FOREIGN RELATIONS, 1950, VOLUME I


                         RECOMMENDATIONS
  See pages 12 to 14 and 21 to 23, below under headings "Proposed
action".
                             DISCUSSION
I. The Protective Incidence Problem
  The present situation. A very high proportion of international
trade is conducted today in accordance with the provisions of bilateral
trade agreements. Immediately after World War II, these agreements
were highly restrictive in 'form: They typically contained a list of
products for which country A agreed to issue export licenses and coun-
try B to issue import licenses, thereby making possible the export of
those products from A to B;land a second list for which country B was
committed to issue the export licenses and country A import licenses,
thus clearing the way for exports from B to A. The two lists were
calculated so that, if the transactions in contemplation were in fact
consummated, the currency flowing each way would be about equal;
in that way, neither country would have to make a net payment to
the other in settlement of trade between them.
  The motivations leading to these bilateral agreements were ex-
tremely complex. To begin with, both countries were anxious to ob-
tain as much as they could of products in short supply available in
the other country and to limit their own exports of short-supply
products to a minimum. Moreover, the country which would have
been a debtor in the absence of restrictions between the two countries
was anxious to limit its purchases to an amount not in excess of its
sales, in order to avoid the payment of scarce reserves in settlement of
the bilateral balance.*
  As the scarce supply situation has tended to improve, bilateral agree-
ments between countries in Western Europe have become less restric-
tive in form.t Since the need to obtain export commitments on the
part of other countries has substantially declined, bilateral agreements
have been tending more and more to be written in terms of commit-
ments to grant import licenses, with no express commitments on the
export side. Moreover, the commitments regarding imports have be-
come increasingly liberal: A number of countries have recently fol-
lowed a policy of agreeing to the unrestricted import of certain prod-

  * Other motivations also existed, among which was a desire of promoting
the export of non-essential products. [Footnote in the source text.]
  t This observation and those which follow do not apply to bilateral agreements
involving East-West trade in Europe. [Footnote in the source text.]


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