(A chart was referred to entitled "ITO Is Adaptable.")

Mr. THORP. I believe this chart will help on this point. The International Trade Organization Charter is not an unchangeable document. It is adaptable. There is a way in which the charter itself may be changed. Furthermore from the point of view of any individual member there is a procedure with respect to withdrawal.

The amendment process differentiates between types of amendments. There is in the first place the kind of amendment which does not really affect the obligations of the member governments. It might involve a change in procedure or it might involve some change in definition at some point. That type of amendment could be brought about by the governments concerned on the basis of a two-thirds vote.

However, there can also be amendments which would alter the obligations of members. That would represent, it was felt by all those concerned, the kind of change which just the International Trade Organization itself ought not to be free to make.

Therefore, amendments of that type would have to have formal approval by the governments concerned. In our case it is provided in the resolution which this committee is considering that it would require approval by Congress. There is the possibility of amendment and from the point of view of Congress, this does not open the way to changing the charter without the consent of Congress.

Beyond that there is a second provision in the charter and that is that the whole charter is to be reviewed after 5 years of operation. I do not think anyone can write a document of this kind and foresee the problems that may develop, the parts of it which may need to be strengthened or the parts which may need to be modified. Therefore, the charter will be reviewed after 5 years from the point of view of its improvement.

Chairman KEE. I beg your pardon. How is that review taken? Mr. THORP. That is an obligation in the first instance on the organization itself to review and study its operations. The general conference of the organization will include representatives of all member governments. When you speak of a review of the charter by the organization while in the first instance I am sure a lot of the basic work would be done by the Secretariat, it is in fact a review by the member governments.

As to the problem of membership it is important to know that one is not also immutably a member once one has joined. The provision in the charter is that under normal circumstances a member may withdraw after the first 3 years, on 6 months notice. However, it is possible that a member will feel that the organization has treated it badly and therefore there are special provisions with respect to withdrawal whenever either of two things happen: Whenever there is an amendment which alters a member's obligations and the member is not willing to accept that amendment. He then is given the privilege of withdrawing on 60 days' notice. Beyond that if there is a determination by the organization that a member has violated the charter in some way and the organization has permitted some kind of compensatory action against this particular country, then that country if it wishes to do so under those circumstances, may withdraw from the organization on 60 days' notice.

This means, therefore, that from our point of view if there develops a conflict between ourselves and the organization and the organization authorizes some action against the United States Government, which we did not consider justified, we would be in a position to withdraw very quickly from the organization.

There is one other characteristic of the charter which is basic and that is that the charter, being negotiated as it was among over 50 governments, and governments in all different states of economic development, different industrial conditions, and facing different sets of economic problems, given that situation it was necessary that the charter either be a broad statement of intent in which a lot of pious hopes were listed or that it be a set of principles defining pretty exactly how those

principles which all might agree were desirable, might be adapted to meet the specific problems of particular countries.

In other words, it was necessary that this charter, if it was to have effectiveness, should recognize the realities of the world situation and particular problems which particular countries had to face.

The way in which that has been done is to set up exceptions in recognition of certain particular situations. These exceptions are carefully defined. They are, one might say, under control. In order to take advantage of these exceptions, countries must meet certain requirements, and it is set up in such a way that the pressure is to get the condition creating the exception removed so that the principle can be clearly followed thereafter.

This is a matter of reality. As a matter of fact some of the exceptions that I shall list are exceptions which we insisted upon from the point of view of the interest of the American Government. The exceptions are not therefore just things forced upon our negotiators. They represent things which all felt were essential if the code was to operate in the real world of international trade.

(A chart was referred to entitled "ITO allows exceptions but limits them.")

Mr. THORP. I have a chart here which indicates this concept of the exceptions. Symbolically, if you will, we have depicted the broad line of the ITO principles. However, there are these particular situations, three of which are illustrated-I am going to outline perhaps half-dozen-which represent special situations of fact where exceptions from the principles will be permitted under certain special circumstances.

The exception which happens to be the biggest on the chart and I expect as of this moment it is probably the biggest problem with respect to the application of the ITO principles, is the basic problem with which you are familiar in your discussions of the ECA legislation, and that is the problem of balance of payments. It is the case where Sweden, for example, may have a large supply of French francs and a limited supply of American dollars. Therefore Sweden is in a position where she can purchase more of some particular commodity from France because she has francs, than she can purchase from the United States, even though that commodity might be offered by the United States and France at equal prices. In that kind of situation, the practice which has developed-in fact, the only kind. of control which can deal with it-is control by quotas, so that the purchasing of a particular product is limited according to the ability of the country at the moment to make payment. This, of course, is a problem that stems out of the fact that you cannot change French francs into dollars freely in the world as it exists today. It is a problem which will tend to disappear as countries get their trade more closely into balance and as currencies can be more freely exchangeable.

As of the moment these countries felt-and I think we would have to accept without much question the fact that they could not fully apply the most-favored-nation approach: namely, the nondiscriminatory approach; with respect to trade. They can work in that direction. As you see [pointing to chart], this exception which is permissible is not an exception which goes off indefinitely in deviation, but should work back into the main line of principles as trade gets

back into balance and discrimination should no longer be necessary. At the present time, countries may move in this area only, limited by whatever more limited agreement they may have. There is no general world statement of policy. There is a statement of policy with respect to this in western Europe because in the original set-up of the OEEC, the participating countries agreed that they would work in the direction of freeing trade from this type of restriction.

In the case where an exception of that sort is to be granted, countries would have to come to the International Trade Organization and pre

sent the situation. The determination as to whether or not they really have a balance-of-payments problem, whether it is an honest and provable case, will be made by the International Monetary Fund, which is the specialized agency in this field, within the United Nations structure. The International Trade Organization will rely upon the Monetary Fund as to whether or not the situation is such as to justify an exception on balance -of-payments grounds.

Having done that, this does not become a permanent permission but it becomes something which is continually under review and on which there will be a time limit.

Having mentioned the one, I might mention the other two which are on the chart: The economic development process is certainly one familiar to us in the United States where our own industries, some of them at any rate, were developed under conditions of protection, a policy advocated originally by Alexander Hamilton. In this case, rather than just say to the countries, "Whenever you have infant. industries you may set up high levels of tariff protection," they would have to come to the International Trade Organization and demonstrate that it was necessary and would be useful to their economy. The whole process is kept under review by the trade organization.

I do not need to mention the exception with respect to national defense. There, obviously, there are particular products and particular items which are essential to countries and upon which the general principles with respect to their handling should not apply. There is, therefore, a clear-cut security exception in the charter.

Mr. JACKSON. Mr. Chairman, may I ask a question at this point? Chairman KEE. Certainly, Mr. Jackson.

Mr. JACKSON. Mr. Secretary, you point out that under the section. for economic development provision is made for infant industries which might require some measure of protection. Would that exception also cover well-established industries, for instance something as old as the Waltham Watch Co., or any major industry certainly not in its infancy but which requires a measure of tariff protection for its economic survival?

Mr. THORP. The exception I have been discussing is essentially an infant-industry exception. There is also a general exception which takes the form of what we are accustomed to describe as the "escape clause." This exception says that whenever as a result of actions taken under the charter there is a threat of serious injury to a domestic industry, the country is free to withdraw or modify whatever actions have been taken through the organization, to the extent and for the time necessary to prevent the injury.

There is a carry-over into the charter of what we call the escape clause in our own trade agreements.

Mr. JACKSON. In the reciprocal trade agreement program?
Mr. THORP. Yes.

There is another exception that I think is important which is created by the character of our own agricultural programs. When surpluses develop of agricultural products in the United States, and when we set up price support programs and limitation of domestic production and so forth, it is obvious that we should not feel obligated to support the prices for all the rest of the world. One can conceive of a situation in which a price support program might just mean a