London Embassy files, lot 59 F 59, 350 Germany

The Secretary of State to the Office of the United States High Commissioner for Germany at Frankfurt2

secret   priority

5046. Fol is summary of position for PLI negots ISG developed in Ger Bureau and now being circulated in Dept and to other interested agencies for clearance.3 Ur comments requested urgently.

1. US Rep shld state that US believes all limitations industrial capacity except those on direct armament industries, electronic valves and atomic energy shld be lifted soon as Ger Govt has given acceptable acknowledgement of pre-war Reich debts and obligations for postwar assistance as required by NY decision Foreign Ministers. However, US prepared work out formula re steel production and capacity to avoid an unfavorable impact on German willingness to ratify Schuman Plan Treaty,4 such as arrangement to defer briefly effective date of elimination restrictions.

2. Principal reasons for elimination of restrictions on industries other than those relating to armaments are:

A)
Three Occupying Powers must recognize that elimination restrictions German industry inevitable if we are to establish relationship we desire with German Govt and people; restrictions will in any case be eliminated as part of any conceivable agreement on German participation in Western defense and on contractual relationship between Germans and ourselves.5 Continuing industrial limitations will retard rather than expedite German decisions and development German public opinion favorable to our objectives. Restrictions will not if continued constitute useful bargaining counter in other negotiations [Page 1345] with Germans. These will succeed if they do succeed by German conviction of appropriateness and urgency for Germany of acceptance our proposals. They will not turn on our willingness add elimination of restrictions which have no continuing justification to sum of mutual concessions and commitments.
B)
Sweeping revision of restrictions is only action compatible with Mins directive of Sept 1949 [1950]6 which was confirmed at Brussels. In particular it is clear that incompatibility of present system restrictions with present and prospective relations with Germans becomes greater with each passing day.
C)
Public (e.g. Congress, Germany, etc) expect something substantial emerge from ISG on this subject now. US Congress and people consider these limitations absurd and unjustifiable, especially in present world situation and in view US military and economic aid to Europe.
D)
Restrictions on Germany non-armament, war related industries are hindrance to full utilization German and European resources for defense. They restrict production urgently needed to reduce shortages and inflationary pressure in West.
E)
Restrictions provide Germans with justification, which is generally accepted in Germany and given considerable weight in Western countries, for failure maximize exports to West of critically needed materials and products.

3. Failing agreement by Brit and French to eliminate mass of limitations as recommended, US representative should attempt eliminate many as possible. He should be guided by following considerations supplementary to those above:

A)
Extent to which Germany or US public opinion particularly concerned with limit or its effects.
B)
Importance or potential importance of removal from supply viewpoint whether for defense or general consumption.

4. US representative should insist on incorporation in any agreement of following:

A)
Formula for admin of any capacity controls which may be maintained approx as flexible as US proposal third session ISG.
B)
Review of agreement whenever Germany agrees with OCC Powers on terms for participation in Western defense or August 1, 1951 whichever is earlier.

5. Provision for elimination of steel production and capacity limits may become effective if French insist only upon German ratification of Schuman Plan. However, US Del should not agree to any interim provision more restrictive than NY formula as currently implemented by HICOM.

6. If possibility that revision of restrictions will reduce supplies coal and coke available to French and Benelux used as argument for [Page 1346] retention restrictions, US representative should reiterate that US Govt prepared consider sympathetically in appropriate bodies such as IAR and OEEC distribution of European and especially German coal supplies. US representative may also indicate willingness forward any specific proposals to Govt. Dept will have to instruct US Del on this issue in light circumstances at time French raise it.

7. US Del should seek following objectives re schedule A:

A)
Technical revision schedule to eliminate obsolete weapons and items not fundamentally military and which not potential security risk, and to clarify and improve drafting.
B)
Revision of prohibition in PLI agreement re schedule A to provide that production war materials listed therein without authorization of HICOM prohibited, rather than that such production absolutely prohibited.
C)
Instruction to HICOM that it may authorize production for export to NATO countries or their forces in Germany of certain articles listed in Schedule A other than weapons. (Above three proposals introduced at third session ISG and first two agreed among Delegates.)
D)
Understanding that Three Govts will instruct HICOM that it may authorize production for approved Western Defense needs (NATO countries and Germany) of items listed Schedule A, other than items prohibited pursuant to NATO recommendations, at such time as agreement reached with Germans on German participation in Western Defense. Manner in which this authority will be exercised and nature of any capacity or production controls should be worked out by HICOM.7

Copies of paper follow by air.8

Acheson
  1. Repeated to London and Paris.
  2. Instructions for the United States ISG Delegation on restitution, claims (German debt settlement), and foreign interests were sent in telegrams Tosig 376, 378, and 382, January 26 and 30, none printed (262.0041/1–1251, 396.1–ISG/1–2651, and 1–3051).
  3. For documentation on the Schuman Plan, see volume iv .
  4. For documentation on the establishment of contractual relations between West Germany and the three Western powers, see pp. 1446 ff.
  5. For text of the Foreign Ministers Directive to the Intergovernmental Study Group on Germany, see Foreign Relations. 1950, vol. iii, pp. 1188 ff.
  6. In Tosig 381 to London, January 29, not printed, the U.S. Delegation was authorized to present its position based on these instructions (396.1–ISG/1–2851).
  7. A copy of ISGG D–10/1, “Position on Prohibited and Limited Industries,” dated January 22, not printed, is in file 396.1–ISG/1–2251.