 1949	1,651	406
September 30, 1949	1,425		509
December 31, 1949	1,688		603

Annex B

[Extract]

Factual Statements on Intensification of Restrictions by British Countries

. . . . . . .

b. british import licensing policies

An import licensing regime, instituted for some commodities at the beginning of the war by the Government of the United Kingdom and subsequently extended, has applied to almost all imports since June 10, 1940, although open general licenses are issued for a few commodities regardless of country of origin and for a larger number of commodities the product of soft-currency OEEC countries. The wartime system for controlling imports has been continued to the present time in essentially the same form. The major change in import licensing policies dates from the convertibility crisis of 1947 after which increasing emphasis was placed on the diversion of imports from hard to soft-currency sources of supply. Since the end of 1947, import licensing policy has been to cut imports from the United States and other dollar countries to the lowest possible level and to issue licenses for the import of all possible supplies of essential foodstuffs and raw materials from the sterling area and other soft-currency countries obtained in large measure by means of bilateral agreements and other purchasing arrangements. Import licenses for luxury goods and other items hot considered as essential have been issued for such goods obtained from some European countries. These licenses are issued only as a means of balancing off a United Kingdom export surplus with those countries after the maximum available amount of essential commodities had first been obtained.

The import licensing system dictates the size, composition and source of imports through private trade channels into the United Kingdom. The import program has three major objectives: (1) to provide adequate supplies of goods for the maintenance of the health and well being of the people under a strict system of rationing of basic essentials, (2) to secure the necessary raw materials to keep industry producing at the highest possible level, and (3) to switch the source of imports, wherever possible, and under existing agreements, from hard to soft-currency areas.

To accomplish these objectives, British import control operates under the following three types of licensing:

Open General Licenses

Open general licenses have been issued for a small range of products when imported from specified countries and recently the lists have been extended for imports from certain OEEC countries. Separate lists of goods which may be imported freely under open general licenses when they come from the area specified are issued from time to time by the Board of Trade. Foreign exchange is issued automatically to cover payments for these products, as the open general license lists are so designed that there is little loss of dollar exchange through the trade in these products. Most of the items specified in the lists come either from the sterling area or a soft-currency country or they are of little trade importance involving a small outlay of dollars.

In accordance with the plans of the Organization for European Economic Cooperation for the general liberalization of intra-European trade, the President of the Board of Trade has relaxed import licensing regulations with that area. With certain exceptions, from October 5, 1949, a wide range of goods was permitted to be imported into the United Kingdom under open general license from all countries in the OEEC except Belgium and the Belgian Congo, Luxemburg, Switzerland, and Western Germany. Sterling area and other countries to which relaxation could be applied without losing gold or dollars were also included in the list.

The commodities designated were food, drink and animal feeds, mineral products and metals, oils and waxes, vegetable fibers, chemicals, apparel, textiles, vehicles, pottery, medical and surgical appliances, electrical goods, metal manufactures, books, and many miscellaneous items. A few of the horticultural items are subject to licensing control at the main season of home production. Pulp, paper and board will be added to the list on April 1, 1950. This deferment was considered necessary to coincide with the reversion of the buying of paper-making materials to private trade.

Open general licenses cover products imported from four areas, a separate list being issued for the items which may come from each area.

1). Goods consigned from any country. This list includes products for which import control is either impracticable or undesirable, and of little trade importance, such as fresh shell fish (other than frozen); books and periodicals in single copies sent through the mails; seaweed; ivory (animal); architectural or engineering designs; press photographs; newspapers; exposed cinematograph films; hydrographic charts; maps and plans; gold bullion and coin, and gold ores, concentrates, and residues.

2). Goods consigned from any part of the British Commonwealth. This list is very short, and comprises the following: Live animals, quadruped, other than horses; flower bulbs, corms and tubers, and anemones; rough, precious and semiprecious stones; tin, in blocks, ingots, bars and slabs, wool, sheep’s and lambs’, raw, (sliped or skin wool and wool in the fleece, greasy, washed, scoured or carbonized).

3). Goods consigned from Ireland. This list includes the following: Agricultural and vegetable seeds; beer; bog ore; fresh milk and buttermilk; dairy machinery; hydrocarbon oils, iron pyrites; jute bags and sacks; paints and varnishes; religious emblems; road vehicles; sand; yeast; and wood and timber in the round, hewn or square sawn.

4). Goods consigned from particular countries. This list comprises items which are of little trade importance, and in the main are luxury food items which contribute to better morale under a strict system of rationing. It includes such products as walnut in shell imported from France and Italy; dates from France, French Morocco, Algeria and Tunisia; gherkins in brine from France, French Morocco, Algeria, Tunisia or the Netherlands; fresh fish from Denmark, Ireland, France, Holland, Iceland, Norway, Poland, Spain or Sweden; preserved fruit, crystallized, glacé, or metz, from France; silver-skinned onions from the Netherlands; lace from Malta.

Special Licenses

The bulk of British imports are subject to the granting of a special license either by direct application to the Import Licensing Department of the Board of Trade, or by application to the official commodity control authorities of the Ministry of Supply or the Ministry of Food who transmit approved applications to the Board of Trade for issue of the licenses.

Under the British Token Import Plan, licenses are granted automatically by the Board of Trade for specified manufactured goods imported from certain countries (including the United States) up to 20 percent of the average annual value of the individual manufacturer’s export of the specific items to the United Kingdom for the years 1936, 1937, and 1938.

Trans-shipment Licenses

With the exception of the following goods, licenses are not required for goods which are imported and entered with the customs for exportation after transit through the United Kingdom, or by way of transshipment: Butter; all fats and oils (edible and non-edible including shortening and margarine); all oil-bearing seeds; soap; fresh, frozen, pickled, salted, smoked, canned, and dehydrated meat (excluding fresh and frozen poultry, game, rabbits, and venison).

One of the principal advantages of the present system from the standpoint of the British authorities is its almost instant adaptability to changing conditions and requirements. The enabling authority granted to the Board of Trade is exceedingly broad in scope and general in terms. Similarly, the specific import control orders are themselves general, leaving for day-to-day adjustments, if required, the degree of restriction to be imposed. Such adjustments are made with public notice, but actual practice is in fact often contrary to public announcement.

The system also permits, with or without public notice, the allocation of imports to Empire countries, or to any specified foreign country or countries, on a differential basis, and the adjustment of these allocations quickly from time to time, as required or desired, without legislation or formal regulation of any kind.

A large number of official commodity controls were set up in the Ministry of Supply at the beginning of the war. At first these controls were mainly for the purpose of controlling domestic trade in the major essential raw materials, but the number of controls and the scope of their activities was gradually extended to include a large number of commodities, and in many cases the control of all phases of the respective trades covered. Originally not directly associated with the import licensing system, these controls gradually took over the effective, as distinct from the formal control of the importation of the commodities under their jurisdictions, and for some commodities, applications for import licenses are made only to the appropriate control of the Ministry of Supply for approval and transmission to the Import Licensing Department of the Board of Trade.

The Ministry of Food is the sole importer of all basic foodstuffs so that any food product (with the exception of certain fresh fruits and vegetables in season) is either directly purchased by the Government or with the assistance of existing importing concerns. When private importing channels are utilized by the Ministry of Food, applications for import licenses are directed to the Board of Trade through the Ministry of Food.

To summarize the United Kingdom’s import control policy: (1) imports from dollar countries and other hard-currency areas are strictly controlled, and limited to essential goods which are needed for the domestic economy or are necessary raw materials for British industry and cannot be procured from the sterling area; (2) licenses for imports on Government account from the other OEEC countries are granted in accordance with the terms of the bilateral trade agreements concluded with most of these countries. The majority of imports coming through private trade channels are now under open general license; (3) licenses for imports from the sterling area are granted chiefly in accordance with the terms of the bulk purchase agreements concluded with British Empire countries.

. . . . . . .

1. The draft British reply which was shown to officers of the Department early in February did not appear to contain essential information necessary to evaluate the British restrictions in terms of GATT obligations. Notably it did not contain information on prices, which would enable an evaluation of the consistency of the discrimination with paragraph 1(a) (i) of Annex J. [Footnote in the source text.]
2. Of the countries here considered, India, Pakistan, Australia, New Zealand and Burma, come under the Havana option, and the United Kingdom, Ceylon, Southern Rhodesia under the Geneva option. [Footnote in the source text. Regarding Annex J, see footnote 1, p. 727.]
1. Brackets appear in the source text.
2. For documentation on the negotiations at Washington leading to the conclusion of the Anglo-American Financial Agreement of December 6, 1945, see Foreign Relations, 1945, vol. vi, pp. 1 ff.; for text see 60 Stat (pt. 2) 1841, TIAS No. 1545. For discussion of the section 9 problem within the GATT context, see Foreign Relations, 1949, vol. i , footnote 9, p. 656, and footnote 2, p. 658.
3. Tables not printed. Annex B is printed only in part, following. In toto, it consists of 15 legal-size pages of factual information and tables on the restrictive systems in effect in 1950 in the United Kingdom, India, Pakistan, Ceylon, Australia, New Zealand, and Southern Rhodesia.