Memorandum by the Chief of the Division of Commercial Policy and Agreements (Hawkins)

Lend-Lease Agreement with India

From the reports I have seen as to the attitude of the Government of India toward a lend-lease agreement with the United Kingdom in respect of India (summarized in Mr. Fuqua’s memorandum hereunder99), I am very doubtful whether we should look with favor on the British proposal.

From the point of view of commercial policy, the proposal is fraught with danger because Indian Government officials, aware of the strong feeling in India that the British have, in their own interest, kept Indian tariffs too low to permit Indian industry to grow, do not look with favor on Article VII.1 It would seem far better to continue operating lend-lease arrangements with India along established lines (with the British responsible for getting such additional help on reciprocal aid as they can from the Indians), than to enter into a separate agreement containing a watered-down Article VII. A “diluted” Article VII would not only give the green light to an [Page 251] exaggerated Indian self-sufficiency program after independence but also seriously weaken our existing position with other signatories of master agreements, particularly China, in which country there is already danger of an overdose of tariff protection on “infant industry” grounds, and with other countries with which mutual-aid agreements are contemplated.

The advantages of a separate agreement to this country in terms of facilitation of supplies in both directions are not at all clear to me; the advantages to the British, on the other hand, are apparent: (1) the responsibility for trying to persuade the Indians to provide greater reciprocal aid would be shifted to us; (2) the pressure from India for supplies and equipment would be shifted to us; and (3) if the Indian (British) Government should be persuaded to accept Article VII without change, the critics in India outside the Government would turn their fire on the United States as well as the United Kingdom for trying to keep Indian industry at a low level in the interest of American and British industries and exporters.

On the other hand, a separate master agreement in respect of India which did contain an undiluted Article VII (the Article as it stands is not at all inflexible as to particular rates of duty or other import restrictions but only as to general objectives) might, on economic and commercial-policy grounds, be well worth the risk of possible adverse political reactions in India, concerning which others in the Department are in a far better position to judge.

Harry C. Hawkins
  1. Not printed.
  2. Reference is to article VII of the master lend-lease agreement concluded with the United Kingdom February 23, 1942.