Memorandum by the Acting Director of the Office of Economic Defense and Trade Policy (Leddy) to the Assistant to the President (SteelMan)
[Subject]: Negotiations at Torquay on Cuban Textiles.
It is understood that in their interview with you the representatives of exporters of textiles to Cuba will make the following points regarding United States action at Torquay in regard to Cuban textile rates:
- We have permitted Cuba to increase her textile rates, especially on rayons, to new and excessive levels, notwithstanding commitments contained in the agreement we reached with Cuba in Geneva in 1947.
- No real compensation was or could be obtained, especially not for textile exporters.
- Instead of trying to obtain compensatory concessions from Cuba the United States should have withdrawn concessions we had granted to Cuba, such as those on sugar or tobacco.
- The Cuban action was contrary to the principles of the Trade Agreements Act1 and the President should therefore suspend concessions granted to Cuba.
In reply, it is recommended that you say nothing beyond the following:
- The Torquay negotiations have been completed and the results will be made public on May 9.2
- It was agreed by the plenary committee of the conference that no details concerning the results would be made public before May 9.
- Apart from our international commitment, it would obviously be unfair to give advance information to one group and not to others.
To go beyond statements to this effect would risk the possibility of a flood of textile imports into Cuba with pressure from Cuba for permission to give immediate effect to increased rates.
The following background material is for your confidential information.
1. At the Annecy conference in 1949 Cuba claimed that a crisis in its domestic textile industry required extensive modification in the rayon and cotton textile rates it had agreed at Geneva to maintain on imports from the United States. The United States agreed at Annecy to undertake renegotiation of these rates. At Torquay, Cuba submitted the modified rates which it desired to substitute, and negotiations took place regarding the proposed new rates and compensation for our agreement to these changes. Negotiations regarding the cotton textile rates were successful, both as to new cotton rates to be [Page 1341] set and as to compensatory new concessions. Long negotiations failed, however, to secure the offer of rayon textile rates to which we could agree, although even the modified rates are substantially under current U.S. duty levels.
2. Cuba thereupon decided to make the modifications it desired in accordance with the provisions of Article XXVIII. Under this Article, any party to the General Agreement on Tariffs and Trade was permitted, at the time at which Cuba took the action, to withdraw or modify concessions granted at Geneva (as these were) at any time after January 1, 1951 subject only to the commitment to negotiate and if possible agree with the other substantially interested parties. The Article provides that, in such negotiations, there shall be an effort to maintain a level of concessions not less favorable to trade than that provided for by the original concessions. If, but only if, agreement cannot be reached, the country with which the concession was initially negotiated is free to withdraw substantially equivalent concessions originally negotiated with the party taking the initiative under Article XXVIII.
3. Since there was no restriction on the unilateral right of a country to withdraw or modify concessions under Article XXVIII other than the procedural requirements just cited, Cuba was entirely within her rights in notifying the rayon textile modifications under Article XXVIII and could, in fact, have withdrawn rates from the Agreement entirely had she so desired. The problem which faced the United States was therefore to negotiate agreement with Cuba for compensatory adjustment, in accordance with Article XXVIII. Such negotiations took place and resulted in the offer of concessions which the United States believes provide satisfactory alternatives for the development of United States trade. Although we never agreed to the modifications in rayon rates which Cuba made, we accepted compensation, full details of which will be made public on May 9. Only if the compensation offered had been judged inadequate and had been refused would there have been any justification for the more drastic step of withdrawing concessions granted to Cuba in retaliation.
4. In judging whether or not to recommend acceptance of the compensation offered, the United States considered the volume of trade to be benefited as compared with the volume affected by the increases, the amount of duty reductions offered, the resulting level of protection, and the possibilities for trade expansion under the new concessions. Weight was also given to the consideration that if the compensation were rejected and we chose instead to retaliate, we should forfeit all compensatory concessions and would in addition have to bear the responsibility for starting what might develop into a series of retaliatory withdrawals which would seriously disturb relations with Cuba for years to come and might well lead to similar action by other countries [Page 1342] and a general unraveling of the tariff reductions which we and other countries have negotiated. Moreover, it had to be borne in mind that if we took the initiative in such drastic action, Cuba might take the entire case before the Contracting Parties to the General Agreement under Article XXIII as an action nullifying or impairing the attainment of the objective of the Agreement. A very convincing case against the United States might have been made by laying before the other countries the extent of compensatory concessions which had been offered to us and rejected.
5. There is one other important element involved. The United States cannot make the GATT program or the Reciprocal Trade Agreement program a strait jacket for preventing the establishment or expansion of industry in the other American republics. The United States is committed to the promotion of sound industry in the other American republics. This policy is in our own long-term interests since it has been demonstrated that sound industry can and will raise living standards and increase both the volume and value of international trade. The necessity for reasonable protection of new industries in Latin America is not open to serious contradiction and our efforts, under the GATT and Trade Agreements program, should be to discourage excessive protection—which leads to hot house rather than sound industry—and only to discourage those industries which clearly cannot be established on an economic basis. The Cuban textile industry is, by and large, a sound industry and is an important part of the whole diversification program in Cuba which we have encouraged in many ways. The fact that increased rates will affect American textile exports to Cuba is unfortunate but inevitable. We have been losing Latin American textile markets for many years and this trend will continue.
In the light of all these considerations it was decided to accept the compensation, even though we did not accept the modified rayon rates.
6. With reference to the further charge that regardless of what happened at Torquay the President should suspend the application of trade-agreement rates to products of Cuba because of Cuba’s discriminatory treatment of American commerce or because of other acts which tend to defeat the purposes of the Trade Agreements Act, under Section 350 (a) (2) of the Act, it should be emphasized that the Cuban textile case does not come within the provisions of this section. Cuba is not discriminating against United States goods. The rayon and cotton textile rates in question are preferential rates more favorable than those enjoyed by other countries. In a case of discrimination the reverse would be true, i.e. Cuba would have to charge rates higher than those accorded to the most-favored-nation to create discrimination against the United States. Further, it cannot be said that Cuba is performing acts contrary to the purposes of the Trade Agreements Act while acting in strict conformity with the provisions of the General [Page 1343] Agreement on Tariffs and Trade, an agreement which the United States entered into partly under the authority of the Trade Agreements Act.