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

46. Memorandum From the U.S. Member of the Board of Executive Directors of the International Monetary Fund (Southard) to Secretary of the Treasury Anderson and Acting Secretary of State Dillon⁰

May 18, 1959.

SUBJECT

• The Issue of Dollar Discrimination

1. The coming of convertibility for all major currencies should radically change the attitude taken toward continuing discrimination against dollar imports by European countries. As long as European currencies were to some degree inconvertible, it could be argued that inability to convert non-dollar earnings into dollars provided a justification for discrimination. The discrimination, either by means of exchange licensing or import licensing, was designed to make it easier to spend non-dollar earnings and harder to spend dollar earnings. The United States in the last 12 years has accepted this justification, although always pressing for relaxation of discrimination to the extent feasible. In this connection, the success of Belgium and the Netherlands in eliminating discrimination even before convertibility is noteworthy.

2. Discrimination against dollar goods is still substantial, especially in the case of the United Kingdom and France. These countries admit that what they call “financial reasons” for discrimination have largely disappeared with the coming of convertibility. But they offer other reasons for continuing to discriminate. These include: (a) Reluctance to eliminate discrimination against the dollar area by shifting to global quotas, since this would mean reimposing quotas against OEEC countries, (b) Alleged adverse balance of payments impact if quotas against dollar goods were removed, (c) Alleged need of discriminatory bilateral arrangements for balance of payments reasons.

3. The United States recently has pressed the issue of discrimination, (a) Jointly with Canada, the United States endeavored to obtain a decision in the IMF, at the time of the recent French consultation, to the effect there was no longer any balance of payments justification for discrimination. However, we yielded to European, including United Kingdom, objections, and accepted the plea that it was premature to press the issue, (b) The U.S. spokesman at the current GATT meeting in Geneva made a strong statement to the effect that it was time for discrimination to end. This has called forth very strong French reactions, French officials complaining that the United States appears to be abandoning its support for European integration which, both in the OEEC and the Common Market, continues to be based in part on discrimination against dollar imports.

4. The issue is coming up again in the IMF this week in connection with discussion of the Draft Exchange Restrictions Report. I intend to take the following position, in which I would be supported strongly by the Canadians.

(a) The U.S. objective should be to urge the elimination of the balance of payments justification for discriminatory restrictions. We should make it quite clear that we will press this view very strongly on all suitable occasions. The result would be to leave to the GATT discriminatory issues raised by the Common Market and the proposed free trade area which do not rest on balance of payments considerations. We should also make it clear that U.S. tolerance of continued discrimination by OEEC countries (including the United Kingdom) against dollar imports cannot be expected to continue indefinitely.

(b) However, I would not press formally for a decision by the IMF at this time, but would express the willingness of the United States to delay formal discussion, probably until October/November.

(c) In the meantime, I would not agree to any equivocal public statements by the Fund, especially statements implying that there are still balance of payments justifications for discrimination notwithstanding convertibility.

5. I am summarizing these issues in this memorandum because in my view the issue of discrimination is an important part of current concern over developments in the U.S. balance of payments.

(a) If we fail to press for the elimination of discrimination against our trade, we will add to the force of demands for increased U.S. restrictions against imports in view of shifts in our balance of payments.

(b) Unless the United States makes its views clear in all appropriate forums, we are likely to find that discrimination will become more deeply imbedded in European trade notwithstanding the advent of convertibility.

0. Source: National Archives and Records Administration, RG 56, Records of the Department of the Treasury, Robert B. Anderson, Subject Files, International Matters. The source text bears the stamp: “Noted, R.B.A.”