FOREIGN RELATIONS, 1950, VOLUME I


1. Relation of Cleauing Union to U.S. Financial and Trade Policies
     as Embodied in IMF, ITO and GATT
  It is United States policy under ITO and GATT that permanent
exceptions to the rules of nondiscrimination should be granted to
regional associations only if their members have taken definite com-
mitments to establish customs or general economic unions. In the
monetary field, the basic premise of the International Monetary Fund
is that individual countries should move as rapidly as possible toward
reduction of payments barriers and the assumption of convertibility.
In its drive for European integration ECA has sought to avoid polit-
ical difficulties by encouraging partial steps toward integration (as in
the proposal under discussion) without demanding firm commitments
as to ultimate establishment of an economic union. However, ECA
believes that the development of a common monetary system, the equiv-
alent of a single currency, should be an ultimate objective of plans
for regional economic integration.
  The ECA proposal does not deal with the further problem of transi-
tion toward the fundamental objective of United States policy in this
field-namely, multilateral trade and dollar convertibility. It is clear
that it will be difficult to develop satisfactory proposals of this char-
acter, in part for the reasons which have made it difficult to implement
the principles of the IMF and the ITO.
  The following questions therefore arise:
  (1) Would the regional clearing union in fact develop into a full
economic union ?
   (2) If not, would participation in a clearing union make it difficult
or impossible for any member of the union to take measures leading
toward the establishment of convertibility with the dollar area to any
greater extent than do other members of the clearing union?
   (3) Will the proposal lead eventually in the direction of multi-
lateral trade and dollar convertibility, or will it tend to result in a
large and permanent soft currency trading area with a common policy
of discrimination against trade with the dollar area, and restrictions
on exchange transactions with that area?
  The proposed clearing union would perform important functions
similar to those of the Fund. It is, therefore, possible that Canada,
Latin America, and other countries excluded from the clearing union
will take this as an indication that the United States is shifting away
from the pursuit of the objectives of the Fund. The following questions
arise:
  (1) Could such an organization with United States participation
be reconciled with the United States pledge of leadership and responsi-
bility in the Fund?
  (2) In particular, given the size and significance of the participants
in the clearing union, would the Fund in practice lose to the clearing


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