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THIS DOCUMENT IS T H E PROPERTY OF HIS BRITANNIC MAJESTY'S GOVERNMENT
Printed
for the War Cabinet.
February
1944.
Copy No.
SECRET.
W . P . (44) 8 1 .
7th February, 1944.
Is
WAR
THE
WASHINGTON
CABINET^
CONVERSATIONS
ON
ARTICLE
VII.
MEMORANDUM BY THE M I N I S T E R OF STATE.
TABLE OF CONTENTS.
I n t r o d u c t i o n ...
...
...
I . — T h e E x t e n t of o u r C o m m i t m e n t
I I . — T h e American A t t i t u d e t o w a r d s Article V I I
I I I . — T h e W a s h i n g t o n Conversations and B r i t i s h I n t e r e s t s
IV.—-The P e r i o d of T r a n s i t i o n
V . — T h e A l t e r n a t i v e s to A r t i c l e V I I
V I . — M a t t e r s requiring Cabinet Decision
...
Page.
1
2
3
5
7
9
12
A n n e x A . - ( i ) T h e P r o p o s a l for a n I n t e r n a t i o n a l M o n e t a r y F u n d
(ii) S t a t e m e n t of P r i n c i p l e s
13
18
Annex
Annex
Annex
Annex
Annex
20
23
25
25
26
B.—Commercial Policy
C.—Commodity Policy
D.—Cartel Policy
E . — E m p l o y m e n t Policy
F.—International Investment
Introduction.
A T a meeting of the W a r Cabinet on the 21st December, 1943, I was invited
to prepare for the Cabinet a paper focussing the issues arising out of the
Washington Conversations on Article V I I . These conversations covered, a wide
field. There were first of all discussions on currency questions, and our delegation
was instructed to secure, as far as possible, the essentials of the Clearing Union.
In this they were remarkably successful and I consider t h a t the agreed statement
on Currency does embody, even though it is dressed up in American terminology,
the main features of our own plan. A n y t h i n g less like a Gold S t a n d a r d can
scarcely be conceived. I t provides for changes in exchange rates wdien a country's
balance of payments makes this necessary, for a substantial provision of credit
from the United. States and other creditor countries, and an international organ
of consultation and adjustment not predominantly under American auspices.
There were discussions on Commercial Policy. After very lengthy delibera­
tions by Ministers and Officials alike the Cabinet agreed, last summer, t h a t our
interests would best be served by a breaking down of trade barriers of all kinds
and by the widest possible degree of multilateral trade. The Delegation
accordingly proceeded to Washington with an Aide-memoire and a n Outline of
Proposals, approved by the Cabinet, which were handed to the Americans a t the
outset, and which were the basis of discussion. Here, too, there was a wide
measure of agreement. The points of difference, upon which a decision will now
be required, and the safeguards upon which we must insist, will be found in
Annex B of this paper.
Commodity Policy formed a third topic. H e r e again our delegates were
remarkably successful in achieving ageement with the American officials on a
set of principles in full accord with our own ideas. These include, in accordance
with the Cabinet decisions of last summer, the institution of a Commodity Policy
[26868]
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organisation, the application of the Buffer Stock technique where t h a t is prac­
ticable, and the use of quantitative restrictions of production or export of primary
products only as a temporary measure where there is a severe maladjustment
between supply and demand and with proper safeguards for the interests of
consumers and efficient producers.
On the initiative of the Americans there was also a very preliminary exchange
of views upon Cartel Policy and Employment Policy. The Americans also handed
to our Delegation the first draft of an International Investment Bank.
The W a r Cabinet have already approved the general line of policy which
underlies the Washington Conversations. I had hoped, therefore, t h a t I should
be able to confine myself in this paper to an examination of the extent to which
the principles which were agreed at Washington conformed to Cabinet policy;
and to focussing the issues upon which further decisions of policy, are required
in the light of the Washington talks and of the forthcoming conversations with
the Dominions.
I t is clear, however, that some of my colleagues wish to re-examine the whole
policy outlined in Article V I I of the Mutual Aid Agreement, which the
W a r Cabinet has already approved and which was the basis of the talks in
Washington last September. I t seems necessary, therefore, for the W a r Cabinet
to come now to a final decision on this matter. For if it is decided to reverse
the present policy, it will be necessary so to inform the Dominions and the
Americans.
I should, perhaps, add that we are not trying to agree in detail the terms of
a treaty with the United States Government. We are seeking to formulate with
them a set of principles which we can jointly try out on third parties, and which
can be transformed into international instruments to be brought into force only
gradually and over a relatively long period of years.
I.
- The Extent of our Commitment;
The Mutual Aid Agreement was signed in February 1942. I t s signature
was attended by many doubts and hesitations. A n d it was only after the most
searching debate, and after the deployment of , all the arguments which have
recently been advanced by the Secretary of State for I n d i a and the Minister for
Agriculture and Fisheries, that we agreed to sign.
" I t may have been necessary," says the Secretary of State for India, " for
political reasons to agree to Article V I I . " But the thesis that the M u t u a l A i d
Agreement was no more than a political gesture does not bear examination. I t
was not an exercise in American appeasement, nor a surrender to American
blackmail. No doubt a consideration which powerfully influenced the Cabinefs
decision was the underlying conviction t h a t we must march with the Americans
in the economic as in the political field. But the basis of our signature of the
M u t u a l A i d Agreement was the belief that the policies indicated in Article V I I
offered, the most hopeful prospect of a solution of the very serious problems
with which we ourselves will be faced after the war.
More than that. The three projects upon which the Washington talks were
mainly centred were not American proposals to which we were being pressed to
a reluctant assent. They were British projects which we, for our own purposes,
were pressing upon the "Americans. A n d we were pressing them because it
became clear, as the result of prolonged and massive consideration both
departmentally and in Cabinet, that the balance of advantage for us—not for
the Americans or the Chinese—lay with these proposals rather than w i t h any
alternative,
All the disadvantages which must attend the signature of the Mutual Aid
Agreement were canvassed at the time. I t was pointed out t h a t Article V I I
involved some limitation upon our absolute freedom of action, and t h a t i t
impinged upon the whole system of Imperial Preference. The Cabinet decided
t h a t the advantages outweighed the disadvantages. The M u t u a l A i d Agreement
was signed. W e were henceforth committed to pursue, in co-operation with the
Americans and other like-minded nations, a policy of expansionism and the
removal of impediments to trade. I t is not open to us, therefore,,to adopt now
a policy which is based upon discriminatory protectionism a n d the unrestricted
quantitative limitation of imports.
We are committed to Article V I I . Neither we nor the Americans are
committed in any way to the results of the Washington Conversations. T h a t was
clear from the start. A n d if we should decide, after due consideration, that the
gulf between us is so wide that it is useless to pursue any further this particular
line of approach we should be perfectly free to inform the Americans of our
decision. We would not, of course, be free to modify our general approach, for
we should still be bound by Article V I I .
But we ought, I think, to be careful of how we exercise this freedom. If the
Americans had met us, while we were in Washington, on every one of the points
in our instructions, we would still be ' ' free '' to retrace our steps—so long as
we were prepared to advance again. We would not be dishonourable if we were
to overthrow our own policy. We would only look heroically silly. There must
obviously be a limit, imposed by considerations not of honour but of common­
sense, to the non-committal character of non-committal conversations.
As
Sir Kingsley Wood pointed out in W . P . (43) 383 : " We cannot regard these
discussions as an academic exercise
If our delegation reach agreement
on principles with the Americans which they can recommend to us to approve
provisionally for further consideration at the drafting committee, we shall be
baking the first step in a course which would lead probably to the formulation of
an agreed and detailed international scheme. This appears to me a logical a n d
inevitable step; if we mean anything by economic co-operation with the United
States, we must at some stage descend from generalities or pious resolutions to
more exact or difficult p l a n s . "
The issue is, therefore, whether we have in fact reached the limits of the
non-committal and whether or not the time has come to " d e s c e n d from
generalities a n d pious resolutions to more exact and difficult p l a n s . "
II.
The American Attitude towards Article VII.
The Americans, too, are uncommitted by the Washington Conversations.
To what extent are they committed by Article V I I % Is it not possible t h a t we
are tying our hands while the Americans, behind the enviable barrier of their
Constitution, r e t a i n absolute freedom of action '\
Anything, no doubt, is possible under the American Constitution. Certainly
it is possible t h a t a future Congress may repudiate the Mutual A i d Agreement.
One can never be sure, of any country, t h a t a Government will not wriggle out
of engagements contracted by its predecessors. But what then? I n freeing
themselves Congress would be freeing us. Even the Constitution of the U n i t e d
States cannot free one p a r t y to an international agreement while binding the
other. A n d certainly we cannot get out of a solemn engagement only because
there is a chance t h a t the other p a r t y may get out of it at some -future date.
T h a t is a reason for refusing to enter into an agreement, not for getting out
of one.
I n one sense, it is true, Article V I I is more binding upon us than upon the
Americans; there is a distinction between Article V I I and the rest of the M u t u a l
Aid Agreement. Under the Lend-Lease A c t the President is given irrevocable
authority to determine the benefits which the United States shall receive in ­
return for Lend-Lease. Article V I I , however, deals among other things with
" the betterment of world-wide economic relations," and it has been argued t h a t
this is outside the mandate which has been given to the President by the Act.
I n strict constitutional theory, therefore, the first six articles of the Mutual
Aid Agreement are irrevocable, but Article V I I can be held to be ultra vires of
the President and therefore revocable by Congress.
Even so, there is one passage in Article V I I which appears to be constitutionally binding upon the United States, the passage which states t h a t the terms and conditions for the repayment of Lend-Lease " s h a l l be such as not to burden commerce between the two countries." A n d it is exceedingly to our advantage t h a t this should be so, for this p a r t of the M u t u a l A i d Agreement is going to be our sheet anchor when we come to the final settlement of Lend-Lease. The position so far as the more general p a r t s of Article V I I are concerned
seems to be this. The declarations about the expansion of trade, the elimination
of discrimination, the reduction of trade barriers and so on, are something t h a t
the President required from us as an inducement to him to give us the advantage
of the other p a r t s of the agreement. These declarations are binding on us and
on him but not, in the same degree, upon Congress. Congress, for its part, has.
[26868]
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an option and it has not yet determined whether, or in what form, it will exercise
it. We cannot withdraw this option. But Congress is not compelled to exercise
it. Of course, if it does not exercise it, we, on our side, are equally released.
But until we are released we are bound by Article V I I . We must face the fact
that the Americans have an option, as it were, upon sanity. Until they go mad,
we for our p a r t are under an obligation to remain sane.
There is nothing very damaging to our interests in. all this. We get the
invaluable advantage of terms of settlement which " w i l l not burden commerce."
I n addition, we have the possibility—to put it no higher—that the United States
will pursue an economic policy which is very much in our interests. I do not
think, therefore, that there is much force in the argument that we are bound
while the Americans remain free. According to the strictest interpretation of
constitutional theory we are more deeply committed than they to Article V I I .
But nothing would be gained if we tried to equalise matters by running out of
our p a r t of the bargain. And a very great deal would be lost.
I t is said that it may be very dangerous to negotiate on matters so contentious
during the Presidential year. I t will certainly be impossible, it is argued, to
reach an agreement during the election campaign; the effort to agree will create
misunderstandings of a kind very damaging to the whole nexus of AngloAmerican relations; would it not be more prudent, therefore, to put the whole
question into cold storage until this dangerous period is over ? In any case, it may
be said, it is likely that the present Administration will be succeeded by a
Republican Administration allergic to the principles of internationalism which
a r e implicit in Article V I I ; would it not be wiser, therefore, to await the result
of the Presidential election before we commit ourselves irrevocably to any
particular policy ?
There is obviously some force in these arguments, but I do not think that
they are conclusive. In American eyes it would seem to be an attempt to slip
out of a commitment. A n d the underlying motive would not be hidden, for it
would be obvious' that we had drawn back because we were beginning to discount
a Republican victory in November. This would not endear us to the Administra­
tion. Nor, I fancy, would it placate their opponents, who are likely to remain
unimpressed, by such an exercise in appeasement.
I n any case it would be a mistake to base our policy upon the firm assumption
that a Republican administration would be opposed, in all circumstances, to
international co-operation in the economic field. The presumption is t h a t the
Republicans are economic isolationists. But it would, I think, be a mistake to
wager very heavily on it. Such evidence as I have seen is scanty, but it is in the
contrary sense. We have heard from Washington that the State Department have
already disclosed to influential manufacturing associations the more contentious
parts of the commercial policy that was agreed in Washington. The disclosure
was well received, and the manufacturers, it is said, have become proselytes.
Some days ago. I was talking myself to Sir Alan Anderson and
Mr. A r t h u r Guinness, who have recently returned from a tour of the United
States. They told me that the American industrialist was far more conscious
than they had supposed of the straits in which he Avould find himself if the unduly
favourable balance of payments of the United States was not adjusted by some
expedient or other. Sir Alan and Mr. Guinness were firm in their conviction, it
is true, that neither a drastic reduction in the tariff nor a Stabilisation F u n d
would be acceptable in the present state of opinion in the United States. I t was
clear, nevertheless, that opinion in Republican, industrial circles was crystallising
in this direction; something, disagreeable in greater or less degree, would have
to be done to save the United States from the consequences of overwhelming­
economic supremacy.
I t is a fact which we should be unwise, in my opinion, to ignore, t h a t the
American industrialist is nobody's fool, and that he looks as far ahead as most
people. H e has not forgotten t h a t there were twelve or fifteen million unemployed
in America during the depression, t h a t this figure possesses no particular sanctity
and may well be exceeded after the war, and that the social structure of the
United States is not so strong that it can bear unlimited strains of this kind.
There is this further consideration.
The Americans must be at least as
conscious as we are of the difficulties of the Presidential election. I t is a fact
that the Administration are pressing us to continue the Washington
Conversations. A r e we wise if we refuse on account of domestic factors, not in
this country, but in the United States ?
I conclude, therefore, that it would be a mistake for us to desist from the
policy Upon which we have agreed because of the American elections. I t would
177
give the appearance of deserting our friends: i n an effort to placate those whom
we thought to be less friendly. I t is by no means clear t h a t appeasement of t h i s
kind would be well directed. Finally, the Administration itself does not seem t o '
share our qualms.
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III.
The Washington Conversations and British Interests.
I have already said that the principle projects discussed a t Washington
were British projects, p u t forward by us and for our advantage.
I t may be
convenient if I develop the argument here.
W e can all agree that the greatest economic task which will face us
internationally will be to restore our balance of international payments, which
the war will have thrown seriously out of joint. We must certainly not accept
any obligations inconsistent with our determination to provide Food, Work
and Homes for 47 million people in these islands.
B u t for this policy we
shall need not only wise arrangements at home, but a steady volume of essential
imports of food-stuffs and raw materials. Where are we to find the markets
for the exports by which alone' we shall be able to pay for these essential imports ?
There is a characteristic of our t r a d i n g position which has a vital bearing
upon our future economic policy. I t is. this. The manufactured goods which
we export are less essential to our customers than the food and raw materials
which they export to us; and our exports to them have to be sold, to a n increasing
extent, in competition with their own manufactures. From this it follows t h a t
it is more important to us to be able to prevent our customers from imposing
restrictions upon our exports than to have freedom to protect ourselves
against imports from them. If we insist upon absolute freedom to limit
imports other countries will take the same freedom to limit their imports. A n d
because we cannot do without their exports while they can do without ours our
bargaining position is likely to be a weak one. I n the long run our customers
would become increasingly self-sufficient while we remained dependent, and
we could look forward only to ever diminishing standards of life.
Moreover, the plain, blunt and disagreeable t r u t h must be faced t h a t there is no mechanical device by which we can ensure that the rest of the world will maintain the population of these islands at a s t a n d a r d of life higher than t h a t to which it is entitled by its economic activity. No amount of wishful thinking
or of Hegelian dialectic will soften the harshness of this formidable truth. The solution of the problem with which we are faced must depend, therefore, upon the energy, the ingenuity and the technical skill and experience of the British people. One other thing we must do. W e must ensure, as far as we can, t h a t , these qualities have full scope in the post-war world and that the advantages which we possess in the innate qualities of our people should not be lost through the imposition of trade barriers, import restrictions and the like against British exports. There is also another characteristic of our trade position which it is necessary
to bear in mind in considering the Washington Conversations. We do not sell
in the same markets from which we buy. From the point of view of our future
trade prospects, therefore, it is important that there is machinery for multi-,
lateral clearing, so that our purchases in one p a r t of the world can be offset by
our sales in another. The only alternative to something like the Stabilisation
Fund or the Clearing Union is a system of currency blocs and bilateral t r a d i n g
arrangements through which purchases and sales would be balanced w i t h each
individual country or group.
There are political arguments, to which I will refer later and which seem
to me to be, decisive, against our adopting such a system of bilateral trading.
But superficially it is attractive. I t is easily understood. I t is neat and tidy.
I t has a specious appearance of fair-mindedness and fair play; after all, why
should we buy so much from the Argentine when t h e dirty A r g e n t i n o buys so
little from us? B u t it has very great disadvantages. I t means t h a t we force,
our export trade into a straight-jacket. Instead of producing those things for
which they have a special aptitude, and in the production of which they have a
competitive advantage, our manufacturers are forced to take u p other lines for
which they have less special a p t i t u d e and in which they have less competitive
advantage.
Moreover; if we adopt the bilateral solution we cannot hope to reach any
agreement limiting the protective barriers that other countries may erect against
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our exports. As time goes on, our customers will throw off their dependence upon
us which our bilateral bargains will have emphasised, and will adopt a protective
policy for the excessive and uneconomic industrialisation of their countries. W e
may then see the sources of. our essential supplies of raw materials and food-stuffs
drying up—sources which we can best hope to maintain by a reasonable policy
outlawing immoderate protectionism all round.
The multilateral solution will, of course, impose certain restrictions on our
freedom of action. First, there would be limitations on the degree to which,
and the methods by which, we could protect particular industries in this country.
This limitation of our freedom involves real problems, and I will touch upon them
at a later stage in this paper.
Secondly, we cannot hope to make substantial progress on these lines without
a substantial modification of Imperial Preferences. The more extreme advocates
of Imperial Preferences may regard this as little less than disastrous, but they
push their arguments too far. Thanks to Preferences, it is said " The Empire
has in recent years taken half of our manufactured exports " ( W . P . (43) 388).
And again there is talk of " those Empire Preferences with the help of which
practically half of our gross total exports have in recent years gone to the
Empire . . . . it would be safe to say that the Empire trade was worth a great
deal more to us than the trade of the rest of the world p u t together. How can
we hope to retain the preferences upon which that trade is so largely based unless
we give preferences in r e t u r n ? " (W.P. (43) 576)..
I n one sense, of course, it can be said t h a t it is thanks to Imperial Preference
that the Empire takes half of our manufactured exports; for before the Ottawa
agreements the countries of the Empire absorbed not 50 but 45 per cent, of our
export trade. I n any other sense than this, however, the economic consequences
of Imperial Preference must be admitted to be less satisfactory. For our exports
to Empire markets fell from £324 million in 1929 to £235 million in 1938.
I t is true t h a t our exports to countries outside of the Empire were contracted
even more savagely (£405 million in 1929 as against £236 million in 1938). But
the fact that our exports to the Empire did not fall quite so seriously as our
exports to other countries can hardly be taken to prpye t h a t Preferences carry
with them the solution of our balance of payments problem. A fall in the total
value of our export trade from £729 million to £471 million (and a change from
a favourable balance of payments of £103 million in 1929 to an unfavourable
balance of £55 million in 1938) is to be explained by the very great increase in
the barriers of every kind which were raised against them in the markets of the
world. I t was not only that the advantages of the Ottawa Agreements were
offset by the high tariffs and. import restrictions, some of them retaliatory in
their nature, which were imposed against us i n world markets. The very real
advantage which we derived from the exchange depreciation in 1931 was partly
lost when other countries, such as the United States, depreciated their exchanges
against us in unnecessary retaliation.
From the point of view of the long-term prospects of our balance of payments
the ideal arrangement would be one which permitted us to impose such restric­
tions as we thought necessary and denied the same right to other countries. I t
is obvious that such an ideal cannot be realised, but the policy which was agreed
at Washington goes very near to -it. I t gives us, to quite a remarkable extent, the
best of both worlds.
For it is of the essence of the Agreed Statements on Currency and Commercial
Policy that a country with an unfavourable balance of payments is permitted to
use expedients which are denied to a country with a favourable balance. I n other
words, we shall be allowed greater facilities if our balance of payments is
unfavourable to depreciate sterling than are allowed to the United States, for
example, while it has a favourable balance of payments. I n the same way we
shall be allowed a tight control of our imports, if our balance is unfavourable,
while countries with a favourable balance are denied the use of the same
expedients. Moreover, a country whose balance of payments is so favourable
that its currency becomes " s c a r c e " will have to face the prospect of
discriminatory restrictions against its goods without the right to. retaliate
in kind.
I t is important to consider whether the freedom of action which we enjoy
under these proposals is sufficient for our purposes. A number of my colleagues
are concerned, very properly, to ensure that we are not so tightly bound up with
a world s y s t e m t h a t we a r e debarred from pursuing in the domestic field policies
of expansionism and full employment, irrespective of. what world conditions
may be. I t must be admitted t h a t in 1931, a t a. moment of unparalleled
disequilibrium a n d depression, we were" free' -to adopt a' numner of e x p e d i e n t s ­
tariffs, preferential arrangements with the- Empire, quotia restrictions and
currency d e p r e c i a t i o n - w h i c h enabled'us^ to weather the storm as we Could not
have done if our hands had not been free.
But the absolute freedom which we enjoyed before the war was largely
illusory, because every other country had precisely the same freedom a n d used
it in precisely the same Way. Our exchange depreciation was offset by the
unnecessary American exchange depreciation; the' inexcusable Hawley-Smoot
tariff of the Americans preceded our O t t a w a agreements; a n d our tariff was
counterbalanced by a proliferation of t r a d e b a r r i e r s in our overseas markets.
Our freedom to manage our own affairs might have been more real i n fact if it
had been more limited in theory a n d if we had- been able, in return for some
sacrifice of our own liberty of action, to ensure t h a t other countries did not-abuse
theirs: If We adopt the policies which our delegation were discussing a t
Washington we shall certainly lose some of our freedom to protect particular
industries and occupations in this country. B u t we shall"gain immensely in our
freedom to accept imports and to pay for them with exports. While we retain
considerable latitude in the management of our own exchange rates, we a r e
protected from a competitive siege of exchange depreciation, a n d we are assured
of some stability in exchanges a n d of a m u l t i l a t e r a l clearing system-which-will
greatly facilitate our export policy. A n d while we retain the r i g h t to impose
quantitative restrictions upon our imports when our balance of payments is
unfavourable, we ensure that countries with a favourable balance cannot impose
similar restrictions against our exports. A t the same time we may well gain far
more than we lose from an all-round reduction in tariffs. Generally speaking, the
level of our own tariffs is lower than that of the tariffs over which B r i t a i n exports
have to climb in foreign markets. Our officials insisted at Washington that any
tariff proposal which we could accept must involve a more radical cut in high
than in low tariffs/
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IV.
The Period of Transition.
Regarded as a long-term objective the policy of Article V I I a n d the
Washington Conversations is clearly in our interests. I t gives us as much liberty
of action as we can hope for in an imperfect world, and it protects us, in very
great measure, from the abuse by others of t h e freedom which they enjoy. B u t
it would be ridiculous to maintain t h a t this policy will give us all t h a t we want,
or all that we shall need, in the immediate post-war period. Special arrangements
will have to be made to cover the transitional period. A n d we may be well advised,
when we resume our discussions w i t h the Americans, to concentrate more
thoroughly than we have so f a r done upon the economics of the transition. I t is
certain that w e shall require d u r i n g this period a greater measure of freedom
(and assistance) than we shall be allowed under the long-term arrangements which
we are contemplating,
Some of my colleagues, I know, argue t h a t we should concentrate exclusively
upon the transitional period and leave the long-term problem to take care of itself.
That, after all,' is ' our policy a t home. W h a t ' r e a s o n i s there for a d o p t i n g a
different attitude in our external economic relationships ? There are very good
reasons. I n the first place we are going to need a measure of assistance from the
United States if we are to surmount our immediate post-war problems. W e shall
have to get t h a t assistance on terms which will not involve a repetition of the
difficulties of the debt situation after the last war. This is a problem which it
is going to be difficult for us to solve in any case. But a solution becomes
impossible if We s t a r t off w i t h a n alignment of policy which runs directly counter
to the American view of international economic relationships. W e a r e entitled
to argue, if we like, that our view is as good as theirs a n d that it is only, chicken­
livered pusillanimity to consider American suspectibiiities to this extent. B u t we
cannot expect t h a t such a line of argument will do very much to persuade the
Americans to meet us in our special difficulties.*
T h a t is not all. W e have to consider the economic position of the world as
a whole. Our own position is not unique. W e are not the only people who will
need a - special i latitude in the immediate post-war period. Others, besides
ourselves, will be faced with acute problems of industrial demobilisation. Others
will be looking for full-employment policies. Others will be protecting their own
industries and seeking by subsidies, two-price systems and the like to expand
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their exports. Unless, therefore, we take special measures to guard against it,
the conditions of the transition will become normal and permanent. If we decide
that a system of ordered multilateral trading will suit us best in the long run, we
must see to it that the expedients which we and others are driven to adopt during
the transition are directed towards this long-term goal and, as far as may be
possible, made to conform to it. Dispensations there will haye to be, but it is
essential that they be granted by agreement among the Bishops and in accordance
with the rules of the Church. Otherwise the sin will prove mortal.
Moreover, the transitional arrangements which other countries may adopt
to restore their economies may accentuate, in some cases unnecessarily, the
difficulties of our own transitional adjustments. Serious undervaluation of the
currencies of our competitors or import restrictions, unnecessarily prolonged, or
unnecessarily severe, in our export markets, would increase our difficulties.
While, therefore, we require special freedom of action in the transitional period,
we are equally interested in achieving a moderate use of these freedoms and their
termination at as early a date as is reasonable.
There is yet a further reason why we cannot apply to our external arrange­
ments for post-war reconstruction the principle which we have chosen to apply
to our internal reconstruction, namely, to concentrate on the transitional
arrangements. We can make our own discussion of our domestic arrangements
wait upon our own political convenience. But we cannot make the discussion
of long-term economic arrangements by the Americans, the Russians, the Chinese,
the French, the Dutch and the rest of the world wait upon our internal con­
venience. W e must be prepared to discuss long-run external arrangements when
others are prepared to discuss them; and if we miss the psychological opportunity
offered to us now, it may never recur.
Our transitional arrangements should, therefore, be based upon the following
considerations. We must lay great stress on their importance and must start
to consider them in greater detail when we next meet the Americans; we must
retain" sufficient freedom of action to make sure that we can restore our position;
we must ensure that the full obligations of the long-term settlement do not come
into operation before we (and other countries) will be in a position to fulfil them;
we must, however, take what steps we can to ensure that the special freedoms
of the transitional period are not abused and are not unnecessarily prolonged;
and we must not allow these transitional difficulties to stand in the way of
reaching agreement now on the longer-term arrangements. General suggestions
of the way in which these principles might be applied to the transitional
arrangements for monetary and commercial policy are outlined in more detail
in the Annexes A and B.
I can see some force in the argument, which has been put forward with
especial reference to Agriculture, t h a t a transitional policy which is not
avowedly permanent is no policy at all. Agriculture, it is agreed, is a long-term
business and the farmer is not interested in the quick return. To give him, for
example, an assured market in wheat up to a certain figure, in order to meet
a particular crisis, and remove the assurance when the crisis has been met
(partly as a result of his own efforts) is not practical politics. A t any rate, it
is not practical economics.
But we must not force this argument too far. We do not apply it to the
emergency production of aircraft or munitions. We do not maintain t h a t it is
impracticable politically or economically to demand of the aircraft industry
a vastly increased effort so long as our very being depends upon it, unless we
are willing permanently to assure the industry of almost unlimited protection.
Munitions production and food production are both essential to us in an
emergency; and we may properly decide, even after the transition from the
emergency is over, to give them special help and consideration. But in neither
case is it essential to prolong emergency or transitional arrangements indefinitely
without modification.
My colleagues will find in Annex B (paragraph 16) examples of the
kind of latitude which will be allowed in the long run to the agricultural
industry under the Washington proposals. Quantitative restrictions will not
be permissible as a long-term measure; but moderate tariff protection and
subsidisation* will be allowed. Guaranteed prices could still be offered to home
* W h e t h e r or n o t a n y l i m i t a t all wiJl b e p l a c e d u p o n t h e s u b s i d i s a t i o n of a g r i c u l t u r e is still
a m a t t e r of A n g l o - A m e r i c a n d i s p u t e . A s o l u t i o n is t e n t a t i v e l y p r o p o s e d b e l o w ( A n n e x B ,
p a r a g r a p h 17 (iii) ), w h i c h w o u l d r e t a i n for a g r i c u l t u r e t h e u l t i m a t e r i g h t of u n l i m i t e d
s u b s i d i s a t i o n ; b u t i t is n o t y e t p o s s i b l e t o s a y h o w t h e A m e r i c a n s w o u l d r e c e i v e t h i s p r o p o s a l
if we did p u t it forward.
producers by subsidies, by levy-subsidy arrangements or by State^ import
monopolies, provided t h a t these arrangements were not used to raise the price
of food to the home consumer excessively above the world price of imports. On
the assumption that agriculture is to work its own passage to the fullest
possible extent these provisions ought surely to give a sure foundation for a
prosperous industry. I t is only if agriculture is regarded as being permanently
or whole-heartedly on the dole that they are inadequate. We are pledged to the
farmer to support a prosperous agriculture, but t h a t cannot be taken to mean
that a t whatever cost to the consumer in expensive food we a r e to m a i n t a i n
excessively uneconomic forms of agriculture at excessively inflated levels of
production.
At Hot Springs we discussed principles of nutrition, the long-term
application of which would stimulate in this country as elsewhere the demand
for home-produced food-stuffs of a perishable but nutritive character, which
we are well fitted to produce for ourselves. This may help to form the basis
of a policy which is advantageous to our urban consumers, stimulating to our
farmers and fully compatible with our desire to co-operate economically with
other countries. This, combined with the freedoms which we r e t a i n under the
Washington proposals, can, I submit, form a sure basis for a " h e a l t h y and
well-balanced agriculture.'
There is an argument affecting the transitional period which appears in
Annex A, p a r a g r a p h s 85 to 38. and which, I think, it might be useful for me to
comment on here. The critics of the currency scheme seem to believe t h a t the
existence of the long-term arrangements which were contemplated at W a s h i n g t o n
will jeopardise in some way our position during the transitional period. The
Americans, so the argument runs, are p u t t i n g u p more t h a n £300,000,000 for
Relief. Under the currency scheme they are being invited to p u t u p a further
£750,000,000, and of this we are the beneficiaries to the extent of nearly half.
I t is a fact that, irrespective of the fate of the currency scheme, we shall require
further and very substantial assistance from the Americans immediately the w a r
is over. W e cannot get along without it. Whatever may be the long-term
advantages of the currency scheme, w i t h all its indirect benefits, w h a t we must
have now is direct financial help. A r e not the Americans likely to feel, if the
commitment of the currency scheme is added to their commitment for
U.N.R.R.A., t h a t they have been generous enough ? A r e we not in danger, in
our pursuit of the currency agreement, of losing the substantial advantages
which, in one way or another, we must persuade the Americans to offer us 1
But in this way, the argument is a very formidable one. But if we p u t it
more realistically, it is perhaps less impressive. We' have great favours to ask
of the Americans, favours which we must have and which, it may be, it will be
most difficult for them to grant. W e must do nothing, therefore, which will
confuse the issue. W e must do everything to create an atmosphere which will
be favourable to us when we come to make our demands upon the Americans.
How can this best be arranged ? Clearly, there is only one way. W e must reject
out of h a n d proposals to which the Americans attach great importance, of which
they are intensely proud, and in the formulation of which they have done a very
great deal to meet o i r special difficulties. W e must explain to them t h a t we a r e
no longer interested in the international arrangements which a r e under discussion
between us. W e are not looking for help for the U n i t e d Nations. W h a t we w a n t
is help for the United Kingdom. All of this having been made clear to the
Americans, we shall have so endeared ourselves to them that incontinently they
Avill meet all our demands.
1
V.
The Alternatives to Article V I I .
I believe t h a t the policy which we discussed at Washington will serve our
interests better t h a n any alternative. While I am far from s h a r i n g the gloomy
apprehensions of some of my colleagues, I can give no assurance t h a t we shall
ever reach an agreement with the Americans oh these lines. On a cool calculation
of the probabilities, it must be regarded, I think, as unlikely. B u t this policy,
u we can achieve it, is so much in our interests, and our first approach to the
Americans has been so much more promising than we could have d a r e d to hope,
that it would be madness to draw back now. A n d the alternatives are so b a d - a n d
'
''. ' .
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:
;
!
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c
in certain circumstances might be so desperately bad—that we would be unwise
to embrace them until we are left without any other choice.
Perhaps, the most obvious alternative is that we should keep our hands free
to make the best use of our bargaining strength as the main importing country
of many important commodities. I n 1938 the United Kingdom and Ireland
accounted for 80 per cent, of total world imports of beef and mutton, 40 per cent,
of world imports of wheat, 36 per cent, of zinc, and 19 per cent, of cotton imports.
By a system of quantitative import regulation, of clearing agreements and
discriminatory State purchases, we might be able to induce certain other countries
to take our exports in return for the purchases which we make from them. The
supplying countries could not readily submit to losing so important a market for
their principal exports. A t the same time we have, in the British Commonwealth
and Empire and the Sterling Area, a number of prosperous and friendly countries
with whom we could work together, in a system of mutual arrangements, to build
over a wide area a progressively expanding economy. I t can be argued, too, that
all this would be healthy and in conformity with the spirit of the age which, it
is said, is working all the time towards larger national groupings.
If we adopt a policy of this kind, we shall have, it is true, a fruitful example
to guide us. This is not virgin land. A great deal of valuable pioneering has
already been done for us by an eminent German financier. And he very nearly
pulled it off. Indeed, it can be argued very plausibly that Dr. Schacht was not
misguided but only unfortunate. We shall have advantages that were denied to
him. And Dr. Schacht was setting himself to create a war economy. We, by
contrast, will be nourishing and fortifying the arts of peace.
I t may well be that, in the end, we shall be thrown back upon attempting an
alternative of this kind. If we fail to reach an agreement with the Americans
on a multilateral policy, however, it is possible that we shall find some alternative
less opposed to our interests than a policy of pure bilateralism. Before we chose
the latter we had better consider very carefully what it is that we shall be doing
and whither the road will lead us.
There is a vast difference between adopting this policy because the Americans
have refused the other approach and embarking upon it before we have exhausted
every other alternative.
For the latter will be regarded by the Americans as a
Declaration of W a r . I am convinced that this is so. I t is not a matter of
party alignment or of who wins the Presidential election. Short of our seeing
the Secretary of State for I n d i a himself installed in the White House next
January, with the Minister for Agriculture and Fisheries presiding, as VicePresident, over the Senate, it is impossible to conceive of any change in the
political scene in the United States which will affect the t r u t h of the proposition
t h a t the adoption by this country of a naked Schachtian policy will be taken as
a Declaration of W a r . And indeed it will be nothing else, for we shall be
deliberately organising the world into rival economic groupings in which not
private entrepreneurs but powerful Governments will be the protagonists. I
cannot see what kind of a political structure we shall be able to erect on a
foundation of this kind. .
But the evil will not stop there. I t is one thing to speak of the Common­
wealth and Empire or the Sterling Area as the foundations and buttresses of our
new economic policy. But what will be left of either when the gloves are off?
W h a t will.be the position of Canada if we come to a break with the United
States on so fundamental an issue ? Canada is not a member of the Sterling
Area. Her economic system is indissolubly bound u p with that of the United
States. I think that there can only be one answer to such "a question.
Sir Wilfred Laurier would walk again. Reciprocity would become a fact. And
what of South Africa ? Is it really conceivable that a country whose economy is
based upon the production of gold would break with her best and perhaps her
only customer? The position of Australia is more doubtful, although it is
certain that the American market has many attractions for Australia. W e may
hope that the position of New Zealand would not be doubtful at all.
And then there is the Sterling Area. We are too apt to think of the Sterling
Area as a kind of annexe of the British Empire. I t is nothing of the kind. I t
is a somewhat fragile association of countries who came together to pool their
resources for certain limited purposes, and because they were willing to
contribute what lay in their power to the conduct of a common war. But the
arrangements which have been accepted during the war are most unlikely to
survive it. For what advantages will we have, to offer them against the induce­
ments of the United States ? I t would not be politic-—nor indeed would it be
necessary—to tell them the truth and to inform them that we were proposing to
make use of them to pull our chestnuts out of the fire for us. We cannot offer
them gold or dollars. We cannot offer them the capital equipment of which they
will be in need. This tenuous gossamer fabric of the Sterling Area would
dissolve like a morning mist exposed to the direct rays of the noonday sun.
For these reasons I find some difficulty in understanding some of the
arguments put forward in Annex A by the critics of the currency proposals
which were discussed at Washington. I t is said that the adoption of any scheme
on these lines would make " the continuance of the sterling area impossible in
any form in which we have known it h i t h e r t o . " I have an iineasy feeling t h a t
the argument ought to be put the other way round and t h a t for " impossible "
we should, read " possible "—if by " sterling area arrangements " we mean the
old traditional practices. For, unless our position is strengthened by some
expedient of the kind discussed a t Washington, it is not easy to see how the long­
standing banking practices of the sterling area can easily continue.
I t is perfectly true that a system has been developed under war-time conditions
by which " the various sterling countries turn over to us their surplus earnings
of foreign exchange and we in return supply them with the foreign exchange
they need, while transactions with the outside world are regulated by systems
of exchange control, administered throughout the area on broadly similar lines."
Very useful and convenient this system has been. A n d very convenient it would
continue to be, if there were the remotest chance of our being able to m a i n t a i n it.
I t is full of attractions for us. I t is more difficult to see what charms it will
have for the other members. For the maintenance of the war-time arrangements
of the sterling area depends upon the transactions with the outside world of the
area as a whole being restricted by systems of; exchange control. I n other words,
Australia forgoes the luxury of American refrigerators or electric razors, New
Zealand does without American automobiles, in order to pile u p hard currencies
in London and thus to further the common war effort. I t has been a most striking
example of the principle of the pooling of resources. I t is possible t h a t the
system would not have worked so smoothly, even in these times, if it h a d not
been for war-time restrictions upon shipping. I t is certain that it would not
work at all in normal conditions, and t h a t the Dominions cannot be expected to
submit to an indefinite lowering of their standards of living, not to win the war
but simply to make London a peace-time financial centre. To invite them to
do so is not going to preserve the sterling area. I t is more likely to send it up
in smoke.
Again, it is difficult to follow the line of reasoning which argues t h a t " the
inauguration of the scheme before the problem of the sterling balances lias been
satisfactorily resolved by direct negotiations between us and the holders of the
balances, would make those negotiations more difficult because the discussions
would start on the assumption t h a t at the end of a limited Transitional Period
sterling would be freely convertible." This can only mean t h a t India, for example,
foreseeing that the adoption of the currency scheme would greatly alleviate
our difficulties, would be more exacting in her demands. This, however, is not
an argument against the currency scheme in particular. If it is the case that
an improvement in our position, in this or any other field, is only going to p u t
us at the mercy of our creditors, then, clearly, we would do better to stay as
we are. But I hope t h a t it is not in this kind of a spirit t h a t we are going to
deal with I n d i a ' s sterling balances. I hope, rather, t h a t it will be made clear
to I n d i a t h a t she, too, must make a financial contribution, in some form or
another, to the w a r effort, and t h a t the balances which she h a s acquired d u r i n g
the war are not to be regarded as the increment of ordinary commerce.
I have discussed some of the political consequences which would follow from
a repudiation of Article V I I . But there would also be economic consequences.
The Americans would retaliate in kind. If it is our policy to make economic
war upon the United States (and it is sheer humbug to pretend that this policy
is anything else), then the United States will certainly make economic w a r
upon us. So much has been made clear to us. And the armoury of the
United States is a very powerful one. By assisting the countries which would
be our principal customers to develop their secondary industries, the Americans
would be able to expand their own exports at the expense of our markets. By
subsidising secondary industries of their own, cotton-spinning, for example, they
could lessen their dependence upon export markets for their stable crops, deny us
the raw materials which we require for our own exports or, at any rate, raise
the price against us, and at the same time create a new and formidable
competition for us to meet in the markets of the world. All this, it may be said,
would be grossly uneconomic. Of course it would. B u t we would surely be
unduly innocent if we were to suppose that we should be allowed an unchallenged
monopoly in the new economics. Of course we should have to fight it out. And
in this field, if anywhere, the longest purse—and it is not ours-—-would win.
These are some of the obstacles which we are likely to meet if we follow
Dr. Schacht down the road of bilateralism. If, however, eventually we have to
face them, our position will be stronger if we have exhausted, first of all, every
alternative. If it has been made clear beyond all possible doubt that the
Americans cannot be brought to any reasonable accommodation, if it is clear
that we have been driven to other expedients not from choice but from necessity,
then there is a chance, at least, that we shall be able to carry with us the members
of the British Commonwealth and the Sterling Area, I t is possible, too, that
we shall be able to avoid a direct conflict with the United States if it can be
shown that the choice is not ours. But to w i t h d r a w now from negotiations into
which we have freely entered, to pursue a policy which we know is anathema to
the Americans and which, even for us, is only a second best, would be to invite
the sharpest conflict, and one in which we would find ourselves without allies.
VI.
Matters requiring Cabinet Decision.
I t is necessary for the Cabinet now to decide whether or not to proceed with
a policy generally on the lines discussed a t Washington.. We must make up our
minds upon this main issue of principle. Only when this has been done will we
be able to give the necessary guidance to the officials taking p a r t in the conversa­
tions with the Dominions, which start on the 21st February.
We must make up our minds on the main issue. But if we decide that we
are not going to reverse our policy and that we are going to proceed on the general
line of the Washington Conversations, it is essential, in my view, that there
should"be no reservations of any kind. I t has been suggested to me that a possible
course might be to keejp the Americans in play on Article V I I in such a way as
to ensure that the more difficult decisions would be indefinitely postponed and,
perhaps, evaded altogether. B u t this would not only be dishonourable. I t would
be the most dangerous folly. I hope, therefore, that if the Cabinet decides to
continue the line of policy which is outlined in this paper, it will be made clear
to all concerned that the policy is to be carried through with conviction a n d a
determination to make it successful.
A p a r t from the main issue, there a r e a number of subsidiary, but never­
theless important, matters oil which Ministerial guidance will be required for
the conduct of the talks with the Dominions. These questions are listed a t the
end of the Annexes to this paper.
I t would be difficult to decide these complicated and somewhat technical
issues at one, or even a series of Cabinet meetings. I would propose, therefore,
that we decide now whether or not we wish to proceed on the general line of
.policy discussed at Washington; and, on the assumption t h a t we agree to do so,
a Committee of Ministers might be asked to decide before the 21st February
on the line to be taken by our officials on the questions raised in Annexes A to F
of this paper.
R. L."
Foreign Office, S.W. 1, 7th February,
1944.
A N N E X A.
(i) T H E P R O P O S A L F O R A N I N T E R N A T I O N A L M O N E T A R Y F U N D .
THE PRESENT
STATE OF
NEGOTIATIONS.
1. As a r e s u l t of t h e a u t u m n c o n v e r s a t i o n s in
Washington a n d s u b s e q u e n t i n t e r - c h a n g e s , a final t e x t
(subject t o a few m a t t e r s of s e c o n d a r y i m p o r t a n c e ,
( -bout which c o r r e s p o n d e n c e is still t a k i n g place) h a s
now b e e n a g r e e d w i t h t h e U n i t e d S t a t e s T r e a s u r y o n
the expert level. T h i s t e x t is p r i n t e d below u n d e r t h e
title of a Statement
of
Principles.
2. I t w o u l d n o t h a v e b e e n possible t o a c h i e v e t h i s
agreed t e x t if t h e U n i t e d S t a t e s T r e a s u r y h a d n o t
shown t h r o u g h o u t t h e n e g o t i a t i o n s a n exceedingly con­
ciliatory spirit a n d a m a r k e d will t o a g r e e m e n t . F o r ,
whilst t h e s e t - u p of t h e s c h e m e follows t h e A m e r i c a n
model m o r e closely t h a n t h e B r i t i s h , on m a t t e r s of
substance v e r y large concessions h a v e b e e n m a d e t o o u r
point of view.
3. T h e t e x t does n o t b e a r a close r e s e m b l a n c e t o
either of its p r e d e c e s s o r s . I t w a s a g r e e d a t W a s h i n g t o n
to set aside b o t h t h e B r i t i s h Clearing U n i o n draft a n d
the A m e r i c a n S t a b i l i s a t i o n F u n d draft, a n d t o s t a r t
afresh with a n a g r e e d S t a t e m e n t of P r i n c i p l e s w h i c h
would try to cover t h e m a i n p o i n t s on w h i c h M i n i s t e r s
and legislators would r e q u i r e t o b e satisfied, b u t w o u l d
not a t t e m p t a t t h i s s t a g e t o i n c o r p o r a t e t h e c o m p l e t e
set of articles w h i c h will h a v e t o b e d r a f t e d before t h e
new i n s t i t u t i o n c a n c o m e into b e i n g . T h e r e s u l t is m u c h
shorter t h a n e i t h e r of t h e original c u r r e n c y p l a n s a n d
occupies below less t h a n t h r e e p a g e s of p r i n t .
4. I t is s u g g e s t e d t h a t t h e title of t h e n e w i n s t i t u ­
tion should be n e i t h e r t h e International
Clearing
Union, as we originally proposed, n o r t h e
International
Stabilisation Fund, as t h e A m e r i c a n s proposed, b u t t h e
International Monetary
Fund.
T H E E X T E N T O F OUR P R E S E N T
COMMITMENTS.
5. The U n i t e d S t a t e s T r e a s u r y h a v e b e e n t o l d t h a t
our e x a m i n a t i o n of t h e p r o p o s a l h a s r e m a i n e d so far o n
the strictly t e c h n i c a l level, t h a t it h a s n o t b e e n con­
sidered b y M i n i s t e r s a n d t h a t t h e r e a r e as y e t n o
Cabinet i n s t r u c t i o n s w h e t h e r it is a c c e p t a b l e , e i t h e r i n
general or in p a r t i c u l a r , as a basis for t h e n e x t s t a g e of
the discussion. Mr. M o r g e n t h a u h a s , h o w e v e r , b e e n
informed t h a t t h e C h a n c e l l o r of t h e E x c h e q u e r
envisages future p r o c e d u r e as follows: —
(
(i) As soon as possible after t h e t e x t h a s b e e n
a g r e e d a t t h e e x p e r t level b e t w e e n t h e t w o
T r e a s u r i e s , it will be s u b m i t e d on o u r side t o
M i n i s t e r s , w h o will decide h o w far or w i t h
w h a t a m e n d m e n t s t h e y are p r e p a r e d t o
sponsor t h e S t a t e m e n t of P r i n c i p l e s as a b a s i s
of discussion in P a r l i a m e n t . M e a n w h i l e , w e
are free t o e x c h a n g e views w i t h r e p r e s e n t a ­
tives of I n d i a a n d t h e D o m i n i o n s , a n d t h e
U n i t e d S t a t e s T r e a s u r y is free t o c o m m u n i c a t e
the new text to t h e Russian representatives
now in W a s h i n g t o n for m o n e t a r y c o n v e r s a ­
tions. A p a r t from t h e s e e x c e p t i o n s , n o s t a t e ­
m e n t is t o b e p u b l i s h e d on e i t h e r side u n t i l
both sides h a v e a g r e e d t o t h i s course.
(") I n t h e e v e n t of p u b l i c a t i o n b e i n g a g r e e d u p o n
between the two Governments the S t a t e m e n t
will be c o m m u n i c a t e d t o t h e o t h e r G o v e r n ­
ments concerned and published immediately
afterwards. I n t h i s c o u n t r y it w o u l d t h e n b e
the s u b j e c t of d e b a t e s in t h e t w o H o u s e s of
Parliament, and Ministers would explain to
Parliament,
in accordance
with
pledges
already given, t h a t a t t h i s s t a g e a n d prior t o
t h e expression of v i e w s in P a r l i a m e n t t h e y
were in n o w a y c o m m i t t e d t o t h e S t a t e m e n t
beyond believing t h a t it e m b o d i e d a p l a n
winch deserved t h e m o s t serious c o n s i d e r a t i o n .
[26868]
(iii) A n y s u g g e s t i o n s m a d e as a r e s u l t of t h e d e b a t e s
in P a r l i a m e n t or b y o t h e r G o v e r n m e n t s w o u l d
t h e n b e c o n s i d e r e d by u s i n c o n s u l t a t i o n w i t h
the United States Treasury.
After t h a t it
w o u l d be for M i n i s t e r s h e r e t o decide w h e t h e r
t h e y w e r e in a p o s i t i o n t o a p p r o v e a S t a t e ­
m e n t of P r i n c i p l e s b e i n g p a s s e d on t o a draft­
ing c o m m i t t e e as a n i n s t r u c t i o n . If so, it h a s
been agreed with the' U n i t e d States Adminis­
tration that the S t a t e m e n t would constitute
(as Mr. M o r g e n t h a u h a s a s k e d ) a definitive
i n s t r u c t i o n w h i c h w o u l d n o t b e d e p a r t e d from
b y either of o u r G o v e r n m e n t s w i t h o u t t h e
a g r e e m e n t of t h e o t h e r .
II.
THE MAIN
O B J E C T S OF THE P L A N .
6. T h e following is a s t a t e m e n t of t h e m a i n objects
of t h e P l a n a n d its a t t r a c t i o n s a s s e e n m o r e especially
b y our W a s h i n g t o n r e p r e s e n t a t i v e s . Misgivings w h i c h
are felt by s o m e T r e a s u r y a d v i s e r s are s e p a r a t e l y s e t
o u t in t h e t h i r d s e c t i o n of t h i s n o t e .
7. (i) I t is a c h a r a c t e r i s t i c of B r i t i s h foreign t r a d e
t h a t ' it often s u i t s us to sell p r e d o m i n a n t l y in c e r t a i n
c o u n t r i e s a n d t o b u y p r e d o m i n a n t l y in o t h e r s . O u r
best s o u r c e s of s u p p l y are n o t a l w a y s o u r b e s t m a r k e t s .
I t will, therefore, h e l p t h e e x p a n s i o n of our t r a d e if
we c a n r e - e s t a b l i s h t h e c o n d i t i o n s , g e n e r a l l y p r e v a i l ­
ing before 1914, b y w h i c h t h e p r o c e e d s of sales in o n e
c o u n t r y c a n be freely a p p l i e d t o p u r c h a s e s in o t h e r
c o u n t r i e s . T h e P l a n is c a l c u l a t e d t o s e c u r e t h i s object
after n o r m a l c o n d i t i o n s h a v e b e e n r e a c h e d , w h i l s t
r e q u i r i n g a full c o m m i t m e n t t o a m u l t i - l a t e r a l c l e a r i n g
s y s t e m in t h e t r a n s i t i o n a l period, d u r i n g w h i c h r e s t r i c ­
tions will b e i n e v i t a b l e .
8. (ii) N e v e r t h e l e s s , t h i s f r e e d o m from r e s t r i c t i o n s
s h o u l d a p p l y only to c u r r e n t b u s i n e s s a n d n o t to
flights " or u n c o n t r o l l e d m o v e m e n t s of c a p i t a l f u n d s .
E x p e r i e n c e b e t w e e n t h e w a r s clearly d e m o n s t r a t e d t h e
mischief of u n r e g u l a t e d c a p i t a l m o v e m e n t s , wdiich t a k e
n o a c c o u n t of t h e b a l a n c e of t r a d e available for over­
seas investment. T h e P l a n provides t h a t m e m b e r s shall
h a v e full l i b e r t y of action t o c o n t r o l s u c h m o v e m e n t s .
9. (iii) T h e ability of m e m b e r s t o
implement
u n d e r t a k i n g s t o s e c u r e t h e first objective a b o v e will
b e m u c h i n c r e a s e d if s o m e a t t e m p t is m a d e t o r e d r e s s
t h e m a l d i s t r i b u t i o n of liquid r e s e r v e s in t h e s h a p e of
gold a n d g o l d - c o n v e r t i b l e c u r r e n c i e s . T h e p r o v i s i o n
n o w p r o p o s e d is m u c h s m a l l e r t h a n in t h e C l e a r i n g
U n i o n P l a n , b u t is e n o u g h t o give t h e s c h e m e a good
s t a r t a n d c a n b e i n c r e a s e d l a t e r on, if it p r o v e s
n e c e s s a r y a n d if t h e s c h e m e is w o r k i n g well in o t h e r
respects.
U n d e r t h e s e p r o p o s a l s t h e q u o t a of t h e
U n i t e d S t a t e s w o u l d b e £ 7 5 0 million, of G r e a t B r i t a i n
a n d h e r Colonies £ 3 2 5 m i l l i o n ( w i t h s e p a r a t e q u o t a s
for I n d i a a n d t h e D o m i n i o n s ) , a n d of t h e world as a
w h o l e £ 2 , 5 0 0 million. T h e q u o t a r e p r e s e n t s b o t h t h e
m a x i m u m liability on a c o u n t r y t o s u p p o r t t h e F u n d
a n d also (in n o r m a l c i r c u m s t a n c e s ) t h e m a x i m u m
a s s i s t a n c e w h i c h a c o u n t r y c a n r e c e i v e from t h e F u n d .
I t also m e a s u r e s t h e m e m b e r ' s v o t i n g power, e x c e p t
t h a t n o m e m b e r is e n t i t l e d t o m o r e t h a n 20 p e r c e n t ,
of t h e t o t a l votes. I n o u r own c a s e w e shall b e l u c k y
if w e e n d t h e t r a n s i t i o n a l p e r i o d w i t h r e s e r v e s so h i g h
as £ 3 2 5 million, so t h a t t h e P l a n is likely t o d o u b l e
our r e s o u r c e s to m e e t c o n t i n g e n c i e s — a m e a s u r e of
a s s i s t a n c e n o t t o b e r e j e c t e d l i g h t l y . T h e a m o u n t of
t h e gold s u b s c r i p t i o n , w h e r e t h e U n i t e d
States
r e p r e s e n t a t i v e s h a v e g o n e a long w a y t o m e e t o u r
objections, is n o w p u t a t 2 5 p e r c e n t , of t h e q u o t a or
10 p e r cent, of a c o u n t r y ' s own r e s e r v e s , w h i c h e v e r is
l e a s t . I n o u r own case t h i s will p r o b a b l y work o u t a t
a l i t t l e l e s s t h a n our W a s h i n g t o n delegation w a s
instructed to secure.
LU. (iv) S o m e p a r t of t h e responsibility for m a i n ­
taining equilibrium should b e placed on t h e creditor
countries, i n s t e a d of throwing t h e whole burden, as
hitherto, on t h e debtor countries. T h e clause of t h e
P l a n dealing with t h i s is of great i m p o r t a n c e , not least
because it h a s been p u t forward on t h e initiative of t h e
A m e r i c a n r e p r e s e n t a t i v e s w i t h o u t a m e n d m e n t from
our side, a n d concurred in by t h e S t a t e D e p a r t m e n t
and t h e F e d e r a l R e s e r v e Board, as well as by t h e
United S t a t e s T r e a s u r y . U n d e r t h e Clearing Union
P l a n t h e liability on a creditor c o u n t r y to m a i n t a i n
equilibrium by s u p p o r t i n g t h e F u n d , if it h a d failed
to do so in s o m e other way, was m o r e or less unlimited.
T h e A m e r i c a n r e p r e s e n t a t i v e s felt t h a t Congress would
never accept an unlimited liability in a d v a n c e , and'
t h a t some other m e a n s m u s t , therefore, be. found for
fixing responsibility on a chronic creditor c o u n t r y
which was h o a r d i n g its earnings from t h e rest of t h e
world and failed to r e t u r n t h e m to circulation either
by c o n s u m p t i o n or by i n v e s t m e n t .
11. P u t shortly in t e r m s of t h e U n i t e d S t a t e s as an
example, w h a t - t h e American r e p r e s e n t a t i v e s
are
offering t h e rest of. t h e world is as follows. U p to an
a m o u n t of £ 7 5 0 million they p u t a t t h e disposal of t h e
F u n d t h e e q u i v a l e n t of any dollars which m a y accrue
to t h e m from a favourable b a l a n c e of p a y m e n t s , as a
result of their n e i t h e r c o n s u m i n g nor investing w h a t
t h e y earn from their i m p o r t s . If it a p p e a r s t h a t t h e
c u m u l a t i v e balance- t h u s built u p is in danger of
exceeding t h i s total, t h e y h a v e t h e option of g e t t i n g
rid of their s u r p l u s on i m p o r t s or overseas i n v e s t m e n t ,
of increasing their contribution to t h e F u n d which
would h a v e t h e effect of m a k i n g m o r e A m e r i c a n
currency available, or of accepting t h e conditions which
become applicable w h e n t h e -Fund h a s declared dollars
to be a " s c a r c e " currency. ;The conditions u n d e r
this t h i r d a l t e r n a t i v e m e a n in effect t h a t A m e r i c a n
exporters can no longer claim p a y m e n t for their goods
in excess of t h e a m o u n t which t h e U n i t e d S t a t e s is
m a k i n g available on t h e other side of t h e a c c o u n t by
i m p o r t i n g or b y lending. All t h e o t h e r c o u n t r i e s of
t h e world b e c o m e entitled forthwith to p u t a n y form
of restrictions t h e y choose in t h e way of a c c e p t i n g
American goods a n d in t h e way of p a y i n g for any t h e y
do accept. T o p u t this third a l t e r n a t i v e into effect
would, it is t r u e , c a u s e g r e a t t r o u b l e a n d technical
difficulty all round. I t was, however, t h e view of t h e
A m e r i c a n r e p r e s e n t a t i v e s t h a t from their point of view
the third a l t e r n a t i v e would be so intolerable t h a t it
could n e v e r be allowed to come t o t h i s in p r a c t i c e and
t h a t t h e i r c o u n t r y would b e forced t o a d o p t one of t h e
other a l t e r n a t i v e s . T h a t , indeed, is w h a t t h e y w a n t e d
to see forced u p o n t h e m . T h e y also gave as an
additional r e a s o n why t h i s would be t h e o u t c o m e , t h a t ,
if -a heavy uncovered A m e r i c a n s u r p l u s develops, this
will m o s t p r o b a b l y a c c o m p a n y s l u m p conditions in
the United
States. I n such
circumstances
the
A m e r i c a n A d m i n i s t r a t i o n could n e v e r afford to see t h e
whole of its export industries t h r o w n into confusion.
T h e A m e r i c a n r e p r e s e n t a t i v e s were fully a w a r e of t h e
implications of t h e i r own proposal. T h e y were moved
by t h e i r consciousness of how serious t o t h e world
any failure t o solve .the p r o b l em would be, and of t h e
i m p o r t a n c e , therefore, of sufficient p r e s s u r e to enforce
a solution.
N e v e r t h e l e s s , t h e offer is a signal m a r k
of t h e i r courage, of their fair-mindedness a n d of t h e i r
sense of responsibility to t h e o t h e r n a t i o n s of t h e
world.
12. T h i s proposal represents, therefore, a revolu­
tionary c h a n g e for t h e b e t t e r c o m p a r e d with t h e
position in t h e inter-war period. T h e
American
r e p r e s e n t a t i v e s offer voluntarily on behalf of their
c o u n t r y to a b a t e its former s t r a n g l e h o l d on t h e w o r l d ' s
economy a n d to offer safeguards a g a i n s t its h o a r d i n g
propensities forcing deflation on o t h e r s .
Moreover,
t h i s p a r t i c u l a r provision h a s b e e n p u b l i s h e d a n d
Congress is a w a r e of it; yet, so far, it h a s n o t been t h e
t a r g e t of.any p a r t i c u l a r criticism. I t would s e e m r a s h
on our p a r t to reject so fair an offer a n d t o risk a
r e t u r n to t h e c h a o s a n d irresponsibility of t h e former
lack of s y s t e m .
13. (v) M i n i s t e r s will be p a r t i c u l a r l y concerned witlj
t h e a d e q u a c y of t h e provisions t o secure elasticity of
exohange r a t e s . I n this r e s p e c t t h e A m e r i c a n repre­
s e n t a t i v e s h a v e been p e r s u a d e d to d e p a r t widely from
their original proposals, which seemed t o a i m at
e x t r e m e rigidity of e x c h a n g e on t h e m o d e l of the
former gold s t a n d a r d — o r , at any rate, could be
so r e p r e s e n t e d . T h e W a s h i n g t o n D e l e g a t i o n was
a u t h o r i s e d to s t a t e in plain t e r m s t h a t s u c h arrange­
m e n t s could not be a c c e p t e d by t h e B r i t i s h Cabinet
and would be inevitably rejected by P a r l i a m e n t . As
t h e r e s u l t of prolonged discussions, t h e p r o c e d u r e set­
forth in Clause 5 of t h e S t a t e m e n t of P r i n c i p l e s below
e m e r g e d ; it m a y be s u m m a r i s e d as follows: —
(a) T h e principle of c h a n g e b o t h in t h e value of
individual currencies and in t h e v a l u e of gold
itself, to suit c h a n g i n g c i r c u m s t a n c e s , is
expressly recognised.
(b) A proposal for c h a n g e by a m e m b e r country
has t o be considered judicially b y t h e Fund,
from t h e p o i n t of view w h e t h e r it is i n fact
required to r e m e d y d i s e q u i l i b r i u m ; and, if
in t h e a c t u a l c i r c u m s t a n c e s it is required, the
F u n d m a y not refuse it on t h e g r o u n d that
t h e e x p l a n a t i o n of disequilibrium should be
s o u g h t r a t h e r in t h e domestic, social or
. political policies of t h e a p p l i c a n t m e m b e r , in
w h i c h m a t t e r s t h e - F u n d m a y n o t interfere.
(c) C h a n g e s not exceeding 10 per cent, in the
aggregate m a y be m a d e b y a m e m b e r country
acting, after c o n s u l t a t i o n , b u t unilaterally.
(d) C h a n g e s of a further 10 per cent, m a y be made
unilaterally, u n l e s s t h e F u n d h a s refused
approval w i t h i n t w o d a y s of t h e application
for a c h a n g e h a v i n g b e e n m a d e ,
(c) If a m e m b e r c o u n t r y is dissatisfied with the
F u n d ' s decision on t h i s (or on any other)
m a t t e r , it can t e r m i n a t e its m e m b e r s h i p of
t h e F u n d a n d r e s u m e its full freedom of
action forthwith, w i t h o u t notice a n d without
penalty.
(/) T h e F u n d is particularly required t o . t a k e into
consideration t h e e x t r e m e u n c e r t a i n t i e s likely
to prevail w h e n t h e initial p a r i t i e s are fixed,
and, d u r i n g t h e t r a n s i t i o n a l period, to allow
a m e m b e r asking for a c h a n g e t h e benefit of
any r e a s o n a b l e d o u b t .
14. T h e s e proposals s e e m to combine satisfactorily
an orderly p r o c e d u r e for c h a n g e w i t h retaining a
sufficient u l t i m a t e freedom of action t o individual
m e m b e r s . T h e y c e r t a i n l y c a n n o t b e r e p r e s e n t e d as
being a i m e d a t g o l d - s t a n d a r d rigidity. T h e i r whole
p u r p o s e is to p r o v i d e a p r o p e r m e a n s t o s e c u r e orderly
c h a n g e s in w h a t is, of its n a t u r e , a two-sided trans­
action, and, therefore, a m o s t proper s u b j e c t for inter­
n a t i o n a l c o n s u l t a t i o n and a d j u s t m e n t .
15. P a r t i c u l a r a t t e n t i o n is i n v i t e d t o (e) above. The
A m e r i c a n r e p r e s e n t a t i v e s w e r e a t first m o s t reluctant
to a c c e p t this provision, b u t were in t h e e n d converted
to t h e . i d e a t h a t a n i n s t i t u t i o n of t h i s kind should he a
free association of c o u n t r i e s which believe membership
to be t o t h e i r m u t u a l a d v a n t a g e , a n d t h a t n o attempt
should be m a d e t o hold a dissatisfied c o \ m t r y to a
m e m b e r s h i p which h a d b e c o m e i r k s o m e a n d undesired.
I n fact t h i s freedom m a y h e l p t o hold t h e association.^
t o g e t h e r . T h e F u n d is likely t o b e m o r e reasonable i\
an aggrieved m e m b e r is free to l e a v e ; a n d a member
is m o r e likely to acquiesce in a decision if h e remains
free at a n y t i m e to c h a n g e his m i n d .
16. (vi) If a n i n t e r n a t i o n a l i n s t i t u t i o n is to assume
such w i d e responsibilities, it m u s t be given some con­
siderable m e a s u r e of a u t h o r i t y a n d of influence. At the
s a m e t i m e it m a y s e e m a l a r m i n g to e n t r u s t any wide
m e a s u r e of d i s c r e t i o n to a n e w b o d y w h i c h necessarily
s t a r t s w i t h o u t t r a d i t i o n s , u n d e r a m a n a g e m e n t of whose
wisdom a n d i m p a r t i a l i t y we h a v e as yet n o experience.
Our object m u s t be, therefore, to secure as m u c h prior
c e r t a i n t y as possible c o n c e r n i n g t h e m e t h o d s of those
responsible for daily m a n a g e m e n t , a n d t o limit their
i n i t i a t i v e a n d discretion t o cases M'here t h e rules ana
purposes of t h e i n s t i t u t i o n are in risk of infringee i n e h t ,
thus k e e p i n g t h e m as a n i n s t r u m e n t , e n t i r e l y ppass
a s s i v e in
all n o r m a l c i r c u m s t a n c e s , t h e r i g h t of i n i t i a t i v e being
r e s e r v e d to t h e C e n t r a l B a n k s of t h e m e m b e r c o u n t r i e s .
The A m e r i c a n r e p r e s e n t a t i v e s h a d set o u t in t h e i r
Stabilisation F u n d w i t h q u i t e a different c o n c e p t i o n of
the functions of t h e n e w i n s t i t u t i o n . I n t h e i r eyes it
should h a v e wide d i s c r e t i o n a r y a n d policing p o w e r s a n d
should exercise s o m e t h i n g of t h e s a m e m e a s u r e of
o T a i i d m o t h e r l y influence a n d control over t h e ;Central
Banks of t h e m e m b e r c o u n t r i e s , t h a t t h e s e C e n t r a l
/-Banks in t u r n are a c c u s t o m e d t o exercise over t h e o t h e r
Vjanks w i t h i n t h e i r o w n c o u n t r i e s .
17. I n t h e c o u r s e . of discussion, however, t h e
American r e p r e s e n t a t i v e s w e r e p e r s u a d e d of t h e
inacceptability of s u c h a s c h e m e of t h i n g s , of t h e
imdesirability of s t a r t i n g off by giving so m u c h
authority t o a n u n t r i e d i n s t i t u t i o n , a n d of t h e i m p o r ­
tance of giving t h e m e m b e r c o u n t r i e s as m u c h c e r t a i n t y
as possible a b o u t w h a t t h e y h a d t o e x p e c t from t h e
new i n s t i t u t i o n a n d a b o u t t h e a m o u n t of facilities
which would b e a t t h e i r full disposal. I n t h e final draft,
therefore, all t h e technical, m a t t e r s a t issue, e x c e p t one,
have b e e n in t h e e n d s e t t l e d on t h e e x p e r t level.
.18. T h e one m a t t e r o u t s t a n d i n g w h i c h flows from a n
initial difference of a p p r o a c h b y t h e Clearing U n i o n
and by t h e S t a b i l i s a t i o n F u n d r e s p e c t i v e l y , is as
follows.
U n d e r t h e Clearing U n i o n p r o p o s a l s t h e
member c o u n t r i e s were t o b a n k w i t h t h e i n s t i t u t i o n ,
where t h e y w o u l d h a v e a c c o u n t s on w h i c h t h e y w e r e
free to o p e r a t e in t e r m s of a n e w i n t e r n a t i o n a l u n i t of
account, to b e called b a n c o r . U n d e r t h e S t a b i l i s a t i o n
Fund p r o p o s a l s t h e i n s t i t u t i o n w a s to b a n k w i t h t h e
member c o u n t r i e s , holding a c c o u n t s w i t h t h e i r C e n t r a l
Banks on w h i c h it would be free t o o p e r a t e in t e r m s
of e a c h m e m b e r ' s c u r r e n c y , so t h a t n o n e w inter­
national u n i t would be n e c e s s a r y . An i n t e r n a t i o n a l
money of a c c o u n t , u n i t a s , w a s m e n t i o n e d in t h e
Stabilisation F u n d p r o p o s a l s b u t w a s only m e n t i o n e d
to be forgotten a n d p l a y e d n o effective p a r t . N o w t h i s
difference, h o w e v e r i m p o r t a n t , is n e v e r t h e l e s s only a
matter of t e c h n i c a l form. A given set of p r o p o s a l s c a n
be drafted in t e r m s of e i t h e r s e t - u p so as t o b e i d e n t i c a l
in substance a n d legal effect.
19. I n t h e n e w draft S t a t e m e n t of P r i n c i p l e s t h e r e
is no new-fangled i n t e r n a t i o n a l u n i t of a c c o u n t . T h e
United S t a t e s T r e a s u r y a n d all t h e o t h e r A m e r i c a n
Departments, w h i c h h a v e b e e n p a r t i e s t o t h e discus­
sion, are s t r o n g l y of t h e opinion t h a t t h i s fact w o u l d
help t h e m g r e a t l y in t h e i r difficulties w i t h Congress.
In a recent m e s s a g e Dr. W h i t e w r i t e s : " W h i l e t h e
emphasis on a n e w i n t e r n a t i o n a l c u r r e n c y w o u l d b e
attractive to s o m e people it w o u l d r o u s e c o n s i d e r a b l e
opposition in t h i s c o u n t r y a m o n g t h o s e w h o w o u l d feel
that national c u r r e n c i e s are b e i n g r e p l a c e d by a n e w
and e x p e r i m e n t a l c u r r e n c y . T h e t a s k of g a i n i n g p u b l i c
support for i n t e r n a t i o n a l m o n e t a r y co-operation w o u l d
be increased b y t h e h i g h - l i g h t i n g in t h e p r o p o s a l of a
new international c u r r e n c y . "
20. Moreover, if t h i s s e t - u p is a d o p t e d , it r e q u i r e s
virtually no n e w legislation in t h e U n i t e d S t a t e s . No
more is necessary t h a n a m o t i o n of g e n e r a l a p p r o v a l in
Congress followed by a n a p p r o p r i a t i o n of a p a r t of t h e
resources of t h e existing U n i t e d S t a t e s S t a b i l i s a t i o n
tund.
It is a r g u a b l e t h a t t h e o t h e r version would
require special legislation w h i c h could b e r e p r e s e n t e d
v s tying up t h e dollar to a p h o n e y i n t e r n a t i o n a l u n i t .
^1. W h i l s t t h e r e are m a n y a d v a n t a g e s in t h e a l t e r n a ­
wve involving a n e w i n t e r n a t i o n a l u n i t w h i c h t h e
British technical e x p e r t s w o u l d prefer, all t h e m e m b e r s
of the British D e l e g a t i o n to W a s h i n g t o n c o n c e r n e d in
ese discussions, w h o h a v e h a d t h e o p p o r t u n i t y of
appreciating, face t o face, t h e g r e a t efforts m a d e on t h e
wier side to r e a c h a g r e e m e n t , a r e of t h e opinion t h a t
on tli I B r e m a i n i n g issue we s h o u l d defer t o t h e
Amencan view
r e m a i n s -the difficult m a t t e r of (vii) the
period.
This was
wangements
for the transitional
discussed a t W a s h i n g t o n as t h o r o u g h l y as it m i g h t
Del , d a u s e a dealing with it,-which the
R a t i o n b r o u g h t back, m a y h a v e been a d e q u a t e on
[26868]
tfl
r
6
h
e
G e n
r
e
T
h
e
a s t r i c t legal i n t e r p r e t a t i o n b u t w e r e insuffioiently
explicit a n d , therefore, p e r h a p s c a p a b l e of l e a d i n g to,
m i s u n d e r s t a n d i n g l a t e r on.
A n e w draft of w h a t is
n o w c l a u s e 11 was, therefore, p r e p a r e d and s e n t t o
Dr. W h i t e t o g e t h e r w i t h a l e t t e r m a k i n g clear t h e
i n t e r p r e t a t i o n w h i c h w e s h o u l d w a n t t o p u t on it.
S u b j e c t t o drafting a m e n d m e n t s , t h i s clause h a s n o w
b e e n a c c e p t e d by t h e U n i t e d S t a t e s T r e a s u r y .
It
p r e s e r v e s full f r e e d o m of action t o u s to enforce
e x c h a n g e control d u r i n g t h e period before e q u i l i b r i u m
h a s b e e n r e s t o r e d sufficiently t o e n a b l e u s t o r e m o v e
restrictions.
I t also s t a t e s clearly t h a t it is not t h e
p u r p o s e of t h e F u n d to p r o v i d e facilities for relief or
r e c o n s t r u c t i o n or t o d e a l w i t h i n t e r n a t i o n a l i n d e b t e d ­
n e s s arising o u t of t h e w a r ; a n d t h a t m e m b e r s a r e
e n t i t l e d t o be satisfied, before t a k i n g on t h e full c o m ­
m i t m e n t s of t h e P l a n , t h a t t h e y see t h e i r w a y to c o v e r
t h e i r b a l a n c e of p a y m e n t s d u r i n g t h e early p o s t - w a r
t r a n s i t i o n a l period b y m e a n s w h i c h will n o t u n d u l y
e n c u m b e r t h e i r facilities w i t h t h e F u n d .
23. N e v e r t h e l e s s , M i n i s t e r s will wish t o a s s u r e
t h e m s e l v e s n o t only t h a t w e r e t a i n sufficient f r e e d o m
of action d u r i n g a period w h i c h is b o u n d t o be v e r y
difficult, b u t also t h a t w e do n o t prejudice our p r o s p e c t s
of o t h e r o u t s i d e aid d u r i n g t h i s period. I t w o u l d b e
fatal if, in spite of t h e above a s s u r a n c e , we w e r e t o b e
p r e s s e d to use t h e r e s o u r c e s of t h e F u n d in t h e e a r l y
y e a r s , w i t h t h e r e s u l t of d e p r i v i n g o u r s e l v e s of r e s e r v e s
intended to support the c o m m i t m e n t s which we should
be u n d e r t a k i n g for t h e n o r m a l period. A l t h o u g h t h e
p r o b a b l e position in t h e early p o s t - w a r y e a r s is t o a
c o n s i d e r a b l e e x t e n t c o n j e c t u r a l a n d an e s t i m a t e is still
being w o r k e d at, it is only p r u d e n t to a s s u m e t h a t o u r
n e e d . f o r a s s i s t a n c e in t h a t period m a y b e v e r y l a r g e
indeed. I t m a y , therefore, be wise t h a t we should t a k e ,
a n early o p p o r t u n i t y to e x p r e s s frankly t o t h e U n i t e d
S t a t e s A d m i n i s t r a t i o n w h a t is in our m i n d s ; n a m e l y ,
t h a t we c a n n o t e n t e r into t h i s s c h e m e u n l e s s t h e r e is
an a s s u r a n c e of our n o t being e x p e c t e d t o use i t s
facilities p r e m a t u r e l y , a n d t h a t we c a n n o t h a v e a n y
s u c h a s s u r a n c e u n t i l t h e y h a v e given u s s o m e indica­
tion of t h e financial r e g i m e s u c c e e d i n g t h e L e n d - L e a s e
p h a s e w h i c h should, in t h e i r opinion, assist a s t e a d y
progress b y ourselves a n d o t h e r s into t h e period w h e n
equilibrium
can
be s e c u r e d
without
large-scale
a s s i s t a n c e from o u t s i d e .
24. I t m i g h t b e a r g u e d t h a t , in view of all t h i s , we
s h o u l d p o s t p o n e t h e w h o l e s c h e m e . If t h e s c h e m e
were of d o u b t f u l l o n g - t e r m a d v a n t a g e to us, t h i s
m i g h t be t h e p r u d e n t course. If, on t h e o t h e r h a n d ,
it is a good s c h e m e from w h i c h we, n o t less t h a n
o t h e r s , h a v e m u c h t o gain, a n d w i t h o u t w h i c h w e
s h o u l d risk a r e t u r n t o t h e i n t e r - w a r chaos, w e s h o u l d
b e u n w i s e n o t t o clinch t h e m a t t e r as soon as we h a v e
a n o p p o r t u n i t y t o do so. Moreover, in c e r t a i n r e s p e c t s
t h e n e w i n s t i t u t i o n m a y b e of p a r t i c u l a r v a l u e , d u r i n g
t h e early, difficult y e a r s . I t is t h e n t h a t order a n d
discipline in foreign e x c h a n g e r a t e s will b e p a r t i c u l a r l y
i m p o r t a n t . A n d it is t h e n t h a t a n a u t h o r i t a t i v e o r g a n
of i n t e r n a t i o n a l d i s c u s s i o n a n d c o n s u l t a t i o n c a n p l a y
a specially significant p a r t in finding t h e w a y o u t of
t h e t r a n s i t i o n , w h e r e we s h o u l d sit as e q u a l s , i n s t e a d
of w a i t i n g on t h e m a t o u t s i d e t h e U n i t e d S t a t e s
T r e a s u r y . T h o s e w h o h a v e t a s t e d t h e d e l i g h t s of t h e
l a t t e r m u s t be forgiven for s h o w i n g s o m e a r d o u r in
favour of t h e a l t e r n a t i v e . F u r t h e r , it is very d e s i r a b l e
that the new institution should have an opportunity to
organise itself a n d find its feet before it h a s t o u n d e r ­
t a k e its full responsibilities.
A b o v e all a c o n c r e t e
e x a m p l e of i n t e r n a t i o n a l a g r e e m e n t for p o s t - w a r
e c o n o m i c policy will s h o w t h a t all t h e t a l k of s u c h
is n o t m e r e words. If t h e s c h e m e is indefinitely
p o s t p o n e d , it is exceedingly likely n e v e r to c o m e i n t o
force.
V
.
.
.
.
'
-'
'. v' "'
;
.
' '
III.
25. T h i s section of t h e n o t e sets o u t t h e s t r o n g
m i s g i v i n g s which are felt by s o m e T r e a s u r y a d v i s e r s
a b o u t any decision a t t h i s s t a g e to c o m m e n d a s c h e m e
in its p r e s e n t form t o t h e a p p r o v a l of t h e D o m i n i o n s
and of P a r l i a m e n t .
D
2
26. W h i l e a c c e p t i n g the m a i n objectives, t h e y fear
t h a t the scheme contains immediate disadvantages and
serious d a n g e r s . F o r e x a m p l e , t h e c o n t i n u a n c e of t h e
sterling area as we h a v e k n o w n it h i t h e r t o would be
seriously prejudiced a n d t h e difficulties of h a n d l i n g
t h e p r o b l e m of our sterling balances would be
increased. T h e E x c h a n g e Clause m a y be q u i t e
r e a s o n a b l e for l i m i t i n g a deliberate d e v a l u a t i o n of t h e
c u r r e n c y of a n y country, b u t m o s t depreciations in t h e
p a s t h a v e b e e n i n v o l u n t a r y and t h e possibility t h a t
t h e y m a y again be i n v o l u n t a r y does not s e e m to be
covered.
T h e clause a b o u t t h e t r a n s i t i o n a l period
conceals an a m b i g u i t y which m i g h t prove d a n g e r o u s
in p r a c t i c e .
No c o u n t r y w i t h o u t strong m o n e t a r y
r e s e r v e s could decide to a b a n d o n exchange restrictions
a n d m a k e its c u r r e n c y freely convertible, u n t i l it h a d
a c h i e v e d a satisfactory b a l a n c e of p a y m e n t s a n d
believed t h a t could be m a i n t a i n e d .
Thus
the
r e s t r i c t i o n s m i g h t be m a i n t a i n e d by m a n y countries for
a prolonged period. W e would n o t enjoy
the
a d v a n t a g e s of m u l t i l a t e r a l p a y m e n t s and should b e
selling p a r t of our exports for currencies which w e
could n o t convert i n t o o t h e r currencies. T h i s m i g h t
force u s to b u y from some sources of s u p p l y r a t h e r
t h a n others, a n d if t h i s w e n t on for a long period, as is
q u i t e likely, we should expose ourselves to a charge of
d i s c r i m i n a t i o n a n d b a d faith.
27. T h e S c h e m e is a d m i t t e d l y designed for t h e long
term
when
international
equilibrium
has
been
r e a s o n a b l y established.
T h e r e is no d i s p u t e t h a t '
a g r e e m e n t on l o n g - t e r m objectives would be helpful
for t h e t r a n s i t i o n a l period. T h e P l a n , however, goes
far beyond a s t a t e m e n t of objectives; it is a detailed
s c h e m e containing t h e rules which will be binding
u p o n t h e signatory countries and t h e E x e c u t i v e
Management. ^ *
28. On this view it is open to serious question
w h e t h e r we can see far e n o u g h ^ihead for ourselves
a n d o t h e r s closely associated with us t o t a k e t h e
responsibility of a t t e m p t i n g t o secure a b i n d i n g inter­
n a t i o n a l a g r e e m e n t , a t t h i s stage, for s u c h a detailed
plan. If we w e r e t o c o m m i t ourselves to it we should
h a v e t o join in exerting p r e s s u r e upon t h e D o m i n i o n s
a n d I n d i a - a n d t h e E u r o p e a n Allies t o overcome
objections a n d misgivings which on m e r i t s we m a y
largely share.
29. T h e chief criticisms which underlie - t h e s e m i s ­
givings m a y be t h u s briefly s t a t e d .
(a) Multilateral
Clearing.
30. W e could n o t h o p e t o discharge for a n indefinite
period t h e obligation w h i c h c o n s t i t u t e s t h e c e n t r a l
p u r p o s e of t h e S c h e m e , n a m e l y , t o m a k e sterling freely
convertible. This is not only because of t h e p r o b l e m
of sterling b a l a n c e s w h i c h we c a n n o t e x p e c t t o block
a l t o g e t h e r b u t b e c a u s e w e expect for t h e first few
y e a r s after t h e w a r t o h a v e a h e a v y a d v e r s e b a l a n c e o n
c u r r e n t a c c o u n t a n d shall n o t be able t o sell all o u r
e x p o r t s for freely convertible currency.
31. I t m a y well be t h o u g h t u n s a t i s f a c t o r y t h a t t h e
s h a p e of a S c h e m e t o h e l p i n t e r n a t i o n a l t r a d e should
begin b y recognising t h e inevitable c o n t r a c t i n g o u t
from t h e m a j o r p u r p o s e of t h e S c h e m e b y t h e c o u n t r y
which, before t h e war, h a d t h e largest i n t e r n a t i o n a l
trade.
(b) Exchange
rates.
32. W e , a n d o t h e r countries, would be r e q u i r e d
from t h e o u t s e t t o m a i n t a i n definite parities of
e x c h a n g e a n d to s u p p o r t t h e m b y t h e use of o u r m o n e ­
t a r y r e s e r v e . T h e s e p a r i t i e s could be varied from t i m e
t o t i m e with t h e a p p r o v a l of t h e F u n d , b u t at a n y time
t h e r e would b e definite p a r i t i e s in t e r m s of gold w h i c h
w e should be obliged to s u p p o r t .
33. At p r e s e n t w e h a v e a m a n a g e d e x c h a n g e r a t e ;
i t is n o t formally tied to gold or to a n y o t h e r c u r r e n c y .
W e a r e free to a p p r e c i a t e or d e p r e c i a t e sterling a n d
free t o let it find i t s o w n level with n o fixed p a r i t y
w i t h o u t a n y obligations e x c e p t those of t h e T r i p a r t i t e
A g r e e m e n t for consulting t h e U n i t e d S t a t e s ' a n d
France.
34. A l t h o u g h t h e major i n t e r n a t i o n a l e x c h a n g e rates
should not b e c h a n g e d s u d d e n l y w i t h o u t consultation
b e t w e e n t h e p a r t i e s chiefly concerned, t h e technique
of c o n s u l t a t i o n w o u l d still leave it possible to decide
to r e m o v e all " p e g s " a n d allow t h e r a t e t o m o v e to
w h a t e v e r level proves a p p r o p r i a t e . T h e r e is a wide
difference b e t w e e n this a n d a formal international
obligation t o m a i n t a i n a definite p a r i t y . I t is often
impossible t o d e t e r m i n e i n a d v a n c e t h e level a t which
it would be wise to t r y t o check a f u r t h e r fall b y the
free use of l i m i t e d m o n e t a r y reserves. I n 1931 sterling
fell by n e a r l y o n e - t h i r d before a p r o c e s s of market?
recovery b e g a n ; a n d any a t t e m p t to hold it before this
p o i n t was r e a c h e d m i g h t h a v e p r o v e d futile.
(e) Inadequacy
of
credits.
35. T h e c r e d i t . facilities p r o v i d e d b y t h e Scheme
are n o t d i s t r i b u t e d according t o t h e i m m e d i a t e needs
of t h e c o u n t r i e s who h a v e suffered t h e greatest
economic d a m a g e from t h e w a r .
T h e y are so
i n a d e q u a t e for our o w n discernible n e e d s t h a t w e must
p r o t e c t ourselves a g a i n s t being c o m p e l l e d t o use them
u p for fear t h a t w e prejudice o u r c h a n c e s of obtaining
additional a s s i s t a n c e .
36. Our q u o t a u n d e r t h e S c h e m e is £ 3 2 5 million
a g a i n s t w h i c h we h a v e to subscribe £ 4 0 million in
gold. I n a n y one y e a r w e m a y only d r a w 25 p e r cent,
of o u r quota, i.e., £ 8 0 million. T h i s will be inadequate
to see us t h r o u g h our a d v e r s e b a l a n c e on current
account.
37. T h e
U n i t e d S t a t e s would be
committed
formally a n d forthwith t o p u t u p £ 7 5 0 million for the
p u r p o s e of t h e P l a n . T h i s is a large s u m w h i c h Con­
g r e s s a n d A m e r i c a n p u b l i c opinion m i g h t regard,
t o g e t h e r w i t h t h e i r c o n t r i b u t i o n t o w a r d s U.N.K.R.A.,
as a fair discharge of t h e i r m o r a l obligation t o p u t the
world economically on i t s feet, a n d if we contemplate
h a v i n g to a p p r o a c h t h e A m e r i c a n s for a d d i t i o n a l direct
help, we m i g h t well be d i s a p p o i n t e d .
38. I n t h i s s i t u a t i o n w e are c o n t e m p l a t i n g suggest­
ing a clause to t h e A m e r i c a n s w h i c h w o u l d m a k e it
p l a i n t h a t a c o u n t r y is n o t e x p e c t e d to use t h e financial
facilities of t h e F u n d so long as i t exercises i t s contract­
ing out r i g h t s on m u l t i l a t e r a l c l e a r i n g ; t h i s is t o leave
u s free to m a k e t h e . b e s t b a r g a i n w e c a n w i t h the
Americans.
(d) The " Passivity
" of the Fund.
39. I n p a r a g r a p h 7 (a) of W . P . (43) 383 we laid it
d o w n as t h e m o s t i m p o r t a n t of o u r " m i n i m u m require­
m e n t s " t h a t , in order t h a t sterling s h o u l d not be
prejudiced by t h e o p e r a t i o n of a n i n t e r n a t i o n a l mone­
t a r y a u t h o r i t y , t h e F u n d should b e e n t i r e l y passive and
s h o u l d n o t be in a position in a n y w a y to deal in
cm rencies. I n order to safeguard t h i s position it was
p r o p o s e d (1)- t h a t t h e s u b s c r i p t i o n s of member
c o u n t r i e s t o t h e F u n d s h o u l d n o t i n c l u d e a n y eontribu­
t i o n in t h e i r currencies b u t s h o u l d be c o m p o s e d entirely
of gold a n d n o n - n e g o t i a b l e G o v e r n m e n t securities,
(2) t h a t t h e s u b s c r i p t i o n so c o m p o s e d should be kept'
a s a s e c u r i t y for t h e liabilities of t h e countries con­
cerned a n d s h o u l d n o t be used by t h e F u n d for its
o r d i n a r y o p e r a t i o n s ; a n d (3) t h a t t h e t r a n s a c t i o n s of
t h e F u n d should be c o n d u c t e d in t e r m s of a n inter­
n a t i o n a l " m o n e y of a c c o u n t , " w h i c h w o u l d effectually
distinguish t h e m from a n y dealing in e x c h a n g e s . From'
o u r discussions w i t h t h e E u r o p e a n Allies it was
believed t h a t t h e y w o u l d s u p p o r t us u n a n i m o u s l y in
pressing for t h e s e f u n d a m e n t a l conditions.
40. N o n e of t h e s e conditions is fulfilled.
4 1 . I n p l a c e of t h e c o m p o s i t e b u t r e l a t e d safeguards
s u g g e s t e d t o e n s u r e " p a s s i v i t y , " t h e s c h e m e has now
only one safeguard, n a m e l y , t h a t t h e F u n d cannot deal
i n c u r r e n c i e s o n i t s o w n initiative, b u t c a n only supply
t h e c u r r e n c y on t h e r e q u e s t of a m e m b e r bank in
e x c h a n g e for t h a t m e m b e r b a n k ' s o w n currency o*
gold.
42. I t is feared t h a t t h i s safeguard is m o r e effective
on p a p e r t h a n it w o u l d be likely t o p r o v e in practice.
I t is possible t h a t w h e n the s c h e m e is published this
-
proviso will be widely regarded, as a n o m a l o u s .
Why
put the F u n d i n possession of n a t i o n a l c u r r e n c i e s if
they are n o t p e r m i t t e d t o use t h e m a t t h e i r d i s c r e t i o n
fco help t o k e e p e x c h a n g e r a t e s reasonably stable, t o
watch over t h e position in e a c h c o u n t r y a n d to offer
that c o u n t r y facilities?
43. B e c a u s e
the
scheme,
despite . t h e
very
important modifications s e c u r e d by our D e l e g a t i o n ,
still has t h e e s s e n t i a l s h a p e of a n E x c h a n g e E q u a l i s a ­
tion F u n d , it is believed t h a t i n e v i t a b l y t h e m a n a g e ­
ment would use " i n i t i a t i v e , " h o w e v e r discreetly. If
shey found t h a t t h e y w e r e b e g i n n i n g t o a c c u m u l a t e
iiu-ue holdings of a p a r t i c u l a r c u r r e n c y , n e a r i n g t h e
limit of t h e p e r m i s s i b l e holdings, b a n k i n g t r a d i t i o n s
would dispose t h e m t o t r y t o m a k e t h e i r position m o r e
liquid by s u g g e s t i n g to s o m e m e m b e r c o u n t r y t h a t t h e y
should t e m p o r a r i l y e x c h a n g e p a r t of t h e s u r p l u s
currency for t h e i r own c u r r e n c y . S u c h a n i n i t i a t i v e ,
however discreet, would, so it is said, b e c o m e k n o w n
and the ' ' s u r p l u s ' ' c u r r e n c y w o u l d b e r e g a r d e d as
open to s o m e suspicion. S i n c e sterling is b o u n d t o
be a " s u r p l u s " c u r r e n c y for s o m e y e a r s after t h e
war, this is a possibility t h a t w e are b o u n d t o consider.
t h e a r e a could e s t a b l i s h l i n k s w i t h t h e U n i t e d S t a t e s
w h i c h m i g h t m a k e it p r a c t i c a b l e t o c a r r y m u l t i l a t e r a l
clearing m u c h further, a n d faster t h a n w o u l d be
possible u n d e r t h e c u r r e n c y s c h e m e .
48. O n e a s p e c t of t h e s t e r l i n g a r e a s y s t e m in t h e
w a r c r e a t e s v e r y s p e c i a l difficulties for us, viz., t h e
s t e r l i n g b a l a n c e s h e l d by one or t w o m e m b e r s ,
particularly India and Egypt.
49. T h e i n a u g u r a t i o n of t h e s c h e m e before t h e
p r o b l e m of t h e s t e r l i n g b a l a n c e s h a s b e e n satisfactorily
resolved b y direct n e g o t i a t i o n , b e t w e e n u s a n d t h e
h o l d e r s of t h e b a l a n c e s w o u l d m a k e t h o s e n e g o t i a t i o n s
m o r e difficult b e c a u s e t h e discussions w o u l d s t a r t o n
t h e a s s u m p t i o n t h a t a t t h e e n d of a l i m i t e d
T r a n s i t i o n a l P e r i o d sterling w o u l d b e freely con­
v e r t i b l e . T h e fact t h a t w e w o u l d be able t o a p p e a l t o
a c l a u s e in t h e s c h e m e which, in
substance,
d i s t i n g u i s h e s a b n o r m a l w a r b a l a n c e s from
future
b a l a n c e s on c u r r e n t a c c o u n t w o u l d n o t m a k e t h e
c l a u s e m o r e p a l a t a b l e or i t s a u t h o r s h i p free f r o m
suspicion.
(e) The Sterling
Area.
44. T h e s c h e m e m u s t t e n d t o w e a k e n t h e cohesion
of the sterling area, a n d w o u l d p r o b a b l y m a k e i t s
continuance impossible in a n y form in w h i c h we h a v e
known it h i t h e r t o .
T h e s t e r l i n g a r e a h a s evolved
naturally from t h e close e c o n o m i c r e l a t i o n s w h i c h
have linked t o g e t h e r m o s t p a r t s of t h e B r i t i s h
Commonwealth ( C a n a d a b e i n g t h e m o s t i m p o r t a n t
exception), a n d c e r t a i n o t h e r c o u n t r i e s . B e f o r e t h e
war the a r r a n g e m e n t s were p u r e l y i n f o r m a l ;
the
countries belonging t o t h e a r e a k e p t t h e i r m o n e t a r y
reserves in L o n d o n in t h e f o r m of s t e r l i n g b a l a n c e s ;
they looked t o L o n d o n for a s s i s t a n c e a n d a d v i c e ; a n d
their currencies w e r e for t h e m o s t p a r t tied t o s t e r l i n g
rather t h a n t o gold. T h u s w i t h i n t h e s t e r l i n g area
there was e x c h a n g e stability a n d m u l t i l a t e r a l clearing.
During t h e w a r t h e s e p r a c t i c e s h a v e b e e n d e v e l o p e d
into more formal a r r a n g e m e n t s u n d e r w h i c h t h e
various sterling c o u n t r i e s t u r n over t o u s t h e i r s u r p l u s
-earnings of foreign e x c h a n g e , a n d we i n r e t u r n s u p p l y
them with t h e foreign e x c h a n g e t h e y n e e d , while
transactions w i t h t h e o u t s i d e world are r e g u l a t e d b y
systems of e x c h a n g e control, a d m i n i s t e r e d t h r o u g h o u t
the area on broadly similar lines. T h e s e a r r a n g e m e n t s ,
though t h e y could n o t , of course, b e c o n t i n u e d in
peace t i m e in t h e i r p r e s e n t form, h a v e b e e n of t h e
greatest a d v a n t a g e t o u s d u r i n g t h e w a r .
50. T h e C u r r e n c y S c h e m e is a t a s t a g e far in
a d v a n c e of C o m m e r c i a l Policy, a l t h o u g h p u b l i c opinion
w o u l d e x p e c t t h e t w o S c h e m e s t o m a r c h forward
together. The
close r e l a t i o n of t h e policies is
i m p o r t a n t t o u s b e c a u s e s o m e of t h e s a f e g u a r d s o p e n
to us if we get into difficulties will d e p e n d u p o n t h e
s h a p e of a g r e e d C o m m e r c i a l Policy.
51. I n f o r m e d opinion w o u l d w a n t t o b e satisfied
t h a t t h e U n i t e d S t a t e s w a s likely t o p u r s u e a com­
m e r c i a l policy likely to facilitate b a l a n c e d p a y m e n t s
w i t h t h e o u t s i d e world. O n t h e o t h e r h a n d , our
ability t o defend a n y p a r i t y for s t e r l i n g a g a i n s t a d v e r s e
p r e s s u r e m i g h t be seriously affected b y u n d e r t a k i n g s ,
o.g., as r e g a r d s i m p o r t r e s t r i c t i o n s , w h i c h w e m i g h t
l a t e r b e e x p e c t e d t o give.
45. U n d e r t h e m o n e t a r y s c h e m e , t h e D o m i n i o n s a n d
India would, be i n d e p e n d e n t m e m b e r c o u n t r i e s w i t h
their own individual q u o t a s , a n d t h e i r o w n s e p a r a t e
obligations to m a k e t h e i r c u r r e n c i e s freely c o n v e r t i b l e ,
to abandon e x c h a n g e r e s t r i c t i o n s a n d to m a i n t a i n t h e
parities of t h e i r c u r r e n c i e s s u b j e c t to t h e v a r i o u s
provisos which t h e s c h e m e c o n t a i n s . I t is e v i d e n t
that one p a r t of t h e a r e a m i g h t feel able t o d i s p e n s e
with some of t h e t r a n s i t i o n a l s a f e g u a r d s before o t h e r s
could do s o ; a n d for t h i s and s i m i l a r r e a s o n s , it s e e m s
inevitable t h a t t h e a r e a w o u l d d i s i n t e g r a t e a s a r e s u l t
of the operation of t h e s c h e m e .
46. I t would b e a serious m a t t e r to d e s t r o y one of
the flexible joints in t h e o r g a n i s a t i o n of t h e B r i t i s h
/Commonwealth a t t h e b e g i n n i n g of a period of
Lievitable political confusion a n d d i s t u r b a n c e over a
large part of t h e world. J u s t a s t h e a r e a in i t s political
sense r e p r e s e n t s a stabilising factor and s o m e con­
tinuity of principle, so it h a s t h e s a m e v a l u e in
economic affairs.
47. The sterling area in t h e form in w h i c h it h a s
been evolved d u r i n g t h e w a r will n o d o u b t h a v e t o
be modified for p o s t - w a r c o n d i t i o n s .
On t h e o t h e r
n d , it is q u i t e likely t h a t s o m e other i m p o r t a n t
areas, including t h e F r e n c h , B e l g i a n a n d D u t c h
-^uipires, whose e c o n o m y is i n s o m e r e s p e c t s c o m ­
plenaentary t o our own, m i g h t w i s h t o a s s o c i a t e
Jiemselves with t h e sterling a r e a for c e r t a i n p u r p o s e s ,
progressively over t h a t e x p a n d e d area - m u l t i l a t e r a l
g could b e i n t r o d u c e d a n d t h e m a j o r c e n t r e s in
na
c
e a n n
(f) Relations
(g) "Scarce
with
Commercial
Policy.
currencies."
52. G r e a t i m p o r t a n c e is a t t a c h e d t o C l a u s e 7 of t h e
A g r e e m e n t on S c a r c e C u r r e n c i e s , for t h e r e a s o n s
e x p l a i n e d in t h e p r e c e d i n g s e c t i o n of t h i s n o t e
( p a r a g r a p h s 1 0 - 1 2 ) . T h e c l a u s e is d e c l a r a t o r y a n d it
m a y b e t h a t t h e a c c e p t a n c e of it b y t h e A m e r i c a n
A d m i n i s t r a t i o n as a w h o l e w o u l d b e sufficient t o
p r e v e n t t h e U n i t e d S t a t e s consciously allowing t h e
dollar t o b e c o m e s c a r c e b e c a u s e t h e y sell a b r o a d m o r e
t h a n t h e y are p r e p a r e d t o b u y a n d will n o t i n v e s t t h e
difference. B u t , t e c h n i c a l l y , too m u c h r e l i a n c e c a n n o t
be p l a c e d u p o n t h e c l a u s e as a s a n c t i o n .
The
" a p p o r t i o n m e n t " of s c a r c e c u r r e n c i e s w o u l d c r e a t e
v e r y c o n s i d e r a b l e difficulties a n d e x c h a n g e control
restrictions
against
the
dollar,
unless
applied
s i m u l t a n e o u s l y , a n d as p a r t of a g e n e r a l - control
m e c h a n i s m b y all m a j o r c o u n t r i e s t h r o u g h w h o s e
c u r r e n c y dollar t r a n s a c t i o n s would p a s s , a r e r e g a r d e d
as u n w o r k a b l e .
(h) International
Executive
Management.
5 3 . W h e n t h e t w o original s c h e m e s w e r e p u b l i s h e d ,
u n i n s t r u c t e d vocal opinion in A m e r i c a fixed o n t h e
q u e s t i o n of v o t i n g r i g h t s a n d control.
As so m u c h
A m e r i c a n m o n e y will b e i n v o l v e d in t h i s s c h e m e , it is
i n e v i t a b l e t h a t t h e s a m e q u e s t i o n s w o u l d arise a g a i n .
The American Treasury have generously accepted
v o t i n g a r r a n g e m e n t s on t h e B o a r d of D i r e c t o r s w h i c h
w o u l d n o t give t h e m a m a j o r i t y position. I t is n o t
c e r t a i n t h a t s u c h a s u g g e s t i o n w o u l d c o m m e n d itself
t o A m e r i c a n opinion in its p r e s e n t m o o d .
Moreover,
it is n o t t h e v o t i n g r i g h t of t h e d i r e c t o r s t h a t r e a l l y
m a t t e r s on t h e d a i l y b u s i n e s s of t h e F u n d , b u t t h e
competence
and
impartiality
of
the
executive
m a n a g e r s . I n t h e p r e s e n t a t m o s p h e r e of politics in
t h e U n i t e d S t a t e s , it s e e m s highly unlikely t h a t s u c h a
m a n a g e m e n t w o u l d b e c h o s e n w i t h o u t v e r y full r e g a r d
for p u r e l y political c o n s i d e r a t i o n s .
54. T h e r e is one final p o i n t a n d n o t t h e l e a s t
i m p o r t a n t . As t h i s s c h e m e d e l i b e r a t e l y e x c l u d e s t h e
T r a n s i t i o n a l P e r i o d a n d d o e s n o t a t t e m p t to p r o v i d e
for- t h e p r o b l e m s of r e c o n s t r u c t i o n , it will n o t be
r e g a r d e d as an i n t e r n a t i o n a l necessity, even with
possible deficiencies, in the s a m e w a y as U . N . E . R . A ;
w a s regarded.
55. B u t for s u c h a novel a n d detailed i n t e r n a t i o n a l
m o n e t a r y plan a wide a c c e p t a n c e is almost necessary
from t h e beginning. I t is by no m e a n s clear t h a t it
will be acceptable in t h i s s e n s e to t h e opinion of t h e
A m e r i c a n s , either Congress or a m o n g t h e informed
public- As far as we c a n judge, it will be r e g a r d e d w i t h
hostility by t h e N e w York b a n k i n g s y s t e m , whose
co-operation in it will b e essential if it is to e n d u r e .
56. I n t h e s e c i r c u m s t a n c e s , and p a r t i c u l a r l y b e c a u s e
of t h e p r e s e n t u n c e r t a i n t i e s on a solution of t h e
t r a n s i t i o n a l problems, and of t h e relation b e t w e e n
decisions on c o m m e r c i a l policy a n d t h e Currency
S c h e m e , those at t h e T r e a s u r y w h o hold t h e views
described above would urge t h a t early p u b l i c a t i o n of
t h e S c h e m e is desirable, b u t t h a t Ministers should do
no m o r e t h a n p r e s e n t it for t h e careful a t t e n t i o n of
P a r l i a m e n t , w i t h o u t c o m m i t t i n g t h e m s e l v e s to r e c o m ­
m e n d i n g its early i n a u g u r a t i o n in its p r e s e n t form,
u n t i l t h e y h a v e b e e n able t o g a t h e r t h e views of
P a r l i a m e n t , of t h e D o m i n i o n s , of t h e U n i t e d S t a t e s and
of t h e E u r o p e a n Allies and o t h e r U n i t e d N a t i o n s .
57. T h e q u e s t i o n s for s e t t l e m e n t by t h e Cabinet
are: —
(1) w h e t h e r t h e P l a n is provisionally a p p r o v e d ;
(2) if so, w h e t h e r t h e lines of p r o c e d u r e as stated
t o M r . M o r g e n t h a u should s t a n d , namely,
t h a t u p o n publication being a g r e e d upon
between the two Governments the Statement
of P r i n c i p l e s should be c o m m u n i c a t e d to the­
o t h e r G o v e r n m e n t s c o n c e r n e d a n d t h e n be
t h e subject of d e b a t e s in P a r l i a m e n t here,
M i n i s t e r s explaining t h a t a t t h i s stage and
prior to t h e expression of views in Parlia­
. m e n t , t h e y were in n o w a y c o m m i t t e d to the
S t a t e m e n t beyond believing t h a t it embodied
a P l a n which deserved t h e m o s t serious
- c o n s i d e r a t i o n ( p a r a g r a p h 5 ) ;
(3) w h e t h e r a c o m m u n i c a t i o n s h o u l d be m a d e to
W a s h i n g t o n at t h e first c o n v e n i e n t oppor­
t u n i t y leading up to r e p r e s e n t a t i o n s in the
s e n s e of p a r a g r a p h s 22 a n d 23 in regard to
t h e t r a n s i t i o n a l period;
(4) t h e b r o a d lines to be followed in t h e forthcoming
discussions w i t h t h e D o m i n i o n s .
(ii) S T A T E M E N T OF P R I N C I P L E S .
JOINT
STATEMENT
BY
EXPERTS
OF
UNITED
AND
A S S O C I A T E D N A T I O N S ON T H E E S T A B L I S H M E N T OF AN
INTERNATIONAL M O N E T A R Y F U N D .
Sufficient discussion of t h e p r o b l e m s of i n t e r n a t i o n a l
m o n e t a r y co-operation h a s t a k e n p l a c e at t h e t e c h n i c a l
level to justify a s t a t e m e n t of principles. T h e e x p e r t s
of t h e U n i t e d and Associated N a t i o n s w h o h a v e
p a r t i c i p a t e d in t h e s e discussions are of t h e opinion
t h a t t h e m o s t p r a c t i c a l m e t h o d of iissuring inter­
n a t i o n a l m o n e t a r y co-operation is t h r o u g h t h e e s t a b ­
l i s h m e n t of a n I n t e r n a t i o n a l M o n e t a r y F u n d .
They
h a v e set forth below t h e principles which t h e y believe
should be t h e basis for this F u n d . G o v e r n m e n t s are
n o t asked t o give final a p p r o v a l t o t h e s e principles
u n t i l t h e y h a v e b e e n e m b o d i e d in t h e form of
definitive proposals by t h e d e l e g a t e s of t h e U n i t e d
and
Associated
Nations
meeting
in
a
formal
conference.
1.
Preamble.
T h e I n t e r n a t i o n a l M o n e t a r y F u n d is designed a s a
p e r m a n e n t i n s t i t u t i o n for i n t e r n a t i o n a l
monetary
co-operation. T h e F u n d is i n t e n d e d to facilitate t h e
b a l a n c e d g r o w t h of i n t e r n a t i o n a l t r a d e a n d to contri­
b u t e in this w a y to t h e m a i n t e n a n c e of a high level
of e m p l o y m e n t . T h e F u n d is e x p e c t e d to provide t h e
m a c h i n e r y for c o n s u l t a t i o n on i n t e r n a t i o n a l m o n e t a r y
problems.
T h e resources of t h e F u n d would b e
available u n d e r a d e q u a t e s a f e g u a r d s to h e l p m e m b e r
c o u n t r i e s to m a i n t a i n e x c h a n g e stability while giving
t h e m t i m e to correct m a l a d j u s t m e n t s in t h e i r b a l a n c e
of p a y m e n t s w i t h o u t r e s o r t i n g to m e a s u r e s d e s t r u c t i v e
t o national or i n t e r n a t i o n a l p r o s p e r i t y . '2. Purposes of the F.und.
(i) To p r o m o t e e x c h a n g e stability, to m a i n t a i n
orderly
exchange
arrangements
among
member
countries
and
to
avoid
competitive
exchange
depreciation.
(ii) To a s s u r e m u l t i l a t e r a l p a y m e n t s facilities on
c u r r e n t t r a n s a c t i o n s a m o n g m e m b e r countries and to
h e l p e l i m i n a t e foreign e x c h a n g e restrictions t h a t
h a m p e r t h e g r o w t h of world t r a d e .
(iii) To s h o r t e n t h e period a n d lessen t h e degree of
disequilibrium in t h e i n t e r n a t i o n a l b a l a n c e of p a y m e n t s
of m e m b e r c o u n t r i e s .
(iv) To give confidence to m e m b e r c o u n t r i e s by t h e
provision of a c t u a l a n d p o t e n t i a l s u p p o r t in t h e
a t t a i n m e n t of t h e s e p u r p o s e s .
, f o r m u l a to b e agreed, which will a m o u n t a l t o g e t h e r to
a b o u t $ 8 billion if all t h e U n i t e d N a t i o n s and the
c o u n t r i e s associated with t h e m s u b s c r i b e to t h e Fund
(corresponding t o a b o u t $ 1 0 billion for t h e world as
a whole).
(ii) T h e obligatory gold s u b s c r i p t i o n of a member
c o u n t r y shall be fixed a t 25 p e r cent, of i t s subscrip­
tion (quota) or 10 per cent, of its holdings of gold
a n d gold-convertible exchange, w h i c h e v e r is the
smaller.
T h e a m o u n t of t h e holdings of gold and
gold-convertible currency for t h e p u r p o s e s of this.
c l a u s e a n d c l a u s e 4 (viii) below shall be determined
b y a g r e e m e n t b e t w e e n each m e m b e r c o u n t r v and the
Fund.
4. Transactions
with the Fund.
(i) M e m b e r countries shall deal w i t h t h e F u n d only t h r o u g h t h e i r T r e a s u r y , C e n t r a l B a n k , Stabilisation F u n d , or o t h e r fiscal agencies. T h e F u n d ' s account in a m e m b e r ' s c u r r e n c y shall be k e p t a t t h e Central B a n k of t h e m e m b e r country, (ii) A m e m b e r shall be e n t i t l e d to b u y another m e m b e r ' s c u r r e n c y from t h e F u n d in e x c h a n g e for its o w n c u r r e n c y , provided t h a t — (a) t h e m e m b e r r e p r e s e n t s t h a t t h e
currency
d e m a n d e d is p r e s e n t l y n e e d e d for m a k i n g pay­
m e n t s in t h a t c u r r e n c y which a r e consistent
w i t h t h e p u r p o s e s of t h e F u n d ;
(6) t h e F u n d h a s n o t given n o t i c e t h a t i t s holdings
of t h e currency d e m a n d e d h a v e become
scarce, in which case t h e pi-ovisions of 7 below
c o m e i n t o force;
(c) t h e F u n d ' s t o t a l holdings of t h e c u r r e n c y offered
h a v e n o t increased by m o r e t h a n 25 per cent,
of t h e m e m b e r ' s q u o t a d u r i n g t h e previous
t w e l v e m o n t h s , and do n o t e x c e e d 200 per
cent, of t h e q u o t a ;
(d) t h e F u n d h a s not previously given appropriate ' )
n o t i c e t h a t t h e m e m b e r is s u s p e n d e d from '
m a k i n g further use of t h e F u n d ' s resources on
t h e g r o u n d t h a t it is m a k i n g use' of t h e m in a
m a n n e r c o n t r a r y t o t h e p u r p o s e s and policy
of t h e F u n d ; and
(e) t h e F u n d m a y in its discretion a n d on conditions ,
w h i c h safeguard its i n t e r e s t s w a i v e any of the
c o n d i t i o n s above,
(iii) S u b j e c t to (iv) below, o p e r a t i o n s on t h e Fund's
a c c o u n t will be l i m i t e d to t r a n s a c t i o n s for t h e purpose
of s u p p l y i n g a m e m b e r c o u n t r y , on t h e member's
initiative a n d s u b j e c t to t h e provisions of (ii) above,
with a n o t h e r m e m b e r ' s c u r r e n c y in e x c h a n g e for its
own c u r r e n c y or for gold.
r
3. Subscription
to the
Fund.
(i) M e m b e r c o u n t r i e s shall s u b s c r i b e in gold and in
t h e i r , local funds a m o u n t s (quotas) d e t e r m i n e d b y a
(iv) T h e F u n d will b e e n t i t l e d at its option, w i t h a
view to p r e v e n t i n g a p a r t i c u l a r m e m b e r ? s c u r r e n c y
from becoming " scarce " —
(a) to borrow its c u r r e n c y from a m e m b e r c o u n t r y ;
(b) to offer gold t o a m e m b e r c o u n t r y i n e x c h a n g e
for its c u r r e n c y .
(v) So long as a m e m b e r c o u n t r y is e n t i t l e d to b u y
another m e m b e r ' s c u r r e n c y from t h e F u n d i n e x c h a n g e
for its o w n currency, it shall be p r e p a r e d to b u y i t s o w n
currency from t h a t m e m b e r w i t h t h a t n i e m b e r ' s
currency or with gold. T h i s shall n o t apply t o c u r r e n c y
subject to restrictions in conformity w i t h 10 (hi) below
or to holdings of c u r r e n c y which h a v e a c c u m u l a t e d a s a
result of t r a n s a c t i o n s of a c u r r e n t a c c o u n t n a t u r e
effected before t h e r e m o v a l by t h e m e m b e r c o u n t r y of
restrictions on m u l t i l a t e r a l clearing m a i n t a i n e d or
imposed u n d e r 11 (ii) below.
(vi) A m e m b e r c o u n t r y desiring t o obtain, d i r e c t l y
or indirectly, t h e c u r r e n c y of a n o t h e r m e m b e r c o u n t r y
for gold is expected, p r o v i d e d it can do so w i t h e q u a l
advantage, to acquire t h e c u r r e n c y b y t h e sale of gold
to the F u n d . T h i s shall not p r e c l u d e t h e sale of n e w l y
mined gold by a gold p r o d u c i n g c o u n t r y on a n y m a r k e t .
(vii) A m e m b e r c o u n t r y m a y r e p u r c h a s e from t h e
Fund for gold a n y p a r t of t h e l a t t e r ' s h o l d i n g s of its
currency.
(viii) So long as a m e m b e r ' s holdings of gold a n d
gold-convertible e x c h a n g e exceed its q u o t a i t shall n o t
allow t h e F u n d ' s holdings of its c u r r e n c y t o i n c r e a s e
over a year by m o r e t h a n t h e a m o u n t b y w h i c h i t s hold­
ings of gold a n d gold-convertible e x c h a n g e h a v e
decreased. F u r t h e r m o r e , if a t t h e e n d of t h e y e a r a
member's holdings of gold a n d
gold-convertible
exchange h a v e increased, t h e F u n d m a y r e q u i r e u p to
half of t h e increase to b e used t o r e p u r c h a s e p a r t of t h e
Fund's holdings of i t s c u r r e n c y , so long a s t h i s does
not reduce t h e F u n d ' s h o l d i n g s of a m e m b e r ' s c u r r e n c y
below its original c u r r e n c y s u b s c r i p t i o n or t h e m e r n ­
ber's holdings of gold a n d gold-convertible e x c h a n g e
below its quota.
5. Par Values of Member
Currencies.
(i) T h e p a r value of a m e m b e r ' s c u r r e n c y shall be
agreed with t h e F u n d w h e n it is a d m i t t e d t o m e m b e r ­
ship, a n d shall be e x p r e s s e d in t e r m s of gold.
All
transactions b e t w e e n t h e F u n d a n d m e m b e r s s h a l l be
at par. subject to a fixed c h a r g e p a y a b l e b y t h e
member m a k i n g a p p l i c a t i o n to t h e F u n d , a n d all t r a n s ­
actions in m e m b e r c u r r e n c i e s shall b e a t r a t e s w i t h i n
an agreed p e r c e n t a g e of p a r i t y .
(ii) Subject to (v) below, no c h a n g e in t h e p a r value
of a m e m b e r ' s c u r r e n c y shall be m a d e by t h e F u n d
without the c o u n t r y ' s approval.
Member countries
agree not to propose a c h a n g e in t h e p a r i t y of their
currencies unless t h e y consider it a p p r o p r i a t e t o t h e
correction of a f u n d a m e n t a l d i s e q u i l i b r i u m .
Changes
shall be m a d e only w i t h t h e a p p r o v a l of the F u n d ,
subject to t h e provisions below.
(hi) The F u n d shall a p p r o v e a r e q u e s t e d c h a n g e in
the par value of a m e m b e r ' s c u r r e n c y , if it is essential
to the correction of a f u n d a m e n t a l d i s e q u i l i b r i u m .
In
Particular, t h e F u n d shall n o t reject a r e q u e s t e d
change, necessary to r e s t o r e equilibrium, b e c a u s e of
the domestic social or political policies of t h e c o u n t r y
-Applying for a c h a n g e .
I n considering a r e q u e s t e d
change, the F u n d shall t a k e into c o n s i d e r a t i o n t h e
extreme u n c e r t a i n t i e s prevailing a t t h e t i m e t h e
Parities of m e m b e r c o u n t r i e s w e r e initially a g r e e d u p o n .
(iv) After consulting t h e F u n d , a m e m b e r c o u n t r y
way c h a n g e . t h e e s t a b l i s h e d parity of its c u r r e n c y ,
provided t h e proposed c h a n g e , inclusive of a n y
P 'eviou change since t h e e s t a b l i s h m e n t of t h e F u n d ,
does not exceed 10 per cent. I n t h e 'case of a p p l i c a ­
'on tor a further c h a n g e , n o t covered by t h e above
"d not exceeding 10 p e r cent., t h e F u n d shall give its
decision within t w o clays of r e c e i v i n g the a p p l i c a t i o n ,
the applicant so r e q u e s t s .
( ) Provision shall b e m a d e for a n agreed u n i f o r m
change in t h e gold v a l u e of c u r r e n c i e s .
Notwith­
l
S
a
11
v
s t a n d i n g 8 (iii) below, s u c h a c h a n g e s h a l l r e q u i r e t h e ­
a p p r o v a l of all m e m b e r c o u n t r i e s w i t h 10 p e r cent, or
m o r e of t h e a g g r e g a t e q u o t a s .
0. Capital
Transactions.
(i) A m e m b e r c o u n t r y m a y n o t u s e t h e F u n d ' s
r e s o u r c e s to m e e t a large or s u s t a i n e d outflow of
capital, and t h e F u n d m a y require a m e m b e r country
to exercise c o n t r o l s to p r e v e n t s u c h u s e of t h e r e s o u r c e s
of t h e F u n d . T h i s provision is n o t i n t e n d e d to p r e v e n t
t h e u s e of t h e F u n d ' s r e s o u r c e s for c a p i t a l t r a n s a c t i o n s
of r e a s o n a b l e a m o u n t r e q u i r e d for t h e e x p a n s i o n of
e x p o r t s or in t h e o r d i n a r y course of t r a d e , b a n k i n g or
o t h e r b u s i n e s s . Nor is it i n t e n d e d to p r e v e n t c a p i t a l
m o v e m e n t s which, are m e t o u t of a m e m b e r c o u n t r y ' s
own r e s o u r c e s of gold a n d foreign e x c h a n g e , p r o v i d e d
s u c h c a p i t a l m o v e m e n t s a r e in a c c o r d a n c e w i t h t h e
p u r p o s e s of t h e F u n d .
(ii) S u b j e c t t o 7 below, a m e m b e r c o u n t r y m a y n o t
u s e its control of c a p i t a l m o v e m e n t s t o r e s t r i c t p a y ­
m e n t s for c u r r e n t t r a n s a c t i o n s or t o d e l a y u n d u l y t h e
t r a n s f e r of f u n d s in s e t t l e m e n t of c o m m i t m e n t s .
7. Apportionment
of Scarce
Currencies.
(i) W h e n it b e c o m e s e v i d e n t t o t h e F u n d t h a t t h e
d e m a n d for a m e m b e r c o u n t r y ' s c u r r e n c y m a y soon
e x h a u s t t h e F u n d ' s holdings of t h a t c u r r e n c y , t h e
F u n d shall so inform m e m b e r c o u n t r i e s a n d p r o p o s e
a n . e q u i t a b l e m e t h o d of a p p o r t i o n i n g t h e s c a r c e
c u r r e n c y . W h e n a c u r r e n c y is t h u s d e c l a r e d scarce,
t h e F u n d shall issue a r e p o r t e m b o d y i n g t h e c a u s e s of
t h e s c a r c i t y a n d c o n t a i n i n g r e c o m m e n d a t i o n s designed
to b r i n g it t o a n end.
(ii) A decision b y t h e F u n d t o a p p o r t i o n a s c a r c e
c u r r e n c y s h a l l o p e r a t e as a n a u t h o r i s a t i o n to a m e m b e r
c o u n t r y , after c o n s u l t a t i o n w i t h t h e F u n d , t e m p o r a r i l y
to r e s t r i c t t h e f r e e d o m of e x c h a n g e o p e r a t i o n s in t h e
affected c u r r e n c y , a n d in d e t e r m i n i n g t h e m a n n e r of
restricting the d e m a n d and rationing the limited supply
a m o n g its n a t i o n a l s t h e m e m b e r c o u n t r y shall h a v e
c o m p l e t e jurisdiction.
8.
Management.
(i) T h e F u n d shall be m a n a g e d by a B o a r d of
Directors and Executive Committee representing the
members.
(ii) T h e d i s t r i b u t i o n of b a s i c v o t i n g p o w e r shall be
ciosely r e l a t e d to q u o t a s , b u t n o m e m b e r shall be
e n t i t l e d t o c a s t m o r e t h a n one-fifth of t h e a g g r e g a t e
votes.
(iii) All m a t t e r s shall be s e t t l e d b y m a j o r i t y , e x c e p t
t h a t a c h a n g e in t h e b a s i s of d e t e r m i n i n g q u o t a s
shall r e q u i r e a four-fifths v o t e , a n d no m e m b e r ' s q u o t a
m a y be changed without its assent.
9.
Withdrawal.
(i) A m e m b e r c o u n t r y m a y w i t h d r a w from t h e F u n d
b y giving n o t i c e in w r i t i n g .
(ii) The. reciprocal obligations of t h e F u n d a n d t h e
c o u n t r y a r e to be l i q u i d a t e d w i t h i n a r e a s o n a b l e t i m e .
(iii) After a m e m b e r c o u n t r y h a s given n o t i c e in
w r i t i n g of its w i t h d r a w a l f r o m t h e F u n d , t h e F u n d
m a y n o t d i s p o s e of i t s h o l d i n g s of t h e c o u n t r y ' s
c u r r e n c y e x c e p t in a c c o r d a n c e w i t h t h e a r r a n g e m e n t s
m a d e tinder (ii) a b o v e . After a c o u n t r y h a s given
n o t i c e of w i t h d r a w a l , its r i g h t t o utilise t h e r e s o u r c e s
of t h e F u n d is s u b j e c t t o t h e a p p r o v a l of t h e F u n d .
10. Obligations
of Member
Countries.
(i) N o t t o b u y gold a t a price a b o v e t h e p a r i t y of its
c u r r e n c y , n o r t o sell gold a t a p r i c e below t h e p a r i t y
of i t s c u r r e n c y .
(ii) N o t to allow e x c h a n g e t r a n s a c t i o n s in its
m a r k e t s in t h e c u r r e n c i e s of o t h e r m e m b e r s a t r a t e s
outside a prescribed range based on t h e agreed
parities.
(iii) N o t to i m p o s e r e s t r i c t i o n s o n p a y m e n t s for
current international transactions with other m e m b e r
for t h e proDlems of r e c o n s t r u c t i o n , it will not be
regarded as a n i n t e r n a t i o n a l necessity, even w i t h
possible deficiencies, in t h e s a m e w a y as U.N.R.H.A.
was regarded.
55. B u t for s u c h a novel a n d detailed i n t e r n a t i o n a l
m o n e t a r y plan a wide a c c e p t a n c e is a l m o s t necessary
from t h e beginning. I t is by n o m e a n s clear t h a t it
will be a c c e p t a b l e in t h i s sense to t h e opinion of t h e
A m e r i c a n s , e i t h e r Congress or a m o n g t h e informed
public- As far a s w e can judge, it will b e regarded w i t h
hostility by t h e N e w York b a n k i n g s y s t e m , whose
co-operation in it will be essential if it is to e n d u r e .
56. I n t h e s e c i r c u m s t a n c e s , a n d p a r t i c u l a r l y b e c a u s e
of t h e p r e s e n t u n c e r t a i n t i e s on a solution of t h e
t r a n s i t i o n a l p r o b l e m s , and of t h e relation b e t w e e n
decisions on c o m m e r c i a l policy a n d t h e C u r r e n c y
S c h e m e , those at t h e T r e a s u r y w h o hold t h e views
described above would urge t h a t e a r l y publication of
t h e S c h e m e is desirable, b u t t h a t M i n i s t e r s should d o
no more t h a n p r e s e n t it for t h e careful a t t e n t i o n of
P a r l i a m e n t , w i t h o u t c o m m i t t i n g t h e m s e l v e s t o recom­
m e n d i n g its early i n a u g u r a t i o n in its p r e s e n t form,
until t h e y h a v e been' able to g a t h e r t h e views of
P a r l i a m e n t , of t h e D o m i n i o n s , of t h e U n i t e d S t a t e s and
of t h e E u r o p e a n Allies and o t h e r U n i t e d N a t i o n s .
57. T h e questions for s e t t l e m e n t by t h e Cabinet,
are: —
(1) w h e t h e r t h e P l a n is provisionally approved :
(2) if so, w h e t h e r t h e lines of p r o c e d u r e as stated
to Mr. Morgenth.au should stand, namely,
t h a t u p o n j m b l i e a t i o n being agreed upon
between the two Governments the Statement
of Principles s h o u l d b e c o m m u n i c a t e d to t h e
o t h e r G o v e r n m e n t s concerned a n d t h e n be
t h e s u b j e c t of d e b a t e s in P a r l i a m e n t here.
M i n i s t e r s explaining t h a t a t this s t a g e and
prior to t h e expression of views in Parlia­
m e n t , t h e y w e r e in n o w a y c o m m i t t e d to the
S t a t e m e n t b e y o n d believing t h a t it embodied
a P l a n which deserved t h e m o s t serious
- consideration ( p a r a g r a p h 5 ) ;
(3) w h e t h e r a c o m m u n i c a t i o n s h o u l d be m a d e to
W a s h i n g t o n at t h e first c o n v e n i e n t oppor­
t u n i t y leading u p to r e p r e s e n t a t i o n s in the
sense of p a r a g r a p h s 22 a n d 23 in regard to
the transitional period;
(4) t h e broad lines to b e followed in t h e forthcoming
discussions w i t h t h e D o m i n i o n s .
r
(ii) S T A T E M E N T OF P R I N C I P L E S .
JOINT
STATEMENT
BY
EXPERTS
OF
UNITED
AND
A S S O C I A T E D N A T I O N S ON T H E E S T A B L I S H M E N T OF AN
I N T E R N A T I O N A L MONETARY F U N D .
Sufficient discussion of t h e p r o b l e m s of i n t e r n a t i o n a l
m o n e t a r y co-operation h a s t a k e n p l a c e at t h e t e c h n i c a l
level to justify a s t a t e m e n t of principles. T h e e x p e r t s
of t h e U n i t e d and Associated N a t i o n s who h a v e
p a r t i c i p a t e d in thest^ discussions are of t h e opinion
t h a t t h e most p r a c t i c a l m e t h o d of assuring inter­
n a t i o n a l m o n e t a r y co-operation is t h r o u g h t h e e s t a b ­
l i s h m e n t of an I n t e r n a t i o n a l M o n e t a r y F u n d .
They
h a v e set forth below t h e principles which t h e y believe
should be the basis for this F u n d . G o v e r n m e n t s are
not asked to give final a p p r o v a l to t h e s e principles
until t h e y h a v e been e m b o d i e d in t h e form of
definitive proposals by t h e d e l e g a t e s of t h e U n i t e d
and
Associated
Nations
meeting
in
a
formal
conference.
f o r m u l a t o be agreed, which will a m o u n t altogether to
a b o u t $ 8 billion if all t h e U n i t e d N a t i o n s and the
c o u n t r i e s associated with t h e m subscribe to t h e F u n d
(corresponding t o a b o u t $ 1 0 billion for t h e world as
a whole).
(ii) T h e obligatory gold s u b s c r i p t i o n of a m e m b e r
c o u n t r y shall b e fixed at- 25 p e r cent, of its subscrip­
tion ( q u o t a ) or 10 p e r cent, of its holdings of gold
a n d gold-convertible e x c h a n g e , w h i c h e v e r is the
smaller.
T h e a m o u n t of t h e holdings of gold and
gold-convertible c u r r e n c y for t h e p u r p o s e s of this
clause a n d clause 4 (viii) below shall be d e t e r m i n e d
by a g r e e m e n t b e t w e e n e a c h m e m b e r c o u n t r v and the
Fund.
4. Transactions
with, the
Fund.
(i) M e m b e r c o u n t r i e s shall deal w i t h t h e F u n d only
t h r o u g h their T r e a s u r y , C e n t r a l B a n k , Stabilisation
F u n d , or other fiscal agencies. T h e F u n d ' s account
1. Preamble.
in a m e m b e r ' s c u r r e n c y shall be k e p t at t h e Central
T h e I n t e r n a t i o n a l M o n e t a r y F u n d is designed as a B a n k of t h e m e m b e r c o u n t r y .
p e r m a n e n t i n s t i t u t i o n for i n t e r n a t i o n a l
m o n e t a r y (ii) A m e m b e r shall be e n t i t l e d to b u y another
co-operation. T h e F u n d is i n t e n d e d to facilitate t h e m e m b e r ' s c u r r e n c y from t h e F u n d in e x c h a n g e for its
b a l a n c e d g r o w t h of i n t e r n a t i o n a l t r a d e and t o contri­
o w n c u r r e n c y , provided t h a t —
b u t e in t h i s w a y to t h e m a i n t e n a n c e of a high level (a) t h e m e m b e r r e p r e s e n t s t h a t t h e
currency
of e m p l o y m e n t . T h e - F u n d is e x p e c t e d to provide t h e d e m a n d e d is p r e s e n t l y n e e d e d for m a k i n g pay­
m a c h i n e r y for c o n s u l t a t i o n on i n t e r n a t i o n a l m o n e t a r y m e n t s in t h a t c u r r e n c y which are consistent
problems.
T h e resources of t h e F u n d would be with t h e p u r p o s e s of t h e F u n d ;
­
available u n d e r a d e q u a t e s a f e g u a r d s to help m e m b e r (6) t h e F u n d h a s n o t given notice t h a t i t s holdings
c o u n t r i e s to m a i n t a i n e x c h a n g e stability while giving of t h e c u r r e n c y d e m a n d e d h a v e become
t h e m t i m e to correct m a l a d j u s t m e n t s in t h e i r b a l a n c e scarce, in which case t h e provisions of 7 below
of p a y m e n t s w i t h o u t r e s o r t i n g to m e a s u r e s d e s t r u c t i v e c o m e i n t o force;
t o national or i n t e r n a t i o n a l p r o s p e r i t y . (c) t h e F u n d ' s total holdings of t h e c u r r e n c y offered
h a v e n o t i n c r e a s e d by m o r e t h a n 25 per cent,
'2. Purposes
of the
Fund.
of t h e m e m b e r ' s q u o t a d u r i n g t h e previous
(i) To p r o m o t e e x c h a n g e stability, to m a i n t a i n
t w e l v e m o n t h s , a n d do n o t exceed 200 per
orderly
exchange
arrangements
among
member
cent, of t h e q u o t a ;
countries
and
to
avoid
competitive
exchange
(d) t h e F u n d h a s n o t previously given appropriate
depreciation.
notice t h a t t h e m e m b e r is s u s p e n d e d from
(ii) To a s s u r e m u l t i l a t e r a l p a y m e n t s facilities on
m a k i n g f u r t h e r use of t h e F u n d ' s resources on
c u r r e n t t r a n s a c t i o n s a m o n g m e m b e r c o u n t r i e s and to
t h e g r o u n d t h a t it is m a k i n g use'of t h e m in a
help e l i m i n a t e foreign e x c h a n g e restrictions t h a t
m a n n e r c o n t r a r y to t h e p u r p o s e s a n d policy
h a m p e r t h e g r o w t h of world t r a d e .
of t h e F u n d ; a n d
(iii) To s h o r t e n t h e period a n d lessen t h e degree of
(e) thi F u n d m a y in its discretion a n d on conditions
disequilibrium in t h e i n t e r n a t i o n a l b a l a n c e of p a y m e n t s
w h i c h s a f e g u a r d its i n t e r e s t s waive any of the
of m e m b e r c o u n t r i e s .
c
o n d i t i o n s above,
(iv) To give confidence to m e m b e r c o u n t r i e s b y t h e
(iii) S u b j e c t t o (iv) below, o p e r a t i o n s on t h e F u n d s
provision of a c t u a l a n d p o t e n t i a l s u p p o r t in t h e
a c c o u n t will be l i m i t e d to t r a n s a c t i o n s for t h e purpose
a t t a i n m e n t of t h e s e p u r p o s e s .
of s u p p l y i n g a m e m b e r c o u n t r y , on t h e m e m b e r s ­
3. Subscription
to the
Fund.
i n i t i a t i v e and s u b j e c t to t h e provisions of (ii) above,
with a n o t h e r m e t n b e r ' s c u r r e n c y in e x c h a n g e for its
(i) M e m b e r c o u n t r i e s shall s u b s c r i b e in gold and in
own c u r r e n c y or for gold.
their, local funds a m o u n t s (quotas) d e t e r m i n e d by a
1 c
JL U
(iv) T h e F u n d will be e n t i t l e d at its option, with a
view to p r e v e n t i n g a p a r t i c u l a r meiriberls c u r r e n c y
from b e c o m i n g " scarce " —
(a) to borrow i t s c u r r e n c y from a m e m b e r c o u n t r y ;
(b) to offer gold to a m e m b e r c o u n t r y in e x c h a n g e
for i t s c u r r e n c y .
(v) So long as a m e m b e r c o u n t r y is e n t i t l e d to b u y
another m e m b e r ' s c u r r e n c y from t h e F u n d in e x c h a n g e
for its o w n c u r r e n c y , it shall b e p r e p a r e d t o b u y i t s o w n
currency from t h a t m e m b e r w i t h t h a t m e m b e r ' s
currency or w i t h gold. T h i s shall n o t a p p l y t o c u r r e n c y
subject to r e s t r i c t i o n s in c o n f o r m i t y w i t h 10 (iii) below
or to holdings of c u r r e n c y which h a v e a c c u m u l a t e d as a
result of t r a n s a c t i o n s of a c u r r e n t a c c o u n t n a t u r e
effected before t h e r e m o v a l by t h e m e m b e r c o u n t r y of
restrictions o n m u l t i l a t e r a l clearing m a i n t a i n e d or
imposed u n d e r 11 (ii) below.
(vi) A m e m b e r c o u n t r y desiring to obtain, directly
or indirectly, t h e c u r r e n c y of a n o t h e r m e m b e r c o u n t r y
for gold is e x p e c t e d , p r o v i d e d it c a n do so w i t h e q u a l
advantage, to a c q u i r e t h e c u r r e n c y b y t h e sale of gold
to the F u n d . T h i s shall not p r e c l u d e t h e sale of n e w l y
mined gold by a gold p r o d u c i n g c o u n t r y o n a n y m a r k e t .
(vii) A m e m b e r c o u n t r y m a y r e p u r c h a s e from t h e
Fund for gold a n y p a r t of t h e l a t t e r ' s holdings of its
currency.
(viii) So long as a m e m b e r ' s holdings of gold a n d
gold-convertible e x c h a n g e exceed its q u o t a it shall not
allow t h e FuncVs holdings of its c u r r e n c y to increase
over a year by m o r e t h a n t h e a m o u n t b y w h i c h its hold­
ings of gold a n d gold-convertible e x c h a n g e h a v e
decreased. F u r t h e r m o r e , if a t t h e e n d of t h e y e a r a
meniber's h o l d i n g s of gold a n d
gold-convertible
exchange h a v e increased, t h e F u n d m a y r e q u i r e up to
half of t h e i n c r e a s e t o b e used t o r e p u r c h a s e p a r t of t h e
Fund's h o l d i n g s of its c u r r e n c y , so long as t h i s does
not reduce t h e F u n d ' s h o l d i n g s of a m e m b e r ' s c u r r e n c y
below its original c u r r e n c y s u b s c r i p t i o n or t h e m e m ­
ber's holdings of gold a n d gold-convertible e x c h a n g e
below its q u o t a .
5. /V/?' Values of Member
Currencies.
(i) T h e p a r v a l u e of a m e m b e r ' s c u r r e n c y shall b e
agreed w i t h t h e F u n d w h e n it is a d m i t t e d to m e m b e r ­
ship, a n d shall b e e x p r e s s e d in t e r m s of gold. All
transactions b e t w e e n t h e F u n d a n d m e m b e r s shall be
at par, s u b j e c t t o a fixed c h a r g e p a y a b l e b y t h e
member m a k i n g a p p l i c a t i o n to t h e F u n d , a n d all t r a n s ­
actions in m e m b e r c u r r e n c i e s shall b e at r a t e s w i t h i n
an agreed p e r c e n t a g e of p a r i t y .
(ii) Subject to (v) below, no c h a n g e in t h e p a r value
of a n i e m b e r ' s c u r r e n c y shall be m a d e by t h e F u n d
without t h e c o u n t r y ' s a p p r o v a l .
M e m b e r countries
agree not to p r o p o s e a c h a n g e in t h e p a r i t y of their
currencies unless t h e y consider it a p p r o p r i a t e t o t h e
correction of a f u n d a m e n t a l d i s e q u i l i b r i u m .
Changes
shall be m a d e only with t h e a p p r o v a l of the F u n d ,
subject to t h e provisions below.
(iii) The F u n d shall a p p r o v e a r e q u e s t e d c h a n g e in
the par value of a m e m b e r ' s c u r r e n c y , if it is essential
to the correction of a f u n d a m e n t a l d i s e q u i l i b r i u m . - I n
particular, t h e F u n d shall n o t reject a r e q u e s t e d
change, n e c e s s a r y to r e s t o r e e q u i l i b r i u m , b e c a u s e of
tbe domestic social or political policies of t h e c o u n t r y
applying for a c h a n g e .
I n considering a requested
change, t h e F u n d shall t a k e i n t o c o n s i d e r a t i o n t h e
extreme u n c e r t a i n t i e s p r e v a i l i n g at t h e t i m e t h e
Parities of m e m b e r c o u n t r i e s w e r e initially agreed upon.
(iv) After c o n s u l t i n g t h e F u n d , a m e m b e r c o u n t r y
a y change t h e e s t a b l i s h e d p a r i t y of its c u r r e n c y ,
Provided t h e proposed c h a n g e , inclusive of any
Previous c h a n g e since t h e e s t a b l i s h m e n t of t h e F u n d ,
does not exceed 10 per c e n t . I n t h e c a s e of applica­
tion for a f u r t h e r c h a n g e , n o t covered by t h e above
and not exceeding 10 per cent., t h e F u n d shall give its
rtepision within t w o d a y s of receiving the application,
"re a p p l i c a n t so r e q u e s t s .
( ) Provision shall be m a d e for a n agreed uniform
change in t h e gold v a l u e of c u r r e n c i e s .
Notwith­
m
lE
v
s t a n d i n g 8 (iii) below, s u c h a c h a n g e shall r e q u i r e t h e
a p p r o v a l of all m e m b e r c o u n t r i e s w i t h 10 p e r c e n t , or
more of t h e a g g r e g a t e q u o t a s .
0. Capital
Transactions.
(i) A m e m b e r c o u n t r y m a y not use t h e F u n d ' s
resources to m e e t a l a r g e or s u s t a i n e d outflow of
capital, and the F u n d m a y require a m e m b e r country
to exercise controls to p r e v e n t s u c h use of the r e s o u r c e s
of t h e F u n d . T h i s provision is n o t i n t e n d e d t o p r e v e n t
t h e u s e of t h e F u n d ' s r e s o u r c e s for c a p i t a l t r a n s a c t i o n s
of r e a s o n a b l e a m o u n t r e q u i r e d for t h e e x p a n s i o n of
e x p o r t s or in t h e o r d i n a r y course cjf t r a d e , b a n k i n g or
o t h e r b u s i n e s s . N o r is it i n t e n d e d to p r e v e n t c a p i t a l
m o v e m e n t s w h i c h are m e t out of a m e m b e r c o u n t r y ' s
own r e s o u r c e s of gold a n d foreign e x c h a n g e , p r o v i d e d
such c a p i t a l m o v e m e n t s are in a c c o r d a n c e w i t h t h e
p u r p o s e s of t h e F u n d .
(ii) S u b j e c t t o 7 below, a m e m b e r c o u n t r y m a y . n o t
use i t s control of c a p i t a l m o v e m e n t s to r e s t r i c t p a y ­
m e n t s for c u r r e n t t r a n s a c t i o n s or to d e l a y u n d u l y t h e
t r a n s f e r of funds in s e t t l e m e n t of c o m m i t m e n t s .
7. Apportionment
of Scarce
Currencies.
(i) W h e n it b e c o m e s e v i d e n t t o t h e F u n d t h a t t h e
d e m a n d for a m e m b e r c o u n t r y ' s c u r r e n c y m a y soon
e x h a u s t t h e F u n d ' s holdings of t h a t c u r r e n c y , t h e
F u n d shall so inform m e m b e r c o u n t r i e s a n d p r o p o s e
an e q u i t a b l e m e t h o d of a p p o r t i o n i n g t h e
scarce
c u r r e n c y . W h e n a c u r r e n c y is t h u s d e c l a r e d scarce,
t h e F u n d shall i s s u e a r e p o r t e m b o d y i n g t h e c a u s e s of
the s c a r c i t y a n d c o n t a i n i n g r e c o m m e n d a t i o n s designed
to b r i n g it t o a n e n d .
(ii) A decision b y t h e F u n d to a p p o r t i o n a scarce
c u r r e n c y shall o p e r a t e a s a n a u t h o r i s a t i o n to a m e m b e r
c o u n t r y , after c o n s u l t a t i o n w i t h t h e F u n d , t e m p o r a r i l y
to r e s t r i c t t h e f r e e d o m of e x c h a n g e o p e r a t i o n s in t h e
affected c u r r e n c y , a n d in d e t e r m i n i n g t h e m a n n e r of
restricting the d e m a n d and rationing the limited supply
a m o n g its n a t i o n a l s t h e m e m b e r c o u n t r y s h a l l h a v e
c o m p l e t e jurisdiction.
8.
Management.
(i) T h e F u n d s h a l l b e m a n a g e d by a B o a r d of
Directors and Executive Committee representing t h e
members.
(ii) T h e d i s t r i b u t i o n of b a s i c v o t i n g p o w e r shall be
closely r e l a t e d to q u o t a s , b u t n o m e m b e r shall be
e n t i t l e d t o c a s t m o r e t h a n one-fifth of t h e a g g r e g a t e
votes.
(iii) All m a t t e r s shall b e s e t t l e d by majority, e x c e p t
t h a t a c h a n g e in t h e basis of d e t e r m i n i n g q u o t a s
shall r e q u i r e a four-fifths v o t e , a n d no m e m b e r ' s q u o t a
m a y b e c h a n g e d without, i t s a s s e n t .
9.
Withdrawal.
(i) A m e m b e r c o u n t r y m a y w i t h d r a w from t h e F u n d
by giving n o t i c e in w r i t i n g .
(ii) The. r e c i p r o c a l obligations of t h e F u n d a n d t h e
c o u n t r y a r e to b e l i q u i d a t e d w i t h i n a r e a s o n a b l e t i m e .
(iii) After a m e m b e r c o u n t r y has given n o t i c e in
w r i t i n g of its w i t h d r a w a l from t h e F u n d , t h e F u n d
m a y n o t dispose of its holdings of t h e c o u n t r y ' s
c u r r e n c y e x c e p t in a c c o r d a n c e w i t h t h e a r r a n g e m e n t s
m a d e u n d e r (ii) above. After a c o u n t r y h a s given
n o t i c e of w i t h d r a w a l , i t s r i g h t t o utilise t h e r e s o u r c e s
of t h e F u n d is sxfbject to t h e a p p r o v a l of t h e F u n d .
10. Obligations
of Member
Countries.
(i) N o t t o b u y gold a t a p r i c e above t h e p a r i t y of its
c u r r e n c y , n o r t o sell gold a t a price b e l o w t h e p a r i t y
of its c u r r e n c y .
(ii) N o t to allow e x c h a n g e t r a n s a c t i o n s m its
m a r k e t s in t h e c u r r e n c i e s of o t h e r m e m b e r s a t r a t e s
o u t s i d e a p r e s c r i b e d r a n g e based on t h e a g r e e d
parities.
(iii) Not to i m p o s e r e s t r i c t i o n s o n p a y m e n t s for
current international transactions with other m e m b e r
c o u n t r i e s ( o t h e r t h a n t h o s e involving capital t r a n s f e r s
or in a c c o r d a n c e w i t h 7 above) or to e n g a g e i n a n y
d i s c r i m i n a t o r y c u r r e n c y a r r a n g e m e n t s or m u l t i p l e
c u r r e n c y p r a c t i c e s w i t h o u t t h e a p p r o v a l of t h e F u n d .
11. Transitional
Arrangements.
(i) Since t h e F u n d is n o t i n t e n d e d to provide
facilities for relief or r e c o n s t r u c t i o n or to deal w i t h
i n t e r n a t i o n a l i n d e b t e d n e s s arising o u t of t h e war, t h e
a g r e e m e n t of a m e m b e r c o u n t r y t o provisions 4 (v)
a n d 10 (iii) above shall n o t b e c o m e o p e r a t i v e u n t i l it
is satisfied as t o t h e a r r a n g e m e n t s at its disposal to
facilitate t h e s e t t l e m e n t of b a l a n c e of p a y m e n t s
differences during t h e early p o s t - w a r t r a n s i t i o n a l
period by m e a n s w h i c h will not u n d u l y e n c u m b e r its
facilities w i t h t h e F u n d .
(ii) D u r i n g this t r a n s i t i o n period m e m b e r c o u n t r i e s
m a y maintain and adapt to changing circumstances
e x c h a n g e regulations of t h e c h a r a c t e r w h i c h h a v e
b e e n in o p e r a t i o n during t h e war, b u t t h e y shall under­
t a k e t o w i t h d r a w as soon as possible b y progressive
s t a g e s a n y r e s t r i c t i o n s which i m p e d e multilateral
clearing on c u r r e n t a c c o u n t . I n t h e i r e x c h a n g e policy
t h e y shall p a y c o n t i n u o u s regard to t h e principles
a n d objectives of t h e F u n d ; a n d t h e y shall t a k e all
possible m e a s u r e s t o d e v e l o p c o m m e r c i a l a n d financial
r e l a t i o n s w i t h o t h e r m e m b e r c o u n t r i e s which will
facilitate i n t e r n a t i o n a l p a y m e n t s a n d t h e m a i n t e n a n c e
of e x c h a n g e stability.
(iii) T h e F u n d m a y m a k e r e p r e s e n t a t i o n s t o any
m e m b e r t h a t conditions a r e f a v o u r a b l e to t h e with­
d r a w a l of p a r t i c u l a r r e s t r i c t i o n s or for t h e general
a b a n d o n m e n t of r e s t r i c t i o n s i n c o n s i s t e n t with 10 (bT
above. N o t l a t e r t h a n t h r e e y e a r s from t h e coming
into force of t h e F u n d , a n y m e m b e r still retaining
a n y r e s t r i c t i o n s i n c o n s i s t e n t w i t h 10 (iii) shall consult
with t h e F u n d as t o t h e i r f u r t h e r r e t e n t i o n .
(iv) I n its r e l a t i o n s w i t h m e m b e r countries, the
F u n d s h a l l recognise t h a t t h e t r a n s i t i o n period is one
of c h a n g e a n d a d j u s t m e n t , a n d in deciding on its
a t t i t u d e to a n y p r o p o s a l s p r e s e n t e d b y m e m b e r s it
shall give t h e m e m b e r c o u n t r y t h e benefit of any
reasonable doubt.
A N N E X B. C O M M E B C I cL
1. I n t h e m a i n body of this r e p o r t (Section 1)
reference
has been m a d e to the
commitments
which h a v e b e e n i n c u r r e d u n d e r Article V I I , and t o
t h e C a b i n e t decisions which h a v e a l r e a d y b e e n r e a c h e d
h o w t h o s e c o m m i t m e n t s c a n b e s t be m e t .
The
p r o b l e m s of c o m m e r c i a l policy raised a t W a s h i n g t o n
m u s t be j u d g e d . against t h e b a c k g r o u n d of t h e s e
c o m m i t m e n t s a n d previous Cabinet decisions.
I.—THE
TRANSITIONAL PERIOD.
2. T h e discussions a t W a s h i n g t o n t u r n e d p r i m a r i l y
u p o n t h e long r u n . L i t t l e d e t a i l e d s t u d y w a s m a d e
of t h e special p r o b l e m s of t h e i m m e d i a t e p o s t - w a r
period, although-—as t h e following section of t h e joint
Anglo-American
d o c u m e n t on c o m m e r c i a l
policy
s h o w s — t h e r e w a s full r e a l i s a t i o n t h a t e x c e p t i o n a l
m e a s u r e s will be n e c e s s a r y : —
" I n t h e e m e r g e n c y period d u r i n g a n d i m m e ­
diately following t h e w a r i m p o r t prohibitions a n d
q u a n t i t a t i v e l i m i t a t i o n s would be p e r m i t t e d w h e n
n e c e s s a r y t o m e e t e m e r g e n c i e s arising from (a) t h e
n e c e s s i t y of r a t i o n i n g i m p o r t s b e c a u s e of s h o r t a g e s
of supplies, shipping or foreign exchange, a n d
(b) a t e m p o r a r y s u r p l u s of s t o c k s of t h e c o m m o d i t y
t o which t h e restriction applies. T h e s e t e m p o r a r y
e x c e p t i o n s w o u l d be applicable for a specified
l i m i t e d period after t h e c e s s a t i o n of hostilities u n l e s s
t h e period of t h e i r application w e r e f u r t h e r e x t e n d e d
b y action of t h e proposed i n t e r n a t i o n a l c o m m e r c i a l
policy o r g a n i s a t i o n . "
Before f u r t h e r progress can b e m a d e , t h e C a b i n e t
m u s t consider how t h e s e a n d other e x c e p t i o n a l
t r a n s i t i o n a l m e a s u r e s should be applied.
3. T h e c e n t r a l q u e s t i o n is : On w h a t conditions a n d
at w h a t d a t e should t h e obligations of t h e p r o p o s e d
commercial convention come into operation?
One
i m p o r t a n t condition is t h a t a sufficient n u m b e r of t h e
c o m m e r c i a l l y i m p o r t a n t c o u n t r i e s should a d h e r e to
it. I t m i g h t be u n w i s e for us to bind ourselves t o
far-reaching obligations in a c o n v e n t i o n t o w h i c h t h e
U n i t e d S t a t e s and other i m p o r t a n t c o u n t r i e s w e r e n o t
p a r t i e s (even t h o u g h we did n o t e x t e n d t h e a d v a n t a g e s
of t h e c o n v e n t i o n t o n o n - m e m b e r S t a t e s ) . I t m i g h t ,
therefore, b e wise t o m a k e t h e c o m i n g i n t o force of
t h e c o n v e n t i o n conditional u p o n its ratification by a
n u m b e r of S t a t e s sufficient on t h e b a s i s of pre-war
figures t o a c c o u n t for a n agreed proportion of total
world t r a d e .
4. If t h e U n i t e d S t a t e s a n d t h e U n i t e d K i n g d o m
r e a c h a g r e e m e n t , t h e r e will be v e r y s t r o n g forces at
POLICY.
work t o i n d u c e o t h e r c o u n t r i e s t o join in. Canada, we
know, is a n x i o u s t o join. S o m e o t h e r c o u n t r i e s (such
as t h e " O s l o G r o u p , " covering S w e d e n , Norway,
D e n m a r k , t h e N e t h e r l a n d s a n d B e l g i u m ) will certainly
wish t o a d h e r e . T h e e x - e n e m y S t a t e s c a n b e required
to join. T h e c o u n t r i e s so far listed above accounted,
with t h e i r colonies a n d d e p e n d e n c i e s , for n o less than
60 p e r cent, of t o t a l world t r a d e i n 1938. M a n y other
c o u n t r i e s w o u l d in s u c h c i r c u m s t a n c e s easily be
p e r s u a d e d t o join b e c a u s e of t h e d i s a d v a n t a g e s of
s t a y i n g out of so e x t e n s i v e a " low tariff " club.
5. T h e r e are a n u m b e r of r e a s o n s for agreeing the
c o n v e n t i o n a t as e a r l y a d a t e as possible. T h e favour­
able psychological m o m e n t m a y b e lost if d i s p u t e on
difficult i^oints of detail is long p o s t p o n e d after t h e war.
A long-period t a r g e t of s a n i t y is r e q u i r e d t o influence
t h e c o m m e r c i a l policies of t h e t r a n s i t i o n a l period.
Moreover, it will be d e s i r a b l e to s e t u p a n international
c o m m e r c i a l policy o r g a n i s a t i o n a t an e a r l y d a t e , since
a n effective i n t e r n a t i o n a l s e c r e t a r i a t c a n n o t be built
up o v e r n i g h t , a n d (as is s u g g e s t e d in t h e next
p a r a g r a p h ) a n i n t e r n a t i o n a l o r g a n i s a t i o n will be needed
-to p r o v i d e a focus for e x c h a n g e of i n f o r m a t i o n and
views o n t r a n s i t i o n a l c o m m e r c i a l policy arrangements
a n d t h e i r p r o g r e s s i v e a d a p t a t i o n to t h e Commercial
Union scheme.
6. B u t if t h e c o n v e n t i o n is a g r e e d a t an early date,
it m u s t e x p r e s s l y provide for e x c e p t i o n a l transitional
a r r a n g e m e n t s . T h e t r a n s i t i o n a l period itself m i g h t fall
into two parts : —
(i) D u r i n g t h e first p h a s e , t h e i n t e r n a t i o n a l com-'
m e r c i a l policy o r g a n i s a t i o n w o u l d be set up,
b u t m e m b e r c o u n t r i e s w o u l d n o t be bound by
t h e obligations of t h e c o n v e n t i o n limiting their
p r o t e c t i v e a n d d i s c r i m i n a t o r y action. They
w o u l d r e m a i n free t o c o n t r o l t h e i r t r a d e in .
a n y e x c e p t i o n a l w a y d e e m e d n e c e s s a r y durinj
t h e i m m e d i a t e p o s t - w a r dislocation. B u t they
m i g h t p r o p e r l y b e r e q u i r e d t o consult with
e a c h o t h e r , t h r o u g h t h e m a c h i n e r y of the
i n t e r n a t i o n a l o r g a n i s a t i o n , on t h e b e s t means
of a v o i d i n g m u t u a l l y injurious
measures
d u r i n g t h i s period, a n d of so arranging their
e x c e p t i o n a l m e a s u r e s t h a t t h e y led as readily
a s possible i n t o t h e l o n g - r u n arrangements
envisaged under the convention,
(ii) T h e r e w o u l d follow a s e c o n d p h a s e of a specified
d u r a t i o n , d u r i n g w h i c h m e m b e r countries
would b e u n d e r a n obligation t o t a k e clearly
defined s t e p s t o w a r d s t h e final objective.
D u r i n g t h i s p h a s e , tariffs would h a v e to be
reduced, preference margins to be narrowed,
a n d q u o t a s enlarged, by specified m i n i m a each
y e a r u n t i l t h e full obligations of t h e conven­
tion were in force.
7. H o w should the d u r a t i o n of t h e s e t r a n s i t i o n a l
arrangements be d e t e r m i n e d ' ?
T h e r e are, broadly
speaking, t w o w a y s : ­
i) T h e d u r a t i o n of t h e s e periods m i g h t be n a m e d
in t h e c o n v e n t i o n itself.
T h u s , t h e first
p h a s e m i g h t be defined as l a s t i n g (say) t w o
y e a r s from t h e a d o p t i o n of t h e c o n v e n t i o n ;
a n d t h e s u b s e q u e n t p h a s e as covering t h e n e x t
(say) t h r e e y e a r s .
Such a n a r r a n g e m e n t
would h a v e t h e a d v a n t a g e of s e t t i n g a definite
t a r g e t for t h e full a p p l i c a t i o n of t h e conven­
t i o n ; a n d it would n o t p r e c l u d e t h e possibility
of p r o l o n g a t i o n of t h e s e p h a s e s if t h e r e w e r e
a g r e e m e n t a m o n g S t a t e s covering a sufficient
v o l u m e of world t r a d e .
(See paragraph 3
above.)
(ii) Alternatively, t h e
convention
might,
leave
undefined t h e l e n g t h of t h e first p h a s e . I n
this case it m i g h t b e possible to a r r a n g e t h a t
a g r e e m e n t a m o n g S t a t e s covering on t h e basis
of p r e - w a r figures s o m e agreed proportion of
world t r a d e (see p a r a g r a p h 3 above) would b e
r e q u i r e d to bring t h e second p h a s e into opera­
tion.
If this proportion w e r e high enough,
it would be v i r t u a l l y certain t h a t t h e second
p h a s e could n o t s t a r t w i t h o u t our a g r e e m e n t .
F o r n o t only did our o w n pre-war t r a d e
a c c o u n t for a large p a r t of t o t a l world t r a d e ;
b u t our e x a m p l e in s u c h a m a t t e r w o u l d b e
followed at least by t h e d e v a s t a t e d c o u n t r i e s
in E u r o p e which will r e q u i r e t i m e for their
o w n r e c o n s t r u c t i o n and very probably by
m a n y other c o u n t r i e s as well.
(
(
8. A r r a n g e m e n t s of t h e k i n d s u g g e s t e d above would
leave us free t o r e g u l a t e our i m p o r t s a n d to e n c o u r a g e
or control our exports by any devices, h o w e v e r
" d i s c r i m i n a t o r y " or " p r o t e c t i v e , " d u r i n g t h e first
transitional period, a n d w o u l d provide a s u b s e q u e n t
period of g r a d u a l a d a p t a t i o n a n d r e l a x a t i o n .
We
should, of course, in a n y c a s e r e t a i n indefinitely t h e
opportunity t o r e g u l a t e our i m p o r t s on g r o u n d s of
serious b a l a n c e of p a y m e n t s difficulties, since t h i s is
contemplated as a p e r m a n e n t f e a t u r e of t h e con­
vention.
Moreover,
if
the
second
alternative
suggested in t h e p r e c e d i n g p a r a g r a p h w e r e a d o p t e d ,
we should also v i r t u a l l y r e t a i n t h e u l t i m a t e r i g h t t o
prolong t h e exceptional m e a s u r e s of t h e t r a n s i t i o n a l
period us long as we considered this n e c e s s a r y .
II.—THE
LONG-TERM
ARRANGEMENTS.
9. The criticism t h a t t h e c o m m e r c i a l policy arrange.;
nients discussed at W a s h i n g t o n will u n d u l y h a m p e r
our internal e c o n o m i c policy, c a n n o t , on e x a m i n a t i o n ,
be sustained. On t h e c o n t r a r y , if we c a n p e r s u a d e t h e
Americans
finally
to a c c e p t t h e m , t h e y
should
positively help us in a c h i e v i n g i n t e r n a l economic
stability. O n e of our chief c o n c e r n s after t h e w a r will
be to m a i n t a i n a s t e a d y i n t e r n a l . l e v e l of e m p l o y m e n t ,
prices and i n c o m e s . An u n f a v o u r a b l e b a l a n c e of. p a y ­
/ \ents m a y
be g e n e r a t e d
or prolonged, if
we
-jccessfully m a i n t a i n our p r i c e s and p u r c h a s i n g p o w e r
while there is a general d e c l i n e in e c o n o m i c activity
elsewhere.
T h e proposals m a d e a t
Washington
contain the principle ( w h i c h t h e A m e r i c a n officials
accepted) t h a t only c o u n t r i e s in: serious b a l a n c e of p a y ­
wents difficulties should be free to set q u a n t i t a t i v e
"Bits to their i m p o r t s . If, therefore, we s h o u l d in t h e
"tine suffer from a serious b a l a n c e of p a y m e n t s
Problem as a r e s u l t of an internal, policy of stabilisation,
should regain our freedom t o control i m p o r t s , with­
out other countries, w h o s e b a l a n c e s of p a y m e n t s w e r e
' unfavourable, b e c o m i n g free to i m p e d e our export
R
0
'm ort-
t , u
-
r n s e l v e s
[26868]
seeing quantitative, limits to their
10. On b a l a n c e t h e W a s h i n g t o n p r o p o s a l s s h o u l d
greatly h e l p us to e x p a n d our export t r a d e by l i m i t i n g
t h e barriers raised a g a i n s t our e x p o r t s . To a c o u n t r y
which i m p o r t s e s s e n t i a l s a n d e x p o r t s m a n u f a c t u r e d
goods w h i c h are less e s s e n t i a l to our c u s t o m e r s t h a n
our i m p o r t s are to us, a general c l e a r a n c e of t h e
c h a n n e l s of t r a d e is of first-rate i m p o r t a n c e .
The
favourable effect u p o n our export t r a d e w o u l d b e
offset to s o m e e x t e n t by t h e loss, a t l e a s t in p a r t , of
t h e preferences w h i c h o u r exports at p r e s e n t -enjoy in
Empire markets.
B u t t h e effect of s u c h p r e f e r e n c e s
should n o t be e x a g g e r a t e d . B e t w e e n 1929 a n d 1937
(both years of high world e c o n o m i c activity) t h e propor­
tion of our e x p o r t s which w e n t to E m p i r e m a r k e t s rose,
largely as a r e s u l t of t h e O t t a w a a g r e e m e n t s , from
44^ to 48 p e r cent. B u t t h i s w a s also t h e period in
which tariffs (such as t h e A m e r i c a n H a w l e y - S m o o t
tariff) and q u a n t i t a t i v e r e s t r i c t i o n s w e r e imposed, or
intensified all over t h e w o r l d ; a n d a l t h o u g h t h e propor­
tion of our t r a d e w i t h t h e E m p i r e rose, s u c h was t h e
t o t a l decline of our e x p o r t s t h a t this larger proportion
of our e x p o r t s r e p r e s e n t e d a s m a l l e r a b s o l u t e value.
Our exports to E m p i r e m a r k e t s fell from £ 3 2 4 million
in 1929 to £ 2 5 2 million in 1937.
1.1. The U n i t e d K i n g d o m tariff is of m o d e r a t e h e i g h t .
W e have t o sell our e x p o r t s in t h e U n i t e d S t a t e s a n d
in m a n y o t h e r o v e r s e a s m a r k e t s over m u c h h i g h e r
duties.
A m u l t i l a t e r a l c o n v e n t i o n t o r e d u c e tariffs
all round, b u t to r e d u c e high tariffs m o r e d r a s t i c a l l y
t h a n m o d e r a t e tariffs, could g r e a t l y clear t h e o b s t a c l e s
to our e x p o r t s w i t h o u t i m p o s i n g on us any c o m p a r a b l e
reduction in our d u t i e s .
To t a k e b u t one e x a m p l e ,
b e t w e e n 1929 a n d 1937 ( b o t h y e a r s of high i n t e r n a l
p u r c h a s i n g power in t h e U n i t e d S t a t e s ) t h e v a l u e
of our e x p o r t s to t h e U n i t e d S t a t e s fell from £ 4 5 - 8 to
£ 3 1 - 4 million or by 31 p e r c e n t . ; a n d this m u s t be
largely ascribed to t h e H a w d e y - S m o o t tariff w h i c h w a s
imposed in 1930, e v e n t h o u g h its excesses h a d in s o m e
respects b e e n modified b y Mr. H u H ' s T r a d e Agree­
ments.
12. B u t above all our e x p o r t s suffered after 1930
from t h e proliferation of i m p o r t r e s t r i c t i o n s w h i c h
w e r e i m p o s e d on t h e m in overseas m a r k e t s .
More
t h a n t w e n t y c o u n t r i e s before t h e w a r h a d i m p o s e d
s u c h restrictions on our e x p o r t s , a n d t h e s e r e s t r i c t i o n s
covered t h e i m p o r t a t i o n of m a n y of our i m p o r t a n t
p r o d u c t s i n t o m a n y of o u r i m p o r t a n t m a r k e t s .
Our
exports t o a selection of c o u n t r i e s ( n a m e l y , B u l g a r i a ,
France, Germany, Greece, H u n g a r y , Italy, Latvia,
Poland, R o u m a n i a , S w i t z e r l a n d a n d T u r k e y ) w h i c h
from a b o u t 1931 o n w a r d s applied r e s t r i c t i o n s of w i d e
scope to o u r e x p o r t s , fell in v a l u e b e t w e e n 1929 a n d
1937 by no less t h a n 38-1 P
c e n t . (More e v i d e n c e of
t h e effect of t h e W a s h i n g t o n p r o p o s a l s on o u r e x p o r t
o p p o r t u n i t i e s is provided in p a r a g r a p h s 23 to 26 of
W.P. (44) 75.)
13. In r e t u r n for t h i s c l e a r a n c e of b a r r i e r s a g a i n s t
our exports, our f r e e d o m
to p r o t e c t
particular
i n d u s t r i e s a n d o c c u p a t i o n s in t h i s c o u n t r y would, of
course, be c i r c u m s c r i b e d .
A n y discussions a b o u t
" action d i r e c t e d t o w a r d s t h e r e d u c t i o n of tariffs a n d
o t h e r t r a d e b a r r i e r s " w h i c h did not i m p l y t h i s would,
of course, be a m e r e farce.
Nevertheless,
the
proposals d i s c u s s e d at W a s h i n g t o n l e a v e r e a s o n a b l e
elbow room for t h e p r o t e c t i o n of p a r t i c u l a r i n t e r e s t s .
F i r s t , t h e r e is no p r o p o s a l t o e l i m i n a t e tariffs.
And
t h e tariff p r o p o s a l s w h i c h we c a n seriously d i s c u s s all
h a v e one t h i n g in c o m m o n ; t h e y involve, a m o r e
radical c u t in high t h a n in low tariffs. W e w o u l d b e
required t o c u t o u r tariffs less t h a n o t h e r c o u n t r i e s
w i t h high tariffs, a n d we w o u l d be a b l e t o i m p o s e n e w
tariffs or t o revise e x i s t i n g tariffs on a n y t h i n g w h i c h
we wished t o p r o t e c t , u p t o a c e r t a i n m o d e r a t e
" floor." S e c o n d l y ( a l t h o u g h , as explained in 17 (iii)
below, a g r e e m e n t h a s n o t y e t b e e n r e a c h e d on t h i s
topic with t h e A m e r i c a n s ) , our officials a t W a s h i n g t o n
h a v e insisted t h a t t h e freedom t o pay d i r e c t a n d
undisguised subsidies to a n y p a r t i c u l a r i n d u s t r y m u s t
be p r e s e r v e d .
e r
14. T h e r e s e e m s to have, been s o m e m i s u n d e r ­
s t a n d i n g a b o u t t h e i m p l i c a t i o n s of t h e p r o p o s a l s on
S t a t e - t r a d i n g , which were a c c e p t e d by t h e A m e r i c a n
officials a t W a s h i n g t o n .
T h e s e proposals d o n o t
h i n d e r us or a n y o t h e r c o u n t r y from monopolising t h e
whole of its foreign t r a d e or from c o n d u c t i n g a m i x e d
s y s t e m of S t a t e - t r a d i n g in c e r t a i n c o m m o d i t i e s a n d
p r i v a t e t r a d e in o t h e r s . No c o u n t r y would be d e b a r r e d
from i n t r o d u c i n g g r e a t e r stability into its i n t e r n a t i o n a l
c o m m e r c e by m e a n s of long-term S t a t e - c o n t r a c t s for
its i m p o r t s or e x p o r t s . On t h e other h a n d , a n a t t e m p t
h a s been m a d e to avoid t h e use "of S t a t e - t r a d i n g
m e c h a n i s m s m e r e l y to r e - i n t r o d u c e by a n o t h e r m e a n s
t h e protective and discriminatory mechanisms which
are to be b a r r e d u n d e r o t h e r clauses of t h e c o n v e n t i o n .
T h e W a s h i n g t o n p r o p o s a l s do not a t t e m p t to j u d g e
b e t w e e n S t a t e enterprise, p r i v a t e e n t e r p r i s e , or m i x e d
s y s t e m s of t r a d i n g ; t h e y t r y merely t o set s o m e l i m i t
t o t h e protective a n d d i s c r i m i n a t o r y use of each of
these systems.
15. T h e W a s h i n g t o n proposals do s u g g e s t t h a t
c o u n t r i e s should n o t set u p S t a t e - t r a d i n g m o n o p o l i e s
m e r e l y in order to cover t h e i r t r a d e w i t h a S t a t e ­
t r a d i n g c o u n t r y , w h e n no S t a t e m o n o p o l y is set u p
to cover t h e i r t r a d e in t h e s a m e c o m m o d i t i e s w i t h
p r i v a t e enterprise countries. This is a l i m i t e d issue
which it m i g h t b e wise t o t r e a t s e p a r a t e l y from t h e
m a i n i s s u e (see p a r a g r a p h 17 (vi) below).
16. I t m a y be useful to see how t h e s e a r r a n g e m e n t s
would circumscribe our policj for a n y p a r t i c u l a r
industry—for example, agriculture: —
r
(i) Q u a n t i t a t i v e r e s t r i c t i o n s on our i m p o r t s of
a g r i c u l t u r a l ' p r o d u c t s would be ruled o u t a s
a n o r m a l m e a n s of agricultural p r o t e c t i o n ,
t h o u g h t h e y could be e m p l o y e d d u r i n g t h e
t r a n s i t i o n a l period, d u r i n g periods of severe
s t r a i n on our b a l a n c e of p a y m e n t s , or as p a r t
of a n i n t e r n a t i o n a l c o m m o d i t y a r r a n g e m e n t .
(ii) M o d e r a t e tariff p r o t e c t i o n u p t o a l i m i t e d
ad valorem level would be p e r m i s s i b l e on a n y
products.
(iii) D i r e c t subsidies, with or w i t h o u t s u c h limited
tariff protection, would be p e r m i s s i b l e t o an
u n l i m i t e d e x t e n t , if t h e view p u t forward by
our officials a t W a s h i n g t o n w e r e to prevail.
T h e A m e r i c a n officials wished t o set s o m e
limit t o t h e subsidisation of c o m m o d i t i e s in
world s u r p l u s s u p p l y .
If t h e c o m p r o m i s e
solution suggested in 17 (iii) below w e r e
adopted, we would be under a n obligation
t o e n t e r i n t o ad hoc discussions in e a c h case
o n t h e possibility of limiting s u c h subsidisa­
tion b u t would r e t a i n our u l t i m a t e r i g h t to
continue
what
subsidies
we
considered
necessary.
(iv) S c h e m e s involving a levy on i m p o r t s , t h e
proceeds of which are p a y a b l e as a s u b s i d y
to h o m e production, would be
allowed
provided t h a t t h e levy did n o t exceed t h e level
p e r m i t t e d by the tariff rule.(')
(v) T h e t r a d e
in
any
commodity
could
be
monopolised b y t h e S t a t e .
S u b j e c t t o a satisfactory solution of t h e s u b s i d y issue,
the proposals would t h u s allow p r o t e c t i o n t o a n y
degree, provided t h a t a n y protection in e x c e s s of t h e
level p e r m i t t e d by t h e tariff r u l e s w a s given b y m e a n s
of subsidy. T h e y would, moreover, p e r m i t ( w h e t h e r
by m e a n s of levy-subsidy a r r a n g e m e n t s or b y S t a t e ­
t r a d i n g a r r a n g e m e n t s ) t h e p a y m e n t of g u a r a n t e e d
prices to a n y a g r i c u l t u r a l product, p r o v i d e d a g a i n t h a t
a n y p r o t e c t i o n in excess of t h e m a r g i n s e t b y t h e tariff
rules w a s given n o t b y raising t h e price t o t h e
c o n s u m e r b u t by m e a n s of a direct c h a r g e on t h e
Exchequer.
(!) If, for example, the rule suggested tentatively by our
officials at Washington were accepted, this would permit in
all cases a levy up to 10 per cent. No levy above 25 per cent,
would be permitted in any case. The basis of t r e a t m e n t of
new duties or levies between those two levels has still to be
determined.
IIT.-r-QUESTIONS REQUIRING FURTHER CABINET DECISION. 17. If t h e general line of c o m m e r c i a l policy discussed
a t W a s h i n g t o n is to be considered further, first in the
forthcoming
discussions
with
e x p e r t s from
the
D o m i n i o n s a n d s u b s e q u e n t l y in f u r t h e r discussions
with t h e A m e r i c a n s , it will be n e c e s s a r y for t h e Cabinet
to give s o m e g u i d a n c e t o our officials on a n u m b e r of
p o i n t s . G e n e r a l Ministerial g u i d a n c e on t h e s e m a t t e r s
is n e c e s s a r y . B u t precise decisions would be out of
place since a t t h e next s t a g e of official discussions with
t h e A m e r i c a n s frequent reference by officials to
M i n i s t e r s will certainly be n e c e s s a r y as t h e s e question
are raised in t h e discussions.
(i) Transitional
Arrangements.—It
is necessary to
consider w h e t h e r a r r a n g e m e n t s for t h e transi­
tional period o n t h e lines i n d i c a t e d in para­
g r a p h s 2 - 8 above s h o u l d be p u t forward by the
U n i t e d K i n g d o m officials,
(ii) Tariffs and. Preferences.—American
officials at
W a s h i n g t o n m a d e it clear t h a t a really
d r a s t i c r e d u c t i o n of t h e A m e r i c a n tariff
would be o u t of t h e q u e s t i o n e x c e p t in return
for w h a t would a m o u n t t o t h e v i r t u a l aboli­
t-ion of I m p e r i a l P r e f e r e n c e s .
I t is for
consideration w h e t h e r , as a m e a n s of fulfill­
ing our obligations u n d e r Article V I I , a tariff
ceiling of (say) twenty-five p e r cent, (or an
e q u a l l y d r a s t i c r e d u c t i o n of high tariffs
a c h i e v e d by a l t e r n a t i v e m e a n s ) would justify
the
practical
elimination
of
imperial
preference.
The
final
fulfilment
of
Article V I I m i g h t be a c h i e v e d in t w o stages
o n b o t h s i d e s ; in t h i s case, it is for considera­
fcion w h e t h e r , as t h e first stage, we should
c o n t e m p l a t e a s o m e w h a t m o r e - moderate
r e d u c t i o n of high tariffs in r e t u r n for a less
d r a s t i c c u t in I m p e r i a l P r e f e r e n c e s .
(iii) Subsidies.—The
A m e r i c a n officials a t Washing­
t o n agreed in principle to t h e abolition of
export subsidies. B u t t h e y m a i n t a i n e d that,
in t h e case of c o m m o d i t i e s i n world surplus
s u p p l y (such a s w h e a t a n d cotton), t h e y could
n o t do so u n l e s s s o m e l i m i t w e r e also set to
t h e subsidisation of p r o d u c t i o n of t h e s e com­
m o d i t i e s in o t h e r c o u n t r i e s .
T h e United
K i n g d o m officials m a i n t a i n e d t h a t t h e right
to subsidise t o t a l p r o d u c t i o n s h o u l d not be
limited.
T h e s a m e divergence of view­
revealed itself in t h e W a s h i n g t o n talks on
c o m m o d i t y a r r a n g e m e n t s . (See p a r a g r a p h 7 (e)
of A n n e x C of this report.) A solution might
p e r h a p s be found on t h e following lines: —
in t h e case of c o m m o d i t i e s declared by
s o m e agreed p r o c e d u r e t o be in world sur­
p l u s s u p p l y , t h e rule against
export
subsidies w o u l d l a p s e u n l e s s a n -ad hoc
a g r e e m e n t w e r e r e a c h e d t o l i m i t subsidies
on p r o d u c t i o n . S u c h an a r r a n g e m e n t would
e n a b l e us t o r e t a i n t h e u l t i m a t e right to
subsidise o u r h o m e p r o d u c t i o n as much as
we c o n s i d e r e d n e c e s s a r y , b u t would restrain
t h e p a y m e n t of e x p o r t subsidies on most
m a n u f a c t u r e d goods (such as t h e pre-war
G e r m a n subsidies from which our export
t r a d e suffered severely).
.' ^
(iv) Infant
Industries
and Industries
Necessary i'-''
Grounds of Security.—The
A m e r i c a n officials
a r g u e d t h a t a n y p r o t e c t i o n r e q u i r e d by such
i n d u s t r i e s , a d d i t i o n a l t o t h a t p e r m i t t e d under
t h e tariff r u l e s , s h o u l d b e provided by
subsidies. T h e a c c e p t a n c e of t h e obligations
of t h e c o n v e n t i o n b y u n d e v e l o p e d countries
would, however, b e c o n s i d e r a b l y eased if some
h i g h e r level of tariff p r o t e c t i o n were per­
m i t t e d in t h e s e cases. F o r t h i s reason, "
m i g h t be wise to devise a properly sate- .
g u a r d e d tariff exception, w h i c h in the case oi
infant i n d u s t r i e s w o u l d b e of a temporary
character.
1
t i c i p a t i n g E m p i r e c o u n t r i e s . If this contin­
g e n c y s h o u l d arise, t h e m a t t e r w o u l d clearly
h a v e to b e d e a l t w i t h b y s o m e , s o r t of
modus
vivendi.
(vi) Counter-Monopoly
for Trade with
B,ussia.-The
Americans at Washington urged t h a t State­
t r a d i n g m o n o p o l i e s s h o u l d n o t be s e t u p
m e r e l y to m o n o p o l i s e t h a t p a r t of a c o u n t r y ' ?
trade which was undertaken with another State-trading country (though they
fully admitted
t h e r i g h t of a n y c o u n t r y
to monopolise i t s t r a d e w i t h all o t h e r c o u n t r i e s e i t h e r for p a r t i c u l a r c o m m o d i t i e s or for all
c o m m o d i t i e s ) . T h i s is a n i s s u e w h i c h will
c o m e u p s h o r t l y for M i n i s t e r i a l decision i n
another connection.
"$he Position of Non-Member
States.—-Canadian
officials in t h e t a l k s h e l d in L o n d o n last J u n e
a n d A m e r i c a n officials in t h e r e c e n t t a l k s at
m Washington have urged t h a t t h e
tariff
II benefits of t h e proposed c o n v e n t i o n should
I n o t be e x t e n d e d to t h o s e c o u n t r i e s w h i c h
[I w e r e n o t willing t h e m s e l v e s t o a c c e p t t h e
I s a m e obligations. I n order t o i n d u c e as m a n y
c o u n t r i e s a s possible t o a d h e r e t o t h e c o m
v e n t i o n t h i s w o u l d p r o b a b l y b e as wise as it
is e q u i t a b l e .
I n t h e case of a n E m p i r e
1 c o u n t r y w h i c h did n o t p a r t i c i p a t e , t h e r e
1 would h a v e t o be c h a n g e s in t h e t r e a t m e n t
I of its t r a d e w h i c h w o u l d e n s u r e t h a t it w a s
c e r t a i n l y n o t m o r e f a v o u r a b l y , a n d probably
less f a v o u r a b l y , t r e a t e d t h a n t h a t of par-
I
A N N E X C.
COMMODITY
M a j e s t y ' s G o v e r n m e n t is b o u n d b y n o exact
e n t s in r e g a r d t o C o m m o d i t y Policy. I t is
iajt P o i n t 4 of t h e A t l a n t i c C h a r t e r s t a t e s t h a t
ed S t a t e s a n d t h e U n i t e d K i n g d o m —
e n d e a v o u r , w i t h due r e s p e c t for t h e i r existing
legations, to f u r t h e r t h e e n j o y m e n t by all
es g r e a t a n d small,, victor or v a n q u i s h e d , of
R s s on e q u a l t e r m s to t h e t r a d e and to t h e r a w
Kterials of t h e w o r l d w h i c h are n e e d e d for t h e i r
jraiomic p r o s p e r i t y . "
ihowever, from c e r t a i n d i s c r i m i n a t o r y d u t i e s on
p o r t s from M a l a y a a n d Nigeria a n d (for a
fairy period) on p a l m oil e x p o r t s from Nigeria,
yere no d i s c r i m i n a t o r y sales of p r i m a r y p r o d u c t s
jihter-war period from t h e U n i t e d K i n g d o m a n d
ides u n d e r its control.
I n general, therefore,
l a u s e can only r e l a t e to t h e desirability of
jig! such d i s c r i m i n a t o r y a r r a n g e m e n t s in r e g a r d
hce and c o m m e r c e as m a y m a k e it m o r e difficult
tut countries to a c q u i r e t h e foreign e x c h a n g e
aSy to p u r c h a s e t h e p r i m a r y p r o d u c t s t h e y use.
iodity Poiicy, as such, is n o t affected by t h e
ic C h a r t e r s a v e in "so far as it r u l e s out
lihatory sales in t h e f u t u r e .
here are, however, c e r t a i n i n d i r e c t c o m m i t S Article V I I obliges u s t o seek m e a s u r e s
pive to general e c o n o m i c e x p a n s i o n ; it m a y b e
therefore, t h a t w e are u n d e r s o m e obligation to
br!an i n t e r n a t i o n a l code in r e s p e c t of C o m m o d i t y
I, which would facilitate t h e a c h i e v e m e n t of t h i s
^Moreover, t h e r e c o m m e n d a t i o n s of t h e H o t
IJS Conference, w h i c h h a v e b e e n a c c e p t e d in
pie by H i s M a j e s t y ' s G o v e r n m e n t , c o n t a i n a
tion on C o m m o d i t y Policy suggesting, it is t r u e in
general t e r m s , t h e creation of an i n t e r n a t i o n a l
[odity o r g a n i s a t i o n and t h e o u t l i n e of a code of
bnhvhich C o m m o d i t y Policy m i g h t be b a s e d . No
e obligation is implied in all t h i s , b u t i n a s m u c h
r a n g e m e n t s m a d e or c o n t e m p l a t e d i n r e g a r d to
^arit c o m m o d i t i e s e n t e r i n g i n t e r n a t i o n a l t r a d e
hrectly affect general m e a s u r e s for e c o n o m i c
it is i n c u m b e n t on u s t o consider w h a t our
lolicy should b e in r e g a r d t o s u c h a r r a n g e ­
id to e n s u r e t h a t it does n o t conflict w i t h t h e
ejects of Article V I I .
I.—THE
I
Ij
I]
j
TRANSITIONAL
PERIOD.
jso far as t h e y related, t o C o m m o d i t y Policy,
(discussions
at
W a s h i n g t o n " were
concerned
-Siyely w i t h t h e o u t l i n e of a possible p e r m a n e n t
im&it.
N o especial a t t e n t i o n w a s given t o
terns of t h e t r a n s i t i o n .
T h e p r o b l e m s of t r a n s i t i o n w h i c h h a v e h i t h e r t o
ISsre of t w o k i n d s . I n t h e first place, t h e r e are
in war m e t a l s — c o p p e r a n d a l u m i n i u m are t h e
[26868]
POLICY.
l e a d i n g e x a m p l e s — o f w h i c h s u r p l u s supplies are
c e r t a i n t o e m e r g e a t a v e r y early d a t e . I n t h e case
of t h e s e c o m m o d i t i e s it is u r g e n t t h a t D e p a r t m e n t s
should, h a v e s o m e g u i d a n c e as t o t h e l o n g - r u n
objectives of G o v e r n m e n t policy, a n d should b e in a
position to give s o m e g u i d a n c e in t u r n t o t h e i n t e r e s t s
c o n c e r n e d . O t h e r w i s e a r r a n g e m e n t s m i g h t easily b e
m a d e which w o u l d p r o v e t o r u n c o u n t e r t o t h e g e n e r a l
i n t e r n a t i o n a l policy w h i c h H i s M a j e s t y ' s G o v e r n m e n t
desires t o see a d o p t e d i n t h i s field, b u t would prove
v e r y difficult t o u n d o . T h u s , in t h e c a s e of c o p p e r t h e
p r o d u c i n g i n t e r e s t s , if t h e y h a d t o b e left w i t h o u t a n y
i n d i c a t i o n of H i s M a j e s t y ' s G o v e r n m e n f s a t t i t u d e ,
m i g h t well c o n s i d e r t h a t t h e only feasible w a y of
d e a l i n g w i t h t h e i r p r o b l e m w o u l d be b y m e a n s - o f a
regulation scheme on t h e pre-war pattern, a scheme
which, while i n t r o d u c e d t o deal w i t h a t e m p o r a r y
e m e r g e n c y , m i g h t n e v e r t h e l e s s easily t e n d t o t a k e o n
a p e r m a n e n t c h a r a c t e r . A s is e x p l a i n e d below (7 ( c ) ) ,
q u a n t i t a t i v e r e g u l a t i o n of o u t p u t is n o t excluded, i n
t h e j o i n t s t a t e m e n t f r a m e d a t W a s h i n g t o n , as a
possible r e m e d y for c o n d i t i o n s of over-supply, i n
a p p r o p r i a t e cases a n d u n d e r a p p r o p r i a t e c o n d i t i o n s .
B u t the knowledge t h a t H i s Majesty's Government are
disposed t o t r e a t i t as a l a s t r a t h e r t h a n a first r e s o r t
w o u l d give a lead t o t h e D e p a r t m e n t s c o n c e r n e d t o
explore a l t e r n a t i v e m e t h o d s of d e a l i n g w i t h t h e
s i t u a t i o n (e.g., t h e freezing of G o v e r n m e n t - o w n e d ,
s t o c k s of m e t a l so as t o clear t h e o u t l e t s - f o r . n e w
production) and t o discuss t h e m with producers.
5. Secondly, t h e r e are t w o c o m m o d i t i e s - r u b b e r a n d
s u g a r — w h i c h are still i n a c u t e l y s h o r t s u p p l y b u t
w h i c h c l a i m a t t e n t i o n for a n o t h e r r e a s o n .
E a c h of
t h e m is t h e s u b j e c t of a p r e - w a r r e g u l a t i o n a g r e e m e n t
w h i c h is j u s t a b o u t t o e x p i r e ; a n d in each c a s e t h e
q u e s t i o n h a s arisen w h e t h e r t o r e n e w t h e a g r e e m e n t
a s i t s t a n d s , or t o work for t h e e s t a b l i s h m e n t of a
b r o a d l y - b a s e d i n t e r n a t i o n a l c o m m i t t e e which, for t h e
t i m e being, w o u l d confine itself t o i n t e l l i g e n c e a n d
s t a t i s t i c a l activities, b u t w h i c h m i g h t be e x p e c t e d t o
d e v e l o p l a t e r into a policy-forming body. T h e s e deci­
sions are h a v i n g t o be t a k e n as a m a t t e r of u r g e n c y
i n a n a t t e m p t to k e e p t h e s i t u a t i o n fluid p e n d i n g t h e
f o r m u l a t i o n of l o n g - r a n g e G o v e r n m e n t policy in t h i s
field; b u t if our r e p r e s e n t a t i v e s on t h e bodies d e a l i n g
w i t h t h e s e c o m m o d i t i e s are t o f u n c t i o n effectively, i t
will b e n e c e s s a r y for t h e m t o r e c e i v e g u i d a n c e a t n o
d i s t a n t d a t e as t o w h a t t h a t policy is.
6. O t h e r i n s t a n c e s of e a c h of t h e s e t w o g r o u p s of
c a s e s are likely to e m e r g e d u r i n g t h e t r a n s i t i o n a l y e a r s .
I t w o u l d s e e m t h a t t h e sooner a n agreed body of
p r i n c i p l e s c a n be a p p r o v e d , a n d t h e sooner a c e n t r a l
i n s t i t u t i o n c a n b e set u p t o w h i c h existing r e g u l a t i o n
s c h e m e s or t h e i r m o r e flexible s u c c e s s o r s can b e
affiliated, t h e less t r o u b l e s o m e t h e s e p r o b l e m s will b e
to handle.
S t a t e - t r a d i n g , which were a c c e p t e d by t h e A m e r i c a n
officials at W a s h i n g t o n .
T h e s e proposals do not
h i n d e r us or a n y o t h e r c o u n t r y from m o n o p o l i s i n g t h e
whole of its foreign t r a d e or from c o n d u c t i n g a m i x e d
s y s t e m of S t a t e - t r a d i n g in c e r t a i n c o m m o d i t i e s and
p r i v a t e t r a d e in o t h e r s . No c o u n t r y would he d e b a r r e d
from i n t r o d u c i n g g r e a t e r s t a b i l i t y i n t o its i n t e r n a t i o n a l
c o m m e r c e by m e a n s of l o n g - t e r m S t a t e - c o n t r a c t s for
its i m p o r t s or e x p o r t s . On t h e o t h e r h a n d , an a t t e m p t
h a s been m a d e t o avoid t h e u s e " of S t a t e - t r a d i n g
m e c h a n i s m s m e r e l y t o r e - i n t r o d u c e by a n o t h e r m e a n s
t h e p r o t e c t i v e and d i s c r i m i n a t o r y m e c h a n i s m s w h i c h
are to be b a r r e d u n d e r o t h e r c l a u s e s of t h e c o n v e n t i o n .
T h e W a s h i n g t o n p r o p o s a l s do not a t t e m p t t o j u d g e
between S t a t e enterprise, private enterprise, or mixed
s y s t e m s of t r a d i n g ; t h e y t r y m e r e l y t o set s o m e limit
to t h e p r o t e c t i v e a n d d i s c r i m i n a t o r y use of each of
these systems.
15. T h e W a s h i n g t o n
proposals do suggest
that
c o u n t r i e s should n o t s e t u p S t a t e - t r a d i n g monopolies
m e r e l y in order t o cover t h e i r t r a d e with a S t a t e ­
t r a d i n g c o u n t r y , w h e n no S t a t e m o n o p o l y is s e t up
to cover t h e i r t r a d e in t h e s a m e c o m m o d i t i e s with
p r i v a t e e n t e r p r i s e c o u n t r i e s . T h i s is a limited issue
which it m i g h t be wise to t r e a t s e p a r a t e l y f r o m t h e
m a i n issue (see p a r a g r a p h 17 (vi) below).
16. I t m a y be useful to see h o w t h e s e a r r a n g e m e n t s
would c i r c u m s c r i b e our policy for a n y p a r t i c u l a r
industry—for example, agriculture : —
(i) Q u a n t i t a t i v e r e s t r i c t i o n s on our i m p o r t s of
a g r i c u l t u r a l ' jjroducts would be r u l e d o u t as
a n o r m a l m e a n s of a g r i c u l t u r a l p r o t e c t i o n ,
t h o u g h t h e y could b e e m p l o y e d d u r i n g t h e
t r a n s i t i o n a l period, d u r i n g periods of severe
s t r a i n on our b a l a n c e of p a y m e n t s , or a s p a r t
of a n i n t e r n a t i o n a l c o m m o d i t y a r r a n g e m e n t .
(ii) M o d e r a t e tariff p r o t e c t i o n u p t o a l i m i t e d
ad valorem level would be permissible on any
products.
(iii) D i r e c t subsidies, with or w i t h o u t such limited
tariff p r o t e c t i o n , would b e p e r m i s s i b l e to an
u n l i m i t e d e x t e n t , if t h e view p u t forward by
our officials a t W a s h i n g t o n were t o prevail.
T h e A m e r i c a n officials wished to set some
limit t o t h e s u b s i d i s a t i o n of c o m m o d i t i e s in
world s u r p l u s s u p p l y .
If t h e c o m p r o m i s e
solution s u g g e s t e d in 17 (iii) below were
adopted, we would b e u n d e r an obligation
to e n t e r i n t o ad hoc discussions in e a c h case
on t h e possibility of l i m i t i n g such subsidisa­
tion b u t would r e t a i n our u l t i m a t e right to
continue
what
subsidies
we
considered
necessary.
(iv) S c h e m e s involving a levy on i m p o r t s , t h e
proceeds of which a r e p a y a b l e as a s u b s i d y
to h o m e
production,
would
be
allowed
provided t h a t t h e levy did n o t exceed t h e level
p e r m i t t e d by t h e tariff r u l e . ( )
(v) T h e t r a d e
in
any
commodity
could
be
monopolised by t h e S t a t e .
x
S u b j e c t to a satisfactory solution of t h e s u b s i d y issue,
t h e proposals would t h u s allow p r o t e c t i o n t o a n y
degree, provided t h a t a n y p r o t e c t i o n in excess of t h e
level p e r m i t t e d by t h e tariff r u l e s w a s given by m e a n s
of subsidy. T h e y would, moreover, p e r m i t ( w h e t h e r
by m e a n s of l e v y - s u b s i d y a r r a n g e m e n t s or by S t a t e ­
t r a d i n g a r r a n g e m e n t s ) t h e p a y m e n t of g u a r a n t e e d
prices to a n y a g r i c u l t u r a l p r o d u c t , provided a g a i n t h a t
a n y protection in excess of t h e m a r g i n s e t b y t h e tariff
rules was given n o t b y r a i s i n g t h e price t o t h e
c o n s u m e r b u t by m e a n s of a direct c h a r g e on t h e
Exchequer.
;
(') [f, for example, t h e rule suggested tentatively by our
officials at Washington were accepted, this would permit in
all cases a levy up to 10 per cent. No levy above 25 per cent,
would be permitted in any case. The basis of t r e a t m e n t of
new duties or levies between these two levels has still to be
determined.
111.—Questions
REQUIRING EURTIIKI: CABI
DECISION.
17. If t h e g e n e r a l line of c o m m e r c i a l policy di
at W a s h i n g t o n is to be considered further, first
forthcoming
discussions
with
experts
froi
D o m i n i o n s a n d s u b s e q u e n t l y in f u r t h e r disc
with t h e A m e r i c a n s , it will be n e c e s s a r y for t h e (
to give s o m e g u i d a n c e to our officials on a n u r
p o i n t s . G e n e r a l Ministerial g u i d a n c e o n t h e s e I
is n e c e s s a r y . B u t precise decisions w o u l d be
p l a c e since a t t h e n e x t s t a g e of official discussio
t h e A m e r i c a n s frequent r e f e r e n c e by offic
M i n i s t e r s will c e r t a i n l y be n e c e s s a r y as t h e s e qi.
are raised in t h e discussions.
Arrangements.—It
is necesS
(i) Transitional
consider w h e t h e r a r r a n g e m e n t s for t h e l
tional period on t h e lines i n d i c a t e d ip
g r a p h s '2-8 above s h o u l d b e p u t forward!
U n i t e d K i n g d o m officials.
oflfl
(ii) Tariffs and Preferences.—-American
W a s h i n g t o n m a d e it clear that, a
d r a s t i c r e d u c t i o n of t h e
Amerieai
would be o u t of t h e question e x c e p t ii
for w h a t would a m o u n t to t h e v i r t u a l '
tion of I m p e r i a l P r e f e r e n c e s .
It
c o n s i d e r a t i o n w h e t h e r , as a m e a n s of
ing our obligations u n d e r Article V I I , I
ceiling of (say) t w e n t y - f i v e p e r cent. I
e q u a l l y d r a s t i c r e d u c t i o n of
high
a c h i e v e d by a l t e r n a t i v e m e a n s ) w o u l d
the
practical
elimination
of
ill
preference.
The
final
fulfilment
Article V I I m i g h t be a c h i e v e d in two!
on b o t h s i d e s ; in t h i s case, it is for co:
tion w h e t h e r , as t h e first s t a g e , w e
c o n t e m p l a t e a s o m e w h a t m o r e - in
r e d u c t i o n of high tariffs in r e t u r n for
d r a s t i c c u t in I m p e r i a l P r e f e r e n c e s .
A m e r i c a n officials a t W
(iii) Subsidies.—The
t o n agreed in principle to t h e aboli
e x p o r t subsidies. B u t t h e y m a i n t a i n
in t h e case of c o m m o d i t i e s in w o r l d
s u p p l y (such as w h e a t a n d c o t t o n ) ,
not do so u n l e s s s o m e limit w e r e a l s c g
t h e s u b s i d i s a t i o n of p r o d u c t i o n of t h e
modifies in o t h e r c o u n t r i e s .
The.
K i n g d o m officials m a i n t a i n e d t h a t
to subsidise t o t a l p r o d u c t i o n s h o u l d H
limited.
The s a m e
divergence
of
revealed itself in t h e W a s h i n g t o n tafl
c o m m o d i t y a r r a n g e m e n t s . (See p a r a g r a g
of A n n e x C of this report.) A solutiori
p e r h a p s be found on t h e following lirH
In t h e case of c o m m o d i t i e s declarl
s o m e agreed p r o c e d u r e to be in work
plus supply,
the
rule
against IB
subsidies would lapse u n l e s s a n (id
a g r e e m e n t were r e a c h e d to limit sub
on production. S u c h an a r r a n g e m e n t s
e n a b l e us to r e t a i n t h e u l t i m a t e rig.
subsidise our h o m e p r o d u c t i o n as m u
we considered n e c e s s a r y , b u t would res
t h e p a y m e n t of e x p o r t s u b s i d i e s on
m a n u f a c t u r e d goods (such as t h e pr(
G e r m a n subsidies from which our e:
t r a d e suffered severely).
theH
thfl
(iv) Infant
Industries
and
Industries
Necessar
Grounds
of Security.—The
A m e r i c a n ;ofT
a r g u e d t h a t a n y p r o t e c t i o n r e q u i r e d by­
i n d u s t r i e s , a d d i t i o n a l to t h a t p e r m i t t e d t
t h e tariff
rules, should b e provided!
subsidies. T h e a c c e p t a n c e of t h e obbgaj
of t h e convention by u n d e v e l o p e d coup,
would, however, b e c o n s i d e r a b l y e a s e d H H
h i g h e r level of tariff p r o t e c t i o n were
m i t t e d in t h e s e cases.
F o r t h i s re
m i g h t be wise t o devise a proper
g u a r d e d tariff e x c e p t i o n , w h i c h in the.
i n f a n t i n d u s t r i e s w o u l d b e of a t e
character.
t i c i p a t i n g E m p i r e c o u n t r i e s . If t h i s contin­
g e n c y s h o u l d arise, t h e m a t t e r w o u l d clearly
h a v e t o b e d e a l t w i t h b y s o m e , sort of
modus
vivendi.
(vi) Counter-Monopoly
for Trade with
Russia.—-The
Americans at Washington urged t h a t State­
t r a d i n g m o n o p o l i e s s h o u l d n o t be set u p
m e r e l y to m o n o p o l i s e t h a t p a r t of a c o u n t r y ' s
trade which was undertaken with another
State-trading country (though they
fully
admitted
t h e r i g h t of a n y c o u n t r y
to
m o n o p o l i s e i t s t r a d e w i t h all o t h e r c o u n t r i e s
e i t h e r for p a r t i c u l a r c o m m o d i t i e s or for all
c o m m o d i t i e s ) . T h i s is a n issue w h i c h will
c o m e u p s h o r t l y for M i n i s t e r i a l decision in
another connection.
(v) The Position of Non-Member
States.—Canadian
officials in t h e t a l k s h e l d in L o n d o n last J u n e
a n d A m e r i c a n officials in t h e r e c e n t t a l k s a t
Washington have urged t h a t t h e
tariff
benefits of t h e p r o p o s e d c o n v e n t i o n s h o u l d
not b e e x t e n d e d to t h o s e c o u n t r i e s w h i c h
were n o t willing t h e m s e l v e s t o a c c e p t t h e
s a m e obligations. I n order t o i n d u c e as m a n y
c o u n t r i e s a s possible t o a d h e r e to t h e con­
v e n t i o n t h i s w o u l d p r o b a b l y be as wise as it
is e q u i t a b l e .
I n t h e c a s e of a n E m p i r e
c o u n t r y w h i c h did n o t p a r t i c i p a t e , t h e r e
would h a v e t o be c h a n g e s in t h e t r e a t m e n t
of i t s t r a d e w h i c h w o u l d e n s u r e t h a t it w a s
c e r t a i n l y n o t m o r e f a v o u r a b l y , a n d probably
less favourably, t r e a t e d t h a n t h a t of par-
A N N E X C.
COMMODITY
1. H i s M a j e s t y 's G o v e r n m e n t is b o u n d by n o exact
c o m m i t m e n t s in r e g a r d t o C o m m o d i t y Policy. I t is
true t h a t P o i n t 4 of t h e A t l a n t i c C h a r t e r s t a t e s t h a t
the U n i t e d S t a t e s a n d t h e U n i t e d K i n g d o m —
" will e n d e a v o u r , w i t h d u e r e s p e c t for t h e i r existing
obligations, t o f u r t h e r t h e e n j o y m e n t by all
S t a t e s g r e a t a n d small, victor or v a n q u i s h e d , of
access o n e q u a l t e r m s to t h e t r a d e a n d to t h e r a w
m a t e r i a l s of t h e world w h i c h are n e e d e d for their
economic p r o s p e r i t y . "
Apart, however, from c e r t a i n d i s c r i m i n a t o r y d u t i e s on
tin exports from M a l a y a a n d Nigeria a n d (for a
temporary period) on p a l m oil e x p o r t s from Nigeria,
there were n o d i s c r i m i n a t o r y sales of p r i m a r y p r o d u c t s
in the i n t e r - w a r period from t h e U n i t e d K i n g d o m a n d
territories u n d e r i t s control.
I n general, therefore,
this clause can only r e l a t e t o t h e desirability of
avoiding s u c h d i s c r i m i n a t o r y a r r a n g e m e n t s in r e g a r d
to finance a n d c o m m e r c e as m a y m a k e it m o r e difficult
for some c o u n t r i e s to a c q u i r e t h e foreign e x c h a n g e
necessary to p u r c h a s e t h e p r i m a r y p r o d u c t s t h e y use.
Commodity P o l i c y , as s u c h , is n o t affected b y t h e
Atlantic C h a r t e r s a v e in so far as it r u l e s o u t
discriminatory sales in t h e f u t u r e .
2. There are, h o w e v e r , c e r t a i n indirect c o m m i t ­
ments. Article V I I obliges u s t o seek m e a s u r e s
conducive t o g e n e r a l e c o n o m i c e x p a n s i o n ; it m a y b e
held, therefore, t h a t w e are u n d e r s o m e obligation t o
seek for an i n t e r n a t i o n a l code in r e s p e c t of C o m m o d i t y
Policy, which w o u l d f a c i l i t a t e t h e a c h i e v e m e n t of t h i s
goal. Moreover, t h e r e c o m m e n d a t i o n s of t h e H o t
Springs Conference, w h i c h h a v e b e e n a c c e p t e d in
principle by H i s M a j e s t y ' s G o v e r n m e n t , c o n t a i n a
resolution on C o m m o d i t y Policy s u g g e s t i n g , it is t r u e in
very general t e r m s , t h e c r e a t i o n of a n i n t e r n a t i o n a l
commodity o r g a n i s a t i o n a n d t h e o u t l i n e of a code of
rules on which C o m m o d i t y P o l i c y m i g h t be b a s e d . N o
precise obligation is i m p l i e d in all t h i s , b u t i n a s m u c h
as a r r a n g e m e n t s m a d e or c o n t e m p l a t e d in r e g a r d to
important c o m m o d i t i e s e n t e r i n g i n t e r n a t i o n a l t r a d e
/ "nay directly affect g e n e r a l m e a s u r e s for e c o n o m i c
V expansion, it is i n c u m b e n t on u s t o consider w h a t our
general policy s h o u l d b e in r e g a r d t o s u c h a r r a n g e ­
ments and t o e n s u r e t h a t it does n o t conflict w i t h t h o
broad objects of Article V I I .
I.—THE
TRANSITIONAL
PERIOD.
3. I n so far as t h e y related, to C o m m o d i t y Policy,
the discussions
at
Washington
were
concerned
e-cmsively with t h e o u t l i n e of a possible p e r m a n e n t
settlement.
No especial a t t e n t i o n w a s given t o
problems of t h e t r a n s i t i o n .
4. The p r o b l e m s of t r a n s i t i o n w h i c h h a v e h i t h e r t o
arisen are of t w o k i n d s . I n t h e first place, t h e r e are
certain w a r m e t a l s — c o p p e r a n d a l u m i n i u m are t h e
[26808]
POLICY.
l e a d i n g e x a m p l e s — o f w h i c h s u r p l u s supplies are
c e r t a i n t o e m e r g e a t a v e r y early d a t e . I n t h e c a s e
of t h e s e c o m m o d i t i e s it is u r g e n t t h a t D e p a r t m e n t s
s h o u l d h a v e s o m e g u i d a n c e as t o t h e l o n g - r u n
objectives of G o v e r n m e n t policy, a n d should be in a
position to give s o m e g u i d a n c e in t u r n t o t h e i n t e r e s t s
concerned.
O t h e r w i s e a r r a n g e m e n t s m i g h t easily b e
m a d e w h i c h would prove t o r u n c o u n t e r t o t h e g e n e r a l
i n t e r n a t i o n a l policy w h i c h H i s M a j e s t y ' s G o v e r n m e n t
desires to see a d o p t e d in t h i s field, b u t would p r o v e
v e r y difficult t o u n d o . T h u s , in t h e case of c o p p e r t h e
p r o d u c i n g i n t e r e s t s , if t h e y h a d t o b e left w i t h o u t a n y
i n d i c a t i o n of H i s M a j e s t y ' s G o v e r n m e n t s , a t t i t u d e ,
m i g h t well consider t h a t t h e only feasible w a y of
d e a l i n g w i t h t h e i r p r o b l e m w o u l d be b y m e a n s ,o.f a
regulation scheme on t h e pre-war pattern, a scheme
which, while i n t r o d u c e d t o deal w i t h a t e m p o r a r y
e m e r g e n c y , m i g h t n e v e r t h e l e s s easily t e n d t o t a k e o n
a p e r m a n e n t c h a r a c t e r . A s is e x p l a i n e d below (7 ( c ) ) ,
q u a n t i t a t i v e r e g u l a t i o n of o u t p u t is n o t excluded, i n
t h e joint s t a t e m e n t f r a m e d a t W a s h i n g t o n , as a
possible r e m e d y for c o n d i t i o n s of o v e r - s u p p l y , in
a p p r o p r i a t e cases a n d u n d e r a p p r o p r i a t e c o n d i t i o n s .
B u t t h e k n o w l e d g e t h a t H i s M a j e s t y ' s G o v e r n m e n t are
disposed t o t r e a t i t as a l a s t r a t h e r t h a n a first r e s o r t
w o u l d give a lead t o t h e D e p a r t m e n t s c o n c e r n e d to
e x p l o r e a l t e r n a t i v e m e t h o d s of dealing w i t h t h e
s i t u a t i o n (e.g., t h e freezing of G o v e r n m e n t - o w n e d
s t o c k s of m e t a l so as to clear t h e o u t l e t s for n e w
production) and t o discuss t h e m with producers.
5. S e c o n d l y , t h e r e are t w o c o m m o d i t i e s — r u b b e r a n d
s u g a r — w h i c h are still i n a c u t e l y s h o r t s u p p l y b u t
w h i c h c l a i m a t t e n t i o n for a n o t h e r r e a s o n . E a c h of
t h e m is t h e s u b j e c t of a p r e - w a r r e g u l a t i o n a g r e e m e n t
w h i c h is j u s t a b o u t t o e x p i r e ; a n d in e a c h case t h e
q u e s t i o n h a s arisen w h e t h e r t o r e n e w t h e a g r e e m e n t
as it s t a n d s , or t o w o r k for t h e e s t a b l i s h m e n t of a
b r o a d l y - b a s e d i n t e r n a t i o n a l c o m m i t t e e w h i c h , for t h e
t i m e being, w o u l d confine itself t o i n t e l l i g e n c e a n d
s t a t i s t i c a l activities, b u t w h i c h m i g h t be e x p e c t e d t o
d e v e l o p l a t e r into a p o l i c y - f o r m i n g body. T h e s e deci­
sions are h a v i n g t o be t a k e n as a m a t t e r of u r g e n c y
in a n a t t e m p t to k e e p t h e s i t u a t i o n fluid p e n d i n g t h e
f o r m u l a t i o n of l o n g - r a n g e G o v e r n m e n t policy in t h i s
field; b u t if our r e p r e s e n t a t i v e s o n t h e bodies d e a l i n g
w i t h t h e s e c o m m o d i t i e s a r e t o f u n c t i o n effectively, it
will be n e c e s s a r y for t h e m t o r e c e i v e g u i d a n c e a t n o
d i s t a n t d a t e as t o w h a t t h a t policy is.
'
6. O t h e r i n s t a n c e s of e a c h of t h e s e t w o g r o u p s of
c a s e s are likely to e m e r g e d u r i n g t h e t r a n s i t i o n a l y e a r s .
I t would s e e m t h a t t h e sooner a n agreed b o d y of
p r i n c i p l e s c a n be a p p r o v e d , a n d t h e s o o n e r a c e n t r a l
i n s t i t u t i o n c a n b e set u p t o w h i c h e x i s t i n g r e g u l a t i o n
s c h e m e s or t h e i r m o r e flexible s u c c e s s o r s c a n b e
affiliated, t h e less t r o u b l e s o m e t h e s e p r o b l e m s will b e
to handle.
II.—THE
L O N G - T E R M ARRANGEMENTS.
7. T h e l o n g - t e r m a r r a n g e m e n t s p r o p o s e d are c o m ­
p a r a t i v e l y s t r a i g h t f o r w a r d a n d are s u c c i n c t l y set forth
i n t h e agreed s t a t e m e n t itself.
T h e r e are c e r t a i n
salient features, however, which p e r h a p s d e s e r v e
special m e n t i o n : —
(a) The
Constitution.
T h e principal organ of t h e i n t e r n a t i o n a l c o m m o d i t y
o r g a n i s a t i o n would b e a general c o m m o d i t y council,
o p e r a t i n g for p u r p o s e s of d a y - t o - d a y b u s i n e s s t h r o u g h
a general e x e c u t i v e . - V o t e s in t h e council would b e
allocated a m o n g m e m b e r s on an a p p r o p r i a t e basis,
a c c o u n t being t a k e n of t h e i r s h a r e in i n t e r n a t i o n a l
trade.
Control of p a r t i c u l a r c o m m o d i t i e s would b e devolved
o n individual commodity organisations, a n d it would
b e a f u n d a m e n t a l principle t h a t , in t h e composition
of a n y s u c h organisations, " c o u n t r i e s largely depen­
d e n t upon i m p o r t s of supplies of t h e p a r t i c u l a r
c o m m o d i t y in q u e s t i o n s h o u l d ' h a v e a c o m b i n e d v o t e
e q u a l to t h e e x p o r t i n g c o u n t r i e s . "
7
(b) Obligation
of Participating
States.
U n d e r t h e a g r e e m e n t proposed, p a r t i c i p a t i n g S t a t e s
would r e t a i n t h e right of final decision regarding
proposed i n t e r n a t i o n a l c o m m o d i t y a r r a n g e m e n t s . T h e
o r g a n i s a t i o n w o u l d h e l p t o form s u c h a r r a n g e m e n t s ,
a n d would review a n d r e p o r t u p o n t h e m before t h e y
w e r e s u b m i t t e d t o G o v e r n m e n t s for conclusion. T h e
G o v e r n m e n t s would u n d e r t a k e t h a t a n y a r r a n g e m e n t s
n o t so initiated should be c o m m u n i c a t e d in full detail
t o t h e i n t e r n a t i o n a l organisation.
B u t in t h e last
a n a l y s i s t h e y would r e t a i n freedom of action.
(c) Types of Policy.
- P r o v i s i o n is m a d e in t h e agreed s t a t e m e n t b o t h for
buffer
stock
arrangements
a n d for
quantitative
regulation.
I t is agreed t h a t t h e l a t t e r is to be
r e g a r d e d as a " t r a n s i t o r y " expedient, " t o be intro­
d u c e d only w h e r e t h e r e is persisting d i s e q u i l i b r i u m
between supply and demand which m a y necessitate
special m e a s u r e s for t h e p r o t e c t i o n of p r o d u c e r s a n d
t h e facilitation of orderly c h a n g e . " I t is agreed t h a t ,
w h e r e q u a n t i t a t i v e regulation of e x p o r t s or p r o d u c t i o n
is proposed, t h e r e should be special safeguards in order
t o e n s u r e t h a t t h e f u n d a m e n t a l objectives of inter­
n a t i o n a l C o m m o d i t y P o l i c y are n o t infringed.
(i) E q u a l r e p r e s e n t a t i o n of p r o d u c e r s and con­
sumers.
(ii) E u l l exploration of a l t e r n a t i v e m e a s u r e s for
dealing
with
the
root
causes
of
the
disequilibrium b e t w e e n s u p p l y a n d d e m a n d .
- (iii) T h e obligation to m a k e provision for increasing
o p p o r t u n i t i e s for s u p p l y i n g world require­
m e n t s from t h e c e n t r e s of low-cost p r o d u c ­
tion.
(iv) No q u a n t i t a t i v e r e g u l a t i o n s c h e m e to be
a p p r o v e d for m o r e t h a n five years, or to be
r e n e w e d save u p o n e n d o r s e m e n t by t h e
general executive t h a t t h e a b o v e principles,
p a r t i c u l a r l y those a t (iii), h a v e b e e n observed.
I t is n o t possible t o p r e d i c t a t t h i s s t a g e w h a t would
be t h e relative i m p o r t a n c e of t h e different t y p e s of
policies p e r m i t t e d . I t b e c a m e clear in t h e course of
t h e discussion t h a t differences of opinion on t h i s s u b ­
j e c t r e l a t e d m u c h m o r e t o differences of view on t h e
p r o s p e c t s of t h e c o m m o d i t y m a r k e t s t h a n to differences
of view on t h e u l t i m a t e principles involved.
If we
a d o p t e d t h e proposed a g r e e m e n t we s h o u l d be free to
argue e a c h case on its m e r i t s .
A n d we should be
assured t h a t , if c i r c u m s t a n c e s c o m p e l l e d us to a d m i t
t h a t t h e r e w a s justification for q u a n t i t a t i v e regula­
tion, this would t a k e p l a c e u n d e r conditions in which,
as c o n s u m e r s , we h a d a d e q u a t e r e p r e s e n t a t i o n , a n d
w e r e subject to t h e safeguard t h a t artificial arrange­
m e n t s p e r m a n e n t l y p r o t e c t i n g high-cost production
w e r e r u l e d out.
(d) Relation with the Permanent
Organisation for Food
and
Agriculture.
I t is proposed t h a t t h e P e r m a n e n t Organisation for
F o o d a n d A g r i c u l t u r e s h o u l d be organically l i n k e d with
t h e i n t e r n a t i o n a l c o m m o d i t y organisation b y repre­
s e n t a t i o n on s o m e G o v e r n m e n t body.
(e)
Subsidies.
T h e r e is a difference of view r e g a r d i n g subsidies. T h e A m e r i c a n s s u g g e s t t h a t w h e r e subsidies were
allowed in r e s p e c t of c o m m o d i t i e s s u i t a b l e for inter­
n a t i o n a l regulation, t h e y s h o u l d be a c c o m p a n i e d by
q u a n t i t a t i v e l i m i t s on t h e a m o u n t of subsidised pro­
duction.
This c u t s across our proposals regarding
C o m m e r c i a l Policy, w h e r e t h e use of t h e s u b s i d y as a
safety-valve is one of t h e m a i n principles of t h e scheme.
T h i s is t h e one o u t s t a n d i n g p o i n t of difference between
ourselves a n d t h e A m e r i c a n s a t t h e m o m e n t . And it
is probable t h a t t h e A m e r i c a n s , w h o wish in this way
to r e d u c e their own c o m m i t m e n t s as r e g a r d s subsidies,
will press us hard. A possible line of c o m p r o m i s e is
s u g g e s t e d in p a r a g r a p h 17 (iii) of A n n e x B of this
report.
III.—QUESTIONS
REQUIRING FURTHER
DECISION. CABINET 8. Before t h e m a t t e r c a n be f u r t h e r p u r s u e d , in
c o n v e r s a t i o n s w i t h t h e D o m i n i o n s a n d p e r h a p s , at a
l a t e r stage, w i t h t h e A m e r i c a n s , c e r t a i n broad
decisions by M i n i s t e r s are r e q u i r e d . T h e following are
t h e m a i n q u e s t i o n s on w h i c h s u c h decisions are
necessary : —
(a) D o M i n i s t e r s consider t h a t — h a v i n g regard, on
t h e one h a d , to t h e b r o a d issues of policy
involved, a n d , on t h e other, to o u r responsi­
bility
for
Colonial
producers—-the
main
a p p r o a c h in t h e p a p e r t o c o m m o d i t y arrange­
m e n t s s h o u l d b e t h e b r o a d objective of His
M a j e s t y ' s G o v e r n m e n t ? I n o t h e r words, are
D e p a r t m e n t s to o p e r a t e in t h e knowledge
t h a t H i s M a j e s t y ' s G o v e r n m e n t would wish
quantitative
regulation
schemes
to
be
avoided e x c e p t a s a l a s t resort t o deal with a
position of p e r s i s t i n g d i s e q u i l i b r i u m between
s u p p l y a n d d e m a n d , a n d t h e n t o b e made
subject t o t h e s a f e g u a r d s i n d i c a t e d in the
s t a t e m e n t of p r i n c i p l e s ?
(b) If t h e a n s w e r t o (.a) is in t h e affirmative, can
D e p a r t m e n t s , if n e c e s s a r y , i n d i c a t e to par­
t i c u l a r i n d u s t r i e s in general t e r m s t h a t His
M a j e s t y ' s G o v e r n m e n t ' s g e n e r a l policy is on
t h e lines i n d i c a t e d ?
(c) Should w e w o r k t o w a r d s t h e u l t i m a t e establish­
m e n t of a n i n t e r n a t i o n a l c o m m o d i t y organisa­
tion o n t h e lines i n d i c a t e d in t h e statement
of principles?.
(d) If a n i n t e r n a t i o n a l c o m m o d i t y organisation is
established, are M i n i s t e r s p r e p a r e d to agree
t h a t H i s M a j e s t y ' s G o v e r n m e n t s h o u l d accept
t h e obligation t o refer to it for scrutiny and
r e p o r t a n y c o m m o d i t y s c h e m e s t o which ther .
or t h e i r n a t i o n a l s m a y b e p a r t i e s or m a y hav.
become parties?
(c) W h a t line is t o b e a d o p t e d in r e g a r d to the
subsidy question?
W o u l d a c o m p r o m i s e on
t h e lines s u g g e s t e d
in t h e section on
C o m m e r c i a l Policy be a c c e p t a b l e ?
(/) I s it a g r e e d t h a t t h e r e s h o u l d b e created the
link p r o p o s e d b e t w e e n t h e
international
c o m m o d i t y o r g a n i s a t i o n a n d t h e Permanent
O r g a n i s a t i o n for F o o d a n d A g r i c u l t u r e ?
A N N E X D. CARTEL
1. T h e A m e r i c a n officials a t W a s h i n g t o n r a i s e d t h e
p r o b l e m of i n t e r n a t i o n a l c a r t e l a g r e e m e n t s . T h e r e a r e
i m p o r t a n t sections of A m e r i c a n official opinion w h i c h
enjoy a n d , e v e n w i t h a c h a n g e of A d m i n i s t r a t i o n ,
would p r o b a b l y c o n t i n u e t o enjoy t h e s u p p o r t of
Congress a n d of p u b l i c opinion, w h i c h feel v e r y
strongly a b o u t t h e n e e d t o r e s t r a i n t h e anti-social
practices of i n t e r n a t i o n a l c a r t e l s .
S o m e of t h e
evidence w h i c h t h e A m e r i c a n officials p u t before o u r
officials on t h i s s u b j e c t w a s i m p r e s s i v e in itself; a n d
it is difficult t o find a n a n s w e r t o t h e A m e r i c a n a r g u ­
ment t h a t w e should n o t p e r m i t p r i v a t e p r o d u c e r s or
merchants, by private and uncontrolled agreements, to
reintroduce t h o s e o b s t a c l e s t o t h e flow of t r a d e w h i c h
it is proposed t o l i m i t or to o u t l a w b y G o v e r n m e n t
action u n d e r t h e C o m m e r c i a l P o l i c y a r r a n g e m e n t s .
2. Our o w n officials h a d n o i n s t r u c t i o n s o n t h i s
subject a n d w e r e , therefore, c o m p e l l e d t o a d o p t a
passive role a n d t o l i s t e n t o t h e A m e r i c a n p r o p o s a l s .
These proposals go c o n s i d e r a b l y b e y o n d t h e m e r e
suggestion t h a t i n t e r n a t i o n a l c a r t e l
arrangements
should, b y i n t e r n a t i o n a l a g r e e m e n t , b e s u b j e c t t o
registration w i t h s o m e i n t e r n a t i o n a l b o d y .
They
envisage r a t h e r a n e l a b o r a t e c o d e of r u l e s for t h e
outlawing of m a n y c a r t e l p r a c t i c e s .
I t is very
doubtful w h e t h e r w e s h o u l d w i s h a t a n y r a t e t o g o a s
far as t h e A m e r i c a n s in this policy. W e h a v e still t o
decide w h e r e o u r i n t e r e s t lies. C a n w e h o p e to g a i n
by t h e m a i n t e n a n c e of t h e price of s o m e of o u r e x p o r t s
and by t h e p r o t e c t i o n of s o m e of o u r m a r k e t s w h i c h
cartel a g r e e m e n t s m a y b r i n g u s ?
Or would such
agreements t e n d r a t h e r to b e t o o r e s t r i c t i v e for a
POLICY. c o u n t r y w h i c h m u s t b e free b y o n e m e a n s o r a n o t h e r
t o e x p a n d t h e v o l u m e of i t s e x p o r t s p e r h a p s s o m e
50 p e r c e n t , a b o v e t h e p r e - w a r l e v e l ? C a n w e h o p e
successfully t o r e s i s t A m e r i c a n p r e s s u r e for a n a n t i ­
c a r t e l policy a n d , a t t h e s a m e t i m e , t o m a i n t a i n a
policy d i r e c t e d a g a i n s t r e s t r i c t i o n s c h e m e s for t h e
primary products' which we import ?
3. O u r a n s w e r s t o t h e s e q u e s t i o n s m u s t , n o d o u b t ,
d e p e n d largely u p o n t h e i n t e r n a l policy w h i c h w e
a d o p t g e n e r a l l y in r e g a r d t o r e s t r i c t i v e p r a c t i c e s i n
i n d u s t r y , a n d w h i c h M i n i s t e r s h a v e n o w u n d e r con­
s i d e r a t i o n . I n p a r t i c u l a r , do i n t e r n a l c a r t e l a r r a n g e ­
m e n t s , b y o r g a n i s i n g large-scale p r o d u c t i o n a n d b y
p r e v e n t i n g u n n e c e s s a r y price c o m p e t i t i o n a m o n g our
e x p o r t e r s , h e l p t o p r o m o t e t h e v a l u e of o u r e x p o r t
t r a d e ? Or do t h e y , b y m a i n t a i n i n g t h e cost of t h e
materials and components
of o u r
manufactured
exports, impair our competitive position?
4. W e n e e d m u c h f a c t u a l i n f o r m a t i o n before w e c a n
decide t h e s e i s s u e s . T h e P r e s i d e n t of t h e B o a r d of
T r a d e is a l r e a d y ; I u n d e r s t a n d , c a r r y i n g o u t a n
e n q u i r y on t h e s e lines, and, i n t h e light of t h e f a c t s
w h i c h a r e t h u s disclosed, w e m u s t decide w h a t line of
policy t o a d o p t . I n a n y case, w e m u s t n o t d e c e i v e o u r ­
selves a b o u t t h e i m p o r t a n c e of this^ t o p i c if w e w i s h t o
r e a c h a g r e e m e n t w i t h t h e A m e r i c a n s on t h e w i d e r a n g e
of i n t e r n a t i o n a l e c o n o m i c p r o b l e m s . If w e s h o w u n d u e
reluctance to enter, at t h e appropriate time, into
f u r t h e r d i s c u s s i o n on i n t e r n a t i o n a l c a r t e l s , w e r u n g r a v e
risk of p r e j u d i c i n g f u r t h e r p r o g r e s s in t h e fields of
C o m m e r c i a l P o l i c y a n d C o m m o d i t y Policy.
A N N E X E. EMPLOYMENT
1. This also w a s a s u b j e c t w h i c h t h e A m e r i c a n s
raised, a n d since t h e b r o a d lines of o u r o w n i n t e r n a l
policy for t h e m a i n t e n a n c e of e m p l o y m e n t w a s a t t h a t
t i m e still u n d e c i d e d , it w a s n o t possible for t h e U n i t e d
Kingdom officials to e n t e r i n t o a n y d e t a i l e d e x c h a n g e
of v i e w s on i n t e r n a l e m p l o y m e n t policies.
However,
the various specialised i n t e r n a t i o n a l e c o n o m i c i n s t i t u ­
tions which h a v e b e e n p r o p o s e d ( s u c h as t h e m o n e t a r y
organisation, t h e i n v e s t m e n t b a n k , t h e c o m m o d i t y
organisation a n d t h e c o m m e r c i a l policy o r g a n i s a t i o n )
all m a y exercise a n i m p o r t a n t influence over g e n e r a l
e c o n o m i c e x p a n s i o n t h r o u g h o u t ' t h e world, a n d so over
the o p p o r t u n i t i e s for e m p l o y m e n t , i n t h e v a r i o u s
c o u n t r i e s of t h e world. A p a r t from t h i s , t h e i n t e r n a l
policies of t h e m a j o r c o u n t r i e s of t h e world . t h r o u g h
their success or failure to m a i n t a i n a h i g h level of
-nternal e c o n o m i c activity, r e a c t in a n i m p o r t a n t w a y
upon t h e o p p o r t u n i t i e s for e m p l o y m e n t in o t h e r
countries.
2- In effect, therefore, t h e i n t e r n a t i o n a l a s p e c t s of
employment policy a r e c o n c e r n e d e i t h e r w i t h t h e
POLICY. c o - o r d i n a t i o n of t h e a c t i v i t i e s of o t h e r specialised i n t e r ­
n a t i o n a l i n s t i t u t i o n s or w i t h t h e p r o v i s i o n of o p p o r t u n i ­
t i e s for t h e e x c h a n g e of views a n d i n f o r m a t i o n b e t w e e n
c o u n t r i e s on t h e different i n t e r n a l e c o n o m i c policies
w h i c h t h e y h a v e p u r s u e d for t h e m a i n t e n a n c e of
employment.
T h e Washington talks on this subject
c o n c e n t r a t e d a c c o r d i n g l y o n t h e possibility of i n s t i t u ­
t i n g , for t h i s a n d k i n d r e d p u r p o s e s , s o m e c e n t r a l i n t e r ­
national economic organisation, served by a n economic
a d v i s o r y staff.
3. I t is p r o b a b l e t h a t t h e A u s t r a l i a n s a t t h e forth­
c o m i n g D o m i n i o n s t a l k s will l a y g r e a t e m p h a s i s , a s
they did during t h e Dominions talks in L o n d o n last
J u n e , o n t h e n e e d for i n t e r n a t i o n a l policy for t h e m a i n ­
t e n a n c e of e c o n o m i c a c t i v i t y a n d e m p l o y m e n t . I t is,
t h e r e f o r e , n e c e s s a r y t o decide w h e t h e r t h e U n i t e d
K i n g d o m officials i n f o r t h c o m i n g t a l k s w i t h t h e
Dominions should be authorised to pursue further t h e
possibility of a c e n t r a l i n t e r n a t i o n a l e c o n o m i c o r g a n i s a ­
t i o n of t h i s c h a r a c t e r .
A N N E X F. INTERNATIONAL
1. T h e A m e r i c a n s a t W a s h i n g t o n took t h e initiative
in l a y i n g before our officials a draft project for a n
i n t e r n a t i o n a l b a n k to p r o m o t e l o n g - t e r m i n t e r n a t i o n a l
i n v e s t m e n t s . This subject did not, however, form p a r t
of t h e official discussions a t W a s h i n g t o n , since t h e
U n i t e d K i n g d o m officials h a d n o i n s t r u c t i o n s on t h e
s u b j e c t w h i c h w a s r a i s e d b y t h e A m e r i c a n s only
t o w a r d s t h e end of our visit. T h e m a t t e r is, however,
o n e w h i c h is closely allied . t o t h e proposals for t h e
i n t e r n a t i o n a l m o n e t a r y organisation.
I t is also one
w h i c h . m i g h t h a v e c o n s i d e r a b l e i m p o r t a n c e from our
p o i n t of view. If t h e U n i t e d S t a t e s is d e s t i n e d to
h a v e a v e r y favourable b a l a n c e of p a y m e n t s , it is
i m p o r t a n t t h a t she should m a t c h t h i s w i t h l o n g - t e r m
c a p i t a l m o v e m e n t s to t h e c o u n t r i e s m o s t in need of
c a p i t a l d e v e l o p m e n t ; a n d s u c h lending w o u l d b e
above all useful to us in so far as t h e principle could
b e a c c e p t e d t h a t t h e e x p e n d i t u r e of l o n g - t e r m loans
s h o u l d n o t b e tied to t h e p r o d u c t s of t h e lending
c o u n t r y . Moreover, a n y a c t i o n w h i c h p r o m o t e d t h e
p l a n n i n g a n d t i m i n g of i n t e r n a t i o n a l i n v e s t m e n t in
s u c h a w a y as t o m a i n t a i n economic activity a t a
s t a b l e level, m i g h t b e of considerable u s e in a general
INVESTMENT.
policy for t h e m a i n t e n a n c e of economic a c t i v i t y and
of e m p l o y m e n t .
On t h e other h a n d , of course, it
w o u l d n o t be a p p r o p r i a t e for a c o u n t r y i n t h e position
of t h e U n i t e d K i n g d o m , w i t h t h e p r o s p e c t of a difficult
b a l a n c e of p a y m e n t s p r o b l e m , t o c o m m i t itself in
a d v a n c e t o provide a n y c o n s i d e r a b l e f u n d s for inter­
national investment.
I t is for t h e c o u n t r i e s with,
favourable balances to lend abroad.
2. W h e t h e r or n o t t h e A m e r i c a n p r o p o s a l s allow for,'
or cquld b e m a d e t o allow for, t h e s e p r i n c i p l e s , is a
m a t t e r for e x p e r t consideration.
I n d e e d , t h e whole
s u b j e c t r e q u i r e s t e c h n i c a l consideration a t t h e official
level before M i n i s t e r i a l decisions c a n usefully be
r e a c h e d u p o n it.
B u t t h e topic h a s a l r e a d y been
raised by t h e A m e r i c a n s arid is likely t o b e raised by
t h e m a g a i n ; a n d i t is o n e i n w h i c h w e h a v e a vital
i n t e r e s t a t s t a k e . I would, therefore, p r o p o s e that
t h e Chancellor of t h e E x c h e q u e r s h o u l d b e invited to
a r r a n g e for a n e x a m i n a t i o n of t h e A m e r i c a n proposals
b y t h e T r e a s u r y in c o n s u l t a t i o n w i t h t h e other
D e p a r t m e n t s p r i m a r i l y c o n c e r n e d a n d t o r e p o r t upon
t h e m to the Cabinet.