Foreign Relations of the United States, 1949, Western Europe, Volume IV

841.5151/6–3049: Telegram

The Secretary of State to the Embassy in the United Kingdom

top secret

Washington , June 30, 1949—6 p. m.

2257. Eyes only for the Ambassador. NAC joined by Sec of Agri today unanimously approved statement quoted below re US views on current trade and payments problems of Europe:¹

• “1. The US expects to terminate financial assistance to the UK and Eur countries in fiscal year 1951–1952.
• 2. US desires to see most effective utilization of Eur resources so as to sustain high standard of living and employment at that time without dollar assistance.
• 3. Since continued Eur imports of substantial quantities of basic foods and raw materials from Canada, and US after 1952 will be a desirable and economic pattern of trade, overriding objective of US and Eur policy shd be to remove present dependence of Eur countries upon extraordinary dollar assistance, especially by expansion of sales from UK, other Eur countries and sterling area to Canada, US and Latin America during years 1949–52.
• 4. It is recognized that there is a marked disparity between prices in Europe and in dollar area. In addition to such steps as Eur countries may take to reduce internal prices and costs, an adjustment of Eur exchange rates wld appear to be an essential step in making Eur exports competitive in dollar area and increasing Eur dollar earnings.
• 5. The adoption of discriminatory import restrictions against dollar area as long-term solution to obtaining balance of Eur dollar accounts wld mean perpetuation of an uneconomic pattern of world trade. It can only lead to increased competition among Eur purchasers of goods from non-dollar area produced under relatively high cost conditions. Final result can only be lower level of Eur standard of living than could be obtained by proper emphasis on sales to dollar area.
• 6. In short run, however, it is recognized that UK and sterling area, and perhaps other Eur countries, may have to take drastic measures to reduce imports from dollar area in order to prevent serious decline in their remaining gold and dollar reserves. In this transitional period, these countries may desire to maintain or expand their mutual interchange of goods rather than reduce their own interchange to same extent that imports from dollar area are restricted. However, as has been recognized in OEEC report, there are serious limitations upon possibilities of replacing through imports from soft currency areas imports which are presently being obtained from dollar area.
• 7. US has consistently supported a reduction of trade barriers among OEEC countries and other steps toward effective economic integration of Eur economies that will contribute to a more efficient allocation of resources, provided that such steps are part of a program designed to restore multilateral trade on a world basis and global convertibility of currencies. Appropriateness of trade and payments arrangements within Eur must be viewed in light of steps by the Eur countries with respect to trade and payments vis-à-vis other currency areas, especially dollar area.
• 8. In connection with possible reduction of trade barriers in Eur, question will also arise as to reduction of barriers in wider soft-currency area, including particularly independent sterling area. It is felt that at present time no firm US position shd be taken on this matter. UK has indicated that it wld not participate in liberalization of restrictions on goods imported from Eur continent unless these measures of liberalization can be extended to independent sterling area.
• 9. Although under present circumstances US cannot realistically object to such discrimination as may be implicit in reasonable measures by UK to curtail dollar imports, US must regard such deviations from Section 9 of Financial Agreement as temporary measures to meet an emergency situation. While the Executive Branch may wish to advise Congressional leaders promptly of any definite Brit proposals which may be presented to it, Exec Branch is not in position at this time to recommend to Congress modification of Financial Agreement. US is prepared, however, to enter into negotiations looking forward to the revision, under Section 12 of the Agreement, of Section 9 as well as other provisions of Agreement in such manner as may be consistent with long range objectives of US with regard to international trade and finance.
• 10. UK has not agreed to payments plan proposal made by ECA for fiscal 1950 embodying principles of convertibility and transferability of drawing rights. As an interim measure ECA has proposed a temporary plan to operate pending agreement within OEEC on an acceptable plan for fiscal year.”

Obviously this is a preliminary statement which will require more precise definition on specific issues as they arise. Paper is being taken by Sec Snyder as background for his discussion in Eur but the extent to which he presses the views contained therein in course of his visits in Eur is being left his discretion. Statement on exchange rates is a technical judgment of current Eur position. It does not imply US should bring direct pressure on British to devalue.

Above being repeated Harriman by ECA.

Acheson

1. A brief memorandum of the proceedings of the meeting of the National Advisory Council on International Monetary and Financial Problems, June 30, is in file 840.5151/6–3049.