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States is concerned, preferences with respect to Cuba and the Philippines. Preferences such as these which have a substantial historical background are not required to be abandoned by the ITO charter. But preferences cannot be increased and over a time they should be reduced by negotiation just as some of the preferences arising out of the old Ottawa arrangements have been reduced substantially. No new preferences can be created without permission of the organization.

Mr. VORYS. Would those historical preferences apply also to the British Commonwealth and the Empire preference system?

Mr. THORP. Yes. However, on that the obligation to negotiate for their reduction would apply. Actually, in recent negotiations with members of the Commonwealth that system has been substantially reduced. However, again you have a problem. We have this kind of system with Cuba and the Philippines and we cannot ask for special favors with respect to our own historical preference set-ups without being willing to recognize that in other countries.

Mr. JUDD. Mr. Secretary, those are definitely exceptions to the principle of most-favored nation?

Mr. THORP. That is correct. They are firm, fixed, and defined and there can be no new ones under the general principle.

(The chart was referred to entitled "Cartels Squeeze Trade.") Mr. THORP. I have been talking about the barriers which come from Government action. But it is equally important to have in mind that barriers can come from what we familiarly know in the United States as combinations in restraint of trade. In the past a number of these practices which in the United States are regarded as being against our economic interests, have been carried out with respect to international trade, particularly in international cartels, and this Government has been endeavoring to prevent the reviving of international cartels in the postwar picture. The process of limiting competition in turn tends to limit the economic operation of world trade. And in thinking about the over-all problem one of the difficulties of leaving it in governmental bilateral hands is that it is difficult to deal with the cartel problem along those lines.

These barriers which exist have a peculiar tendency to extend themselves. Because whenever a country moves in and takes action as against the products of some other country, the natural reaction is one of retaliation. Therefore it is important in this whole picture to have in mind not only the fact that these barriers do exist, but to have in mind that there is almost an automatic tendency on the part of governments, when action is taken against their products in a foreign market, in turn to take action against the products of the originating country.

All this situation means that not only have there developed most complicated regulations, limitations and controls on trade, but that they are continuously in a state of flux. Each country which indulges in this sort of thing is changing its quotas and erecting or lowering barriers and the net result is that it is very difficult for anyone operating in the foreign-trade field to operate with any substantial assurance with respect to what policies are going to be.

Mrs. BOLTON. Would the ITO change that?

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Mr. THORP. The ITO would help that in a great many respects,

both in terms of limiting certain types of actions which countries can take, and also in requiring consultation, so that there is an opportunity to deal with the question without its just being done arbitrarily by an individual country.

Mrs. BOLTON. And that would include the Commonwealth.

Mr. THORP. Oh, yes, that would. That is, we would hope the Commonwealth would join.

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(The chart was referred to entitled "ITO Will Fill a Major Gap in UN-Structure.")

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Mr. THORP. In the original planning of the United Nations there were to be a series of specialized agencies, one of which was to concern itself with international trade problems. In a sense it is a rather strange fact that the United Nations structure at the present time has organizations dealing with foreign exchange and dealing with international loans, agriculture and health and so forth, but has no organization in the field of international trade.

The setting up of an organization is one of the two things that is accomplished by the charter. The other is the setting up of a general set of principles, a code of principles, which will guide the various countries' conduct.

(The chart was referred to entitled "ITO Provides a Forum for World Trade Problems.")

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Mr. THORP. As to the organization itself it is in large part a forum. It has a set of principles which relate to the way in which the various countries will behave, and a place at which there can be a review of any

ITO provides a forum for world trade problems

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situations where a particular member feels that some other member is violating the principles. There are certain basic things on which the members agree to consult.

I might at this point mention this problem of sanctions because I think that is important to have in mind. The first sanction is just the sanction of publicity-the necessity of explaining to other countries the action which one is going to take, and of bringing out into the open some rationalization for what that action will be.

The second is that there is authority in the organization to permit withdrawal of benefits from a member if that member takes action which no longer justifies him to receive the benefits. This is the same kind of thing which would apply in our reciprocal trade agreements. If a particular country does not live up to the reciprocal trade agreement then the obvious action is the withdrawal of concessions which we have given to that country.

Under the ITO, member countries will agree not to take particular types of action, and grant special privileges to particular members. There is the authority to release members from their commitments to a member which does not conform to its agreement.

There is one further element in the sanctions. If the organization itself should at some time make an interpretation of the principles, which was open to question, on the process of interpretation, it could be taken to the International Court of Justice. That then means you cannot have in the organization itself arbitrary decisions carrying it away from the principles as they have been agreed to.

That brings us to the question of just what the principles are. Mr. JUDD. In essence, is this organization to be for the world what the Federal Trade Commission is for our internal trade, but without quite as much power as the Federal Trade Commission?

Mr. THORP. Yes. I think it is somewhat broader than the Federal Trade Commission but fundamentally it is an organization to endeavor to make the processes of trade open and clear and to avoid combinations in restraint of trade and Government interferences.

Mr. JUDD. It is broader but it is not as tight in the sense that it does not have as definite and precise compulsory powers as the Federal Trade Commission?

Mr. THORP. That is right. It does not have the teeth that the Federal Trade Commission has.

Mr. JUDD. I ask that because you said that in certain cases the decision would be referred to the World Court, the International Court of Justice, just the same as decisions of the Federal Trade Commission can be appealed in our regular judicial system. It is essentially parallel to that?

Mr. THORP. That is right. It is for purposes of making sure that the organization itself has properly interpreted the law or in this case the code of principles.

Mr. JUDD. If its decisions are considered arbitrary or unjustified by the law, they could be overruled by the International Court of Justice?

Mr. THORP. Yes.

(The chart was referred to entitled "ITO is Based on Traditional United States Policies.")

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