840.50 Recovery/6–2348: Telegram

The Ambassador in the United Kingdom ( Douglas ) to the Secretary of State

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us urgent
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2768. For Lovett from Douglas. I. Hector McNeil, now British Minister responsible for bilateral negotiations in absence Bevin, asked to see me last night to discuss remaining difficulties. While he appreciates excellent work done by Thorp and Franks in Washington negotiations he feels over-riding domestic political considerations have now emerged justifying confidential discussions with me and transmittal his views and mine to you.

[Page 1110]

In McNeil’s opinion there are three “breaking points” on which UK prepared risk agreement rather than accept present draft.1 Unless we can meet these points, he insists, there is not a chance of getting the agreement approved by Parliament. The government has already been forced to promise a debate on the agreement and McNeil today suggested to Morrison that a debate must be scheduled even if it means postponing signature of agreement and loss of aid after July 3.

1)
British cannot accept inclusion Japan and Korea in exchange notes accompanying agreement of which draft forwarded your circular June 19. McNeil mentioned the strenuous objections of Australia and New Zealand to extension MFN treatment to Japan and even more strenuous objections Lancashire if such MFN treatment includes British colonies. He remarked that if such conditions were accepted UK would prefer status of former enemy country rather than former ally and this is undoubtedly viewpoint which Parliament would take. I judge this to be one of the most difficult points. I recollect no legislative history suggesting this condition, at least as it relates to authorization act. Is there any history or reference in appropriation hearings or appropriation act? The May 18 analysis of the agreements (ECA/132) defends only the extension of MFN treatment to occupied areas in Europe, which British are prepared to accept.
2)
Equally vital point is infraction of British sovereignty implicit in article II (general undertakings). McNeil referred particularly to the phrase “will take all possible steps” in opening sentence, pointing out that UK has consistently refused to employ such language in bilateral trade agreements, notably with Russia, and parliamentary reactions have always been prompt and severe. The Cabinet insists that this phrase should be replaced by “will use their best endeavors” or equivalent language such as “will take all steps within the powers normally exercised in such matters.” If the British modification were accepted appropriate revisions of remaining text should be made notably the phrase “take all possible steps in paragraph one, sub-paragraph (b). On sovereignty issue, Article II, paragraph one, subparagraph (c) regarded as equally crucial, even if opening sentence were modified. The phrase “as may be necessary” is particularly bad since British feel strongly that only UK can decide what financial and monetary measures may be necessary to stabilize the currency, maintain a valid rate of exchange, etc., whereas this draft implies that the signatory county is not the sole judge of these matters. The Cabinet has suggested as possibly acceptable the language of Article VII of the convention of OEEC, either by direct quotation or by reference. I would suggest as another possibility that the language be revised in [Page 1111] more acceptable form by following more closely that of section 115 (b) and interpreting “where applicable” more generously.
3)
The third “breaking point” arises from Article II, paragraph one, sub-paragraph (a) (3) re British assets in US. The UK was satisfied by the interpretive minute drafted in Washington which stated that the UK has already done all that is required under this clause, and in the view of the Cabinet this is literally the case. McNeil understands that the minute was withdrawn because France demanded similar consideration, although obviously this requirement was originally directed at the French situation. If the minute could be restored the British would accept this clause, since they could satisfy Parliament that it is not applicable to UK. Otherwise its presentation to Parliament would be a “disaster” in McNeil’s opinion.

II. The Cabinet has instructed the UK delegation to maintain the British position on other points which are still serious although McNeil appraises them as less vital politically. The Cabinet’s views on these points are summarized in the following paragraphs.

1)
There is particularly strong British objection, although not on domestic political grounds and perhaps not to the “breaking point”, against some provisions of Article V re access to materials. Paragraph one cannot be accepted because as presently drafted it obliges the UK to assist in obtaining materials for the US from world-wide sources. The UK cannot undertake such an obligation except as it relates to materials originating in the UK and … specifically. There is also very strong objection to paragraph three, which the cabinet insists must be deleted. Ministers feel that the UK might be directed under these provisions to use UK good offices to promote commercial undertakings which might be clearly contrary to UK interests. There is also grave doubt that such territories as Southern Rhodesia would accept any obligation to supply materials to the US in view of the fact that they do not participate in aid programs. In fact Southern Rhodesia has already recorded this view.
2)
The UK delegation is instructed to press for the deletion of paragraph three under Article I re UK cooperation in off-shore purchases. The language is regarded as much too strong, drafted exclusively in the interest of the US, and it might be interpreted to require the UK to interfere in the affairs of a third country. Parliament would also regard this clause as an “abject surrender” by the UK, and McNeil referred particularly to the danger that US and UK interests might conflict in such areas as Argentina.
3)
The UK objects to the reference to “justifications” in Article II, paragraph 1, sub-paragraph (a) (1) and points out that the justifications furnished for ECA aid were not drawn up with such requirements in mind and do not take exports into account. As the sub-paragraph is drafted, therefore, the UK might be subject to the criticism that it is re-exporting commodities received under the aid program, such as steel. The difficulty might be surmounted by redrafting all British justifications with this requirement in mind, but this would be an arduous undertaking. The British would much prefer to substitute language for the last part of the sentence to read: “as far as [Page 1112] practicable, with the general objectives set out in the convention of OEEC signed by all the participating countries.” This would cover the point of possible re-exports.
4)
The Cabinet is not clear as to the significance of “other countries” in Article II, paragraph one, sub-paragraph (d) and would require clarification as to the possible conflict of this provision with obligations assumed under ITO.
5)
The UK questions Article II, paragraph three, regarding restrictive business practices, which fails to establish criteria or indicate under what authority restrictive practices may be regarded as damaging the recovery program. McNeil also remarked that no such provision is included in PL 472. The UK would, however, accept this paragraph provided both sentences of the agreed minute negotiated in Washington are accepted by the US. The US proposal to delete the second sentence is not acceptable to the UK because it again involves the question of sovereignty. McNeil suggests that if this provision must be included it follow more closely the principles of ITO charter.
6)
The Cabinet feels that the interval provided for in the termination provisions of Article XII should be shortened. The texts now provide for a total of one year before termination is complete but the UK delegation is instructed to press for six months total. Similarly the UK is pressing for a reduction to one year of the additional effectiveness of Article V.

III. I understand that certain suggestions have been made by the US on the one hand, and by the UK on the other, which may result in the settlement of some of the points of disagreement referred to in paragraphs I. and II. above.

IV. If there continues to be a deadlock on the serious points in disagreement, the British will not as was suggested by the French, consult with France in regard to them, but will instead consult with a council of the OEEC.

V. A parliamentary debate on the bilateral agreement has been promised to the House of Commons before UK acceptance. If it is to be held in time for adequate discussion prior to July 3, the date of the debate must be next week. If the debate is to be held next week, notification to the House of Commons, in accordance with British parliamentary practice, must be given tomorrow, June 24, and copies of the agreements must be circulated to the members of the House of Commons at least two days before the date of the debate. In view of the present state of the negotiations and the apparent area of disagreement, it is not likely that copy of the agreement will be in shape in time to meet this schedule.

Since it has been generally understood that a debate next week will be held, a postponement to the following week, or later, will give rise to a series of questions which might well aggravate the relatively [Page 1113] strong feeling here that the US is behaving precisely as Molotov predicted we would behave.

VI. I pointed out to the British that with but two or three exceptions, the substance of the bilateral agreement was outlined in the authorization act, and that if there are any serious objections to them now, they should properly have been lodged at the time the act was being drafted and debated in the Congress.

VII. Would appreciate being kept informed.

Douglas
  1. The references in this telegram are to sections of the second master draft of the ECA Agreement, which had been sent to London with the circular telegram of June 19, not printed, following revisions of the first draft by representatives of the United States, United Kingdom, France, Denmark, and Sweden, meeting at Washington. Most of the British desiderata were incorporated in the final text of the ECA Agreement signed at London, July 6, 1948. For this text, see Department of State Treaties and Other International Acts Series (TIAS) 1795, or 62 Stat. (pt. 2) 2596.
  2. Not found in Department of State files.