United States. Dept. of State. Office of Public Co.

Department of State bulletin (Volume v. 22, Apr- Jun 1950) online

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ernment and the United Nations headquarters,
Harvard University, and Albany, N.Y., to study
state government.

The nation-wide tour will be under the direc-
tion of the Governmental Affairs Panel of the
Commission on the Occupied Areas of the Ameri-
can Council on Education. This panel is com-
posed of outstanding American political scientists.

Visit of Turkisli Educator

Emin Hekimgil, chief of the Foreign Cultural
Affairs Division of the Ministry of National Ed-
ucation, and General Secretary of the Turkish
National Commission for Unesco. has arrived in
Washington for a brief visit after spending a few
days in New York.

The purpose of his trip, which has been made
possible through a grant-in-aid awarded by the
Department of State, is to visit a series of cities to
observe universities, colleges, and schools and to
confer with colleagues in his field. He is especially
interested in teachers' training colleges and in the
fields of adult and audiovisual education.

' For the itinerary of the group and for biographic
sl£etches of the members of the gronp, see Department of
State press release 364 of Apr. 14, 1950.

April 24, 1950


Habana Charter for an International Trade Organization


Chapter II

Chapter II establishes principles that members
will follow in their attempts to maintain a high
level of employment in all countries. The basic
principle is that each member will solve its own
employment problem, and in so doing, it will try
to avoid measures that create unemployment for
other countries. This principle was expressed in
the original United States Proposals of December
1945, in these words :

Every country will seek so to manage its own affairs that
its business life will be free from violent depressions.
The object of international action should be to insure
that these national efforts reinforce each other and do not
cancel out.

National Policies

The core of this chapter is article 3 which says
that each member shall take action designed to
achieve —

full and productive employment . . . through measures
appropriate to its political, economic and social

Such measures must be consistent with the char-
ter principles and must seek to avoid balance-of-
payment difficulties for other countries. Accept-
ance of these principles by many countries, coupled
with their expressed determination to put these
principles into operation, represents a significant
step toward avoiding world unemployment.

Each member is the judge of the specific meas-
ures that it will take to carry out these commit-
ments. Each member is free to choose only those
measures that, in its opinion, are appropriate to its
own institutions. The United States will meet its
obligations under article 3 primarily through the
United States Employment Act of 1946. This act
expresses our domestic policy "to promote maxi-
mum employment, production and purchasing

Editor's Note: In this and succeeding issues of the
Bui-LKTiN will appear summaries of the various chapters
of the charter for an Ito.

power" in a manner calculated "to foster and pro-
mote free competitive enterprise" and taking into
account the "needs and obligations and other con-
siderations of national policy." Among these
"obligations" are those under the United Nations
Charter (arts. 55 and 56), whereby members
"pledge themselves to take joint and separate
action" to "promote higher standards of living,
full employment, and conditions of economic and
social progress and development" ; and under the
articles of agreement of the International Fund
(art. 1) whereby members agree to the objectives
of "orderly exchange arrangements among mem-
bers," and "the expansion and balanced growth of
international trade ... to contribute thereby to
the promotion and maintenance of high levels of

Balance-of-Payment Measures

The other provisions of this chapter refer
chiefly to action by individual members; a few
I'elate to action by the Ito. Among the principal
undertakings by members are the following. If
a member persistently exports more than it im-
ports, and if this is significantly related to the
fact that another member is having balance-of-
payment difficulties which make it difficult for
the other member to maintain full emplo3'ment,
the first member must make its "full contribution"
and the other member must take "appropriate ac-
tion" to correct the situation (art. 4). This
means, in effect, that the exporting and the im-
porting countries will work together to solve their
balance-of-payment problem. Each is the judge
as to the specific steps that it might take but both
are committed to the principle of a cooperative so-

For example, the exporting country might lower
its tariff rates to stimulate imports; or it might
refrain from export subsidies, if any ; oi- it might
vote in the International Fund that the other
country has a balance-of-payment difficulty which
would entitle the other country under the charter
to impose import quotas; or it might vote in the
International Fund to permit the other country


Department of Stale Bulletin

to adjust its exchange rates to correspond with
tlie actual purchasing power of its currency. Also,
the exporting country could refuse to do these
things if it felt that the importing country was
not taking "appropriate action'' to solve its own
financial problems. In general, it is desirable to
try to solve these balance-of-paymcnt problems by
increasing imports rather than decreasing exports,
since the latter method shrinks trade and causes
unemployment. Nothing in this article would re-
quire this Government to impose export quotas,
or to finance imports, or to lend funds to other
countries to sustain our exports, or to engage in
"governmental planning."

Chapter I. Purpose and Objectives

Article 1

Recognizing the determination of tbe United Na-
tions to create conditions of stability and well-
being which are necessary for peaceful and friendly
relations among nations,

The Parties to this Charter undertake in the
fields of trade and employment to co-operate with
one another and with the United Nations

For the Purpose of

Realizing the aims set forth in the Charter of the
United Nations, particularly the attainment of the
higher standards of living, full employment and
conditions of economic and social progress and
development, envisaged in Article 55 of that Charter.

To THIS END they pledge themselves, individually
and collectively, to promote national and interna-
tional action designed to attain the following ob-
jectives :

1. To assure a large and steadily growing volume
of real income and effective demand, to increase the
production, consumption and exchange of goods,
and thus to contribute to a balanced and expand-
ing world economy.

2. To foster and assist industrial and general eco-
nomic development, particularly of those countries
which are still in the early stages of industrial
development, and to encourage the international
flow of capital for productive investment,

3. To further the enjoyment by all countries, on
equal terms, of access to the markets, products and
productive facilities which are needed for their eco-
nomic prosperity and development.

4. To promote on a reciprocal and mutually ad-
vantageous basis tlie reduction of tariffs and other
barriers to trade and the elimination of discrimina-
tory treatment in international commerce.

5. To enable countries, by increasing the oppor-
tunities for their trade and economic development,
to abstain from measures which would disrupt world
commerce, reduce productive employment or retard
economic progress.

6. To facilitate through the promotion of mutual
understanding, consultation and co-operation the
solution of problems relating to international trade
in the fields of employment, economic development,
commercial policy, business practices and commod-
ity policy.

Accordingly they hereby establish the interna-
tional TRADE ORGANIZATION through which they shall
co-operate as Members to achieve the purpose and
the objectives set forth in this Article.

Fair Labor Standards

Members agi-ee to cooperate with the Economic
and Social Coimcil, the International Bank, the
International Fund, and the International Labor
Ollico in connection with the functions which their
charters set for them, since all of their activities
have a bearing on the employment problem. Mem-
bers recognize the importance to all of them that
each should maintain fair labor standards, par-
ticularly in production for export. Wlien dif-
ferences of opinion concerning fair labor stand-
ards are brought to the Ito, the latter must co-
operate with the International Labor Organiza-
tion. This fair labor provision will contribute,
in some measure, to raising foreign labor stand-
ards more nearly to our level, thereby promoting
a fairer basis of trade competition. Members
also agree to cooperate with the Economic and
Social Council in the collection of statistics, in
the making of employment studies, and in con-
sultation with each other or with other inter-
national agencies concerning emploj'ment ques-


The Ito has no direct function, under this chap-
ter, to insure full employment. It does have an
important responsibility to determine whether or
not a member may use various safeguards under
other provisions of the charter (especially in chap-
ters IV and VIII) to protect its economy in case
of severe depressions when other countries fail
to meet the employment objectives of chapter
II. The procedure would be as follows. If a
member feels that benefits accruing to it under the
employment chapter are being nullified by the
existence of a particular situation, such as a de-
pression, it may (after consultation with the mem-
bers concerned) request the Ito for a "satisfac-
tory adjustment'' of the matter (art. 93).

Wlien the Ito acts upon the request, it must
take account of the member's need to take action
within the provisions of the charter to safeguard
its economy, and it must give special consideration
to the effect upon a member of a loss of its export
market in other countries through a depression
(art. 6). The charter does not say that a depres-
sion exempts a member from its charter obliga-
tions. It says that the Ito, in applying the
safeguard provisions of the charter, must take
into consideration the actual effects of the depres-
sion. It would hardly be practicable to do other-
wise. The Ito would then decide (by majority
vote) whether or not to permit the applicant
member to utilize certain safeguard provisions of
the charter. Among these safeguard provisions
are the following :

1. Release from obligations or the grant of con-
cessions to other members "to the extent and upon
such conditions as it [the Ito] considers appro-
priate and compensatory, having regard to the

April 24, 1950


benefit which has been nullified or impaired" (art.
95 (3)).

2. Permission to use import quotas (art. 21) if
the Ito, after consultation and agi-eement by the
International Fund, finds that the applicant mem-
ber is in imminent danger of a loss of monetary
reserves, or is in balance-of -payment difficulties.

If the Ito authorized an applicant member to
utilize charter safeguards, because other members
suffering from a depression had not met the char-
ter employment objectives, the Ito would not have
legal authority to require the depression members
to change their employment policies. The Ito
would have legal authority onlv to permit the
applicant meniber to utilize safeguards to pro-
tect itself against the depression influences of
those members. If the applicant member utilized
safeguard provisions to impose quotas or higher
tariffs, the depression members, if they considered
themselves injured by such action, would be free
to leave the Ito after GO days notice.

Exchanging Information

The Ito has certain other functions under chap-
ter II. Among these are : to initiate consultation
among members with a view to arriving at con-
certed measures to check an international depres-
sion; to facilitate among members the exchange
of information and views concemiiig employment
questions; to cooperate with the Economic and
Social Council in collecting statistics, making
studies, and consulting on employment matters;
and when disputes regarding labor standards are
referred to it, to cooperate with the International
Labor Office.


Chapter III

Chapter III contains measures to promote the
economic development of the underdeveloped
countries and of the war-devastated countries. A
procedure is established for members, in the in-
terests of economic development and recon-
struction :

(1) To cooperate in the exchange of "capital
funds, materials, modem equipment and tech-
nology, and technical and managerial skills."

(2) To obtain limited release from their com-
mitments under the charter and under trade agree-
ments made in connection with the cliarter for
example, the General Agreement on Tariffs and
Trade (Gatt), on individual products, subject to
certain safeguards.

(3) To make new preferential agreements cov-
ering individual products, subject to certain safe-

There are no provisions in Gatt concerning the
exchange of facilities for economic development,
but article 18 of Gatt has a release procedure for
purposes of economic development that resembles
the charter procedure.

Cooperation in Exchange of Capital Funds,
Materials, Technology, etc. (Arts. 8-12)

First, all members agree, in principle, to co-
operate within the limits of their power

in providing or arranging for the provision of capital
funds, modern eciuipment and technology, and technical
and managerial sliills.

This provision does not mean that a member obli-
gates itself specifically to supply capital or equip-
ment to an underdeveloped country, nor that the
underdeveloped member obligates itself specifi-
cally to accept capital or equipment from the
capital-investing countries. In fact, amendments
to this effect were specifically rejected at the
Habana conference. It does mean that members
will cooperate to the best of their ability to work
out common solutions to such problems in a way
that will be advantageous to all parties. Each
member is the judge of the actual steps that it
might consider practicable in carrying out this
principle. Second, members that possess capital,
equipment, and technology undertake not to im-
pose "unreasonable or unjustifiable impediments"
to prevent other members from obtaining such
facilities "on equitable terms." Third, members
that accept such facilities agree not to take "un-
reasonable or unjustifiable action" injurious to
the countries that supply such facilities. Fourth,
the Ito may recommend bilateral or multilateral
agreements to implement in greater detail these
principles. Such agreements must assure "just
and equitable treatment" for the facilities brought
from one member to another. Such agreements
must give "due regard to the needs of all mem-
bers," i. e., to both the country that supplies and
the one that receives such facilities. Each mem-
ber is the judge as to whether it will enter sucli an

Additional commitments pertain to foreign in-
vestments. The receiving country has the right
to prescribe "on just terms" requirements as to
ownership of existing and future foreign invest-
ments and to insure that such investments are not
used to interfere in its internal affairs. The "just
terms" phraseology of the charter parallels the
"just compensation" of the fifth amendment of the
United States Constitution. Sovereign countries,
including the United States, have always insisted
upon the right of determining requirements of
ownership as an essential element of tlieir sover-
eignty. The country receiving foreign invest-
ments obligates itself to give "adequate security
for existing and future investments" and to give
"due regard to the desirability of avoiding dis-
crimination as between foreign investments."
This article does not guarantee American invest-


Department of State Bulletin

ments freedom from expropriation, nor full con-
vertibility of compensation in case of expropria-
tion (as we would like). The article, however,
represents an advance over the existing situation
for it requires all members — including those which
have held that a foreign investor had no right of
appeal beyond the courts of the country where the
investment was located — to ^ve "adequate se-
curity for existing and future investments." Un-
der this article an appeal could be taken to the
Ito, and if the Ito decides that the commitment
was violated, other countries would be free to
withdraw tariff concessions and other charter ben-
efits from the offending country. An appeal on
legal issues might be carried to the International
Court of Justice. There is thus provided for the
first time the right to bring before an international
tribunal cases involving the treatment of Ameri-
can investments abroad. The foregoing commit-
ments on foreign investments are minimum stand-
ards. Members, if they wish, may make bilateral
or multilateral agi'eements to implement these
commitments in more specific terms.

Another provision of interest to underdevel-
oped countries is that the Ito, at the request of a
member, may study that member's resources and
may give it technical advice concerning particular
projects of economic development. Such advice
would be at the request of a member, on terms
agreed upon between the Ito and the member, and
the cost would normally be borne by the member.

Release From Charter Commitments
on Individual Products

The charter establishes a release procedure
whereby a member may obtain on individual prod-
ucts limited releases from its Gatt and charter
obligations for purposes of economic development
and reconstruction. This release procedure con-
tains safeguards so it will not be used in such a
way as to nullify the charter goal of an over-all
reduction of world trade barriers.

General. — The release procedure differs as to
whether or not it relates to a product already in-
cluded in a trade agreement made under charter
auspices (e. g., Gatt).

If the product has been included in a trade
agreement, the Ito may grant a release only after
obtaining the "substantial agreement" of all mate-
rially affected" members that are parties to the
trade agreement.

If the product has not been included in a trade
agreement, the Ito must grant a release from char-
ter obligations (e.g., permission to impose quotas)
if it decides that the application falls in a certain
category and meets certain prescribed conditions
(art. 13 (7) ). Otherwise, it must grant a release
if all affected members agree ; and it may grant a
release if a "materially affected" member objects,
but only after special investigation of the effects
of the measure on international trade and on the
standard of living of the applicant.

If the release is on a product in a trade agree-
ment, other members parties to the trade agree-
ment, after consultation with Ito (and if Iro does
not disapprove), may withdraw substantially
equivalent concessions from the applicant mem-
ber. If the release is on a product not in a trade
agreement, the compensatory adjustment might
be reached either in direct negotiation between the
applicant member and the materially affected
members, or it might be fixed bv the Ito in deter-
mining the conditions of the release.

In all cases, the nature and duration of the re-
leases must conform either to the agreement
reached between the applicant member and the
materially affected members or to the limitations
imposed by the Ito in granting the release.

Form of Release Procedure (art. 13) . — A more
detailed explanation of the release procedure
follows :

(1) If the product is already included in a trade
agreement concluded under Charter auspices :

(a) and if the applicant member wants to
raise its tariff rate ou the product in question (the
tariff increase not being forbidden by the charter
unless it violates a trade agreement), it must ob-
tain the prior consent of either

(i) all the other parties which have con-
tractual rights in the concession in question under
that trade agreement; or

(ii) the Ito, which may grant the release
(acting by simple majority vote, on a time sched-
ule fixed by consultation between the Ito and the
applicant) only after the Ito has determined from
among the parties that have contractual rights in
the concession in question, those that would be
"materially affected" by the proposed measure,
and only after "substantial agreement" has been
reached by those "materially affected" members,
and only in accordance with the terms that the
"materially affected" members have agreed upon
in their negotiations to reach "substantial
agreement" ;

(b) but, if the applicant member wants to
impose an import quota on the product in question
(import quotas being prohibited by the charter,
except in certain circumstances specifically indi-
cated), it must obtain the prior consent of the Ito,
under the same procedure as described under (a),
(ii) above and subject to the additional require-
ment that the Ito must give adequate opportunity
for all Ito members that it considers to be "ma-
terially affected" by such action to express their

(2) If the product is not included in a trade
agreement concluded under charter auspices:

(a) and if the applicant member wants to
raise its tariff rate on the product in question, it
may do so without having to obtain the consent
of either the Ito or its membere, because tariff
increases per se are not prohibited by the charter;

April 24, J 950


(b) but if the applicant member wants to im-
pose an import quota on the product in question,
it must obtain the prior consent of Ito (acting by
simple majority vote, within 90 days of the appli-
cation unless the period has been extended by con-
sultation with the applicant member). The Ito
procedure in arriving at a decision differs accord-
ing to the nature of the case :

(i) if the Ito decides (by simple majority
vote) that the application falls in any of the fol-
lowing categories, it "shall grant the necessary re-
lease for a specified period." These categories
include : measures to protect a simple industry es-
tablished between January 1, 1939 and March 24,
1948 ; measures to promote an industry for proc-
essing local raw materials of w'hich exports have
been reduced as a result of foreign restrictions;
measures to promote an industry for processing
local raw materials that might otherwise be wasted,
when such action is unlikely to have a harmful

Why Is an ITO Needed?

Before World War II, international trade was
hampered by restrictive devices that prevented an
expansion of world trade. Countries resorted to
unilateral action without regard to the effect of
their actions on the economies of other nations,
which led to retaliation and resulted in economic
warfare. At the end of World War II, the economic
situation of a large part of the world was in chaos.
Destruction of the tools for peacetime production
meant lack of the most basic supplies for domestic
consumption and in many areas virtually no goods
for export were available which could be traded for
essential items obtainable only from abroad, and
particularly from the United States.

As a result, most countries adopted even more
rigid governmental controls to insure that only
the most necessary imports were bought with the
fast diminishing foreign currency available to them.
They employed import quotas, foreign exchange
controls, import licensing systems, discriminatory
bilateral and barter deals, state-trading devices,
tariff increases, and other restrictive devices.

The Ito seeks, by cooperative agreement, to relax
these barriers, to avert economic warfare, and to
pave the way for an expansion of world trade.

effect in the long run on international trade; the
measures must not be more restrictive of inter-
national trade than any other measures permis-
sible under the charter and the measures must be
suitable in view of the applicant's need for eco-
nomic development or reconstruction. Moreover,
there are certain other limitations applicable to
this category of measures. The Ito must not
concur in such measures if they are likely to cause

Online LibraryUnited States. Dept. of State. Office of Public CoDepartment of State bulletin (Volume v. 22, Apr- Jun 1950) → online text (page 26 of 116)