406 Cabinet Submission by Chifley, Evatt, Dedman, Pollard, Lemmon and Courtice

Agendum 1019G, CANBERRA, [4 May 1948][1]

CHARTER FOR AN INTERNATIONAL TRADE ORGANISATION INTRODUCTION Cabinet Agendum No. 1019E[2] reviewed the proceedings in Geneva of the Preparatory Committee for the United Nations Conference on Trade and Employment. That section of the Committee's work dealing with the General Agreement on Tariffs and Trade was further reported upon in Agendum No. 1019F. The Draft Charter prepared by the Preparatory Committee was presented to a United Nations Conference which concluded its work in Havana on 24th March, 1948 with the signing of the Final Act authenticating the text of a Charter for an International Trade Organisation for submission to the Governments concerned. A report by the Delegation to that Conference together with their summary of the Charter is attached to this Agendum.

CONSIDERATION OF ADHERENCE BY AUSTRALIA The Charter is designed (a) to establish an acceptable commercial code which the Member Governments undertake to observe in their relations with one another (b) to set up an International Trade Organisation to act as a means of consultation, collaboration and joint action for Member Governments in the field of international commercial policy.

Australia has been represented both on the Preparatory Committee and the United Nations Conference and the Australian delegation has worked to secure a Charter adapted to Australia's interests. In this they have aimed particularly to establish (a) the importance of maintaining employment and effective demand particularly in the major industrial countries of the world (b) the necessity to promote actively development of under-developed areas (c) the need for greater stability of prices of primary products (d) limitations on the use of restrictions on imports of agricultural products by countries which in the past maintained domestic agriculture at uneconomic levels by means of quotas and other impediments to importation and by so doing reduced their demand for goods of which Australia was an exporter (e) that British Commonwealth countries shall not be required to reduce or eliminate preference except in return for compensating concessions and in the meantime that these preferences are a recognised exception to the most-favoured-nation principle (f) freedom for Australia to deal with economic problems of particular interest, e.g.

(i) industrial development by tariff protection (ii) protection of the balance of payments (iii) stabilisation plans for primary industries.

Substantial changes have been secured in the original draft Charter and in its present form the Charter meets the above requirements.

In reaching a decision whether it would be in Australia's interest to adhere to the Charter and become a Member of the Organisation consideration should be given to (a) the contribution the Charter and the Organisation can make to the solution of world economic problems and to the maintenance of healthy economic conditions (b) the effect of the Charter on Australian export markets for primary products and manufactured goods by its effects on the economic policy of other countries (c) the effect which the rules of the Charter may have on economic policies of the Australian Government now or in the future (d) the attitude of other countries.

The following are brief comments on these aspects of the question:

1. Effect on World Economic Conditions (A) EMPLOYMENT AND EFFECTIVE DEMAND Countries adhering to the Charter undertake to pursue policies designed to maintain high and stable levels of employment and effective demand. (See Article 3). To the extent that they successfully carry out this undertaking there will be ensured good market conditions for all internationally traded goods - this is of major importance to Australia and other economies dependent on large export industries.

If major countries do not successfully carry out these undertakings then at the worst Australia and other economies adversely affected will have strong justification for taking emergency action and a sound basis for urging international action to correct the decline of demand.

(B) BALANCE OF PAYMENTS Countries adhering to the Charter undertake that if their balance of payments is persistently favourable they will play their full part in restoring equilibrium (see Article 4). This for instance requires the United States actively to pursue policies designed to correct the present disequilibrium between dollar and non-dollar currencies and the absence of successful action on these lines provides a basis for complaint by affected countries and for special international action.

On the other hand it has been possible to secure provisions under which Australia will be able to safeguard her balance of payments and mitigate the effect of adverse external economic conditions on her economy.

(C) LIBERAL TRADE POLICIES IMPOSED ON U.S.A.

While the general rules established in the Charter are provided with extensive exceptions these exceptions are designed to meet specific needs, e.g. needs of under-developed countries (see Articles 13 and 15), of countries experiencing balance of payments difficulties (see Articles 21 and 23), of countries dependent upon a limited number of exports variable in price (see Chapter VI), etc. Practically none of these exceptions apply in practice to the U.S.A. Consequently while the Charter permits wide freedom of action to most countries it will require the United States to pursue liberal trade policies. This will undoubtedly be to the benefit of the rest of the world both because of the expanding market which it opens to the worlds' goods but also because it places some restraints upon United States interests anxious to use restrictive practices for the protection of their vested interests (e.g. United States wool industry).

(D) MACHINERY FOR CONSULTATION AND CONCILIATION International trade disputes in the past have frequently had widespread and detrimental effects. The existence of an organisation for consultation and conciliation will tend to limit their scope and lead to earlier settlement (see Chapter VIII). Furthermore, reference to the Organisation can be made as trends inimical to international trade become evident. The existence of a generally accepted code in international trade which provides adequately for the realisation of legitimate commercial national objectives will also tend to eliminate the grosser forms of national self-sufficiency.

(E) I.T.O. MACHINERY Under the Charter, there are established a Conference, at which all Members of the Organisation will be represented and which will have all the powers and duties attributed to the International Trade Organisation under the Charter and the final authority to determine the policies of the Organisation; and an Executive Board, consisting of eighteen members of the Organisation, eight of whom shall be appointed according to the criterion of economic importance (with special regard to international trade) and the remaining ten elected by a two-thirds majority of the Conference. A Director-General and staff will be appointed to carry out the policies of the Organisation.

The extent to which the I.T.O. becomes an effective international body will depend on the energy and initiative which is shown by member nations at the Conference of the Organisation and by the Executive Board and the Secretariat. Some of the most important obligations imposed by the Charter, e.g. Employment, are necessarily expressed in general terms and there are many potential escape clauses so that it will need an effective organisation and active participation by interested Governments, to ensure that members keep within the spirit of the Charter rather than seek therein a facade to conceal unacceptable commercial policies.

Largely for this reason, Australia opposed at Havana the principal of automatic seats for the Executive Board, believing that seats on this Board should go by election to those countries which had shown their readiness and capacity to give the Organisation the drive and clear direction which will be essential, particularly in the early stages. This stand against automatic seats was unsuccessful but there will be ten countries elected as opposed to eight automatic appointees and Australia should gain one of these elective seats when the first Board is established.

2. Effect on Australian Export Markets Australian exports will gain directly from the maintenance of good demand conditions in the world generally and in particular from the adoption of liberal trade policies by U.S.A. Tariff negotiations of the kind concluded in Geneva can lead to further benefits to our industries.

On the other hand the Charter leaves the main structure of existing Imperial preferences substantially preserved. Whilst new preferences cannot be established existing preferences obtain international recognition and we are assured that in return for the reduction or elimination of these preferences we shall receive compensating benefits in other countries' markets.

The limitation on the use of quantitative restrictions by importing countries, from which Australian exports of primary products have suffered in the past, strengthens our export position. In addition our existing schemes for the stabilisation of primary export industries are fully protected.

Australia's prospects of developing sound export markets for her manufacturing industries are also enhanced by the provisions of the Charter which look toward lower tariffs, limitations on the use of quantitative restrictions for protective purposes and more liberal trade policies generally.

This is the more important in view of the present expansion of Australian exports of manufactured products.

3. Effect on Economic Policy of Australian Government As has been stated above it has been the concern of the Australian delegation to ensure that Australia's freedom to deal with characteristic problems by traditional methods has been preserved - particularly in relation to protection for Australian manufacturing industries, stabilisation plans for primary industries, and import restrictions to protect the balance of payments.

It can be said that the Charter required no change in policies and few, and those only minor, changes in the present commercial legislation or practices of the Australian Government and that it will be possible to deal adequately with any economic problem likely to arise in the future.

4. Attitude of Other Governments Of the 56 Governments represented at Havana all except Argentina Poland and Turkey signed the Final Act authenticating the text for consideration by their Governments. The United Kingdom delegation indicated that their Government, in deciding to sign the Final Act, had also decided to submit the Charter to Parliament with the Government's support. The United States Administration proposes to submit the Charter to Congress although it seems probable that this will not be possible before the Presidential election. Informal discussions in U.S.A. suggest that it is unlikely that the outcome of the election will affect the attitude of the Administration to the Charter. If these and other major trading countries adhere to the Charter it may well be disadvantageous for Australia to remain outside. The Organisation will in effect constitute a large and powerful preferential trading group exchanging preferential treatment between Members. Even in the absence of positive discrimination against non-Members it seems inevitable that they would find the operation of the Organisation contrary to their interests.

5. Conclusion The Government has been a consistent advocate of international co-operation in the economic field and Australia is a member of the Economic and Social Council and all other economic specialised agencies. Furthermore, Australia was a party to the Mutual Aid Agreement out of which the Charter developed.

In view of this general attitude and the foregoing considerations it is considered that Australia should adhere to the Charter if the United States and the United Kingdom adhere to it.

GENERAL AGREEMENT Article I and the Articles of Part II of the General Agreement on Tariffs and Trade together with Article XXIV are in substance identical with those incorporated in the Charter. A separate note on the relationship between the Agreement and the Charter is attached. Unless specific objection is raised within 60 days of the closing of the Havana Conference, i.e. before 23rd May, 1948, Article I and Part II of the Agreement will, when the Charter comes into force, be suspended and superseded by the corresponding provisions of the Charter. Australia reserved the right to lodge such objection. If it is decided to adhere to the Charter there seems nothing to be gained from the existence of slightly differing undertakings dealing with the same subject matter. It is recommended therefore that Australia raise no objection to the suspension of the Articles of the Agreement.

As Parliament has already enacted the relevant tariff changes the remainder of the Agreement should be considered together with the Charter to which it is closely related. It is considered that the Government should be given authority to accept the General Agreement at the same time that is adheres to the Charter.

INTERIM COMMISSION At the conclusion of the United Nations Conference a resolution was adopted establishing an Interim Commission to prepare for the first Conference of the Organisation. It appears likely that the necessary number of ratifications to bring the Organisation into being will not be received before June 1949 and that the first Conference would therefore be held in the latter part of that year or early in 1950. In addition to preparing the documents for the first Conference including the preparation of agreements of relationship with other agencies and staff rules, a review of the Charter and a report to the Conference on the sections which require early action will be made by the Commission.

The Interim Commission has been charged with a number of specific enquiries which, through pressure of time, it was not possible to conclude at the Conference. These will be considered in Geneva at the next meeting of the Executive Committee of the Interim Commission which is scheduled for August 25th.

The Interim Commission consists of all the Governments which supported the resolution and from that number an Executive Committee of eighteen, including Australia, was appointed in an election which was closely competitive. Australia's participation in the Preparatory Committee has been of great value in influencing the content of the Charter so as to protect Australia's interests. In the same way energetic and successful participation in the Executive Committee should be of value in influencing the early policy of the Organisation on sound lines and in protecting Australia's interests and should ensure membership for Australia in the first Executive Board of the Organisation.

RECOMMENDATION It is recommended - (1) that the Commonwealth Government seek the approval of Parliament to deposit instruments of acceptance of the Charter and the General Agreement on Tariffs and Trade when similar instruments have been deposited by the Governments of the United Kingdom and the United States of America, (2) that Australia participate actively in the work of the Executive Committee of the Interim Commission, (3) that Australia raise no objection to the suspension and supersession of Article I and Part II of the General Agreement by the corresponding provisions of the Charter when the Charter comes into force.[3]

[1] The submission is undated. Cabinet considered it on 4 May 1948.

[2] Published in Volume 12, Document 135.

[3] Cabinet approved the recommendation on 4 May 1948.

[AA : A2700, VOLUME 22]