Conference Files, Lot 59 D 95, CF 991
United States Minutes of the Second Meeting of the United States–United Kingdom Foreign Ministers in Washington on September 11, 1951, 10:30 a. m.2
[U.S.–U.K. MIN–2]
- Participants:United States
- Mr. Acheson
- Mr. Harriman
- Mr. Gifford
- Mr. Jessup
- [Mr. Linder]
- United Kingdom
. . . . . . . . . . . . . .
[Page 1183]East-West Trade
16. Mr. Morrison introduced Mr. Gaitskell, Chancellor of the Exchequer, in order that Mr. Gaitskell might discuss a number of economic problems related to the agenda item on East-West trade.
17. Mr. Gaitskell said he had had discussions with a number of people in the US Government and he thought it appropriate for him to describe the situation now existing in the UK within the context of the meetings between the Foreign Ministers. The UK imported two vital commodities from the USSR, timber and grain. Every year negotiations between the two countries reached a critical point when the British wondered whether they would get a trade agreement for the ensuing year. These commodities were vital to the economy of the UK yet, if the items which the Soviets could buy for sterling were severely limited there was always the possibility that they would not wish to accumulate additional sterling, and terminate the agreements. The British were now in debt under the current agreement for a considerable amount because restrictions had been placed on the export of rubber to the USSR, but that quantities of timber and grain had been imported at the very high prices now prevailing in the world market. This deficit was continuing to grow. He felt that he might just as well say plainly that the UK is now in the beginning of a very serious dollar crisis. On October 4 he would have to report to Parliament on the sterling-dollar situation. He would have to say that a deficit of nearly $500 million in the dollar account was projected for the years 1951–52; the over-all deficit including the sterling area would be approximately $1.2 billion. This was approximately the amount which the UK had gained as surplus in the previous year. By the end of fiscal year 1952 British reserves would be reduced to the equivalent of approximately $2 billion which was almost the same as the low point reached prior to the devaluation of the pound. The reasons for this situation were that there was more purchasing by sterling area countries from the dollar area. Defense production, and the high prices of raw materials were contributing factors. In 1950 the British Treasury thought it had solved the dollar deficit problem and were able to dominate the situation. This they now found was not so. The situation held a potential of very serious political consequences if the Government was unable to cope with it.
18. Mr. Gaitskell thought this was a European problem and not entirely one for the UK. Europe was now getting back to the pre-Marshall aid situation as a result of the new factor—world rearmament—which had been introduced into the total picture. With regard to East-West trade within the context of NATO he believed that other members would feel the same way as the UK. The USSR and satellite areas would have goods available which the US might not be able to supply and which some of the European countries would not have [Page 1184] the dollars to buy even if available. Serious repercussions were apt to occur in the defense programs. However, the defense program was not the major cause of the situation but most people in Europe will think so. The pressure within the UK will be particularly noticeable since the balance of payments figures will be unfavorable yet exports will have been sacrificed to defense. This in fact has been British Treasury policy up to now; the UK cannot continue to do it. With regard to military requirements as scheduled under the NATO he felt that there would be confusion and unpleasantness unless the economic realities of the European economic versus military situation were met squarely. There has never been in NATO a bringing together of these two. As things are going, Europe would have to adopt a war economy to go on. He felt it was highly desirable to discuss this problem among the Big Three before the question was taken to the full Council.
19. Mr. Morrison said that he felt he must explain the difference in approach of the UK as contrasted to the US. Exports and imports were vital to the livelihood of the UK. Now the UK had to live and carry out a rearmament program. The US was self-contained and only a small part of its production was related to overseas trade. It was much harder for the UK to say “no” to the Soviet Bloc on trading questions. As a matter of policy the UK also felt that “the Soviets may change their tune”. The UK was principally interested in exchanging with the USSR not war materials but economic goods. They had found the Soviets very business-like to deal with and that they generally stuck with their bargains. It was not bad to have contact with them through this channel from a foreign policy point of view. The UK could not carry out a control policy to the point where it was not harming USSR but was really hurting the UK—i.e., the UK would be cutting off its nose to spite its face. It was good to make these general observations because he thought it made the UK position better understood.
20. Mr. Acheson asked Mr. Gaitskell if the UK could live with its present trading agreement and did not desire to go further. Mr. Gaitskell said that they could live with the present agreement; however, the Soviets can cut it off at any time if they can’t spend their sterling and that if this happened it would cause a large additional dollar liability for the UK.
21. Mr. Morrison remarked that conditions placed by the US Congress on aid in relation to the East-West trade problem were extremely annoying. He recognized that this did not reflect a State Department point of view and remarked that the Executive Branch could not control the Congress the way the Cabinet controlled the Parliament. He said that such conditions make the British people angry.
[Page 1185]22. Mr. Acheson said that we disliked the procedure and that the President had stated his dislike to the Congress. One problem which we face is our inability to tell the Congress and the people what has been done in the field of controlling strategic exports to the Soviet area because this information is classified. Congress has the feeling that nothing has been done and actually we know that a great deal has been accomplished. The Kem Amendment could not be vetoed by the President because it was a rider on an important military appropriation. However, we feel the situation is somewhat improved—we feel that we have prevented even stronger legislation. In reply to a question by Mr. Gaitskell as to whether the Battle Bill was all right Mr. Linder said that we regarded it in a favorable light and hoped to get together on the remaining twenty items of the controls list. He said that if a good administrator was appointed and if the US and UK could reach an agreement regarding some further items the situation would not be too bad. He pointed out, however, that we would be faced with the problem of the matter becoming alive from time to time because we would be required to make periodic reports to Congress. He hoped that we could make our primary strategic lists coincide and that this would be extremely helpful. Mr. Gaitskell said that he thought we could not avoid the fact that there would be continuing difficulties. For instance, he understood that public opinion in the US was very sensitive regarding the question of rubber which was one of the primary products which the UK had available for export and which the Soviets desired to purchase. Mr. Linder said that we desired to have further bilateral discussions on such questions; that we have given some education to the public and are hopeful that we can reach an agreed position. Mr. Gaitskell said he hoped we were not too optimistic regarding the twenty items. Mr. Morrison interjected that the UK had gone “a devil of a long way.” Mr. Linder said it was highly desirable to get a few more items included.
23. Mr. Acheson inquired whether the proposed administrator is to be a full-time man or someone who has other responsibilities elsewhere in the defense production set-up. Mr. Linder said that the House and Senate bills differ on this point and the matter will have to be resolved in conference. Mr. Morrison inquired if the responsibility might rest in the State Department. Mr. Acheson replied that that would be the last place they would consider placing it. Mr. Gaitskell said he wanted to state that the UK appreciated very much the assistance which had been provided by the US and that he understood some of our present problems in regard to this matter of trading with the communists. However, he felt that he must make it clear that the UK “was up against it.”
[Here follows a discussion of the British rearmament program and its effect on the economy. The last part of this meeting was devoted to making arrangements for a future meeting on this subject.]
- Collection of documentation of official visits by heads of government and Foreign Ministers to the United States and on major international conferences attended by the Secretary of State for the period 1949–1955, as maintained by the Executive Secretariat of the Department of State.↩
- For documentation concerning the Bipartite and Tripartite Foreign Ministers Meetings which took place in Washington; September 10–14, see vol. iii, pp. 1163 ff. The Foreign Ministers of the United States, the United Kingdom, and France met for bipartite talks September 10–12 followed by two days of tripartite conversations. The only formal conversation dealing with the matter of East-West trade is documented in the source text.↩
- For the complete text of these minutes, see ibid., p. 1238. The conversation preceding the discussion of East-West trade concerned United States-British alignment in the Far East.↩
- British Deputy Under Secretary of State for Foreign Affairs.↩
- Chief Staff Officer in the British Ministry of Defense.↩
- British Assistant Under Secretary of State for Foreign Affairs.↩
- Chancellor of the Exchequer.↩
- Second Secretary in the British Treasury.↩