811.20 Defense (M) Spain/408

The Secretary of State to the Ambassador in Spain ( Hayes )

No. 323

Sir: The following program is suggested by the Department and the Board of Economic Warfare, after consultation with the British Embassy, as an overall trade program between French North Africa and the Iberian Peninsula.

In formulating this program, consideration has been given to your telegrams no. 1964 of December 4, 11 p.m.21 and no. 14 of January 2, 8 p.m.; and Lisbon’s telegram no. 51 of January 11, 2 [3] p.m. Your attention is also directed to earlier discussions relating to this matter contained in the Department’s telegram no. 1482 of December 24 to you, repeated by you to Algiers and Lisbon, and the Department’s telegram no. 205 of February 5 to Algiers repeated to you and Lisbon.

Section I

For your guidance, it is thought desirable to recapitulate the views of the Department and BEW concerning the underlying postulates and objectives that have guided us in the formulation of this program. We have been guided by:
Past trade relations as indicated by recent barter agreements between Spain, Portugal and North Africa and negotiations under way in November, 1942 between Spain and French Morocco. In this connection, your attention is directed to paragraph 4 (a) of the Department’s no. 205 of February 5 to Algiers. It is our intention that present trade agreements should be followed as far as possible, but this intention should be interpreted in the light of the objectives hereinafter described.
The desire to increase the preemptive effect of United Nations activities in the Peninsula and thereby damage the Axis by using our control over French North African commodities to procure additional quantities of strategic and preclusive materials over and above the quantities available to us under our supply-purchase program. Thus, we are desirous of procuring the additional quantities of wolfram, zinc, and tin from the Iberian Peninsula indicated in the program below. Additional tonnages of phosphate rock and foodstuffs which [Page 20] might eventually become available in North Africa can be offered to accomplish this purpose. It will be noted that the program set forth below indicates a proposed maximum of 300,000 tons of phosphate rock for Spain and 140,000 tons of phosphate rock for Portugal. As an inducement to the procurement of the indicated quantities of wolfram and zinc, we would be willing to offer a total maximum of 250,000 tons and 550,000 tons of phosphate rock to Portugal and Spain, respectively.
The desire to provide necessary supplies for French North Africa from the Peninsula to minimize the strain on United Nations productive and shipping facilities. In connection with the former, where exports from Spain or Portugal are conditioned upon supplies of raw materials from the US–UK (such as raw cotton for cotton textiles) it is not our present intention to supply machinery or equipment beyond the normal supply of replacement parts now being made available to maintain their present productive capacity. It is rather our intention that French North African purchases in Spain and Portugal will utilize to the fullest extent the existing facilities and materials of those countries. With reference to the desire to decrease the strain on United Nations’ shipping facilities, reference is made to the necessity of removing preclusive purchases acquired under US–UK Supply-Purchase Agreement from the Peninsula for consumption or storage in North Africa and subsequent shipment to the US–UK. Since it appears that the tonnage to be lifted from French North Africa to the Peninsula will be considerably greater than that to be carried from the Peninsula, we are hopeful that arrangements can be made to effectuate this objective. In this connection, reference is made to the Department’s no. 258 of February 522 to you which stated that, according to competent authorities here, small neutral vessels, including Spanish, may be permitted to enter secondary North African ports in the near future. Upon receipt of advice from you relative to this information, we shall cable you further. If a satisfactory solution is presented in response to this latter cable, this may ease the difficulty resulting from the apparent lack of port facilities as referred to in the Department’s no. 205 of February 5 to Algiers, paragraph 4 (b). It is also our understanding that all Iberian-North African trade will be carried in Spanish and Portuguese bottoms, and possibly in small coastwise French vessels not now nominated to United Nations’ use.
The desire to facilitate the export of surplus commodities from French North Africa in order to support and stabilize the economic life of that area. In this connection, however, it should be understood that shipments from North Africa will count against the respective world quotas for Spain and Portugal where such quotas exist. Where no specific quotas exist, as in the case of crin vegetal and esparto grass, such shipments will be debited against existing quotas of similar goods at ratios to be determined in advance.
It is our definite intention that any net peseta or escudo balance accruing to French North Africa will be made available for US–UK purchases in Spain and Portugal although it appears unlikely that [Page 21] any favorable balance will result from the proposed program, as now formulated.
The determination of prices to be charged for North African commodities will be left to the NAEB after prior consultation with Washington and London.
Finally, assurances must be given by all parties concerned that under no circumstances will re-export to the enemy be permitted of any commodities made available by virtue of this program.
The following paragraphs set forth the trade proposals. Figures are in metric tons unless otherwise specified and each paragraph carries its own explanation of the various statistical columns. A dash in the tables following indicates that no figures are available.

[Here follow paragraphs 6, 7, 8, 9, 10, and 11 containing tables regarding proposed exports between the Iberian Peninsula and French North Africa.]

Section II

1. It is clear that although certain of the North African goods listed in the program set forth above may interest Spain and Portugal, phosphates are the key to the situation. The foregoing program is submitted with the view of utilizing this item to its utmost effect in accomplishing the objectives set forth in paragraph no. 1 of Section I. Hence, the program is long range and as complete as possible. However, it is realized that the negotiations preceding its acceptance are apt to be lengthy. Therefore, in order to expedite the immediate resumption of trade pending the conclusion of such negotiations, the following proposals are suggested to you for immediate action within the framework of the above-mentioned program.

2. It is thought that by offering the Spanish and Portuguese the minimum amounts of phosphate set forth in the program (200,000 tons and 100,000 tons annually, respectively) on a monthly basis starting in April of 17,000 tons and 8,500 tons respectively, there will be more incentive on their part to conclude the over-all program. On our part, it is suggested that we start with the short list of the following commodities adding a miscellaneous category within which other desired orders could be placed by the USCC in Lisbon and Madrid on an ad hoc basis. It is therefore suggested that the initial agreements for the immediate resumption of trade be confined to a monthly exchange basis of phosphates and miscellaneous items against the following:

[Page 22]
Cotton textiles 100 tons
Timber 600 tons
Cement 350 tons
Miscellaneous, e. g., glass, shoes, colonial products such as coffee and cocoa.
Cotton textiles 850 tons
Potash 850 tons
Pyrites 850 tons
Miscellaneous, e. g., lead manufactures, matches, bottles, etc.

Woolen goods could be added to the Spanish list if the Spanish would waive their demand for a special compensating import quota, but not otherwise.

We also desire and intend to draw into the Iberian Peninsula-North African trade to the greatest possible extent, items such as woolen piece goods which may now be finding their way to Axis destinations.

3. It is expected that this trade between French North Africa and the Peninsula will result in the accumulation of balances of pesetas and escudos on the part of French North Africa. It is desired, naturally, to assure that the British and we shall come into possession of such net balances for the furtherance of our preemptive and supply programs in both Spain and Portugal. It is recommended, therefore, that the trade interchanges between Spain and French North Africa and Portugal and French North Africa should be conducted by the UKCC and the USCC on joint account. This would involve the two commercial companies acting as procurement agencies on both the Peninsula and French North Africa. Consignment of goods purchased on the Peninsula would be to NAEB, Lend-Lease or the commercial companies themselves as NAEB might decide. It is further recommended that the trade itself between the Peninsula and French North Africa should be expressed in the local currency concerned.

4. The purchase of phosphates and other North African products would be made by the commercial companies either directly against dollars and sterling in equal proportion or for French francs previously secured from the French North African fiscal authorities in return for sterling and dollars in equal proportion.

5. It is recognized that the French may attempt to secure higher prices for phosphates and their other products than the Spanish and Portuguese have hitherto been accustomed to pay. It must, therefore, be made clear to both the Spanish and Portuguese that no price raising will be indulged in on our part and that we will quote such products at cost to us.

Section III

1. The foregoing programs are presented to you for your urgent consideration. Please consult with your British colleagues and telegraph your views as promptly as possible.

Very truly yours,

For the Secretary of State:
Dean Acheson
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