aspects of t other ready h varios: ncluding cial Co ruction or Orga ization lentif s fact. in the nctions afte da spect AT ITS third executive session on October 16, 1946, the Preparatory Committee for the International Conference on Trade and Employment established a committee-Committee II-to consider the subject-matter covered in the General Commercial Policy chapter of the United States Suggested Charter for an International Trade Organization. This committee probably had the largest and most difficult task of any of the main committees. Nevertheless the area of agreement reached was impressively large. Texts were agreed to for articles covering more than half of the subject-matter of the chapter. These agreed articles covered many of the most important subjects of the chapter, such as most-favored-nation treatment, reduction of tariffs and elimination of preferences, quantitative restrictions (quotas) and exchange control, subsidies, and certain aspects of state-trading operations. postpe A under t issue on of aft che in F closed In the case of certain other proposed provisions of the chapter, lack of time and the complexity of the subject-matter made it advisable for the committee to limit its work to a thorough exchange of views, leaving the task of reconciling any differences and of preparing texts of draft articles to an interim drafting committee and to the second meeting of the Preparatory Committee in the spring of 1947. The Commercial Policy chapter of the Suggested Charter was used as a basis for discussion. After preliminary discussion in the full committee, the various articles were referred to subcommittees, which proceeded to redraft certain articles in accordance with the views expressed. The reports of the subcommittees, together with the revised texts of articles, were then submitted to Committee II for further discussion, modification, and adoption. General Most-Favored-Nation Treatment The committee was in agreement with the principles (a) that members of the International Trade Organization (ITO) should grant each other general unconditional most-favored-nation treatment in respect of all customs matters, and (b) that certain preferences should be excepted from the operation of the most-favored-nation 1A report on the work of Committee II, General Commercial Policy. clause, pending their elimination by negotiation. The draft article on most-favored-nation treatment proposed by the United States had provided for a temporary exception for preferences in effect in either 1939 or 1946, whichever date resulted in the lower preferences; preferences thus excepted had also been limited roughly to Imperial and Cuban-American preferences. The committee agreed that the preferences to be excepted should be those remaining after the negotiations contemplated in the provisions of the charter which related to the reduction of tariffs and to the elimination of preferences. The committee agreed that "the awarding of governmental contracts for public works" and "purchase of supplies for governmental use" should not be included within the scope of the most-favorednation clause, as proposed by the United States. It was felt that the former was more closely related to the treatment of foreign nationals and corporations than to the treatment of trade in goods and should, therefore, be the subject of future agreements developed under the auspices of the ITO. The latter subject is covered by article 31 in the revised state-trading provisions of the charter. General Commercial Provisions A technical subcommittee discussed the general subject-matter covered in articles of the Suggested Charter regarding national treatment on internal taxation and regulation; freedom of transit; anti-dumping and countervailing duties; tariff valuation; customs formalities; marks of origin; publication and administration of trade regulations; advance notice of restrictive regulations; information, statistics, and trade terminology; boycotts; and general exceptions to the General Commercial Policy chapter. A substantial degree of agreement was reached on questions of the principles underlying these provisions. Because of national variations in the practice of detailed administration, however, numerous differences of opinion existed, and a number of reservations were made. No efforts were made to reach agreement on specific texts of draft articles. The report of the subcommittee, summarizing the views of the various delegations, was adopted as a working document and referred to the Interim Drafting Committee, which is meeting in New York. Reduction of Tariffs and Elimination of Preferences The committee was in general agreement with the basic principles that members of the ITO should enter into reciprocal and mutually advantageous negotiations directed to the substantial reduction of import and export duties and to the elimination of import tariff preferences; that such negotiations should proceed in accordance with certain rules; and that members which unjustifiably failed to fulfil their obligations regarding tariffs and preferences should not be entitled to receive the benefits resulting from the fulfilment of those obligations by other members. The committee agreed that the tariff and preference negotiations should be conducted in accordance with the following rules, the first two of which had been included in the United States Suggested Charter: (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-favorednation 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. Quantitative Restrictions and Exchange Control There was wide agreement with the United States proposal for a general rule against the use of import and export restrictions and prohibitions, the rule being subject to exceptions for the use of restrictions in specified circumstances and under specified conditions. The committee agreed that, in addition to the temporary exceptions proposed by the United States, exceptions should be made covering the cases of restrictions which are essential to the maintenance of wartime price control by a country undergoing shortages subsequent to the war and to the orderly liquidation of uneconomic war industries. All these temporary measures should be removed by the middle of 1949, but the ITO might extend this period for particular products. The United States suggested that exceptions should be made permitting restrictions on imports of agricultural products if such restrictions are necessary to the enforcement of governmental measures which (a) restrict the quantities of the like domestic product permitted to be marketed or produced, or (b) operate to remove a temporary surplus of a like domestic product by making it available to certain groups of domestic consumers free of charge or at lower than current market prices. The committee agreed that the charter should contain such an exception and that it should be broadened to cover fishery as well as agricultural products. Restrictions To Safeguard the Balance of Pay ments The most important exception to the general prohibition against quantitative restrictions relates to the problem of countries in balance-of-payments difficulties. The draft provisions prepared by the committee maintain the essence of the American position that countries with serious balance-of-payments difficulties should be permitted to use quantitative restrictions, subject to closely defined rules and adequate checks. Under the draft provisions formulated by the committee the test for determining whether a member may use restrictions for balance-of-payments purposes is the member's need: "(i) to stop or to forestall the imminent threat of a serious decline in the level of monetary reserves; or (ii) in the case of a Member with very low monetary reserves to achieve a reasonable rate of increase in its reserves." A member using restrictions because of balanceof-payments difficulties may select imports for restriction on the grounds of essentiality to domes tic programs (e. g., post-war rehabilitation or development programs), but it cannot exclude imports of any class of goods completely, and it must avoid all unnecessary damage to the commercial interests of other members. The draft provisions include safeguards against unjustified use of restrictions for balance-of-payments purposes and against unnecessary injury to the trade of other members in the administration of such restrictions. the v ITO: ucts exer 04 e char The Organization is required within two years of its institution to call into question all quantitative restrictions then in use. Finally, whenever the employment of quantitative controls, under the foregoing provisions, is so persistent and widespread as to indicate the existence of general disequilibrium, the Organization is directed, in collaboration with the International Monetary Fund, to "initiate discussions to consider whether other measures might not be taken, either by those countries whose balances of payments are under pressure or by those countries whose balances of payments are tending to be exceptionally favorable, or by any appropriate intergovernmental agency or organization to remove the underlying causes of the disequilibrium." Administration of Quantitative Restrictions One of the provisions agreed to by the committee is a general rule for non-discriminatory administration of such restrictions as are permitted under the exceptions described above. The methods of applying that rule, in the order of their desirability, are listed as (1) avoidance of allocation among sources of supply (a) by announcing global quotas or (b) by issuing licenses unrestricted as to source; or (2) announcement of allocations established on the basis of commercial principles (a) through agreement among exporting countries or, if this is not practicable, (b) by reference to the share supplied in a previous representative period, subject to consultation at the request of the Organization or any of its members. It was agreed, however, that in some cases the rule of non-discrimination cannot or should not be rigidly applied. Accordingly, the provisions. formulated at London permit, for certain specified purposes, departures from the rule of nondiscrimination. Safeguards against unjustified departures from the rule of non-discrimination are provided. Exchange Control Since quantitative restrictions and exchange controls may be employed alternatively to affect the flow of trade, it is important that the rules governing these two devices should be laid down and administered with such consistency that it will be impossible, by resorting to one of these devices, to escape from the rules that govern the other. Accordingly, the London draft provides that members "will not seek by exchange action The present draft on quantitative restrictions The subsidy provisions agreed to by the com- State Trading On non-discriminatory administration of statetrading enterprises, the committee agreed with the main lines of the provisions of the United States Suggested Charter. The rule of non-discrimination, as applied to a state-trading enterprise, means that in its purchases or sales such an enterprise will be influenced solely by commercial considerations such as price, quality, marketability, and transportation. The requirement in the United States Suggested Charter that members furnish specific and detailed information relative to the operation of their state-trading enterprises was modified by the com mittee, since it was felt that information required with respect to state enterprises should not be greater than that required with respect to a private enterprise under similar conditions. The type of provision which should be included to cover governmental purchases of commodities not for resale was discussed at length. It was agreed that in making such purchases member governments should accord "fair and equitable treatment" to the commerce of other members. Under the provisions of the United States Suggested Charter, members having state monopolies for the importation or exportation of individual products would be required to negotiate with other members for the reduction of the price margins used by such monopolies to protect their domestic producers. This principle was accepted by the committee. In redrafting the provisions certain minor changes were made to provide a more accurate basis for determination of negotiable margins. It was agreed, at the suggestion of the United States, to postpone detailed consideration of suggested provisions relating to the expansion of trade by countries having complete monopolies of foreign trade. Emergency Provisions-Consultation—Nullification and Impairment If imports of a particular product into a member country caused or threatened to cause serious injury to domestic producers, the provisions of the United States Suggested Charter would have required a member (a) to give written notice to the Organization, and (b) to consult with the Organization and with members whose trade would be affected, before it could withdraw or modify tariff concessions and other obligations under the tradebarrier chapter affecting that product. The committee agreed that the rules proposed by the United States should apply in most cases but that in critical and exceptional circumstances a member should be permitted to modify or withdraw concessions provisionally without prior consultation with other interested members, provided that consultation should take place immediately thereafter. It was agreed that this emergency provision should apply to concessions with respect to preferences as well as concessions with respect to tariffs and other obligations. It was also agreed that, as a general rule, any counter-action against a mem .ber which withdraws or modifies a concession should not be disproportionate to the original action. The committee was in agreement with the United States proposal that members of the ITO should stand ready to consult with one another regarding any matter affecting the operation of the provisions of the Commercial Policy chapter of the charter. It was recognized that actions by a member which are not contrary to the letter of the charter might injure the trade of another member or nullify or impair objectives of the charter. The committee also felt that situations might arise, not attributable to the actions of any particular member or members, which would nullify or impair objectives of the charter as a whole. Accordingly, under the draft provisions agreed to by the committee, a member is permitted to request the Organization to set aside any of its obligations under the Commercial Policy chapter, and, if circumstances of this kind arise, the Organization is authorized to set aside such obligations. These provisions are somewhat broader than those included in the Suggested Charter, which would have limited the ITO's right to set aside obligations to cases where another member had taken action nullifying or impairing an objective of the Commercial Policy chapter. Territorial Application of the Commercial Policy Provisions-Customs Unions-Frontier Traffic The committee agreed with the United States proposals that the trade-barrier provisions of the charter should apply to each of the customs territories under the jurisdiction of the member countries and that an appropriate exception should be made for advantages accorded to facili tate frontier traffic. The United States Suggested Charter had provided that the General Commercial Policy chapter should not prevent "the union for customs purposes of any customs territory and any other customs territory". The committee agreed that this exception should extend to the formation of a customs union, thus permitting measures representing in fact a transitional stage toward a union. A new paragraph genuine customs union. A new recognizes that the Organization may, in excep preferential tional circumstances, approve new arrangements (e. g., regional preferences) under a rule requiring a two-thirds majority vote. Memorandum on Multilateral Trade Agreement In the light of the recommendation of the Pretheparatory Committee that it sponsor tariff and TO preference negotiations among its members in April 1947, a memorandum was prepared setting forth procedures and rules for these negotiations and for fitting the results of the negotiations into the framework of the ITO. ter The memorandum recommends that the negohe tiations should be conducted on a selective, product-by-product basis, thus permitting full consideration of the circumstances surrounding each product on which a concession may be proposed. The three general rules listed in the section of this report on reduction of tariffs and elimination of preferences should be followed in the negotiations. It is suggested that each Preparatory Committee member concerned should advise the Secretariat of the United Nations of the date it proposes to use as the base date for negotiations with respect to preferences. The memorandum stresses that it is important that members do not effect any new tariff measures which would increase the protective incidence of their tariffs prior to the negotiations, since such action would tend to prejudice the success of the negotiations. The memorandum expresses the agreement of the Preparatory Committee that a country would be expected to consider the granting of concessions only on products of which another member of the Preparatory Committee, or the members of the committee taken as a whole, supply a principal part. The memorandum proposes that the members of the Preparatory Committee should enter into an agreement on tariffs and trade, which will contain the tariff schedules as well as certain general provisions drawn from the charter, including those considered essential to safeguard the value of the tariff concessions (for example, the provisions relating to quantitative restrictions). This agreement will be signed and made public at the close of the tariff negotiations and brought into force as soon thereafter as possible. The tariff concessions granted in the agreement will be granted to countries not members of the Preparatory Committee on a provisional basis. Since the existence of an international body will be necessary for the successful operation of certain provisions of the agreement, it is proposed that the countries adhering to the agreement should create a provisional agency to function until the establishment of the ITO. The signatories of the agreement will be the original members of the Interim Tariff Committee, provided for in the charter, to be set up within the International Trade Organization after the international conference has met and the Organization has been established. The Interim Tariff Committee is to have the functions of determining whether (with respect to any negotiations subsequent to those culminating in the agreement described above) any member of the Organization has lived up to its obligations regarding tariff negotiations and of authorizing members to withhold tariff benefits from members who do not live up to their obligations. |