Foreign Relations of the United States, Diplomatic Papers, 1945, The British Commonwealth, The Far East, Volume VI

611.4131/5–146

Minutes of a Meeting of the United States Top Committee

[Washington,] November 7, 1945—10 a.m.

Present:	Secretary Byrnes, Chairman
	Mr. Clayton
	Secretary Vinson
	Secretary Wallace
	Mr. Eccles
	Mr. McCabe
	Mr. Collado—Secretary General
	Mr. White
	Mr. Taylor
	Mr. Gardner
	Mr. Knapp
	Mr. Orchard
	Mr. Smithies

The Secretary of State opened the meeting by stating that he was very pleased to participate directly for the first time in the British negotiations and that he regretted that his absence from Washington and other duties had not made it possible for him to participate earlier. He called upon the Secretary of the Treasury to indicate the status of the financial negotiations.

Secretary Vinson summarized the background of the discussions, indicating that the British had originally come to Washington with the idea of getting financial aid in the amount of $6 billion in new money plus perhaps $500 million of lend-lease settlement. They had subsequently reduced this request to $5 billion plus the amount of lend-lease settlement.³ They had originally proposed to handle the blocked sterling accounts, which they estimated would amount to $14 billion, when the new exchange arrangements went into effect sometime in 1946, as follows: they would undertake to settle with non-sterling area countries approximately $2 billion of blocked sterling accounts against various British investments and other assets in those countries, reducing the amount relating to the sterling area proper to $12 billion. Of this they would propose one-third be cancelled as a contribution to the war—though not necessarily on a horizontal cut basis country by country. Of the remaining $8 billion, 10% or $800 million, would be made available in convertible funds at once and $7,200 million would be funded into long term non-interest bearing obligations. As these long term obligations were amortized, the proceeds would be made fully convertible.

The U.S. technical staff had carefully worked over available information on the balance of payments deficit and had discussed the matter at great length with the U.K. group. As against the lowest British estimate of 3–4 year deficit of about $5 billion, the U.S. technical staff estimated a range of $2.3 billion to $4.3 billion with a “most probable” figure of $3.3 billion. In view of these figures and after taking careful count of existing British gold and dollar balances and the possibility that the British would obtain funds in other countries, notably Canada, the U.S. finally offered to recommend a credit of $3.5 billion. There was some difference of opinion in the U.S. group with a number of people favoring an offer of $4 billion of new money from the U.S.

Secretary Vinson went on to discuss the terms of financial aid, pointing out that the British originally requested a grant and since then have tried to separate the amount into two or more parts or “tranches”, of which at least part would be interest free.⁴ The U.S. group had decided unanimously that interest must be charged on the entire amount of the credit although we were prepared to concede five years of grace and a clause permitting the deferment of payments in the years in which the British balance of payments was bad. With respect to years of grace the U.K. had originally wanted ten years but was prepared to accept our offer of five years. At the first U.K. wanted no deferment privileges; the latest paper requests them.⁵

Secretary Vinson summed up by stating that there were two principal financial problems before the U.S. group: the amount of the credit and the question of interest. A subsidiary financial question related to the financial terms to be imposed in connection with settlement of lend-lease and surplus disposal.

Secretary Vinson went on to state that at the last meeting he and Mr. Clayton had had with Lord Halifax and Lord Keynes, he had suggested that in addition to $3.5 billion of new money the Eximbank might hold open $250 million for use by the British if necessary on the so-called 3 (c) terms of 2⅜% and 30 years.⁶ He further stated that Governor Towers of the Bank of Canada had told him and Mr. White that the Canadians might be prepared to extend a credit of $1 billion U.S. dollars to the U.K.

Secretary Vinson recommended that the U.S. stand on our maximum offer of $3.5 billion and interest at 2% as we had previously proposed to the British.

Secretary Vinson then went on to discuss points 4 and 5 in the British paper relating to waiver and/or deferment of interest and principal. Although the British paper did not so indicate, Secretary Vinson and Mr. Clayton stated that the British had said that paragraph 4 was a “Washington” proposal and paragraph 5 an alternative “London” proposal. There ensued considerable discussion in the Committee regarding waiver vs. deferment and it was generally agreed that there should be no accumulation of interest on interest and that what everyone had in mind was that the payment of interest and amortization postponed in any particular year should be made in exactly the same amount at the end of the 55 year period. It was also agreed that the criteria listed by the British in paragraph 5, subsections a, b and c, were not satisfactory. It was finally agreed to pass this entire subject to the technical group for consideration and report.

With respect to one of the two principal points raised by Secretary Vinson—the question of interest—it was agreed that the U.S. Group would stand on its former position of interest at 2 percent on the entire amount of the credit actually drawn by the British with five years of grace and a deferment provision.

Mr. Clayton then expressed his views with respect to the amount of the credit. He pointed out that estimation of the balance of payments deficit involved a great many uncertainties, that it was necessary to look well into the future, that many small variations could cause a substantial difference in the total deficit, and that the whole process was highly speculative. The U.K. wants not an outright credit but a line of credit to be drawn against when needed. In view of the necessity of paying interest and making amortization payments, the U.K., a careful people, would not draw any more than necessary. The U.K. points out that it is being asked to revolutionize its world trading methods, that this involves many uncertainties, and that it must have a reserve. Mr. Clayton believed that the negotiation should end up with the amount of new money at $4 billion—that the U.K. would not accept less. He pointed out that the U.S. Group had had Congressional reactions in mind, and expressed the opinion that the difference between a line of credit of $3.5 billion and one of $4 billion would be regarded as relatively unimportant by the Congress. He doubted the advisability in view of the overall purpose of the economic negotiations of trying to squeeze the British down to $3.5 billion.

Secretary Vinson questioned whether the scope of British agreement on empire preferences and cartels would not disappoint the Congress and the public. Mr. Clayton stated that he was fully reconciled to the position on empire preferences and pointed out that the cartel problem was a very difficult one in which foreign views were very different from our own and on which there was a diversity of opinion within the United States. The understanding on empire preferences is:

“1. Import tariffs and preferences⁷ In the light of the principles set forth in Article VII of the mutual-aid agreement between the United States and the United Kingdom, the United States and the United Kingdom will, in the immediate future, enter into the multilateral negotiations envisaged in Comtrade 3⁸ for the substantial reduction of tariffs and for the elimination of tariff preferences, action for the elimina[tion] of tariff preferences being taken in conjunction with adequate measures for the substantial reduction of barriers to world trade, as part of the mutually advantageous international arrangements contemplated in Comtrade–1.

“It is agreed that as an initial step in the process of eliminating tariff preferences in the negotiations envisaged in Comtrade–3:

• “a. Existing international commitments will not be permitted to stand in the way of action agreed upon with respect to tariff preferences.
• “b. All negotiated reductions in most-favored-nation tariffs will operate automatically to reduce or eliminate margins of preference. (That is to say, in respect of any product on which the most-favored-nation rate is reduced or bound against increase in the negotiations, the margin of preference which may apply to such product may not exceed the margin by which the most-favored-nation rate, as reduced or bound against increase, exceeds the pre-agreement preferential rate.)
• “c. Margins of preference on any product will in no case be increased and no new preferences will be introduced.”

Mr. Eccles stated that the question of the amount of the credit turns on the justification to be made in selling the arrangements to the public and the Congress. He reviewed all the figures and indicated a belief that $3 billion was all the British actually needed.

Mr. White then stated that he had just received a document from Lord Keynes⁹ that suggested that while the British would go a long way towards convertibility with respect to the sterling area countries, they would not abandon their bilateral clearing agreements with other countries. Mr. Clayton emphasized his conviction that the discriminatory features of the bilateral agreements must be eliminated, and the sterling area dollar pool must be abolished. In his view the abolition of the dollar pool was much more important to U.S. exporters than the elimination of empire preference.

Mr. Clayton then pointed out that the earlier decision to offer $3.5 billion to the British had been a compromise in order to get forward. At that time he had urged $4 billion and the vote in the U.S. Financial Group had been 3 to 2 in favor of $4 billion. Since Secretary Vinson and Mr. Eccles had objected to the figure, he had changed his position with respect to the amount to be offered at that time, but had indicated his intention to press for $4 billion if the occasion arose.¹⁰ He felt that the amount of the line of credit is the easiest point on which to meet the British in the considerable number of points under discussion, that the British would actually only use $3–3.5 billion, and that it would be as easy to convince the Congress on the desirability of $4 billion as on $3.5 billion.¹¹

The Secretary of State then summed up the discussion as follows: The decision was to maintain the U.S. position on interest. From the point of view of public presentation the stipulation regarding interest would be helpful. In addition it should be stressed that this was a line of credit to be used only if necessary. With respect to amount the Group should first press fully with the British the question of handling of sterling convertibility, the sterling area dollar pool, and the status of the bilateral agreements.

During the meeting several references were made to the lend-lease settlements and the Secretary of State indicated his strong view that understanding should be readied at this time on the whole problem of lend-lease settlement so that no loose ends would be left for the future.

3. For Mr. Clayton’s explanation that the British request for $5 billion would include the amount for lend-lease settlement, see footnote 96, p. 155.
4. This idea had been formally advanced in a document entitled “U.K. Draft on Terms of Financial Agreement,” dated November 5, 1945 (611.4131/5–146, Folder 2, U.S. Fin. Document 4). In this draft, the British requested a sum of $4 billion, not including the amount for lend-lease settlement, of which $2 billion would be interest free. This proposal of two “tranches,” however, was abandoned in the next “U.K. Draft on Terms of Financial Agreement,” dated November 7 (611.4131/5–146, Folder 2, U.S. Fin. Document 7).
5. Reference here is to the draft of November 5.
6. Presumably reference is to an informal meeting of which no record has been found in Department files.
7. For previous version, see footnote 63, p. 138.
8. Document of the U.S.–U.K. Committee on Commercial Policy entitled “Procedure for Negotiating and Implementing the ‘Proposals for Consideration by an International Conference on Trade and Employment’” (Com/Trade–1), revised as of November 5; not printed. Com/Trade–1 in its final form, along with supplementary material, became “Proposals for Expansion of World Trade and Employment,” made public on December 6, and printed as Department of State publication 2411; also reprinted in Department of State Bulletin, December 9, 1945, p. 913, For Draft Combined Minutes of the United States—United Kingdom Committee on Commercial Policy, see p. 178.
9. Presumably reference is to the second draft of a document entitled “Sterling Area Arrangements”, dated November 7, 1945; not printed.
10. This had taken place at the fourth meeting of the U.S. Financial Committee, October 17 (611.4131/5–146, Folder 2).
11. At the fifth meeting of the U.S. Financial Committee on November 8, Mr. Clayton advocated the extension of a $4 billion credit to the British. Following discussion, Chairman Vinson put it to the Committee as a motion, which was defeated with State and Commerce in favor and Treasury and Federal Reserve opposed (611.4131/5–146, Folder 2).