The Secretary of State to the Minister in Egypt (Kirk)
Sir: Little progress has been made in solving the problem of American supplies for Egypt. This is due partly but by no means entirely to the difficulty encountered in getting the Egyptians to state their needs in terms specific enough to allow analysis in the light of our own defense needs as well as those of others we are helping. The list of requirements filed in May52 by the Egyptian Commercial Counselor has been under examination by the proper government offices. The case for approval has been prejudiced by the absence of specific information as to exact types, sizes, and quantities of supplies wanted, by the lack of information as to the uses to which they would be put, and by failure to coordinate Egyptian needs with those of the British in Egypt.
In discussing the problem with the British it has developed that they, too, have been pressing the Egyptians for a proper authenticated list of Egypt’s essential requirements. Moreover, it develops that a discussion of proper programming and allocation of Egypt’s requirements to the best source of supply can be done, according to the British Supply Council, only through a single channel which they think should be the British Government. The Department is not informed about the views of the Egyptian government on this point.
The problem is more than a procedural one, however. It raises questions of financing which are directly related to the whole matter of financing the British war effort in the United States. While the Egyptian government’s offer to pay cash for these supplies still holds, so far as the Department is aware, it is not impossible that a substitute proposal to acquire the supplies through lend-lease may be made. Egypt is part of the sterling area. If the British in their efforts to conserve dollar assets assume the function of allocating exchange to [Page 313] Egypt, the Egyptians may be forced involuntarily to go along with the other parts of the sterling area and use lend-lease for meeting the bulk of the needs which can be supplied from the United States. In such a situation a system of controls would probably have to be instituted by the Egyptian government which would enable it to meet conditions fixed by the President as necessary to gain his approval for the re-transfer of lend-lease goods to commercial firms for distribution. The determination of criteria underlying these conditions is now being made by the British and ourselves as regards distribution of goods lend-leased to the British and it is certain that identical conditions would govern in the Egyptian case.
So far as the British Supply Council is concerned, their position is set forth in the following excerpt from a letter of August 6, 1941, from Mr. M. W. Wilson, Deputy Director, to Mr. Philip Young, assistant executive officer of the Division of Defense Aid Reports:
“The question is complicated by other considerations which have recently arisen. We have been supplying a part of Egypt’s requirements from the United Kingdom, but this is becoming more and more difficult for shipping and other reasons. We are, therefore, being forced to consider whether the supplies hitherto sent from the United Kingdom will not have to be obtained from the United States, insofar as they are available. As Egypt forms part of the Sterling Area, the cost of such supplies obtained in the United States would fall on the common dollar pool of the Sterling Area. We shall have in due course to report this situation to the Joint Clearing Committee which meets under Mr. Morgenthau’s53 chairmanship. If the U. S. Government found it possible to supply any part of these requirements on Lend-Lease terms, it would or course reduce the new dollar charge which is likely to arise. We cannot however bring this matter forward until we have a suitable concrete case to submit to Mr. Morgenthau’s Committee, or until we have at least the promised list of essential Egyptian requirements as a basis for preliminary consideration of the question by the Committee.
“There may be obstacles in the way of the provision of Egypt’s essential requirements on Lend-Lease terms in the fact that Egypt has at present no import control, while the control over prices, or profits of commercial distributors, may not be sufficient to satisfy the U. S. Government that the conditions (now under discussion) regarding the transfer of Lend-Leased goods to commercial agencies for distribution will be fulfilled. If you saw your way to say something to the Egyptian Commercial Counselor which might convince him of the necessity of an import licensing control and a full control over distribution of any goods which may be made available on Lend-Lease terms, it would be of great assistance.”
Your attention is directed particularly to the final sentence in the above excerpt. In view of the Egyptian government’s offer to pay cash and, moreover, to our basic desire of keeping trade channels open [Page 314] and as free as possible, the Department is not accepting Mr. Wilson’s suggestion that it take the initiative in attempting to convince the Egyptian Commercial Counselor “of the necessity of an import licensing system and a full control over distribution of any goods which may be made available on Lend-Lease terms.”
If, in the circumstances already mentioned with reference to conservation of dollars in the sterling area, Egypt’s purchases were in the future to be confined mainly to lend-lease goods, then some arrangements of the sort mentioned with reference to import control would presumably be necessary, for the reasons stated. Even should that situation develop, however, it is felt that it would be unwise for this Department to take any initiative toward persuading the Egyptians to set up such a system; rather, that the initiative in regard to this matter should rest with the British and the Egyptians themselves.
The substance of this despatch is not being communicated to the Egyptian Minister.
Very truly yours,