740.00119 (Potsdam)/5–2446
No. 537
Briefing Book Paper
Phase II1 Commitments to the British
In the meeting between President Roosevelt and Prime Minister Churchill in Quebec in September 1944 the President agreed to the Prime Minister’s proposal that the U. K. should continue to receive lend-lease assistance following the defeat of Germany on a basis that would permit some reconversion in the United Kingdom from munitions to civilian production.2 The memorandum of November 25, 1944,3 from the American committee of Mr. Morgenthau, Mr. Stettinius and Mr. Crowley, reporting to President Roosevelt on the Phase II discussions, stated that the recommended program for the British Commonwealth of $2.7 billions for munitions and $2.8 billions for non-munitions “will make it possible for Britain and the United States, to release some manpower and resources for reconversion, easement of living standards, and a partial revival of exports”, and the press release of November 304 of the American committee spoke of the “partial and equitable reconversion” that would be likely in both the United States and the U. K. in Phase II. [Page 807] It was made clear in the discussions with the British and also pointed out in this memorandum of November 25 that the program was not a commitment and was “subject to the changing demands of strategy as well as to supply considerations and the usual considerations of procurement and allocation”.
Two issues have arisen recently as to the nature of these commitments. The War Department objected to furnishing certain munitions items on the ground that the British could produce them, either by maintaining present output in these lines or by reconverting to these lines rather than to civilian production. This question was the subject of extended discussions between the British military representatives and the War Department, and on May 28 the Prime Minister cabled to you on the matter.5 At a meeting in Judge Vinson’s office on June 4 the decision was reached that the War Department’s position was not in line with the understanding between President Roosevelt and the Prime Minister, and with the Phase II discussions. A letter to that effect has been sent to Secretary Stimson by Judge Vinson on June 136 and a cable from you to the Prime Minister is being cleared with the interested agencies of the U. S. Government. This cable will reassure the Prime Minister that the Phase II commitments about which he expressed concern would be carried out.7
[Page 808]A second question is whether the Phase II program discussed last fall referred to the deliveries that, subject to the reservations indicated above, would be made to the British in the first year of Phase II, or to the requisitions that would be accepted in the first year of Phase II. The first basis would, in view of the fact that the pipe line of supplies will decrease with a shift to a Phase II program much smaller than the Phase I program, call for the clearing of new requisitions in the first year of Phase II to a substantially smaller amount than the deliveries in that period. On the first basis the needed funds to take care of the “program” would be less by several hundred million dollars than the deliveries. The question whether the $2 billion for the British Commonwealth asked for in the FEA budget for 1946 is adequate to take care of the program hence hinges in large part on the point whether the Phase II program was intended to be on a requisition or a delivery basis. It is the position of the British that the program was on a requisition basis, and many officials in FEA hold to the same view, and in meetings and correspondence in early May 1945 FEA officials made statements to the British Supply Council that indicate FEA’s acceptance of the view that the program was intended to be on a requisition basis, and not on a delivery basis.
Regardless of that fact, however, recent developments in the British gold and dollar position are such that a program on a delivery basis is fully in accord with the spirit of the understandings in the Phase II discussions. The British at that time assumed that their net gold and dollar holdings, at $1,748 million on August 30, 1944, would decline by $265 million in the remaining four months of 1944, and by $620 million by the end of 1945. As a matter of fact, holdings as of April 30, 1945, were $1,795 million, an increase of nearly $50 million as compared with an estimated decrease of about $400 million. As a primary basis for the liberal policy of the United States in the Roosevelt–Churchill understanding and the Phase II discussions was the difficult financial position of the British, the failure of the gloomy British prophecies to materialize might have been regarded by the United States, had we wished, as a basis for reviewing the entire Phase II discussions.
If the Prime Minister claims that we are not carrying out the Phase II understanding, you may wish to call to his attention these developments in the British gold and dollar position.
- “Phase II” as applied to lend-lease signifies the period between the defeat of Germany and the surrender of Japan.↩
- The records of the Second Quebec Conference are scheduled for publication in a subsequent volume in this series. Concerning the lend-lease discussions which took place at Quebec, see H. Duncan Hall, North American Supply (London, 1955), p. 443.↩
- Not printed. Concerning the Anglo-American lend-lease discussions which took place in Washington in October–November 1944, see Leahy, I Was There, pp. 279–280; Hall, North American Supply, pp. 443–447; Roy F. Harrod, The Life of John Maynard Keynes (New York, 1951), pp. 586–591; William H. McNeill, Survey of International Affairs, 1939–1946: America, Britain, and Russia, Their Cooperation and Conflict, 1941–1946 (London, 1953), pp. 511–513; W. K. Hancock and M. M. Gowing, British War Economy (London, 1949), pp. 528–532; and the press release cited in footnote 4, infra.↩
- Text in Leland M. Goodrich and Marie J. Carroll, eds., Documents on American Foreign Relations, July 1944–June 1945 (Princeton, 1947), p. 140.↩
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The Churchill–Truman message referred to, as sent by the United States Military Attaché London, via Army channels, was as follows (Truman Papers):
“Prime Minister to President Truman. Personal and top secret. Number 57.
“I am distressed to have to bother you with this telegram when so many other graver matters are pending. But the machine has come to a standstill on the subject and it is felt on all sides here that the matter should be referred by me to you.
“2. When I met President Roosevelt at Quebec in September 1944, we both initialled an agreement about Lend-Lease after the defeat of Germany. In accordance with that agreement a detailed plan was worked out with your Administration by the Keynes–Sinclair Mission. It is on this basis that our production plans have been laid.
“3. I now hear that your War Department has told our people in Washington that they are expecting so large a cut in their forthcoming appropriations for the U. S. Air Corps that supplies to us must be drastically curtailed below the schedule of our requirements as agreed last autumn. These requirements were, of course, subject to subsequent modification in the light of changes in the strategical situation. I am hopeful that our requirements as agreed last autumn can now be reduced, but the details of the reduction depend upon discussions between our respective Chiefs of Staff, which will not have been completed before 31 May. Meanwhile I hope that your people can be told that the principles your predecessor and I agreed at Quebec still stand, and in particular that the appropriations given to your War Department will be enough to provide for our needs as finally worked out between us.”
A variant text of this message was transmitted to the Department of State by the British Embassy on May 29 (file No. 841.24/5–2945).
↩ - Enclosure to document No. 540.↩
- See document No. 540, footnote 2. For the reply which Truman finally made to Churchill’s message, see vol. ii, document No. 1181.↩