Post War commercial policy discussions. [1] These talks have now
concluded. No attempt has been made to secure a common Empire
basis for an approach to the United States. Discussions revealed
fairly wide differences of opinion between the Dominions
participating.

The United Kingdom indicated at end of conference that they
proposed to approach United States broadly on the basis set out in
their aide memoire communicated to us in their No. 235 of 22nd
April [2], but that they proposed as a result of the discussions
to make following amendments to the aide memoire.

Point (i) Delete all words after 'would have to be accompanied'
and substitute 'by International policies conducive to a high
level of employment, production and consumption, to improve
standards of living, and in general to an expansive world economy.

It requires some system for the free convertibility of currencies
for trading purposes.

Further, an essential condition of success is the development of
effective political and strategic plans for the achievement of
security'.

Point (ii) At end add 'The multilateral convention would not of
course exclude supplementary bilateral agreements within the
framework of the multilateral agreement'.

Point (iv) At end add 'The question should be considered whether
special provisions could be devised to meet on a reasonable scale
the temporary needs of infant industries'.

Point (v) In second sentence omit 'which we do not regard as
discriminatory in a strict sense of the word'.

Point (ix) Reword as follows. 'Any multilateral commercial
arrangement should be compatible with the conduct of external
trade by the state or by state-sponsored organisations as well as
by private enterprise. But it would be desirable that forms of
trading promoted by state action should be conducted in accordance
with a code to be agreed'.

United Kingdom circulated a summary of the discussions which,
while not an official record of the conference, proved of value in
bringing out the various points of view established. Following
notes are selections from that report, copy of which is being
despatched by air mail. [3]

1. Relation of Commercial Policy to Other Post War Measures
It was agreed that all objectives of Article VII were
interdependent and needed to be pursued concurrently. All
delegations shared the view that particular emphasis should be
placed not merely on those aspects of Article VII which were
concerned with the reduction of barriers of trade, but also on the
positive aspects of securing expansion by appropriate
International and domestic measures of production, employment and
exchange and consumption of goods.

2. United Kingdom Initiative for Multilateral Action
United Kingdom argued that multilateral action was necessary.

Bilateral negotiations were slow and piecemeal, and benefits
derived from them were restricted by the need to extend benefits
without return to most favoured nations. Furthermore,
possibilities of bilateral negotiations with United States have
largely been exhausted and, at any rate, benefits to world trade
were limited, while United States had to obtain equivalent
concessions for tariff reductions. It is necessary to emphasise
that United States Trade Agreements Act is not sufficient United
States contribution to Article VII, particularly if preferences
are to be brought into the field.

Some doubts were expressed whether multilateral convention could
do more at this stage than lay down a code of good behaviour.

There was some difference of opinion about the place of bilateral
negotiations if the United Kingdom approached United States for a
multilateral agreement. Australian, New Zealand and South African
delegates urged strongly that present bilateral negotiations
should be brought to a conclusion as rapidly as possible. United
Kingdom, while stating that they did not wish to obstruct
negotiations, made it plain that these were of little interest to
United Kingdom and a more comprehensive approach was essential.

3. Protection in General
There was agreement that protection should not be conferred
indiscriminately. Australia, South Africa and India particularly
emphasised, however, the need for protection to bring about
diversification and industrialisation for security and social
reasons. It was also represented that tariffs were not always the
most suitable instruments of protection and that latitude should
be left to employ other measures.

4. Tariffs
While it was agreed that some limitation of the use of tariffs was
desirable doubts were expressed as to the practicability of a
ceiling.

It was felt that a ceiling could not take into account:-

(a) The needs of new industries, particularly where habits of
consumption have to be broken down.

(b) Protection against dumping.

(c) Protection against countries whose wage and other costs are
difficult to determine.

Emphasis was placed on practical difficulties of getting an
equivalent control for specific duties. We pointed out that a
better test is often the nature of the industry protected rather
than the degree of protection. Relevant tests for the former were
qualitative such as the availability of raw materials, quantity
and type of labour available, the size of the market in relation
to the optimum output, etc. Reference was made to benefits derived
from national tariff boards in restraining excess protection.

5. Preferences
It was agreed that it would be unwise to claim that preference was
not discriminatory, but attention was drawn to the fact that
protection within the Commonwealth did not differ in principle
from free movement of goods within so large an area as the United
States. The essential point in negotiations was to ensure that for
any modification of preference substantial concessions were
secured from United States and other countries.

6. Regional Arrangements
It was suggested that regional arrangements for preference might
be desirable where based on geographical or political
relationship, but it was recognised that difficulty would be
experienced in laying down conditions under which such
arrangements should be permitted. The test might be as to whether
the arrangements tended to increase the volume of world trade.

7. Quantitative Regulation of Imports
It was agreed that continuation of quantitative controls would be
necessary for exchange reasons for some years after the war and
might continue to be required:-

(a) In respect of International commodity agreements.

(b) To meet balance of payment difficulties.

(c) For security reasons.

It was pointed out that unless quantitative regulation was
subjected to controls of the same kind as tariffs they could be
used to make any International agreement ineffective and to
introduce elements of discrimination elsewhere excluded.

Some attention was given to the advantages of quantitative
controls as a more flexible instrument of protection in some cases
than tariffs. South Africa emphasised that it had been possible,
by the use of import restrictions, to give necessary protection
without marked increases in price in the protected market.

7. [4] Subsidies
It was generally felt that export subsidies were undesirable,
particularly where they related to manufactured goods. United
Kingdom expressed the view that subsidies to primary producing
export industries could be given directly on an output basis,
rather than by a higher home price. Such production subsidies they
considered permissible under the form of agreement contemplated.

We emphasised conditions in which subsidies were economically or
socially [5] justified and in which the home price might be the
most effective method of providing such subsidies.

It was emphasised that it was necessary to bring in some control
of subsidies because there was a form of protection particularly
favoured in the United States which might otherwise attempt to
retain freedom in this field while seeking every restriction on
freedom to impose tariffs. Attention was drawn to the difficulty
of controlling dumping by . . . [6]

8. State Trading
It was agreed that the conduct of external trade by state and co-
operative organisations would continue and that provision must be
made for it. The objective should be to prevent the use of such
trading to give an excessive degree of protection and to
discriminate in ways not possible by tariffs. It was emphasised
that a distinction should be drawn between the purchase of goods
by an official organisation for its own use and for resale.

9. International Commercial Code and Institutions Some doubts were
expressed as to how far a precise code could at this stage be
drawn up and of the degree of authority an International
institution administering such a code could be given. A difficult
issue raised would be whether members of the Commercial Union
would be required to withdraw most favoured national treatment
from nonmembers. The extension of benefits derived from such a
Union to nonmembers through most favoured nation clause might
injure the interest of other member states. We expressed doubts as
to whether an attempt should be made to make participation in
other International plans such as the Clearing Union, conditional
upon membership of the Commercial Union. It was pointed out, that
if it proved difficult or impossible to give precision to the
commercial code, any body set up could not have judicial
functions, although it might prove of value in an advisory
capacity and perhaps to arbitrate between disputing countries.

10. Conclusion
At the conclusion it was stated that the delegations, while in no
way committing their Governments, saw possible advantages in the
United Kingdom taking the initiative in informal and explanatory
discussions with the United States on commercial policy as part of
action to promote positive aims of Article VII of the Mutual Aid
Agreement. The delegations noted that the United Kingdom in taking
this initiative would follow broadly the lines of the aide
memoire. It was understood that the United Kingdom representatives
would be speaking at this stage purely for themselves, though with
the background of the provisional views expressed by the various
delegations at the present discussions, and it would be open to
other members of the Commonwealth to express their own views at
the proper time.

It should be emphasised that no attempt was made to reconcile
differences of opinion expressed in the discussion. After various
points of view had been stated and examined the question was left.

Amendments given earlier in this cable to the aide memoire were
made by the United Kingdom without reference to the conference and
we are not in any way committed to an acceptance of the point of
view of the aide memoire. The general opinion formed by our
delegates was that only Canada was generally sympathetic with the
point of view taken by the United Kingdom delegation.