394–ITO/12–650
Memorandum by the Secretary of State to the President
I believe the Administration must reach a decision soon on its legislative program in the 82nd Congress with respect to the Reciprocal Trade Agreements Act and the Charter for an International Trade Organization.
The authority to make tariff concessions under the Trade Agreements Act is scheduled to expire on June 12, 1951. Hearings have been held on the ITO by the House Foreign Affairs Committee but no action will have been taken by the end of the present session.
Our trade program has been to other countries both a symbol and a test of our intentions. It has been a symbol of American leadership in world economic improvement through the better use of human and material resources. It has been a test of the willingness of the United States to do its part in making that improvement possible.
The expansion of trade is an indispensable part of our total effort to create strength and unity in the free world. Freer trade, economic development and foreign assistance form together the economic instrument through which we hope to build up the military strength [Page 783] of the free countries and offer to their people the hope for economic progress on which that strength greatly depends. The Gordon Gray report rightly emphasizes the critical importance of our taking the offensive in the economic and social field if our total foreign policy is to succeed.
It is in this framework, and with this sense of urgency, that I believe we must face the legislative problems that will confront us in carrying forward our commercial policy program in the 82nd Congress.
In order to keep the trade program going, we need from Congress essentially two things:
- 1.
- Authority to continue the process of reducing tariffs and trade barriers and eliminating discriminations.
- 2.
- Authority to participate with other countries in establishing an international forum for the discussion and settlement of trade problems and disputes.
The first would be substantially provided by the renewal, in some form, of the provisions of the Reciprocal Trade Agreements Act, and by the passage of the Customs Simplification Act. Recommendations with respect to the form in which the renewal of the Trade Agreements Act should be sought, including the extent and duration of the authority to make tariff concessions, will be submitted to you after consultation with the other interested agencies of the Government and with selected members of Congress.
The second essential element—an international trade forum—would have been provided by the Charter for an International Trade Organization.
It is my judgment that the ITO is no longer a practical possibility. Reintroduction of the ITO Charter in the next Congress would mean either rejection of the Charter outright or an indefinite delay in getting it established. Either of these results would be damaging to our foreign policy.
The need for a trade organization, however, is a matter of urgency. The international administration of the trade-agreements program will bog down unless we can set up a permanent international body, with an established secretariat, to handle the many disputes and problems which arise in the trade field. As you know, the principal trade agreement which we have concluded under the Trade Agreements Act is the General Agreement on Tariffs and Trade. Thirty-three governments are at present parties to the General Agreement, and after conclusion of the negotiations now going on at Torquay, England, the participating governments will number about forty. Yet, as we have made clear to the Congress, the General Agreement is in no legal sense an organization. It has no Executive Board, which [Page 784] is essential for the efficient conduct of business. Its secretariat is borrowed and with no permanent tenure. It has no relationships with the United Nations and only informal and unsatisfactory relationships with certain specialized agencies of the UK. The large number of parties to the General Agreement can meet only at long intervals and urgent business must wait or go undone. Because of this situation there is real danger that the General Agreement may become unworkable.
I believe, therefore, that in order to move our trade program forward in a positive way we must now change our tactics. We should drop the ITO and instead we should seek from Congress, in connection with the renewal of the Trade Agreements Act, authority to participate in the establishment of an appropriate international organization under the General Agreement on Tariffs and Trade. Legislative authority is needed for this purpose because of assurances given to Congress by the Administration that the General Agreement is not an international organization.
Participation in an organization under the General Agreement would not require the vesting in the organization of any substantive powers over and above the powers which already reside in the contracting parties to the General Agreement. These powers include primarily the power to interpret the Agreement, to administer those provisions of the Agreement under which individual governments may be released from specific obligations under defined circumstances, and to make recommendations to the parties to the Agreement. The organization should become a specialized agency of the United Nations.
The General Agreement should also be made definitively effective. Today it is in force only provisionally, i.e. its provisions apply only to the extent that the Executive authority has power to apply them without any change in existing legislation. Since certain provisions of our laws are inconsistent with the provisions of the General Agreement we cannot make the Agreement fully effective until these laws are changed. The United States would be in a position to apply the General Agreement definitively and make it fully effective if Congress passed the Customs Simplification Act, repealed the so-called “manufacturing clause” of the United States Copyright Law and repealed the prohibition on exports of tobacco seed contained in the Tobacco Seed and Plant Exportation Act of 1940.
If Congress takes these actions, we will have managed to make effective, or potentially effective, in one way or another, substantially all of the major parts of the ITO Charter:
- 1.
- The purposes of Chapter II of the Charter, relating to full employment, are now being effectively carried out through the Economic and Social Council.
- 2.
- The purposes of Chapter III, relating to economic development and reconstruction are being fulfilled through the Point Four program, through our program of commercial treaties with underdeveloped countries, and through the economic development clauses of the General Agreement on Tariffs and Trade.
- 3.
- The commercial policy rules of Chapter IV are incorporated in the General Agreement on Tariffs and Trade.
- 4.
- The provisions of Chapter V, looking toward international action against restrictive business practices, might be added to the General Agreement later, after an organization is established.
- 5.
- Chapter VI, which provides rules for commodity agreements, has been in effect since 1947 under an Economic and Social Council resolution and can be added to the General Agreement under the presently existing legal powers of the parties to the Agreement without further Congressional authority.
- 6.
- The purposes of Chapter VII, which deals with organizational matters, would be met by the new organization under the General Agreement.
The proposal to establish an organization under the General Agreement will meet with opposition from some of the opponents of the ITO. But it is likely to be supported, with conviction, by the supporters of the Trade Agreements Act as a means of strengthening the trade-agreements program. There is also reason to believe that certain influential groups which have opposed the ITO, such as the National Foreign Trade Council and some members of Congress, would support the addition of appropriate organizational provisions to the Trade Agreements Act if the ITO were withdrawn.
In any event, the trade-agreements program is likely to mean a major battle in the Congress. To get through unimpaired it must be presented as necessary to the achievement of the broad international objective of strengthening the free world through an expanding world economy. This can help to float the program over the shoals of the opposition of individual protectionist groups.
It is important that you make an early decision on the proposal to drop the ITO and establish an organization under the General Agreement. The 5th Session of the parties to the General Agreement on Tariffs and Trade is now meeting in Torquay, England. This session will be over in December. If the course of action outlined above is to be adopted, the United States Delegation to the 5th Session should be informed immediately in order that it may work out promptly with the other parties to the Agreement the form of a suitable organization under the Agreement. Some measure of international agreement on this question must be reached now so that concrete proposals can be available for discussion with Congress early in the next session.
[Page 786]Recommendations
- 1.
- That the ITO not be reintroduced and that the trade-agreements legislation to be submitted to the 82nd Congress include provision for participation by the United States in an appropriate organization (including an Executive Board and a permanent secretariat) to be established under the General Agreement on Tariffs and Trade.
- 2.
- That the United States Delegation to the 5th Session of the parties to the General Agreement be authorized immediately to arrange for the introduction of a proposal for the establishment of an appropriate organization under the Agreement, on the understanding that such arrangements would be subject to approval or disapproval by governments at the 6th Session to be held in July 1951, i.e. after Congressional consideration of the matter.
- 3.
- That the Customs Simplification Act be reintroduced, and that legislation be proposed for repealing the manufacturing clause and the prohibition on exports of tobacco seed, with a view to definitive application of the General Agreement by the United States at the earliest possible date.
- 4.
- That the decision on the foregoing recommendations be kept strictly confidential pending consultation with Congressional leaders.