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-United Kingdom Finance Committee¹²

[Extracts]

[Washington,] 19 November, 1945—2 p.m.

Present: Secretary Vinson (In the Chair)

U.S. Representatives				U.K. Representatives
Mr. Clayton				Lord Halifax
Mr. Amos Taylor				Lord Keynes
Mr. Eccles				Mr. Brand
Dr. White				Prof. Robbins
				Mr. Hall-Patch
				Mr. Harmer
Also Present				Also Present
Mr. Collado				Mr. Bareau
Mr. Hawkins
Mr. Knapp
	Mr. Coe	}	Joint Secretaries
	Mr. Lee

. . . . . . .

3. Discussion centered in the first instance on the question of the amount to be inserted in paragraph 1 (i) of the draft,¹³ concerning the size of the proposed credit.

Mr. Vinson said that he thought that the position in this respect was well known to the U.K. representatives and that it was not intended by the U.S. representatives that the proposal should be sent to London with no figure shown as the total credit. The U.K. proposal, as he understood it, was that the credit should be $4.5 billion inclusive of the amount required in connection with the Lend Lease settlement, whereas the U.S. view was that the amount should be $3.5 billion plus whatever amount was required in connection with the Lend Lease settlement.

Lord Keynes explained that, given the commitments into which the U.K. was expected to enter, as indicated in later paragraphs of the U.S. draft, the minimum amount of new money which the U.K. would require under the credit would be $4 billion. This would be exclusive of the amount required to wind-up Lend Lease and Reciprocal Aid, which had always been thought of as a figure up to $500 million: indeed the U.K. representatives had received instructions from London to the effect that any figure in excess of $500 million would be politically impracticable so far as the U.K. was concerned. In short, the instructions of the U.K. representatives were to ask for a credit of $4 billion of new money plus the sum required for the wind-up of Lend Lease and Reciprocal Aid on the basis that the payment on that account must not exceed $500 million. Secretary Vinson said this was new. He had thought that the U.K. request was for $4.5 billion, inclusive of Lend Lease and surplus. It had been so stated in the U.K. memorandum of November 12.¹⁴ Nothing had been said of a $500 million limit for Lend Lease and surplus goods. Mr. Eccles asked whether, in putting the requirement of new money at $4 billion, full account had been taken of the degree to which U.K. could expect to obtain assistance from countries other than the U.S. Lord Keynes and Professor Robbins replied that due account had been taken of such assistance. A sum of $4 billion represented the minimum amount of new money which the U.K. would require from the U.S.—after taking into account assistance from other countries—in order to assume the obligations of multilateral trade and to maintain adequate reserves, having regard to the magnitude of the estimated cumulative deficit in the U.K. balance of payments. Indeed that figure (which was a reduction from the earlier request for assistance of $5 billion plus the amount required to windup Lend Lease and Reciprocal Aid) had been based on estimates as to the rate of recovery of export trade which might well prove to be too optimistic. In reply to Dr. White, Lord Keynes said that, in making the calculations of the amount of assistance required from the U.S., Canada had been left out on both sides of the account. That was to say the U.K. representatives had assumed that assistance from Canada would be on a scale adequate to cover the cumulative adverse balance of payments with that country. There was no prospect that assistance from Canada could be obtained in excess of that amount.

Some discussion took place on the question of whether it would be possible to arrive at a settlement in respect of the winding-up of Lend Lease and Reciprocal Aid which would be within the limit of $500 million which had been stipulated by the authorities in London. It was agreed that this would have to be the subject of further discussion at the operating level, and that the position might be radically affected one way or another by whatever decision was taken on certain large U.K. claims aggregating over $250 million.

Lord Keynes said that no other question of importance arose on paragraphs 1 to 3 of the U.S. draft.¹⁵

4. On paragraph 4(i) (a)¹⁶ two points arose:

(a) the base amount for the waiver procedure was shown in the U.S. draft as £866 million. This was indeed the exact average of the value of U.K. imports during the years 1936–38. But the U.K. representatives had rounded this up to the closest £25 million, giving a figure of £875 million. They hoped that the U.S. representatives would be prepared to accept such a figure since this would give the U.K. a certain margin over the 1936–38 basis to the amount of about $72 million a year at current prices. If such a margin could be accorded it would be of material help in enabling the U.K. to refrain from the continuance of protective measures such as import restrictions which otherwise might appear essential.

Mr. Vinson said that he sympathised with the desire of Lord Keynes to see such a margin. But it would create an immediately unfavourable impression on hostile critics in Congress if it could be shown that a figure which purported to represent the average value of U.K. imports in 1936–38 was in fact too high by some £9 million a year. Rather than having such a risk it would be better for a purely arbitrary figure to be selected.

Lord Keynes said that he thought that on this matter the U.K. representatives must leave themselves in Mr. Vinson’s hands.

[Here follow paragraphs 4(b) and 5. Paragraph 5 contained a discussion of the United States proposal in its November 18 draft that a waiver of interest clause should not operate unless the United Kingdom reduced proportionately its payments on other loans contracted after January 1, 1945, and during the tenure of the Anglo-American agreement and its releases of sterling balances. The British objected to the retroactive application of this waiver requirement to agreements concluded in 1945 and said that the United Kingdom could not bind itself respecting agreements to be negotiated during the whole period of the United States credit. In a counter-proposal, the British suggested that the United Kingdom commit itself to obtaining waivers on similar terms for any financial assistance contracted for during 1946.¹⁷]

6. … The position of the U.K. representatives on this matter¹⁸ was that they would be prepared to consider a provision whereby any annual payments in respect of sterling area balances in excess of an amount of $150 million a year would not rank equal in priority to service on the U.S. credit and would have to be waived or deferred if the U.K. exercised the waiver in respect of the U.S. credit. They would equally be prepared to consider a proposal that the figure of $150 million should be amended to $175 million and the arrangement made applicable to payments in respect of other external sterling balances as well as those held by sterling area countries. It was necessary to emphasize, however, that there had been no consultation with the authorities in London in regard to such a provision, and it was not known what line they would take in regard to it.

The U.K. representatives could not, however, go further than this. They could not commit themselves to any form of words which directly or indirectly would prescribe a maximum amount which could be paid in respect of balances held by sterling area countries. The last sentence of paragraph 5 (ii) of the U.S. draft would in effect prescribe such a maximum, since its purport was that if payments in excess of $175 million a year were made to holders of sterling balances there must be a corresponding increase in payments on the U.S. credit. There had as yet been no negotiations with the holders of sterling balances and it would be quite out of the question for the U.K. to enter such negotiations—particularly with members of the sterling area—having previously agreed in negotiations with a third party to conditions which would have to be incorporated in any settlement reached and which would inevitably be regarded by the countries concerned as detrimental to their interests. From a constitutional standpoint it would be impossible for the Government of the U.K. to accept obligations which would directly affect the interests of Dominion Governments and the Government of India without full prior consultation with them. Therefore if the U.S. representatives pressed for the maintenance of their proposal it would be necessary for full consultation to take place with Dominion Governments and the Government of India, with the risk of very serious delay. It might be that such consultation would be necessary even in regard to the pari passu proposal which the U.K. representatives were ready to consider.¹⁹ But certainly consultation on that basis would be likely to involve less difficulty and delay than the proposal of the U.S. representatives. This was a political and constitutional issue on which it was impossible for the U.K. representatives to compromise; he hoped, therefore, that the U.S. representatives would be prepared to withdraw their proposal.

Mr. Clayton said that this question was a very difficult one for the American representatives also. He did not see how it would be possible for the Administration to persuade Congress to accept a settlement under which the U.K. would be left free to make payments to its sterling creditors considerably in excess of payments on the U.S. debt. The effect of such payments might well be to deplete the U.K. reserves with the result that the U.K. would be forced nearer the position of having to seek a waiver of interest payments to the U.S. In the eyes of the U.S. people the sterling obligations represented to a very large degree debts in respect of supplies and services which had been required for the winning of the war and which ought therefore to have been made available to the U.K. on a basis analogous to Lend Lease.²⁰ In some cases, too, the obligations had been swollen by reason of inflated prices charged for such supplies and services. It was fundamental to the U.S. position that they should be able to assure Congress that the U.S. credit was not being used to redeem such obligations, that there would be some form of limitation on the amount which the U.K. should pay in respect of these obligations in relation to the amount paid on the U.S. credit, and that in any year when the U.K. exercised its rights of waiver hi respect of the U.S. credit a similar waiver should operate in respect of payments being made to sterling creditors. It had been the hope of the U.S. representatives that the form of wording now proposed in clause 5 (ii) of the U.S. draft—which did not directly impose any ceiling on the amounts which the U.K. might pay to the sterling creditors but stated that to the extent that those amounts exceeded $175 million a year there should be a corresponding increase to payments on the U.S. credit—would provide a way round the difficulties to which Lord Keynes had referred.

Lord Keynes and Professor Bobbins said that they fully appreciated the spirit in which the revised U.S. draft had been put forward but they feared that the formula proposed in paragraph 5 (ii) was not acceptable. The U.K. would not in practice be able to increase its payments on the U.S. credit and the figure of $175 million mentioned in that paragraph would therefore be regarded as constituting a “ceiling”, imposed in advance of any negotiations, on the aggregate of the payments which the U.K. would be able to make in respect of its sterling obligations. The other points which Mr. Clayton had mentioned could be met by the provisions of paragraph 2 (ii) of the U.S. draft and by the proposed pari passu arrangement which the U.K. representatives were prepared to put to London for consideration. But they saw no possibility whatever of acceptance by the authorities in London of any provision in an agreement with the U.S. which set a limit to the amounts which the U.K. could pay in settlement of its sterling obligations. There was of course no divergence of interest in this matter between the U.S. and the U.K. It was in the interests of the U.K. that the amounts paid to the sterling creditors should be kept as low as possible. But for the U.K. to predetermine that issue in an agreement with a third party before any negotiations whatever had been begun with the countries concerned was a course which was quite out of the question: it would inevitably prejudice the negotiations and might jeopardise more fundamentally relations within the Commonwealth.

After considerable further discussion on this subject, the matter was finally left on the basis that the U.K. representatives would refer the issue to London and in doing so would indicate the importance which the U.S. representatives attached to the considerations mentioned by Mr. Clayton.²¹

. . . . . . .

12. These are agreed combined minutes. This was the fourth meeting of the Committee.
13. Reference is to a U.S. draft memorandum of understanding on financial matters, dated November 18, circulated at this meeting; not printed.
14. Not printed.
15. Reference is to the U.S. draft of November 18; not printed.

16. This paragraph was designed to set up an automatic figure for waiver of interest payments based partly upon whether Great Britain’s income was, on the average over the 5 preceding calendar years, less than the average annual value of its imports during 1936–1938, as adjusted for possible changes in the price level of these imports.

    At the previous meeting of this committee, November 15, the United States had proposed in a draft dated November 14, an automatic formula providing for deferment of annual payments, which the United Kingdom had rejected on the grounds that it involved excessive surveillance by the United States of the management of British economic affairs (611.4131/5–146, Folder 5).

17. For the ultimate resolution of this question, see paragraph 6 (ii) and (iii) of the Financial Agreement of December 6, Department of State, Treaties and Other International Acts Series No. 1545, or 60 Stat. (pt. 2) 1841. Also printed in Department of State Bulletin, December 9, 1945, p. 907.
18. The discussion at this point dealt with provisions in the U.S. draft of November 18 relating to limiting the resources used by the United Kingdom in servicing or releasing the accumulated sterling balances.
19. The pari passu proposal involved making payments respecting sterling area balances rank equally with service on the American credit.
20. At the first meeting of the Combined U.S.–U.K. Finance Committee, September 19, Mr. Clayton had made this comparison between lend-lease and the debts represented by the accumulated sterling balances, in pressing the British delegation for an indication of what part of the balances would be written off (611.4131/5–146, Folder 5).

21. Ultimately both the British plan for pari passu treatment and the U.S. proposal to limit directly sterling releases were dropped in favor of a general statement of understanding that the United Kingdom would not use the American credit to discharge obligations to third countries outstanding on the effective date of the agreement, paragraph 6 (i) of the Financial Agreement. At the eleventh meeting of the U.S. Financial Committee (611.4131/5–146, Folder 2), November 28, it was proposed and agreed that releases of sterling in excess of $175 million should not be deducted in calculating net income from invisible current transactions, see paragraph 5 (b) of the agreement.

    Both these provisions were embodied in the U.S. draft of November 30, paragraphs 5 (i) and 4 (b), pp. 175 and 174, respectively.