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

Lot 60 D 137 Box 6

Minutes of the Eighty-Seventh Meeting of the National Advisory Council Staff Committee, Washington, D.C., September 10, 1947

Washington, September 10, 1947

secret

Participants:	Mr. Harold Glasser (Chairman), Treasury Department
	Mr. Walter M. Day, War Assets Administration, Visitor
	Mr. Norman T. Ness, State Department
	Mr. Paul H. Nitze, State Department
	Mr. Walter S. Surrey, State Department
	Mr. James Lewis, State Department
	Mr. Clarence I. Blau, Commerce Department
	Mr. John M. Cassels, Commerce Department
	Mr. Lewis Dembitz, Board of Governors, Federal Reserve System
	Mr. Frank M. Tamagna, Board of Governors, Federal Reserve System
	Mr. Charles R. Harley, Board of Governors, Federal Reserve System
	Mr. Hal Lary, Export-Import Bank
	Mr. Walter C. Louchheim, Jr., Securities and Exchange Commission
	Mr. John S. Hooker, International Bank
	Mr. Frank A. Southard, Jr., Treasury Department
	Mr. John S. Richards, Treasury Department
	Mr. Andrew M. Kamarck, Treasury Department
	Mr. Elting Arnold, Treasury Department
	Mr. M. E. Locker, Treasury Department
	Mr. George Bronz, Treasury Department
	Mr. William L. Hebbard, Treasury Department
	Mr. Allan J. Fisher, (Secretary), NAC Secretariat

[Here follows discussion of an unrelated topic.]

2. Prospective Problems Concerning the U.S.–U.K. Financial Agreement

The Chairman pointed out that both State Department and Treasury representatives in London had requested guidance from Washington on this matter and said that it was proposed that the Staff Committee send a paper along the lines of Staff Draft No. 152 to London.¹

The discussion brought out the following points among others:

(1) The British are apparently not considering consultations under Section 12, but an interpretation under Section 9 which would permit them to increase their purchases from third countries.

(2) Unilateral action by a creditor country to limit drawings on sterling accounts would be unobjectionable, whereas a formal agreement to such effect would probably constitute a violation of the Financial Agreement.

(3) If an arrangement is worked out whereby credit is extended to the British, there would be no objection under the terms of the Financial Agreement, but if an agreement is entered into to accumulate sterling, the question of violation of the Financial Agreement might be raised. In this connection, it was agreed that the Staff Committee should give further consideration to the Spanish and Portuguese cases which had previously been reviewed.

(4) The British may consider agreements for acquiring commodities now against the delivery of British goods several years hence. Such a proposal was made to Brazil but was finally rejected by the latter country. The credit aspect of such an arrangement would presumably be unobjectionable but question might be raised as to the attempts to provide an assured market for foreign goods in the United Kingdom and for British goods in the foreign country.

(5) The several discriminations which might be permissible within the framework of the Financial Agreement might result in permitting Britain to import a maximum of some $200 million worth of additional goods. While the magnitude of this addition appears relatively small, the political repercussions of failure to secure these imports would be serious.

(6) The evidence is inconclusive as to whether the British are more concerned about the future prospects of their trade than they are about the present emergency. A recent cable indicates that the British have presented schedules on preferences and, apparently, have gone far in meeting the United States position. Since the discussions between Mr. Clayton and Sir Stafford Cripps, the British Government has reviewed its position and is making concessions.²

(7) The legislative history of the language “exceptional cases” in Section 8 (ii) of the Financial Agreement indicates that a country-to-country basis was contemplated rather than exceptional circumstances in terms of time. However, it was felt that no position should be taken on this point at the present time.

(8) It would appear that under Article VIII of the Articles of Agreement, the British could request the International Monetary Fund’s permission to impose exchange controls. The British have not suggested such action and they may be reluctant to be the first to make such a request of the Fund. There are doubts as to whether Article VIII was intended to permit action of this character in view of Articles VII and XIV, and the Fund would probably be reluctant to grant permission. It was agreed that further consideration should be given to this point although it would not be included in the paper.

The SEC representative commented that the paper did not mention British assets in this country, which include excess collateral pledged with the Reconstruction Finance Corporation, unpledged securities, and substantial direct investments. The total of that type of potential relief would far exceed what might be made available under the conditions outlined in the paper. The Chairman pointed out that the paper had to do only with the United States policy with respect to the Financial Agreement and that there were various possibilities of relief outside of convertibility and trade which were not covered. It was agreed that the paper should indicate that no attempt was being made to reassess the financial position of the British at this time.

With respect to the conclusions to be presented in the paper, the Treasury Department representatives pointed out that so far as the convertibility section of the Agreement was concerned, no breach of the Financial Agreement was involved, since the British had agreed to try to work out a solution within the terms of the Agreement. Only if they were unsuccessful in such attempts would there be need for consultation under Section 12, say by November. The Treasury Department felt, however, that the proposed exchange of letters, with respect to Section 9, saying that because of changed circumstances it was necessary to interpret Section 9 in terms of the Financial Agreement as a whole, would be admitting a breach of the Agreement. The Treasury Department felt the Financial Agreement was unique and tightly drawn, and that it was dangerous to accede to an interpretation which might appear to have the effect of bringing about a modification of the Agreement in a way contrary to the procedure specifically provided for in Section 12. The Treasury Department therefore felt that the British should also try to live within the Agreement with respect to Section 9 and only if that proved to be impossible, should there be consultation under Section 12.

The State Department representatives felt that it was necessary to interpret the Agreement as a whole and that it was logical to interpret it in the light of the present situation, which would mean that the British could import commodities into Britain where they have means of payment in soft currencies, whereas if they were to apply Section 9 strictly, they would not be able to import because they have no dollars. They felt that a unilateral breach of the Agreement by the British would undermine the U.K.’s contractual stature internationally. State Department lawyers had pointed out that the Executive Branch has greater latitude in the interpretation of international treaties than it has with respect to domestic matters, but had gone on to say that in the present instance the question was political rather than legal. The State Department representatives further said that in view of the fact that Congress, or important Congressional committees, might be in session earlier than was previously anticipated, the State Department might wish to re-examine its position and might be inclined to go along with the Treasury position in the meantime, if Section 12 were in any case to be involved.

It was agreed that the State Department would either redraft the conclusions of the paper, or would state their position as an alternative for inclusion in the paper.³

3. Further Postponement of United Kingdom July 15 Obligations with Respect to Certain Countries

The Chairman referred to Staff Document No. 179⁴ which contained a proposed exchange of letters extending the postponement of the obligations of the United Kingdom under Sections 8 (ii) and 10 of the Anglo-American Financial Agreement from September 15 to November 15, 1947, for the fourteen countries which had been covered by the exchange of letters of July 14 and July 15, 1947. It was pointed out that the action taken on August 20, 1947, which related specifically to modification of the transferable account system, was not applicable to these fourteen countries.

The Staff Committee agreed to the proposal that the draft letters be communicated to Secretary Snyder for his consideration.

1. Not printed.
2. On July 31, in Paris, Under Secretary Clayton and Sir Stafford Cripps, British Minister of Economic Affairs, discussed the British critical dollar situation with regard to the ITO negotiations then in progress in Geneva. For documentation concerning U.S.–U.K. discussions and matters related to the proposed establishment of an International Trade Organization, see volume i .
3. In reporting on this meeting the Department informed the Embassy in London in telegram 3995, September 15, that “no agreement reached and alternative State and Treasury recommendations along above lines have been circulated today for indication of other agencies’ views. Alternatives with such indication will then be forwarded NAC London for decision.” (841.51/9–447)
4. Not printed, but see telegram 3944, supra.