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

841.5151/10–1449: Telegram

Memorandum by the Director of the Office of British Commonwealth and Northern European Affairs (Labouisse) to the Deputy Assistant Secretary of State for European Affairs (Thompson)

secret

Washington, October 14, 1949.

Subject: Your Talk With the Secretary on October 17.¹

You may wish to brief the Secretary on the following points at your meeting on Monday.

1. Arrangements for continuing consultation with British and Canadians.

(a). Interdepartmental Arrangements. Mr. Webb has set up an Advisory Group of which he is Chairman and of which Foster of ECA and Foley of the Treasury are members.² The group is to meet every Tuesday. I am to act as Executive Director of the group for the purpose of assuring that appropriate attention is given in the Department and interdepartmentally to the various problems to be considered. It is agreed that these arrangements shall be most informal and that the normal operating procedures will be employed to the greatest extent possible.

(b). Arrangements with the UK and Canada. The British are sending Sir Leslie Rowan and the Canadians probably Sydney Pierce to be attached to their respective Embassy’s as Economic Ministers. These men will act as deputies for the two Ambassadors in carrying forward any tripartite discussions. Both the British and Canadians are anxious that no formal committee be set up and that, to the greatest extent possible, our discussions of matters be on an informal basis and through normal procedures. The US Advisory Group share this view. It is contemplated that the main point of contact between Rowan and Pierce will be me but that Mr. Webb will be available whenever he is needed. Rowan will arrive in early November and we shall get under way then.

(c). Scope of Discussions. No definite agreement has, as yet, been reached as to the precise scope of the continuing consultations, but it is generally understood among those concerned that they will include not only the matters left over from the Top Level ABC talks and other possible measures for aiding the dollar-sterling problem, but also analyses and appraisals of various facts and trends in trade and financial fields and frank exchanges of views as to our objectives in these fields and the possibilities of achieving them.

2. Petroleum Discussions with the British.

The United States agencies concerned, with the exception of the Treasury, have agreed upon a line of action. The general line is that we emphasize the twin objectives of reducing the dollar drain on the sterling area and protecting the US national interest; that we urge the US companies to reduce dollar component of their costs of sterling area operations; that we seek an understanding with the British to the end that arrangements would not be made with third countries having the effect of precluding US company participation in their normal markets; that we urge the negotiation of arrangements between the British and the US companies which would permit the latter to sell for sterling in third countries wherever British companies would, in the absence of US company sales, be permitted to sell for sterling; that such arrangements cover the use and convertibility of sterling so owned and be directed toward obtaining the following objectives:

(a). That the total dollar drain on the British Treasury, including profits and capital charges, resulting from these arrangements does not substantially exceed the average dollar costs which would be incurred by the British Treasury if equal quantities of petroleum products were furnished by British companies, having regard for the increases in dollar investment and operating costs which the requisite expansion of British facilities would entail;

(b) That the US companies have the right to spend sterling in the sterling or other soft currency areas for the purchase of equipment and materials and to cover other expenses of their overseas operations, under the same conditions as are applicable to British companies, including equal treatment in the access to such equipment and materials; and

(c) That, should such arrangements begin to give rise to burdensome accumulations of sterling which cannot be converted despite such measures as shall be taken by the US companies pursuant to paragraph VII of these Recommendations,³ the US controlled companies and the British Government consult in regard to ways and means of preventing further accumulations.

The Treasury opposes suggesting sales by American companies for sterling, presumably on the ground that this would give the petroleum industry a preferential position over other US industries. Apparently Treasury feels that the British companies should supply the sterling area, displacing the American companies and, thus permitting the American companies to take over previous British markets in third countries. The fly in this ointment is that the British have taken over the Argentine market and, we understand, British companies may displace American companies in other third country markets such as Spain, Denmark and Uruguay.

I have called this matter to Foley’s attention and will seek to work out an agreed position with the Treasury early next week.

In the meantime, we had a talk with the British⁴ emphasizing the twin objectives mentioned and saying that we were still working on the matter but would like to have the British proposals in light of facts which had been brought to light to date. The British will make some proposals of a short-term nature, such as using presently surplus sterling oil to displace US company oil now programmed for shipment to the sterling area. Pending receipt of definite proposals from the British we are seeking to beat out a US position with the Treasury.

As to prospects for success, it appears that substantial reductions in the dollar drain can be made if our proposal, outlined above, can be put into effect.

3. Other Matters Carried over from the Tripartite Discussions.

Some progress is being made on the remaining eight items listed in the communiqué, particularly with respect to customs procedures. The situation was reviewed today with Messrs. Webb, Foley and Foster. I am to follow up on these matters to press for action.

1. No record of Thompson’s talk with Secretary Acheson has been found in Department of State files.
2. The Advisory Group had met twice in Webb’s office on September 28, the day of the first informal conversation with Canadian and British officials, and on October 4. On both occasions the machinery for continuing the tripartite economic conversations was the subject of discussion. (Treasury Department files, Lot 67A1804, Box 34, OASIA United Kingdom–Miscellaneous)
3. The recommendations under reference here have not been identified further.
4. Presumably Labouisse is referring to a meeting on October 13 at which it appeared that neither side had developed a firm position on the policy issues involved in reducing the British oil dollar drain. It was agreed to suspend the discussions pending further study and the determination of joint policy positions with the expectation of resuming the talks when Rowan arrived in Washington in November. Telegram 3951, November 2, to London, not printed. (841.6363/9–2849)