455.006/9–451: Telegram

The Ambassador in Belgium (Murphy) to the Secretary of State


301. A. Sources high in Belg Govt informed us new measures will be announced shortly, possibly today, to attempt redirect Belg trade so as sharply reduce dol deficit and EPU surplus. Fol is gen outline these measures as related to us:

Belg commercial representation and other promotional activities will be intensified in western hemisphere.
New restrictions will be imposed on dol imports to put pressure on importers to seek sources such imports in EPU area. Belgs feel prestige rather than econ merit is large factor re many dol imports, and believe similar goods cld in many cases be found in Europe on terms not significantly worse than for dol goods. They hope to transfer $80 to $100 million annually from dol area to EPU area by this measure. Understand automobiles, canned milk, dried fruit, nylon stockings and other items may be involved. Will investigate and report.
Exporters to EPU area will have proportion Belg franc proceeds their exports withheld by banks. This proportion to be withheld (auths discussing figures from 2.5 to 10 percent, but will probably settle on 5 percent) will be placed in special internal Belg franc fund. This fund, probably to be administered by national industrial credit society (SNCI), wld be used to give favorable credit facilities re imports from EPU area. Exporters having 5 percent withheld from proceeds exports to EPU countries wld receive instead 3 or 6 months bills on special fund, such bills to be discountable at National Bank insofar as gen credit policy permits or dictates. Note that on basis current level exports to EPU area, special fund wld amount to about one billion francs on basis 3 months withholding or 2 billion francs with 6 months withholding. Object is to discourage exports to EPU and encourage imports from EPU. This scheme has no effect on method handling foreign exchange transactions reporting EPU balances. Exporters will be informed this scheme only brings terms re-exports to EPU area slightly more in line with conditions re-exports many other areas of world, for which private exporters are often forced accept deferment total payment.
Re Benelux, Belgs and Dutch have apparently agreed Belg exports to Netherlands for last 4 months calendar 1951 will be reduced at least 53 million guilders (700 million francs or $14 million) below level in first quarter 1951. All Belg exports beyond 60 percent liberalized in framework OEEC program will again be placed under license. Until at least Nov 1, licenses will be granted without limit, and this will continue if current reduction Dutch imports from Belgium continues. However, if controls necessary to accomplish reduction specified above, such controls will apparently take form Belg export quotas (in 40 percent nonliberalized sector) rather than Dutch import controls. Both sides hope Dutch anti-inflation policy will accomplish agreed reduction and obviate need for controls.
Will report further re these measures as info becomes available.

B. Belgs state they feel driven to these actions by effect EPU mechanism on their reserve position, internal fin situation and trade pattern.

1. One aspect EPU is that special trade and payments liberalization inside EPU area, together liberal Belg dol import policy, has led to many trade practices of questionable econ merit involving direct re-export dol goods through Belgium to other EPU countries or direct re-export goods of Belg origin through other EPU countries to dol areas. Such practices lead to aggravation Belg EPU surplus and dol deficit, with consequent Belg gold and dol loss and increased Belg credit to EPU. Typical example is recent shipment 50 US cars to Trinidad from Antwerp, against sterling payment (cleared through [Page 1480] EPU). Cars were subsequently resold for hard currency. Belg attitude toward this aspect of problem is that they must develop means to protect themselves against such misuse their dollar reserves and EPU financing by others.

2. Re “normal” Belg dol deficit and EPU surplus which wld remain if such speculative transactions were entirely stopped, believe Belgs now consider this “normal” situation untenable from fin standpoint, since they see little likelihood receiving full payment in acceptable currency (i.e., gold or dols) for “normal” EPU surplus in near future. Thus, new policy represents attempt to reorient structure their foreign trade and payments to what appears likely to be continuing situation world-wide payments disequilibrium. They will undoubtedly try to minimize discriminatory factors in this reorientation, but consider that some discrimination necessary if payments problem to be solved satisfactorily.

Sent Dept 301, rptd info Paris 69, The Hague 19.