London Embassy Files, Lot 58F47, 500 Marshall Plan: Telegram
The Chief of the ECA Mission in the United Kingdom (Kenney) to the United States Special Representative in Europe (Harriman), at Paris
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Torep 1709. Eyes only for Harriman. Hitchman, British Treasury, yesterday informed me of the decision of British Ministers concerning dual prices. The decision is that under present circumstances dual prices are not considered wrong, and, therefore, they propose to take no action with respect to the existing differential between domestic and export prices for coal and steel.
The stated bases for this decision are, first, dual pricing is not prohibited by the ITO Charter; second, export prices for coal have been determined by commercial practices; and, third, the equation of prices is not feasible. On this third point they pointed out that certain difficulties would arise with countries other than participating countries if export prices were reduced to the level of domestic prices. The total differential between export and import prices for coal and steel is approximately 25 million pounds, of which about one half is represented by trade to participating countries. The contention was made that if export prices are reduced to OEEC countries, this will require a corresponding reduction to non-participating countries, because under GATT differential in prices is only justified for commercial considerations. If a reduction in prices were required for non-participating countries, it would result in a loss of revenue of approximately 12½ million pounds. Further, due to demand in excess of supply, British question that the benefit of lower prices would be passed on to consumers in participating countries, and that an equation of export prices to domestic prices might result in tiers of prices, thereby defeating the purposes for removing differentials. In the case of steel it was felt that the forces of competition will soon remove the differential. An increase in domestic prices is not considered feasible because this would require a basic lift in price levels and thereby defeat the attempts to prevent inflation in the United Kingdom. After the meeting the opinion was expressed by representative of MinFuel and Power to Longman1 that in addition to foregoing, an increase in domestic prices for coal at this time would be “political suicide.”
I pointed out that the fact that the ITO Charter did not prohibit dual pricing had no bearing on the subject because the obligation undertaken with the OEEC countries was over and above an undertaking [Page 461] under ITO, and that I considered that the continuation of dual prices was not in accordance with their agreement for mutual assistance to the participating countries, and, in addition, was contrary to the intent of the resolution adopted by the OEEC Council on November 2. The British contended that their obligation of mutual assistance to the participating countries in the matter of providing coal was fulfilled by the fact that rationing had been imposed in the United Kingdom, and coal thereby made available to the participating countries which would not otherwise be available. With respect to the resolution of the OEEC Council, it was pointed out that the obligation was merely “to inquire into ways and means to eliminate,” and in their opinion the ways and means to eliminate was by increased production. I further pointed out that this action on the part of HMG in addition to being contrary to their obligation of mutual assistance might involve two further points—first, political repercussions among the other participating countries, particularly in the case of France and Germany, and, second, such action might well bring about a reduction in ECA funds by the amount of the burden which had been imposed upon the economy of participating countries by this action.
The plan was to report the decision to the working group in OEEC last night; so I assume it is virtually public knowledge by now.
The decision of British in this instance is most discouraging, and I consider it of such importance that prompt and drastic action is required, unless ECA is completely to lose face with other participating countries. Hoffman in his speech before OEEC made a special point of dual pricing which, it was my understanding, was agreed to by the representatives of HMG. By reason of the refusal of British to cooperate, it will be most difficult to compel other participating countries to take unpopular action necessary for the good of all. Unless prompt action is taken, current negotiations on trade liberalization and transferability of currencies may be jeopardized. British attitude is doubly discouraging because of absence of counter proposal or appearance of any desire to want to keep negotiations open. (I was prepared to recommend possible utilization of counterpart to compensate for lost revenue in order to keep domestic prices down to counteract inflationary tendencies.) Although I am hesitant to do so because of the British attitude, if you feel it advisable, I will personally approach Cripps, once again stressing the various implications.
If that proves fruitless, it would be my recommendation that either you or Hoffman (after making an appropriate canvass of the position of the other participating countries with respect to the commodities in which they are the offenders) make a public announcement of your intention to withhold from the balance of 49/50 ECA allotments to [Page 462] the various offending countries the dollar value of the differential between export and domestic prices for the commodities in question. The amount so withheld to be distributed among those countries affected by the burden imposed upon their economies by the dual pricing policies of other participants.
In the case of the British the amount to be withheld would be in the order of £13 million (i.e. $36,400,000, which represents the figure furnished by the British as the differential between export and domestic prices for coal and steel during calendar 1949).
- Tremper Longman, Chief of the Industrial Division in the ECA Mission in the United Kingdom.↩