840.50/3432: Telegram

The Ambassador in the United Kingdom ( Winant ) to the Secretary of State

56. In accordance with the arrangement made by Penrose2 with Hawkins3 and Pasvolsky4 before leaving Washington, this is the first of a number of messages based on personal conversations with British civil servants some of whom took part in the recent United States–United Kingdom economic talks. We suggest that it be circulated for confidential use by those concerned with the economic conversations only.

Economic Talks on Article VII Questions: 5 It appears doubtful whether the British group will be ready to renew the discussions much before the beginning of March. This is due to three causes:

On their return to London the group took about 6 weeks to clear off arrears of other work;
The prolonged absence of the Prime Minister has hindered clearance of economic matters at the Cabinet level;
The necessity of consultation with the Dominions slows up action on amendments of the positions outlined in former meetings with economists of the Dominions Governments.

As the success of most of the international economic measures depends on multilateral agreement, the British are anxious to have the Dominions keep in agreement with Britain and the United States at each stage in the economic talks. They feel, however, that there are [Page 2] disadvantages in having large numbers around one table in the early stages of formulation of the economic measures. The alternative is to have separate consultations between the American-British meetings such as those in Washington between the United States and Canada and other consultations which the British will have with the Dominions before the next talks. The British realize that this takes time but intend to speed it up as much as possible.

There appears to be considerable interest and some concern in British Government circles as to the furthest point to which the international economic measures can be taken up to the time of the presidential election. The British civil servants agree, of course, that the working out of agreed positions among the technicians has still a considerable way to go, especially on questions of commercial policy, raw materials, subsidies and cartels. They are considering, however, what plans should be made to prepare the way in political circles and among the public and would be glad to hear of any views we may have on this subject.

Subsidies: Recently personal conversations with Meade and Liesching6 indicate that there may be substantial opposition in Great Britain and some of the Dominions to a formal limit on domestic subsidies. This opposition appears to be mainly political and based on the fear that if the interested group are to be persuaded to agree to substantial tariff reductions and elimination of preferences and import quotas, it would not be practicable to apply a rigid limit to domestic subsidies. On this point, the British seem to have in mind (1) certain sections of their domestic producers and (2) countries in an early stage of industrialization some of which have built up their industries during the war.

In practice this covers cases that come legitimately within the category of the infant industry, but the British seem also to have in mind other less defensible cases where political pressures predominate over economic considerations. The British think that the visible drain on the taxpayer arising out of subsidies would in practice be a severe restraining influence that would keep protectionism within reasonable limits if tariffs were held down and import quotas eliminated.

The line between infant industry subsidies and other subsidies has not yet been clearly drawn and an early attempt at an approximate working definition seems essential to further progress in the discussion. So far it appears that British ideas on the subject are still vague.

Meade, expressing a personal opinion, put forward the following suggestion: (1) That export subsidies should be banned; (2) that domestic subsidies should be permitted; (3) that provision should be made under certain conditions for declaring a commodity to be in a [Page 3] state of surplus, and that after such a declaration countries with domestic subsidies on the commodity should agree to remove such subsidies completely as long as the state of surplus continued. Failure to do so would release other countries from the obligation not to apply export subsidies to the commodity in question.

Multilateral Tariff Reductions: Among the various formulas for multilateral tariff cuts, Meade expressed a personal preference for the principle of an agreed proportionate reduction of tariffs keeping within a specified tariff floor and ceiling. Among suggestions from the American side, he liked best the idea of a 15% tariff floor with a 50% reduction of tariffs which are above the floor.

  1. Ernest F. Penrose, Special Assistant to the Ambassador in London.
  2. Harry C. Hawkins, Chief of the Division of Commercial Policy and Agreements; appointed Director of the Office of Economic Affairs, January 15, 1944, and Counselor of Embassy for Economic Affairs at London, September 12, 1944.
  3. Leo Pasvolsky, Special Assistant to the Secretary of State.
  4. Article VII of the Lend Lease Agreement between the United States and the United Kingdom, signed at Washington February 23, 1942; for text, see Department of State Executive Agreement Series No. 241, or 56 Stat. (pt. 2) 1433. Article VII provided for conversations between the two Governments “to promote mutually advantageous economic relations between them and the betterment of world-wide economic relations.” Article VIII, which set February 23, 1942, as the effective date of this Agreement, should not be confused with Article VIII of the United States–United Kingdom Agreement signed November 17, 1938, mentioned in telegram 4783, June 16, 1944, to London, p. 47.
  5. James E. Meade and Percivale Liesching of the British Board of Trade.