395 Dedman to Brown

Cablegram G21, HAVANA, 3 January 1948, 9.21 p.m.

SECRET

A summary follows of a statement made by me today in Committee 3 regarding Australian amendment to paragraph 2 of Article 24 of the Charter. Please see that appropriate publicity is given to this statement.

'This Article requires the Organisation in deciding right of member to maintain import restrictions on balance of payments [grounds][1] to accept the determination of the Monetary Fund as to certain questions relating to the members monetary reservations. We understand the purpose of the present wording is to ensure:-

(a) No duplication between Organisation and Fund in staff or other matters in this field.

(b) Fullest use should be made of expert knowledge and experience of Fund on balance of payments.

We agree fully with this purpose. We, therefore, do not regard our amendment as affecting the substance of the Charter but we do not think existing provision is appropriate to achieve these purposes for two reasons:-

(I) It is unsound principle of Administration to separate responsibility for decision from responsibility for action arising from that decision.

(II) If the Organisation must automatically accept the determination of the Fund it is not clear how effect can be given to operation of important provisions of Article 21.

Three reasons why it is administratively unsound to separate responsibility for decision from responsibility for action:-

(a) Best insurance against irresponsible decision is that the person making decision should have to take action required by the decision. Present draft of this article, however, places the decision in the hands of the Monetary Fund in cases when I.T.O. will have to implement the decision;

(b) Good working relationships between the two organisations may be [impaired] if I.T.O. has to accept automatically a determination of I.M.F. which it believes to be incorrect. We consider the proper procedure is close consultation between officers of the two organisations during which full recognition would be given to special fields of competence of each of them. This type of collaboration is the essential requirement and is likely to result in agreed decisions. No matter how the article is drafted absence of agreed decision will cause difficulties but we fear that good collaboration will be impaired by the [element] of compulsion contained in the present draft;

(c) Members respect for provisions of the Charter will be impaired if I.T.O. accepts and imposes upon members determinations by the Fund with which it disagrees. In such circumstances member is likely to ignore the decision. What attitude would I.T.O. then take if another member complains and wishes to retaliate in accordance with Article 21, paragraph 4.

(d) Moreover we feel there is danger that members of I.T.O. may try to put the blame on the Fund in decisions which they would have had to take if I.T.O. carried the responsibility.

Second reason for doubting wisdom of present provision in Article 24, paragraph 2, is that it makes difficult if not impossible full implementation of certain important provisions of Article 21.[2] For example paragraph 2(A) requires due regard to be paid to special factors, paragraph 3(A) requires Organisation to take full account of difficulties of post-war a[djust]ment etc. and paragraph 3(B)(1) grants that a member shall not be required to withdraw or modify restrictions on the ground that a change in its domestic policies would render them unnecessary.

These provisions raise a difficult issue. At what stage are they to be implemented and by whom? Are they taken into account before or after determining whether a country's reserves are very low, seriously declining or are increasing at a reasonable rate? For example, if the Fund decides that country's reserves are not very low, could I.T.O. decide that unless the country is permitted to maintain restrictions which will be unable to restore equilibrium in its balance of payments on a sound and lasting basis or that it will have to alter its domestic employment policy in respect of the guarantee contained in Article 21 paragraph 3(B)(1).

If the Organisation cannot so decide, how can we be sure that the Monetary Fund will adequately implement these provisions. What remedy will be available to a member who believes that the Fund has not given them sufficient weight. If it is the intention of the Conference that the Organisation should be the body implementing these provisions this should be made clear in the draft.

Australian amendment provides that the Organisation give Special Weight to the opinions of the Monetary Fund on the relevant questions regarding a member's monetary reservations. We believe that this amendment in conjunction with Article 24(1) and remainder of Article 24(2) requires I.T.O. to use to the full the special knowledge, experience and [competence] of the Fund and to avoid duplication of staff and other facilities. At the same time, we believe it provides a sound working basis for co-operation and places responsibility where it belongs. We do not stand rigidly on the wording we have suggested because we believe our purpose is the same as the purposes of other members who support the existing draft. However, we believe that the Conference should revise this paragraph:-

(a) To give a sound administrative basis to the relationship between the Fund and Organisation;

(b) To place final responsibility for decision where responsibility for action lies; and (c) To ensure that the important protections and guarantees embodied in Article 21 can be adequately implemented.'

[1] Material in square brackets has been corrected or inserted from the draft copy.

[2] In dealing with restrictions to safeguard the balance of payments, Article 21 allowed restrictions in the case of (i) imminent threat of, or serious decline in monetary reserves, or (ii) where monetary reserves were very low, in order to achieve a reasonable rate of increase in reserves.

[AA : A1068, ER47/1/18A]