Foreign Relations of the United States, 1952–1954, Western Europe and Canada, Volume VI, Part 1

611.41/3–653

No. 386
United States Delegation Minutes of a Meeting of Secretary of State Dulles and Foreign Secretary Eden at the Department of State, March 5, 1953, 3 p.m.¹

top secret
WET MIN–2

March 5, 1953, 3 p.m.

Participants:

• U.S.

  • Secretary Dulles
  • Secretary Humphrey
  • Mr. Douglas
  • Ambassador Aldrich
  • Mr. Burgess
  • Mr. Bissell
  • Mr. Linder
  • Mr. Overby
  • Dr. Hauge
  • Mr. Gordon
  • Dr. Williams
  • Mr. O’Connor
  • Mr. Corbett—Rapporteur

• U.K.

  • Foreign Secretary Eden
  • Chancellor of Exchequer Butler
  • Ambassador Makins
  • Sir Edwin Plowden
  • Sir Frank Lee
  • Sir Leslie Rowan
  • Sir Pierson Dixon
  • Sir Edmund Hall-Patch
  • Mr. Armstrong
  • Mr. Clarke
  • Mr. Stevenson
  • Mr. Leishman

[Here follows a list of the subjects discussed.]

Internal Financial Questions:

Secretary of State Dulles: The Secretary remarked that the British had propounded in the first meeting² two series of three questions. The first series related to the questions which the U.S. might like to ask the U.K., the second series to the questions which the U.K. would like to ask the U.S. He indicated that the British could consider our questions to them asked. While the questions were in general terms, Mr. Douglas and others would break these down into more particular questions. He remarked that it was most fortunate that Mr. Douglas combined the arts of diplomacy and finance.

The Secretary mentioned that the President was following these discussions very closely. He, himself, had asked one or two questions. A particular comment he had made was that a convertible currency mirrors a sound and healthy economy. Convertibility cannot be maintained unless it is backed up by a healthy society. The Secretary thought that we would want to go into the question of British productivity and the soundness of various elements of their economy and society. A question in which the President is interested is the size of the fund that would be required, where it would come from and how much would have to come from us.

The Secretary noted that before we would be able to answer questions on timing and nature of discussions with Western Europe we would have to give much more attention to the impact of the proposals upon Western Europe.

Mr. Douglas: Mr. Douglas expressed himself as very interested in (1) the extent of stabilization which has been achieved in the U.K. economy and (2) the extent of the introduction of flexibility into the economic environment. Answers to these questions, no doubt, would come up in discussions of the internal financial position of the U.K.

Secretary of State Dulles: The Secretary inquired as to whether it would be desirable to break up into working parties to deal with some of these questions. He was, of course, willing to conform to the desires of the British in this matter.

The Chancellor of the Exchequer Butler: The Chancellor thought that it would be possible to break up into working parties at some juncture but he would like first to discuss some general points and get a picture of the main trends.

In his opinion, the internal financial position of the U.K. has been affected far more than many observers believe by measures already taken in the fields of monetary and budgetary policies. Inflation has been reduced to patches in the economy. There is, in fact, a danger of going into a deflationary period. Civil expenditures have been held for two years at the same level despite rises in costs and prices. This has been accomplished in the face of overseas obligations, atomic expenditures and civilian defense. The Chancellor expressed his will to continue with the use of both monetary and budgetary weapons. The monetary policy has had a good effect and this can be seen by reference to the statements of banks. Public spending has been curtailed by amalgamation of Government debts and reductions in the Civil Service. He took steps just before leaving London to effect even greater economies in these fields.

Considerable improvement has been achieved in company savings over 1951. These amount to almost 600 million pounds annually. Generally, good cooperation has been achieved in a restrictive policy on dividends. The Chancellor did not think the effects of the policy on corporate savings had been fully recognized.

In general, he believed that a sufficient freeing of resources had been attained to buoy up exports if markets can be found. This has been accompanied by a mopping up of domestic demand. In his opinion, the U.K. has the resources for a greater export effort; there was now a possibility of much greater flexibility in the economy. Basically, the question is one of markets for exports. The U.K. has the flexibility and the resources to produce the necessary goods provided:

1. Strict policies are maintained in the monetary and budgetary fields.

2. The burden on industries is reduced.

3. Incentives are given to production.

The Chancellor referred to the need for re-equipment of British industries which had been mentioned in one of the U.S. questions. He thought that the controversy over the depreciation allowance was understandable but he was sure that progress would be made in encouraging the maintenance and modernization of industry. Therefore, with the requisite finances and resources, and provided the Government does its best, there is no reason why sufficient flexibility does not exist.

Mr. Douglas: Mr. Douglas raised the question of British costs and whether this constituted a restriction on exports.

The Chancellor of the Exchequer Butler: The Chancellor thought that costs were sufficiently under control to permit competition in engineering products which he thought gave a representative picture. Of course, wages represent the bulk of the costs of production and the situation here was not entirely satisfactory. They have held the cost of living index steady for some months although there has been an apparent rise by virtue of lifting food subsidies. This was a very correct action from the point of view of finance but it would create domestic problems. To carry out further the policy of freeing up the internal market, a number of agricultural products had been turned back to the private market. There has been a saving of 50 million pounds in subsidies on cereals, food stuffs and eggs and a saving of 40 million pounds in the holding of stocks.

Mr. Douglas: Mr. Douglas raised the question of housing and the burdens that this entailed on the budget.

The Chancellor of the Exchequer Butler: The Chancellor remarked that this was a Governmental pledge and a social need. He, however, intends to move on this problem by freeing the building industry, encouraging private home construction, decontrolling rents, repair on old houses, and purchase of houses from the local authorities. He thought this policy made sense. This has kept employment fairly stable and has been valuable socially.

Mr. Douglas: Mr. Douglas wondered whether it would be useful for the British to study our methods of shifting the housing burden to the private market. Perhaps some of our techniques might be applicable.

The Chancellor of the Exchequer Butler: The Chancellor pointed out that the local authorities were beginning to go to the market. This is a start in transferring the burden from the budget to the private market. He thought that a saving of 60 to 70 million pounds might be possible below the line.

Mr. Burgess: Mr. Burgess wondered if the answer was not in encouraging householders to build their own houses.

The Chancellor of the Exchequer Butler: The Chancellor stated that he intended to make that a feature of the new policy. He has no intention of continuing indefinitely the policy of subsidizing housing. He believes that the process of saving and the acquisition of houses should be associated.

Sterling Area Finance Problems:

Mr. Douglas: Mr. Douglas inquired of the Chancellor as to the future tests the sterling area might face.

The Chancellor of the Exchequer Butler: The Chancellor referred to the recent crisis of the sterling area finances following which Australia “went broke”, which hit British sales of automobiles, textiles, etc. The Australian depression represented a severe knock for the U.K. The latest news was that some relaxation of restrictions was being started. In India the finances were being tightly controlled by Deshmukh and the situation was fairly good there financially. There has been some improvement manifested in Pakistan, although in this area and in India, the sterling area was up against certain natural phenomena, famine and drought.

Sterling balances are released to India, Pakistan and Ceylon by agreements between the Governments. Australia can no longer afford a loose policy in the use of sterling, balances of which are down to working levels. Therefore, the outlook for the sterling area is very much stronger than in the past.

Mr. Douglas: Mr. Douglas inquired if the sterling balances are controlled by agreements among central banks.

The Chancellor of the Exchequer Butler: The Chancellor indicated that agreements between Governments controlled releases in the case of India, Pakistan, Ceylon and Egypt. With reference to the first three countries, these releases are on a six-year basis and are tied into the Colombo Plan. In the case of Egypt, the releases amount to 10 million pounds a year with a possibility of increasing this to 15 million pounds. All together the releases come to from 50 to 60 million pounds a year.

Mr. Rowan: Mr. Rowan commented on the division of sterling balances. He thought their composition made them much less a problem than they were in the past. For example, since 1949 sterling balances of the independent sterling area had fallen 200 million pounds and in the balances held outside the sterling area the drop had amounted to 300 million pounds. On the other hand, there had been an increase in the balances held by the colonies of 550 million pounds. It was impossible to say what total annual releases would amount to beyond these on which agreement had been reached. In general, there was no great amount of sterling outside the sterling area (Europe, South America and Japan) which was pressing for release. Only in Portugal is the balance large. This is tied up by an agreement which would not mature for five or six years. The Japanese balances had fallen about 50 million pounds in the last six to nine months. The Japanese were now worried about the shortage rather than the superfluity of sterling.

The Chancellor of the Exchequer Butler: The Chancellor did not believe that this sterling balance over-hang constituted a real danger at this time for this operation. He felt that he had the sterling area under pretty good rein. Everything was going well now and he was on close terms with the Finance Ministers of the area. Of course, he recognized that Governments may change and the situation could be altered.

Mr. Douglas: Mr. Douglas inquired whether the Chancellor believed that the volume of savings in the U.K. would be sufficient to provide the necessary capital for all of their undertakings.

The Chancellor of the Exchequer Butler: The Chancellor referred to the release of 60 million pounds to the IBRD which was a public credit transaction. He was encouraged by the formation of a company in London by important private interests to promote investment in the Commonwealth. They were going to make efforts to raise private capital with the approval and connivance of the Bank of England. Of course, it will be necessary to find the markets to create the 300 to 350 million pounds surplus in the balance of payments to finance the export of capital. All of this needs very much to be supplemented by the U.S. public and private investment in the overseas sterling area.

Mr. Douglas: Mr. Douglas raised the question of increases in savings in the U.K.

The Chancellor of the Exchequer Butler: The Chancellor thought that the record in private savings was not at all good. It was somewhat better in Scotland than in England.

Mr. Douglas: Mr. Douglas then inquired if the reason for this was taxation.

The Chancellor of the Exchequer Butler: The Chancellor mentioned that unfortunately the purchases of consumer durables such as TVs took a bite out of private savings although he recognized that the 9s6d rate was a heavy tax burden. Corporate taxation was still very severe, purchase tax was heavy and the excise tax on beer, alcohol and cigarettes was very burdensome. He believes these taxes must come down if resources are to be available in the event of war or if incentives are to be given to production.

Mr. Douglas: Mr. Douglas emphasized that our questions were being asked only to permit us to arrive at some independent assessment of the risk involved in the British proposals. Our concern in the matter was as great as that of the British. We were aiming at the same goals and it was desirable that we proceed with the greatest care.

The Chancellor of the Exchequer Butler: The Chancellor recognized the reasons which lay behind our questions and he was happy to give as good a presentation as possible.

Mr. Burgess: Mr. Burgess did not wish to embarrass the Chancellor by asking questions having to do with the particulars of the budget for the coming year but he had noticed that the outturn on the budget so far this year had not been up to expectations.

The Chancellor of the Exchequer Butler: The Chancellor admitted that the results had not come up to estimates and this was explainable by two factors: (1) the fall in company profits had not been foreseen at the time the estimates were made and (2) the reduction in imports of 300 to 400 million pounds ought to have been recognized as having an affect upon customers’ receipts. The rising expenses had been accounted for almost entirely by the defense effort. Therefore, a combination of these three factors plus the extra debt charges due to the severe monetary policies explains the budgetary difficulties to which Mr. Burgess had reference. He did not, however, feel that these were important in terms of the soundness of the economy.

Mr. Burgess: Mr. Burgess referred to the shifting of housing to the private market and to medical charges.

The Chancellor of the Exchequer Butler: The Chancellor explained that housing was a party pledge which he was sure the U.S. representatives would understand. As for medical charges, the costs of filling prescriptions had been raised although various loopholes still existed to avoiding the full impact of these charges.

Mr. Douglas: Mr. Douglas wondered if the Chancellor could give some indication of the standards his Government would employ in determining if the stablization policy were sufficiently strongly rooted to warrant and maintain convertibility. This seemed to Mr. Douglas to be implicit in any measures taken toward convertibility.

The Chancellor of the Exchequer Butler: The Chancellor thought that most of this had been answered in what he had been saying. The system had been loosened up to let money play a greater part. He had not mastered the expenditure side but he did not know of any modern society that had. There had been an increased degree of mobility introduced into the labor situation. More coal has been exported. Saturday working in the coal mines has been instituted and within reason hope can be held for a better showing in coal exports.

Mr. Douglas: Mr. Douglas inquired as to the extent of costs flexibility and capacity to make internal adjustments.

The Chancellor of the Exchequer Butler: The Chancellor said that to some extent this involves insulation of the economy against import prices. This depends also on what happens in other countries. The cost structure is heavily influenced by wages. The Minister of Labor is on guard against another round of wage increases. The Chancellor thought that the Government had been most fortunate in getting away with fairly light wage increases while at the same time raising the cost of food. Now, increased costs must be passed on to the consumer. Therefore, the question of reduction in subsidies and wage increases must be handled with moderation.

Mr. Douglas: Mr. Douglas asked about the formation of capital and the increase of productivity.

The Chancellor of the Exchequer Butler: The Chancellor responded that there had been some improvement in productivity. He thought that the unions and employers saw eye to eye with the Government on this matter.

Sir Edwin Plowden: Sir Edwin commented in response to a question by Mr. Burgess that it was difficult to get the older unions to accept changes in production techniques. However, flexibility has been introduced into the employment situation. When the present Government took over there was overfull employment and now unemployment amounted to 500,000 or about 2% of the working forces. One had to consider also that the number of vacancies had fallen to 250,000. There had been a marked movement of labor from the textile industry to the aircraft industry, although this was held up to some extent by a shortage of sterling and other items. The Coal Board can now be more selective in its employment policies, taking either boys or trained workers. The imported labor proved to be a failure in the case of the Italians and all labor engaged in coal production is now British.

(There was a general discussion on the work-week prevailing in the coal industry.)

Mr. Burgess: Mr. Burgess referred to the relationship of the moving exchange rate to the problems of flexibility and that it had occurred to the American side as it had studied the plan that this was an important factor in the desire for a flexible rate.

The Chancellor of the Exchequer Butler: The Chancellor said that the British Government was trying to move into an area of decontrol and develop its own policies, getting away from “me tooism”. The Chancellor remarked on the steps taken to return agricultural commodities to the private market and expressed himself as being very proud of the venture. He cited, as one of the pledges of the Government, the opening of the Liverpool Cotton Market. He was convinced that this could not be done at a fixed rate because of the flexibility in commodity prices. He did not see how they could move extensively on the internal decontrol unless increased flexibility was introduced in the external financial system.

Mr. Douglas: Mr. Douglas asked if it would not be desirable to have a special group examine the sterling balances. This seemed to him to be an important technical area.

The Chancellor of the Exchequer Butler: The Chancellor agreed to this suggestion and mentioned that they have a number of plans concerning the balances. The distinction had to be made between types such as commercial balances, central banking balances, sterling area and non-sterling area balances.

Secretary of State Dulles: The Secretary wondered if the owners would be amenable to funding these balances.

The Chancellor of the Exchequer Butler: The Chancellor said that this would not be necessary for the Commonwealth balances and he thought that there was quite a different picture now with respect to balances outside the sterling area than there had been previously.

Mr. Bissell: Mr. Bissell asked if the creation of external sterling and introducing flexibility in the rate were inextricably related to other features of the plan and to increased internal freedom.

The Chancellor of the Exchequer Butler: The Chancellor said that convertibility at a floating rate is the only thing that could be sustained. The strain must fall somewhere and it was necessary that it fall partly on reserves and partly on the rate. They were not convinced that the strain could be avoided in any new plan and therefore it was a question of how best to meet the strain.

Mr. Bissell: Mr. Bissell inquired again as to the essentiality of external sterling for limited convertibility given the risk.

The Chancellor of the Exchequer Butler: The Chancellor pointed out that positive convertibility has positive benefits. Any moderation in the plan to avoid risks would avoid advantages.

Mr. Douglas: Mr. Douglas inquired as to the points within which the rate would move.

The Chancellor of the Exchequer Butler: The Chancellor said that this would have to be a matter of the greatest secrecy. Nothing could be worse than to make announcements on this matter.

Mr. Douglas: Mr. Douglas asked what arrangements would have to be made with other countries concerning the balances of sterling they would hold.

The Chancellor of the Exchequer Butler: The Chancellor said that there was no provision for this in the present plans. Italy had a great fear of her sterling balances being blocked. If that were done it would tend to take away confidence in sterling and, therefore, there has to be a degree of courage in approaching this problem.

Mr. Douglas: Mr. Douglas asked about the references to efforts of other countries to transfer their dollar deficits to the U.K. How would the U.K. protect itself against this?

The Chancellor of the Exchequer Butler: The Chancellor said that the discriminatory weapon would have to be retained. It would only be used in the event of great difficulty. The Escape Clause referred to in the new committee representing the IMF and the GATT would provide a means for discussing the justification of any action the British might take. This would bring the problems of trade and finance together.

The Chancellor said that it was useful to recognize the nature of British trade—60% was with the sterling area and the dollar area and no danger would be involved here; 25% was with the OEEC countries—it was hoped that these countries would be part of the plan and trade with them could be handled in such a way as not to lose the advantages of liberalization; the remaining 15% would involve some real risk, although South America at the moment is very short of sterling.

Sir Frank Lee: Sir Frank said that the risk that other countries would use their external sterling to buy dollar goods is clearly present in the plan. This risk is modified by the following factors:

1. Conversion at a rate.

2. Steps to ease world dollar shortage (good creditor policy).

3. Europe would be dealt with in such a way as to maintain the liberalized trade.

Mr. Douglas: Mr. Douglas asked if the British intended to refrain from the use of QRs and had confidence in their competitive ability.

Sir Frank Lee: Sir Frank said that there was a definite intention to reduce QRs and certainly the plan implied confidence in British competitive ability.

Foreign Secretary Eden: The Foreign Secretary said that that assumption would have to be made.

Mr. Douglas: Mr. Douglas inquired into the future status of the EPU. He commented on how well this institution had performed, perhaps to the surprise of us all.

Foreign Secretary Eden: The Foreign Secretary felt that the trade liberalization effort of the OEEC must be kept going. The EPU would have to undergo some drastic modification since there would be two sets of currency, convertible and inconvertible. What was left of the EPU would have some connection with the IMF.

The Chancellor of the Exchequer Butler: The Chancellor said it was clear that you could not have a Payments Union involving both convertible and inconvertible currencies. A scheme would have to be worked out whereby liberalization of trade in Europe would continue and different standby credits for convertible currency and inconvertible currency with the Monetary Fund would have to be devised. Perhaps the Managing Board of the EPU could be retained and would have some responsibility for the IMF credits. This would help revivify the IMF.

Mr. Douglas: Mr. Douglas asked if the plan involved sterling convertible only on current account.

(There then followed a discussion in which Mr. Douglas, Secretary Humphrey, Mr. Bissell, Mr. Linder, Chancellor Butler, Sir Leslie Rowan and Sir Frank Lee participated. This discussion related to the manner in which external sterling would be created. The U.K. and members of sterling area would still maintain exchange controls. There would still be quantitative restrictions, although the tendency would be to reduce these and to eliminate discrimination. Under no circumstances would the exchange control be used to frustrate any liberalization of trade. The question of whether only current account sterling would become external sterling and thereby subject to conversion into dollars was resolved by a British statement that it would be most difficult to distinguish between current account and capital transactions. Therefore, any sterling which reached foreign account (non-resident) would be external sterling. The British would continue to maintain controls on capital and if sterling from this source reached external account, it would be entitled to the same status as sterling arising from trade and current services. The British could pull back in various ways to reduce the supply of sterling but would have to justify these retrogressions before the Tribunal of the IMF and the GATT. The analogy of the right of the U.S. to increase tariffs and reduce the supply of dollars was mentioned. The British referred to recent measures to permit the export of original capital plus appreciation. This covers capital invested subsequent to January 1, 1950. Capital invested before that time may only move out to the extent of the original investment. There would be only a single rate for sterling. The safeguards to guarantee maintenance of the external sterling system are mentioned in paragraph 42 of the British memo.³ These are: (1) appearance before a Tribunal, (2) flexible rate and (3) control of the supply of sterling.)

Mr. Douglas: Mr. Douglas asked about the gross dollar earnings of the U.K. and the sterling area.

The Chancellor of the Exchequer Butler: The Chancellor thought these were difficult to quantify. He thought that the sterling area would be in approximate balance with both Europe and the dollar area. This, of course, depends upon the adoption of good creditor policies which are a precondition to the plan.

Dr. Williams: Dr. Williams inquired how much the plan depended on the composition of production and the pattern of trade? How far would the U.K. go to determine the answer to this question before an attempt is made at convertibility? Monetary arrangements depend upon what is underneath. Is there a tendency toward external balance? He thought that the question might be summed up in the finding of markets.

The Chancellor of the Exchequer Butler: The Chancellor said that the answer to these questions depended upon the increase in trade with the dollar area. He reviewed some of the efforts being made to expand South American, Caribbean and Canadian markets. He referred again to good creditor policies and his meeting this morning with the Secretary of Commerce.⁴

Mr. Douglas: Mr. Douglas inquired to what extent did the plan rest upon the adoption by the U.S. of good creditor policies?

The Chancellor of the Exchequer Butler: The Chancellor said that this was a precondition. He could not stress it enough. The American economy is in a powerful state, yet it is indulging in safeguards which have roots in history. In the British opinion, these safeguards are hardly necessary. He wondered if we needed the protective policy of the past. He would hope for a reconsideration of our levels of tariff and some improvement in the outlook for sterling area commodities, a point which was mentioned in the Paley Report. He referred to discriminatory aspects of our shipping policy, to the tied loans of the Eximbank and to the Buy American legislation. He thought if steps could be taken along these fronts and coupled with increased investment much could be accomplished.

Mr. Douglas: Mr. Douglas inquired about the binding of tariffs at present levels.

The Chancellor of the Exchequer Butler: The Chancellor said that this would not be sufficient.

(There followed a discussion of U.S. shipping policy.)

Ambassador Aldrich: Ambassador Aldrich asked if the British would not require considerable time to measure all the effects of the various steps before undertaking the program.

The Chancellor of the Exchequer Butler: The Chancellor said that the British have endeavored to change internal policies. They would do what they could in the interim and then they would institute the operation, then there would be a testing period and, finally, a rewrite of the rules.

Ambassador Aldrich: Ambassador Aldrich asked haven’t the British got to get the results of the good creditor policies before they could anticipate accurately what would be required.

The Chancellor of the Exchequer Butler: The Chancellor said that there are two schools of thought: (1) that convertibility comes on top of all other steps like a cap, or (2) that a convertible operation, even of a limited nature, is a good in itself and brings benefits. He leaned toward the view that convertibility would help the other measures and should not be a reward for other measures.

Ambassador Aldrich: Ambassador Aldrich commented on the severity of the risk.

The Chancellor of the Exchequer Butler: The Chancellor agreed on the risk. He said that he would not undertake the convertibility operation if he did not have some reasonable hopes that the pattern of trade would be changed.

Ambassador Aldrich: Ambassador Aldrich asked if the British are not going to undertake the convertibility operation until other things are visible? Do they need a commitment on a stabilization fund at this time? Could they not postpone this until their minds had been made up more clearly?

(There followed some discussion of the meaning of convertibility as used in the British memo. It was agreed that the reference to convertibility in the memo was to the first limited step of the creation of external sterling.)

Ambassador Aldrich: Ambassador Aldrich inquired whether we would be justified in providing dollars if we are not convinced that the pattern of trade the British desire is going to evolve?

Dr. Williams: Dr. Williams mentioned the weakness of some of the sterling area raw materials in the long run.

Secretary of Treasury Humphrey: The Secretary sought some indication from the British as to the volume of increased exports to the dollar area and the lines which would be most affected.

Sir Frank Lee: Sir Frank indicated that raw materials and semi-processed goods would be the major items. He thought electrical goods should show substantial increases. Regarding engineering goods, he thought the British could make a good showing under competitive conditions.

(The British promised to develop more information on their views concerning increased sales in the dollar area if the U.S. should adopt good creditor policies.)

Mr. Douglas: Mr. Douglas asked the British to elaborate on the financial support. He hoped their remarks would cover not only themselves but the sterling area and Europe.

The Chancellor of the Exchequer Butler: The Chancellor said that there was 1.3 billion dollars available in the Fund for the British under the present quota. He thought that 2½ billion dollars would be required. He thought an additional $700 million would be necessary for the remainder of the sterling area. He would not venture a guess on European requirements but admitted that it would have claims. He thought, however, it was a mistake to compare the European currencies to sterling.

Mr. Douglas: Mr. Douglas remarked that the sterling area had been in external balance for some seven to eight months now. He wondered if that were long enough to reach any general conclusions about the permanency of this stability.

The Chancellor of the Exchequer Butler: The Chancellor said that the sterling area had decided to carry forward into 1953 present policies. He could not look much further ahead than six to nine months but he thought that the balance could be maintained. This, of course, was on the assumption that the terms of trade would not turn against them. This remark answered a U.S. question concerning the effects of a down-turn in the U.S.

(The discussions reverted to British export targets. They agreed to define in greater detail these targets and the assumptions upon which they would be based. This would enable the U.S. to give greater attention to the steps which it might have to consider taking.)

The Chancellor of the Exchequer Butler: The Chancellor referred to paragraph 59 in the British memo⁵ and asked if someone could be appointed from the U.S. side to explore this matter. Mr. Leddy was named to work with Sir Frank Lee.

(It was agreed that a working group would be established to develop further information on the following:

1. Sterling balances.

2. The future of the EPU.

3. The relations between IMF and GATT.

This working group could commence its labors tomorrow at a time to be decided at the full meeting at 10:00.⁶)

1. Drafted on Mar. 6.
2. For a report on the first meeting, see Document 384.
3. Regarding the British memorandum, “A Collective Approach to Freer Trade and Currencies”, dated Feb. 10, 1953, see Document 375.
4. For a record of the meeting with Secretary Weeks, see supra.
5. Paragraph 59 of the British memorandum dealt with tariff preferences.
6. Regarding the meetings of the Working Group, see footnote 3, infra.