Current Economic Developments, lot 70D467
Current Economic Developments1
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European Coal Problem Serious
US authorities are becoming more and more concerned over the problem of Europe’s coal shortage. European coal production has not yet reached prewar levels, consumption has increased, stocks in some countries are depleted, and now the demands of defense production have imposed additional burdens, making it necessary for the US to supply and finance exports of US coal to Western Europe in order to keep industrial output at a desired level for the defense effort. The problem has been complicated by the strategic considerations inherent in east-west trade, since Poland is a major and traditional source of coal for Europe.
The over-all problem is being given consideration at high levels, both in Europe and the US. It is possible that some alleviation will come if the Schuman Plan is ratified, but in the meantime the urgency of the problem increases as winter approaches. An interagency committee is considering placing coal on the Positive List, not because coal is in short supply and not to limit exports, but in order to maximize exports and meet essential foreign needs. Another proposal has been made that OEEC designate a sort of coal czar who would stimulate governments into increasing coal production.
European Coal Outlook European requirements for US coal have fluctuated violently since World War II because European coal mines lack sufficient reserve capacity to absorb even small percentage changes in annual consumption which can amount to large [Page 142] tonnages. This fact, added to postwar expansion in industrial activity, accounts for the sudden upsurge in demand for US coal. The current rate of stated demand for US coal for the last six months of calendar 1951 amounts to about 21 million tons, not including the UK. Both current consumption and stockpiling requirements are extremely high owing to inflation and the fear of further price increases as a result of the Korean war, plus the fact that stocks were being depleted prior to Korea. Furthermore, the major coal production countries, utilizing both export differentials and producer subsidies, are following a low price domestic policy which keeps consumption high.
Europe’s problem is not a lack of coal resources, but inadequate mining programs. Europe has plenty of coal exploitable, but if Europe is to make a contribution to mutual defense the US has no alternative but to supply and finance it with coal until European coal production becomes satisfactory. European coal production has reached only 93% of the prewar average and is rising slowly, facts which are disturbing as far as defense production goals are concerned. Europe has been able to supply only two-thirds of the total increase in current consumption and a much smaller ratio of total additional demand, including stockpile needs. For these reasons, demands on US coal may go as high as 21 million tons during the balance of calendar 1951. Because this demand is concentrated, loading difficulties make it impossible for the US to supply more than 17 million tons during this period. US coal is more expensive and its purchase worsens the dollar positions of receiving countries; furthermore, shipment of US coal engenders severe shipping shortages, and transportation costs add substantially to the final cost to receiving countries, although this cost may be cushioned if spread over the entire European supply through a pooling scheme.
The rate of coal production in the major Western European producing countries (the UK, Germany, France and Belgium) has increased at the rate of 20 million tons annually since the Korean war. This increase can be attributed to various measures, such as hiring foreign labor, re-opening of mines, extra shifts, military deferment to miners, higher wages, Sunday work, incentive schemes, etc. Western Europe would have to produce an additional 20 million tons over and above this amount in order to meet consumption requirements without recourse to US imports. If Polish coal is written off, the target would have to be raised to 30–32 million additional tons. Since the UK and Germany together account for three-fourths of Western European coal production and have the potential to supply all needs in terms of quality and lowest cost, it is to these two countries that we must look for expansion of coal production. The application of new capital and manpower will yield greater [Page 143] results in these two countries than elsewhere in Western Europe.
Dependence on Poland Several Western European countries are heavily dependent on Polish coal, among them Austria, Denmark, Norway and Sweden. The Poles have been demanding strategic materials in return for their coal, which complicates the security problem of east-west trade. We have encouraged Western European countries to be as firm as possible in denying Poland’s requests for strategic goods wherever feasible. Norway recently terminated trade negotiations with Poland over Polish demands. Meanwhile, the US is studying ways to make up the deficit which would result if Polish coal were lost to Western Europe. Austria’s situation is particularly critical because the physical difficulty of moving US coal to that country makes Austria extremely dependent on Polish and German coal.
United Kingdom Since 1949 consumption in the UK has increased about nine million tons, while production has barely changed at all. There are 20,000 fewer men employed in British mines than in 1948, and only a marked improvement in output per manshift has kept the quantities of coal mined from dropping. Because of this excess of consumption over production the UK, late in 1950, reduced its annual export rate to the Continent from twelve million to four million tons, a cut which corresponds to about one-third the present rate of US exports to Western Europe. Prior to the war the UK was exporting annually 30 million tons of coal to Europe. The UK’s basic problem is one of new shaft sinkings rather than one of equipping existing mines with new mechanical devices, since the old mines are too antiquated to benefit from additional modern equipment. This basic reconstruction is progressing but cannot be completed for many years. This is the long-term problem, but it is believed that short-term measures could be taken which would increase British annual production considerably. These would include a six-day week and intensive recruitment of foreign labor, measures which admittedly are fraught with formidable social and economic implications. Meanwhile, the British have decided not to procure US coal this season even though the prospective coal situation for the winter is very dark.
Germany The Germans resent the control of the Ruhr Authority in deciding the amount of coal Germany will export and have put on constant pressure to lower the rate of export of coal from Germany as well as to raise the price of their coal exports. This is a major issue on the German political scene and the Germans are insisting that all arrangements for the termination of the Ruhr Authority be agreed upon before they ratify the Schuman Plan. Agreement to terminate the Ruhr Authority upon coming into [Page 144] force of the Schuman Plan awaits UK concurrence. This has been delayed until a satisfactory agreement on scrap is reached between the UK and Germany, which now appears imminent.
German production has increased since the Korean outbreak at the rate of 12 million tons annually, an increase which has benefitted the German consumer because exports have not materially increased. Major obstacles to maximum efficiency in the German coal industry are lack of investment capital and shortage of labor, the latter being partially due to lack of incentives, housing, etc.
OEEC and ECE Coal Committees The OEEC and ECE Coal Committees have attempted with little success to induce participating countries to agree to the distribution of European coal on a multilateral basis. Their objectives in such a scheme would be to reduce cross-hauls; to direct special purpose solid fuels, such as coke, which the US cannot supply, to important industries, (i.e. steel); and to control the demand for cheaper coal, mainly from Germany, in order to avoid a major increase in price. The biggest blocks to the Committees’ efforts are the bilateral agreements between Germany and certain importing countries, mainly Italy, France, Sweden, Switzerland and Austria. Since these countries stand to have their coal imports reduced by participating in a multilateral scheme, they have at various times refused to cooperate.
Shipping Problem A lack of shipping, overburdened loading facilities, and high transportation costs have added to the complexities of the coal situation. The US has broken out vessels from the reserve fleet to help carry the additional coal tonnages to Europe. Release of still more vessels may be necessary to transport the required tonnage, but until orders are spread among the less favored ports (and sources of supply) the limiting factor will be loading facilities. The OEEC coal supply and distributing subcommittee has also urged the release of additional vessels and has stated that it is impossible to obtain bottoms in the open market at National Shipping Authority (NSA) rates. ECA plans to review the question of shipping rates early this month, since importing countries claim they cannot fulfill their chartering programs unless NSA rates are exceeded. US agencies are considering a proposal to place US coal under export licensing control in order to distribute port facilities equitably, and to direct exports to particular destinations, as well as to maximize exports. The ECE Coal Committee has adopted a loading program for European export availabilities, but since the program involved reduction of German exports below trade agreements commitments to Italy, Sweden and Denmark, it was impossible to get unanimous decision, and the proposal was kept merely as a basis for a provisional loading plan.
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- A weekly classified publication, prepared by the Policy Information Committee of the Department of State, designed to highlight developments in the economic divisions of the Department and to indicate the economic problems which were currently receiving attention in the Department. It was circulated within the Department and to missions abroad.↩