191 Dedman to Coombs

Cablegram 6068 CANBERRA, 1 November 1946

1. I agree in general with tactical course proposed in your T.E.14. [1] However, I suggest further consideration of the following points:(a) United States draft Charter [2] contains impairment clauses permitting discriminatory sanctions against countries infringing undertakings in respect of tariff and preference negotiations (Article 18(3)), quantitative restrictions on balance of payments grounds (Article 20(3) (c)), and general objects of Commercial Policy Chapter (Article 30). These provide strong argument for application of similar principle in respect of employment and international resources undertakings, effectiveness of which is necessary condition for success of commercial policy plans.

(b) Under alternative suggested by you as second line of defence, it might still be necessary to make specific reference to possibility of discriminatory as well as general release from obligations. Otherwise general anti-discrimination provisions of United States draft Charter might be held to prohibit the Organisation from permitting action against offending country alone, even if it could be convinced as suggested in last sentence of your third paragraph.

(c) At an appropriate stage it may be necessary to draw a distinction between an offence against the international resources undertaking (which may or may not arise from failure to maintain employment) and an offence simply against the employment undertaking.

Discriminatory trade restrictions against a country persistently failing to use its international monetary resources to the full would, as you indicate, be the least cumulative method of coping with the resulting balance of payments problem and would also act as a deterrent penalty. But against a country failing to maintain employment while continuing to make full use of its international resources, such restrictions would not contribute much to the resulting employment problems of other countries and might even make the position worse by deepening the depression in the offending country with cumulative ill effects for others. Hence, in respect of the employment undertaking considered by itself, it would seem that any impairment clause should ideally provide for:-

(i) Any necessary release from general commercial policy obligations which would stand in the way of a shift of resources out of depressed industries dependent on demand from the offending country, and into new and expanding industries which might require tariff or other protection. Naturally, any such shift should be accomplished, as far as possible, without protective measures.

(There seems no economic reason why any protective measures should discriminate against the offending country, so long as it continues to spend or lend its international monetary resources to the full.) (ii) A deterrent penalty in some more satisfactory form than the two-edged weapon of discriminatory trade restrictions against the offending country. (But whether such a penalty could be devised in any acceptable form is, of course, highly doubtful.) Thus it may be wise to press for discriminatory sanctions primarily in relation to the international resources undertaking rather than the employment undertaking. This could be supported as an extension into I.T.O. and a strengthening of the 'scarce currency' provisions of Bretton Woods (which, it will be recalled, were originally proposed by United States of America in the 'White Scheme').

(d) Argument under (c) assumes that a country failing to maintain employment will also fail to maintain its demand for imports and thus give rise to employment problems elsewhere (even if it continues to make full use of its international resources by lending to cover its import surplus). This is no doubt a realistic assumption, but some thought might be given to the possibility of measures designed to maintain import demand (e.g., by special Governmental import programmes) even in the face of unemployment.

2. It is very gratifying to see the influence of our pressure in the United Kingdom draft Convention telegraphed in T.E.15. The positive approach of clause (6) is especially encouraging. [3]

1 Document 177.

2 For an international trade Organisation.

3 The provisions in clause 6 included promotion of income stability for producers of primary products, and assistance to countries facing balance of payments difficulties to maintain full employment policies.

[AA:A1067, ER46/1/28]