Foreign Relations of the United States, 1951, Europe: Political and Economic Developments, Volume IV, Part 1

No. 434

841.00/4–651

Memorandum of Conversation, by Alexander M. Rosenson of the Monetary Affairs Staff

secret

[Washington,] April 6, 1951.

Subject: 1951–52 Economic Aid to U.K.

Participants:	U.K.—Sir Leslie Rowan, Mr. Robert Hall, Mr. Otto Clark.
	U.K.—Mr. Allan Christelow, Mr. J.A. Jukes.
	ECA—Mr. Bissell, Mr. Woodbridge, Miss Ripps.
	State—Mr. Raynor, Mr. Levy-Hawes, Mr. Rosenson.
	Treasury—Mr. Willis, Mr. Hebbard.

Before the British arrived Mr. Bissell reported briefly on a meeting he had had with them the previous day.¹ In comparing our statistics with theirs he had found that there was practically no difference on the internal accounts (national income, etc.). On the external accounts we had come out with a $300 million deficit, whereas their figures showed an over-all balance. However, most of the difference was accounted for by the fact that they had assumed $250 million in AMP aid. The really important difference was on merchandise account, where the British forecast both imports and exports at considerably higher levels than we. Imports were one billion dollars larger and exports $500 to $600 million larger. The import figure included about $420 million for strategic stockpiling for which we had made no allowance. Thus, apart from this item, they assumed both imports and exports to be $500 to $600 million higher.

Mr. Bissell pointed out to us that the British figures implied either a higher world production or a larger British share of existing production at the expense either of the United States or of Europe. While the exact implications of these estimates cannot be known until they are broken down by commodity, Bissell thought the British have been overly optimistic. He believed that, given present serious world shortages, it would be difficult for us to accept the British import figures. The British, on the other hand, insisted that the level of imports they had assumed will be necessary if they are to attain their projected GNP and defense effort. They told Bissell that they are prepared to meet the balance-of-payments impact of the stockpiling out of their own resources.

Bissell said he is concerned about the U.K.’s cutting off the supply of sterling-area raw materials to the Continent in an effort to eliminate the bilateral surplus. He thinks the U.S. should consider a revision of the EPU to support some increase over 50 percent in the amount of dollars that the U.K. would get out of such a surplus. He personally would not favor 100 percent but thought that 75 percent might be about right, as it would permit us to point out to Congress that the U.K. was still financing 25 percent of the sterling-area surplus with Europe. He would make the new rule general, i.e. to apply to all creditor countries in EPU, although at the present time the U.K. is in practice the only important creditor. He thought the EPU was the most logical channel through which to extend aid to the U.K. if we had to.

He made clear, in an obiter dictum, that he had very little use for the concept of burden-sharing and thought it most unfortunate that we should be committed to it. He foresaw great difficulty in our adhering to the principle.

At this point the U.K. representatives arrived, and Mr. Bissell started the meeting by making the following points:

(1) Though we all recognize the U.K.’s special problems on account of its relation to the sterling area, the U.S. must nevertheless adhere to the principle that we cannot give aid for the purpose of increasing reserves.

(2) Joint consideration of commodity problems will continue next week.

(3) Our economic aid estimates remain subject to the final results of the burden-sharing exercises. We intend to maintain complete flexibility as among all the OEEC countries. We are also trying to get flexibility in the legislation as among areas and between end-item and economic aid. He stressed, however, that there will be a fixed upper limit.

The big issue, and the one to which the British representatives confined their attention almost exclusively, was the conflict between the burden-sharing principle and the reserve principle. Clark said that some countries would be economically weakened by the defense effort and that we should permit them to increase their reserves so that they might catch up after the armament period. Rowan referred to the accumulation of sterling liabilities. He said that the U.K. wants no aid or favors. It simply wants to make sure that by the “end of the day” it will have borne only its fair share of the burden. If we keep our attention riveted only on reserves, the whole objective of the burden-sharing exercise may be frustrated. We entered this thing as allies and partners, and we set up the Working Group of 12 to formulate criteria for equalizing the burden.² The injection of the reserve principle may prevent a significant collective act of judgment.

Rowan said the present NATO defense effort differed from the recovery program. There the problem was one of “absolutes”; here it is one of comparisons: i.e., what is a fair burden? He thought our present objective is a dual one: (a) rearmament, (b) maintenance of the economies of the participants. We should not introduce a rigidity which would frustrate these objectives.

Clark thought that the entire external capital position of countries, rather than merely their gold and dollar reserves (which are only one element in such a position), should be taken into account. If this were done, it would not be necessary to consider the U.K. as a special case because of its sterling liabilities.

Though the foregoing arguments put Bissell on the defensive, he stuck doggedly to the point that the main principle by which U.S. must be guided is that aid should go only to finance the transfer of real resources among the NATO partners and not to build up future claims as among themselves. In this connection he repeatedly stressed the legislative history which had been built up and the difficulty which any other policy would encounter in Congress. He stated, however, that while the reserve principle must remain our general policy, we would take special factors into account as qualification thereto, and would so inform Congress. We would not let the policy become a “strait jacket”.

Rowan said his Government considered it of the greatest importance that the Congressional presentation reserve final judgment on the amount of economic aid to the U.K. Otherwise, we would prejudge the outcome of the burden-sharing exercise. He said that it would also be desirable to have as much flexibility as possible in classifying particular categories of goods as military end-items or economic-aid items respectively; he gave machine tools as an example.

Bissell ended the meeting by reiterating that the U.S. will have to adhere to the reserve principle and that we may find it difficult to depart from that principle even in the burden-sharing exercise. However, we should be able to find ways to help out countries in difficulty because of special situations. In this connection he mentioned, without elaboration, the possibility of some marginal transfers as between end-item and common-use goods and perhaps doing something through EPU. To the British the last phrase, mentioned almost incidentally, was undoubtedly the most significant of the meeting. However, they did not choose to pursue it, at least on this occasion.

1. No record of this meeting has been found in Department of State files.
2. For documentation on the work of the NATO Group of 12, see vol. iii, Part 1, pp. 1 ff.