240 Coombs to Chifley

Letter LONDON, 22 November 1946

The concluding plenary session[s] of the Preparatory Committee [1] have been deferred until next week and will then consider the reports of the principal Committee. The drafting Committee, which I referred to in my letter of 15th November, will meet in New York from January 20th. This Committee will be responsible for tidying up the work of this session and for the preparation of a new draft document embodying the alternatives that have been suggested and this will be available for consideration at the next session of the Preparatory Committee. The intention is that this Committee will consist of two of the less senior officers who were attending this Conference. In accordance with your instructions I am cabling to you concerning this proposal. As the drafting Committee will not be involved in any decisions that would be binding upon governments but is merely in the nature of a working group arising from this Conference, I have recommended for your approval that we should agree to participate. [2]

It is at present contemplated that the Conference, commencing in Geneva on April 8th, 1947, should begin with tariff negotiations, and that consideration of the terms of the draft Charter should begin on 6th May, thereafter continuing concurrently with the tariff negotiations. The preliminary Conference in London between Commonwealth countries, beginning on 11th March, would also assist us in the preparations with limited staff that is available.

Copies of the documents setting out the agreed heads on Employment and Industrial Development have already been sent to the Departments. Brief Notes of other developments are included in this letter.

Employment The only outstanding section has been the impairment clause which would operate in the event of a failure by a member to maintain effective demand. An amendment has been made to Article 30 of the draft Charter which, whilst not directly mentioning employment or effective demand, adequately provides an escape in the event of a country failing to maintain effective demand, particularly when read in conjunction with the employment section. This clause, whilst meeting our needs, has also been accepted by the United States.

Industrial Development There is no further comment following the acceptance of the report of the Sub-Committee [3], a copy of which was enclosed with my letter of 18th November.

Quantitative Restrictions A detailed report on this subject will be forwarded to the Treasury shortly. Substantial modifications have been made to the original draft, and, in particular, provision has been made for- (a) the maintenance of quantitative restrictions of imports in the early post-war transitional period essential to- (i) the maintenance of war-time price control by a country undergoing shortages subsequent to the war;

(ii) the orderly liquidation of industries developed in a member country owing to the exigencies of the war which it would be uneconomic to maintain in normal conditions.

(b) an amendment to Article 19(2)(e) to ensure that restrictions on the importation of agricultural products will not reduce the total of imports relative to the total of domestic production, as compared with the proportion which might reasonably be expected to rule in the absence of restrictions.

(c) the use of balance of payments restrictions when necessary to stop or forestall the imminent threat of a serious decline in reserves, or in the case of a member with very low reserves, to achieve a reasonable rate of increase in its reserves.

(d) freedom to impose quantitative restrictions to safeguard the balance of payments without prior consultation with the Organisation when it would be impracticable to consult before the application of restrictions.

(e) the right of a member to obtain the previous approval of the Organisation for restrictions which it intends to impose or for the imposition of restrictions in the future under specified conditions. To the extent that agreement has been reached on the conditions of their imposition, there cannot be a subsequent challenge of the member's right to impose the restrictions.

(f) preventing the Organisation from recommending the withdrawal of restrictions on the ground that they could be avoided by a change in the domestic, employment, reconstruction, development old social policy of the member.

(g) the selection of commodities to be imported, on the grounds of essentiality, when quantitative restrictions are imposed.

(h) discussion with other international agencies to remove the underlying causes of a disequilibrium resulting in persistent and widespread application of quantitative restrictions.

The section dealing with exchange restrictions provides that members of the Organisation would as a general rule be required to be members of the Fund, but that non-members of the Fund (or countries withdrawing from the Fund) could enter into a special exchange agreement with I.T.O., which would then become part of their obligations under the Charter. The Committee's Report on this Article, however, states that no final decision was reached on the question of common membership, which was left for further consideration until the probable membership of the Organisation and of the Fund became clearer.

Tariffs and Preferences It was apparent when I wrote to you earlier that there was a disagreement in principle regarding the methods by which margins of preference should be reduced and also on the extension of existing preferences to other Commonwealth countries not at present enjoying them.

The majority opinion is that any negotiated reduction in the m.f.n. [4] rate should automatically reduce the margin of preference unless there is agreement among the parties-including the country making the request -that a lesser reduction in the preferential margin is satisfactory. The United States delegation has said that for political reasons they could not possibly agree to withdraw this formula. The Indian proposal is that the automatic formula should not apply and that members should be free to negotiate for a reduction in the preferential rate of duty as well as in the m.f.n. rate provided that the margin between the two negotiated rates is not greater than that existing on a date to be agreed upon.

The Indian delegation has entered a reservation on this point. We have not formally joined in this reservation, but in the course of the discussion relating to this section of the report, we stated that the rigid application of the formula would prevent some adjustments in most-favoured nation rates of duty in negotiations and that it was our opinion that the formula could not operate satisfactorily. If, however, the United States was prepared to accept the view that in the course of negotiations some agreement for a lesser reduction in the margin would be satisfactory, this would help to meet the problem. We also indicated that the concessions which had been made in the draft Charter and the acceptance of provisions relating to employment and industrial development materially changed the nature of the document, and that in these circumstances, and, in view of the understanding relating to the application of the formula, Australia would not formally make a reservation on this point. This viewpoint was supported by delegates from South Africa and New Zealand. In his reply the leader of the United States delegation stated that they appreciated the absence of a formal reservation on this formula, which had been already accepted by the United Kingdom, and that for their part, they would do all in their power to ensure that the Article would operate in a manner that would enable mutually advantageous agreements as to the reductions in preferential margins that should operate. As I was somewhat uncertain what return to take on this I attach a copy of the verbatim record of what I said in relation to it and the reply given by the U.S.

delegate. The Indian Delegation also formally made a reservation that Articles 8 and 18 [5] should be interpreted in such a way that existing preferences; Article 18 set out members' obligations to negotiate for reduction of tariffs and so long as a preference remain accordable in one part of a preferential system specified in paragraph 2, Article 8, that part of the preferential system according the preference should be at liberty to extend the same or lesser measure of preference to any other part of the same preferential system which at present does not enjoy it.

Procedure As I indicated in my letter of 15th November, it has been necessary to prepare and attach to the report of the Conference a memorandum supplementary to Articles 8 and 18 explaining the procedure which will be necessary in the negotiations for tariff reductions that are to be undertaken next year. This memorandum, whilst embodying a desirable procedure, may not in practice be followed during the actual course of the negotiations, and many of the points that have been raised regarding the implementation of those decisions can in fact only be determined in their final form after the negotiations have proceeded. This document contains some interesting views which I shall summarise briefly:-

(1) Date for negotiations. With the removal from Articles 8 and 18 of the dates originally included, it is necessary for countries to inform each other of the date upon which preference tariffs in operation shall be subject to negotiation. It is proposed that each country shall select a date and that this will be notified to others through the Secretariat prior to the April meetings.

(2) New tariff measures. The document expresses the hope that between now and the negotiations next year no country will introduce new tariff or other measures which would be out of spirit with the terms of the draft Charter. Whilst there is no legal obligation on countries to observe this rule, they would lose substantial bargaining power, if, in fact, they do raise tariffs prior to the negotiations.

(3) Principal supplier rule. Some variation in this principle has been made in that each country may request of another the reductions in tariffs which it wishes to have and the receiving country will then be responsible for checking whether or not the members of the Preparatory Committee as a whole are or are likely to be the principal supplier of the commodity in question.

(4) Requests. It is hoped that all requests for reductions in tariffs will be transmitted not later than 31st December, 1946, although the United States has already indicated that its requests upon the United Kingdom will not be available before the middle of January next.

(5) Concessions. It has been proposed that at the opening of the next session of the Preparatory Committee, each member should table a schedule of the proposed concessions which it would be prepared to make in the light of the concessions that it has itself requested. This would take the form of a statement of what concessions we would be prepared to make on requests to us assuming that all our requests on other countries are met in full.

(6) Result of Negotiations. The Procedure memorandum outlines in a tentative way the procedure that may be followed in order to make effective the results of the tariff negotiations. It contemplates that the new tariff rates should be embodied in schedules which would be attached to a tariff agreement. It is proposed that this tariff agreement making effective reduced rates of duty and certain sections of the draft Charter should come into force after conclusion of the negotiations and not be delayed pending the acceptance of the whole of the draft Charter by the subsequent World Conference. This has some objectionable features in that there may be an undesirable variation in the terms of the Charter which would, if foreseen, have affected the concessions that Australia would be prepared to make. However, there is no commitment at this stage as to the form in which the tariff agreements will come into force, and this matter can be determined only in the light of the negotiations themselves. It is also proposed that an Interim Tariff Committee should be established after the negotiations have been carried out and the I.T.O. has been established. The purpose of the Interim Tariff Committee would be to determine whether or not adequate tariff concessions have been made by countries wishing to join the negotiations subsequent to the completion of the negotiations by the original members. This, again, is a problem which can only be determined in the light of the negotiations themselves next year.

Commodity arrangements The report of the Committee dealing with inter-governmental commodity arrangements has in general met the requirements of Australia. Under the provisions as now drafted, it is possible for negotiations to be commenced for the conclusion of commodity arrangements relating to any particular subject. Any country which is substantially interested as a consumer or producer may participate in negotiations without being committed until the time of signing the agreement. Moreover, any country may refrain from participating in a commodity arrangement without affecting in any way its membership of the I.T.O. or its position as a participant in other commodity arrangements. Almost all members of the Committee agreed with the United Kingdom delegation that it be a recommendation to governments that the provisions of the new draft section on commodity arrangements should be used as a guide in intergovernmental consultations relating to governmental policy that may be undertaken prior to the formal adoption of the draft Charter.

I have refrained from writing a complete review of the results of the Conference and the relation of our point of view to the proposals that have been formulated. This has been merely an attempt to continue the summary of the more important developments, and on our return home I shall, of course, submit a complete and detailed report of the results of the Conference. [6]

H. C. COOMBS

Attachment DR. COOMBS (Australia): Mr. Chairman, this Article has given the Australian delegation a considerable amount of concern. I should say that so far as the general principle embodied in this Article is concerned we are in agreement with it. The Australian Government was a party to the Mutual Aid Agreement [7], in which it did accept quite definitely an obligation to enter into mutually advantageous negotiations directed towards the substantial reduction of tariffs and the elimination of preferences. That obligation the Australian Government will carry out to the full, and it was necessary for me, therefore, to look at this Article in the light of the previous undertaking which the Australian Government entered into in connection with preferences, and this raises the rather vexed question, which occupied so much of the time of the Sub-Committee, of the word 'automatically' embodied in Paragraph 1(b) of the Article.

It is necessary for me to say that we do feel, after very careful thought on this matter, that the word 'automatically' is in this context inconsistent with the general principle that the negotiations should be reciprocal and mutually advantageous.

Generally it may be correct that an automatic reduction of the margin of the preference by the amount of the reduction in the most-favoured-nation rate would be reciprocally and mutually advantageous, but it is conceivable that in some circumstances such a reduction would not be mutually advantageous. Perhaps I should add that it is a matter of fact that our own national interests in this matter would not be seriously impaired by the acceptance of the rule. Most of the commodities on which we receive preference are on free entry or very low rates of duty, so that the only way in which a reduction could operate would be substantially in the same way as if it were automatic. I make that point to emphasise what I think is important-that our feeling about this word is not based solely upon an attempt to protect certain advantages which we enjoy at present and does not in any sense indicate an unwillingness to carry through to the full the undertaking we have already given elsewhere to agree on action to eliminate preferences. But we do feel that if negotiations are in fact to be reciprocal and mutually advantageous, then the parties to . . . negotiations must be free to engage in the negotiations in ways which are determined in the light of the circumstances of the case and in which there is no prior determination as to the nature of the bargain which they reach. The bargain should be one freely agreed upon by both sides, without any necessary prescription in advance as to the nature or form of that agreement. The inclusion of the word does to us, therefore, I confess, rather suggest an inconsistency with what appears to us to be the basic principle that the negotiations concerned should be mutually advantageous. That is the position which we feel it absolutely necessary to state.

I have given very great thought to the question of whether we should, in the light of these views, reserve our position on this matter. Naturally, of course, our agreement to any part of the Charter is tentative, as is the agreement of any other Delegation here, and is not binding on our Governments, but on some points it has been necessary for Delegations to make a special reservation in connection with particular items, and such a possibility has given us a good deal of worry. I would like to say that we have felt, in considering this, that we would be unwilling to make reservations on particular points, unless they are of absolutely overwhelming importance, without the consideration not merely of the context of that particular point, but a consideration of the Draft Report and Draft Articles as a whole, and here I feel when we look at the Charter as a whole, at any rate, that [it] is a substantially broader and wiser document than it was when it appeared at this Conference, and that the Report does take many factors into account which are to us and to other delegations of very great importance.

While I, therefore, would not like there to be any doubt about the feelings of the Australian delegation on this point, that it is our absolute conviction that the negotiations contemplated under Article 18 should be in the most complete and unequivocable sense reciprocal and mutually advantageous, we have decided that it would be ungracious of us to make a specific reservation on this matter, in view of the very substantial progress which we feel has been made at this Conference on matters of greater importance to the Charter as a whole.

MR. HAWKINS [8](U.S.A.): Mr. Chairman, I should just like to say that I appreciate very much the attitude taken by Dr. Coombs and his New Zealand and South African colleagues. I know the difficulties presented, and this particular point is of very great importance to us. I should just like to assure Dr. Coombs and the Australian, South African and New Zealand delegates, that it is our firm intention that even with the rule, the negotiations will be, so far as we can possibly make them, on a mutually advantageous basis.

1 For the United Nations Conference on Trade and Employment.

2 On 24 December Chifley approved representation by C. E. Morton, Acting Assistant Comptroller-General (Tariff), Dept of Trade and Customs, J. G. Phillips, Assistant Economist, Commonwealth Bank, and A. H. Tange.

3 The report proposed a new chapter in the draft charter, to deal with members' obligations to promote industrial development and to include recognition of protection as a legitimate means of government assistance, subject to investigation by the organisation. The sub-committee's discussion had largely concerned an Australian draft intended to provide means of encouraging manufacturing in less developed countries with limited prospects for home consumption. Although strongly supported by India in particular, the Australian position was opposed by U.S. and U.K.

representatives.

4 Most-favoured-nation.

5 Article 8 of the U.S. draft stipulated general most-favoured- nation treatment with some exceptions for elimination of preferences.

6 On 20 December Cabinet approved continuation of a Cabinet Sub- Committee, comprising Chifley, Evatt, Dedman, Pollard and Courtice, to supervise preparation for the conference, and the seeking of views of representatives of primary and secondary industries concerned in the tariff negotiations.

7 The U.S.-U.K. Mutual Aid Agreement, 23 February 1942. The Australian and U.S. Govts exchanged Notes accepting the principles of the agreement in September 1942.

8 Harry C. Hawkins, Economic Counsellor, U.S. Embassy, London, and vice-chairman of the U.S. delegation.

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