I enclose herewith two Notes which I have run out in an attempt to
clear my mind, on-
(a) Future World Organisation; [1]

(b) The Article VII discussions.

(a) I showed you the other day and I left a copy of it with the
Prime Minister when I saw him on Thursday.

(b) you have not seen, and I think it might be desirable if you
got the Prime Minister to read it.

S. M. BRUCE

Enclosure

26 May 1944

NOTE ON ARTICLE VII

We have all subscribed to the principles embodied in Article VII
and have an obligation to do all we can to ensure their
implementation.

To this end discussions have taken place between the United
Kingdom and the United States of America representatives and there
have been two meetings with Empire officials in London. [2]

These discussions have been primarily concerned with-
(a) Monetary Policy
(b) Commercial Policy
(c) Commodity Policy and as a result of the strong representations
of the Australian delegates at the last London Conference-
(d) Employment Policy.

The full examination of all these problems on the official and
technical level, has been admirable. Much first class thought has
been put into the work and the issues that have to be faced have
been fully explored.

It seems to me, however, that the point has now been reached when
nothing further can be achieved on the official and technical
level without political direction on policy.

In order to determine what form this political direction should
take it is necessary to examine what we want to achieve and how
far the discussions to date have paved the way for its
accomplishment.

What we want to achieve cannot be better expressed than in the
words of Article VII itself, namely-The expansion of production,
employment and the exchange and consumption of goods; the
elimination of all forms of discriminatory treatment in
international commerce, and the reduction of tariffs and other
trade barriers.

In the discussions to date the problem of bringing about an
expansion of production, employment, and the exchange and
consumption of goods has been exhaustively examined clown the
lines of a multilateral reduction of tariffs; the elimination of
import prohibitions and quotas, and the creation of monetary
machinery for currency stability. Little progress, however, has
been made save in the monetary field. There the way has been paved
for the conclusion of a Monetary Agreement to ensure the smooth
running of the International economic machine, when that machine
has been repaired and put into working order.

So far no practical proposals have emerged for the restoration of
the economic machine. The fact we have to face is that until they
do we are merely bluffing ourselves in imagining Nations will be
prepared to enter into commitments curtailing their freedom with
regard to Tariffs, Currency depreciation, Import Prohibitions,
Quotas, or any other action they might deem necessary for the
safeguarding of their internal economy.

It is therefore necessary to examine what is required to restore
the International economic machine to running order.

Clearly it must be to provide in the immediate post war period for
the needs of the countries whose financial and economic positions
have been thrown completely out of gear either by the magnitude of
their war effort or by enemy occupation.

If these countries have to look to their own unaided efforts the
actions which they would be compelled to take would destroy all
possibility of achieving our objectives in connection with
tariffs, import prohibitions, quotas, and currency depreciation.

For example, if the United Kingdom is to be forced in the
immediate post war years to attempt to bring about a 50% increase
in her prewar exports, which, in an expanding world economy, would
be a perfectly legitimate long range objective, the effect would
be disastrous.

It therefore seems to me essential that we recognise the
necessity, if we are to achieve the objectives set out in Article
VII, of providing in the immediate post war period the credits
requisite for Nations to rehabilitate themselves and reconstruct
their economies.

This requirement has taken no practical form in the proposals up
to date.

While rehabilitation is included in the title of UNRRA there is, I
think, to-day a growing appreciation of the fact that the
activities of UNRRA will be confined to relief.

The American proposals for a Bank of International Investment are,
I am advised by my experts, quite unrealistic and impracticable.

The original Keynes Monetary plan would have gone far to meet this
difficulty. Unfortunately it is now so watered down in the joint
proposals that any agreement which may emerge can not be regarded
as designed to do more than meet temporary dislocations in the
smooth running of the International economic machine.

The Monetary proposals, however, are much the most advanced and I
understand the President of the United States contemplates the
holding of a meeting of the United Nations with a view to arriving
at agreement upon them.

The result of this meeting must, I think, be that even if
agreement can be reached by the smoothing out of difficulties
which exist at the present time, e.g. Australia's requirement of a
larger quota-such agreement would be qualified in the case of the
majority of countries by the condition that it should not operate
until agreement had also been reached on other questions such as
full employment, tariffs, etc.

We have therefore to consider the position which would arise upon
this happening and what is the next step that would have to be
taken.

After a meeting of the United Nations has been held at which the
post war financial and economic set up had been the subject of
examination and discussion and at which different countries had
placed varying emphasis upon full employment-monetary policy-trade
barriers etc. it will be impossible to withdraw these subjects for
further bilateral discussions between the United Kingdom and the
United States of America. The meeting will insist that further
consideration of them must be on a United Nations basis.

We have therefore to determine what would be the method of
handling this demand with the best prospect of obtaining results.

In my view it would probably be to obtain agreement to the setting
up of a Committee with a limited personnel to examine further the
different problems as a whole which would report to Governments
with a view to the holding of a further meeting when sufficient
progress had been made.

Owing to the political implications of the questions involved I
think the Committee should be on the Governmental level and not
merely composed of experts. It would, however, have power to call
in the assistance of such experts as it deemed desirable.

Prior to the holding of the meeting of the United Nations I
suggest the position as we see it should be placed before the
Americans in the frankest terms and an effort made on the highest
level to induce them to be, more realistic and forthcoming with
regard to meeting the needs of countries whose financial and
economic structures have been dislocated by the war.

If the Americans could be induced before the meeting to agree to a
practicable scheme to meet this need the existing gap in the
proposals for achieving the objectives set out in Article VII
would be closed.

If they can be so persuaded I am hopeful that something of real
value might be achieved by the holding of the meeting.

S. M. B.