Foreign Relations of the United States, 1958–1960, Western Europe, Volume VII, Part 2

310. Memorandum of Conversation⁰

November 28, 1958.

SUBJECT

• US-Spanish Economic Relations

PARTICIPANTS

• Senor Don Jose M. de Areilza, Spanish Ambassador
• Senor Don Enrique Dominguez-Passier, Economic Attaché, Spanish Embassy
• Senor Don Juan Jose Rovira, Ministry of the Presidency, Madrid
• Senor Don Francisco Elorza, Marques de Nerva, Foreign Office, Madrid
• Senor Don Jaime Pinies, Foreign Office, Madrid
• Mr. C. Douglas Dillon, Under Secretary for Economic Affairs
• Mr. W.T.M. Beale, Deputy Assistant Secretary for Economic Affairs
• Mr. Robert H. McBride, WE
• Mr. E.J. Beigel, WE
• Mr. Frederick H. Sacksteder, Jr., WE

This meeting was arranged at the request of the Spanish Ambassador who wished, under instructions from his Government, to explain the Spanish position on our negotiating proposals for an FY 1959 PL 480 agreement, to express his Government’s concern with what it considers a set-back to previous US proposals in this field, as contrasted with our excellent political and military relation, and to request Mr. Dillon’s views on the broad United States approach in the field of economic relations.

The Spanish Ambassador began by reiterating the arguments that he had previously advanced on November 26 in his meeting with Assistant Secretary Merchant.¹ He emphasized that the apparent inconsistency between our cooperative, understanding and forthcoming attitude in the military and political fields, exemplified by the cordiality which prevailed during Mr. Dillon’s and Mr. Macintosh’s recent visit to Madrid,² and the arbitrary, bureaucratic and unsympathetic attitude evidenced by our negotiating proposals for the FY 1959 PL 480 agreement, had created dismay and consternation in the Spanish Government. He said that the terms and conditions, which were set forth in a memorandum that formed a part of the negotiating package submitted by the American Embassy at Madrid on October 31,³ failed to take into account the present Spanish situation, and the excellent and mutually cooperative state of our political and military relations.

The Ambassador stated that the Spanish contribution to our overall relations caused a heavy drain on the Spanish economy, because by committing itself irrevocably on our side in the common struggle, the Government of Spain had to consider public opinion within Spain, and the fundamental desire of the Spanish people to improve their economic situation. He said that American economic assistance was one of the conditions on the basis of which Spain had taken the major step of allying itself with the United States, and was particularly essential at this time to assist Spain in crossing a major barrier in its development. The Ambassador said US Defense Support assistance had helped but PL 480 remained a critical and essential part of the aid that Spain required to achieve its objective; therefore, the Spanish Government was anxious to know the US Government’s attitude toward the Spanish situation.

Mr. Dillon said that we do not have different policies and different attitudes in the different areas of our relations with Spain. He said that we regard economic, political and military policy as part of our whole policy toward Spain, and we wish to work together all across the board; if the climate of our relations appears to be more favorable in one field than in others, this is unintentional, for we wish to be helpful at all times, within the limits of our ability to be so. For this reason, he said, we intend to continue our aid programs as usual, with each form of aid contributing to the desired whole; in addition to Defense Support and PL 480 this year, we are hopeful some DLF projects will be ready by the end of the year.

Mr. Dillon said that he understood the basis of the Spanish Government’s concern with this year’s PL 480 proposal. He said that perhaps the unnecessarily adverse reaction was motivated by the manner in which the matter had been handled. He said that PL 480 programs, which are in effect with many countries throughout the world, involved a large number of interested agencies in the US Government; hence the presentation of the negotiating proposal was perhaps not always tailored to the specific situation in the recipient country. He said that the exact proposals are worked out in Washington on an inter-agency basis, and often include, for negotiating purposes, conditions or suggestions which may be unacceptable or impracticable for the recipient government, all of which are subject to discussion and negotiation. He said that the manner in which the negotiating proposal is submitted varies from case to case, and country to country, and may have been accomplished in an overly formal manner this year with Spain.

Mr. Dillon said he wished to comment on two aspects of our proposals. During his visit to Madrid, he had spoken about the Cooley provision,⁴ and had then indicated that our position was not inflexible. He said that although we continued to hope that we could make some use of these funds for purposes envisaged by the Cooley provision, which had worked well in other countries and could be of mutual benefit, if this continues to present serious problems for Spain, we were prepared to handle the matter in the same manner as last year. Mr. Dillon also referred to the desirability of signing sales and loan agreements at the same time, and added that failure to do this in the past had resulted in the accumulation on a world-wide basis of very sizeable sums of local currencies. He said that the Congress had expressed concern about these idle local currencies, and it was, therefore, highly desirable to arrange for the use of the sales proceeds at the same time as the sales agreement was signed. Mr. Dillon assured the Ambassador that what we desired was to reach a mutually satisfactory agreement, and not to insist on acceptance of any unilateral conditions.

Ambassador Areilza emphasized that Spain is making every effort to stabilize its currency, liberalize its trade patterns, and expand its participation in the OEEC. The Spanish Government, he continued, hoped that it could at this time count on full US understanding. He said that it would also be helpful to Spain to know whether the US may be willing to provide structural aid to Spain to enable it to join fully in the activities of the OEEC, by assisting Spanish intra-European trade. Such structural aid would be most helpful if available around the first of the year.

Mr. Dillon replied that we continue to support closer association of Spain with the OEEC, and said that we would do what we could to assist in Spain’s efforts to overcome remaining difficulties. We would, therefore, study carefully the proposals to be developed by the OEEC in this connection. He said that as far as our aid funds were concerned, the situation was very difficult at this time because of heavy emergency demands from various critical areas of the world in the past months, but we would be in a better position to assist later on, if we should ask for and obtain a supplemental appropriation from the new Congress.

It was agreed that the Spanish representatives would meet in the Department on Monday, December 1, to discuss in greater detail the various points which disturbed the Spanish Government.⁵ It was agreed that subsequently instructions would be sent to Madrid, and that the final negotiation and signature of the Agreement would be concluded there.⁶

0. Source: Department of State, Central Files, 411.5241/11–2858. Confidential. Drafted by Sacksteder. A summary of this memorandum was sent to Madrid in telegram 652, November 28. (Ibid.)
1. A 3-page memorandum of Areilza’s conversation with Merchant and Ambassador Lodge, in which he presented similar but more detailed arguments on the P.L. 480 agreement, is ibid., 411.5241/11–2258.
2. A 4-page memorandum of Dillon’s conversation with Castiella and the Spanish Ministers of the Treasury and Commerce on September 22 concerning the Spanish economic situation was transmitted as enclosure 2 to despatch 187 from Madrid, September 23. (Ibid., 110.12–DU/9–2358)
3. Not found in Department of State files, but according to telegram 602 from Madrid, November 22, it gave the conditions for a proposed P.L. 480 sales and loan agreement. (Ibid., 033.5211/11–2258)
4. The Cooley Amendment to the Agricultural Trade Development and Assistance Act of 1954 (P.L. 480), introduced by Representative Harold D. Cooley and adopted by Congress on August 13, 1957 (71 Stat. 345), provided that up to 25 percent of the total sales proceeds of Title I programs be made available for loans to foreign and U.S. private investors through the Export-Import Bank. Loans were to be made in local currency and were repayable in that same currency. The law prohibited loans for the manufacture of products to be exported to the United States in competition with American products.
5. Areilza discussed the loan agreement on December 3 and 10 with Assistant Secretary Merchant along similar lines. A 2-page memorandum of the first conversation and a telegraphic summary of the second (telegram 694 to Madrid, December 10) are in Department of State, Central Files, 411.5241/12–358 and 411.5241/12–1058.
6. On December 31, the Department of State announced that the U.S. Development Loan Fund had authorized two loans totaling $22.6 million to assist Spain in financing imports. The two loan agreements implementing this authorization were negotiated in Madrid and signed on June 4, 1959. For text of the announcement, see Department of State Bulletin, January 19, 1959, p. 107.