Foreign Relations of the United States, 1947, The Near East and Africa, Volume V

501.BB Palestine/11–447: Telegram

The Secretary of State to the United States Representative at the United Nations (Austin)

secret

Washington, November 6, 1947—6 p. m.

546. For Hilldring from Henderson and McGuire.¹ Dept favors working group’s revision (urtel 1146, Nov 4²) and feels strongly that this is only wording USDel should vote favorably upon. If rest of Subcommittee 1 accepts Guatemalan revision,³ USDel should reserve its position and introduce working group’s wording in full committee. Reference last para urtel⁴ Delegation should not attempt to influence wording any alternative proposal.

If necessary to defend position, USDel might state:

1. US Govt considers it an integral part of the UNSCOP proposals that measures should be taken to provide in so far as possible that both the Jewish and Arab States have the means for financial stability and a reasonable opportunity for economic progress. This conception was the basis for UNSCOP’s recommendation that there should be an economic union.

2. UNSCOP did not provide a detailed definition of economic union. The Jewish Agency has presented certain proposals regarding currency and customs which define economic union in a very limited way. In fact, the Agency proposals appear to be designed to establish economic separation. While in order to avoid delay in the submission of the whole report of the subcommittee, USDel has tentatively approved the Jewish Agency’s currency proposals, it intends to devote further study to them, and reserves the right to suggest changes at a later time if it becomes clear that the Agency’s proposals will endanger the financial stability of either state. In the meantime, USDel is not prepared to approve any change whatever in the specific UNSCOP proposal for an equal division of customs revenues, until such time as it becomes clear from experience that some other division is compatible with accomplishment of the objective of financial stability for both states.

Above position drafted in light of Dept’s understanding that USDel has already tentatively approved certain Jewish Agency currency proposals in modified form, and may not consider it feasible to retract this approval. However, Dept would prefer that US position on currency proposals also be formally reserved. If possible without serious embarrassment, Dept suggests that USDel take position that there is insufficient information available to permit any detailed elaboration of UNSCOP’s recommended objective of “a common currency”, and that such elaboration should be left to be worked out during the course of negotiations for the treaty of Economic Union.

Dept’s economic experts believe there is serious doubt that Arab State can be financially stable if it has to depend solely upon its own tax resources for governmental revenues and upon foreign exchange earnings from exports originating in the Arab State for all import requirements of that State. It would appear reasonable and compatible with UNSCOP concepts to provide for pooling of taxes and foreign exchange receipts and central import licensing for an initial period after political separation. An exception for gift capital remittances could be provided. If USDel feels it is incumbent upon US Govt to recommend a detailed plan for economic union at this time, State and Treasury will undertake to prepare such a plan in time for presentation to full Ad Hoc Committee. However, State and Treasury would be seriously handicapped by lack of info concerning economic effects of partition. It is in fact probable that the answer as to what form of economic union will be compatible with financial stability of both states can be derived only from experience, and that initially there should be a minimum of change from economic arrangements now in effect. I.e. the Joint Economic Board might take over the economic functions and procedures of the present Government of Palestine, but with instructions to work out procedures for a gradual transition to greater economic independence for the two states over a reasonable period of time. Dept would appreciate USDel’s comments on this approach. [Henderson and McGuire]

Marshall

1. Paul F. McGuire, Associate Chief of the Division of Financial Affairs.
2. Not printed; the revision read as follows: “After these obligations have been met in full, the surplus revenue from the customs and other common services shall be divided in the following manner: not less than 5 per cent and not more than 10 per cent to the City of Jerusalem, and the residue in equal proportion to the Jewish and the Arab States. At the end, of the first year, and every two years thereafter, the division shall be reviewable by the Joint Economic Board, which shall make such modifications as may be deemed necessary.” (501.BB Palestine/11–447)
3. Telegram 1146 reported this revision was “proposed by Guatemala in consultation with and to meet Jewish Agency’s views” and read the same as the revision above through the distribution of revenues to the City of Jerusalem. Thereafter it read: “and the residue shall be allocated to each state by the Joint Economic Board in a proportion to be decided each year. The Board shall take into account that no state shall receive a share higher than approximately four million pounds in excess of its net contribution to these revenues, but the amount granted may be adjusted by the board according to the price level in relation to the prices prevailing at the time of the establishment of the union.”
4. This paragraph gave the text of a compromise wording which was acceptable to the Jewish Agency.