154 Coombs to Wheeler and Melville

Cablegram TE6 LONDON, 4 October 1946, 5.34 p.m.

SECRET

Please deliver this urgently.

Text of notes submitted by the United Kingdom on quantitative restrictions follows. This is to be discussed by the British Commonwealth Conference [1] next Tuesday afternoon. Please send any comments you may have to reach us not later than Tuesday morning.

Begins:

Quantitative restrictions to safeguard the balance of payments.

Note by the United Kingdom Delegation.

1. We attach a text (Annex A) which we have prepared and which we are considering putting for-ward at the Preparatory Committee Meeting in place of the text in Articles 20 to 22 of the American Draft Charter though this is without prejudice to our general view that there should be no detailed discussion of texts at the Preparatory Committee Meeting.

2. The main points in which our text differs from the American are- (A) In paragraph 231 we allow for discrimination in the transitional period, this has been dropped in the American Draft.

(B) Moreover, under our formula the transitional period itself is elastic in that it will not be deemed to have ended until six months after each particular member has accepted the obligation of convertibility of its currency under Article VIII of the I.M.F.

Agreement. In this way allowance is made for the different circumstances of different members. (C)We have made the test for the imposition of new or intensification of existing restrictions dependent upon the decline in a country's monetary reserves. The Americans on the other hand make this dependent upon the deficit in a country's balance of payments on current account. In our view the draft on reserves is in principle the right criterion since there are some movements of funds which do not figure in the balance of payments on current account but which should nevertheless be taken into consideration. It may well be that a country might have no deficit on its current balance of payments but at the same time a great draft upon its reserves might be in progress for entirely legitimate reasons. Moreover, the balance of payments on current account is a matter only determinable with difficulty in any case and for the determination of which reliable data will be lacking in many countries.

(D) We have allowed unconditionally for action which is necessary to forestall movements in reserves whereas the Americans permit anticipatory action only in the case of a Country whose monetary reserves are already very low.

3. Paragraph 1 of the attached text has been drafted on the assumption of common membership of the I.T.O. and I.M.F. The situation may arise, however, that some Members of I.T.O. will not be members of I.M.F. and this raises the question what exchange control rules will have to be included in the Charter. With common membership members of I.T.O. would of course automatically observe the I.M.F. exchange control rules. As regards the transitional period we suggest that for non members of the I.M.F. the deadline fixed by the Americans in their draft charter (i.e. 31/12/1949) should apply though provision should be made for appeal in special circumstances for an extension of time. The text of paragraph 1 as it now stands would apply to those who were members of both organisations.

4. It should be noted that members are not required either by our text or indeed by the Americans to consult the I.T.O. before imposing new or intensifying existing restrictions. Members are only required to undertake to inform the I.T.O. and if required to consult the I.T.O. Annex 'A' restrictions to safeguard the balance of payments.

Members are entitled impose or maintain restrictions on quantity or value of merchandise permitted to be imported as an aid to restoration or maintenance of equilibrium in their balance of payments or to restoration of their reserves to a safe level. This provision is subject following conditions and qualifications- (1) During a transitional period a member may impose or maintain restrictions which discriminate between currencies in which it purchases imports. Member must withdraw these discriminatory restrictions within six months after it has accepted obligations in Article VIII of I.M.F. Agreement when transitional period for that Member shall be deemed to have ended.

(2) After transitional period any import restrictions applied by a member shall be nondiscriminatory except for- (a) Restrictions imposed in conformity with Article VII of I.M.F.

Agreement relating to scarce currencies.

(b) Restrictions to assist by measures not involving a substantial departure from general rule of non-discrimination a country whose economy has been disrupted by war.

(c) Restrictions to enable members to use balances of inconvertible currencies for buying imports. Arrangements which a member may make for conduct of trade with countries having inconvertible currencies shall be subject to discontinuance or modification in event of the I.T.O. finding that they are contrary to purposes of Organisation.

The provisions under (b) above will cease to operate at 31/12/49.

(3) After transitional period members may impose or maintain nondiscriminatory import restrictions in so far as they are necessary to safeguard their balance of payments and monetary reserves but they undertake [to] observe following principles in administering them.

(a) To refrain from imposing new or intensifying existing restrictions except to extent necessary (having due regard to any special factors which may be affecting level of reserves) to prevent or stop a serious decline in monetary reserves or to prevent them from falling below level of safety or to avoid need for drawing upon special credits to protect their reserves.

(b) To expand imports-if necessary reducing restrictions to point of elimination-to extent necessary to correct a substantial or persistent growth in monetary reserves except where such growth needed to restore reserves to a safe level or where it is caused by capital imports which are not likely to recur in future years.

(c) Any imposition of new import restrictions or intensification of existing restrictions in pursuance of (a) shall not be carried to point at which it involves complete exclusion of imports of any class of goods.

(d) Members imposing new or intensifying existing restrictions under (a) above undertake to inform the I.T.O. In addition all members applying restrictions under this article undertake if requested to consult the I.T.O.

(e) For purpose of this section a country's monetary reserves shall be defined as in Article XIX of the I.M.F. Agreement.

(4) Quantitative import restrictions shall be deemed non- discriminatory if- (a) They are administered on a basis which does not discriminate among member countries sources of supply of any imported product.

(b) They are applied in a manner otherwise consistent with (a) by a group of territories which have a common quota in I.M.F. against imports from other countries.

(5) In administering non-discriminatory import restrictions the import control authorities of a member country shall subject to tariffs or tariff preferences or other preferences which may be maintained consistently with this Charter be influenced solely by commercial considerations such as price quality and customary sources of supply.

(6) Any Member-Country who considers that any other Member-Country is applying import restrictions in a manner inconsistent with provisions in paragraphs (1) to (5) above or in a manner which unnecessarily damages its commercial interests may bring the matter for discussion at the I.T.O. and the Member Country imposing the restrictions undertakes to discuss the reasons for its action. The I.T.O. may recommend that the restrictions are being applied in a manner inconsistent with provisions of this Article and in this case other Member Countries shall after a due interval be released from such obligations incurred under this Charter towards the country applying the restrictions as the I.T.O. may specify.

(7) Member Countries agree that they will take part in any discussions which the International Trade Organisation on recommendation of Executive Board in consultation with other International Organisations may initiate in order to consider whether other measures might not be taken either by those countries whose balances of payments are under pressure or by those countries whose balances of payments are exceptionally favourable or by any appropriate International institution or institutions to remove the underlying cause of the disequilibrium in the International balance of payments. The International Trade Organisation shall initiate such discussions on request of any three or more Member Countries.

(8) Throughout this section phrase 'quantitative import restrictions' includes the restriction of imports by State Trading Organisations to an extent greater than that which would be permissible under Chapter III Section F of the 'Proposals'.

1 i.e. British Commonwealth talks from 3 to 11 October preceding the meeting of ECOSOC Preparatory Committee for the United Nations Conference on Trade and Employment. The delegation to both meetings was led by Coombs and included representatives of the departments of Commerce and Agriculture, Trade and Customs, the Treasury and Post-war Reconstruction. L. H. E. Bury represented the External Affairs Department.

[AA:A1067, ER46/1/27]