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]