26. Memorandum From Secretary of State Herter to President Eisenhower0
SUBJECT
- Proposed United States Initiative to Mobilize Free World Resources for
Development and to Strengthen Trade Relations
The great—even startling—changes in the international economic situation over
the past two years have created two new problems of major dimensions for our
foreign policy.
- 1.
-
The first is: how can we mobilize the energies and resources of the
other industrialized countries to assist
the development of Asia, Africa, the Near East and other
development-hungry parts of the Free World?
The enormous task of developing these areas must go forward or we
will, in the end, lose out to the Communists.
The United States cannot provide the needed capital alone.
On the other hand, Western Europe and Japan, because of the great
improvement in their monetary reserves—the reverse of the large
payments deficit of the United States—are now financially capable of
mounting a sizable effort which could powerfully assist our own,
thereby greatly adding to the over-all strength and cohesion of the
Free World.
What steps can the United States take to enlist the full cooperation
of Western Europe and Japan in making this effort?
- 2.
- The second problem is: how can we help to redirect the emerging trade
rivalries within Western Europe into constructive channels which will
reinforce rather than weaken world-wide trade and avoid the present risk
of serious harm to our exports and those of other friendly countries
outside Europe?
The European Economic Community (The Six), which the United States has
strongly supported for political as well as economic reasons, is now being
challenged by a new trade bloc of seven European countries (The Seven) under
the de facto leadership of the United Kingdom.
The antagonisms between the Six and the Seven might develop into a trade war
which could gravely divide our NATO
partners on political and security issues.
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On the other hand, the Six and the Seven might feel compelled to compose
their differences by trade deals which would discriminate against the
exports of the United States and other friendly countries.
To help guide present European trade developments into more constructive
channels beneficial to world trade will require the United States to abandon
its present passive role and exercise determined leadership.
The Department of State has considered carefully the courses of action open
to the United States in attacking successfully these major new problems in
the field of development and trade. We have concluded that the most
effective course would be for the United States to take the initiative in
proposing the reorganization and revitalization of the Organization for
European Economic Cooperation (OEEC) and to
announce the willingness of the United States to assume full membership in
this revitalized institution. (The United States and Canada now participate
only in an associate capacity.)
This action would symbolize our determination to work with Western Europe on
the basis of full partnership in attacking the major problems of development
and trade. It would constitute an act of creative United States leadership
in a recently deteriorating situation. It would greatly increase the
opportunity of the United States to influence the makers of European
economic policy in two directions—greater European development efforts and
actions to compose European trade quarrels on a basis consistent with sound
world trade relations.
A reorganized OEEC would need to have a new
name, and would have to provide for some form of participation by Japan.
United States membership in a reorganized OEEC would require some form of Congressional action. However,
United States commitments would not go beyond acceptance of basic objectives
and agreement to discuss and provide information. It is assumed that Canada
would follow the United States lead and also become a full member.
A more detailed description of this proposal is enclosed.
The general outlines of this proposal have been discussed with Secretary
Anderson, who concurs. If you
approve, consideration should be given promptly to the method and timing of
a public announcement of our intentions, possibly in your state of the union
message.
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[Enclosure]
Proposal for U.S. Membership in a Reorganized OEEC1
- 1.
- Looking ahead over the next two or three years, there appear to be
two major problem areas in our international economic relations for
which present United States policies, and the institutions for
implementing effective policies, are both inadequate. These two
problem areas are: (1) the need for a much larger flow of
development assistance to the less-developed areas from the other industrialized countries, especially
Western Europe, and for harmonizing development assistance policies
among the industrialized countries; and (2) the need for preventing
the emerging trade arrangements within Western Europe from gravely
damaging either United States world-wide commercial policies and
objectives or NATO political
cooperation.
- 2.
- With respect to the problem of development assistance, the United
States has so far failed to devise an approach which would be
effective either in getting the Europeans to step up their long-term
development assistance, or in creating a suitable forum for the
discussion of basic policies to guide development lending.
Consideration is being given to using the Executive Directors of the
International Bank (or of the new IDA) for these purposes. It seems clear, however, that
the Bank mechanism cannot fully accomplish these objectives for
three main reasons. First, while the Bank could be very helpful as a
clearing house for information of a statistical nature, it is a
lending institution rather than a policy organization. Second, under
the Bank’s structure, power is heavily concentrated in the hands of
the management, with relatively little left to the Executive
Directors. And, third, the Executive Directors of countries or areas
other than the United States are not persons of adequate
responsibility in their own governments such as would enable them to
speak with authority or influence on the subject of over-all
development lending policies of their governments. The UN, the only other general institution
having specific responsibilities in the field of development is
obviously unsuitable because of its unwieldy structure, the
character of governmental representation, and the presence of the
Communists.
- 3.
- With respect to present European trade developments, there are two
problems. One is that the trade rivalry between the Common Market
(The Six) and the new European Free Trade Area (The Seven) may
embitter intra-European political cooperation and may react against
the United States, which has so far refrained from any effort to
compose these differences in a constructive manner. The other
problem is that the Europeans will compose
their differences, without
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United States participation, by means of discriminatory arrangements
which would seriously hurt the trading interests of the United
States and other friendly countries outside of Europe. This would
undermine our multilateral trade policies as reflected in GATT. Unfortunately, these two
problems cannot be adequately solved through GATT alone because of the presence in
GATT of a large number of
non-European countries and because the European representatives in
GATT are not the officials who
determine intra-European trade policies.
- 4.
- If these two vital problems in the field of development and trade
are not dealt with through cooperative action, they could lead to a
serious decline in the rate of economic growth of the Free World
(which must be increased in the face of the Communist threat) and to
sharply divisive political wrangles within Western Europe and
between Europe and America which would inevitably weaken the NATO alliance.
- 5.
- It is believed our best hope for attacking these two problems is
through a reorganization of the OEEC and through the assumption by the United States
(and Canada) of full membership in place of our present associate
status. With the achievement of European recovery, the cessation of
United States economic assistance to Western Europe, and the
dissolution of regional trade and payments arrangements in Europe,
the original task of the OEEC has
been completed. Nevertheless the quality of the secretariat of the
organization, the fact that OEEC
meetings are normally attended by Ministers and senior officials
responsible for governmental economic policies, and the geographic
scope of the organization (which embraces the whole of the
industrialized world except Japan), mean that the OEEC could become a really effective
instrument for dealing with the new problems of development and
intra-European trade outlined above. While we have participated in
the OEEC for years as associate
members, assumption of full membership would have great symbolic
importance to our European friends and would give us a greatly
improved opportunity to exercise leadership in the economic field in
accordance with our world-wide responsibilities.
- 6.
- The main functions of a reorganized OEEC should include the following:
- a.
- Discussion of methods of increasing the flow of long-term
European capital to the less-developed areas, including the
establishment of the necessary national lending institutions
(now almost completely lacking) by individual European
nations.
- b.
- Discussion of basic policies of member governments
relating to development lending. (The OEEC should not get into the
field of joint action on specific development projects or of
providing information or appraisals on such projects. These
activities properly belong to the
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World Bank, where they should remain.
However, the OEEC can and
should be used as a multilateral forum for handling special
situations such as the recent Turkish and Spanish
programs.)
- c.
- Discussion of the basic trade policies of the EEC and the emerging EFTA, particularly as they
affect member countries. It should be made clear that the
basic trade principles of a reorganized OEEC will be those of the
GATT. (The United
States would use the OEEC
forum as a means of (i) enlisting the cooperation of EEC in the direction of liberal
trade policies on a nondiscriminatory basis and of (ii)
helping to assure that relations between EEC and EFTA develop in a manner
beneficial to United States trade and GATT objectives.)
- d.
- Discussion of measures to eliminate all quantitative trade
restrictions maintained by Western European countries as
soon as possible (short-run).
- e.
- Continuation of the present OEEC function of discussing broad economic
policies affecting European and world economic relations
(e.g. business cycle policy and balance-of-payments
problems).
- 7.
- In order to achieve United States purposes it would be necessary
for the United States (and Canada) to drop their present role of
“associate members” and participate fully in the new functions of a
revitalized OEEC. Only in this way
can we be sure of bringing to bear the full weight of our influence.
The assumption of full United States membership would also symbolize
a fresh initiative and determination on the part of the United
States to exercise leadership in mounting a broad program by the
industrialized countries to help the less-developed areas.
- 8.
- In proposing a reorganized OEEC
the United States would seek changes in the present organizational
structure designed to (a) alter the existing pattern of U.K.
preeminence in the organization and (b) give the OEEC greater direction through the
establishment of a limited Executive or Steering Group. In
connection with the latter proposal, provision might be made for the
participation in the Executive Group of one representative acting
for the EEC countries as a
unit.
- 9.
- A reorganized OEEC should contain
provision whereby Japan could be allowed to participate, at least in
discussions of subjects of concern to all the major industrialized
countries—e.g. basic policies regarding development assistance,
business cycle and balance-of-payments problems. Such participation
might be achieved through either full or associate membership for
Japan.
- 10.
- United States membership in a reorganized OEEC would require some form of Congressional action,
including authorization to contribute to the OEEC budget. Any commitments affecting
the United States flowing from membership in a reorganized OEEC should not go beyond adherence to
general objectives, undertakings to discuss and the provision of
information. The OEEC rule of
unanimity should be preserved. A reorganized OEEC should be appropriately renamed
to avoid a purely regional connotation.
