ECA Telegram Files, FRC Acc. No. 53A278, Paris Torep: Circular telegram
The United States Special Representative in Europe (Harriman) to the ECA Missions in Europe
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Repto circular 232. 1. Purpose of this message is to bring you up to date on issues which have arisen between British on one hand and French, Belgians and ourselves on other in connection with preparation intra-European payments system for 1949–50. These issues will be submitted to OEEC council meeting at ministerial level on Wednesday afternoon June 29.
2. Consultative group of OEEC Ministers (executive committee members presided over by Spaak) met in Paris June 3 and 4. Unable reach agreement, group asked Ministers of UK, France, Belgium together with US representatives endeavor reach agreement on payments scheme which would (a) take care of special Belgian situation and (b) resolve disagreement which developed in payments committee as to transferability of drawing rights and conditional aid as well as convertibility into dollars of unused drawing rights. (Document ECE (49) 109.1)
3. Belgian problem arises from fact Belgian deficit with Western Hemisphere is estimated for 1949–50 at between 200 and 250 million dollars while Belgian trade surplus with participating countries for same period is estimated at 400 or more million dollars. On basis transferability of conditional aid and drawing rights, Belgians are willing to grant credits in Belgian francs to certain debtors up to equivalent 80 million dollars and perhaps up to 100 million on understanding they will be permitted earn dollars in excess of Western Hemisphere deficit to an amount equal to credits. This represents considerable progress in Belgian position and in our view would eliminate factors distorting competition and make possible fair competition basis prices and quality.
4. Most important issue, however, is transferability of drawing rights and hence of conditional aid. We believe such transferability of part of drawing rights and conditional aid—preferably at least 50 percent—essential in order permit intra-European trade break out of rigid bilateralism and for European prices and costs to feel salutary effects of competition.
5. UK continues oppose any payments scheme involving any element transferability of any part of conditional aid, claiming requirement of absolute certainty of dollar program including conditional aid. We feel marginal risk dollar loans to UK in proposal along lines of that [Page 404] made by French (see Paragraph 9) (estimated by OSR not to exceed $50 million at worst), is not unreasonable in return for development of Europe-wide market, competition and multilateral trade; especially since UK along with other creditors may gain rather than lose dollars by transferability.
6. UK willing accept transferability drawing rights only if such transfers involve no transfer of conditional aid. This seems to us unrealistic since it supposes countries willing accumulate sterling and other European currencies substantially without limit. Since they do not in fact appear prepared to do so, we feel such system would result in stringent exchange restrictions which would nullify any beneficial effects of elimination of quantitative restrictions. Also and more particularly it provides no incentives to cost-price competition.
7. We feel continuation present agreement would consolidate present rigid bilateralism and consequent trend toward increased self-sufficiency of participating countries. Unless this trend is checked investment and production planning will to a considerable extent merely add to vested interests protected by bilateralism and trade discrimination. Effect will be not only adverse to development of wide multilateral trading area with reduced barriers as among participating countries themselves but will also tend to bring about wider gap in productivity and costs and prices between dollar and non-dollar areas at end of ERP than at present.
8. A new agreement along lines UK proposal if feasible at all would involve similar dangers. To extent individual countries accepted implications such arrangement it would mean in effect development closed, high cost sterling area extended to include participating countries with self-perpetuating tendencies and widening gap between it and dollar area similar Paragraph 7.
9. Without commitment as to figures we are ready support arrangement along general lines French proposal which provides 60 percent bilateral drawing rights subject to change only by mutual agreement and 40 percent transferable with corresponding conditional aid dollars also transferable. Also provides for periodic review and revisions if necessary. Contains guaranty that participants would not impose more trade restrictions; in fact we would continue press for concurrent liberalization quantitative restrictions. Although French proposal provides for partial convertibility of unused drawing rights into dollars we have indicated willingness for present withdraw our insistence on this point to ease UK position but in such case require at least 50 percent drawing rights to be transferable.2
[Page 405]10. Issue is clearly of major importance. Although OEEC convention precludes OEEC action without unanimous vote, overwhelming majority support for principles of proposal along lines [garble] on Wednesday would be most helpful to permit us proceed along lines of that proposal unilaterally and at same time maintain substance as well as appearance of voluntary cooperation by Europeans. In fact if French proposal or something similar receives support of large majority council this would enable us to state that we are placing in effect our proposal pending what we hope will be early reaching of unanimity on part of participating countries.
11. In view of urgency of issues and timing involved, please arrange immediately discuss this situation with Minister who will represent your country at OEEC and impress upon him seriousness of situation and firmness of our position and report his reactions and views immediately.
Sent Washington, Paris, Brussels and London information only; action all other addressees.