811.20 Defense (M) Spain/412a Suppl.: Telegram

The Acting Secretary of State to the Consul General at Algiers ( Wiley )18

402. Department’s 205 of February 5 to Algiers, repeated to Madrid and Lisbon, and Department’s no. 1482, December 24 to Madrid, repeated by Madrid to Algiers and Lisbon.

1. There are being sent you by airmail courier comprehensive instructions embodying over-all trade program between French North Africa and the Iberian Peninsula which has been formulated by the Department and Board of Economic Warfare after consultation with British Embassy here. Although it is clear that certain of the North African goods listed in the over-all program may interest Spain and Portugal, phosphates are the key to the situation. This comprehensive program is being submitted to you with the view of utilizing phosphates to the utmost effect in accomplishing the long-range and complete objectives set forth in the airmail instruction which is being sent you. It is realized, however, that lengthy negotiations are likely to be necessary for the acceptance of the long-range program. In order, therefore, that the resumption of trade may be expedited pending the conclusion of such negotiations, we suggest to you within the framework of the larger program the following proposals on which immediate action should be taken.

2. An offer to the Spaniards and Portuguese, it is thought, of the minimum amounts of phosphates which the program sets forth, that is from 200,000 and 100,000 tons respectively per annum, starting in April on a monthly basis of 17,000 and 8,500 tons respectively, will furnish both countries an incentive to conclude the over-all program. It is suggested, on our part, that a start be made with the commodities contained in the following short list, a miscellaneous category being added within which the USCC and UKCC in Madrid and Lisbon could place on an ad hoc basis other desired orders. Effective assurances that North African products thus secured would not be reexported would of course be obtained from Spain and Portugal. In substance we suggest that the initial agreements looking to immediate trade resumption be limited to an exchange of phosphates and miscellaneous items on a monthly basis against the following:

Spain

850 tons Cotton textiles
850 Potash
850 Pyrites
Miscellaneous, e. g., matches, bottles, lead manufactures, etc.
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Portugal

100 tons Cotton textiles
600 Timber
350 Cement
Miscellaneous, e. g., colonial products such as coffee and cocoa, glass, shoes, etc.

If the demand for a special compensating import quota should be waived by the Spanish, woolen goods could be added to the list for Spain, but otherwise not.

It is also our desire and intention to draw into the trade between the Peninsula and North Africa, to the greatest extent possible, goods which may now be finding their way to Axis destinations, such as woolen piece goods.

3. We anticipate that there would be an accumulation of balances of escudos and pesetas on the part of French North Africa as a result of the resumption of trade between that area and the Peninsula on the basis of the program herein suggested. We naturally desire to make sure that such net balances should come into the possession of the British and ourselves to be used to further our preemptive and supply programs both in Portugal and Spain. We therefore recommend that the UKCC and the USCC on joint account should conduct the trade interchanges between Spain and Portugal and French North Africa. The two commercial companies would thus act as procurement agencies in both French North Africa and on the Peninsula. Goods purchased on the Peninsula would be consigned to NAEB, Lend-Lease, or if NAEB should so desire, to the commercial companies themselves. We further recommend that the trade itself between French North Africa and the Peninsula should be expressed in the respective local currency involved, i.e. imports would be quoted in the currency of the importing country.

4. The commercial companies would make purchases of phosphates and other North African products either directly against sterling and dollars in equal proportion or they would do so in French francs which the French North African fiscal authorities might release in return for dollars and sterling in equal proportions.

5. We recognize that an attempt may be made by the French to secure for their phosphates and other products higher prices than it has hitherto been the custom of the Spanish and Portuguese to pay. Both the Spanish and Portuguese must therefore be clearly advised that we shall indulge in no price raising on our part and that such products will be quoted to them at cost to us.

6. The foregoing short term program (and the over-all program which you should receive shortly by airmail) is presented to you for your urgent consideration. Please advise us of your reaction as soon as possible after consultation with your British colleagues.

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7. Since the drafting of the foregoing paragraphs, Algiers telegram No. 274 of February 24, repeated to you, has been received. This telegram is now being carefully studied and appropriate instructions will be sent you at the earliest possible moment in the light of its content.

Repeated to Lisbon, Madrid and London.

Welles
  1. Repeated to Lisbon (No. 352), Madrid (No. 510), and London (No. 1421).