tered by the British Petroleum (Production) Act, 1934, under which oil-extracting rights were granted to foreign corporations on a reciprocal basis. This legislation opened the door to similar concessions in certain other parts of the British Empire, notably New Zealand, Papua, and New Guinea. In the United States, in accordance with the provisions of the Mineral Leasing Act of 1920, foreign nationals may own stock in American corporations exploiting the oil resources of the public domain provided the countries of which they are nationals accord similar rights to American nationals. Sir Firoz Khan took the position that reciprocal treatment with respect to extractive and mining rights by the Governments of the United States and of India would constitute only theoretical reciprocity, because Indian corporations lack the capital to exploit American resources, and that such a concession would have an unfortunate effect upon public opinion in India. However, it may be said in reply to his contention that the petroleum industry in India is almost entirely in the hands of British, rather than Indian, firms and that the British Petroleum Act of 1934 grants American corporations only theoretical rights in the United Kingdom, where there is no oil to be extracted. Therefore, a provision in the proposed treaty between the United States and India would amount in fact to actual reciprocity on the part of Great Britain for privileges granted to British corporations under the terms of the American Mineral Leasing Act of 1920.

2. Definition of Most-Favored Nation Clause

It was also proposed that the words "including the United Kingdom of Great Britain and Northern Ireland" be deleted from Article XVI, Section 3, which is quoted as follows:

"The term 'most-favored nation' as used in this Treaty shall be construed to mean the most favored third country, including the United Kingdom of Great Britain, and Northern Ireland."

Sir Firoz Khan states that the clause which it is proposed to delete is in contravention of an agreement between Great Britain and India whereby preferential tariff treatment is accorded to importations of a large number of commodities from the United Kingdom and British colonies. It is also his opinion that by deleting the clause British dominions would not be included in the term "third countries". The effect of such a deletion, therefore, would be to accord recognition in a treaty to preferential tariff treatment now accorded certain British and Colonial products, and it would open the door to the extension of the principle of preferential treatment to goods of the Dominions. In the Trade Agreement between the United States and Great Britain, signed November 17, 1938," this Government recognized the sys

36 41 Stat. 437.

"Department of State Executive Agreement Series No. 164, or 54 Stat. (pt. 2)

1897.

tem of Empire preferences, but the British Government made a substantial reduction of the differences between standard and preferential rates. In this connection it may be stated that, although recognition was given to the system of imperial preferences, a material concession was granted in return for such recognition. Moreover the recognition of imperial preferences in a treaty is a recognition of a more formal character and the initial compulsory period is for a much longer time. It appears that the issue raised by the definition of "most-favored nation" is that of the attitude of the Government of the United States toward the entire system of Empire preferences. WALLACE MURRAY

711.452/42

Memorandum of Conversation, by the Chief of the Division of Trade Agreements (Hawkins)

[WASHINGTON,] April 4, 1941.

Participants: Sir Firoz Khan-High Commissioner of the Government of India in London

Mr. W. H. Mather of Sir Firoz's office in London

Mr. Acheson

Mr. Hawkins

Sir Firoz Khan and Mr. Mather called pursuant to an appointment made at their request to discuss certain aspects of the proposed Treaty of Establishment, Commerce, Navigation and Consular Rights between the United States and India, a draft of which was submitted by this government in October 1939.

Sir Firoz Khan stated that his government is anxious to conclude the treaty as soon as possible in order that Indian nationals who desire to come to this country on business may enjoy the "treaty merchant" status under Section 3 (6) of the Immigration Act. He pointed out that the granting of these privileges is as much in our interest as in theirs since it would facilitate business contacts between individuals and companies in the United States and in India which would result in an increase in the sale of American products in the Indian market. He went on to say, however, that the draft treaty which we presented raises questions which are difficult to settle and which if not surmounted will prevent the extension of privileges to Indian merchants which are of benefit to both countries.

The difficulties presented are (a) those created by the definition of most-favored-nation treatment (Article XVI, Section 3) which would require the abolition of preferences by India to the United Kingdom and (b) the mineral resources article (Article VIII) which would

accord to nationals of each country reciprocal rights with respect to the exploration for and exploitation of petroleum and other mineral resources in the other.

With respect to (a), India is faced with the situation created by its contractual obligation under its trade agreement of 1939 with the United Kingdom 38 whereby preferences to the United Kingdom are guaranteed.

With respect to (b), Sir Firoz Khan was less explicit with respect to the difficulties from India's standpoint but indicated that the granting of privileges for the exploitation of petroleum and other mineral resources, in Baluchistan, would be very difficult for the Government of India to accord and it is in this area that American interests particularly desire to operate. With respect to other parts of India, he said there is nothing to interfere with American enterprise. Mr. Acheson pointed out that as matters now stand there is a notable absence of reciprocity as between British and American interests; that the British enjoy rights of exploitation in the United States and while reciprocal rights are accorded American citizens in the United Kingdom these rights are of little practical value; that in India, where opportunities for mineral development exist, American enterprise is excluded; and that accordingly he felt that American nationals in all fairness should be permitted to share with the British in India opportunities such as the British share with American nationals in this country.

Sir Firoz Khan expressed the hope that in the interest of facilitating closer commercial relations with India this Government would be willing to conclude immediately a simple commercial treaty sufficient only to extend to Indian nationals "treaty merchant" status under Section 3 (6) of the Immigration Act and that other controversial issues such as those above mentioned would be excluded for the present and left for future adjustment. He supported this proposal by repeating his contention that the granting of such status to Indian merchants is as much in our interest as in the interest of India. It was pointed out to him that under the law a treaty of commerce and navigation is necessary in order to grant such rights and that in formulating the draft of the proposed treaty we sought to effect the adjustment of other issues which we consider of at least equal importance, such adjustment being the function of such a treaty. However, Mr. Acheson said that we would study the matter carefully in the light of the discussion.

Sir Firoz Khan said again that he was very anxious to expedite the conclusion of an arrangement which would settle the treaty merchant

38

British Cmd. 5966: Trade Agreement between His Majesty's Government in the United Kingdom and the Government of India, London, March 20, 1939.

matter, and expressed the hope that we could reach some decision within the next week or two. He said he was going to New York but that he could be reached there and would be ready for further discussion at any time.

711.452/41

The Acting Secretary of State to the British Ambassador (Halifax)

39

WASHINGTON, June 25, 1941.

EXCELLENCY: I have the honor to refer to this Government's note of October 10, 1939, to your predecessor transmitting a draft of a treaty of establishment, commerce, navigation and consular rights between the United States and India, and to recent conversations at Washington between Sir Firoz Khan Noon, High Commissioner for India at London, and officers of this Department with respect to the draft treaty.

The conversations indicate that there is substantial agreement as to the various articles of the draft treaty, except as to the article on mineral resources. As pointed out in the note under reference, this article provides for most-favored-nation treatment in respect of the exploration for and exploitation of mineral resources. It also provides, on a basis of reciprocity, for national treatment in the ownership of stock in domestic corporations engaged in the exploration for and exploitation of a specified list of resources, including oil.

This Government is of the opinion that the article concerning mineral resources is of considerable importance in the proposed treaty with India and requests that further consideration be given to its inclusion as originally drafted. This Government will be pleased to receive the expression of the views of His Majesty's Government.

It is understood that the Government of India desires that a specific condition of reciprocity be added at the end of Article I. The major effect of such a provision probably would be to limit the operation of the most-favored-nation clause contained in paragraph 2 of that Article. This Government would prefer the most liberal possible construction of the most-favored-nation provisions of the Article. However, should the Government of India insist upon the addition of the condition of reciprocity, and should all other outstanding questions be satisfactorily settled, this Government would agree to the following stipulation:

"9. Nothing in this Article shall be construed to require the United States of America to grant Indian nationals rights greater than those received by American nationals in India, or to require India to grant American nationals rights greater than those received by Indian nationals in the United States of America".

This Government further understands that it is the desire of the Government of India to define coasting trade in paragraph 2 of Article V so as to include trade between India, on the one hand, and Burma, Ceylon and Persian Gulf ports on the other hand. While this Government is prepared to agree to a definition of the coasting trade of India which will include trade with Burma and Ceylon, it would find it difficult to place trade between India and the Persian Gulf ports in the same category. It is proposed, therefore, that paragraph 2 of Article V read as follows:

"The coasting trade of the two countries, including trade between India and Burma and Ceylon, shall be exempt from the foregoing provision and from the other provisions of this Treaty, and shall be regulated according to the laws of each country in relation thereto. It is agreed, however, that with respect to the coasting trade, vessels of either country shall enjoy within the territory of the other country the most-favored-nation treatment."

The provisions of Article XII relating to exemption from internal taxation of officials of the Government of one country within the territory of the other country are understood to meet with some objection on the part of the Government of India on the ground that it infringes upon the freedom of action of some of the subdivisions of the Government of India. This Government is prepared to agree to limit this Article so as to apply only to internal taxes imposed by the central governments. This Government would be pleased to receive a redraft of Article XII.

You will recall that this Government has proposed that the last sentence of the first paragraph of Article XVI read as follows:

"The present Treaty shall apply, on the part of India, to India, including the Indian States."

It appears that the inclusion of the Indian States within the scope of the treaty is not acceptable to His Majesty's Government. In view of the great difficulties of administration in the United States of a treaty applicable to India but not to the Indian States, and in view of the fact that at least one other treaty, namely, the convention concerning the tenure and disposition of real and personal property of March 2, 1899,40 has been made applicable to India including the Indian States, this Government hopes that His Majesty's Government may be able to include the Indian States within the purview of paragraph 1 of Article XVI.

40 William M. Malloy (ed.), Treaties, Conventions, etc., Between the United States of America and Other Powers, 1776-1909 (Washington, Government Printing Office, 1910), vol. 1, p. 774.