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APPENDIX B
NON-DISCRIMINATION
In the short-term, this raises two problems.
First, Section 9 of the United Kingdom-United States Financial Agreement is blocking the carrying out of the plan we have sponsored in O.E.E.C. for relaxing import restrictions by means of Open General Licences, for the import of specified commodities from specified countries. We have taken the line with the Americans, as well as with the European countries, that we must be able to relax our restric- tions in favour not only of O.E.E.C. countries but of the rest of the sterling area Commonwealth as well. This we cannot do under our existing understanding with the United States, which allows us to discriminate to obtain imports we genuinely need provided that the discrimination is concealed as far as possible, since it is here a question of open discrimination in respect of a wide range of goods, many of which we have no real need to import freely. We have had no response so far from the Americans to our approaches on this point, and we have told the sterling area Commonwealth countries that we are considering how far we could meet the need to go ahead with the plan in the immediate future if the United States remained adamant. This means in effect modifying our list of relaxations so as to avoid in practice seriously damaging the interests of sterling area Commonwealth countries, but still making good our proposals to do our part in a substantial relaxation scheme, with all the benefits we see in its train by way of greater efficiency and scope for competition. We should, however, only with the greatest reluctance accept a situation whereby this contribution on our part to the effective working of the European trade exchanges was made at the cost of our relations with the rest of the sterling area Commonwealth; and in the first place, no sort of inkling should be given to the Americans that we have even considered the possibility of not extending the relaxation to our partners in the sterling Commonwealth.
No immediate new decision on policy is required on this point, but we have to table our list of relaxations in Paris by 1st October. If, as this date approaches, the United States authorities have still not come forward with some means of removing the Section 9 obstacle, we shall have to make up our minds whether to adopt one or other of the extreme courses of (a) dropping the scheme entirely (which would have the most serious repercussions on O.E.E.C. and E.R.P. aid), or (b) going ahead with the scheme on a basis of general discrimination against the sterling Commonwealth (possibly omitting a number of classes of goods so as to reduce the practical damage to Commonwealth trade to very small propor- tions) or whether to adopt some middle course.
Secondly, there is the discrimination we must commit in order to obtain imports we really need ourselves. As indicated above, the United States have accepted that this must be allowed on condition that we keep up a façade of compliance with Section 9. So far, owing to high United States prices and relative lack of interest on the part of United States producers in the United Kingdom market, we have managed to keep up this façade without serious trouble; and we can still hope to be able to do so so long as the present interim stand- still on dollar imports lasts. Once, however, we carry out our re-programming, we shall in all probability be compelled to make specific cuts on dollar imports which will knock down this façade completely, or at least make obvious that it is an entire sham.
This second difficulty would be eased, though not necessarily removed, by devaluation, and this only provided that most other countries follow the lead of the sterling Commonwealth. It is clear, however, that in the earlier stages at Washington we must continue in any case to maintain that we are looking for a favourable reply both on our own account and to enable us to go ahead with relaxations of import restrictions by way of helping European trade.
The Canadians are formally in the same position on this problem as are the United States, but we can be fairly confident that if the United States give way, and to the extent that they give way, the Canadians will follow suit.
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