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Most-Favoured-Nation Clause

Volume 436: debated on Tuesday 15 April 1947

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8.7 p.m.

I rise to make what is in effect a postscript to the recent Debate on the International Trade Conference at Geneva. If I had had the good fortune to catch the eye of Mr. Speaker on that occasion, I would have found some other subject for tonight's Adjournment. I want to raise the question of the most-favoured-nation clause in commercial treaties in connection with the attempts of the conference to find ways of breaking down and lowering obstacles to international trade. In doing so I am in fact reviving a project which was much discussed last time these subjects were tackled at Geneva. For it should not be forgotten that after the first world war very determined efforts were made, culminating in the London Monetary and Economic Conference in 1933, and passing via the Geneva Economic Conference in 1927, to find answers to the many problems with which the present conference at Geneva is now wrestling.

I think it is perhaps appropriate that I should invoke the experience of the last attempt to solve these problems at Geneva and to ask my hon. and right hon. Friends to bear that experience in mind when facing those problems today. The League of Nations Economic Committee, a very authoritative body which is quoted, I note, several times in the preparatory report of the Geneva Conference, came to the conclusion that the greatest single formal obstacle to the reduction of international trade barriers was the most-favoured-nation clause in commercial treaties in its present form, because it leaves only two ways open to a reduction of trade barriers. One is that the whole community of States that have commercial treaties with each other, including the most-favoured-nation clause, agree on certain specific measures of reduction. In practice this procedure was found to be impossibly cumbrous and complicated, and it did not prove possible to achieve universal agreement even on modest measures of reduction. The other is that a group of States decide to go at one bound all the way to a customs union and Free Trade. In that case, the most-favoured-nation clause does not apply as an obstacle. But that proved too radical. States were not prepared to travel as far and fast as that.

The most practical method was barred under the existing form of the most-favoured-nation clause. The most practical method was for groups of States to accord each other mutual preferences without going all the way to Free Trade, and without attempting to achieve agreement with the rest of the international community. For instance, before the war, there were two attempts. One was the attempt of the three Baltic States, and the other the better known case of the Lowlands, Belgium and Holland, and the three Scandinavian countries, to accord each other mutual tariff preferences. But, although these States are low tariff countries, the United States which had a very high tariff, and still has, stepped in and said, "Oh, no, you have undertaken commercial treaties with us according us most-favoured-nation treatment, and, therefore, you cannot discriminate against us by according each other special low rates. You must give us the same rates as you give each other," because, in effect, the United States position was that the American tariff did not discriminate against anybody. All it did was to exclude everybody. In view of these circumstances, the League Economic Committee, after giving careful and prolonged study to this problem, advocated the revision of the most-favoured-nationclause, and I do not think it is any secret in this House that the chief author of that proposal was my right hon. Friend the senior Burgess for Oxford University (Sir A. Salter), who was at that time my senior colleague in the Secretariat of the League of Nations.

The proposal of the League Economic Committee was that the right of States should be recognised, under the revised most-favoured-nation clause, to accord each other mutual tariff preferences. A group of States would have the right to agree to grant each other special cut rates, provided that in the process of arriving at these mutual preferences, they did not raise their existing tariffs against the rest of the world; provided that any outside State could benefit by these preferential rates on the basis of full reciprocity; and provided, finally, that any outside State, the tariffs of which were already as low as the cut rates within the group, could unconditionally benefit by those cut rates. My proposal is that the Government should consider the advisability of reviving this idea and injecting it into the Geneva discussions, if not now, at the present preliminary conference, then at any rate when the full conference meets later to discuss the Charter, as adopted at this meeting—not to shut their minds to, or the door on, this proposal, but to keep it in mind. I believe it has some solid advantages.

I would go a little further, and propose that we might get in touch with the Dominions, and try to seek agreement with them to make the proposal jointly to the United States, that provided the United States of America would recognise our right to the revised most-favourednation clause in our commercial treaties in the sense indicated, and provided that the United States would accept this revised form of most-favourednation clause in commercial treaties generally, we would, in return, be prepared to recast Imperial Preferences in the form of commercial treaties between the Mother country and the Dominions, based on this revised form of most-favoured-nation clause. From the point of view of the United States and other countries that would have a double benefit. First, we would admit the applicability of the terms of international treaties to the mutual relations of the Dominions and the Mother Country. Secondly, henceforward Imperial Preferences would be open to outside States on the basis of reciprocity. Any State that was prepared to cut its tariffs o correspond to the preferential rates within the Commonwealth and Empire would automatically benefit by those preferential rates.

How would the Colonies come into this, apart from the Dominions?

The Colonies would be governed from the Mother Country in this. their status would remain the same as today. They would count in international affairs as an entity with the Mother Country, whereas the Dominions are separate entities in international affairs, at least for most purposes. I will develop that point in a moment. The advantage to ourselves is that we would get rid of the unpopularity and the unhandiness of bargaining on the static basis of Imperial Preferences in their present form. In their present form Imperial Preferences are very unpopular with other countries, for a double reason. In the first place, other countries regard them as a rather clever and successful method of having it both ways. Other countries, felt at the time of the Statute of Westminster, that on the one hand the Dominions became recognised as independent States in international affairs, with independent membership of the League of Nations—today the United Nations—with the right to their own trade treaties, foreign representatives, foreign policies, currencies, flags, and the rest of it.

But, on the other hand, according to the Statute of Westminster, because the Dominions and the Mother Country acknowledge a common Sovereign, the relations between them are not subject to the terms of international treaties. That is the constitutional reason why we can accord each other mutual preferences without getting into trouble under the most-favoured-nation clause in commercial treaties. The other reason why this arrangement is not very popular in other countries is because it is frankly discriminatory and one sided. No one else, however low their tariffs, can qualify to be included in this preference group.

These objections fall to the ground the moment we are prepared to recast Imperial Preferences in the form of commercial treaties based on the revised most-favoured-nation clause, and, therefore, open to any outside State that chooses to qualify by reducing its own tariffs to the same degree, with regard to the tariff rates within the Commonwealth and Empire. Moreover, from our point of view, the more preferences we give each other under the revised most-favoured-nation clause, and the more States we include in our system of preferences, the greater lead we are giving to the rest of the world in breaking down tariff barriers and freeing the currents of trade. Whereas Imperial Preferences are regarded as an obstruction, as a form of discrimination, preferences granted on the basis of reciprocity, and, therefore, not open to the charge of discrimination, are in themselves an advance towards Free Trade, and away from existing levels of tariffs. That means that, at a bound, instead of bringing up the rear of the procession as the great obstacle to the lowering of tariff barriers and increasing the flow of international trade, we pass to the head of the procession, and the real obstacle to the opening of the doors to international trade becomes the high tariff system of the United States, which loses the position of the knight-errant of international non-discrimination, and becomes the obstruction.

That, I think, is a solid moral advantage. It is also a political advantage. It puts us in a strong bargaining position. It means that we can bargain, not only with each other within the Commonwealth, but with outside States. We might, for instance, work for the establishment of a mutual preference group including the countries of Western Europe as well as the members of the Commonwealth. Such a group would include most of the Colonies of the world. As an illustration, looking a little further into the future, if we developed that kind of policy this group could further bargain with the United States, and say that they would be prepared, over a period of years, and by a series of stages, to bring their Colonies under the trusteeship system, and under some form of the open door, with only such measures of discrimination as were recognised by the Trusteeship Council as being in the interests of the native inhabitants.

In exchange for that, the desire of the United States, a very legitimate desire, to trade with such territories and invest in those territories, could be satisfied to a large degree. The United States could, in return, legitimately be asked to accept further international economic measures of development and control, for instance, as regards oil resources in the Middle East, as regards the Euphrates and Jordan Valley schemes and other similar development and irrigation schemes, under the United Nations Social and Economic Council and a Middle East Reconstruction Commission. These are illustrations of how, if we boldly decide to give a lead away from Imperialism towards organised internationalism, based on equality of status, and within the framework of the United Nations organisation, we can bargain vigorously and effectively for our own legitimate interests, which are not different from the interests of other countries, including not only the Dominions but the countries of Europe and the Middle East. In general, I believe that, by taking this idea into the general complex of ideas for discussion at Geneva, we shall add an element to the situation that will strengthen our position, and will put us in better shape for meeting the trials that are ahead. Those trials are very considerable.

The matter was touched upon during the Debate on the International Trade Conference, but I should like to underline it. a little further—that the United States is going in for a great export drive. At the end of the war there was a severe tussle within the United States between the advocates of the New Deal, the advocates of measures of planning American economy with a view to raising the standards of consumption and of welfare at home, and those other more anarchic elements, represented by the National Association of Manufacturers, who argued that it was not practical to raise the standards of consumption at home, thereby providing the 6o million jobs that had to be provided unless the United States was to have further unemployment. They said that the way out was to treble American exports as compared with exports before the war. It is that drive that we are already feeling in world affairs—the drive of American big business and capitalism seeking foreign markets, and seeking them by the traditional methods of imperialism.

There is nothing inherently bad, any more than there is anything that is necessarily good, in this fact that the United States has outgrown isolation, just as the hermit crab outgrows its shell, and is now blundering about the world, backing into China and the Middle East and other parts, and bruising and getting bruised in the process. But it is highly desirable that the fertilising stream of American capital and American trade should be caught up and canalised in some form of international financial and economic irrigation system through the United Nations organisation and its economic and financial and trade and transport machinery. To make that fully effective it is necessary to introduce some form of sluice system. That is one of the directions in which the revised most-favoured-nation clause can play a valuable part, because it would provide a constitutional basis, the legal possibility, so to speak, of establishing, within the general multilateral trading system that we are trying to erect at Geneva, regional multilateral sub-systems which would co-ordinate the planned economies of the States concerned, and direct their trading activities and their economic activities, harnessing them to the attainment of social objectives of which the securing of full employment would be the chief.

Such policies would be much easier to pursue if we could win international recognition for a revised form of the most-favoured-nation clause, because it would tend to introduce precisely that element of elasticity that we require. We require it in other respects, too, such as through the recognition of the rights of State trading organisations and establishing a connection between securing full employment at home and freeing the channels of international trade. On those two aspects, I believe, the Government are fully aware of the situation and are taking care to keep their end up. But I feel that something more should be done to introduce this third element—of dynamic self-defence, if you like—of the revised mostfavoured-nation clause in commercial treaties.

I would beg the Government to keep an open mind on this matter, to realise that we have to make positive proposals, that we have to be hospitable to new ideas, that we have to be very active, and not be afraid of giving a lead, if we are to keep our end up in the very hard times that are ahead; and that we must not despise the possibility of gaining many friends by putting forward a proposal which is not only in our own interest and in the interests of the Dominions, but would be emphatically welcomed by many of the States meeting at Geneva, who are worried, as I am, about what is to happen to them when the full flood of American trade breaks on them, unless they have some kind of sluice system to break up that flood, temper its flow, and help to direct it into channels where it will not merely swamp and drown the countryside, but where it will fertilise and revive a parched world.

8.26 p.m.

I have very much pleasure in supporting the proposal so eloquently expressed by my hon. Friend the Member for Gateshead (Mr. Zilliacus), with whom I am very rarely in agreement. On this occasion I am glad to be beside him. There is no object in overseas trade unless it subserves the purpose of getting into one's country raw materials and food, or diversifying consumption, thereby raising the standard of living. It seems to me that the essence of my hon. Friend's case consists in this—that overseas trade is nothing whatever, unless it is an exchange of goods for goods as opposed to an exchange of goods for money or gold-based currencies. I am a very strong supporter of Imperial Preference, but I have always felt that it was open to the objection from some countries, which do not happen to be British, that, as my hon. Friend said, it was a way of keeping something good in the family. I believe that if we can get the whole idea of the most-favoured-nation clause modified in the way that my hon. Friend has suggested we should be able to do a very important thing. We should be able—and I commend this to the Minister who is to reply—to raise at Geneva in the forthcoming weeks this essential issue, that unless overseas trade is an exchange of goods far goods, it is nothing whatever. That wants ventilating and making clear, and if we can enlarge the number of nations prepared to exchange goods and services for goods and services we shall be doing good.

As I understand it, the American export drive, to which my hon. Friend has referred, is nothing more than a device on the part of those responsible for American capitalism to export their own unemployment. That is what they want 'to do. That is a thing in which I am not interested. That does not commend itself to me. I am not interested in extending the area of free trade in the world merely to enable the Americans to get rid of unemployment which exists simply because they will not allow the American working men to have consuming power more commensurate with the productive power of their country. I am not interested in that in the least. I sug- gest that my hon. Friend's proposal is entirely good. There is nothing objectionable in it. I hope that the Minister will see his way to accept the proposal, and will take the necessary steps to get this idea ventilated at Geneva.

8.29 p.m.

The hon. Member for Gateshead (Mr. Zilliacus) knows that I always listen with very great interest to anything he says, because of the cordial relations that exist between us, and that on most occasions we find ourselves in agreement in regard to international matters. But I should like to look very carefully at this proposal. I see it as an ideal proposal in an ideal world, and I have no doubt that it is the proper thing to do if the other nations in the world, who are members of the United Nations organisation, are in a position like that of Great Britain. But I want to put some inquiries to know exactly where I am. As I understand the hon. Member's policy, he wants us, in the discussions now taking place at Geneva, to try to get the most-favoured-nation clause inserted in the Agreement. It is suggested that its purpose should be extended by agreement between one nation and another and between our Dominions and ourselves. Here is the United States giving preference to Cuban sugar, and here is Great Britain giving Imperial Preference to West Indian sugar.

Is it proposed, by means of this clause, that the United States, with its different social system, its different policy with regard to workers, its different democratic system, is to be asked to sign an agreement with us under the United Nations organisation giving the most-favoured-nation treatment to the Caribbean sugar which it is now taking as a surplus after giving the Cuban sugar a special preference over and above everything else? If they did that, its effect would be to handicap the sugar trade and the relations between the British Caribbean area, Great Britain and the rest of the world, as compared with the Cuban sugar vis-a-vis the United States. The problem is not so easy, but that is what I understand my hon. Friend the Member for Gateshead to be suggesting.

If my hon. Friend will permit me, may I say that acceptance of the most-favoured-nation clause does not mean that, if one State is prepared to grant a low tariff on one subject it thereby automatically qualifies for receiving the same preferential tariff from a group of States. If we are to benefit by a system of preferences within a group of States, we shall have a whole range of preferential tariffs on which to qualify to benefit by those preferential rates.

The hon. Gentleman seems to be making another speech.

I do not think it is a practicable proposition at the moment in the present state of the world, and I think one has to be careful in arguing about the most-favoured-nation clause being put into agreements with other countries and the Dominions which might be suitable in regard to one particular article but not to all. Some of the islands in the British Colonies are one-crop islands, and they have nothing else. Take the case of St. Kitt's, which lives on sugar and has nothing else. This proposal would affect that particular island, as it would affect all those places which have only one or two crops, unlike Malaya, where they have rubber, sugar, tin and other things. To produce an arrangement under this clause by which they could get their goods accepted elsewhere would be a most difficult proposition.

Surely, they would be better off than they are going to be under the existing negotiations, when Imperial Preference is about to be eliminated in return for an unspecified reduction in American tariffs?

My hon. Friend has now made an entirely different statement. We know what is the policy of the British Government. They have made it clear that Imperial Preference is to stand. Whatever agreements are made with America, Imperial Preference is to stand, and the Colonies are to continue to get their specially favoured treatment under the system of Imperial Preference. After all, they are our Colonies, some of them are fairly large, and some are in process of being changed, and some of them are in a period of transition, like Jamaica, which now has self-government. I am a little concerned about this, and, while I would like U.N.O. to try to find some policy, I ask the British Government, in the present state of the world, not to agree to this proposal between different nations with entirely different political and economic systems without very careful consideration, especially in the case of those Colonies which are dependent upon one or two crops. It seems to me to be placing too great a task on the Colonies, and I hope the hon. Gentleman who replies will give us an assurance that this matter would be very carefully considered, not only with the Dominions, but particularly with the Colonies which I have mentioned.

8.37 p.m.

The subject which my hon. Friends have raised tonight is, of course, an extremely topical one, since the Geneva Conference is now in full swing, and, in fact, I only returned from Geneva myself last night. I think one interesting thing has already emerged from this Debate. This is probably the first time in the history of this House that we have had the first half of a Debate on Imperial Preference with the Benches opposite entirely denuded, and, but for the arrival of one hon. Gentleman, they would have continued so. I have no doubt that the "Daily Express" will be suitably encouraged by this fact to which I have drawn attention.

The point raised by the hon. Member for Gateshead (Mr. Zilliacus) is not a new one of course, but I think we have to admit that, if we were able to agree with this proposal on its merits, it would be very difficult to go very far with it. As the hon. Member for Rochdale (Dr. Morgan) has said, it would certainly require very considerable discussion with the Commonwealth countries, and not only the Dominions, with whom we have been in very close consultation throughout, but also with the representatives of the Colonial Governments who are at Geneva and who form part of the United Kingdom delegation. I can assure my hon. Friend that these Governments are being fully consulted in the discussion of all points as they arise and as we go along, from day to day at Geneva.

So far as the objective which my hon. Friends have set out, I do not think there is anything that divides them from the Government on this question. It is really a question of the best way in which to achieve this objective. The hon. Member for Gateshead suggested that we should be in a strong moral position if we came to an agreement in this way. I am not sure, having discussed this matter now for a number of years, under a different form of economic relationships, that, if we were now to go back upon it, after all the work that has been put in to it and in view of all the hopes which we have had of reaching something suitable, it would not be putting us into the very worst moral position, not only with the United States, but with the Empire countries as well.

I should like, for a few moments, to deal with the merits of my hon. Friend's proposal, quite apart from that issue. What his plan appears to involve is that we should start off with our present system of Imperial Preference, or something like it, and gradually introduce the foreign countries. Those countries coming in would, on granting similar preferences in their own territories, enjoy the existing preferences. He referred to the fact that, before the war, the League of Nations Economic Committee put forward a proposal on these lines, which dealt particularly with a change in the form of the most-favoured-nation clause. I do not wish to go into the full extent of the report of the League of Nation's Economic Committee, with which my hon. Friend was very familiar long before I was, but I believe that I could quote sections from it which would weaken his argument.

We have to approach this problem on its merits, rather than on the mere invocation of the support of the League of Nation's Economic Committee. In the past, as my hon. Friend said, a number of schemes have been outlined, similar to the one he has outlined. In so far as they have ever been called upon to define their attitude, the British Government have, in the past, always been hesitant to join this low tariff "club" and to waive their rights in regard to concessions granted by the "club". I think that the real reason is that previous Governments could not agree, any more than could the present Government, to sign what would virtually be a blank cheque, by joining such a low tariff "club". If we adhered to a very limited convention of this type, it would cause trouble in relation to the countries who remained outside, and we should have to terminate the most-favoured-nation treaties with those countries who did not adhere to it. We should have to discontinue taking their goods during the time that they were considering whether to join in the Convention and to carry out its provision. Adherence to a "club" of this kind means discrimination against non-members, which might have far greater disadvantages than advantages.

Is not the whole point that one would properly desire a discrimination between, on the one hand, those countries which are not prepared to conduct foreign trade on the basis of the exchange of goods for goods, and, on the other, the countries which are so prepared, the United States being one of the former?

I do not think so. My hon. Friend is very sympathetic about the position between one country and another. What my hon. Friend is now saying is that adherence to the principle enunciated by my hon. Friend the Member for Gateshead is the sole virtue in economic relations. Of course, if we had nothing to put in the place of the suggestion made by my hon. Friend the Member for Gateshead, I would agree that we ought to be giving a lot of active thought to what he is suggesting. But we are, in fact, at the present moment, very far advanced in discussions which aim at introducing a positive system of international economic relationship. One thing already emerging, even at this early stage, from those discussions is the very great difficulty of individual countries, which was touched upon to some extent by my hon. Friend the Member for Rochdale.

The economic and social conditions of the countries concerned are so different that it would be very difficult indeed to lay down a simple set of rules. It may well be, for instance, that if we were to set down a generalised set of rules suitable for Imperial Preference, they would not be suitable for many of the countries which we should wish to attract into the circle. We are expecting to find that very lengthy discussions will be necessary on the International Trade Organisation at Geneva. At the present time we are initiating discussions, many of them bilateral, between some 17 countries. We hope that, as soon as possible, it will not be 17 countries, but 18, which will be taking part. I am sure that no one will agree with me more on that than my hon. Friend the Member for Gateshead, because' I know that he is as keen as I am that Soviet Russia should join as quickly as possible in the international economic discussions at present going on in Geneva.

There is also a very serious practical difficulty which we might get into in this connection. This lies in the idea of the reciprocity of benefit, if I may use that phrase, which is an essential feature to adherence to such a clause. My hon. Friend seems to think that adherents to a preferential group would be obliged to reduce their tariffs. Experience has shown that there are very great practical difficulties about any attempt to equate tariff levels for a whole group of countries in this way. One cannot apply general principles to it and measure the average height of a tariff for a whole host of countries. Even if one could, the measurement of a height is not the proper measurement of the protective value of a particular tariff.

What we are now proposing as a fundamental part of the I.T.O. negotiations is that the participating countries should institute among themselves the kind of system that my hon. Friend is contemplating, a system involving mutual advantageous tariff reductions in relation to specific commodities, and not in a general sense. Having done that on the basis of the 17 countries who, between them, are responsible for about 6o per cent. of the trade of the world, it would apply to any other trading nation who wished to join in. The fact that we are having to do this on a bilateral basis between the countries makes it possible to take into account the countries referred to by my hon. Friend, which would cause most of the difficulty if we went into it on the basis suggested by my hon. Friend the Member for Gateshead. The matter is very similar in the end. We are going to get a group of countries accepting principles for the regulation and expansion of international trade, and the increase in the amount of goods and services traded. Therefore, I think we can claim that there is some justification in saying that the Government are aiming to achieve those results which my hon. Friend has in mind, but the Government are doing it in the only realistic way open to them—by bilateral discussions, and by discussions relating to each individual commodity and to the social and economic condition of the countries taking part.

As my hon. Friend knows, we are not proposing to give up or substantially to reduce Imperial Preference without, in every case, getting a really worth while quid pro quo. The House will remember what my right hon. and learned Friend said a few days ago in reply to a question about this. He stated that, even if the United States were to reduce their tariff by the full 5o per cent. which they are allowed to do under existing regulations, he would not consider that a sufficient quid pro quo to justify discriminating against the system of Imperial Preference. In what we are doing, we see a possible general reduction of tariffs. It is not so much a question of tariffs as a question of the development of new methods and new rules for the conduct of international trade. I think it would be wrong to look at these proposals purely in terms of tariff reductions, or reductions or eliminations in preferential systems. The important parts of the Charter relate to such matters as the abolition of quantitative restrictions, and the abolition of discrimination which might have very serious effects on the countries concerned. If international trade relations were conducted on the basis of a free-for-all, this country might come out of it very badly.

I now come to a point which my hon. Friend will consider very important, in view of what he said about canalising the economic power of the United States into the most desirable channels, and that is that the international trade discussions in Geneva are part only of a much wider international economic system which is being worked out stage by stage, very disappointingly slowly in many cases, but it is part of a system including international monetary arrangements, the international fund, and the development of the agricultural and food proposals which have been previously debated in this House. I want to assure my hon. Friends that while we are going on working within the Charter which is now being discussed at Geneva, and, while we hope it is going to lead to a wider and more substantial system than the limited one proposed, should that prove unattainable, our minds, of course, are not closed to any conceivable alternative which would best serve the interests of this country and of the world as a whole.