396.1–LO/5–350: Telegram

The United States Delegation at the Tripartite Preparatory Meetings to the Secretary of State

Secto 104. Economic working group of sub-committee B (German) May 2 discussed steel and German internal economic situation.1

Steel: British raised issue of steel production level in view of current level of steel production and probability German pressure for raising level. Group noted report of steel company of April 25 (steel company/P/50/1)2 indicating production slightly in excess of demand and that adequate steel available to meet consumption requirements. Group also noted MSB proposal to introduce measures effective July 1 to prevent Germans exceeding ceiling. French questioned October-September year for calculation of compliance with ceiling but did not press point too vigorously. AH agreed definition of year matter for HICOM to determine and not appropriate for discussion.

British expressed concern that beginning of new steel year October 1 might require cutback of steel production from level reached by that date with consequent disturbances. This was agreed to be problem for HICOM to deal with.

Discussion centered on plans for handling of future pressure on steel production limit. British (Stevens3) expressed view no good [Page 919] security ground for relaxing limit now or until Germans “deliver the goods” under Petersberg protocol,4 i. e. primarily that they join Council of Europe. If they do, however, later this year British might feel security interest no longer operated with as great force and that eco grounds might well exist for modifying limit. Allies should anticipator situation, not be overtaken, as on dismantling. Stevens stated this would not imply changes in other PLI. (However, line of thought is almost precisely same as expressed by Kirkpatrick5 re shipbuilding Embtel 2281 April 26.6)

French (Leroy-Beaulieu7 and Beaumarchais) recognized that difficulties in store, but doubt economic need for modification of limit, think over-all European steel supply situation should be considered, therefore think increase will not be required and oppose same. They seemed inclined to take measures now to hold down production and prevent Germans from creating situation in which production would later have to be cut.

Reinstein.8 agreed undesirable repeat dismantling experience. Steel level was fixed in 1947 (prior to ERP) and not for all time. Question of revision should be considered on economic merits. Desirable that if Germans request revision, they should be asked to submit justification and there should be orderly procedure for examination rather than propaganda and pressure. Expressed doubts question should be linked to one specific political issue.

Group tentatively agreed paper should be drafted with view to advising Foreign Ministers along following lines:

No immediate action required.
May become unpleasant subject later in 1950.
Consideration of raising level must be in light of, a) security and political considerations b) German economic situation, particularly viability c) general supply situation in steel.

HICOM should be asked immediately examine situation considering

Possibility of import of steel. This examination should be conducted quietly and should not be disclosed to Germans.

Reinstein pressed for agreement on answer to be made to Germans if question revision formally raised. This was for moment deferred.

[Page 920]

German internal economic situation: reviewed in general terms. French suggested further development of German economy would cause German exports to press on western markets. Proposed that Germans be informed no objection to expansion east-west trade subject to security limits. No conclusions reached and further discussion will be held on investment capital, east-west trade, expellees, Berlin, obstacles resumption normal trade.

Sent Department Secto 104, repeated Frankfort 196, Paris 721.

  1. This was the third meeting of the economic working group. The United States Delegation had reported on the second meeting, held at 4:30 on May 2 in the India Office, at which problems relating to the Ruhr Authority were discussed, in Secto 92, May 3 (noon), not printed (396.1–LO/5–350).
  2. Not found in Department of State files.
  3. Roger B. Stevens, British Assistant Under-Secretary of State for Foreign Affairs.
  4. For the text of the Petersberg Protocol, dated November 22, 1949, see Foreign Relations, 1949, vol. iii, p. 343.
  5. Sir Ivone A. Kirkpatrick, British Permanent Under-Secretary of State (German Section) for Foreign Affairs.
  6. Not printed.
  7. Paul Leroy Beaulieu, Financial Adviser to the French High Commissioner for Germany.
  8. Jacques J. Reinstein, Officer in Charge of German Economic Affairs in the Department of State.