Foreign Relations of the United States, 1958–1960, Western European Integration and Security, Canada, Volume VII, Part 1

72. Memorandum of Conversation⁰

October 5, 1959.

SUBJECT

• Sixes, Sevens, and the Broader Economic Problems of the Free World

PARTICIPANTS

• H. E. Hervé Alphand, French Ambassador
• Olivier Wormser, Director of Economic Affairs, French Foreign Office
• Bernard Clappier, Director of External Trade Relations, French Ministry of Finance
• Under Secretary Douglas Dillon
• U—Mr. Leddy
• RA—Mr. Tuthill
• OT—Mr. Frank

Ambassador Alphand said that the French purpose in requesting this meeting was not primarily to discuss Franco-American relations but rather to get Under Secretary Dillon’s reaction to their thinking about some broader problems of the free world. Mr. Wormser stated that because of the new French economic and financial situation, it was no longer necessary simply to cope with day-to-day emergencies; they could now face more basic long-run problems. In particular, the US, the Common Market, and the British might try to deal jointly with the following subjects:

1. Business cycles, i.e., the coordination of monetary and financial policy so that cyclical unemployment of resources can be avoided; and

2. The problems of the less developed countries, i.e., provision of external capital, and the need for greater stability in the markets for primary commodities.

The French realize, however, that before these matters can be tackled on a cooperative basis, some way must be found to cope with the present British attitude toward the Common Market. Mr. Wormser inquired as to whether the Under Secretary had had time to review the European Commission’s proposals on the future policy of the Common Market which were directed toward the problems posed by the British.

Mr. Dillon responded that he had seen a summary of the Hallstein proposals and believed they pointed in the right direction. Because of France’s recovery and stabilization, the Common Market had a real opportunity to adopt liberal policies, thereby contributing toward resolving concerns of other European countries, e.g., Austria, Scandinavia. We ourselves were disturbed by the British attitude and believed that competing regional organizations would harm world trade and in fact could evoke, in defense, a protectionist reaction in the US. Although we were doing what we could to calm the British, much depended on what policy the Common Market adopts. It was important, Mr. Dillon said, that the kind of proposals put forward by the Commission be adopted by the Common Market governments, particularly the French.

Commenting on Mr. Wormser’s suggestion about market stabilization, Mr. Dillon remarked that our domestic experience with such schemes has not been good and we have therefore been rather hesitant to participate in them internationally. Nevertheless our policy has been evolving and we have encouraged other countries, particularly the less developed ones, to get together to cooperate in stabilization efforts, e.g., coffee, and lead and zinc. As for the problem of capital for the less developed countries, it was clear that we needed more coordination than now exists, but it was not clear how this might be achieved. One thing that we must avoid is the appearance of a “creditors club” in which the advanced countries tell the less developed ones how they should behave. Another problem that we must jointly try to solve is how to meet the low-wage import problem in a manner more satisfactory than the makeshift arrangements that now exist vis-à-vis Japanese trade.

Mr. Wormser agreed that the low-wage import problem had to be dealt with. The French have taken refuge behind Article XXXV of the GATT, but this situation cannot last. Some thought has been given to the possibility of encouraging the use of export taxes by the low-wage countries which would at least have the advantage of the proceeds accruing to them rather than to the more advanced countries as would be true if import taxes were imposed.

Mr. Dillon said there was a need to make clearer to the public that the Common Market was moving in the right direction. Mr. Wormser agreed, adding that there was a lot of emotion on this subject. The basic difficulty was that the British wanted to be treated as a member of the group without being a member. He mentioned the Commission’s proposal for a European Contact Committee whose purpose would be to examine trade channels in Europe to see if any damage had been done to the Common Market’s trading partners. If so, a prima facie case would be established for mitigating action. The French position is that any such mitigating action should be taken in conformity with the GATT—in other words, any reduction of tariffs on commodities of particular sensitivity to other European countries should be on an MFN basis. This kind of exercise in tariff reduction, concentrating on items that are important in intra-European trade, would in essence be a “little Dillon negotiation” among the Europeans in advance of the major negotiations.

Mr. Dillon said he saw no objection to it if the whole exercise were conducted on an MFN basis, and that he would hope it could contribute toward bridging the split in Europe.

Mr. Wormser said the French were genuinely worried that this approach might not find favor with the Seven, for two reasons:

1. Any mitigation of Europe’s trade problem weakens the case for a larger free-trade area; and

2. Since the Common Market taken together would be the principal supplier in many items, the Seven may, as a bargaining tactic, simply decide to stay aloof from negotiations with the Common Market, and, through the MFN provision of the GATT, to reap the benefits from the American negotiations with the Common Market.

In response to Mr. Wormser’s question as to the US view of the scope of the “Dillon negotiations”,¹ Mr. Dillon replied that we want to conduct them on the broadest basis consistent with our law and established procedures. We hope the Common Market with its growing strength would be especially forthcoming in the tariff negotiations, since this would help ease the problem as between the Six and Seven. He noted, however, that although we had negotiating authority of 20 percent, we would not be able to use the full authority on every item, so that our average reduction would work out to considerably less.

There was some discussion of Per Jacobsson’s idea that the Seven might generalize their internal tariff reductions as had the Six.² It was pointed out that the situation of the two groups of countries is not identical, since the Seven would have no common external tariff. The suggestion was made that perhaps the technical problem could be met by having all seven countries in the Little Free Trade Area generalize, say, half of the internal tariff reduction.

Mr. Dillon referred to his testimony before the Ways and Means Committee in connection with renewal of the Trade Agreements Act³ and the concern that Committee members expressed about new regional arrangements discriminating against the US which lacked the Common Market’s political justification. It was agreed that even if it could be established that an arrangement such as the Little Free Trade Area were legal, it did not follow that it was a desirable move from the point of view of the world as a whole.

Mr. Wormser sought Mr. Dillon’s reaction to the French proposal that we look for a formula to bring together the Common Market, the British and the US to discuss the main economic problems of the free world and in the process try to divert the British from their narrower preoccupation with European trade problems. Mr. Dillon replied that we could not be sure that the intended result would follow. It would be difficult, moreover, for the US to initiate the idea with the British.

0. Source: Department of State, Central Files, 440.002/10–559. Confidential. Drafted by Frank and approved in U on October 16.
1. Dillon had been actively promoting a general round of tariff negotiations within the framework of the GATT.
2. Per Jacobsson, Managing Director of the International Monetary Fund, made this suggestion in a September 26 address to the IMF meeting in Washington.
3. For text of Dillon’s March 24, 1958, statement to the House Ways and Means Committee, see American Foreign Policy: Current Documents, 1958, pp. 1516–1524.