Current Economic Developments, Lot 70 D 467, No. 3022

Current Economic Developments April 23, 1951

[Extract]
secret

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US Commercial Treaty Program Moves Ahead

Signature of the treaty of friendship, commerce and navigation with Colombia has been set for this week, and negotiations with five additional countries—Denmark, Egypt, Ethiopia, Greece and Israel— have developed to such a satisfactory degree that there are prospects of signature within the reasonably near future.

Colombian Treaty. In many respects this is the best treaty of this type we have yet negotiated and is much better than we expected to obtain when the negotiation was initiated. Basically it is the same as the treaty negotiated with Uruguay, but has fewer qualifications affecting the establishment provisions. We have obtained a particularly strong provision for compensation for expropriation and there is a good provision on commercial arbitration. Colombia has undertaken to proceed to the abolition of existing discriminatory internal taxes on imported products and despite its past protective attitude toward Flota Gran Colombiana, we have obtained standard provisions against discrimination in shipping matters. The principal concessions that were made by the US are: 1) agreement to allow Colombia to reserve freedom of action to accord preferential customs treatment to Ecuador and Venezuela upon the condition, however, that the most-favored-nation treatment clause should be terminable on short notice; and 2) exception from the national treatment rule as to taxation for income taxes on shipping enterprises.

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Negotiations Nearing Completion. In the other negotiations which appear to be nearing conclusion, a wide area of agreement has been reached with Denmark and it is expected that satisfactory adjustments can be made on outstanding differences on exchange control and Danish legislation affecting certain important establishment matters, particularly the control of corporations and the practice of professions. During negotiations with Egypt it has been possible to shift from the establishment convention originally insisted on by the Egyptian Government to the comprehensive treaty which constitutes our basic proposal. Moreover, substantial agreement has been reached on the technical level with respect to all matters except exchange controls and the recognition of diplomas granted by US academic institutions in Egypt; further progress depends upon decision at a high political level in Egypt. The Emperor of Ethiopia and his government are pressing for early signature of the abridged treaty of amity and economic relations but at the same time have raised a number of difficult technical negotiating problems and have proposed rather extensive revisions which might develop into serious negotiating issues. The principal of these potential issues are: 1) addition of provisions on exemption from military service; 2) apparent Ethiopian reluctance to grant national treatment to US business enterprises; 3) exchange control; and 4) limitation of the commitment on navigation to most-favored-nation treatment. A wide area of agreement has been reached in difficult, detailed negotiations with Greece, and signature apparently depends on solution of exchange control and OEEC relationship problems. In Israeli negotiations, substantial agreement has been reached upon all questions except that of unconditional most-favored-nation treatment in customs matters. Israel wishes to retain freedom of action on preferential customs treatment for the areas formerly included in Asiatic Turkey and Arabia and it also appears unwilling to accept the standard GATT reservation in its present form. Israel is now considering our proposals based in general on the concept of a short-term most-favored-nation clause.

Other Negotiations. The Spanish Government recently indicated an interest in a general treaty on commerce and navigation. Under the circumstances, we are accepting Embassy Madrid’s suggestion that exploratory conversations be undertaken in order to determine the extent of interest. In view of the highly restrictive system with respect to foreign enterprises in Spain, it appears that country could accept the basic investment provisions of our standard draft only to a limited degree. There has been no evidence since the Foreign Ministers’ meeting in May 1950 that the French Government intends to act upon the treaty project, and since that time it has not been possible to make further high-level representations to the French. The Belgian Government apparently has decided not to proceed with negotiations at [Page 1235]least until the arrangements for the Benelux union have entered into effect. The Netherlands Government has maintained its interest in proceeding independently with treaty negotiations, but it has not yet been able to commence formal negotiations largely because of the need for more extended study of the draft and because of the pressure of other business. Our draft treaty is under study by the interested agencies of the Swedish Government. In the event British authorities are willing to hold exploratory conversations, we have furnished Embassy London a commentary on the British version of the draft FCN treaty.

Argentina is reportedly still studying the draft treaty complementary to the Treaty of Friendship, Commerce and Navigation of 1853, which was developed on an ad referendum basis a year ago. In the course of discussions regarding termination of the reciprocal trade agreement, the Costa Rican Ambassador expressed interest in the possibility of treaty negotiations. Accordingly, copies of the current draft have been given to the Ambassador for study. It is expected that a formal proposal for negotiations will be ready for presentation to the Dominican Government within the next few months. The results of the study of the draft treaty undertaken by a special inter-ministerial committee of the Paraguayan Government are not yet known, nor have we received any indication as to the reaction of the Bolivian Government to the treaty project.

Despite the apparent interest of high Australian officials in a treaty, the present Australian Government has raised objections to our draft which are almost identical with those used by the Labor Government in suspending the 1948 negotiations. The draft is still under study, however, and it is likely that the Australian Government’s position will be clarified after the forthcoming election. Although all negotiation problems have been settled, the Lebanese Government has failed to proceed with signature of the treaty, apparently because of political uncertainties. The possibility of entering into treaty negotiations has been informally mentioned to the Syrian Government, but there has been no indication of its probable attitude. The Turkish Government is understood to be considering the possibility of negotiations as a result of an informal approach by Embassy Ankara. Embassy New Delhi is withholding presentation to the Indian Government of our concession with respect to screening the entry of US capital, authorized last October, until general relations with India are most favorable, presumably after Congress has acted on the proposed grant of food grain to India. The counter-project submitted by the Government of Pakistan accepts substantial portions of our basic negotiating proposals but raises a serious difficulty by limiting the fundamental commitment as to most-favored-nation treatment for the operation of US [Page 1236]business enterprises in Pakistan. Efforts are being made to induce the Government to reconsider its position.

Principal Problems in Negotiations. Of the problems arising in recent negotiations, those related to exchange control have been encountered most frequently. The overwhelming majority of foreign countries still find difficulty in making even limited commitments on withdrawals of profits and capital. Securing national treatment for US business enterprises has been a problem, with several countries placing emphasis upon reducing the commitment to most-favored-nation treatment or writing in crippling exceptions for important fields of economic activity. Difficulties over commercial policy have been encountered frequently also. GATT countries have sought to limit the relationship between the treaty and the various multilaterals, and non-GATT countries have sought to obtain unconditional most-favored-nation treatment, unqualified by reservation of future US policies connected with GATT objectives and also to retain freedom of action as to territorial preferences. We have also met with protectionist navigation policies discriminating against US vessels.

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  1. Master set of the Department of State classified internal publication Current Economic Developments for the years 1945–1969, retired by the Bureau of Economic Affairs.