841.24/2247: Telegram
The Ambassador in the United Kingdom (Winant) to the Secretary of State
[Received 6:25 p.m.]
4956. We have taken up with appropriate Foreign Office officials the matter raised in Department’s 4783, June 16. It may be a few days before a reply comes. Meanwhile the following preliminary analysis is based in part on recent confidential conversations with some leading civil servants with a view to the preparation of a discussion of some commercial policy problems in a future Article VII message.
The actual or proposed contracts in question seem to be the outcome mainly of transitional rather than long-run factors. The dominating [Page 50] factor consists in fears of a repetition of events that occurred after the last war, that is, a rise in prices in the early, and a fall in the later, postwar transition period.
- 1.
- Britain as a large importer of essential foodstuffs seeks arrangements that will restrain undue rises in prices in the early transition.
- 2.
- The Dominions and some Latin American countries, as large exporters of foodstuffs, seek arrangements that will protect their producers against a substantial fall in prices in the later part of the transition period.
- 3.
- Both the large importing and the large exporting countries desire arrangements that will prevent a falling off in food production, the first because of their need to maintain domestic food consumption and the second because of their need to maintain agricultural incomes at home and a satisfactory balance of payments with other countries.
This analysis seems to be supported by such information as we have, which we will supplement later, regarding the contracts referred to in Department’s 4783, of June 16. We understand that United Kingdom wished to have a 2 rather than 4-year bacon contract with Canada, and later agreed to a 4-year period because of Canadian insistence. It is our impression that the Canadians after a new examination of the proposed 4-year contract have expressed dissatisfaction with the prices proposed for the last 2 years of the period, and that no agreement has yet been reached on the contract.
Canadians are also, we understand, pressing for a longer period fixing of particular wheat price ceilings and floor, on the theory that United Kingdom will benefit by the ceiling in the early transition period and that Canada should therefore have the benefit of the floor in the later transition period.
Similar considerations apply to other Dominions and it is our understanding that at last [sic] New Zealand originally pressed United Kingdom for much longer term contracts than those now under consideration.
Thus the conclusion in abstract terms is that the large importers fear high prices in the near future and the large exporters fear low prices following an initial boom. Since both fear any falling off in production, a compromise tends to be reached which makes the contracts larger than the large importers desired at the outset. The pressure for long contracts, e.g., 4 years, seems to have come from the Dominions and not from United Kingdom. But United Kingdom believes that there is real danger of falling off in the production of certain foodstuffs due to the fears of a postwar agricultural slump. Some of the British maintain that such a falling off has already shown itself in certain overseas areas, e.g., in the case of certain New Zealand dairy products.
[Page 51]In the case of New Zealand, there may be a tendency to favor long contracts as a matter of long-run policy associated with a belief in state trading. But in Great Britain, we know definitely that no decision has yet been taken on the question whether bulk state purchase of imports will be continued after the postwar transition period. A highly-placed official recently said confidentially to us that he did not believe that the present Government would or could make any decision. We believe this view is correct and we know definitely that there are serious differences of view on the subject within both ministerial and civil service circles. It seems hardly possible that a reconciliation of the viewpoints can be made within a coalition government and we think it most probable that the issue will be left undecided until after the next election.
In these circumstances, we do not believe that the negotiations on the contracts in question indicate any conscious attempt on the part of United Kingdom to set long-term policy in a new direction. They are rather a spillover of wartime measures in an attempt to provide against an expected immediate postwar boom. This is as far as United Kingdom wants to go but the Dominions want to extend the measures to take account of the expected postwar slump also.
We agree, however, that the whole matter requires careful consideration in the light of the Article VII conversations and of Article VIII of the Anglo-American Trade Agreement, since measures intended for the transition only may at a later stage influence long-term policy.
The United Kingdom position in the negotiations on the contracts was cleared at the ministerial level before the negotiations were entered into and British officials do not believe that their policy conflicts with the substance of the Article VII talks. It appears from our conversations here that both in United Kingdom and in the Dominions, insufficient attention has been given to the point that the longer a contract runs the greater the likelihood that relative costs in different producing areas will change and that in the later period of the contract, low cost producers in outside areas will be excluded from important markets, and thus the principle stated in the last sentence of paragraph 1 of Article VIII of the United States–United Kingdom Trade Agreement will not be adhered to.
Another aspect of this question that came up recently in a personal conversation with a leading civil servant here is the attitude of the European Allies towards what may appear to be a policy of purchase in advance on a large scale by one country only of certain scarce foodstuffs of which the world supply is extremely limited. The United Kingdom position is apparently that such contracts are made by them subject to allocations of the Combined Food Board. Here [Page 52] again the British feel that it is all important to prevent a fall in overseas production of such foods and that in so far as such contracts do this they benefit all concerned in a period of anticipated future scarcity.
A further message will be sent as soon as a reply is received from the appropriate Foreign Office officials. We should appreciate having this message circulated to all those concerned with Article VII discussions since it contains an advance statement of some materials that were being prepared for their information.