Foreign Relations of the United States, 1948, General; the United Nations, Volume I, Part 2

International Trade Files: Lot 57D284, Box 104

Memorandum by the Economic Adviser, Office of International Trade Policy (Coppock) to the Acting Director of the Office of International Trade Policy (Brown)¹

[Washington,] December 30, 1947.

1. Developments at Habana require that we set out all the important considerations relevant to the determination of our course of action in the immediate future.

2. Failure of Habana to produce an ITO Charter would mean the end of the ITO project for the indefinite future. Probable consequences would be the following:

A. The United States would suffer a severe diplomatic set-back. The ITO project is the core of the post-war economic program which developed from the Atlantic Charter and the Lend-Lease agreements.

B. The United Nations would suffer a similar loss of prestige, particularly in the economic and social field. Establishment of the Preparatory Committee for the United Nations Conference on Trade and Employment was the first act of the Economic and Social Council, and many people think it has been the most important act of that Council.

C. The non-Russian world would be without a rudder in the international economic sea. Economic warfare, as depicted in Wilcox’s speech of December 23, 1947 at Habana, would be the order of the day.²

D. The Russians would be in a position to make heavy propaganda use of the Habana failure and would be in a better position to bring other countries under their economic or political influence.

E. Capitalism, or free enterprise, would suffer a decided set-back, for although the Charter has been tailored to accomodate some state trading, the Charter is the very embodiment of economic liberalism in the international realm, adapted to present-day conditions.

F. Government controls over our domestic economy would tend to increase.

G. Liberalism, and free institutions generally, would suffer a setback because of the close affiliation of capitalistic economic arrangements and political and civil liberties.

H. Militarily, failure of the ITO project would mean a weakening rather than a strengthening of our position, for it would mean a weakening of the economic bonds between us and the other countries in the non-Russian world. The extent of this weakening is uncertain, but the directional influence is clear.

I. Economic life over much of the world would be much worse without the ITO, for international dealings would tend to be restricted. Discriminations would be rampant.

J. To whatever extent bad economic conditions contribute to war, the effect of ITO failure would be toward war rather than away from it.

K. The chances of the International Bank and the Monetary Fund performing their functions well and not losing their capital would be substantially reduced.

L. Collection of our foreign loans and investments would be considerably more difficult.

M. Other elements of our foreign economic policy, particularly the Trade Agreements Act, would suffer. Both the ITO and the Trade Agreements Act are devices for expanding trade and investment on a multilateral and non-discriminatory basis, and the failure of the broader project would almost certainly cast doubts on the narrower.

N. The present Administration, as well as many political figures in both parties, have a large stake in the ITO program. Failure at Habana would be used extensively in 1948 as evidence of Administration failure.

3. Some kind of an ITO is a necessity. The more closely it can conform to our wishes the better, but sufficient action must be taken to obtain some kind of an organization. Even a weak organization will give something to build on, and would forestall many of the undesirable consequences listed above.

4. There would seem to be only three main ways of achieving some degree of success in the face of threatened failure: (a) appeal to “principles”, (b) offering of economic benefits not now otherwise in prospect, and (c) threatening various sanctions. It is my feeling that the appeal to “principles” has not been utilized as fully at Habana as it might be. Offering of economic benefits on a large scale is difficult under the circumstances, but offerings to the Latinos in connection with Bogotá, or in connection with the European Recovery Program, would seem to be the most fruitful. Threats have not been fully exploited, although the Wilcox speech of December 23 should have opened the eyes of some of the delegates. Apparently other countries just do not believe that the United States would use its economic power to drive hard and discriminatory bargains, in the absence of an international code. They apparently think we would behave in exemplary fashion, with certain exceptions (mainly agricultural), regardless of the existence of a code. Although such exemplary behavior might be attempted for a short while, I believe most close observers of American economics and politics would agree that it would give way to hardboiled economic warfare.

It would seem appropriate for us to employ a balanced combination of all three methods: (a) stress “principles” more strongly than we have thus far, (b) hold out the possibility of special benefits (a reasonable expectation in light of history), and (c) paint the alternative to the ITO in such lurid colors that even the color-blind will see the light.

1. A covering transmittal slip contains the following: “The attached memorandum addressed to Mr. Brown was prepared to facilitate consideration of the questions referred to the Department from the United States Delegation in Habana.
2. For text see: Department of State Bulletin, January 11, 1948, pp. 39–42.