Your Delegation at I.T.O. Conference Havana have no doubt informed you that United States Delegation there moved an amendment to Article 99 of Draft Charter which would have the effect of extending the rights and obligations conferred by the Charter to those area of Germany occupied by Members of I.T.O. and to Japan but that as a result of discussion at Havana they have now withdrawn it.
2. United States Delegation to Tripartite Talks on Germany now in progress here have recently raised the matter with us. They said that United States Delegation at Havana were anxious that during the Meeting of the Contracting Parties to the General Agreement on Tariffs and Trade (which began on 28th February) a protocol should be concluded on the subject where by the contracting parties with responsibilities for the occupation of the occupied zones would accept the obligations of the General Agreement to the extent and for the period of their responsibility; other contracting parties in return would give benefits of the General Agreement including most-favoured-nation treatment to the occupation areas the protocol being open for their signature and also that of other countries not signatories of the General Agreement. We are not certain whether they intended this protocol to cover the other occupied territories such as Austria, Trieste and Korea in addition to Germany and Japan.
3. United States Delegation put forward no text but emphasised urgency of reaching Tripartite Agreement in London so that identical instructions might be sent to United States, French and United Kingdom Delegations at Havana. We said that the proposal would require careful consideration in relation to the occupied territories individually and that consultation with other Commonwealth Governments would of course be necessary before we could express any views.
4. United States Delegation also indicated that failing agreement on this matter in I.T.O. context they contemplated including in bi-lateral agreements to be concluded with countries benefiting under European Recovery Programme a clause obliging those countries to give most-favoured-nation treatment to exports of the occupied territories.
5. Our preliminary view is that United States proposal in Paragraph 2 is much too far-reaching and that we contemplate suggesting to them an alternative arrangement also to take the form of a protocol to General Agreement on Tariffs and Trade whereby those of the occupying powers in Germany and Japan who are contracting parties to G.A.T.T. would undertake to accord the treatment provided for in the agreement to the commerce of any country which give reciprocal treatment to the exports of the occupied territories under administration of the occupying powers concerned. Very tentative text is in my immediately following telegram.
6. The French have also drafted a protocol which provides for the reciprocal granting of most-favoured-nation treatment only and does not take into account the general provisions of the General Agreement. They also propose that the protocol should be subject to denunciation after one year if the controls maintained over German (or Japanese) industry have proved ineffective or if German (or Japanese) exports dangerously menace the economic equilibrium of the signatory countries. We have not yet discussed this with the French.
7. If other Commonwealth Governments have any views and comments on United States proposal and our provisional attitude to it we should be glad to receive them immediately. This and the following telegram are being repeated to Havana and will be shown to your Delegation there. We hope that detailed discussion of matters of drafting may be confined to Havana but we should be glad to have any general views for our guidance in further discussion here with United States and French.