Foreign Relations of the United States, 1947, The British Commonwealth; Europe, Volume III

FW 840.50 Recovery/10–2447

The CEEC Washington Delegation to the Participating Governments Not Represented in Washington¹

confidential
immediate

31st October, 1947.

32. The following is sent to all participating countries not represented in Washington at the request of Sir Oliver Franks.

The calendar of the main events since my second circular telegram was drafted (it was despatched from Washington on October 20th²) is as follows:—

a)	October 18th	Release of the Krug Committee Report.
b)	October 21st	Meeting with Bonesteel Committee3 on Commercial Policy.
c)	October 22nd	Meeting with Bonesteel Committee on European Organisation.
d)	October 23rd	Dinner with Mr. Harriman and members of his Committee.
e)	October 23rd	Announcement by Mr. Truman of convening of special session of Congress inter alia to consider immediate and longer term aid to Europe.
f)	October 24th	Meeting with Mr. Lovett.

2. Apart from the above, meetings of the Technical Committees with the American Administration have continued and have been supplemented by meetings between Technical Committees and the International Bank. The latter have asked questions additional to those already discussed in Washington, with the general objective of checking the basic assumptions and consistency of the recovery programme. They have naturally paid particular attention to those portions of the programme such as equipment needs which are likely to be of more direct concern to the Bank. These discussions with the Bank have not involved our approaching participating countries with additional questionnaires and it has been possible to answer most of the questions on the spot.

3. As requested at the second meeting held with the Bonesteel Committee to discuss the General Production Programme, a memorandum⁴ has been sent in to the Americans developing further examples of economic co-operation between the participating countries. You will receive copies. At meetings with the Food and Agriculture Committee the Americans queried import requirements of nitrogen fertilisers on the grounds that there was unused manufacturing capacity in the participating countries and that nitrogen production was being used for non-fertiliser purposes. Representatives of the Committee were sent to London where a meeting of interested countries was held to verify the facts. A report of the findings should shortly be available for the Americans.

4. The items in paragraph 1 will now be dealt with seriatim:

a) It will be recalled that the Krug Committee was set up by the President to review the natural resources of the United States with particular reference to the possible effects of their exploitation for foreign aid. President Truman himself summarised the contents of the report in the words “on the whole our national resources are physically sufficient to preserve the national security and the American standard of living and at the same time to support a considerable foreign aid programme.” When questioned by the press Mr. Krug admitted that in the writing of the report he had in mind a figure for foreign aid of up to 20 billion dollars. From the point of view of Marshall Aid the Krug Committee findings can be considered generally favourable but the report contains a number of reservations and did not set out to deal with all the relevant economic factors.

b) Commercial Policy. Since all the questions on the American agenda related to intra-European trade, Sir Oliver Franks opened by stressing the importance of viewing such trade in its proper relationship to the wider problem of the necessary expansion of European exports to the rest of the world. In the subsequent discussion Mr. Boland⁵ acted as the main spokesman of the C.E.E.C. group.

The Americans asked whether any distinction had been drawn in Paris between essential and non-essential goods in relation to intra-European trade. It was explained that certain exports were important for the economies of participating countries but that it was recognised that certain countries might not be able to afford to import as much as previously. Bilateral agreements helped to promote the exchange of useful goods and would continue to play a necessary part in the commercial policy of the participating countries.

A considerable part of the discussion was devoted to Customs Unions. American thought is clearly much pre-occupied with the extent to which the reduction or elimination of quantitative restrictions and tariffs might bring benefits to Europe through the creation of a larger domestic market and concentration of productive effort. They appreciate the magnitude and importance of the problem of European trade with the rest of the world, but perhaps not so clearly the limited extent to which Europe’s essential requirements from the rest of the world can be affected by a development of intra-European trade.

A question about restrictive business practices of a cartel character was not strongly pressed. The brief prepared for the C.E.E.C. replies will give further information on the whole subject and meeting.

c) European Organisation. In this case also please refer to the American questionnaire⁶ and the brief prepared for the delegates. M. Alphand acted as the main spokesman of the C.E.E.C. group and explained the functions of the proposed Joint Organisation on the lines set out in the General Report. The Americans agreed that it was not possible to clarify much further the form and functions of the organisation until more was known of the nature of American aid and any U.S. organisation which might be set up to deal with it. They however indicated that it would probably be of great assistance if the European organisation could make recommendations as to allocations of scarce supplies which were not covered by existing international bodies such as I.E.F.C. or E.C.O. We agreed with them that it would probably be desirable to continue to use these latter organisations for Marshall supplies. The Americans pointed out that they would probably find it necessary to reinstitute in the U.S. some export controls for scarce commodities, but emphasised their desire to maintain existing channels of trade.

We were asked how the Bizone would be represented on the new organisation but reserved our reply. Although the matter was discussed no effort was made to delimit responsibilities as between the new organisation and existing international organisations. Sir Oliver Franks in conclusion stressed that the former would be an advisory and not an executive body.

d) The dinner given by Mr. Harriman was attended by all the delegates and by nine members of his Committee. An unofficial agenda for discussion had been seen previously and covered a wide field. In fact the discussion after dinner centred exclusively on the different forms the aid might take and the conditions which might attach to the use of the local currency arising from the sale of the goods received under the aid programme. It was clear that the Harriman members were thinking of aid under three heads:

(i) short term consumer goods e.g. food, fuel and fertilisers;

(ii) intermediate goods e.g. raw materials and some types of machinery;

(iii) long term capital investment projects.

They were inclined to think that (i) should be dealt with by grants in aid, (iii) by loans, e.g. from the International Bank. As regards (ii) they felt that it was politically necessary that they should be offered something in return albeit on lines which did not impair the recovery programme. This “contrepartie” might take the form of some sort of control over or participation in the use of the local currency, e.g. for the purchase of strategic raw materials required by the U.S.A. in amounts in excess of their normal imports of such materials.

Replies by C.E.E.C. delegates mainly emphasised the political and economic difficulties inherent in the suggestions regarding category (ii) and particularly how essential it was that governments should retain full control over the local currency proceeds of aid although they were prepared to agree to limitations on their use to non-inflationary purposes on the lines laid down in the Report.

e) You will have seen the full text of President Truman’s statement over the radio on October 24th.⁷ We welcome the decision to call a special session of Congress on November 17th which will consider action to curb price increases, interim aid inter alia to France and Italy, and the speeding up of action on the Marshall proposals.

f) Sir Oliver Franks saw Mr. Lovett on October 22nd to pave the way for the meeting with delegates which took place on October 24th and to suggest that the discussion should cover major outstanding points of policy such as the amount and form of the aid and the proposed continuing European organisation. A brief memorandum on these subjects was left with Mr. Lovett on the 22nd and is being circulated to all participating countries.

During the discussion on October 24th Mr. Lovett indicated that the State Department would endeavour to secure adoption of the general lines of the Paris Report in an enabling act and would ask for an appropriation for 1948. He thought that some return would be required for part of the aid and reference was again made to strategic materials for stock-piling but not at the expense of normal trade. Whilst admitting that supplies from the rest of America were essential to European recovery, Mr. Lovett indicated that it would be politically very difficult for America to provide the full amount of dollars for such purchases. Finally Mr. Lovett pointed out that America would be taking a “calculated risk” in supplying large scale aid to Europe and they would want to know that the European countries were reciprocating by risking something in return—possibly by making some sacrifice of national customs and traditions. This was taken as a reference to the American desire for increased economic co-operation between the participating countries with perhaps particular reference to Customs Unions.

5. It seemed evident at the time of the Lovett conversation that the Administration had not yet reached its own decisions on major points of policy. As the meeting only lasted one hour it was not possible to do justice to these important matters. Accordingly at the suggestion of the Rapporteur General, a memorandum was agreed by the C.E.E.C. group and sent in to Mr. Lovett on October 27th. The memorandum once again emphasises the importance of not whittling down the total amount of aid and thereby converting the programme from one of Recovery to one of Relief, the importance of providing aid to the maximum possible extent in dollars available for the use throughout the American continent and the necessity to avoid conditions which would create future transfer problems or infringe national sovereignties (use of local currencies). As regards the latter point the document states:

“The conditions under which these funds may be used will vary from country to country. Consequently the arrangements which will have to be made governing the use of these funds will be different for each country and will lead to individual discussions.”

Finally the memorandum deals with the administration of the proposed aid and the form and functions of the continuing organisation. It is pointed out that the pledges undertaken by the participating countries are dependent on their obtaining not only in the U.S. but also in the whole American continent the raw materials, foodstuffs and equipment which are indispensable.

6. Every effort has been made both in the above memorandum (copies of which are being sent to all participating countries) and throughout the talks to keep within the terms and spirit of the Paris Report.

7. A meeting between delegates and some members of the Cabinet is likely to take place in the near future. Meanwhile the calling of the special session as early as November 17th and the impending publication of the Harriman and other Presidential Committee reports has thrown a considerable strain on the Administration and curtailed their time for discussion. There seems no reason to change the tentative opinion previously expressed that the work of the C.E.E.C. group would be likely to end by about November 8th. Some Technical Committee representatives may, however, need to stay longer.

8. This telegram is being sent by the Chairman to those participating countries not represented in Washington through the British Missions in the respective capitals, but copies are also being lodged with the representatives of the countries concerned in Washington.

9. Further developments will be reported.

1. The file copy bears the penned notation CEEC/W/43.
2. Not printed.
3. Transcript summaries of this and certain other meetings are in Lot 122.
4. A copy of this memorandum was printed as part of Advisory Steering Committee Document ASC D–7/3 (Supplement 1), October 31, 1947 (Lot 122).
5. F.H. Boland, a CEEC delegate representing Ireland.
6. The Advisory Steering Committee developed a series of questions which, in effect, formed the agenda for each of the meetings. Copies of these questions are in series 6 and 7 of the ASC Documents, copies of which are in Lot 122.
7. For references to this and related statements, see editorial note, p. 470.