103 Tange to Burton

Cablegram GEN25 GENEVA, 17 May 1947, 11.30 a.m.

SECRET PERSONAL

Your GEN.23.

Agree we are obliged to consider commercial policy adjustments with something less than full satisfaction on the employment issue but this is primarily because no employment agreement can guarantee its implementation. What we should seek in the I.T.O.

Charter are (a) to restate the San Francisco Pledge [1] in its specific relations to commercial policy and to provide a means of promoting industrial development;

(b) to relate employment obligation to commercial policy obligations;

(c) to insist on mutual advantage in commercial agreements (which include the Charter).

2. Re (a) consider that the Charter is adequate taking into account Chapter 11, III and IV. On the face of it, Articles 3 and 8 leave initiative for promotional aspects with the Economic and Social Council rather than I.T.O. However desire to strengthen the authority and prestige of the United Nations in this field causes some difficulty in giving I.T.O. direct authority. But it should not be overlooked that Article 66(1) and (6) and 71(2) in any case permit any member propose that I.T.O. take the initiative on employment issues. Doubt whether this possibility is widely understood. These articles are valuable safeguard if influence of E.S.C. proves disappointing. Similarly, the absence of any specific I.T.O. machinery such as special Employment Cornmission [2] need cause no concern because again if members are dissatisfied by the treatment given employment and demand issues in other international organisations and in I.T.O., they can propose structural changes in I.T.O. (e.g., under Article 72).

Although representing a substantial advance on the original proposals, the usefulness of industrial development clauses is more speculative for countries whose tariff rates are bound in negotiations. Nevertheless assuming voting is unweighted there will be strong support from all countries for use of rights permitted at the discretion of the organisation (e.g., for use of quotas for protection) under Chapter IV.

3. Re (b) employment obligation goes along with Articles 3, 6, 7, 26(5), 28(i), 35 and 66(3) which opens the way for protective action at the expense of the offender in the case of failure to maintain demand and employment. While their presence will no doubt have some positive influence in promotion of employment, their value lies in the possibility of protective action against a country unable to control unemployment and falling demand.

4. These are, to my mind, essential to I.T.O. since it is too early assume that the United Nations will have sufficient authority to intervene in trade dispute for the purpose of ensuring I.T.O. decisions adequately protect full employment countries. Procedural formalities limit the possibilities of a separate organisation intervening promptly especially when unlike IMF the United Nations has no standing executive. The key Article is 35 which opens possibility of joint withdrawal of MFN treatment from an offender and organisation of mutually discriminating trading arrangements to check the spread of depression.

Distribution of voting in the organisation is clearly crucial. It must be admitted that recourse to the Article for such drastic purpose against United States might mean end of organisation [if] such a country is permitted withdraw.

5. Doubt whether situation would be any better without the Charter. True that acceptance of Article 14 and negotiations under 24 lead to gradual dismembering of the present British preferential system which encompassed the hope of countries traditionally more likely to maintain employment policies to each other's mutual advantage. However, I believe the drastic change in the United Kingdom position plus her existing and implied commitments to the United States and Canada in loan agreements and acceptance of the principle of main United States proposals make development of tariff preferential arrangements limited to British countries unlikely even without Charter. For these reasons I believe acceptance of freezing of preferential margins and prevention of new preferences in Article 14 no great loss to Australia in fact although we should exact payment. This view is reinforced if we consider the value to Australia of forbidding preference tariff systems against us in areas of growing political regions, where we will seek markets such as Middle and Far East.

On the other hand I.T.O. does provide the possibility of organising common action (e.g., with discriminating import controls) against an offender and this is not likely to be feasible without an international organisation.

6. The foregoing is relevant to (c). The delegation reported on Article 14 (rule of non-discrimination as qualified elsewhere in the Charter) in I.T.O. 79. To my mind the Article is a drastic interpretation of the first step towards only one of Article VII [3] objectives and as recommended in the telegram acceptability should depend on the outcome of negotiations for concessions by the United States in tariffs. At the same time I agree with the assessment of the delegation that we may have to accept Article 14 and that in the light of the whole picture, the sacrifice may not be unreasonable. We should not commit ourselves to the conference to accept it immediately in view of doubts about the outcome of negotiations as a result of the wool position. On the general question of prospects getting tariff agreements advantageous to Australia, shall not elaborate as you would be familiar with the indirect nature of many of the benefits [and] prospects of mutually advantageous agreement with the United Kingdom and the American wool position.

7. Suggest you discuss with Coombs [4] the strong stand being taken by Nash to preserve freedom to use quantitative restrictions for protection. Nash is advocating a new Article 4 which contains employment pledge requires full use of external resources but otherwise permits quantitative restrictions and other measures considered necessary by member for employment policy provided that members adversely affected may complain under Article 35. My first reaction that it will be difficult for Australia to support because- (a) New Zealand should not have difficulty in justifying permanent restrictions under existing Article 26;

(b) unrestricted freedom to others to use quantitative restrictions threaten the primary exporters;

(c) latitude permitted in all forms of commercial policy by the New Zealand proposal is the basic change in the whole concept of I.T.O. which it is hardly conceivable Americans and British would accept.

8. My view is that with minor amendments to various Articles which Coombs would discuss the emphasis on expanding policies in Charter should satisfy us provided we are also satisfied with the results of tariff negotiations. There are risks particularly in view of political trends in the United States and the current weakness of Bretton Woods institutions. But am impressed by the development of opinion particularly among Europeans supporting the Australian position on the necessity to plan full employment policies and take protective action against depression which indicates that we should have support for our views in the organisation.

1 Under Article 56 of the Charter of the United Nations, members pledged themselves, inter alia, to co-operate in action to secure full employment and higher standards of living.

2 The Economic and Employment Commission of the UN Economic and Social Council.

3 For Article VII see Document 99, note 1.

4 Coombs visited Canberra from 18 to 22 May.

[AA : A1068, ER47/1/13]