Foreign Relations of the United States, 1947, General; The United Nations, Volume I

Lot 65A987, Box 98

Memorandum by the Acting Secretary of State to President Truman

Washington, October 24, 1947.

I take pleasure in submitting the recommendations of the Interdepartmental Committee on Trade Agreements with respect to the General Agreement on Tariffs and Trade which has now been completed at Geneva by negotiators representing the United States and twenty-two other countries belonging to fifteen other customs areas.

The proposed agreement is the result of-fifteen negotiations between the United States and other countries and more than ninety negotiations between other pairs of countries carried on simultaneously over the past six months. It covers Countries that handled three-quarters of the world’s trade before the war and represents the most extensive action ever undertaken for the reduction of barriers to trade.

This agreement has been concluded in the face of great difficulties. Our representatives are to be congratulated on what they have achieved.

I join in the request of the Committee on Trade Agreements that you approve its recommendations.¹

Robert A. Lovett

[Enclosure]

Memorandum by the Chairman of the Committee on Trade Agreements (Brown) to President Truman

secret

[Geneva,] October 17, 1947.

Subject: Request for Approval of Results of Geneva Trade-Agreement Negotiations

(a) Tariff Concessions

On April 5, 1947, you approved a schedule of offers of tariff concessions to be made to, and requests for concessions to be made of, the seventeen (now twenty-two)^* countries with which we have been conducting trade-agreement negotiations at Geneva.

The negotiations have now been concluded. Schedules setting forth the concessions offered by other countries and certain changes in the concessions originally offered by the United States which are necessary to obtain these concessions are attached. The Committee on Trade Agreements recommends that both be approved.

A summary table showing the volume of United States trade covered by the modified concessions now recommended, and their general nature, as compared with the original United States offers, is attached as Annex A.

A summary table showing the trade coverage of offers by other countries is attached as Annex B.

The improvements recommended in the United States offers are for the most part of minor significance. Exceptions are the recommended new offers on wool, which you have already approved, and on beef, butter, rayon filament yarns, rayon staple fiber, seed potatoes, coarse grains, apples and lace. A brief memorandum with respect to each of these offers is attached as Annex C.²

The concessions of other countries which it is recommended that we accept cover less of our trade than our original requests, and in many cases cover different products. This was expected, as our strategy was to ask for more than we expected to obtain and to bargain in the area of our requests rather than in the area of our offers. The concessions in question, however, in the opinion of the Committee on Trade Agreements, represent substantial advantage for the United States and a satisfactory quid pro quo for the concessions which it is recommended that we make.

With only four exceptions, recommendations of the Committee on Trade Agreements for improvements in our offers are unanimous.

In five cases there was dissent from our acceptance of offers made by other countries. In one case, that of the United Kingdom, a member of the Committee abstained on the issue of whether the bilateral balance between the direct offers made to and received from the other country was satisfactory.

Annex C attached includes the reasons for dissents and abstentions, and a summary of the majority view in each case.

The Brazilian concessions present a special problem, as Brazil, during the course of negotiations, proposed an upward adjustment of almost all of its specific tariff rates to take account of a depreciation in the value of its currency. Since most of the concessions offered by Brazil are bindings of low specific rates, this would involve increases in the absolute amount of the majority of the rates appearing in our 1935 agreement with Brazil. The ad valorem incidence of the adjusted rates in question, however, is in all cases substantially below that prevailing when the 1935 agreement was signed. The Committee recommends that the Brazilian concisions be accepted:

(a) Because the adjustment upwards is 40 percent, whereas the currency depreciation involved was 47 percent and there has been serious price inflation in Brazil;

(b) Because the ad valorem incidence of the adjusted rates is still very low—65 percent of United States trade covered enters at rates of 10 percent ad valorem or less, and 80 percent at rates of 20 percent or less;

(c) Because the rates would almost certainly be increased more than 40 percent if Brazil made no agreements at Geneva; and

(d) Because the coverage of the concessions now offered by Brazil is substantially greater than that in the 1935 agreement, whereas the additional coverage offered by the United States is not substantial.

The representative of the Department of Agriculture, though feeling that the adjusted rates offered by Brazil were generally satisfactory, abstained from voting on the ground that the adjustment would involve an increase in the specific rates on some agricultural products.

(b) General Provisions

The tariff concessions to be granted by each of the countries negotiating at Geneva will be embodied in a General Agreement on Tariffs and Trade, the text of which, together with the texts of related documents, is herewith submitted for your approval. The General Agreement is, for the most part, an elaboration of familiar provisions of Our trade agreements, adapted to the economic conditions of today and to the fact that it will be a multilateral agreement among twenty-three countries. Its provisions have been approved by the Committee on Trade Agreements and by the legal staff of the Department of State. A memorandum briefly describing the Agreement and related documents is attached as Annex D.

(c) Procedure for Making the General Agreement Effective

It is proposed that the United States make the General Agreement provisionally effective on January 1, 1948, provided that Australia, Canada, Belgium-Netherlands-Luxembourg Customs Union (known as Benelux), Brazil, France and the United Kingdom, who account for 85 percent of the trade of the parties to the Agreement and over 50 percent of world trade, also make it provisionally effective on that date. The rest of the Geneva countries will make the Agreement provisionally effective as soon as they can constitutionally do so. The Agreement would be made definitively effective after the Charter of the International Trade Organization has been approved by the Havana Conference and by the Congress. Details of the proposed procedure are set forth in Annex D.

It is proposed to publish the text of the General Agreement and tariff schedules on November 18, 1947.³

(d) General Comment

The General Agreement on Tariffs and Trade represents the most extensive action ever taken with respect to trade barriers. It embodies the results of 106 separate bilateral tariff negotiations and establishes trading rules for countries which accounted in 1938 for 70 percent of total world trade. It is the culmination of more than two years of intensive work by the United States Government. I cannot praise too highly the devoted and effective work of the men and women of the United States Government agencies who have made this Agreement possible.

The Agreement is the first major step to be taken by important nations to reverse the trend toward trade restriction and economic isolation which has persisted throughout the world since the first world war. It establishes liberal commercial policies for all of the leading trading nations. Announcement of this Agreement should create an auspicious atmosphere for the opening of the United Nations Conference on Trade and Employment scheduled for Havana on November 21, and, within the long-term framework which it establishes, it should be possible for the reconstruction of Europe under the Marshall plan to proceed with more confidence that efforts to restore world economy will not again be defeated by commercial warfare between the great trading powers.

Winthrop G. Brown

Annex A

Schedule II. Recommended Offers by United States

Value of trade covered by U.S. offers of tariff concessions to Geneva countries: Original offers as compared with present offers

	U.S. imports, 1939, from all countries:
	Offers approved April 5, 1947	Recommended offers Oct. 25, 1947
	Millions of dollars
Imports into U.S., total all products	2,208	2,208
A. Products upon which it is proposed to offer concessions	1,827	†1,776
1. Reductions in duty	480	‡511
36–50% reductions	287	289
25–35% reductions	78	168
Less than 25% reductions	115	54
2. Bindings	1,347	1,265
Present duties	174	144
Free list	1,173	1,121
B. Products upon which it is not proposed to offer concessions	381	§432

Annex B

Schedule I. Proposed Concessions Offered to the United Stated

Value of trade covered by tariff concessions offered to the United States by the Geneva countries

	Imports from the U.S. into countries listed, 1939, of products upon which the United States obtained concessions directly from the country listed
Country	Total	Reductions in duty or preference	Bindings of existing tariff treatment
	Thousands of U.S. dollars
Total, all countries listed	1,054,396	390,211	664,185
Australia (1938/39)	34,635	22,595	12,040
Benelux
Brazil (1938)	30,298	2,431	27,867
Burma	1,020	431	589
Canada	331,976	135,288	196,688
Chile	15,853	6,277	9,576
China	48,379	3,077	45,302
Cuba	61,719	25,195	36,524
Czecho (1937)	30,250	4,690	25,560
France & Colonies	101,954	33,182	ǁ68,772
India & Pakistan
Lebanon-Syria	1,784	796	988
New Zealand	10,768	9,000	1,768
Norway	13,649	6,076	7,573
South Africa	34,193	6,710	27,483
United Kingdom	314,453	113,628	200,825
Southern Rhodesia	1,209	—	1,209
Dependent U.K. Colonies:
Newfoundland	2,256	835	1,421
Other (1936)	20,000 (est.)	20,000 (est.)	—

indirect benefits

In addition to the above, the concessions offered by these countries directly to each other will result in substantial benefits to United States trade. In the time available it has not been possible to make a full analysis of these offers, but it is estimated that the U.S. trade benefited would exceed $150,000,000.

Annex D

The General Agreement on Tariffs and Trade and Related Documents

summary and comments

1. The Final Act. The “Final Act adopted at the conclusion of the Second Session of the Preparatory Committee of the United Nations Conference on Trade and Employment” authenticates the text of the General Agreement on Tariffs and Trade and the Protocol of Provisional Application. Signature carries no commitment beyond such authentication. It will be signed by all countries negotiating at Geneva.

2. The General Agreement. The General Agreement on Tariffs and Trade is divided into three parts.

• Part I contains the schedules of tariff concessions. It also binds all margins of tariff preference against increase. This binding represents a far-reaching commitment on the part of the British and other preference-granting areas which the United States has not been able to obtain in any previous trade-agreement negotiation.
• Part II reproduces many of the commercial-policy provisions of the draft Charter for an International Trade Organization, which in turn have been largely drawn from, or developed on the basis of, provisions customarily included in past United States trade agreements.
• Among the more significant provisions in Part II, insisted upon by the United States as necessary either to safeguard the tariff concessions or to provide an adequate quid pro quo for tariff concessions, are the following:

  a) Provision for equal treatment as between foreign and domestic products in the matter of internal taxation and regulation (Article III). These provisions are so drawn as to permit the continuation of United States mixing regulations on rubber at the level in effect on April 10, 1947.⁴ [Here follows a statement by the Navy Department representative.]

  b) A special Article (Article IV) which will afford protection to United States exports of motion-picture films. The inclusion of this Article, which operates almost entirely to the benefit of an American industry, is a source of great satisfaction to the United States delegation.

  c) Provisions confining the use of antidumping and countervailing duties to their proper scope (Article VI) and looking toward the use of true commercial values in assessing ad valorem duties (Article VII).

  d) Provisions designed to bring about the elimination of protective quotas on imports and exports⁵ and to assure their nondiscriminatory application (Articles XI through XIV). Since quotas rigidly limit the amount of trade that can be carried on, these provisions are of critical significance to the United States in the years ahead. It has been necessary to make substantial exceptions to the rule against quotas and against discrimination, in view of the special economic problems created by the war, particularly those involving important trading countries, such as the United Kingdom and France, in acute balance-of-payments difficulties. As these problems are met, however, the operation of the provisions against quotas will come into play to the benefit of the long-run export trade of the United States.

  e) Provisions which extend the principles of nondiscrimination to state-trading and assure private traders an adequate opportunity to participate in purchases or sales by state-trading enterprises.

  f) Provisions which would permit the United States, or any other party to the Agreement, to withdraw or modify the tariff or other concessions it has made to the extent and for the time necessary to prevent serious injury to domestic producers (Article XIX). These provisions conform to Executive Order No. 9832 which requires the inclusion of such provisions in trade agreements and sets forth the procedure for administering them.

  g) Provisions designed to cover the eventuality that some situation may arise, or that some party to the Agreement may violate the Agreement, directly or indirectly, which would have the effect of nullifying or impairing the Agreement. In serious cases of this kind, the other parties to the Agreement could agree that they, or any of them, would be free to suspend the concessions they have made under the Agreement. Any party affected by such suspension could then withdraw from the Agreement on short notice—60 days.

• In addition to the foregoing, Part II contains provisions relating to such trade matters as freedom of transit, marks of origin, publication of trade regulations, and customs formalities. A special Article on economic development (Article XVIII) provides a carefully safeguarded method of adjusting tariff concessions and other obligations where additional protection is necessary for economic development.
• Certain of the provisions of Part II of the Agreement cannot be made fully effective without changes in existing United States laws. These changes, mostly of a minor nature, include the elimination of certain existing discriminations in internal taxes, the amendment of our countervailing-duty legislation so as to make countervailing duties discretionary rather than mandatory, and the adaptation of United States tariff valuation methods. Since these changes cannot be effected by the Executive under the authority of the Trade Agreements Act or other executive powers, it is provided, under the Protocol of Provisional Application (see below), that Part II of the General Agreement need be applied, during the period of provisional application, only “to the fullest extent not inconsistent with existing legislation”. Part II will be given full force and effect only after the United States and other large trading countries formally deposit an instrument of acceptance of the Agreement with the Secretary-General of the United Nations (Article XXVI). It is contemplated that such an instrument will not be deposited by the United States until after Congress has acted on the Charter for an International Trade Organization or has otherwise passed the necessary legislation to bring United States laws into conformity with all of the provisions of the Agreement.
• Since the provisions of Part II of the Agreement (as well as Article I relating to most-favored-nation treatment) are identical with corresponding provisions in the Draft Charter, provision is made whereby these provisions of the Agreement may be superseded by the provisions of the Charter if the parties agree. If this is done, as it presumably will be, no separate legislative action relating to the General Agreement will be necessary in order for the United States formally to accept the agreement and thus bring it into full force and effect.
• Part III of the Agreement deals with matters common to the whole of the Agreement, such as general exceptions (sanitary regulations, security exceptions and other matters customarily excepted from commercial agreements); amendments; territorial application; modification of concessions after the Agreement has run for three years (the statutory limit for the initial period of trade agreements concluded by the United States); and the like. Part III also includes the provisions relating to formal acceptance of the Agreement and its entry into full force, referred to above, and for the supersession of Part II by the corresponding provisions of the Charter, also referred to above.
• In view of the importance attached by many countries to provisions of the Charter for an International Trade Organization which are not incorporated in the Agreement, a paragraph has been included (paragraph 1 of Article XXIX) under which the contracting parties undertake, “pending their acceptance of a Charter in accordance with their constitutional procedures, to observe to the fullest extent of their executive authority the general principles” of the Charter recommended to the Havana conference by the Preparatory Committee. This undertaking does not in any way tie the hands of Congress or prejudice the freedom of action of the United States or of other countries at the Havana conference.
• An important Article of Part III relates to joint action by the contracting parties (Article XXV). An earlier draft of the General Agreement, which was discussed during the hearings held by the Senate Finance Committee in March and April of this year, provided for the establishment of an Interim Trade Committee among the parties to the General Agreement. This provision was criticized by Senator Millikin as an attempt to set up a provisional International Trade Organization without Congressional approval. It has been omitted from the text for which approval is now sought. Instead, arrangements are made for meetings of representatives of the contracting parties in order to give effect to those substantive provisions of the Agreement where decisions must be taken by the contracting parties acting jointly. Such an arrangement is clearly necessary because of the multilateral character of the Agreement, and the functions of the contracting parties are confined to those necessary to carry out the Agreement.

3. Protocol of Provisional Application. The Protocol of Provisional Application, which will bind each country upon its signature by that country, provides that if Australia, Brazil, Belgium-Luxembourg, Canada, France, the Netherlands, the United Kingdom and the United States have signed the Protocol by November 15, 1947, the signatory countries will give provisional effect, on January 1, 1948 to a) Parts I and III of the General Agreement on Tariffs and Trade (relating to tariff concessions, the most-favored-nation clause and matters common to the whole agreement) and b) Part II of the General Agreement (other trade barriers) “to the fullest extent not inconsistent with existing legislation”. Any signatory would be free to withdraw this undertaking on short notice—60 days. It is anticipated that all “key” countries except Australia will sign the Protocol of Provisional Application at Geneva on or about October 30, and that Australia will sign at New York by November 15.

4. Supplementary Agreements. The General Agreement on Tariffs and Trade will replace our existing trade agreements with Brazil, Belgium-Luxembourg, Canada, Cuba, France, the Netherlands and the United Kingdom. It is accordingly proposed to sign with each of these countries, at Geneva and in conjunction with the signature of the Protocol, a supplementary agreement making it clear that the existing trade agreement concerned will be inoperative for such time as the United States and the other country concerned are both parties to the General Agreement (whether pursuant to the Protocol of Provisional Application or otherwise). If either country should withdraw from the General Agreement, the existing trade agreement would then come back into operation.

In the special case of Cuba, with which the United States has preferential relations, provisions have been included dealing with certain preferential matters not dealt with in the General Agreement.

1. President Truman approved the recommendations of the Committee on Trade Agreements on October 28.
2. Pakistan, Burma, Ceylon, Southern Rhodesia and Syria are now counted as separate countries. [Footnote in source text]
2. Not printed.
3. The General Agreement on Tariffs and Trade was made public on November 18 by Trygve Lie, Secretary-General of the United Nations. The Agreement was printed in four volumes by the United Nations. When adopted by the United States it was printed as 01 Stat. (pts. 5 and 6), or TIAS No. 1700, vol. i. An analysis of its provisions may be found in the Department, of State Bulletin, November 30, 1947, pp. 1042–1052.
4. 77% from Geneva countries. [Footnote in the source text.]
5. 87% from Geneva countries. [Footnote in the source text.]
6. 4% from Geneva countries. [Footnote in the source text.]
7. Includes $3,035,000 representing value of imports from U.S. in 1939 of tobacco and cigarettes on which France bound the existing tariff treatment and established a minimum global quota. [Footnote in the source text.]
4. Mixing regulations required manufacturers of rubber products to mix a specified percentage of synthetic rubber into their final product. These rules were designed to insure that the synthetic production capacity built up in the United States during the Second World War did not atrophy.
5. At this point in the source text there is a footnote indicating another statement by the Navy Department representative.