754


FOREIGN RELATIONS, 19 5 0, VOLUME I


The United States should continue to encourage the progressive re-
moval of discriminatory trade and exchange barriers so long as the
removal of these barriers does not interfere with the rearmament effort.
   Since, with the exception of Pakistan, each of the individual coun-
 tries for which a repoit has been requested, has an earned surplus with
 the dollar area, there would no longer appear to be a justification on
 balance of payments grounds for the retention of discriminatory
 import restrictions against dollar area imports at their present level,
 unless the rearmament effort or other U.S. programs were expected
 to bring about a reversal of the balance of payments position.
   The question also arises as to whether these countries are to be treated
 as a unit and the rise or fall of the dollar reserves of the United King-
 dom utilized as the basis for justifying a particular level of discrimina-
 tion in each of the sterling area countries. This would imply accept-
 ance of a uniform   policy toward intensification or relaxation of
 restrictions.
   The ,alternative is to treat each country separately and base recom-
 mendations on the dollar position of the individual country without
 regard for the trend of the reserves of the United Kingdom. This
 would irmply that one country might relax restrictions even though
 U.K. reserves were dwindling and other countries were intensifying
 restrictions.
   Any attempt by the United States Executive Director of the Inter-
national Monetary Fund to recommend the use of this latter principle
as the basis for the Fund's report to GATT might be interpreted by
the Government of the United Kingdom as a direct challenge to the
sterling area system. On the other hand, should the United States
Executive Director approve a report based on the principle first stated,
he would tacitly be indicating United States acceptance of sterling
area arrangements as consistent withh the objective of the International
Monetary Fund and United States international financial policy in
general.
  This is not considered an appropriate time for the United States to
challenge the sterling area arrangements as such. Nevertheless, the
United States should avoid any indication that it approves these
arrangements. It seems necessary, therefore, for the United States
Executive Director to advocate an approach in the International
Monetary Fund and a report or series of reports to GATT which avoid
these pitfalls. Existing circumstances appear to permit a position
which will avoid either a challenge to or an acceptance of sterling area
arrangements.
  The International Monetary Fund should make separate reports
to GATT on each of the individual countries for which a report has