International Trade Files, Lot 57D284, Box 112

Memorandum by the Chief of the Monetary Affairs Staff (McDiarmid) to the Director of the Office of International Trade Policy (Brown)


As I have indicated in discussions with Messrs. Leddy and Weiss, a sharp issue has been drawn in the Fund regarding the scope of the forthcoming consultations on the sterling area import restrictions. This issue emerged when the Fund’s Committee on the ITO and the GATT began the consideration of the Fund’s reports to the CP’s on [Page 758] the consultations.1 All the sterling area countries, with the leadership of the UK, are contending that the problem before the Fund and the GATT is simply the justification for actions taken by these countries in connection with the London agreement of July 1949 aimed at reducing their dollar imports 25% below 1948 levels. The US, with the support of the non-sterling area Fund members, has contended that the consultations should also include the need for maintaining a level of restrictions now in effect in the light of the present external financial positions of the countries involved. We have based this position both on the record of the Geneva meeting and on the appropriate provisions of the GATT. (I have presented this case to Southard, Leddy, etc., and will prepare a written memorandum.)

The most recent development was a conversation between Mr. Southard and Mr. Parkinson, the Canadian Alternate Director, in which Mr. Parkinson indicated that Canada was in agreement with our view but was endeavoring to reach some solution of what might develop into an impasse at Torquay. The Canadian suggestions are along the following lines:

That the Fund conclude its reports as now in process but that they not be transmitted formally to the GATT Secretariat until the terms of reference of the consultation are defined by the Contracting Parties, presumably in plenary session. This would not be contrary to past procedures as normally such reports are submitted in person by Saad,2 the Fund representative to the GATT, at an appropriate time in the GATT sessions.
If the plenary session supports our position, Saad would then submit the Fund reports and the consultation would proceed as we have contemplated.
If the plenary session supports the sterling area position, Parkinson suggests the Fund submit reports on the narrower issue.

Southard is in agreement with (a) and (b) but not with (c). He does not think that the Fund should address itself to the now academic issue of the justification for the 1949 action. I am in agreement with this view3 and suggest the following course of action if the plenary session upholds the British position. In that event you should state, as the U.S. view, that we do not think that fruitful conclusions would be likely to emerge from a consultation on this narrow issue at the [Page 759] present time in view of the very substantial changes which have occurred in the external financial position of the sterling area countries. As for our part, we have no significant questions to raise regarding the justification for actions taken in July 1949 and that we do not think that the time of the Contracting Parties would be well spent on such an exercise. Inasmuch as the annual review of the discriminatory import restrictions of all the Contracting Parties will probably be on the agenda at the Sixth Session, we believe that further consideration of the import restrictions of the sterling area countries might well be deferred until that time when they can be discussed in a realistic manner in the light of the then available information.4

  1. In this connection, attention is invited to the brief section headed “Controversy at Torquay” in the official history of the International Monetary Fund, J. Keith Horsefield (editor), The International Monetary Fund 1945–1965 Twenty Years of International Monetary Cooperation (IMF, Washington, D.C., 1969), vol. ii, Analysis, pp. 338–341. This is in chapter 16 which is one of seven chapters (10–16) that constitutes part III of volume ii, “Exchange Restrictions.”
  2. Ahmed Zaki Saad, Executive Director for Egypt on the International Monetary Fund, and Chairman of the IMF Liaison Group at the Fifth Session of the Contracting Parties.
  3. Marginal notation: J[ohn] M L[eddy] and I agree, too. L[eonard] W[eiss].”
  4. A lengthy position paper prepared for the United States Delegation to the Fifth Session of the Contracting Parties, “Import Restrictions of Certain Sterling Area Countries,” is not printed, as the substance of its contents has already been set forth (Doc. TAC/GP/24 (Rev. 1), October 23, 1950, Lot 57D284, Bos 165, Folder “Balance of Payments”).