RESOLUTION REGARDING THE NEGOTIATION OF A MULTILATERAL TRADE AGREEMENT EMBODYING TARIFF CONCESSIONS ADOPTED AT THE FIRST SESSION OF THE PREPARATORY COMMITTEE OF THE UNITED NATIONS CONFERENCE ON TRADE AND EMPLOYMENT, LONDON, OCTOBER 1946

Whereas the Resolution of the Economic and Social Council on 18 February 1946, decided to call an International Conference on Trade and Employment for the purpose of promoting the expansion of production, exchange and consumption of goods, constituted this Committee to elaborate an annotated draft agenda, including a draft convention, for consideration by the Conference, and

suggested that the Agenda of this Committee include among its topics "International Agreement relating to regulations, restrictions and discriminations affecting international trade", and "Establishment of an International Trade Organization" and

Whereas the United States Government had invited the governments appointed by the Economic and Social Council as members of this Committee to meet to negotiate concrete arrangements for the relaxation of tariffs and trade barriers of all kinds and the invitation has been accepted by the governments attending the present session of the Preparatory Committee and

Whereas the task of the Conference will be facilitated if concrete action is taken by the principal trading nations to enter into reciprocal and mutually advantageous negotiations directed to the substantial reduction of tariffs and to the elimination of preferences

The Preparatory Committee of the International Conference on Trade and Employment

Hereby recommends to the governments concerned that the meeting of members of the Preparatory Committee envisaged by the invitations sent out by the United States Government should be held under the sponsorship of the Preparatory Committee in connection with, and as a part of, the Second Session of the Committee, conducted in accordance with the procedures recommended in the Memorandum on Procedures approved by the Preparatory Committee at its current Session

And invites the member governments to communicate to the Executive Secretary their views on this recommendation.

PROCEDURES FOR GIVING EFFECT TO CERTAIN PROVISIONS OF THE CHARTER OF THE INTERNATIONAL TRADE ORGANIZATION BY MEANS OF A GENERAL AGREEMENT ON TARIFFS AND TRADE AMONG THE MEMBERS OF THE PREPARATORY COMMITTEE

SECTION A. INTRODUCTION

The Preparatory Committee has resolved to recommend to the governments concerned that the Committee sponsor traffic and preference negotiations among its members to be held in Geneva commencing 8 April, 1947. Upon the completion of these negotiations the Preparatory Committee would be in a position to complete its formulation of the Charter and approve and recommend it for the consideration of the International Conference on Trade and Employment which would be in a position to consider the Charter in the light of the assurance afforded as to the implementation of the tariff provisions.

SECTION B. PROPOSED NEGOTIATIONS AMONG MEMBERS OF PREPARATORY COMMITTEE

General

The results of the negotiations among the members of the Preparatory ComImittee will need to be fitted into the framework of the International Trade Organization after the Charter has been adopted. The negotiations must, therefore, proceed in accordance with the relevant provisions of the Charter as already provisionally formulated by the Preparatory Committee. In the light of these provisions, the comments and explanations which follow may be useful as a guide to the negotiations.

General Objectives

An ultimate objective of the Charter, elaborated in Article 24, is to bring about the substantial reduction of tariffs and the elimination of tariff preferences. The negotiations among the members of the Preparatory Committee should, therefore, be directed to this end and every effort should be made to achieve as much progress toward this goal as may be practicable in the circumstances, having regard to the provisions of the Charter as a whole.

SECTION C. GENERAL NATURE OF NEGOTIATIONS

1. Article 24 of the Charter provides that tariff negotiations shall be on a "reciprocal" and "mutually advantageous" basis. This means that no country would be expected to grant concessions unilaterally, without action by others, or to grant concessions to others which are not adequately counterbalanced by concessions in return.

2. The proposed negotiations are also to be conducted on a selective, productby-product basis which will afford an adequate opportunity for taking into ac count the circumstances surrounding each product on which a concession may be considered. Under this selective procedure a particular product may or may not be made the subject of a tariff concession by a particular country. If it is decided to grant a concession on the product, the concession may either take the form of a binding of the tariff against increase or a reduction of the tariff. If the tariff on the product is reduced, the reduction may be made in greater or lesser amount. Thus, in seeking to obtain the substantial reduction of tariffs as a general objective, there is ample flexibility under the selective procedure for taking into account the needs of individual countries and individual industries.

3. The same considerations and procedures would apply in the case of import tariff preferences, it being understood that, in accordance with the principles set forth in Article 14 of the Charter (Most-Favoured-Nation Treatment) any preferences remaining after the negotiations may not be increased.

4. The various observations in this report regarding the negotiation of tariffs and tariff preferences should be read as applying (mutatis mutandis) to the negotiation of state-trading margins under Article 31 of the Charter.

SECTION D. GENERAL RULES TO BE OBSERVED IN NEGOTIATIONS

Paragraph (1) of Article 24 of the Charter sets forth the following selfexplanatory rules to be observed during the negotiations :—

"(a) Prior International commitments shall not be permitted to stand in the way of negotiations with respect to tariff preferences, it being understood that action resulting from such negotiations shall not require the modification of existing international obligations except by agreement between the contracting parties or, failing that, by termination of such obligations in accordance with their terms.

(b) All negotiated reductions in most-favoured-nation import tariffs shall operate automatically to reduce or eliminate margins of preference.

(c) The binding or consolidation of low tariffs or of tariff-free treatment shall in principle be recognized as a concession equivalent in value to the substantial reduction of high tariffs or the elimination of tariff preferences."

SECTION E. MISCELLANEOUS RULES FOR GUIDANCE

There are a number of additional questions which should be borne in mind in preparing for the proposed tariff negotiations among the members of the Preparatory Committee.

Base Date for Negotiations

1. Paragraph (1) of Article 14 of the Charter would except from the mostfavoured-nation provisions preferences "which do not exceed the preferences remaining after negotiations." This means that all margins of preference remaining after negotiations would be bound against increase. Also, as explained above, Article 14 requires that reductions of most-favoured-nation rates of duties shall operate automatically to reduce or eliminate margins of preference. 2. In order to determine what residual preferences shall be bound against increase under Article 14, and in order to determine what preferences shall be reduced or eliminated automatically under Article 24, it is necessary to establish a date which will fix the height of the preferences in effect prior to the negotiations. 3. It would be desirable for such purposes to fix a single date, common to all the countries participating in the negotiations. However, the discussions during the First Session of the Preparatory Committee indicate that the establishment of a common date presents certain difficulties and may not be practicable. It is, therefore, suggested that immediately following the close of the First Session each member of the Committee concerned should inform the Secretariat of the United Nations as to the date which it proposes to use as the base date for negotiations with respect to preferences. The Secretariat will promptly inform the other members. The base date for negotiations established by any country granting preferences should hold good for its negotiations on all products with all other members of the Preparatory Committee, and should not vary from member to member or from product to product.

Avoidance of New Tariff or other Restrictive Measures

It is important that members do not affect new tariff measures prior to the negotiations which would tend to prejudice the success of the negotiations in

achieving progress toward the objectives set forth in Article 24, and they should not seek to improve their bargaining position by tariff or other restrictive measures in preparation for the negotiations. Changes in the form of tariffs, or changes in tariffs owing to the depreciation or devaluation of the currency of the country maintaining the tariffs, which do not result in an increase of the protective incidence of the tariff, should not be considered as new tariff increases under this paragraph.

Principle Supplier Rule

1. It is generally agreed that the negotiations should proceed on the basis of the "principal supplier" rule, as defined in this paragraph. This means that each country would be expected to consider the granting of tariff or preference concessions only on products of which the other members of the Preparatory Committee, are, or are likely to be, principal suppliers.

2. In determining whether, on the basis of the "principal supplier" rule, a product is to be included in the negotiations, reference should be had not merely to whether a particular member of the Preparatory Committee is, or may become, a principal supplier, but to whether the members of the Committee, taken as a whole, supply, or are likely to supply, a principal part of the product in question. 3. In other words, if a principal part of total imports of a particular product into the territory of a particular member is supplied by the other members of the Preparatory Committee taken together, then the importing member should, as a general rule, be willing to include that product in the negotiations, even though no single other member of the Committee, taken by itself, supplies a principal part of the total imports of the product.

4. In estimating the future prospects of a member, or the members taken together, to become a principal supplier of a product, consideration should be given to the probable disappearance of ex-enemy countries as suppliers of certain products and of the changes in the currents of trade created by the war.

Form of Tariff Schedules

1. It is contemplated that the tariff negotiations among the members of the Preparatory Committee will be multilateral, both in scope and in legal application. Thus, there would result from the negotiations a total of sixteen' schedules of tariff concessions, each schedule setting forth a description of the products and of the maximum (concession) rates of duty thereon which would be applicable in respect of the imports into a particular country. In this way each member of the Committee would be contractually entitled, in its own right and independently of the most-favored-nation clause, to each of the concessions in each of the schedules of the other members.

2. The multilateral form of the tariff schedules is designed to provide more stability than has existed in the past under bilateral tariff agreements, to assure certainty of broad action for the reduction of tariffs and to give to countries a right to tariff concessions on particular products which such countries might wish to obtain, but could not obtain under bilateral agreements, because of their relatively less important position as a supplier of the product concerned. The multilateral form also gives expression to the fact that each country stands to gain when another country grants tariff reductions on any product, even though primarily supplied by a third country. This point can be finally settled when the negotiations have proceeded sufficiently to enable all the varying factors to be taken into account.

Status of Preferential Rates of Duty

1. The formulation by each member of the Preparatory Committee of a schedule of tariff concessions, which would apply to all other members, raises a question as to the method of relating to such schedules preferential rates of duty, which have been negotiated, as well as preferential rates on products for which mostfavored-nation rates have been negotiated. There appear to be two methods which might be followed:

(a) Such preferential rates might be incorporated in the multilateral schedules, qualified by the requirement that they apply only to the products of the countries receiving preferred treatment.

(b) Such preferential rates might be incorporated in separate schedules which would apply only to the preferred countries.

1 If the principles indicated in Article 33 of the Draft Charter should prove acceptable to the Soviet Union, these may in addition, be a schedule relating to an undertaking by the Soviety Union to purchase annually products valued at not less than an aggregate amount to be agreed upon.

2. It should be left to the country concerned to determine which of the two methods indicated above it desires to follow. However a single schedule containing both most-favoured-nation and preferential rates would seem to facilitate the work of both traders and governments.

SECTION F. PROCEDURES FOR CONDUCTING NEGOTIATIONS AMONG THE MEMBERS OF THE PREPARATORY COMMITTEE

1. It is believed that the tariff negotiations among the members of the Preparatory Committee can best be conducted in four stages:

First Stage. (a) Each member should transmit to each other member, from which it desires to obtain tariff concessions, as soon as possible and preferably not later than 31 December 1946, a preliminary list of concessions which it proposes to request of such other member. This list should set forth for each product concerned

(i) an indication of the existing rate of duty (where known) and (ii) an indication of the requested rate of duty. Thirty copies of this list should be sent simultaneously to the Secretariat of the United Nations, which will transmit one copy to each of the other members of the Preparatory Committee.

(b) In order to facilitate the negotiations, each member of the Preparatory Committee should transmit to the Secretariat of the United Nations, as soon as possible and preferably not later than 31 December 1946, thirty copies of its customs tariff showing the rates of duty currently applicable. The Secretariat will promptly transmit one copy to each of the other members of the Committee.

Second Stage. At the opening of the Second Session of the Preparatory Committee each member should submit a schedule of the proposed concessions which it would be prepared to grant to all other members in the light of the concessions it would have requested from each of them.

Third Stage. (a) Notwithstanding the multilateral character of the negotiations, it will usually be found that only two or three countries will be directly and primarily concerned in the concession on a particular product, and that the interest of other countries, although material, will be secondary. (b) It is, therefore, proposed that the third stage of the negotiations will ordinarily consist of discussions on particular products between two, or possibly three or four countries. Accordingly for the purpose of engaging in such negotiations, each country should to the extent practicable have separate groups of persons competent to negotiate with each of the other countries with which important negotiations are likely to be conducted.

(c) The number of negotiating groups required by each country will, of course, tend to vary with the scope of its trade relations. In the case of large trading countries having important trade relations with most or all of the other members of the Committee, a large number of negotiating groups will be required. In the case of countries having less extensive trade relations, a smaller number of negotiating groups will be sufficient.

(d) In any event the timing of negotiations between particular groups will need to be scheduled, and in order that the United Nations Secretariat may have adequate notice to prepare for such scheduling, it would be desirable for each member of the Committee to notify the Secretariat, as far in advance as may be practicable, of the number of negotiating groups, which the member proposes to send to the negotiating meeting, and of the country or countries to which each negotiating group relates.

Fourth Stage. (a) The progress of the negotiations should be subject to general review by the Committee as a whole periodically during the negoti ations and also in the final stage. General review by the Committee as a whole will enable each member to assess the benefits which it is likely to receive from the series of negotiations in the light of its total contributions, and will offset the tendency toward limiting concessions which results from a comparison of benefits exchanged between two countries alone.

(b) It is clear that the general review by the Committee as a whole cannot take the form of a detailed examination of each concession. Rather the Committee would review the general level of tariff reduction achieved as indicated in summary reports. At the same time each member should be entitled to receive, on request, detailed information as to the status of negotiations on particular products between other members in order that it may be in a position to assert an interest in such negotiations.