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

394.31/11–650: Telegram

The Secretary of State to the United States Delegation to the Fifth Session of the Contracting Parties to GATT, at Torquay¹

confidential

Washington, November 6, 1950—7 p. m.

133. Rowan, Caine, and Burns² called on Thorp³ Nov 1 to discuss substantive and procedural points re sterling area consultations at Fifth Session. Brit had previously discussed same range problems with Martin⁴ of Treasury. They indicated full agreement had been reached with other sterling area members on fol UK views and on paper UK is submitting to CP’s in connection consultation.⁵ Brit set forth basic position as follows:

1. They consider Fund report reveals basic difference between US and UK views on merit sterling area arrangements. This presents situation clearly requiring further US–UK discussions. In meantime they wld hope to avoid airing of differences in GATT. However, UK may feel obliged challenge Fund report if presented to CP’s because of their feeling it denies validity sterling area solidarity on import restrictions and suggests time is ripe for relaxing such restrictions.

2. Allege Fund has gone beyond proper scope of consultations in proposing action based on present fin situation. UK of course not prepared acquiesce that consultations arranged at Geneva can properly be extended to period beyond Jul 49. However, Brit prepared consult de novo on current situation after establishing pt indicated above.

Brit main objective seemed to be that of emphasizing above pt’s and eliciting UK [US?] view on what shld be end result of consultation. We indicated as our present thinking that matter wld be referred by plenary to working party to prepare report along the lines indicated Fund report and our position paper which we sketched in gen terms. Report need not raise explicitly general question validity sterling area arrangements under GATT. Brit indicated strong preference for Working Party report which set out two positions and reached no conclusions, since they believe that agreement on common conclusion not possible. Dept did not comment on this suggestion. Treas indicated some reservations re feasibility such approach.

UK Reps then made fol gen observations:

(a) No prospect UK or other sterling area members taking major policy moves now in direction removal discrimination. Consider dol impact such action might be heavy, since unlikely sterling area members except UK able limit relaxation to “small amount” only. They cited recent Commonwealth agreement, presumably Colombo Conference, to continue strict economy dol expenditures, maximum dol exports, and build up reserves, as indication unanimity with which this view held by sterling area members. Only indication given that any relaxation contemplated was that maintenance dol imports 75 percent 1948 levels is no longer controlling and deviations from this rule may be made for purpose of mtg exigencies particular situations including specific import requirements for spare parts, etc., rather than real relaxation. Spoke of more gen relaxation as possibility only after “period of years”.

(b) Considerable stress laid by Brit on uncertainties present situation and strong prospect worsening UK’s own dol position in connection defense programs. Also pointed to such factors as proposed extension transferable account area to include OEEC countries, further progress towards trade liberalization in Eur, and particularly action just taken to suspend ECA aid as prominent in Brit thinking. UK cabinet also mindful unfortunate developments resulting from convertibility and “slippage” of import controls during 1947–48.

In partial reply to Brit views we indicated that we cld not agree that start towards relaxation shld be postponed until specific level of reserves attained. If such moves as extension transferable acct area present risks to dol position, it wld be appropriate to question justification such steps if end result is failure to relax discrimination. Rowan observed extension transferable acct area might be proper subj US–UK discussions. As for Brit emphasis on basic differences raised by Fund report, we indicated that in our view Brit overstress degree to which Fund has taken issue with basic sterling area arrangements, and we see no reason why validity such arrangements need be subj of controversy at Fifth Session.

If Brit challenge Fund conception proper scope of consultations, US Del shld of course support Fund position along lines previously considered. It might be agreed that terms of reference this particular consultation not clearly defined at Geneva. Nevertheless Del should insist that Fund view entirely reasonable common-sense interpretation of request from GATT for report, as alternative interpretation not consistent with meaningful consultations. If Brit and other sterling area countries indicate willingness to consult individually on current situation de novo and allow such consultation to reach conclusions, Del might indicate that issue is not substantive in our view. If, however, Brit and others refuse to consult on individual country basis or refuse admit Fund report as pertinent to all phases consultations, we must reject such position.

Message will follow on substantive issues raised by Brit.

Acheson

1. The Fifth Session of the Contracting Parties of the General Agreement convened at Torquay, England, on November 2. For the composition of the United States Delegation, see Department of State Bulletin, November 6, 1950, p. 747. Winthrop G. Brown, Director, Office of International Trade Policy, was Chairman of the Delegation.
2. Sir (Thomas) Leslie Rowan was Economic Minister in the British Embassy; Sir Sidney Caine was Head of the United Kingdom Treasury and Supply Delegation, Washington, and Minister in the British Embassy; Robert Burns was British Counselor of Embassy.
3. Willard Thorp was Assistant Secretary of State for Economic Affairs.
4. William McChesney Martin, Jr., Assistant Secretary of the Treasury, in charge of the Office of International Finance.
5. A draft of this paper was submitted to the Department of State (and to the Department of the Treasury) about October 25, not printed. It set forth at length the historical background of the sterling area arrangements and recited in detail the financial history of the sterling area for the years 1947–1950. (394.31/10–2550)