286. Telegram From the Embassy in the United Kingdom to the Department of State1

5279. Secun 31. For Secretary and Secretary Fowler from Katzenbach.2

Tonight we met at Chequers with Prime Minister Wilson, Fred Mulley, Peter Shore, Paul Gore-Booth and William Armstrong. I first gave the Prime Minister a run-down on our visits around the continent. They were particularly interested in French reaction and whether any of the other countries had begun to make estimates of the effects of our measures. Prime Minister reiterated the position taken by Roy Jenkins at our meeting last Tuesday of complete understanding and support for the President’s program.3 I emphasized that these measures were taken in a political context and that the President was very anxious to be able to subtract the balance of payments argument from those who would, for other reasons, wish to advocate either troop withdrawals or protectionist measures.
While recognizing that these political forces were at work, the Prime Minister did express concern about any measures in the trade field and commented that the introduction of the border tax by the United States could lead to consequences on world trading patterns. He said he did not wish to over-dramatize this situation but clearly implied that it would be extremely difficult for the British to go forward with their elimination of export rebates at a time when the United States was introducing such a measure. He inquired whether it might not be possible, as it was in the British system, to leave discretionary measures in the hands of the President while discussions were proceeding in the GATT about the TVA. The Prime Minister also pointed out that although we might be successful in obtaining the agreement of the major world trading powers to stand still for our border tax measures at this time, we might very well find that the next country to get into trouble would use this method and perhaps even more protectionist devices in its “package.”
In discussing our talks in Bonn and the reactions to our pleas for neutralization of balance of payments effects of troop stationing, Prime Minister said that it was absolutely essential for Britain to obtain one hundred million pounds offset agreement by April 1st when the current agreement runs out. He said that the Germans had not yet been able to talk to them because they had not reached agreement on their purchase plans because of internal budget difficulties. It looked now as though these talks could not begin yet for some time. The Prime Minister made the flat statement that without such an offset, given all the other drastic measures he has had to take and the situation in the Parliamentary Labor Party, he could not defend the maintenance of troops in Germany. He said that they would have to make this clear to the Germans. He recognized that any breakdown in British arrangements with the Germans necessitating such a withdrawal could very well fuel the very forces the President was opposing in the United States and therefore he would make every effort to reach an agreement with the Germans. He was not insisting that payments under an offset agreement be received immediately, but would be content with assurance that payments would in time be received sufficient to completely offset UK military expenditures after April 1.
In discussing this problem Prime Minister said that recent Cabinet discussions had been leading in the direction of decisions to put the greatest stress on British military presence in Europe. He knew that this gave us problems and mentioned the fact that the Secretary had sent a letter to George Brown today on the Persian Gulf. I said that this did give us concern but felt in the context of this discussion I should not go any further. (In any case George Brown will be discussing this with you next week.)
As we were leaving Prime Minister said he was very much looking forward to seeing the President next month in Washington and assumed he could continue this conversation there. We would then have a better idea of what we were going to do.
  1. Source: Johnson Library, National Security File, Country File, UK, Vol. 13. Secret; Immediate; Exdis.
  2. The Under Secretary visited the six European Community capitals and Switzerland January 2-6 to explain President Johnson’s balance-of-payments program.
  3. The meeting took place on January 2. According to a January 2 entry in the Bruce Diaries: “Katzenbach, at times assisted by Deming, explained at length what we hoped to achieve by the proposed measures. Roy Jenkins replied, saying he thoroughly understood the reasons for what we were doing, and, although our actions would have a harmful effect on the British economy, he did not propose to make any complaint about them.” (Department of State, Bruce Diaries: Lot 64 D 327)