Foreign Relations of the United States, 1949, The Near East, South Asia, and Africa, Volume VI

848A.5151/1–549

Memorandum of Conversation, by the Assistant Secretary of State for Economic Affairs (Thorp)

[Washington,] January 5, 1949.

Participants:	Mr. Thorp, E
	Mr. Andrews, Minister, South African Legation
	Mr. Eustace, Counselor, South African Legation
	Mr. Horrocks, Commercial Attaché
	Mr. Baker, ED
	Mr. Lewis, CP
	Mr. Rosenson, FN
	Mr. Shullaw, BC
	Mr. Blankenheimer, Commerce
	Mr. Berkmeier, Commerce

Mr. Andrews called on me today at my request. I told him that this Government was fully appreciative of the situation which had prompted South Africa to impose import controls. I said, however, that there was one particular problem arising from the application of these controls which had caused a number of representations to be made to the Department and which we consider as a very serious matter. I said that I had reference to the effect of the controls on U.S. shipping. I told Mr. Andrews that however unintentional, the effect of the regulations was discriminatory against American shipping. I said that apart from considerations of principle we objected to the practical effect which these controls would have on our shipping services to South Africa. In no other case where controls had been imposed by a country in my experience had the effect been to virtually destroy existing shipping patterns.

I told Mr. Andrews that I did not feel a discussion would be useful until after he had had an opportunity to study the aide-mémoire summarizing our views which I then handed to him.¹ I explained that our Legation at Pretoria had been instructed to convey the same information to the South African Government.

Mr. Andrews in replying said that he was sure that we realized South Africa had applied import controls only with the utmost reluctance. He said that the matter of controls had really been initiated on August 10 when he had called on the Department to inform this Government that such controls might be necessary in the event that efforts on the part of the South African Government to discourage excessive buying by South African importers were unsuccessful. Mr. Andrews said that the question of saving dollar expenditures for freight charges was a part of the general savings which South Africa was attempting to effect through the import controls. He added that there was only one real solution to the problem and that was suggested in his conversation with Departmental officers on August 10.²

I replied that I believed I knew what he had reference to and that I felt that this might not necessarily be the answer to the problem since unless South Africa’s imbalance was a matter of extraordinarily temporary nature the action he referred to would be only a palliative. Mr. Andrews replied by saying that his idea was that if South Africa were to receive a loan it would be possible to modify certain aspects of the controls which had aroused complaints.

I said that while I was aware in general of the South African interest in this matter I did not feel myself in a position to discuss it. In any case I pointed out that we believe the question of the effect of the controls on shipping is a separate problem. Mr. Andrews told me as he was leaving that he had had instructions from his Government to make a formal request for an Export-Import Bank loan next week.

[Enclosure]

Aide-Mémoire

Reference is made to the Exchange Quota Regulations imposed by the Government of the Union of South Africa on November 5, 1948 and, in particular, to the effect of these regulations on shipping lines of the United States. The application of the regulations in such a manner as to require that dollar freight payments be deducted from the importer’s exchange quota will seriously impair the ability of the American shipping lines to continue the service which they have gone to such unusual efforts to build up and which has been of mutual benefit to the United States and South Africa. The adverse effect of the regulations is intensified by the announcement by shipping lines of certain other countries that they will accept payment in sterling or South African pounds, whereas under South African regulations such action is not permitted to American shipping lines.

This Government, therefore, has requested the American Legation at Pretoria to make strong representations to the Government of the Union of South Africa, stressing the concern which this Government feels at the effect the exchange regulations as presently applied will have on American shipping. Concern is prompted in the first instance by this Government’s strong conviction that artificial changes in shipping patterns brought about by exchange regulations are undesirable in principle and harmful to world trade, and that convertibility of exchange in the case of transport should be kept outside the exchange regulations.

This Government also feels that curtailment of American shipping may seriously impede prompt shipment to the Union of many essential manufactured goods and raw materials in short supply in the Union. Furthermore, such curtailment would have an adverse effect on South African exports to the United States, since the bulk of these exports is carried in American ships. Ships of other third countries do not maintain direct route to the United States and apparently have little interest in this trade. Therefore, should American shipping be forced to curtail or abandon operations as now seems imminent, the South African dollar position might be further weakened by the inability of the Union to maintain even the current level of exports to the United States during the period when it is understood that every effort is being made to increase such exports. Thus assured continuation of American shipping services should be in the interest of the Union’s economy from the long-term standpoint.

The American Legation at Pretoria has been informed by the Union authorities that in framing the regulations savings in dollar freights were visualized, but that no discrimination against American shipping was intended. In view of the actual discriminatory effect of the regulations, therefore, this Government fails to see the reason for the refusal of the Union Government to consider alleviatory measures.

The suggestion made by Dr. Holloway³ in conversations with members of the Legation staff in Pretoria to the effect that if South Africa were to obtain an Export-Import Bank loan it might be in a position to modify the restrictions, especially as they affect freight payments, has been noted. The apparent use of the exchange regulations as a lever to facilitate an Export-Import Bank loan has been most unfavorably received here.

The American Legation at Pretoria has been instructed to advance certain proposals to the Union Government which it is believed take cognizance of the South African dollar position and are entirely justified in the circumstances. This Government feels that the maintenance of shipping services is as essential to the economies of both our countries as the maintenance of import trade and that provision should be made at least to keep American shipping on a par with shipping of other third countries so far as any action of the Government of the Union of South Africa is concerned.

Washington, January 6, 1949.

1. The aide-mémoire, printed below, was dated January 6 and carried the marginal notation “Original handed to Minister Andrews by Mr. Thorp, 1/6/49 at 4 p. m.” This casts some doubt as to the accuracy of the January 5 date shown on the source text of this memorandum of conversation.
2. No memorandum of this conversation has been found in the Department of State files.
3. John Edward Holloway, South African Secretary for Finance.