Foreign Relations of the United States, 1958–1960, Foreign Economic Policy, Volume IV

121. Paper Prepared in the Department of State⁰

CFEP 595/1

May 20, 1960.

NAC BALANCE-OF-PAYMENTS STUDIES

SUBJECT

• United States efforts to abolish discrimination against U.S. goods in foreign markets, and seek relaxation of import restrictions generally

Background

One of the most important obstacles to U.S. exports since 1945 has been the quantitative import restrictions (QRs) which most of the advanced countries and many of the less developed countries have applied to safeguard their balance-of-payments. QRs for this purpose have the sanction of GATT Article XII, and in GATT Article XIV there is sanction for discrimination in the application of QRs as necessary to facilitate trade under conditions of currency inconvertibility. In addition, under Article XIV of the IMF Articles of Agreement countries restricted payments and transfers for current international transactions. These payments restrictions usually were applied in conjunction with QRs.

During the period of post-war economic rehabilitation and recovery, U.S. policy in respect of QRs was directed at limiting the scope and severity of QRs applied by foreign countries against U.S. products to a level commensurate with each country’s ability to finance purchases of U.S. goods.¹ This policy was carried out in the IMF, the GATT, and in bilateral representations to the countries concerned. Also, the United States supported the trade liberalization program of the OEEC, even though a prominent feature of that program was the removal of QRs on trade between OEEC countries which resulted in discrimination against the United States and other countries outside the OEEC. Throughout most of this period, which came to a close at the end of 1958, U.S. policies regarding aid and trade played an important part in the general improvement in the financial position of the advanced countries.

Intensified U.S. Trade Liberalization Campaign

At the close of 1958, the major European trading nations made their currencies convertible with the dollar in international trade. This action signified the end of the era of the shortage of convertible foreign exchange reserves (sometimes called the “dollar gap”) and set the stage for an intensified U.S. campaign for the rapid elimination of trade discrimination against dollar goods, and for the removal of QRs in general.

This campaign had five landmarks in 1959. On May 11, the Chairman of the U.S. Delegation to the 14th Session of the GATT Contracting Parties stated the U.S. view that “the advent of convertibility has refuted whatever financial logic may have been found in trade discrimination.” Beginning in September, the United States informed Australia, Austria, Belgium, Denmark, the Federal Republic of Germany, Finland, France, Greece, Italy, Japan, Norway, Portugal, South Africa, Sweden, and the United Kingdom, in terms that took into account varying local conditions that (a) discriminations should be promptly removed, (b) further liberalizations should be made rapidly and in a nondiscriminatory fashion and (c) where quantitative restrictions remained, foreign suppliers should have increased access to the market. On September 29 [30],² Secretary of the Treasury Anderson stated before the Board of Governors of the International Monetary Fund that “the countries which no longer suffer from inconvertibility in their international receipts do not have any balance of payments justification for discriminatory restrictions—that is, there is no reason for these countries to favor imports from non-dollar countries over those from dollar countries.”³ The United States was instrumental in obtaining the decision of the Board of Directors of the IMF on October 23, 1959 which called on member countries whose current receipts were largely in convertible currencies “to proceed with all feasible speed in eliminating discrimination against member countries, including that arising from bilateralism.” And on October 27, 1959, at the ministerial meeting of the GATT Contracting Parties at Tokyo, Under Secretary of State Dillon referred to the IMF decision and stated: “The time has come to do away with discriminatory restrictions altogether.”⁴ Following the Under Secretary’s statement, the Contracting Parties reached a formal consensus that discrimination “should quickly be eliminated.” These major moves were accompanied by continuous pressure by the United States in the consultations held by the IMF and the GATT Contracting Parties with countries applying QRs, and in many cases by repeated bilateral representations at the official level.

Trade Liberalization Moves

During the closing months of 1959 and continuing in 1960 there were many significant liberalization moves. Major moves were made by Australia, France, Japan, New Zealand and the United Kingdom. Portugal, not a member of the IMF or a contracting party to the GATT, also made a liberalization move. Spain, a member of the IMF but not a GATT contracting party, reformed its foreign trade and payments regime during 1959 and significantly lessened the extent of discrimination in the application of QRs.⁵

Countries which have virtually eliminated discriminations and QRs affecting U.S. goods, or are now in the process of doing so, are Australia, Belgium, Denmark, Ghana, Malaya, the Netherlands, Norway, Rhodesia and Nyasaland, Sweden, South Africa, and the United Kingdom. New Zealand has eliminated discrimination but still maintains extensive QRs. Though France still maintains extensive QRs, some of which discriminate against dollar goods, it is expected to make further substantial progress toward liberalization in 1960. Germany, which has a temporary waiver of the GATT provisions against QRs, is to liberalize additional imports in 1960. Japan maintains an elaborate import control regime, but has taken significant steps to remove discriminations and has promised further action to liberalize imports. Finland has gone far toward eliminating discrimination against U.S. goods, but continues to apply QRs on many products. Greece, which had virtually removed QRs, in 1959 reimposed restrictions on a number of products, some of which discriminate against U.S. products. Trade liberalization by Austria has not kept pace with the improvement in Austria’s foreign exchange position, which for 2 years has been satisfactory. Italy, which has been found by the IMF and GATT Contracting Parties to be without financial justification for import restrictions, is currently lagging behind on the trade liberalization front.⁶

Remaining Problems⁷

Four countries—Italy, Austria, Japan, and France—still present a serious problem of general removal of restrictions.

Italy, with reserves enough to pay for more than one year’s imports (putting it in a class with the United States and Switzerland) still restricts a wide range of products. Many of the Italian restrictions are discriminatory. On April 1 Ambassador Zellerbach delivered a strongly-worded note urging prompt and substantial liberalization action by Italy. The subject of Italian import restrictions also will be considered at the 16th GATT Session.

Austria, less important than Italy as a market for U.S. exports, also still restricts a wide range of imports, most restrictions being nondiscriminatory. Austria in the past has argued that it could not liberalize further, because its reserves (worth about 7 months’ imports) were too small, and because it had to control trade with the Soviet Bloc. More recently the Austrians have argued that their industry requires the protection from EEC competition which QRs can afford. Austrian Trade Minister Bock on April 5, 1960 told Under Secretary of State Dillon that discriminatory restrictions on imports of various textiles would be removed this summer.

Japan, whose reserves are worth about 4 months’ imports, is not relatively as well off financially as Italy and Austria. Japan’s import restrictions are far reaching—the “liberalization percentage” at April 1 was estimated at 42 percent. Japan has announced a program to achieve 70 percent liberalization by April 1961 and to remove restrictions on all imports, except some agricultural products, by 1963. Trade liberalization is under continuing discussion between the U.S. and Japan.

Though France still restricts a fairly wide range of imports, it has made a series of liberalization moves and promises more. Remaining French restrictions are mainly on agricultural products.

With respect to the other advanced countries, which have gone far in removing QRs, the remaining restrictions relate to agricultural products and, less generally, to textiles and ceramics—so-called low-wage imports. The general subject of agricultural protection, in which in most countries domestic politics figures importantly, is under consideration in the GATT Committee II. The general subject of low-wage imports is also under consideration in GATT, under the name “avoidance of market disruption.”

Measures to be Taken

A) Under existing policies.⁸

The intensified U.S. campaign for trade liberalization has been carried out in multilateral forums—principally the IMF and the GATT—and in direct representations to the governments concerned. Statements of policy by cabinet level officers before the IMF and the GATT Contracting Parties have been supplemented by consultations in committees and working parties in these bodies, and démarches by ambassadors have been followed up by bilateral discussions at the official trade level. In these ways the weight of the trade and payments liberalization commitments embodied in the IMF and in the GATT has been brought to bear, and stress has been placed on trade liberalization in the over-all relationships between the United States and the countries concerned.

The results to date of the intensified trade liberalization campaign are encouraging, and though further liberalization—to the point where, with few exceptions, non-tariff barriers to trade will have been eliminated—cannot be expected to occur automatically, prospects for its achievement are reasonably good. It is therefore recommended that action along the foregoing lines be continued.⁹

B) Measures under existing policies but requiring considerable administrative effort.¹⁰

None recommended.

C) Measures requiring major changes in policy.¹¹

It is possible that continuation of the present means of seeking trade liberalization through bilateral and multilateral pressure will be unavailing, and that the continued maintenance of QRs will make it necessary to consider resort to measures of retaliation.

The time for consideration of such measures is not at hand. Moreover, retaliation is more likely to set in train a series of restrictive actions than it is to lead to expansion of trade.

0. Source: Washington National Records Center, CFEP Files: FRC 62 A 624, NAC Balance of Payments Studies: Trade Discrimination, CFEP 595/1. Official Use Only. Drafted by F.M. Brown on April 29. Attached as Tab A to a June 2 memorandum from Galbreath to the Council which noted that Secretary Anderson had requested the paper and that it had been prepared through the joint efforts of the Departments of State, the Treasury, and Commerce. On July 26, Galbreath distributed a revision of the paper, CFEP 595/3. Dated July 18, CFEP 595/3 made substantive and editorial changes to CFEP 595/1. (Ibid.)
1. In CFEP 595/3, this sentence continues: “and at avoiding unnecessary damage to U.S. commercial interests in the administration of a justifiable level of restrictions.”
2. Brackets in the source text.
3. For text of this statement, see Department of State Bulletin, October 19, 1959, pp. 533–537.
4. See Document 112.

5. In CFEP 595/3, this paragraph reads:

   “During 1959 and 1960 practically all of the free world countries maintaining QRs have made significant progress in eliminating discrimination against U.S. exports and in reducing the general level of their restrictions. As a result the problem today is of much narrower dimensions than at any time in the postwar period. With some exceptions, the principal remaining restrictions in the advanced countries relate to agricultural products and, less generally, to textiles and ceramics—the so-called low-wage imports. The general subject of agricultural protection, in which in most countries domestic politics is a crucial factor, is under consideration in the GATT Committee II. The general subject of low-wage imports is also under consideration in GATT, under the name ‘avoidance of market disruption.’”

6. CFEP 595/3 does not contain this paragraph, substituting instead analyses of 13 countries “of particular interest, either because of the measures of liberalization which they have recently taken or because of the scope of their remaining restrictions.”
7. This section does not appear in CFEP 595/3. Instead, CFEP 595/3 discussed “Procedures applicable to ‘residual’ restrictions.”
8. In CFEP 595/3, this heading reads: “Measures which can be taken conveniently under existing policies and which the department/agency recommends to be taken now.”

9. CFEP 595/3 contains an additional paragraph:

   “If, however, satisfactory results from this line of approach are not forthcoming in individual cases (for example, Italy and Austria), consideration should be given to the use of other measures available under the GATT.”

10. In CFEP 595/3, this section reads:

    “B) Measures which can be taken under existing policies but which require considerable administrative effort and which the department/agency recommends to be taken only if balance of payments deficit shows no or only a disappointing improvement during the first half of 1960.

    “With a vigorous pursuit of exising policies indicated above, there are no additional recommendations that would appear to fit under this heading.”

11. In CFEP 595/3, this heading reads: “Measures requiring major changes in national policy and which the department/agency does not recommend to be taken unless a continued serious deficit in balance of payments requires such major changes.”