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to encourage Phem 59rectify 2this tendency. This led to thagevalgioff 662the " scarce currency clause (Article VII of I.M.F.), whereby, if a country's currency becomes scarce to a point which threatens I.M.F.'s ability to supply it to other countries, it may be formally declared scarce and rationed out by I.M.F. to its members. This automatically gives countries the right to apply exchange restrictions to the scarce currency; and there are specific let-outs both in Section 9 and in the G.A.T.T.-I.T.O. non-discrimination rules giving very wide freedom for open discrimination against the United States if the dollar is in fact declared scarce.

6. Why is it that the results of this post-war economic planning have been so relatively disappointing? The major reason is obvious-the inherent size of the world's post-war reconstruction problem has been consistently under- estimated, and has been further increased by the split between the Russian and the free world. The pump needed far more priming than we thought; and, though the contribution the United States have made to priming it has been unprecedently large, it has, through no fault of theirs, proved inadequate. But an important contributory factor to the disappointment created, and in some degree to the inadequate practical results achieved, has been the consistent tendency of the United States to expect too large or too quick a return for the contribution they have felt able to make, and in some cases to require of countries definite commitments or time-schedules which have in fact proved unattainable. Thus, for example :

(i) The amount of the 1945 Loan was $3 billion as against our original

estimate that we needed, preferably by way of gift, about $6 billion. (ii) As part of the price of this, we were required to undertake, within a fixed period of one year from ratification of the Loan Agreement, the premature 1947 experiment in convertibility which, in fact, resulted in the wasteful dissipation (e.g., in imports of United States luxuries into Belgium) of a substantial part of the loan which would otherwise have been available for expenditure on reconstruction. (iii) We were further required to give the non-discrimination undertaking in Section 9 of the Loan Agreement. . This was conceived by the United States authorities as requiring us merely to give them their fair share of the benefit of the increased purchasing made possible by the Loan, on the assumption that the Loan would in fact be sufficient to tide us over the immediate post-war reconstruction period; and we had to accept it, despite some doubts on this assumption. On this assumption, it was only a paper concession, as it represented no more than what we would have readily done of our own free-will. On the contrary assumption, which has in fact proved true, of severe dollar shortage, Section 9 makes complete nonsense; since, as the United States authorities have readily recognised, we cannot be expected to go without essential non-dollar supplies in the name of non-discrimina- tion, we have been faced with the alternative of formally throwing Section 9 overboard (which the United States have so far been anxious to avoid), or of putting up with the acquiescence of the United States Administration a somewhat disengenuous façade (which is now an obvious sham) of compliance with it. It has, in fact, done the United States no good, and has served only to cause us and them a good deal of anxiety, to threaten us both with recriminations from United States exporters which would serve only to bedevil United Kingdom United States political relations, and to hold up our scheme, which could do a lot of real good, to free intra-European trade by import licensing relaxations.

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(iv) United States policy over the I.M.F. has consistently been too rigid and cautious. First, the size of the Fund was cut down, as a result of the discussions with the United States in 1944, considerably below what was originally contemplated in our Clearing Union " proposals (though it is not this which has hitherto rendered the Fund of such little value). The Fund was not intended (Article XIV(1)) to finance reconstruction or war debts; but this cutting-down is not without significance as a symptom of United States caution. More important, hRager5 59 what has happened since. Owing to Russia59not goining

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Paited States attitude has been conspicuous Pain the fissions with I.T.O.-G.A.T.T. project, where non-discrimination has been a leading topic. Throughout these, there has been the greatest difficulty in reconciling United Kingdom and United States points of view-United States pressure for tight control over discrimination and United Kingdom desire for latitude. Thus, when we had secured in the evolution of the original 1945 Commercial Policy Proposals an understanding that there should be reasonable latitude for dis- crimination in the post-war period, the United States in the concurrent Loan Agreement discussions insisted on forcing Section 9 on us. At the first session of the Preparatory Committee on the I.T.O. project (London, 1946) we, being bound by Section 9 and still hopeful of being able to observe convertibility and real non-discrimination, made the mistake of going somewhat too far in agreeing to rules which would have given the I.T.O. a rather tight control over discrimina- tion. When, at the next stage (Geneva, 1947), we foresaw conditions calling for wider latitude, we had great difficulty in persuading the United States to accept somewhat more flexible rules on the lines of those now incorporated in the Charter and G.A.T.T. as the "Geneva option." These were written into both the Charter and G.A.T.T.; then, as the nature of the dollar crisis became clearer and no one could promise any degree of non-discrimination until it was known whether Marshall aid would become a reality, the United States reluctantly agreed to a clause in G.A.T.T. (but not the draft Charter) completely suspending the non- discrimination rules for the period until the end of 1948, with provision for a possible extension.

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At the beginning of the Havana Conference, we proposed on strong Ministerial instructions the extension of this period of suspense until the end of 1952. This the United States representatives flatly rejected; over and above this, they put forward novel and narrow interpretations of the non-discrimination rules agreed at Geneva which caused a large number of European countries to insist that they could not now accept these rules. To meet this, the United States proposed a completely new set of rules, which eventually became the Havana option," allowing countries to maintain and adapt" their existing discrimina- tory measures, on the analogy of I.M.F. Article XIV. This we could not accept, as our existing discrimination was closely circumscribed by Section 9; eventually, after extreme difficulties with the United States delegation, a compromise was patched up under which countries were allowed to choose between the "Havana option rules and a clarified version ("the Geneva option ") of the previous Geneva text. This we accepted, making, however, at the final Plenary the state- ment that we could do so only with the intention of making full use of the latitude provided by the rules. At Annecy, however, when the question of South Africa's new import restrictions system came up, we encountered in full force the usual United States resistance to reasonably wide interpretation of the rules and pressure for narrowing them down by interpretative or procedural devices.

(This was backed up by the representatives of the I.M.F. who have through- out the discussions on the I.T.O. project used every endeavour to establish that I.M.F. should play a leading rôle in the interpretation and application of the I.T.O. non-discrimination rules.)

8. The moral of this long history is abundantly clear. So far the combined efforts of the United States, the sterling area and other countries to get the former system of convertibility and non-discrimination going again have not been successful. As to the basic reasons for this lack of success, it may be said that:

(i) The primary cause is that the essential condition for the working of this system, viz., the existence of an approximate condition of balance in world production and trade, is lacking. Given this approximate balance, the multilateral flow of trade and payments can function as an automatic regulator to ensure exact balance and to effect the constant adjustments in production and trade throughout the world necessary to maintain this balance. But the fact is that the necessary approximate balance has never really existed since 1914. This is due in part to the failure of the major non-dollar countries to achieve a pattern and value of production in which their external trade is in overall balance, so that their balance of payments can be maintained without abnormally heavy United States investment or United States fire and lodhs, but immeasurably the main fact has Been the deter-

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