396.1 LO/5–450: Telegram

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

Secto 122. 1. Further meeting sub-group on German economic questions held at Foreign Office afternoon May 31 (Sectos 92 and 104 May 32).

2. Following opening statement by Stevens who emphasized importance Berlin economic problem Reinstein spoke along lines recommendation (1) document E–4a.3 Stevens said ways and means by which Berlin exports might be promoted were now being discussed by Foreign Office with UK element HICOM and hence he was not yet in position to express final views on subject. It was his impression however, that not a great deal could be done to acquire Berlin products on basis government procurement other than that for consumption in Germany itself. When subsequently questioned he admitted that British had not investigated possibilities procurement Berlin and indicated desire to receive copy recent study prepared by US element. Stevens agreed that every effort should be made to stimulate private trade and thought that greatest possibilities might well be found in smaller OEEC countries, colonies and other areas less industrially developed than Berlin. He nevertheless felt that “we should put our own house in order” before pressing other OEEC countries to promote exports from Berlin. He also considered that it would be desirable to extend tripartite assistance to establishment of sales organization [Page 921] in Berlin. Before pursuing this matter he would like more information re Berlin production and manner in which it could be adapted to maximize exports.

3. Leroy-Beaulieu agreed desirability government-procurement proposal and said French have in fact been placing number orders Berlin through purchasing agent permanently stationed there. Generally speaking, however, question trade promotion was one in which Germans should take lead. In latter connection he suggested possibility organizing trade fair. Marshall4 indicated matter was being studied but that we had run into procedural and technical difficulties. As to Stevens sugguestion for Berlin trade organization, Marshall stated that question was that of fitting it into larger sales organization for all of West Germany.

4. After further discussion in which US representatives outlined various financial measures we are taking to alleviate Berlin economic situation, Stevens suggested that general statement be drafted Foreign Ministers emphasizing importance dealing with Berlin economic problem and need to stimulate exports but without specific reference to government-procurement. Reinstein replied that it would be preferable to include specific proposals such as suggestions re government-procurement and encouragement by OEEC countries to exports. It was agreed that matter would be pursued further next week when results Foreign Office–UK HICOG discussions would be available to Stevens.

5. Consideration then given to question Soviet restrictions on trade. Reinstein summarized pertinent sections reference document5 and laid particular emphasis on desirability escape clause provision in trade agreement. Stevens cautioned against any action which might further impede our access to Berlin although agreeing that we should have counter measures ready should Soviet impose additional resrictions on trade between Western zones and Berlin and vice versa. [Page 922] French indicated that they would like to study matter further. Therefore agreed that US would put its proposals in writing for consideration at subsequent meeting.

6. Leroy-Beaulieu again raised question East-West trade as relating to Germany (Secto 104) and expressed concern that American list which US has imposed on Germans re exports to east more restrictive than international list followed by other OEEC countries. Stevens said that before commenting on this observation, he would like to speak in “broader perspective.” British, he continued have been thinking of “optimum level” German trade with east in next few years and in this connection cited statistics showing sharp drop current trade as compared with prewar level. It was, he considered, essential that German trade with Eastern Europe be increased although care should be taken that it not exceed danger point where West Germany would be unduly dependent on Eastern Europe for essential supplies of foodstuffs and raw materials. “Practical question was what could be done in practice to step up volume West Germany-Eastern Europe trade without involving security dangers.” First thing he thought should be to place Germany on basis equality with other OEEC countries so far as restrictions on trade concerned. On assumption we can agree that this “discrimination” is to be removed, we should next consider what “positive advice” HICOM might give Germans re negotiation of trade agreement with satellites. Alphand argued on much same lines, asserting economic situation in Germany cannot be improved without increased trade with east and pointing out fact that nearly 20 percent German prewar trade had been with that area.

7. Reinstein agreed that trade with Eastern Europe was important factor German economy. Nevertheless, we should not concentrate on that area alone. Trade with Latin America and US had also been important prewar period, but today represented only “infinitesimal fraction” of what it had been. There were many factors which accounted for Germany’s failure to increase exports including ineptitude and lack of interest on part German exporters to develop markets. These points would have to be driven home to German authorities. Moreover it was his understanding that we have been pressing Germany to export more to satellites and to get more from them. Reinstein also expressed opinion that question of discrimination against Germans as regards exports to east was being considered at Paris6 and intimated that this was not appropriate forum for discussion.

8. Stevens inquired as to financial basis of Federal Republic trade agreements with satellites, and after Marshall had replied that they [Page 923] were being carried out on usual offset account principle, suggested desirability requiring settlement balances in sterling instead of dollars.

9. After further discussion discrimination issue in which UK and French pressed strongly for removal, Stevens proposed that report be submitted to ministers covering following:

West Germany’s economic difficulties greatly enhanced by loss of markets and hence every effort should be made to expand exports.
Germany should not be discriminated against as regards list of products with which it can trade with Eastern Europe.
Bearing in mind security considerations, HICOM should advise Germans as to ways and means by which they might stimulate trade with east. Reinstein replied that we would like to consider matter further. It was therefore agreed that British should put their proposal in writing.

10. Subsequent discussion which related to IAR and steel summarized in separate message.7

Sent Department Secto 122, repeated Frankfort 198, Paris 734.

  1. The fourth meeting of the German economic working group was held at 3:30 in the India Office.
  2. Secto 92, not printed, but see footnote 1 to Secto 104, supra.
  3. Recommendation 1 of FM D E–4a “Berlin,” dated April 14, not printed, read “That the Foreign Ministers urge their Governments and the OEEC countries to maximize government procurement in Berlin and to take steps to encourage and promote exports from the city to the West.” An earlier draft of this paper, FM D E–4, dated April 11 and two subsequent drafts, FM D E–4b and 4c, dated May 2 and May 3, respectively, contain the same recommendation. (CFM Files: Lot M–88: Box 149: May CFM 1950 E, F, G, H Series)
  4. Charles E. Marshall, United States Economic Commissioner at Frankfort.
  5. The recommendations of FM D E–4a relating to trade read:

    “2. That the Foreign Ministers direct the High Commission to enforce the present interzonal trade agreement strictly and to require, among other conditions for approving any future trade agreement between East and West Germany, maintenance of a minimum volume of Eastern trade with Berlin as well as rigid payment procedures, so as to permit the Federal Republic to reduce or stop Western deliveries to the Soviet Zone whenever the latter does not fulfill its obligations under the trade agreement. The High Commission should also insist that there be a reservation providing escape from the obligations of the trade agreement permitting the reduction or cessation of deliveries to the Soviet Zone in the event of interference with trade between the Western Zones and Berlin (in either direction).

    “3. That the Foreign Ministers agree to the principle of immediate restriction or cutting off of West German deliveries to the Soviet Zone whenever significant restrictions are imposed by the Soviets or German Soviet Zone authorities on trade or transport between Berlin and the West.”

  6. Documentation on the discussions in Paris during the first half of 1950 concerning East-West trade is scheduled for publication in volume iv.
  7. Secto 132, May 4 (11:00 p. m.), not printed (396.1 LO/5–450).