600.0031 World Program/240: Telegram
The Chargé in the United Kingdom (Johnson) to the Secretary of State
[Received December 31—6:45 p.m.]
818. With respect to my 672, October 27, 11 p.m. and 733, November 23, 7 p.m.,34 and in compliance with the Department’s 510 of December 28, 6 p.m., Ashton-Gwatkin of the Foreign Office was informally approached and he suggested and arranged for a meeting with himself and Leith-Ross, who have been primarily concerned with the Van Zeeland report matter.
Leith-Ross began by asking that his remarks be treated in the strictest confidence and he particularly emphasized that Van Zeeland whose visit to London will take place January 6 or 7 is anxious that it be not revealed to the press.
Leith-Ross went on to say that there had been several preliminary reports the latest of which he had seen during a meeting with Van Zeeland on his way to the economic committee at Geneva. The first part of that report was “what you might expect” names [namely?] a recommendation of lower tariffs, elimination of quotas, elimination of exchange controls, which included Frére’s idea of central bank assistance. The second part envisaged the meeting of the representatives of France, Germany, Italy, United Kingdom and the United States, [Page 694] who would be asked certain straightforward questions to ascertain their real interests in “internal collaboration” with a view to working out a preliminary procedure program. The second part also included the King of the Belgians’ idea of the setting up of a permanent organization.
Leith-Ross said that he had spoken frankly to Van Zeeland about the preliminary report but as an expert and therefore without committing the British to his expressed views. In the case of tariffs he had said that it was all very well as an economist to inveigh against excessive tariffs and no doubt lower tariff rates in the United Kingdom, and the United States would help the debtor countries but internal political conditions offered little hope in his opinion that progress could be made more rapidly than was now being achieved through the operation of two-country agreements. In this connection he had cited the proposed United States-United Kingdom trade agreement35 as an example. He had also told Van Zeeland that the lower tariff group proposal would be unacceptable to the British Government almost all of whose treaties contained a most-favored-nation clause.
As regards quotas Great Britain had very few; it was from France that action had to come. Leith-Ross added that he had later talked to Rist36 who had stated that his committee would not finish its report on the 4,000 odd items of the French tariff affected by a change in the quota system until June. Leith-Ross said that he thought that any raising of the French tariff in exchange for elimination of quotas would have to be watched very carefully if excessive tariff increases were not to result.
As regards exchange control Leith-Ross’ view was that there were two main difficulties which faced the Danubian countries:
- (1)
- That any relaxing of their exchange control structures which very much required classification and simplification would in turn require exchange readjustments probably down to the lower levels of their rates since many of them had different rates applicable to different countries. This, however, would tend to make rigid a system which was, from their point of view, usefully flexible and this they might well find embarrassing should there be a “landslide” affecting the major countries—“not that I expect there will be, but one never can tell.”
- (2)
- The importance of German trade and the desire of Germany to use its exchange control machinery to the fullest extent in the Danubian area created another real difficulty. German trade with the Danubian countries would have to be somewhat rigidly canalized if controls were relaxed or she would acquire all the foreign exchange thereby made available.
Leith-Ross said that he had not commented and could not comment specifically on Frère’s idea of central bank assistance, that he felt sure that the Bank of England would not be willing to make available any funds whether to the BIS37 or otherwise except in return for a British Government guarantee. Such a guarantee would require an act of Parliament and therefore assumed considerable political importance. For this and other reasons he had suggested to Van Zeeland that it would be desirable for him to go to Italy, France and Germany and discuss his projected report there and then come to London to talk with the Prime Minister.
As regards the second part of the report Leith-Ross said that he had expressed to Van Zeeland great interest in the idea of representatives of the five powers meeting but that he expressed equal repugnance to the idea of setting up a permanent organization which could not but conflict with and duplicate the efforts of the League. He understood of course that such an organization might be more acceptable to Germany and Italy than the League machinery but he could not imagine it being productive of anything but enlightened studies if international collaboration was not forthcoming; if the international collaboration was forthcoming the organization would not really be necessary to success.
I did not gather that Leith-Ross was optimistic about the practical results which would flow from the Van Zeeland report, in fact at one point he expressed sympathy for Van Zeeland for being burdened with this extremely difficult and uncomfortable task. He did show very definite interest in doing something for the Danubian countries and Ashton-Gwatkin stated that the British had told the Czechs that if they were able to work out a preferential arrangement for the Danubian countries, the British Government would waive its most-favored-nation rights. He cited as an example of the tendency which he hoped to reverse the fact that 10 years ago Hungary exported 17 percent of its produce to Czechoslovakia while today it only sends 3 percent.
Questioned about ways and means of international collaboration Leith-Ross showed more than passing interest in the possibility that should Germany and Italy make such reservations to the questionnaire to be submitted to the five powers as to rob it of practical importance they might be led to the point of giving their blessing to, instead of opposing as they now did, an attempt to bail out some of the Danubian countries.
Leith-Ross said he personally believed that if Austria, Czechoslovakia and Rumania could “get together” that in turn would largely make possible the “inclusion” of Yugoslavia and Hungary. He added [Page 696] that he saw no reason why Rumania should maintain exchange controls except to provide “graft” for the central bank.
Leith-Ross said that the Prime Minister was very much interested in the problems covered by the Van Zeeland report and he hoped that he and Van Zeeland would have a productive talk. He offered to pass on any further information made available through Van Zeeland’s visit and at the same time he referred to Mr. Welles’ conversation with Van Zeeland and expressed considerable interest in our attitude to the report. In particular he mentioned the problem of representation if a five power meeting were held in Brussels and said that from the British Government’s point of view it also presented difficulties: It would not be appropriate for himself or Ashton-Gwatkin to attend unless the character of the meeting was changed to a purely technical type and of a preliminary nature; otherwise a responsible cabinet official should represent the British Government preferably the Prime Minister, but he doubted whether the Prime Minister in the given circumstances could or would be willing to go.
- Neither printed.↩
- See Vol. ii, pp. 1 ff.↩
- Charles Rist, French financial expert and adviser to the government.↩
- Bank for International Settlements.↩