Introduction AT THE opening meeting of Committee III, the spokesman for the United States advanced the following reasons for the inclusion of chapter V on restrictive business practices of the United States Suggested Charter in the proposed charter. First, it was pointed out that restrictive business practices are detrimental to the expansion of trade and other objectives of the Organization. They tend to establish prices higher than those that would prevail under conditions of competition and thus result in a lower total volume of production, less consumption, and less employment. Moreover, monopolistic practices and arrangements frequently hinder the adaptability of business enterprises to new situations and result in lower efficiency of production and fewer opportunities for new investment. Such practices may also result in an artificially high level of profits, consequently diminishing shares of national-income flow to workers and producers of raw materials. Finally, restrictive arrangements are capable of impeding the industrialization of undeveloped areas by increasing the price of equipment and preventing the development of new competitive industries through such practices as dumping, boycotting, or interposing obstacles to accessibility to technology and patent rights. Secondly, it was emphasized that chapter V is an essential complement to other chapters in the charter, particularly those relating to commercial policy and intergovernmental commodity agreements. Consequently, if chapter V were not included or if its provisions were too loosely drawn, the obligations of members under these other chapters would be impaired by business arrangements for the purpose of carrying out various restrictive practices. For example, the reduction of governmental barriers to international trade and the elimination of governmentally imposed quotas would be rendered much less effective, and perhaps useless, if commercial enterprises in the member countries were at liberty to interpose restrictions on trade. Likewise, the obligations of member governments to enter into intergovern 1A report on the work of Committee III, Restrictive mental commodity agreements only under the principles and procedures of chapter VI might be seriously impaired in the absence of international agreement to prevent restrictive business practices. It became evident from the initial statements of other delegations that there existed certain differences of view both as to general approach and as to matters of detail. Such differences were attributable to the wide disparities among the participating countries with respect to legal institutions, systems of economic organization, stages of industrial development, and structure of external trade. The United States approach as developed in chapter V of the Suggested Charter called for an international project requiring national action on the part of members to support a policy which most governments, with the exception of Canada and the United States, had not previously followed. Some countries, although having anti-monopoly legislation or constitutional Provisions to this effect, had not actively pursued their administration; others, as in the case of most European industrial countries, had previously followed a policy of permitting and in some cases facilitating participation in international business arrangements of a restrictive character. Nevertheless, despite these dissimilarities of historical i background and despite important differences in the structure of industry and trade in their respective countries, all delegates were agreed on the importance of the problem facing Committee III, and all expressed a resolute willingness to clarify and discuss the issues in the hope of arriving at a generally agreed solution. There was unanimous support for the adoption of the headings of the proposed United States draft charter as the basis for the discussions of this group. The chapter on restrictive business practices (chapter VI) as finally recommended by Committee III and agreed upon by the Preparatory Committee incorporates the fundamental features of chapter V of the United States draft charter, which suggested the establishment of international machinery to facilitate the elimination and prevention of restrictive business practices in international trade that become the subject of complaints by member governments or their nationals. This suggested machinery included (1) a body { of agreed principles of action; (2) agreed procedures for carrying out these principles; and (3) an International Business Practices Commission to assist in matters of administration. In the course of discussions within Committee III, however, it became clear that on certain matters of detail the suggestions advanced in the United States draft charter had not won the support of all nations present at the conference, and, accordingly, various modifications to be explained in section 3 below were tentatively agreed to. General Outline of Chapter VI Chapter VI of the present draft charter enunciates first a general policy toward restrictive business practices. In accordance with this policy members agree to take appropriate measures to prevent within their jurisdiction business practices which restrain competition, limit access to markets, or foster monopolistic control, whenever such practices have harmful effects on any of the purposes of the Organization. Because of their significance in this context, the expansion of production and trade and the maintenance of high levels of real income are mentioned in particular. A list of specific practices is enumerated, comprising those which in the past have been of major significance in the limitation or restriction of trade, and it is provided that these practices, whether engaged in or made effective by an international "ring" or by a single firm, shall be subject to investigation by ITO and by member governments in accordance with prescribed procedures. The procedural machinery operates in the following manner: Upon request from any member country, ITO is empowered to arrange for a consultative conference with any other member or members with a view to the elimination of any particular instance of restrictive practices believed to be detrimental to the objectives of the Organization. Alternatively, or as a further resort, any member may submit a complaint that such an instance exists, whereupon ITO, after a preliminary screening of the complaint to insure its prima facie merits, will investigate the situation. This investigation includes the collection of further information from member governments and, if appropriate, oral hearings at which the representatives of member governments and private parties under their jurisdiction may be heard. ITO will then make a finding as to whether the practices in question have had, or are about to have, harmful effects on the objectives of the Organization. If such effects are found, ITO shall notify all member governments, call upon them to take appropriate measures to prevent the continuance or recurrence of the practices, and at its discretion suggest appropriate remedial measures. ITO shall also make public a complete record of the case and shall request members from time to time to give information as to their respective actions in the particular case. It is understood throughout the present chapter that, although members agree to adopt legislation or other measures appropriate to the observance of their obligations, no member is bound to any given formula; and each is expected to take action in accordance with its particular system of law and economic organization. Moreover, no government is bound by the terms of chapter VI to accept in advance the findings or recommendations of ITO; however, each member agrees to give fullest consideration to such findings or recommendations in the light of its general obligations under the charter. It is specifically provided that no member shall be precluded from enforcing its national laws directed to the prevention of monopoly or restraint of trade, regardless of any act or failure to act on the part of the Organization. Finally, in order to carry out this plan a Commission on Business Practices is established under ITO to assist and advise the Executive Board. Modifications in Chapter VI It will be noted that in certain matters the agreed draft of chapter VI differs from the corresponding chapter V suggested by the United States. The following comments point out the major differences and explain briefly the basis of the changes that have been made. (1) The United States draft suggested (article 34, paragraph 1) that members agree to take appropriate measures to prevent business practices. among commercial enterprises which restrain competition, restrict access to markets or foster monopolistic control in international trade, and which thus have the effect of frustrating the purposes of the Organization. Although some countries found this formulation acceptable, others took the view that it was possible that certain restrictive elements might be present in an arrangement among commercial enterprises without being unreasonable and detrimental, per se, to the expansion of international trade and COMMITTEE IV of the Preparatory Committee for the International Conference on Trade and Employment, which met at London from October 15 to November 26, 1946, prepared a complete chapter on intergovernmental commodity arrangements for inclusion in the draft Charter of the International Trade Organization. The chapter sets forth the objectives of commodity policy, a procedure for intergovernmental commodity consultation and agreement, and principles to govern the operation of particular commodity arrange ments. The Preparatory Committee accepted the draft chapter as prepared by Committee IV and adopted a recommendation that, pending the establishment of the International Trade Organization, this chapter be used as a guide in intergovernmental consultations on commodity problems and that an Interim Coordinating Committee for Intergovernmental Commodity Arrangements be set up by the United Nations. Need for Commodity Arrangements The basis for a commodity-arrangements chapter lies in the fact that, for some primary commodities, the short-run adjustment of production to demand presents difficulties different in character from those encountered in other industries. In the case of certain agricultural products, due to relative inelasticity in supply and demand, burdensome surpluses are created and prices are seriously depressed, but producers cannot move rapidly enough to adjust themselves to the new situation. In the case of some minerals, specialized producing communities are subject to mass unemployment without alternative occupational opportunities, even at times when the general level of world economic activity is not depressed. Under these circumstances governments almost everywhere have intervened in the production and distribution process. Such intervention has frequently resulted in economic warfare and the restriction and distortion of world trade. It is the purpose of intergovernmental commodity arrangements to alleviate the distress caused by those situations while facilitating the necessary processes of readjustment. A report on the work of Committee IV, Intergovernmental Commodity Arrangements. Most of the delegations at the London meeting were of the opinion that a program of intergovernmental commodity agreements was an essential feature of a successful international trade organization. Principles of Commodity Arrangements The Committee agreed that, to avoid abuse of the commodity-arrangement device and to make arrangements conform with the trade-expansion purposes of the Organization, all intergovernmental commodity arrangements should be governed by certain principles. These may be summarized as follows: 1. Such arrangement should be open initially equally favorable terms to any government member of the International Trade Organization and any invited non-member government. 2. They should give an equal number of votes to importing countries and exporting countries, each group taken as a whole and each participating in adequate number, and should also give an appropriate vote to other countries having a large interest in the commodity. 3. They should expand world consumption. 4. They should be negotiated and operated with full publicity. Of these general principles, greatest emphasis was placed on equal voting by importers and exporters. One country, however, dissented froin a rigid formulation of this principle, insisting that the requirement be merely that votes be apportioned "equitably" between the two groups of countries. The Committee adhered to the rigid formulation. It was felt that this principle would assure reasonableness in decisions taken, since either group would have to attract some votes from the other in order to obtain a majority. This situation would be particularly true if, as is the case in many arrangements, substantive decisions required more than a bare majority of the votes. Certain additional principles and conditions would have to be satisfied in the case of arrangements that involved the regulation of production, trade, or prices, such arrangements being defined as regulatory agreements for the purposes of the chapter. These principles may be summarized as follows: 1. Such agreements should assure adequate supplies of the commodity for world demand at reasonable prices. 2. They should afford increasing opportunities for satisfying world demand from the most economic sources of supply. 3. The participating countries should adopt a program of economic adjustment to insure progress toward solution of the difficulty that gave rise to the agreement. 4. Such agreements should be limited in duration and subject to periodic review. 5. They should give members of the International Trade Organization not participating in the agreements treatment comparable to that accorded any participating country. The last principle in the list is designed to make it unnecessary for each member country to join an agreement merely to protect its rights. An even more important limitation on regulatory agreements than any of the foregoing principles, however, is the requirement that agreements dealing with primary products be employed only under one of the following conditions: 1. When there is or is expected to be a burdensome surplus that, because of the inelasticities in the commodity's supply and demand, cannot be corrected by market forces rapidly enough to prevent wide-spread hardship to producers. 2. When there is or is expected to be wide-spread unemployment in the producing industry in areas that do not afford alternative employment opportunities. Agreements dealing with non-primary products, as for example a synthetic product competing with a primary product, can be entered into only when the Organization makes a special exception. In such cases the agreement must conform not only to the principles set forth but also to any additional requirements which the Organization may establish. Some delegations doubted that agreements regulating prices exclusively through purchase and sale ought properly to be subject to conditions as rigorous as those imposed upon agreements regulating trade or production. The Committee decided, however, that primary commodity-pricestabilization operations, if not associated with controls on production or trade, would tend to aggravate existing surplus situations and might even stimulate the accumulation of surpluses that would not otherwise appear. Hence, all agreements regulating prices directly or indirectly were made subject to the foregoing rules. It was felt that conditions for the employment of regulatory agreements were of crucial importance. The whole basis for a commodity chapter in a charter devoted to the expansion of trade and employment lies in the existence of certain cases where intergovernmental consultation is an essential step toward such expansion. On the other hand, to encourage intergovernmental consultation and intervention in fields where private intervention to restrict output and consumption had previously operated would defeat the basic purposes of the Charter which relate to restrictive business practices. The requirements were, therefore, carefully drawn to permit necessary arrangements and to prevent private restrictions from being shifted to an intergovernmental basis. Different Types of Arrangements The Committee gave careful consideration to the question of price stabilization and agreed that moderation of pronounced fluctuations in prices above and below the long-run equilibrium of supply and demand was an appropriate objective of regulatory agreements. There was some debate as to whether such stabilization measures would be needed in cases where the conditions justifying a regulatory agreement did not exist. The Committee agreed, however, that such cases were unlikely, since commodities not the subject of national government intervention, because of a tendency either to burdensome surplus or to concentrated unemployment, would not be likely to suffer extreme price fluctuations. The Committee agreed to except from the provisions of the chapter intergovernmental arrangements relating solely to the equitable distribution of commodities in short supply. It was recognized that such arrangements would not necessarily meet the conditions stipulated in the chapter. Moreover, it was felt that conditions of global short supply would be of infrequent occurrence once war-time shortages had disappeared. It was pointed out in the discussions, however, that agreements concluded under the chapter might appropriately provide for equitable distribution during a temporary period of short supply. The Committee was not entirely satisfied that it had dealt consistently with the problem of conservation agreements, such as international fish eries conventions. It recognized the maintenance, development, and protection of exhaustible natural resources as an objective of commodity arrangements. The discussion brought out that arrangements with this objective would in many cases have to regulate production or trade in order to achieve their objective. Yet few if any of the commodities involved would meet the conditions. laid down by the Committee to justify regulatory agreements. The Committee agreed to call this matter to the attention of the Interim Drafting Committee. One line of solution would be to put pure conservation agreements (as did the United States Suggested Charter) among the arrangements which are excepted from the chapter unless they are used to accomplish results inconsistent with its objectives. Steps in Arriving at Intergovernmental The draft commodity chapter prepared by Committee IV provides for three steps in the procedure for dealing with a commodity for which special difficulties exist or are expected: a study group, a conference, and a commodity council. A study group would be set up by the International Trade Organization when a member government substantially interested in the production, consumption, or trade of a commodity considered that special difficulties existed or were expected to arise regarding the commodity, except in the case in which the Organization found that there was no prima facie basis for the member's view. That group would consist of all member governments substantially interested in the commodity and such interested non-members as the Organization invited. It was contemplated in the discussions that the Organization would usually invite the participation of any country having a large share in the trade in the commodity, whether or not it was a member. If such a country were not represented, intergovernmental consultation on the problems of the commodity could hardly be effective. The study group would investigate the root causes of the alleged special difficulties and would report the relevant facts promptly. If it found that the special difficulties did in fact exist, it would make recommendations for dealing with them. An intergovernmental commodity conference would, without undue delay, discuss measures de signed to meet the special difficulties of a particular commodity. A conference might be a second step, on the basis of the recommendations of a study group, or it might be a first step taken on the basis of information agreed by interested member governments to be adequate. A conference might be called by the Organization on its own initiative. It was contemplated in Committee IV that participation in a conference, although still confined to interested countries, would be somewhat more complete than that in a study group. The product of a conference, it was anticipated, would frequently be a specific proposal for an intergovernmental commodity arrangement to go into effect upon ratification by a certain group of governments. For regulatory agreements, a governing body would be established-or a commodity councilcomposed of representatives of participating countries and a non-voting person or persons appointed by the Organization. The council would appoint a secretariat after consultation with the Organization. The council would make reports to the Organization periodically and in any special case that the Organization might require. It would be the function of the commodity council to administer the provisions of the agree ment adopted for the commodity concerned. Presumably, the methods employed would vary from commodity to commodity. The one thing all would have in common would be the assurance of exhaustive intergovernmental consultation. The basic hope of the drafters of the commodity chapter is that such consultation will lead to reasonable compromise solutions that will prevent resort to the economic warfare that was the result of special commodity difficulties in the inter-war period. Coordination and Control of International It was felt important that individual commodity ! arrangements, particularly of the regulatory type, once established, be consistent with one another, with international commercial policy, and with the programs for nutrition and production expected to be developed and recommended by the Food and Agriculture Organization of the United Nations. Provision was therefore made for the following relationships, some of which appear in portions |