Memorandum by the Chief of the Division of British Commonwealth Affairs ( Hickerson ) to the Under Secretary of State ( Stettinius )
Mr. Stettinius: In a meeting in your office last week you suggested that I give you a private memorandum commenting on certain aspects of the negotiations with the British Government in regard to lend-lease in phase 2.
I am deeply troubled over this matter. I am afraid that it is going to cause an explosion in public opinion when it becomes known that will adversely affect our relations with the United Kingdom for a long time. Let me make it clear at the outset that I recognize that it is in the interests of the United States, short term and long term, to have a post-war Britain that is as strong as she can be made. The United Kingdom is the best friend of the United States and no one in his right mind can visualize our two countries lining up on opposite sides in armed conflict. Of no other great power can this be said. In these parlous times that means a lot.
It is equally clear that it is in the best interests of the United States to extend the assistance necessary to bring about the restoration of what has been traditionally the best market for American goods.
The arrangement proposed for phase 2 would extend for the calendar year 1945 lend-lease assistance to the United Kingdom for military supplies to the extent of about 3 billion dollars and civilian supplies up to about 2.7 billion dollars. The negotiations have made it clear that the major part of this total amount is for economic reconstruction and expansion of British exports. It is not necessary to go into the question of whether this is a proper interpretation of the Lend-Lease Act. This question has been discussed for a long time and there are arguments on both sides. The President has apparently accepted the advice of those who feel that the Act can appropriately be used for such purchases.[Page 71]
I am deeply concerned over the question of whether an arrangement along the lines proposed with the United Kingdom for phase 2 can be made to stand up before Congress and public opinion in this country. If it does not meet with the approval of the people and the Congress it will have serious effects on relations between our two countries, even though the terms of the agreement could be carried out under existing appropriations.
When phase 2 begins as events unfold the public of this country may well regard the level of British military participation in the Pacific as small and minor and contrast this with the amount of lend-lease assistance extended to the United Kingdom. Let me say at once that the level of Britain’s military participation if regarded as small will not be the fault of the British Government or the British people but due to circumstances over which they have no control. They simply don’t have the land forces available to send any appreciable number into the Pacific. Their navy is already in existence and the amount of lend-lease assistance to help them on that score would probably not be large. I understand that our Chiefs of Staff feel that we have more naval vessels and planes now in the Pacific than we can service. None of this is the fault of the British Government but these are factors which may tend to cause the public to regard the amount of assistance proposed under phase 2 as out of all proportion to the British military effort in the Pacific.
Another factor in this situation which will make trouble for us is the unfunded sterling debt of about 12 billion dollars which Britain owes to various countries for goods and services obtained during the war. This overhanging debt is the most serious single handicap which the British Government faces in phase 2 or phase 3. In essence this money is owed to countries which have sold goods to Great Britain rather than furnish them under lend-lease or mutual aid as the United States and Canada have done. Over three-fourths of these sterling balances or more than 9 billion dollars is owed to countries of the British Commonwealth and Egypt. The British Government is proposing to repay these sums in goods and services. Meanwhile they are paying interest on the balances at the rate of 1%. In my opinion we will never be able to explain to the taxpayers of the United States why the American people should treat the United Kingdom more generously than the people of other parts of the Commonwealth and Egypt should treat the United Kingdom. That part of the proposed phase 2 lend-lease assistance other than the amounts actually needed for military supplies will be particularly vulnerable to attack on this score and invidious contrasts will be made between the way Britain is treating us and the way she is paying the Commonwealth.
Critics of this proposed arrangement will bring forward the figures on public debt increase in the two countries and will parade them [Page 72] and distort them perhaps to show we’ve carried more than our shark in the war. They will point out that in the five year period ending March 31, 1944 the British public debt increased by 136% to 19,593,000,000 while the United States federal debt increased 315% to 181 billion dollars. Since that time the gap has widened further.
The combination of all of these things may bring about an uproar which will result in a situation that will make U.S–U.K. relations after World War I (and God knows they were bad then) look like a love feast by comparison.
What can we ask the British to do for us? Frankly there isn’t much which we can accept from Great Britain. In the following paragraphs are a few things which we might endeavor to get them to do for us over the next few months in a series of separate agreements independent of the phase 2 agreement but making some reference in the preamble of the separate agreements to lend-lease assistance extended by the United States to the United Kingdom:
- Strategic bases. For security reasons I am dealing with this in a separate memorandum.49 There is very little we want from the British. It isn’t of great importance and would be a very small offset to phase 2. It has the advantage, however, that things of this sort cannot have a monetary value placed on them and it is capable of being dressed up somewhat.
- Article VII commitments were obtained in the provisional agreement of February 23, 1942. It would be an appropriate occasion to ask the British to renew this commitment in somewhat more definite terms. The British might be asked to give us a sort of blank check to insure that Britain will not be the obstacle to carrying out of the program set forth in Article VII. In other words the British should agree now that if we find it possible to move toward that objective they will go along with us step by step and that they will make it easier for us politically and not more difficult to move in that direction.
- We have certain objectives in the telecommunications field
which might now be taken up with Great Britain; they are:
- The lowest possible rates, including those on press messages, consistent with efficient operation and reasonable profits, between the United States and all parts of the British Commonwealth, such rates to be no higher than those on comparable messages between points within the Commonwealth;
- The right to establish direct circuits, both radio-telephone and radio-telegraph, between the United States and points in the British Commonwealth wherever more efficient service would be provided by such circuits;
- Agreement by the British not to obstruct our efforts to establish direct circuits with other countries (as they are now doing with Saudi Arabia).50
- Suitable commitments in this field might well be sought at this time.
- We should by all means at this time ask the British Government for an assurance that they will cooperate more effectively with the United States Government in relations with third countries. The phrasing of such a commitment presents certain difficulties but not insuperable ones. In Argentina for instance, if our policy is right it should not be necessary for us to have to go to the British with our hat in our hand and ask them not to renew the meat contract with the Argentine fascist government. To give the United Kingdom $2,700,000,000 worth of non-military lend-lease assistance for 1945, without regard to the way they have frustrated our policy in regard to Argentina is unthinkable. To be specific I recommend that we inform the British Government in these negotiations that we will expect them to consult with us in regard to policy in respect to Argentina and not to sign any purchase or commercial agreements, with Argentina during the period covered by the arrangement (that is 1945) without consultation with us and our agreement.
What does this all add up to? Not enough in my opinion to carry the load which is required. What is the alternative? The only one which I can see is this: give the British under phase 2 every dollar’s worth of military equipment and supplies which our Chiefs of Staff think is necessary to enable them to carry the maximum load which, the military situation in the Pacific will permit with due regard to, efficient military operations. Everything else they need for civilian supply and reconstruction should be furnished under a long-term, credit with an interest rate as low as we could possibly make it, say what we ourselves pay. The obligation to repay this should be spread out over a long period of time, as much as 50 years or even more. This obligation naturally could be repaid in the final analysis only in goods and services but I am convinced that it could be carried by British and United States economy without adverse effect. If, however, we should find that it could not be so carried after a reasonable, period of effort we could then reconsider the situation in the light of the circumstances then obtaining.
The comments of Lord Keynes and other British representatives have indicated that an arrangement like the one set forth in the, preceding paragraph would be unpalatable to the British Government. I believe that every effort should be made to convince them, that in their own interests they are wrong. If the British cannot be brought around to our way of thinking on this and the United States Government decides on an arrangement of the sort now under consideration for phase 2 (that is, large-scale lend-lease grants for-reconstruction as well as for military purposes) then it seems to me that the President should ask Congress to share the responsibility for this action. At least the President should call in leaders in Congress and tell them of the terrible plight in which the British Government [Page 74] finds itself and of the proposed solution and line up Congressional support in advance of a fixed commitment. It seems to me that it would be desirable for the British negotiators to be told that this will have to be done. As the Lend-Lease Act will come up for renewal in the spring, it would seem the height of folly to make a firm commitment to the British at this time to supply any fixed amount of non-military lend-lease during phase 2 without ascertaining the feeling of Congress even if sufficient funds are available from past appropriations.