774.00/2–2450

Memorandum by Mr. Stuart D. Nelson of the Office of African and Near Eastern Affairs to the Director of That Office ( Berry )2

confidential

Subject: Problem Summary for Egypt

I. Egyptian Relations with Great Britain

(a) Both Britain and Egypt have expressed a desire to revise the Anglo-Egyptian Treaty of Alliance of 1936. In this regard, the Egyptians claim that they will not negotiate in regard to a new treaty unless they are given assurances by Great Britain that the latter government will withdraw its troops from the Suez Canal zone and the Anglo-Egyptian Sudan. The Egyptians claim that there is no further need for British troops in the Canal Zone and that the presence of such troops on Egyptian soil constitutes a violation of Egypt’s sovereign rights. It is now anticipated that discussions in regard to a revised treaty may be initiated som

Although the Egyptian Government has denounced the Treaty of 1936, the Department has continued to look upon it as still being in effect. It is expected that the Department will assume a neutral position during any negotiations for the revision of this Treaty.

(b) The British and Egyptians are currently holding discussions in Cairo in regard to a financial and trade agreement. Negotiations have been proceeding slowly since the British are reluctant to release large volumes of sterling to the Egyptians and are even more reluctant to allow the Egyptians to convert any large amount of sterling into dollars. It is quite possible that the British may stiffen their attitude concerning dollar conversion due to the recent action of the Egyptian Government in purchasing $47,000,000 worth of gold and U.S. bonds [Page 285] as backing for the Egyptian pound. Lengthy discussions have also been held in regard to the enormous sterling balances held by the Egyptians (slightly under $1,000,000,000). The British would like to see a part of this debt canceled by the Egyptians or to arrange for a long term funding program supplemented by the inducement of an exchange of U.S. dollars by the U.S. for a portion of the Egyptian held sterling.

The Department is interested in the negotiations of an Anglo-Egyptian financial accord but it has followed a hands-off policy pending a review of our position in regard to the sterling balances. It is possible that the United States may seek a solution to the sterling balance problem by assuming a portion of the sterling debt held by many countries against Britain.

II. Egyptian Relations in regard to Israel

On February 24, 1949 the Egyptians signed an Armistice with Israel.3 During the last year, Egypt’s willingness to negotiate a final peace settlement with Israel seems to have increased considerably. Both Governments have intimated that they are willing to enter into direct negotiations for a final peace settlement. However, the situation remains extremely touchy in Egypt and the Egyptian Government is proceeding with extreme caution so as not to arouse the ire of the Egyptian people.

Officials of the Egyptian Government have stated recently that they do not have any intentions of opening a “second round” against Israel. The Foreign Office has declared that the Armistice Agreement which was signed with Israel on February 24, 1949 will remain in effect until a final peace is concluded.

The Department should continue to follow its present policy of encouraging direct negotiations or a settlement via the Palestine Conciliation Commission.

III. Syria-Iraq Unification 4

The Egyptian Government has been bitterly opposed to the unification of Syria and Iraq. The Egyptians have announced that although they are opposed to the unification of Syria and Iraq, they will raise no objections if it is accomplished by the freely expressed will of the people. However, it should be noted that Egypt supported General Zaim5 who was opposed to the unification of Syria with Iraq, and, in addition, Egypt has made loans to Syria in the past and [Page 286] is currently holding discussions with the Syrian Minister of National Economy6 in regard to a contemplated loan to Syria of £3,000,000. Egypt has also proposed a plan for an Arab League Security Pact in order to counteract the unification plans of Syria and Iraq.

The present policy of neutrality followed by the United States in regard to unification of Syria and Iraq should be continued.

IV. Economic Factors involving Political Considerations

(a) Suez Canal—Although several approaches have been made to the Egyptian Government by the large maritime powers during the last six months in regard to allowing complete freedom of shipping through the Suez Canal, Egypt has remained extremely adamant in regard to the lifting of restrictions on Suez Canal shipping. The Egyptians particularly refuse to allow oil to be shipped through the Suez Canal to the refinery at Haifa. They refuse to allow such shipments unless the Iraqi reopen the pipeline to Haifa prior to or simultaneously with the Egyptian opening of the Suez Canal to such oil traffic. The Egyptians fear that if they were the first to take such action they would lose considerable face with the other Arab states.

The United States should continue to press for the removal of these restrictions.

(b) Proposed restrictions on visas—Although the Egyptians have removed most of the restrictions which had been imposed upon visas, there is a danger that the Egyptian Government will be forced to reapply the ruling that no passport containing an Israeli visa can be accepted in Egypt. This danger exists due to a proposal made by Lebanon in one of the committees of the Arab League. It was proposed that the Arab States should have a unified policy in regard to the acceptance of Israeli visas and the Committee favored the ruling of not accepting any passport containing an Israeli visa. This action has not as yet been clarified.

The United States should attempt to prevent a return to the former restrictions on visas by approaching the Egyptian Government and pointing out the disadvantages to Egypt of such a position.

(c) Cotton quota

For several years the Egyptian Government has been urging the United States to remove its quota on long staple cotton since such a removal would provide far greater dollar revenue for Egypt. The Department has continually expressed itself as being in complete sympathy with the Egyptian Government’s desire but has also pointed out to the Egyptians that there are many domestic political considerations which have stymied the removal of the cotton quota. However, the Department has this matter under serious consideration and [Page 287] is endeavoring to have the removal of this quota once again placed under consideration by the U.S. Tariff Commission.

Although it is somewhat doubtful that the elimination of this quota would result in a substantial increase in cotton imports from Egypt, it is very desirable that the quota be removed if possible since it only serves as an irritant to our relations with Egypt. It is possible that the U.S. Government may stockpile long staple cotton in the near future and this would mean large sales outside the quota for Egypt.

V. Military Developments

The Egyptian Government now plans to build an army which will be one of the most formidable in the Near East. For fiscal year 1949 the Egyptians appropriated some £52,000,000 for military expenditures. Possibly 40% of this amount has recently been spent in Britain by an Egyptian purchasing mission which placed large orders for jet planes, tanks, armored cars, and other military equipment. Initial delivery dates on most of this material will start some 2 or 3 years hence. It, therefore, appears that the Egyptians are not in a position to initiate an aggressive move against Israel.

The Egyptians have also expressed an intense interest in training officers in both Great Britain and the United States. To date, only a token number of officers have been admitted to courses in the United States. Some months ago, the Egyptians made an unofficial approach to Embassy Cairo in regard to a U.S. training mission for Egypt. They were not encouraged in regard to such a mission at that time and no further approaches have been made.

The Israeli have expressed great dismay at the recent acquisitions by the Egyptians of British arms which they claim will be used against them in a “second round” by the Arabs. Although they have been officially assured that the United States and the United Nations are both keeping a very close eye upon the situation, the Israeli continue to express grave concern about those arms.

It would perhaps be advisable for the United States to make a survey of what this Government considers to be an adequate military force for Egypt. In the meantime, the United States should encourage Israeli-Arab negotiations for peace treaties in order to create stability in the area.7

  1. Burton Y. Berry.
  2. For documentation concerning the Armistice, see Foreign Relations, 1949, vol. vi, pp. 594 ff.
  3. For documentation concerning plans for the unification of Syria and Iraq, see ibid., pp. 180 ff.
  4. Colonel Husni Zaim, former President of Syria.
  5. Ma’ruf al-Dawalibi.
  6. The following handwritten note, presumably by Burton Y. Berry, appeared on the last page of this memorandum: “Egypt’s policy among the Arabs: ‘divide and conquer’. The ruling class is doing something for the fellahin because of the fear of Russia—this is an approach that we can use to bring the Egyptians our way. Many officials according to their lights are doing their best for the country. You have all over the Moslem world an unhealthy situation but you can not sail into it unless you eliminate the element that is now in control which is a risk that we can not take as the reaction would take the form of an anti-foreign movement.

    “We can not endorse an Arab pact, as it seems to be directed against Israel, but we favor any pact that brings peace, stability, prosperity and general wellbeing to the area.”