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.