92 Wilson to Coombs

Cablegram T17 CANBERRA, 3 April 1947

1. Discussion of base date nomination has stimulated review of the general question of Article 14 and of relationship between the proposed General Agreement on Tariffs and Trade and the ultimate Charter. Before discussions with Cabinet Sub-Committee take place we feel it would be useful to recapitulate the issues as we see them and obtain your comments.

2. As we understand it, the effect of Article 14 would be to prohibit any new or increased preferences and to bind against increase all preference margins- (a) negotiated at Geneva or subsequently;

(b) not negotiated at the time of the entry into force of the Article, but defined in terms of a base date.

Since margins covered by the negotiations will presumably be bound, the practical effect will be confined to (b).

3. The automatic binding of margins and of preference-free treatment would appear to involve a direct conflict with the principle of reciprocal and mutually advantageous negotiations upon which we are taking our stand. The reply to this claim given by the Preparatory Committee (Chapter III, Section A.2 (C) (ii) was that 'due weight' would be given to this automatic concession under Article 14 because 'countries would not be called upon to subscribe to the most-favoured-nation ... provisions until selective tariff negotiations had been completed and vice-versa (sic)'.

4. This reply is unsatisfactory for the following reasons:-

(a) It is not easy to evaluate the blanket commitment of Article 14 in terms of the item-by-item bargaining of the tariff negotiations.

(b) Although it would be possible to avoid an unsatisfactory outcome of negotiations on a particular tariff item by reserving the item from the Geneva negotiations, it may not be possible to avoid the contemplated commitment on Article 14 except by rejecting the proposed General Agreement as a whole.

(c) If it is generally assumed during the Geneva negotiations that Article 14 will operate at their conclusion, other countries will scarcely be prepared to give us compensation for a concession which they expect to receive automatically in due course. Section C.3 of the Procedural Memorandum highlights this danger.

(d) We shall be required to enter into a further series of negotiations with countries not covered by the agreement reached at Geneva. If Article 14 has been incorporated in the Geneva General Agreement we shall have signed away the right to secure any reciprocal concessions from these countries in return for the binding of preferences, even although the items may be ones in which no 'Geneva' country has any real interest.

(e) Where only the B.P.T. rate has been bound on any items at Geneva we would lose our bargaining power for subsequent negotiations not only in respect of the binding of the preference margin but also in respect of the binding of the M.F.N. rate.

Moreover, if the Tariff Board clauses of Ottawa [1] continue to operate in relation to unbound B.P.T. rates, the Tariff Board limitation will be extended automatically to the corresponding M.F.N. rates, and any Tariff Board recommendation for a reduced B.P.T. rate will carry with it, if implemented, a reduced M.F.N.

rate. Apart from the loss of bargaining power, the protective implications in relation to M.F.N. rates may be serious.

5. Other points to be noted are:-

(a) Acceptance of the Article 14 commitment would mean that if, because of the development of competition from a low-cost foreign country, Australia found it desirable to raise the most-favoured- foreign nation rate on an item which had not been bound at Geneva, it could not do so without simultaneously making a corresponding increase in the British Preferential Tariff. The same factors will operate elsewhere and accordingly the general linking of B.P.T.

rates to M.F.N. rates through the binding of preference margins will tend to create new and unnecessary tariff barriers between Empire countries (c.f. U.K. suggestions for imposing duties on Empire products at present accorded free entry).

(b) A prohibition on the extension of preferences to parts of the British Commonwealth not at present enjoying such preferences could severely limit the scope for fruitful agreement between British countries.

6. In other words, even tacit acceptance of Article 14 places us in the same bargaining predicament as that in which the U.K.

already finds herself as a result of her acceptance of the binding of preferences at the time of the Anglo-American Financial Agreement. So far we do not appear to have made any strong official protest against Article 14 as we have against Article 24, and indeed our message to the United Nations Secretariat commenting on the Procedural Memorandum did not object to the reference to Article 14 in Section C of that Memorandum, although we safeguarded our position by expressly reserving our attitude on the contents of the General Agreement. The 'experimental' approach which we are making to Article 24 (which may involve reserving from negotiations items in respect of which a satisfactory bargain may be prevented by the 'Automatic rule') cannot be applied to Article 14, since to reserve an item from negotiation means the automatic binding, without compensation, of the preferential margin if that Article is to operate.

7. From the point of view of the Geneva negotiations it would seem that any binding of preference margins should be limited to the items included in the schedules to the General Agreement and that there would be no justification for accepting a blanket commitment preventing the granting of new or increased preferences on unscheduled items in which the countries parties to the General Agreement might have little or no interest. Even considered in the wider context of the ultimate Charter, in which it is hoped to secure the general acceptance of broader commitments in other fields (particularly full employment and industrial development) there would still seem to be no justification. (except perhaps the political value of such a concession to the United States) for accepting a blanket commitment on preference margins.

8. Whatever our view on the ultimate balance of advantage, there would seem to be merit in pressing our objection to Article 14 to the point of forcing the U.S.A. to admit, as they have in effect on the Automatic Rule, that the Article cannot logically be justified as a matter of principle. One possibility would be to press for the principle that the General Agreement should be confined to negotiated tariff and preference schedules with a bare minimum of general clauses necessary to protect the schedules against nullification by extraneous factors. This would of course involve consideration of wider issues than Article 14. Other possibilities were mentioned in our message No. 69 of 7th February to our representatives on the drafting committee in New York which we will repeat to you in a succeeding telegram for convenience of reference. [2]

9.If we are to take any active steps in relation to Article 14 the question of timing requires careful consideration. On the 'Automatic Rule' it has been decided not to seek an immediate showdown but in the case of Article 14 an early declaration of our attitude might be preferable particularly in view of paragraph (6) above.

1 Under the Ottawa Agreement, 1932, Australia undertook to base the tariff on the principle that protective duties should be such as to afford UK producers full opportunity of reasonable competitiveness based on relative cost of economic and efficient production (Article 10), and to refrain from imposing any new protective duty or from increasing any existing duty on UK goods in excess of tariff board recommendations (Article 12).

2 The other possibility mentioned was to make any commitments to the reduction and elimination of preferences conditional upon the charter coming into force. The right would be reserved to determine which sections of the charter should be included in the trade agreement.

[AA: A3196, 1947, 0.5372-8]