Department of Defense Files

The Department of the Army to the United States Military Governor for Germany ( Clay )

top secret

WARX 88649. To Clay for Wilkinson from SAOAS. Following cable was prepared prior to your CC 85991 and we believe coincides in general with recommendations made at the end of your cable. You will see that you are given discretion to include 1A and 1B items with respect to goods already on order and to uncontracted goods within quantities listed in old 1948 agreement but not yet contracted for, although we express the hope that you can keep these to a minimum. Out [our] thinking here has been largely influenced by your and Gen Clay’s statements now confirmed in your reference cable that the total quantities of 1A and 1B items which are likely to move under 1948 agreement under this discretion would not be substantial. It is not intended in the following cable to try to direct your negotiations in detail, but is rather given as detailed account of our thinking for your guidance and help:

After thorough canvassing of the situation with Murphy and Draper and with approval of Sec Acheson and Acting Sec Gray2 as well as ECA, we agree with you that the 1948 agreement legally has [Page 770] lapsed, and give below our views as to the desirable course of negotiations on trade resumption:

Open with the part of the British proposed statement reading as follows:

“The trade agreement has been overtaken by time and events; by common consent it requires revision in order to take account of the passage of time; the changes in requirements in the two areas and the inescapable fact that there are now two currencies. There is nothing in the agreement reached between our governments as a result of the New York decisions which calls for the reestablishment of an agreement, the essential parts of which are, by common consent, unsuited to the existing conditions. The agreement calls for lifting of restrictions imposed since 1 March 1948. These restrictions have been lifted.”

Emphasize the recognized importance of getting the flow of trade going in things now mutually needed and available without waiting to complete the survey of the whole situation. Then suggest that the first thing to do (without the necessity of arguing about or of reaching agreement either denying or affirming the validity of the 1948 trade agreement), is to survey the trade list under the 1948 agreement as to items which each side still want under unfulfilled contracts, and to determine what items and quantities are now available toward meeting the same. As such items are found, the respective military governments (directly or through German organizations) should make efforts to create working arrangements for facilitating the prompt movement of such shipments and for interim payment arrangements where possible. The Western Zones would be willing to expedite all such efforts if the Soviet administration would do likewise. As to other items which appeared in the agreement for 1948 and within the quantities provided therein (after excluding the quantities already contracted for), you might propose that a similar survey and study of availability be made with a view to similar interim working arrangements. Consideration should also be given to developing similar interim working arrangements for additional available items which either the West or East particularly need, which are not covered by the 1948 agreement, which ought not to wait for the negotiation of a new general trade and payments agreement, and which are acceptable to the respective military governors (but which you will see from later discussion herein should include no 1A items).

The foregoing steps should not be delayed for the completion of a new general trade and payments agreement although exploratory work covering the future respective needs and availability should be begun as soon as possible looking toward the ultimate formulation and approval of such an agreement.

For your own guidance in executing such a program, if found acceptable to the British and French, it would be hoped here that the contemplated interim shipments under the unfulfilled contracts and shipments of uncontracted items and quantities provided for in the [Page 771] 1948 agreement, would if practicable not include items on the 1A and 1B list. However, it is recognized that complete screening of 1A and 1B items would be impracticable and that it may not be possible for other reasons to avoid the inclusion of some such items. In view of the reported unsubstantial amounts of such items, particularly 1A, which appear likely to be involved you are authorized to use your discretion as to inclusion of 1A and 1B items when arranging for such shipments. This discretion is given on our understanding that the total shipments of such items will not be too substantial.

However, under new trade, either of individual items or under the proposed new trade agreement, no arrangements or authorization should be made which would require the inclusion of 1A items, and 1B items must be subject to the quantitative tests already provided under existing instructions. In other words, we are giving you discretion because of the present critical state of negotiation to include 1A and 1B items in reestablished trade which arises out of the lapsed 1948 trade agreement. On the other hand it is necessary as a broad principle and for the future in view of both national policy and statutory requirements that 1A items be excluded and 1B items be quantitatively tested in all other trade arrangements made.

You should therefore be careful in negotiating such other arrangements not to foreclose the exercise of your military government authority (by disapproval or otherwise) to exclude A and B items and to adopt such procedures as found appropriate to make this effective; or which would impair the ability of either the Trizone or a future German government to qualify for aid under the Economic Cooperation program in view of the statutory and policy conditions relating thereto. It should be made clear to the British and French that the exception giving you discretion as outlined above does not change the basic policy generally involved. Procedure suggested above does not in our opinion run contrary to New York agreement. Prior to March 1, 1948, trade took place under Berlin Trade Agreement approved by military governments and interzonal trade permits were issued only to cover transactions contemplated by that agreement. There therefore existed a clear pattern of a trade agreement approved by military governments on both sides and systems of control on either side as considered desirable by the respective military authorities. We do not consider that the New York agreement freezes either the content of a new trade and payments agreement, the old one having expired, or the details of the controls which either side considers necessary to implement it. The suggestion of the Russians that we guarantee performance under new trade arrangements (which we agree with you would be unacceptable) indicates that they do not consider that control arrangements on our side are unchangeable.

[Page 772]

With respect to interim arrangements no precedent exists and the main thing is a cooperative effort to get trade flowing again on a mutually acceptable basis. State is discussing this whole approach with British and French which you are authorized to do in Berlin in order quickly to arrive at Tripartite approach to the trade problem.

(State is repeating this msg to London and Paris.)

[ Voorhees ]
  1. Supra.
  2. Gordon Gray became Acting Secretary of the Army April 27, 1949.