Foreign Relations of the United States, 1949, National Security Affairs, Foreign Economic Policy, Volume I

560.AL/5–2449: Telegram

The Ambassador in the United Kingdom (Douglas) to the Secretary of State

secret

London, May 24, 1949—5 p. m.

2022. Embassy representative discussed South Africa discrimination with Burgess BOT Monday afternoon. Burgess in middle of discussions with Norval and Treasury representatives but stated talks still exploratory and no definite South African position has yet emerged. (Deptel 1772, May 21) Embassy represented US views as in Annecy 7, May 19¹ stressing seriousness US attitude which Burgess acknowledged.

Burgess indicated UK has no formal government position but outlined thinking among officials now hardening into conviction in general terms paragraph 8 Annecy A-12, May 13,² received today. He further argued that gold earnings European countries seeking dollar viability extraordinarily precious to them. Consequently if volume such earnings reduced by non-discrimination requirement they would be more reluctant purchase South African exports since every such purchase would reduce South African net gold payments to them. Result would be shrinkage in soft currency trade since UK and Europe unable maintain exports under non-discriminatory regime and South African exports such as wool, fruits and wines not saleable anywhere for dollars and must be sold against soft currencies or not at all. Consequence non-discrimination therefore general reduction volume South African trade.

From this analysis Burgess concludes that discrimination would result in trade volume greater than that attainable under non-discrimination. Technically therefore this discrimination within terms of GATT.

Embassy representative stated UK argument implied inability UK compete with US in third market and in their own interest British should not seek a protected trade area but should work toward reduced costs and prices. Burgess countered with observation that US apparently trying preserve accidental postwar trade pattern US exports to South Africa. Also expressed feeling that US hustling British too fast toward non-discrimination although British concur with ultimate goal.

Burgess confirmed considerable confusion between South African delegation Annecy and own government, indicating government anxious set up trade controls on strictly non-discriminatory basis. They feel strongly must be permitted buy in cheapest market, since important keep down cost of living and cost of gold production.

In general Burgess gave impression UK determined fight for maximum availability gold even if this involves discrimination against hard currencies in favor of soft. Denied UK pressure on South Africa in absence of any effective weapon and pressure seems to take the form of pointing out to South Africans UK conviction that strict nondiscrimination would force UK and western Europe countries to limit imports non-essentials from South Africa and restrict exports capital.

Burgess suggested timing South African action might be postponed, indicating that establishment import control will be more intricate problem than South Africans realize. However, UK press today reports speech by Acting Minister Capetown³ which seems to imply decision to impose differential restrictions has been made.

Sent Department 2022, repeated Annecy 6 for USDel GATT.

Douglas

1. Annecy telegram 129, to the Department, p. 680.
2. The essential point of a rather complicated paragraph was, that if the U.K. were not able to earn its traditional share of South African gold production via an import system favorable to the U.K., and plans for economic viability by 1952–1953 were thereby jeopardized, then Britain would be forced to reduce its imports from South Africa and restrict the flow of capital to South Africa (Annecy airgram A-12, May 13, 1949, 560.AL/5–1349).
3. Apparently the Acting Minister for Economic Affairs.