CAB129-35 — Page 36

CONFIDENTIAL

C.P. (49) 114

10th May, 1949

109/5/49 at 8am

GOVERNMENT

Page 36

Printed for the Cabinet. May 1949

Copy No. 31

CABINET

THE HAVANA CHARTER FOR AN INTERNATIONAL TRADE ORGANISATION

MEMORANDUM BY THE PRESIDENT OF THE BOARD OF TRADE

The question of His Majesty's Government's acceptance (i.e., ratification) of the I.T.O. Charter has necessarily remained in abeyance for the past year, pending action by the United States Government to recommend the Charter to Congress. President Truman has now, however, sent a Message to Congress strongly recommending acceptance of the Charter it is to be expected that, after hearings in the Senate and House Foreign Affairs Committees, i.e., probably during June or early July, a vote will be taken in Congress on a joint Resolution of both Houses authorising the Administration to accept the Charter. A copy of the President's message is attached (Annex A).

2. The time has therefore come for us to consider recommending the Charter to Parliament, which would, of course, commit the United Kingdom to membership of the I.T.O. On the assumption that the United States accept the Charter (and we have made it clear that our own acceptance is in any case conditional on theirs) this action on our part is likely to ensure the completion of the project for an International Trade Organisation. There is little doubt that the necessary number of acceptances (eighteen) would be forthcoming from other countries, including some of the other major trading countries. These are likely to include some, if not all, the other members of the British Commonwealth. The Australian Govern- ment have already secured Parliamentary approval to acceptance subject only to acceptance by ourselves and the United States, and the Canadian Government are expected to seek the approval of their Parliament in the near future.

3. We have, of course, already gone a very long way towards committing ourselves finally to the I.T.O. project. It will be recalled that the long process of international negotiations which have brought us to the present stage began with the bilateral discussions with the United States in 1945, resulting in the publication by the United States Government of the "Commercial Policy Proposals" (Cmd. 6709): we associated ourselves with the United States in sponsoring these proposals and undertook to endeavour to carry through the necessary international discussions to a successful conclusion (Annex B, Part 1); and the Prime Minister made a statement to the House of Commons to this effect (Annex B, Part 2). A Preparatory Committee of seventeen nations was set up to consider the proposals: the result of its first session (London, autumn 1946, reported to Ministers in O.E.P. (46) 10, dated 23rd December, 1946) was the prepara- tion of a first draft of the Charter. This was further considered and revised by the Preparatory Committee at Geneva in 1947; every point in the revised draft was consistent with the decisions of Ministers.. At the same time, the countries belonging to the Preparatory Committee carried through multilateral tariff negotiations: the results of these are embodied in the General Agreement on Tariffs and Trade which, with the approval of Parliament, we are at present applying provisionally. The final stage in the drawing up of the Charter was the World Trade Conference at Havana in 1947-48, in which 62 countries

(virtually the whole world except Russia and some of her satellites took Negt. afund necessary to make certain concessions to meet the point of

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view of the "under-developed countries," and the whole situation at the crucial stage agthe7c0ffence was reported to the Cabinet in Eage(35) of 3considered by them at their meeting on 15th March, 1948. The Cabinet decided (C.M. (48) 22nd Conclusions, Minute 2) to authorise the United Kingdom Delegate at Havana to sign the Final Act of the Conference without reservation, and to make clear in his final statement to the Conference the significance of this action, while making clear also that His Majesty's Government had authorised him to do so on the understanding that they would insist on the administration of certain provisions of the Charter in a manner fully satisfactory to them (Annex B, Part 3). Subsequently, with the approval of my colleagues, I laid the Charter before Parliament (Cmd. 7375) and announced that His Majesty's Government intended to recommend the Charter to Parliament in due course if circumstances were then favourable (Annex B, Part 4).

was

4. The qualification if circumstances were

were then favourable intended to provide for reconsideration in the event of two contingencies, viz :— (a) Grave adverse developments in the balance of payments situation, e.g., rejection of E.R.P. by Congress, which would render it impossible to accept even the very qualified obligations of the Charter relating to non-discrimination in import and export restrictions, or (b) rejection of the Charter by the United States Administration or Congress. The former of these contingencies has not occurred; the difficulties of our balance of payments situation, serious as they are, remain of that order of magnitude which we have always envisaged as compatible with the rules of the Charter, provided these are reasonably interpreted. (A first test of whether they will in fact be reasonably interpreted will be taking place very shortly at Annecy, when the question of South Africa's proposed new import restriction system is discussed by the Contracting Parties to the General Agreement on Tariffs and Trade: I assume for the purposes of this paper that the outcome of this test will be satis- factory). Moreover, acceptance of the Charter is now, at long last, likely to carry with it supersession of the non-discrimination clause (Section 9) of the 1945 United Kingdom-United States Financial Agreement; this point is dealt with more fully in paragraph 9 below.

5. As regards the acceptance or rejection of the Charter by Congress, the outcome is likely to be in doubt certainly until the Congressional Committees have reported, and possibly until voting on the joint Resolution actually takes place. The balance of informed opinion at present tends to the view that the odds are fairly strongly, thought not overwhelmingly, in favour of acceptance by Congress.

6. The time, therefore, is ripe, or nearly ripe, for a final decision by His Majesty's Government on recommending the Charter to Parliament. There are thus two questions, viz.: (1) whether or not to do so, and (ii) the timing of action.

7. The question of timing is discussed more fully below the course which I suggest is that, if we are to recommend the Charter to Parliament, we should put down a Resolution approving the Charter not later than about Whitsun. We have, therefore, about a month in which to decide whether or not to go forward to the completion of the I.TO. project. I would strongly recommend to my colleagues that we should, in fact, do so. As our previous exhaustive consideration of the details of the Charter has shown, there are so many imponderables as to make it impossible to draw up a hard and fast balance-sheet of the probable direct losses and gains in trade which we should incur by accepting the Charter; all that can be safely said on this score is that the Charter will probably not affect our trade greatly in the short run (though it is to the I.T.O. project that we owe the Geneva tariff bargain, which certainly is to our immediate advantage) and that in the long run we are more likely to gain than to lose from promoting multilateral international co-operation in the trade sphere. But on the broad plane of general international relations, the arguments for acceptance are strong indeed. It is a remarkable fact that, in these very difficult years, it has been possible for nearly 60 nations representing almost the whole non-Communist world to reach agreement on the text of a Charter which (despite its many imperfections and compromises) contains real substance and the possibility of

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ahage 38 of 366. possibility and not an unrealisable ideal; and in particular, since it is so largely

Page.38 of 366 the result of a United States initiative, upon its fulfilment depends in no small measure the continued support of the American people for their Government's endeavours to strengthen and revitalise the whole free world. If we reject the Charter, there will be no I.T.O.; we shall have struck a real blow at the faith of progressive opinion throughout the world in international co-operation and placed a potent weapon in the hands of the forces of isolationism in the United States.

8. My colleagues will no doubt wish, before taking a decision of considerable moment on this very complex subject, for an interval of time in which to weigh up in their minds the advantages and disadvantages of acceptance or to examine once again some of the difficult questions which have arisen during the evolution of the Charter. I suggest, therefore, that the Cabinet might discuss this subject on my return from Canada. (I regret that, owing to the uncertainty of the United States Government's time-table for the Charter, I have had to circulate this paper just before my departure; if there are any points on which my colleagues wish for further information in my absence, the Secretary for Overseas Trade, and appropriate officials of the Board, will, of course, be glad to provide whatever is required.)

Section 9

9. I have referred above to Section 9 of the 1945 Financial Agreement with the United States. My colleagues will recall that we have for long been trying to secure agreement with the United States that this will be superseded by the much more flexible non-discrimination rules of the Charter (while avoiding any counter-claim from the United States that we should undertake new obligations, in lieu of those of Section 8 of the Financial Agreement, to achieve convertibility of sterling by some fixed future date). We have now learned from the United States Government that they are prepared to meet our wishes. This they propose to do by announcing unobtrusively during the Charter hearings that it has been agreed between the United Kingdom and United States Governments that, from the date of entry into force of the Charter, Section 9 will be superseded by the Charter rules. They hope to secure Congressional acquiescence in this statement without discussion, by getting it embodied in the House and Senate Committee reports; we cannot therefore regard the arrangement as secure until Congress has actually approved the Charter, and meanwhile should minimise any publicity on the subject. If and when it is secured, it should be of considerable value to us. It will enable us to discriminate in favour of soft-currency sources (in particular the sterling area Commonwealth countries) to whatever extent our balance of payments justifies; this will not greatly affect our balance of payments, since we already have a private understanding with the United States enabling us to discriminate covertly to the extent necessary to secure our essential supplies, but it will remove the risk of this understanding breaking down through falling prices and political pressures in the United States and, by permitting open discrimination, will considerably ease the administrative burden on our import licensing machine.

Procedure and Timing

10. Assuming that we decide to recommend the Charter to Parliament, it remains to consider the question of procedure and timing. As regards procedure, statutory authority for acceptance of the Charter will not be required, nor will any specific legislation be directly involved. (Legislation may, in my view, be needed at some stage to deal with the point that duties on foreign products cannot be increased unless a similar increase is made on Commonwealth goods. But this is a point which need not be emphasised in a debate on the Charter it is under separate consideration in connexion with our general import policy, and I shall be bringing it up for a decision in that context.) Authority to accept the Charter could thus be obtained simply by Resolution of both Houses, which might be phrased on the following lines:-

"That this House approves the proposed acceptance by His Majesty's Government, on behalf of the United Kingdom, of the Havana Charter for an International Trade Organisation.”

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As regards timing, there are two separate stages to be considered, viz. :— Pags he putting down of the Resolution Page 39 of 366

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(ii) the actual debate.

It seems desirable that our general aim should be to make our action to accept the Charter follow closely on action in the United States, for two reasons. First, from the point of view of our international prestige, we ought to join with the United States, as we did at the beginning of the I.T.O. project, in giving a clear lead to the rest of the world; secondly, the sooner we act, the sooner will the Charter enter into force by receiving the necessary number (20) of acceptances, and the sooner, therefore, shall we be relieved of our Section 9 obligation. I suggest, therefore, that we aim at securing Parliamentary approval of the Charter before the summer adjournment; in this event, the Charter is likely to enter into force about the end of the year.

12.

This,

If we time our action on this basis, and procedure in the United States Congress follows the time-table we expect, our Resolution should be put down round about Whitsun, i.e., before Congress has voted on the Charter. I suggest, is in fact highly desirable." If Congress subsequently rejects the Charter, we shall have lost nothing by having put down our Resolution; in the sphere of international relations, indeed, we shall have gained considerably by placing on the shoulders of Congress the full onus of killing the I.TO. project, and making it clear that the United Kingdom for its part would have been ready to go forward with this ambitious and far-reaching plan for international co-operation in the economic sphere.

13. The actual debate on the Charter in Parliament should not, of course, take place until it is known that the United States will accept the Charter, i.e., probably in July. This will thus leave an interval between the putting down of the Resolution and the debate, during which we could usefully stimulate some informed public discussion on the underlying issues of the Charter, directed, for example, to helping public opinion to realise that the limitation of Imperial Preference which has been so much emphasised in the Press is only one feature of a document which also contains other notable features which are to be welcomed, e.g., the provisions about international co-operation in the field of full employ- ment policy, and the limitation of quantitative restriction, which hit our exports so hard before the war and is becoming a more and more serious impediment to our trade in a number of countries.

The General Agreement on Tariffs and Trade

14. Acceptance of the Charter will place us under the obligation to "accept," ie., ratify, the General Agreement on Tariffs and Trade: we are at present applying this provisionally, .., with the right to withdraw at sixty days' notice, whereas when we have ratified it we shall be unable to withdraw until the end of next year, or possibly (if we accept certain proposals now under discussion at the Annecy Conference-a point on which I may need to seek the views of my colleagues shortly) until about three years from now. The General Agreement, of course, is an integral part of the I.T.O. project, and I suggest that we might announce our intention to accept it when opening the Charter debate, so that the authority of Parliament for accepting it and the Charter can be obtained simultaneously.

Board of Trade, Millbank, S.W. 1,

10th May, 1949.

H. W.