The Ambassador in the United Kingdom ( Douglas ) to the Secretary of State
3125. 1. Herewith second segment referred to in Embtel 3124 June 5.
2. This telegram deals with Schuman Plan in 3 parts.
(I) Fundamental elements of the plan itself, insofar as they have been disclosed publicly or privately; (II) Political advantages and [Page 721] disadvantages of proposal; (III) Economic merits of various elements of the plan, the difficulties in giving effect to some elements, and the abuses that might arise under it.
I. Plan contemplates the following:
- (a) Abolition of all customs duties among participating countries in respect of international movement of coal, coke, pig iron, steel and iron ore.
- (b) Prohibitions against any discrimination in freight rates.
- (c) Abolition of discriminatory export prices.
- (d) “Equalizing prices,” We are not certain what is meant by this phrase. It has been interpreted to me as meaning the establishment of a price structure by any particular plant (not industry) which, when increased by the freight rate to consignee, will not necessarily produce a price equal to that from all other plants.
- (e) Equalizing wages and working conditions in all participating countries.
Vesting in an international authority certain powers over production and investment in the steel, iron, coke, coal and iron ore mining industries, and over development of joint exports.
(We have been assured by the French that d, e, and f are not to be used for protective or restrictive purposes.)
- (g) Negotiation of a treaty which, when ratified by respective parliaments, would bind each participating country to principles and essential undertakings in a through f above.
- (h) Subsequent negotiation of details of implementation with assistance of a jointly-designated arbiter.
- (i) Establishment of a high authority (consisting, I understand, of 3 to 7 members) charged with responsibility of carrying out the terms of the treaty and deriving its powers from the signatory governments.
- (j) Members of this authority will not be representatives of national governments.
- (k) Provision for appeal against any decision of the authority when any power feels itself to be injured.
3. The declared aims of Schuman Plan are:
- (a) Eliminate age-old opposition between France and Germany.
- (b) Pool basic production as step toward establishment of an economic community, which in turn will create first concrete foundation for a European federation, itself indispensable for preservation of peace.
- (c) Modernize and expand coal and steel production and improve quality.
- (d) Help in development of African continent.
4. The plan attempts in no way to prejudge question of nationalization of industries.[Page 722]
II. Political advantages and disadvantages:
5. The political advantages of the plan are potentially tremendous, if its essential principles (at least a through c of part I) are retained in the final treaty and are implemented in practice:
- (a) The plan is the result of French creative leadership. Through this fact alone it has more chance of acceptance than any proposal, however good, which the US might suggest to Europe. Moreover, it should facilitate France’s resumption of continental leadership, which hitherto the US has had to look to a latterly somewhat reluctant Britain to carry.
- (b) It should abate, if not dispel, fears of recurrent Franco-German war, and thereby encourage France to acquiesce in increased economic strength of Germany, and, possibly at a later date, even in German military participation in Western defense. For last three quarters of century France’s fear of German aggression has been perhaps most serious obstacle to development of a unified continental Europe and has absorbed so much of France’s energies that she has been unable to play her full potential role in the world scene.
- (c) Through pooling of basic production in Germany, France, Benelux, and Italy, the plan should tend to weld Germany to the West and make it more difficult for Germany to play off West against East.
- (d) It should increase Western Europe’s basic economic strength and thereby its ability to withstand both economic and political pressure exerted by Soviet imperialism.
- (e) It should constitute an important first stage for a possible future European federation; for it realistically proposes to establish a rational economic scheme for the production and distribution of specific and identifiable commodities, from which further political federation in graduated stages but it might be expected to develop as a natural rather than forced result.
6. As far as political disadvantages are concerned, it is important that plan not be used as a vehicle:
- (a) To underwrite the economic base of a “third force”. It should be noted that plan proposes that production will be offered to entire world “without distinction or exclusion”. This phrase may have been included for propaganda purposes, but it obviously could run counter to NAT objectives in controlling shipments of vital supplies to the Soviets and satellites. The greatest safeguard we have against the perversion of the plan in a “third force” direction rests in the existence of NAT itself, and in fact that the stronger Western Europe becomes economically the more capable it will be of handling its own fifth columns and of withstanding Soviet pressures.
- (b) To permit the resurgence of Germany as the dominating element in Western continental Europe. It has been argued that because of Germany’s organizational abilities, industrial skills, national tenacity, and natural resources, Germany rather than France might possibly come to control the industries covered by plan unless UK were an active participant. I do not believe that this argument is too [Page 723] valid, since Germany might ultimately do this whether UK were an active participant or not. It was in recognition of this danger probably that Schuman in his original scheme proposed appeal machinery, representation “on an equal basis”, and for impartial public reports to UN. Much will depend upon who are selected as members of the authority and their appointment should be carefully watched.
III. Economic merits, difficulties, and potential abuses:
7. The first three elements of the plan under part I above, i.e., abolition of customs duties; prohibition against discriminatory freight rates; and abolition of discriminatory export prices, seem to me to “be steps completely in right direction. They should establish a large free trade area in respect of five most important commodities in this highly industrialized area. This is great step towards ultimate formation of single European market for all commodities, with all the benefits that can flow therefrom.
8. Indeed, the most realistic element of Schuman proposal, and the one which gives it such promise of success, is that it does not attempt to create at one stroke a single market for all products, but concentrates for immediate future on creating such a market for a few key commodities. In my opinion this is most effective way in which advance can be made.
9. Mounting prices, wages and working conditions raises problems of great complexity and difficulty. At same time, if properly handled, this element of plan could bring about the efficient use of human and natural resources, provided it is accompanied by free movement of labor, capital and materials and is guided by competitive forces. There will be less efficient use of productive resources however if authority employs its powers to plan production and investment and develop joint exports in such a way as to limit competition. If plan, in operation, conforms to general principles of an expanding economy, which French Government has declared to be its purpose, and does not degenerate into a super-cartel with price fixing, licensing, division of markets, restriction or artificial allocation of funds for investment, and suppression of competition and technical improvements, then the positive economic potentialities of scheme should predominate.
10. We must recognize that authority may be compelled to erect tariffs around these industries or take other steps to protect them. This is risk we must take, even though it may appear to be prejudicial to us. We would be quite inconsistent, if, on the one hand, we urged Europe to increase productivity, expand production, close the dollar gap, and integrate the European market, and on the other took offense if they did so. There is a difference between restrictive arrangements motivated by narrow economic nationalism, and necessary arrangements [Page 724] designed to expand production for the benefit of a large regional grouping.
11. The novelty, scope, and potential benefits of plan to Westerners, and indirectly to us, are so great that we should keep an open mind, as well as a critical eye, on the course of developments.
12. Essentially, what I am suggesting is that irrespective of whether or not UK participates, the possible advantages of Schuman’s proposal in orienting Germany westward, creating a single market for the selected basic commodities, and strengthening Western Europe outweigh the possible dangers that plan may be perverted. We should, therefore, give every possible encouragement to its successful drafting and implementation.
Sent Department 3125, repeated information Paris 982, Rome 267, Brussels 139, Frankfort 280, The Hague 127.