90 Coombs to Chifley and Dedman

Cablegram ITO13 LONDON, 25 March 1947, 9 a.m.

MOST IMMEDIATE SECRET

There has been a discussion concerning automatic rule set out in Article 24(1)(B) of the draft charter. [1] Although this is essentially related to the charter drafting which is to be dealt with later, it is necessary to examine it at present because of the intention expressed in procedural memo that certain sections of the charter should apply to the forthcoming negotiations.

The Australian objection to the automatic rule was put as directed by the Cabinet Sub-Committee [2] and there was strong support from all delegations for this view.

My private discussions with United States officials indicate that they personally agree the rule is a bad one and may prevent mutually advantageous agreement in some cases. However, politically they will be seriously embarrassed if they are pressed to remove the word 'automatic'. A drafting committee of Commonwealth countries was set up to examine the possibility of rewording Article 24(1)(B) to meet our objections and yet to retain the word 'automatic' but in a different context.

Discussions have been proceeding in the drafting sub-committee and this has delayed cable to you. The suggested redrafting of the Article is '(b) In the negotiations relating to any specific product (i) Where the negotiations affect only the most favoured nation rate any negotiated reduction in that rate shall operate automatically to reduce or eliminate any margin of preference applicable to the product.

(ii) Where the negotiations affect only the preferential rate the most favoured nation rate shall automatically be reduced to the extent of any reduction in the preferential rate.

(iii) Where the negotiations affect both the most favoured nation rate and the preferential rate such reductions may be effected in either rate as may be agreed between the members concerned.

(iv) No margin of preference shall be increased.' This redraft appears to meet out main objection to the inclusion of the word 'automatic' in the original phrasing but we would wish to study it further. In any case, we feel that (iv) might read 'no margin of preference shall be increased except in accordance with the other provisions of this Charter or with the agreement of the members concerned.' Further discussion to-day led to the following conclusions:-

(a) That it might be unwise to precipitate a showdown on a matter of principle at the outset of the discussions provided it is possible to proceed with tariff negotiations on a satisfactory basis.

(b) That we should make it clear that we were entering negotiations on the assumption that the 'automatic' rule did not apply.

(c) Generally that procedural arrangements for negotiations should be flexible and that we should refuse to accept the present or other procedural document except as a general guide and with full freedom to depart from it if the practice of the negotiations suggests that this would be desirable.

The second conclusion suggests that since the Americans may be unwilling to agree at the outset to the amendment of the 'automatic' rule we shall each be entering the negotiations on different assumptions. The general feeling is that this is unlikely to cause difficulty since it is clear that United States is willing to waive the rule on individual items. If however, conflict of view arises on particular items because of the differing attitude to this rule then item can be reserved from negotiations. Whether there is scope for a mutually advantageous agreement can be determined only by experiment.

Would be glad your advice as to whether this course is acceptable.

[3]

1 Article 24(1)(b) read: 'All negotiated reductions in most- favoured-nation import tariffs shall operate automatically to reduce or eliminate margins of preference'.

2 Australia opposed inclusion of the word 'automatically' on the grounds that it would limit the freedom of negotiating parties and could prevent the conclusion of a mutually advantageous agreement.

See Cabinet Sub-Committee Agendum 9/1947 and Decision 6 dated 6 February.

3 Cabinet Sub-Committee on Trade and Employment Conference directed, in cablegram T13, dispatched 27 March, that no advance commitment of any kind should be accepted, including the redraft of paragraph (1)(b) of Article 24 until it was clear how such a general formula would work when tariff negotiations began.

Approval was given for the course of action set out in (b) and (c).

[AA : A1068, ER47/1/12]