396.1–ISG/11–1150: Telegram

The United States Delegation at the Intergovernmental Study Group on Germany to the Office of the United States High Commissioner for Germany, at Frankfort


369. For McCloy. Our first run-through of PLI agreement, including discussion steering committee, has been completed. Present position of three delegations are summarized Sigto 254.1 We are convinced that negotiations will turn on steel production issue and relation of coal and coke supplies to steel production. French delegation has repeatedly referred to extremely difficult position in which the monthly increases of production in Germany place French as respects “beginning positions” of French and Benelux versus German in Schuman Plan2 and with respect to coal and coke supplies. They have asked us to discuss proposals for implementation of New York steel formula similar to those which they have put forward in HICOM. We and British have told them that HICOM is charged by the Foreign Ministers with working out this formula and have insisted that our problem is to develop a formula to replace interim Foreign Ministers formula.

British have presented series of proposals which go long way to relax present controls. They are apparently prepared to relax controls on the size, speed and tonnage of commercial cargo vessels as part of a general and far-reaching relaxation of present controls. Although the French have formally taken position in most cases that present controls should be maintained or modified only slightly they have indicated to us privately that a satisfactory settlement on steel, including coal and coke, will probably enable them to be “generous” with respect to many of the other production and capacity controls.

Discussions have been inconclusive on two problems, cargo liners and general controls on capacity. The British have not yet given us any views on the former. They acknowledge that some simplification of present methods of controlling capacity is desirable and are prepared to study the proposal we have made. They wish to ensure that tiny capacity controls which are maintained are fully effective. Discussion and working out this problem will take much time, we believe.

British, in reply to a rather vigorous statement by us of need for HICOM discretion, said that, aside from need for discretion to permit export of otherwise prohibited items (Schedule A and machine tools, Article X, paragraph 13) to NATO countries, they questioned desirability [Page 778] passing problems to HICOM and opposed granting discretion modify limitations to HICOM.

Our assessment of negotiations at this stage provides opportunity to refer again to question of timing. (HICOG telegram 238, repeated Department 3377, October 23, Tosig 185 October 27 and Sigto 199. October 25 and Sigto 220 November 1.4)

In reference telegram and in conversations with Douglas and Reinstein, McCloy has indicated steel, HICOM discretion and some number of fast ships for German domestic use may be suitable as an interim arrangement. However, British willingness agree lifting ship speed and size limits is obviously conditioned on broad relaxation because they do not believe they could face political reaction in UK if this limit were lifted except as part of a sweeping relaxation. They also oppose HICOM discretion.

In these circumstances, and in the hope that some acceptable solution of steel and coal problems can be worked out to permit French to be more accommodating, we should like your views on two questions.

Should we press ahead on a broad front, as we think we should, to try to get a general relaxation rather than a short-term solution on ships, et cetera?5
Can and should implementation of New York formula be worked out in HICOM, possibly with some personal attention from you and other HICOMS?

Sent priority Frankfort 369, repeated information priority Department Sigto 255, priority Paris 881.

  1. Not printed.
  2. For documentation on the Schuman Plan, see vol. iii, pp. 691 ff.
  3. A reference to Article X, paragraph 1 of the Prohibited and Restricted Industries Agreement, dated April 8, 1949, which prohibited German production of machine tools or other manufacturing equipment designed to produce implements of war.
  4. Tosig 185 and Sigto 220, not printed; regarding telegram 3377, see the first paragraph of Sigto 199, p. 771.
  5. In the margin of the source text next to this paragraph William K. Miller of the Office of German Economic Affairs had written “Yes”.