841.51/8–647: Telegram

The Secretary of State to the Embassy in the United Kingdom

top secret

3364. From Wood. Following Top Secret letter received Sect [Secretary] from Balfour 7:25 p. m., EDT, August 5:

“I have been instructed to notify you that in the debate in the House of Commons on the 6th August, His Majesty’s Government in the United Kingdom will announce that they have decided that they must make an immediate and substantial reduction in their purchases of foodstuffs from hard currency areas. They are, therefore, making a reduction in the rate of these purchases of the order of £12,000,000. [Page 51] (twelve million pounds sterling) a month. Such a reduced rate of buying from hard currency sources will mean that they will completely stop the buying from those sources of luxury foods. Bulk long term contracts for staple foodstuffs from these areas will not be interfered with.

The effect of this decision on the level of distribution of foodstuffs in the immediate future will depend upon a number of factors. The first is the degree to which His Majesty’s Government are able to buy their foodstuffs from soft currency sources. So far as these soft currency sources are, all things considered, more favorable from the commercial point of view, the question of discrimination under Article 9 of the Loan Agreement will not, of course, arise. Where, however, such purchases cannot be justified under the Loan Agreement, His Majesty’s Government will be exploring the situation with the United States Government to see what steps can be taken to enable them to obtain supplies from soft currency areas. A second factor will be the length of time for which this policy must be continued.

In asking me to inform you of the above-mentioned statement, which will give an account of the effect of this policy on rationing in the immediate future, His Majesty’s Government are confident that the United States Government are fully aware of the reasons that have led them to take these steps. They emphasize that the application of this policy will involve no unilateral breach by His Majesty’s Government of Article 9 of the Loan Agreement. Such questions as involve Article 9 will, of course, come within the scope of the forthcoming official talks.”

Following draft of reply which intended give them formally August 6 handed informally to Magowan and Hutton1 midnight EDT August 5 with request they transmit urgently British Government:

“I refer to your letter to me of August 5th in which you inform me of your government’s decision to announce in Parliament on August 6th the reduction by £12,000,000 monthly of purchases of foodstuffs in hard currency areas.

I am happy to note your statement that the application of the policy which the British Government proposes to announce will involve no breach of Article 9 of the Anglo-American Financial Agreement.

I shall, of course, be questioned by the press and public as to the effect of this announcement on the Loan Agreement. Until we have a fuller understanding as to the specific measures your government proposes to adopt, it seems appropriate to limit my replies to a general statement to the effect that your government has advised me that no breach of the agreement will be involved.

It is my understanding, of course, that all matters of interpretation relative to the Loan Agreement will continue to be the subject of discussion and mutual agreement between our two governments.”

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When we handed draft reply2 to Magowan and Hutton, we advised them in following sense:

That it was a draft of letter we proposed sending on August 6 and that it represented the only official statement we felt we could make at this time.
That there were certain points raised by British letter which gave us some concern and that we believed it desirable to indicate them in most unofficial manner. We stressed that our unofficial comments should not be considered as US position nor as a suggestion to British as to manner in which they should handle this matter under difficult circumstances confronting them at home.
British letter seemed to contradict itself. Although it stated that policy to be announced would not involve a breach of loan agreement, this was hard to reconcile with statement that reduction in buying from hard currency sources of luxury foods would completely stop. We suggested that if purchases from hard currency sources of these items was completely stopped, it would result in breach of Article 9 of agreement. British pointed out that ways and means might be found to avoid this, particularly if intended cut imports and consumption in these items was drastic enough. We repeated here that we were accepting their statement that there would be no breach, despite our qualms.
We expressed view that if Attlee3 states or implies publicly that there will be a 12 million pound monthly reduction in purchases of “luxury foods”, the public reaction in this country might be bad. The implications involved in this might leave British open to charge that they have been frittering away large parts of loan on luxury items. British agreed on this point and are apparently suggesting to London that terminology “less essential” be substituted for “luxury”.
In response to direct inquiry British assured us that existence of soft currency was not among commercial considerations although it was mutually agreed that no meeting of minds had been reached on elements involved commercial considerations and hence matter for further consultation.
British on most confidential basis listed hard currency countries as Canada, U.S., Argentina, Brazil, Paraguay, Uruguay, possibly Cuba with Switzerland special case.

[Page 53]

British emphasized throughout that they were speaking unofficially and without complete information.

Repeated to Paris for Clayton and Douglas 2912; repeated to Geneva for Wilcox 957.

  1. Maurice I. Hutton, head of the British Mission in the United States.
  2. The telegraphed text of Secretary Marshall’s proposed reply to the British Chargé Sir John Balfour, is substantially that which was made on August 6. The final paragraph of the latter follows: “It must be understood that I can make no commitment at this time other than to explore the situation with your government at the forthcoming official talks which you have requested and that all matters of interpretation relative to the Anglo-American Financial Agreement will continue to be subject to mutual agreement between our two governments.” (841.51/8–647)
  3. Clement Richard Attlee, British Prime Minister.