Foreign Relations of the United States, 1948, Western Europe, Volume III

Berlin Mission Files: Lot F–169: Box 34

Department of State Policy Statement ¹

secret

Washington , June 11, 1948.

Great Britain

a. objectives

The basic objectives of US policy toward Britain are to obtain maximum British cooperation in the establishment and maintenance of a just and lasting peace and in the protection of our national interest. It is our dual objective that peace shall be maintained by cooperation with other like-minded nations, of which Britain is the outstanding example, through the United Nations or other broad international machinery, and that we shall have informal working arrangements with the United Kingdom which can be immediately implemented, if necessary, for defensive purposes to maintain the peace and protect our national interest.

British friendship and cooperation is not only desirable in the United Nations and in dealing with the Soviets; it is necessary for American defense. The United Kingdom, the Dominions, Colonies and Dependencies, form a world-wide network of strategically located territories of great military value, which have served as defensive outposts and as bridgeheads for operations. Subject to our general policy of favoring eventual self-determination of peoples, it is our objective that the integrity of this area be maintained; that the United Kingdom retain control of her outlying possessions; that any retrenchment which she may have to make shall take place in an orderly manner; and that territory over which she may relinquish control shall not fall into less friendly hands.

As a defensive measure, it is our object to continue to develop, on an informal basis, wartime cooperative military arrangements with the United Kingdom, particularly as they relate to the exchange of information, the exchange of officers’ training, arms standardization, and the mutual use of each other’s naval and air ports.

The United Kingdom, with its Labour Government and its respect for individual liberty, is well fitted to counteract Soviet propaganda and, because of its historic position, is suited to take a leading part in the unification of Western Europe into a prosperous whole. It is our objective that the peoples of the UK shall continue to be devoted to the democratic ideals of life and that the UK shall continue to take a leading part in the Western European Union.²

The policies and actions of no other country in the world, with the possible exception of the USSR, are of greater importance to us. It is our objective that the United Kingdom shall have a viable economy and adequate standard of living and with sufficient margin to permit her to play her full part in maintaining overseas commitments, either individually or jointly with the United States or in accord with the United Nations, to maintain the peace.

b. policy issues

Our general policies with respect to the United Kingdom are implemented with the realization that when working closely together with unity of purpose, the United States, the United Kingdom, and the Commonwealth constitute a presently unequalled force in international affairs. Their people have a common language, heritage, and legal system, devotion to the concepts of liberty and human rights, and paramount interests in the maintenance of peace. America and Britain, as presently constituted, are natural allies. Cooperation between the two governments in achieving coordination should be on a basis of equality. The bargaining power which its greater strength gives the United States must be used with restraint and tact since that course is better calculated to achieve our fundamental objectives.

While Anglo-American friendship is based on solid foundations, its maintenance and development require constant attention. This is especially true at present in view of the often expressed fear and resentment of the US in Britain, and similar feelings toward Britain in the United States. We seek to eradicate adverse British attitudes toward us and misconceptions about the US through a wide exchange of information, and by giving due weight to this factor in formulating American policies which affect British interests.

On the ideological level, the election of a socialist-labor government in Britain has strengthened that country’s domestic position vis-à-vis Soviet propaganda. A government of this type is not so vulnerable with its own people as a conservative regime might be to charges of reactionary prejudice against the Soviets, and a socialist flavor to its policies is a good antidote to Communist appeal abroad. While the US would not adopt for her own certain of the internal economic and social legislation which the British have adopted, it is not our policy to interfere with or attempt to direct the domestic legislation or policies of the democratically elected representatives of the British people.

1. Political

(a) Western European Union.—On January 22, 1948 Foreign Secretary Bevin proposed a Western European Union. While many points of his speech have still not been clarified, it appears that the UK favors a western European association stronger than an alliance but short of a confederation and that is not yet ready for any supra-national union. Among the difficulties for the United Kingdom in molding a strong western alliance is Britain’s particular concern over balancing its European commitments with Commonwealth ties. Furthermore, Britain’s own military resources are limited. She cannot speak for the Dominions on military matters, and it is obvious that the Benelux Pact would not be effective militarily without US support. On the political side, the British Labour Government has carefully stated its interest in a Socialist Europe but, as the Prime Minister has pointed out, the UK’s own preferences would not be forced on any country.

The conclusion of the 50-year mutual defense pact with France and the Benelux countries at Brussels on March 17 gave further substance to Foreign Secretary Bevin’s exposition. Britain desires Scandinavian support in all aspects of Western Union but realizes that Sweden’s position is a deterrent to unanimous Scandinavian approval of either political or military rapprochement. The UK will therefore concentrate on tying all three countries to it economically and attempting to secure Norwegian and Danish adherence to the Brussels Treaty. The outcome of the April 18 election in Italy may pave the way for Italy to join the Brussels Pact, a course which the US would favor. Further developments are necessary before the UK can contemplate participation of Spain.

The UK is aware that in the final analysis economic cooperation of the type envisaged by the US in Europe is dependent upon some degree of political union and the difficulties in the way of a genuine political union are of the first magnitude. The UK does not appear to have come to a decision about political union in western Europe, although it is not enthusiastic about such a development. The success of US efforts to achieve such a goal will depend on the extent of US participation in various plans for European unity, but above all, on the extent of military and political commitments for immediate and unqualified assistance in the face of aggression.

US policy has been not to exert pressure on the UK to lead the way to a political union but rather to exert pressure to secure the formation of a western alliance and the progressively closer integration of the western European countries in all fields. The steps taken to date are inadequate in the face of the Soviet threat, but the establishment of the permanent organization provided for in the Brussels Treaty is a good beginning. We are continuing to press the five parties, on the ERP analogy, to work out concrete plans for increasing their common defense with the means now available through standardization, integration, and coordination of production and supply, and only then to come to us for such residual assistance as may be necessary to supplement their maximum coordinated efforts.

(b) The United Nations.—Strong support of the United Nations and efforts to strengthen the organization so that it can effectively discharge its responsibilities are cardinal principles of British and American foreign policy. The US and UK, in general, have followed coordinated and consistent policies for these purposes. On matters of principle there have been no fundamental differences between the two governments: there have, of course, been occasional differences as to the procedure and solution to be adopted in individual cases. The Palestine problem is the major United Nations case to date in which the British and ourselves have taken radically differing positions.³ In the Security Council the only cases of any importance on which differences of opinion have arisen have been the Corfu case and the Anglo-Egyptian case.⁴ On these occasions considerations of national and Commonwealth prestige seem to have induced the British to take positions the soundness of which we questioned. These differences, however, did not develop into public disagreements.

In the economic and social fields, with relatively minor deviation, often arising from the British need for economy, the United Kingdom and the United States have pursued generally corresponding courses. We have also generally been in accord on trusteeship matters, although the UK, as a colonial power, has understandably taken at times a more conservative attitude than the US.

With regard to measures for strengthening the United Nations, more definite differences of approach and method have appeared. For example, during the 1947 General Assembly the British were lukewarm toward our proposal for the creation of the Interim Committee of the Assembly, which we looked upon as an important step forward in the strengthening of the organization. They were also not in sympathy with our position concerning modification of the veto and made efforts to induce us to withdraw our proposals on this subject.⁵ In both instances it is felt that the British were largely motivated by a wish to preserve their special privileges as a great power. Nevertheless, on the key political issues both in the Assembly and the Security Council where the lines have been tautly drawn between east and west, British support thus far has always been forthcoming in an effective way.

The continued coordination of the policies of the United States and the United Kingdom in respect to the United Nations is of great importance to our objectives in the realm of international organization. Bearing in mind the principles and purposes of the Charter, it has been our policy to support the United Kingdom and Commonwealth when under attack in the United Nations, both in order to strengthen our common efforts for peace and to maintain the position of the United Kingdom in world affairs. In general we have given the British full support on political matters, although in the earlier months of the United Nations when they were under attack (for instance, in the first Greek case), we sometimes assumed a moderating role. Following the enunciation of the Truman Doctrine, however, the US has perhaps been more aggressive than the United Kingdom and the latter has been more prone at times to play a moderating role, motivated partly by a desire to avoid a deepening of the split between the eastern and western powers in the United Nations.

(c) Germany.—The US regards as vital continued British partnership in the military occupation and administration of western Germany. UK withdrawal is not an imminent prospect. Following the breakdown of the CFM conference in December, and particularly since the London discussions on western Germany, the coincidence of US and UK views on Germany has become so marked as to obviate the likelihood of any serious differences arising in future discussions. The London talks revealed that the UK subscribed to US views on the type of federal political structure envisaged for Germany.⁶ And, while the UK favored much stricter international control of Ruhr industries, it was prepared to accept the more restricted formula of international supervision agreed upon in London. Theoretically, there is a difference over the issue of public ownership of Ruhr industries, but although the British have reiterated their devotion to socialization, they have in practice agreed to shelve the issue.⁷

Like the US, the UK recognizes the economic interdependence between Germany and the other European countries, and the relation between German recovery and European prosperity. At the same time the British do not consider Germany as an important source of goods required to make up shortages at home, with the exception of steel scrap, timber and certain chemicals. In this respect, their position resembles that of the US, and differs from the Russian, and, to some extent, the French. For this and other reasons, including the fact that they were not occupied by Germany, they do not look upon the occupation as an opportunity for the economic exploitation of their zone. There are, however, certain differences in approach and interest between the UK and the US which tend to make for divergent policies. The British appear at times to be concerned with the competition of German export industries in world markets, which tends to conflict with their awareness of the importance of German recovery for European and British prosperity. While the latter is usually dominant, the fear of German competition at times influences the British position on specific issues. The UK shares the US conviction that financial reform is an urgent necessity. However, the British take the view that it would be better to allow the price level to grow up to the supply of purchasing power, while we prefer to cut down money supply to fit the price level. Although the British have officially abandoned their view, it still appears to influence their attitude on many points.

It may be expected that the British will seek to bring to the attention of the US Government issues on which they have been overruled by US occupation authorities, and that this conflict will have to be reconciled by US authority on a higher level.

(d) Italy and Trieste.—The attitude of the UK toward Italy still reflects some of the bitterness engendered by the anti-British policy of the Mussolini regime in the years immediately preceding the war and by memories of the UK’s single-handed and desperate struggle against the Italians and Germans in the North African desert and Mediterranean. During the past year, however, it appears that the British have realized the importance of supporting Italy both diplomatically and economically if the Italians are to remain oriented toward the western democracies. Due to this realization and the revival of historic ties of friendship between the two countries, the British are now much more inclined to pursue a policy in line with our objectives of giving the Italians every possible assistance and support for the purpose of restoring a strong and democratic Italy, which will not only be able to resist the attempts of the Communists to gain power in Italy, but will also add to the combined strength of the western European powers. While there still remain traces of enmity for Italy in some UK circles, it is considered that British policy toward Italy is now substantially the same as that of the US.⁸

US–UK policy with regard to the Italian colonies has not yet been fully determined with the exception that both powers are agreed on the importance of retaining Cyrenaica as a British base, in order to compensate strategically for British withdrawals from Palestine and Egypt. With regard to the other former Italian possessions, both governments have been somewhat inclined to favor Italian participation in their future administration. However, we share concern as to Italian ability to maintain order should the control of any of these colonies be returned to Italy, particularly in view of the limitations on Italian military forces imposed by the Peace Treaty.⁹

Toward the Free Territory of Trieste UK and US policies must of necessity be identical in application, in view of the fact that the US–UK Zone is under the joint administration of the two governments through the Combined Chiefs of Staff under whose orders the Commander of the UK–US Zone administers the territory. This arrangement is a continuation of the Combined Command organization which administered the Italian armistice prior to the coming into force of the Italian Peace Treaty. UK objectives in the Free Territory are in all respects substantially the same as those of the US, i.e., to prevent by all means the domination of the area by pro-communist elements and to work for the eventual return of Trieste to Italian sovereignty.¹⁰

(e) Spain.—The cornerstone of UK-Spanish relations is the strategic position of Spain and Gibraltar in the Mediterranean. The present political incompatibility of the two governments has disrupted, but not completely erased, an earlier pattern of friendly relations. Franco is impelled by isolation and the fear of Soviet influence to seek British friendship. The British Government needs Spanish imports and fears the chaos that might result from Franco’s overthrow, particularly the possibility of a “dictatorship of the proletariat” committed to furthering Soviet interests. The British Government has hoped that in time, if Spain is not jostled unwisely, a strong center coalition of Republicans, Socialists and liberal Monarchists might emerge, capable of replacing Franco bloodlessly. Although the British Foreign Office has been said frequently to desire a restoration of the Spanish monarchy, and some officials in it are confessed “monarchists,” there is no evidence that it is working toward such a solution.

The United States and the United Kingdom have virtually identical political and strategic interests in Spain and for this reason have frequently consulted in the past and sought to coordinate their actions. This has been true both of action within the United Nations and in relations between each of the two countries and Spain in the political and economic spheres. The British, however, have shown some reluctance toward moving in the direction of our current policy of reintegrating Spain economically, politically and militarily into the western European group of nations through the progressive normalization of Spanish relations with those countries and the United States. This reluctance is no doubt attributable to the fact that the Spanish question is still an important political issue for the Labour Government and Party in Britain, which is under strong anti-Franco pressure from its supporters. We failed to achieve an agreed position on Spain in the 1947 UN General Assembly, with the result that the UK voted in favor of reaffirming the 1946 General Assembly resolution on Spain, while the United States voted against such action. The British Government has taken a firm stand against the inclusion of Spain in the ERP, so long as the Franco regime remains, since it would cause, in the words of the Foreign Secretary, “a complete revolt in the Labour Party as well as amongst many conservatives who have bitter memories.” The British believe that the inclusion of Spain would also make the ERP “appear as a line-up behind Fascism” and any agreement to such action on their part would complicate their relations as well as ours with the Scandinavian and Benelux countries.

(f) Middle East.—Pursuant to our general objectives, it is our policy to maintain all possible harmony and collaboration in the conduct of United States and British policies with respect to economic and social affairs in the Middle East. In this field British and American policies are designed to achieve economic stability and development in the Middle East as a necessary basis for political stability in that area. It is of importance to us that the United Kingdom does not, on account of its current economic weakness, withdraw its stabilizing influence and assistance in economic and social affairs in this area so extensively and rapidly as to leave a vacuum which we cannot fill, and which therefore would be open to the penetration of influence antagonistic to American and British interests and objectives. In October 1947, extensive informal discussions of economic and social affairs in the Middle East, and US and UK policies in regard thereto, were held in Washington with representatives of the British Foreign Office.¹¹ The result of these discussions was to reveal the close accord between essential British and American national interests and official objectives in this field. It was made clear that British and American interests and objectives are best served by avoiding conflicts in policy and action in this field and promoting the closest practicable collaboration, without however implying in any way whatsoever allocation of spheres of interest or other exclusive Anglo-American policies.

The control of the Mediterranean is of great importance from the strategic and political point of view. With Greece and Turkey as eastern outposts against the Soviet Union, and with unsettled conditions in Palestine, the eastern Mediterranean might well become a focal point in any ensuing conflict. Assistance from British bases at Malta and Cyprus would of course be of great value. It is our desire that Britain shall be able to conclude successful arrangements for a base or bases in the area to compensate for those surrendered by the withdrawal of British troops from Egypt and Palestine. In this connection Cyrenaica and other areas of North Africa become of increasing importance.

(g) Greece.—The UK has traditionally regarded Greece as a bastion of the British position in the Mediterranean. Since the end of the war the United Kingdom has sought to preserve a political balance inside Greece against the rise of any dictatorship “save the sovereign will of the Greek people.” Britain’s continued participation in Greece is of importance to us.

The British defended the independence of Greece against the threat of Communist domination for nearly two and a half years after liberation. During this period the gross cost of Greece to the British reached a total of over $500,000,000. Unable to carry this financial burden, the British appealed to the US for such assistance as would prevent the collapse of Greece and counter the growing Soviet satellite aggressiveness and the spread of Communist-led guerrilla activities.

Ever since the assumption of responsibility in Greece by the US, the British have played a progressively secondary role in the internal and international affairs of Greece. Mainly because of US insistence on grounds of political and military desirability, British military and police missions and troops remain in Greece. While the British Government still reserves the freedom of withdrawing its troops from Greece “as soon as practicable,” it has indicated the intention of keeping its military personnel in Greece, with the approval of the Greek Government, until such time as the Soviet satellite threat to Greek independence is removed. While their role in Greece today is passive, the British military and police missions contribute substantially to a joint Anglo-American policy in the establishment of public order and the maintenance of political stability for the preservation of Greek independence.

One issue affecting Anglo-Greek relations is the question of Cyprus as a Greek national claim. The strong movement on the island for union with Greece has not, on the whole, interfered with the cordial relations of the Greek and British governments. However, the moment the Slav threat to Greek independence is removed, public opinion in Greece will press for a solution of the problem in favor of union. For the foreseeable future, however, the Colonial Office regards Cyprus, like Malta, for strategic reasons as an exception to the general rule of advancing colonial territories to complete self-government.

So long as Greece’s independence is at stake and Britain’s position in the eastern Mediterranean area is weakened, British foreign policy will rely on continued US cooperation and assistance in preserving peace and security in Greece.

(h) Far East.—There are no outstanding Far Eastern problems in US–UK relations which cannot be resolved in the normal course of negotiation. Our primary strategic position in the area is accepted by the UK as the foundation of its own position in the Pacific. And, despite some misgivings arising from the American eclipse of British prestige and commercial interests, UK economic and military weakness dictates present reliance on American initiative in that area. We welcome the re-establishment of British outposts in the Far East, particularly in Malaya and Singapore, but without commitment as to the maintenance of the status quo in that region. We regard with favor the liberal action of the UK in implementing its earlier pronouncements relative to the aspirations of colonial peoples for independence. Britain’s special position in Burma is not without advantages to the US so long as it does not compromise the development on a nondiscriminatory basis of US commercial interests. The UK has supported US policy regarding Korea.

In reference to the Japanese peace settlement, the British are pressing for an early peace treaty with Japan. In view of important divergences among the interested countries in reference both to procedure and substance and of possible disadvantages to the US in the light of the present world situation, we do not intend to press for an early treaty. Neither the US nor the UK, however, rule out a Japanese peace conference without Soviet participation. As to the content of the Japanese peace settlement in general, the British set great store on restricting Japan through limitations on merchant marine, the war-supporting industries and possibly textiles. In tactics, especially in the Far Eastern Commission, the British tend to support the positions of the Commonwealth governments, notably New Zealand and Australia, on matters where British interests will be served. UK representatives usually allow Commonwealth representatives to take the initiative in opposing US positions. In view of the fact that US and UK positions on most important issues emerging out of the occupation and peace settlement with Japan are reconcilable, and of the further fact of joint US–UK interest in the political stability and economic revival of the Far East, it is unlikely that the UK will refuse to go along with basic US decisions.

In China the historic roles of the UK and US have been reversed, with the US now taking the lead and the UK apparently happy to relinquish to us primary responsibility for policy determination as well as the uncomfortable position of chief target for easily-aroused Chinese xenophobia. UK reluctance to embark on a positive China policy has reflected the conviction that non-interference in Chinese affairs is the sole feasible course at this time, and that long-term UK interests will not be unduly impaired by the course of US action. In this position as temporary “silent partner,” it is likely that the UK will go along with any fundamental course of action which we adopt. At the same time, there is some sentiment favoring restoration of Britain’s formerly preeminent economic position in China and some resentment of US predominance. Aside from intensified commercial competition, the restoration of stable conditions would not be likely to pose any British challenge to the US position in China. Hongkong has assumed renewed importance as refuge and base of operations for British interests, and the British have taken a firm stand against Chinese attempts to whittle down their position. While retrocession is not an immediate prospect, we recognize that Hongkong remains a source of constant friction in Anglo-Chinese relations and that some accommodation must eventually be reached. The US position on this issue is not fully determined. Under present world circumstances the US favors retention of Hongkong by the British but its future attitude will depend upon developments in China and elsewhere.

(i) American Republics and the Caribbean.—There are, in general, no important sources of conflict between US and British policies in respect to the Latin American countries. The British, in general, recognize this area as one of predominant US influence. While the British relations with these countries are in some cases of considerable importance, in no substantial case are British interests pursued to the detriment of US interests. There are, however, specific cases of friction.

In the Argentine we have endeavored to assist the British in their negotiation of the Andes Agreement 1948 and in the trade negotiations in 1946. It is our feeling that we have been more helpful to the British in this area than they have been to us, but one reason for this is that in economic matters there have been fewer cases in which they might be helpful to us. However, in the case of the sale of military equipment, including jet planes to the Argentine, the British lacked frankness and were not cooperative to the extent that we felt they should have been. The British have liquidated large investments in the Argentine and Uruguay, in order to improve their financial position, and they attempt to justify their sale of military equipment in the area by their need for foreign exchange. It is US policy that these countries shall look to us for military equipment in accordance with the arms standardization and inter-American defense agreement.

The British colonies and dependencies in the Western Hemisphere have given rise to some disputes with American Republics who also claim sovereignty over certain of them. We have in general refrained from taking sides in these disputes and have favored settlement by mutual agreement or submission to arbitration. The US delegation refrained from voting on the Bogota resolution which “declares that it is just aspiration … that an end be put to colonialism and to occupation of American territories by extra continental countries” and creates a commission to find a solution.

With regard to the Falkland Islands, the US, while not questioning British possession, has in recent years avoided such public references to the subject as might be offensive to Argentine sensibilities.¹² The British Antarctic claim is related to the general problem of an Antarctic settlement. The British have suggested to Chile and Argentina that their conflicting claims be submitted to the International Court of Justice, which proposal has been refused. We are now formulating a proposal for a trusteeship arrangement for the continent, which we plan to discuss with the British.

The long-standing dispute between the UK and Guatemala over the status of British Honduras recently became active as a result of a determined campaign instigated by the Guatemalan Government. US participation was confined to discussing with both sides the actions and retaliations taken, and to counseling moderation.¹³ The British and Guatemalans have not been able to agree to the terms of reference for submitting the case to the International Court, and the Guatemalans maintain the frontier in a “closed” status pending “removal of British forces” which consist of 250 or 300 troops.

2. Economic

It is the policy of this government to encourage eliminations of trade barriers among the western European countries, including the possible formation of a customs union, or unions, or a free trade area. We believe, however, that greater emphasis should be put upon the economic coordination in many fields, which is essential to the achievement and successful operation of a customs union, than upon the actual development of such unions. However, the success of US support for British participation in such a move would depend partly upon whether or not the necessary arrangements between the United Kingdom and the other parts of the Empire involved further reductions in British preferential margins or eliminations of preference in the UK. Such a development would be consistent with our policy of opposition to the British preferential system on the grounds that, while it has some political and sentimental advantages to the United Kingdom in maintaining the bonds of Empire, its uneconomic aspects far outweigh any possible advantages. Perhaps more than any other single factor, imperial preference represents a source of friction in the commercial relations of the United States and the members of the British Commonwealth. It must be recognized that there are many obstacles and much preparatory work is required before any decision can be made regarding British participation in a European customs union. For example, the effects on the comparative industrial structures of the United Kingdom, France and Benelux need to be assessed.

(a) European Recovery Program.—The basic purpose of the European Recovery Program was to promote a joint effort by the European countries, with US assistance, to put Europe on a self-supporting basis. Progress toward the accomplishment of this objective will strengthen the democratic countries of western Europe politically and enable them better to resist Communist and other totalitarian pressures. The political aspects of the program are emphasized by the refusal of the Soviet Union and her satellites to participate. The Recovery Program has become a major means by which United States foreign policy hopes to assist Britain and other countries outside the iron curtain to rebuild their strength and retain their democratic form of government and their independence.

The ECA Act declares it is US policy to encourage the countries of Europe through a joint program of economic recovery to achieve independence of extraordinary outside assistance, to sustain principles of individual liberty, free institutions, and genuine independence through assistance to those countries which participate in a joint recovery program. In this joint recovery program Britain is probably the most important single country. Britain was the first to realize the implications of the program, and Bevin’s initiative in flying to Paris was as important in the formative stages as is Britain’s cooperation and leadership in its continuing success. Because of close British economic ties with the continent, Britain’s economic recovery is a major factor in the recovery of other countries, and without British economic recovery, the prospects of many other countries would be dim. The United Kingdom and its dependent territories will receive 40% of the world exports of the 16 western European countries and their dependent overseas territories during the fiscal year 1949, and will provide 37% of the imports to these countries. In order to assist Britain to accomplish this recovery and to meet its large dollar balance of payments deficit, the UK is expected to be allotted approximately 25% of the $5,300,000,000 authorized to be appropriated in the Economic Cooperation Act of 1948.

It is the position of the Department that the United States should make the following representations to the British Government with respect to the relationship between ECA and the sterling area:

(1) This government considers it to be in the interests of the United States that the multilateral trading and payments arrangement of the sterling area continue in existence, and that the UK play a leading role in the economic recovery of Europe.

(2) However, we regard as inconsistent with the objectives of the Economic Cooperation Act: substantial net transfers of capital from the UK to South Africa or to non-sterling area countries; allocations of dollars from ECA sources or from current UK earnings to independent sterling-area countries, except in very special circumstances; and large-scale “unrequited” exports to the same countries against accumulated sterling balances.

(3) We believe that for the fiscal year 1948–1949 the net dollar requirements of the independent sterling-area countries should be met out of the gold and dollar reserves of the UK, from the liquidation of foreign assets, and possibly from drawings of dollars from the International Monetary Fund and loans from the International Bank. If we are convinced that a sterling-area country is doing its best to minimize its net dollar requirements, and if we perceive no objection on other grounds, this government would be prepared to support the applications of such a country in the Fund or Bank.

(4) We have a strong interest in the early settlement of the sterling balances in accordance with the commitment undertaken by the UK in the Anglo-American Financial Agreement of December 6, 1945.¹⁴

(5) This government would welcome information from the British with respect to their estimates of the probable magnitude and direction of the prospective dollar drain to the independent sterling-area countries over the next two or three years.

(b) Trade Policy.—It is our policy to encourage the participation of the British Government in the program for the expansion of world trade and employment, of which the General Agreement on Tariffs and Trade and the Habana Charter for an International Trade Organization are the main features.¹⁵ The UK has participated in the negotiation of both these instruments and is committed thereby to a multilateral trade policy. However, these commitments represent an ideal to be attained in the future rather than a present reality, insofar as the United Kingdom is concerned. For example, the UK was unwilling to accept any limitation on its ability to discriminate in its import policy for the purpose of safeguarding its balance of payments, and agreement on the General Agreement on Tariffs and Trade was reached only after acceptance of a British proposal that rules for the non-discriminatory application of quantitative import restrictions would not apply until January 1, 1949.

In practice, the main features of the United Kingdom’s commercial policy at the present time are: (1) the strict limitation of imports into the United Kingdom including discrimination against dollar imports; (2) the negotiation of bilateral agreements with other countries to obtain needed imports and to expand British exports and ensure the best possible return for those exports; and (3) the obtaining of essential food supplies by inter-governmental bulk-purchase arrangements. It is our policy to seek the reversal or relaxation of all these practices as soon as conditions permit.

The control of imports to minimize the dollar drain has of necessity resulted in discrimination against imports from the US. In general, the measures taken up to the present time fall within the exceptions to the rule of non-discrimination agreed upon by the two governments in Section 9 of the Anglo-American Financial Agreement. It may, however, be necessary for us to relax somewhat our interpretation of this section, in the light of the provisions of General Agreements on Tariffs and Trade and the charter of the International Trade Organization.

While British officials have underlined the importance of recent bilateral trade agreements in maximizing trade in the short run, they apparently recognize that in fact such agreements may not have the desired result, and that they are undesirable as an instrument of permanent policy. Statements have been made by government officials that bilateral agreements will not be continued any longer than is necessary. The United States disapproves of these bilateral agreements in principle, and, while recognizing that they may be justified as temporary, emergency measures, concurs in the British position that their use should be discontinued as soon as conditions permit.

It has been agreed in the General Agreement on Tariffs and Trade and the ITO Charter that state-trading enterprises shall operate in a manner consistent with the general principles of non-discrimination prescribed for measures affecting exports and imports by private traders. Bulk-purchase agreements of the type which the United Kingdom has concluded tend, however, to give certain sellers privileged positions in the UK market and to give the UK preferred rights to certain products. We continue to oppose these agreements in principle when they are negotiated on a long-term basis.

It is clearly in our interest that the United Kingdom should receive all possible assistance in solving its balance of payments problem and in returning to a multilateral trade policy. Unless the United Kingdom is able to do this, the entire US effort to re-establish a multilateral world trade structure as expressed in the ITO Charter will fail, with potentially serious consequences for United States trade and world trade as a whole.

(c) Strategic Materials.—In connection with both regular industrial needs and for a strategic stock pile we have a direct interest in increased availability of strategic materials for which British colonies and dependencies constitute important sources of supply. Among these are manganese, chrome, and copper, which are produced in southern Rhodesia in important quantities as well as in certain other British territories, tin produced in Malaya, and industrial diamonds produced in significant quantities in certain British territories. There are besides other materials in those and other areas. The legislation enacted for the European Recovery Program provides for the extension of necessary assistance by the United States to encourage increased production of strategic materials in the cooperating countries and their territories, with a view to increasing the availability of these materials for the United States. Under the terms of this legislation it will be necessary for us to arrive at appropriate bilateral arrangements with the United Kingdom in this regard. It is important for the successful completion of such negotiations as well as for the service of continuing United States interests that the bilateral negotiations be not impaired by division of authority between the United Kingdom and the colonies and possessions, and that the British authorities stand prepared to cooperate effectively toward achievement of the purposes represented in this particular part of the legislation.

With respect to oil, American companies which receive their oil from sterling sources, particularly from Abadan and Haifa, have encountered difficulties because of regulations of the British Exchange Control prohibiting them from accepting sterling in payment for this oil sold in non-sterling areas. Inasmuch as British companies may accept sterling, this appears to be a discrimination against American companies. The problem has been solved, or partially solved, in some countries, but is acute for Palestine, Syria, and Lebanon, partially supplied by the Socony-Vacuum Oil Company from its share of Iraq oil refined at Haifa. Should Socony be forced to cease operations in these countries, which already are under-supplied, the countries may place the blame on the United States Government or on Socony-Vacuum Oil Company. The question of payment for oil arising in the sterling area is now under discussion between the US and UK governments.

[Here follow sections on British relations with the Soviet Union, France, and the Commonwealth.]

d. policy evaluation

The United States in its recent policies with the United Kingdom has succeeded in maintaining continued British cooperation and participation in various critical areas abroad, but in order to do this we have in at least three substantive cases, Germany, Greece and Trieste, been forced to assume a large share of the burden formerly carried by the British. In both the Near East and Far East, Britain has evidenced increased willingness or desire to shift her burdens to US shoulders. Although in none of these areas is there a basic difference in US–UK policy, we must see to it that the British do their full share toward the implementation of our agreed policies.

Concurrent with Britain’s realization of the futility of attempting to play a middle role, and with Britain’s role of increasing leadership in western Europe, there has been developing in the United Kingdom a feeling that the US will share responsibility for the direct consequences to the UK and other western European countries of any Soviet action in Europe aimed at undermining the new continental policy. The British realize that the US could not be expected to go beyond what Britain and the European countries would be prepared to do in regard to military aid among themselves; still, any suggestion that the US would accept less liability than themselves for consequences of Soviet action would bring disillusionment. It is believed that US assurances to Britain and other western European countries might be effected as part of a regional collective agreement under the United Nations Charter. In pursuing this policy of strengthening the United Kingdom and other western powers we must constantly keep in mind the apprehensions of the USSR. Soviet fears might become aroused to the breaking point, and we must exercise caution that as a result of precipitate action the Kremlin does not present us with a fait accompli in the form of new aggressions. In our policy of supporting the United Kingdom we must, while maintaining a firm position against Soviet encroachment, exercise care not to force the USSR into a position from which it cannot retreat.

In pursuance of our relations with the United Kingdom relative to USSR we must be careful to maintain close consultation with the British in order to promote reciprocity with them and in order to avoid any ground for suspicion by the British that we might enter into bilateral arrangements with the Soviets which would adversely affect the British position vis-à-vis the Soviets. On the other hand, we must be alert for any effort by the Soviet Union to drive a wedge between the United States and the United Kingdom. We must also watch for any British tendencies to yield on substantive issues in the face of Soviet pressure.

We must guard against any subterfuge by the Soviets designed to create a sense of false security in Britain and other western powers which would result in less determination to create a western union, political, economic, and military.

With regard to the United Nations, the most immediate problem with the British is to achieve agreement on the treatment of Palestine. On the longer term issues the question of principal importance is to come to a better understanding with the UK as to what measures are best suited to strengthen the United Nations.

1. Department of State Policy Statements were concise summaries of current United States policy toward a country or region, relations of that country or region with the principal powers, and the issues and trends in that country or region. The statements, which were generally prepared by ad hoc working groups in the responsible bureaus of the Department of State and were periodically revised, provided information and guidance for officers in missions abroad. No copy of the source text was retained in the central files of the Department.
2. For further documentation on United States interest in the Western European Union, see pp. 1 ff.
3. For documentation on the Palestine case at the United Nations, see volume v.
4. For documentation on the Anglo-Egyptian case before the Security Council in 1947, see Foreign Relations, 1947, vol. v, pp. 761 ff.
5. For documentation on the United States policy with regard to the United Nations, see ibid., vol. i, pp. 1 ff.
6. For documentation on the six-power London talks on Germany, see vol. ii, pp. 1 ff.
7. For documentation on the question of the International Control of the Ruhr, see ibid., pp. 448 ff.
8. For documentation on the U.S. policy toward Italy, see pp. 724 ff.
9. For documentation on the disposition of the former Italian Colonies, see pp. 891 ff.
10. For documentation on U.S.–U.K. joint administration of the Free Territory of Trieste, see pp. 502 ff.
11. For documentation on these discussions, see Foreign Relations, 1947, vol. v, pp. 485 ff.
12. For documentation relating to the Antarctic policy of the United States, see volume i, and Foreign Relations. 1947, vol. i, pp. 1043 ff.
13. For documentation on United States policy toward the Guatemalan-United Kingdom Controversy with respect to Belize, see vol. ix, pp. 81 ff.
14. For text, see Department of State, Treaties and Other International Acts Series (TIAS) No. 1545 or 60 Stat. (pt. 2) 1841. For related documentation, see Foreign Relations, 1945, vol. vi, pp. 1 ff.
15. For documentation relating to the United States attitude toward the General Agreement on Tariffs and Trade (GATT) and the International Trade Organization (ITO), see volume i.