Office of the Historian

940.50 Recovery/9–1147: Telegram

The Ambassador in France (Caffery) to the Secretary of State
secret
us urgent
Paris, September 11, 1947—5 p. m.

3696. For the Secretary and Lovett from Clayton, Caffery, and Douglas. We met yesterday evening with the Executive Committee to outline the key points of the Department’s circular telegram of September 7, 2 a. m.

We told them that we considered it highly desirable that the formal conference meeting be postponed pending further work on the report. In view of fact that meeting of Foreign Ministers had already been called for September 15, individual delegates had indicated to us that it would be politically impossible to postpone conference consideration (and probably adoption) of the report.

We then said that our examination of the draft report, plus Departmental scrutiny of conference documents, lead us to conclude that the report in its present form would, if adopted as final, produce an unfavorable impression in the United States and jeopardize the entire program. We strongly urged, therefore, that if it were necessary to issue a report on September 15, it should be so phrased as to clearly indicate that it was of a preliminary or tentative character. If transmitted in its present form, without clear explanation that there would be further work done on it, it was extremely doubtful whether the report could be regarded in the US as a workable program for European economic recovery. As a few examples of weaknesses in the proposed presentation we outlined the following:

1.
The balance of payments calculation included large financial provision for capital equipment. From the technical reports we had found that these totalled approximately $2 billion for such items as steel plants, power installations, oil refining and railroad equipment. These items appeared to be outside of the range of such short-term capital equipment as farm and mining machinery and they were properly the subject for consideration by the International Bank or private lending agencies but should not be presented in a form which carried the implication that the United States Government was expected to finance their cost. There were also capital equipment items under category of non-programmed items, outside the work of the technical committees, (approximately $2.5 billion) which had been included in balance of payments estimates submitted by individual countries.
2.
The petroleum estimates were prepared on the assumption of no gasoline rationing in Europe. Opponents in the US to the Marshall proposal would be certain to emphasize that the American taxpayer was being requested to pay for European “joy riding”.
3.
The food and agriculture report had failed to segregate commodity import requirements by sources of supply.
4.
The provisions regarding trade liberalization and financial stabilization were in vague form and needed to be “sharpened up” in order to clearly set forth that the participating countries were directing their efforts toward the objectives we had outlined. Chapter oil financial and fiscal reforms indicated that no steps could be taken until aid from US had been extended and until production had been substantially increased. This we said was quite unsatisfactory. Franks, after the meeting, told us that our comments in this respect had been most helpful since they strengthened his hand in having the chapter re-written with wholly different emphasis.

The five Executive Committee members then spoke individually and it became apparent that they had previously reached agreement on a joint position which may be summarized as follows:

1.
It is not possible to label the report as tentative or preliminary. Such an approach would indicate that the conference was a failure and political repercussions in Europe would be serious.
2.
The committee was prepared to indicate in the text that the report was “provisional” in some respects which could indicate that it was expected that some adjustments would be made but would not create the implication that it was to be replaced by a new report. In this connection it was necessary to keep in mind the importance of public reaction in Europe as well as in the US. The Scandinavian delegate (with Russia in mind) emphasized the political as well as the economic difficulties which had faced the conference in its work.
3.
A short period of delay would not permit a fundamental change in the structure of the report. It is recognized that the measure of agreement falls short of US essentials in some cases. The difficulties in part arise from the terms of reference of the Conference and in part from national decisions at a Cabinet level. To meet entirely the US conception of a program would require a change in the terms of reference and this would mean a new conference which might not include all of the countries participating in the present work.
4.
The Conference during the next few days is prepared to make such adjustments as appear desirable in the report short of major policy changes which would require decisions by the home governments. It is believed that these adjustments can meet some of our criticisms but there is no possibility of the present Conference agreeing on an integrated plan. In this connection, Sir Oliver Franks remarked that some people in the US Government apparently had in mind a form of “dirigisme” under which an overall control agency would plan and regulate the basic economic activity of the individual countries.
5.
The Conference was ready to prepare its report in a form which would clearly set forth that the Executive Committee, supported by groups of technicians, was prepared to go to Washington to mutually review the program with us and that the chairman be authorized to reconvene the Conference in the light of the Washington conversations.
6.
Sir Oliver Franks told us separately that it had been impossible to obtain agreement on a specific undertaking for the formation of a multilateral organization. He had, however, been able to bring the delegates to the point of agreeing on a statement recognizing that if [Page 423] the necessary means for carrying out the program are made available, it will be desirable for the participating countries mutually to consult together in order to review the plan’s execution and to insure an economic development leading to the realization of the general objectives to which they had pledged themselves.

We made two additional observations re unsatisfactory character of present report:

a.
The participants in calculating their requirements had failed to adhere to their agreed assumption of presentation on the basis of a standard of living which they expected to be able to maintain after 1951 without special outside assistance.
b.
The report indicates a considerably larger dollar deficit in 1948 than the actual deficit in 1946 and this would be viewed adversely in the US.

On the first point Sir Oliver said that part of the discrepancy had been corrected through elimination of mistakes and adoption of a more reasonable assumption regarding future terms of trade. On the second point he stated that the United Kingdom in 1946 was living on stocks; that it was a period of low industrial activity; and that prevailing commodity prices are much higher than those of 1946. We replied that in some continental countries stocks were being replenished in 1946 and that, in view of fact that we were talking about balance of payments, increased industrial activity should mean larger exports as well as larger imports.

Last night our Department advisers met with conference technicians to review in detail other technical weaknesses in the report.

Separate telegram follows of our conversation this morning with Franks and Hall-Patch.

Sent Department as 3696, repeated London as 722. [Clayton, Caffery, and Douglas.]

Caffery