Foreign Relations of the United States: Diplomatic Papers, 1945, The Near East and Africa, Volume VIII

800.50 Middle East/5–245

Report by the Coordinating Committee of the Department of State⁵

CC–43a

[Washington,] May 2, 1945.

American Economic Policy in the Middle East^*

The Problem

The problem is to formulate an American economic policy for the Middle East which will tend to preserve the peace, further the welfare of the peoples concerned, and will safeguard and promote American economic interests in that area.

Previous Action

The political objectives of the United States in the Middle East, November 1, 1944,⁶ are:

1. Assertion of the independent interests of the United States in equitable arrangements designed to attain peace and security on a basis of good neighborship.

2. Assurance of the right of peoples to choose and maintain for themselves the types of political, social and economic systems they desire.

3. Creation of an equity of opportunity as against a policy of exclusion, in commerce, transit and trade; and freedom to negotiate either through governmental agencies or private enterprises, irrespective of the type of economic system in operation.

4. General protection of American citizens, protection and furtherance of legitimate American economic rights, existing or potential.

More specifically, our policy in the Middle East as stated December 22, 1944,⁷ provides that we should assist the independent countries of the area in maintaining their independence and should encourage in appropriate ways and at appropriate times other countries to obtain their independence. “Palestine is recognized as primarily a British responsibility, but we look forward to a just and reasonable solution at the proper time, after consultation with all interested parties.

Since it is almost certain that we shall not maintain substantial bodies of troops in the Middle East, our contribution to a peaceful evolution there, while resulting in large part from our general position in the world order, will have to rely heavily upon an actively implemented economic policy, subject to applicable policies and statutes affecting technical and advisory assistance in developmental financing and expansion of trade (as indicated in Annex I), if our efforts are to have real force and effect.

Recommendations

1. Within the framework of this Government’s basic political policy and its general economic policy, appropriate assistance should be given to the countries of the Middle East looking to the improvement of their economies, to the creation of a higher level of living for their people and to consequent increased purchasing power and greater political and economic stability. In line with these objectives, we should endeavor:

(a) To make available through governmental and private sources such credit facilities as can be turned to economically productive use in these countries.

(b) To encourage the removal of trade restrictions and controls, and all forms of discriminatory treatment which hamper the movement of goods into and out of the Middle Eastern countries. As most Middle Eastern countries find it difficult to earn dollars, we should, in the realization that imports are not only desirable in themselves but are also an essential counterpart of exports, consider tariff adjustments by trade agreements or other measures of such a nature as will assist these countries to increase their trade with the United States.

(c) To survey the existing commercial treaty network, including trade agreements and other economic understandings, between the United States and Middle Eastern countries, looking to a constructive program of revision and extension.

(d) To provide our diplomatic and consular posts in these countries as soon as possible with sufficient trained staff, to appraise and report upon developments and trends in agriculture, industry, and trade, to facilitate technical and advisor assistance, and to give constructive aid to traders engaged in commerce between these countries and the United States.

(e) To encourage the creation and the efficient operation of a regional institution which should be initiated, supported and operated by the local Middle Eastern governments for the purpose of improving the standards of agriculture, transportation, communications, public health and related matters. Such encouragement would be in accordance with our experience with coordinated economic operations in the Middle East during the war, which suggests the advantages to be gained from a peacetime cooperative program in the region.

(f) To participate in the development of local economic life by responding in full measure to requests for technical and advisory assistance. There is reason to believe that the Middle Eastern countries in realization of their deficiencies will in an increasing degree turn to the United States for such assistance. Compliance with these requests may be expected to further our prestige in the area and would, therefore, be in the public interest of the United States.

2. Mutual coordination should be sought as a fundamental objective between our economic policy and the respective policies of other outside powers interested in the area, particularly Great Britain, the USSR and France. In general, we should seek economic liberty without inequality, in all matters of trade, transit and other economic activities in accordance with the broad objectives of our commercial policy as expressed in Article VII of our mutual aid agreement⁸ and in the Joint Declaration of 1941.⁹

The end in view would be the creation of conditions favorable to the orderly development of the area’s resources, free from the exploitative, discriminatory and restrictive practices that have caused friction in undeveloped areas in the past. A positive role assumed by the United States in furthering economic coordination with other powers would be a means of removing the causes of difficulties which otherwise might arise among interested outside powers, due to their competitive interests along ideological, political and economic lines. Attempting such coordination should not, however, be an occasion for seeking aggressively to disturb long established commercial and economic relations between any country and the Middle East, so long as these relations result in efficient and adequate service and rest on valid economic bases rather than on hampering controls.

Discussion

The Middle East is and will remain one of the principal testing grounds of the ideals for which the war is being fought and of the world security system now being constituted. The countries of the Middle East are weak and in a state of intense readjustment—political, social and economic.

Throughout most of this region the western democratic, free enterprise system, represented in the main by the British, is now in competition with the authoritarian, closed economic system represented by Soviet Russia. British and Soviet strategic interests also meet in the area. The British seek to maintain their strategic oil resources and the security of their imperial communications. The policy of the Soviet Union in the Middle East appears to possess two direct objectives; achievement of security along its Middle East frontiers and the prevention of a coalition of the capitalistic countries in the Middle East against the Soviet Union. An indirect policy of the Union may be the extension of its social and economic systems throughout the Middle East. Consequently, the area is a fertile field for friction and activities which may threaten Middle East security and world peace.

Adoption of the recommended economic policy through the resulting improvement of economic conditions and raising of standards of living, will assist in removing economic discontents and thereby lessen the possibility that these countries will be hauled and pulled by the USSR on the one hand and by Great Britain on the other.

It is recognized that the successful implementation of our general economic policy in the Middle East is closely related to the success which we achieve in the political field. Of all the political problems which call for solution in this area the Palestine question is probably the most important and urgent at the present time. Unless our attitude in regard to it be clarified in a manner which will command the respect and as far as possible the approval of the peoples of the Middle East, our Middle East policy will be beset with the gravest difficulties.

It is further recognized that the success of our economic policy in the Middle East is closely related to the attainment of agreement among the nations of the world to reduce barriers to international trade and to eliminate discriminatory measures. Vigorous leadership by the United States in fostering means looking toward this objective, such as a multilateral commercial policy convention, and cooperative participation by the Middle East countries in such a program are accordingly held to be of the utmost importance.

In formulating an economic policy for the Middle East, it must also be recognized that these countries are jealous of their political independence. They are cynical regarding western imperialism and are dubious about the long-run intentions of the Soviet Union. They are eager for economic development and opportunities to stand on their own feet. Our policy, as recommended above, should meet these attitudes by fostering the economic advancement of the Middle East peoples and by facilitating freedom from external interference and exploitation.

[Annex I]

The following interpretative notes relate to the recommendations set forth in “American Policy in the Middle East”:

Recommendation 1(a)–An increase in the lending capacity of the Export-Import Bank will soon be recommended to Congress. The Bretton Woods plan for an International Bank for Reconstruction and Development¹⁰ has also been presented to Congress for its approval. Pending favorable action by Congress on one or both of these proposals, the foreign credit facilities of the United States Government will necessarily be limited.

Recommendation 1(f)–A major deterrent to the provision of technical and advisory assistance will be removed if Congress accepts the recommendation of the Department of State that the provisions of Public 63,¹¹ now applicable only to the other American Republics, Liberia and the Philippines, be extended to the rest of the world. This law authorized the United States Government to accept partial or complete reimbursement from a foreign government for salaries and expenses paid to United States Government employees assigned to duty with the foreign government. Where this law is applicable, the reluctance of United States Government agencies to assign employees on their pay rolls to foreign duty can be at least partially overcome, since the agencies can be reimbursed from funds paid into the United States Treasury’s General Fund by foreign governments. Employees are more willing to go abroad at moderate salaries if they can retain their civil service status with their own agency.

Recommendations 1(a) and 1(b)–It must be recognized that the dollar exchange available to Middle East countries for purchase of American goods or for paying interest and amortization on dollar credits will be severely limited unless the exports of Middle East countries to the United States can be increased substantially over pre-war levels. To the extent that broad multilateral trade can be developed, this strictly bilateral statement can be modified, but in any event it will be necessary for the Middle East to increase its exports to the rest of the world and for the United States to increase its imports from the rest of the world before dollar exchange will be available in sufficient quantity to finance increased American exports to the Middle East, or repayment of American dollar credits advanced to Middle East countries. Dollar credits in themselves, even if used to purchase American capital goods and thus to increase the productive capacity of the Middle East, will not necessarily provide either a permanent increase in Middle East capacity to absorb American exports or the means of repayment of dollar credits. Local standards of living can be raised by the intelligent use of American capital goods for local production but only an increase in exports and in American imports can provide the dollar exchange necessary for the return of the dollar credits with which the capital goods were acquired. Both the Export-Import Bank and the prospective International Bank will perforce consider these factors when advancing dollar credits. Hence the realization of economic development plans predicated upon dollar credits and the achievement by Middle Eastern countries of an independent position with reference to foreign exchange will depend in large part upon the revival of multilateral trade on a worldwide basis and on an expanding scale, an essential prerequisite of which will be a constructive American economic policy facilitating a substantial increase in American imports.

5. The original draft of this paper was presented jointly by the Office of Near Eastern and African Affairs and the Office of International Trade Policy to the Coordinating Committee, whose members were on the Director-of-Office level. The Committee approved the paper with some minor changes and directed that annex I be added. The paper and annex I were then presented by the Department to the Executive Committee on Economic Foreign Policy, an interdepartmental body, which after slight changes, approved them on April 20, 1945, as ECEFP 71/45. CC–43a as printed here embodies the changes called for by the two Committees.

   Acting Secretary of State Grew sent copies of the paper and annex I to various Government agencies, expressing his concurrence with their recommendations (611.0031 Executive Committee/5–445). He also transmitted copies of the two papers, as well as two additional annexes, to diplomatic and consular officers in the Near East and to the Ambassadors in the United Kingdom, the Soviet Union, and France between May 22 and June 6, 1945. The transmitting instructions noted that the papers were being sent for the “information and guidance” of these officers and asked for their comments (800.50 Middle East/5–2245 and other dated enclosures). Annexes II and III, both entitled “American Economic Policy in the Middle East” and prepared, respectively, by Gordon P. Merriam, Chief of the Division of Near Eastern Affairs on January 15, 1945, and by Frederick Winant of the Eastern Hemisphere Division, on August 24, 1944, are not printed.

6. Greece, Turkey, Lebanon, Syria, Palestine, Transjordan, Iraq, Iran, Afghanistan, Saudi Arabia and Egypt. [Footnote in the original.]
6. These objectives had been set forth in Policy Committee Document PC–8 (2nd revision) of that date, not printed.

7. On this date, the Secretary’s Staff Committee issued a report (SC–1) entitled “The Foreign Policy of the United States of America: A Summary Statement”. On p. 18 begins the section dealing with the Near and Middle East and Africa, which reads as follows:

   “In the Near and Middle East, it has been our policy during the war to maintain security and stability, in cooperation with Great Britain and the local Governments, by furnishing the essential supplies, shipping and personnel required to maintain the economy of the area. It is of the utmost importance, from a military viewpoint, that peace and order be maintained throughout the entire area.

   “It has long been, and will continue to be, our policy to assist the independent countries of the area to maintain their independence and to encourage, in appropriate ways and at appropriate times, the other countries of the Near and Middle East to obtain their independence as we have done in the case of the Republics of Lebanon and Syria. While recognizing that Palestine is primarily a British responsibility, we favor a just and reasonable solution, at the proper time, after consultation with all interested parties.

   “Our policy in Iran is governed by the provisions of the Tripartite Statement of December 1, 1943 in which this Government joined Great Britain and the Soviet Union in expressing their common desire for the maintenance of the independence, sovereignty, and territorial integrity of Iran. [For “Declaration Regarding Iran, December 1, 1943”, see Foreign Relations, 1943, vol. iv, p. 413.]

   “In the African colonial area our policy is to discourage harmful exploitation, to encourage the administration of the colonies in the interest of the local inhabitants and to support policies directed toward the orderly preparation of local peoples for eventual self-government.”

   For documentation on the interest of the United States in Iran, Palestine, and Syria and Lebanon, see pp. 566 ff., 678 ff., and 1034, respectively.

8. With the United Kingdom, signed at Washington February 23, 1942; Department of State Executive Agreement Series No. 241, or 56 Stat. (pt. 2) 1433.
9. Joint statement by President Roosevelt and British Prime Minister Churchill, August 14, 1941, Foreign Relations, 1941, vol. i, p. 367.
10. Adopted at the United Nations Monetary and Financial Conference which met at Bretton Woods, New Hampshire, July 1–22, 1944; for documentation on the Conference, see Foreign Relations, 1944, vol. ii, pp. 106 ff. The text of the agreement on the International Bank is published in Department of State, Treaties and Other International Acts Series No. 1502, or 60 Stat. (pt. 2) 1440.
11. Approved May 3, 1939, 53 Stat. (pt. 2) 652.