Foreign Relations of the United States, 1952–1954, Western Europe and Canada, Volume VI, Part 1

NAC files, lot 60 D 137, “NAC Minutes”

No. 10
Minutes of the 190th Meeting of the National Advisory Council on International Monetary and Financial Problems, March 13, 1952¹

secret

March 13, 1952

Participants:

• Secretary John W. Snyder (Chairman), Treasury Department
• Mr. Leroy D. Stinebower, State Department
• Mr. Jack C. Corbett, State Department
• Mr. J. J. Stonger, State Department
• Mr. J. Thomas Schneider, Commerce Department
• Mr. Clarence I. Blau, Commerce Department
• Mr. Frederick Strauss, Commerce Department
• Mr. William McC. Martin, Jr., Board of Governors, Federal Reserve System
• Mr. Arthur Marget, Board of Governors, Federal Reserve System
• Mr. Lewis Dembitz, Board of Governors, Federal Reserve System
• Mr. Hawthrone Arey, Export-Import Bank
• Mr. Edward Lynch, Export-Import Bank
• Mr. W. Averell Harriman, Office of Director for Mutual Security
• Mr. C. Tyler Wood, Mutual Security Agency
• Mr. Lincoln Gordon, Mutual Security Agency
• Mr. Melville E. Locker, Mutual Security Agency
• Mr. Frank A. Southard, Jr., International Monetary Fund
• Mr. John S. Hooker, International Bank
• Mr. Walter C. Louchheim, Jr., Securities and Exchange Commission
• Mr. Andrew M. Overby, Treasury Department
• Mr. George H. Willis, Treasury Department
• Mr. Elting Arnold, Treasury Department
• Mr. George Bronz, Treasury Department
• Mr. Henry J. Bittermann, Treasury Department
• Mr. Arthur W. Stuart, Treasury Department
• Mr. C. Dillon Glendinning (Secretary)
• Mr. Allan J. Fisher, NAC Secretariat
• Mr. Sidney B. Wachtel, NAC Secretariat
• Mr. James W. Westcott, NAC Secretariat

[Here follow a table of contents and brief discussion of the Philippine exchange tax.]

2. European Payments Union

A. Statement of the Problem

Mr. Glendinning pointed out that one of the matters to be considered in connection with the presentation of this year’s foreign assistance program was that the European Payments Union agreement would shortly be up for extension from its present termination date of June 30, 1952. The Staff Committee had reviewed the history of the EPU as well as the previous Council action of January 23, 1950 (Action No. 383²), and the issues were being presented to the Council for possible action (NAC Document No. 1273³).

Mr. Glendinning continued that Alternative A gave an outline of the majority views in the Staff Committee, and Alternative B outlined the minority views. Because of the length of the two alternative actions, he proposed to stress the differences in the two versions.

I. General Principles

The major difference was that Alternative B contained the statement that the Payments Union should be regarded as transitional and not permanent and that the extension of an underlying agreement should be limited to a period of one year.

In addition, Alternative B contained a statement emphasizing that the U.S. influence in EPU should be directed toward working for multilateral trade on a global basis and convertibility of currencies. Alternative A omitted such a statement on the ground that this general thesis was covered in the previous action of the Council on EPU (Action No. 383) which was reaffirmed in the opening paragraph of Part I.

II. Financial Relations Between U.S. Government and European Payments Union

The major difference lay in the attitude toward a possible capital contribution to the Payments Union. Alternative A expressed Council concurrrence that there was no present need for a capital contribution to EPU and stated that MSA would bring the matter before the Council if it deemed an additional capital contribution in the future to be necessary and desirable.

Alternative B emphasized that no commitments should be made that a further capital contribution would be forthcoming, and also stated that as a matter of policy the U.S. Government should not make a further capital contribution.

There was also a difference of emphasis with respect to the allocation of assistance and the administration of offshore procurement. Alternative A said that no decision in this field should be taken which would have an effect on EPU without consultation with the NAC. Alternative B stressed that decisions on these matters should be made on an individual country basis, without taking into account their effect on the assets and functioning of EPU.

III. Management of EPU and U.S. Participation Therein

The difference between drafts A and B was a matter of emphasis. Alternative B suggested a somewhat less active role for the U.S. observer in EPU than did Alternative A.

IV. Coordination of U.S. Position in EPU with U.S. Position in IMF and GATT

Both Alternative A and Alternative B stressed the importance of appropriate coordination of views expressed by U.S. representatives in the Fund and GATT in relation to intra-European payments problems. Alternative A stressed coordination as to procedures and conditions applied to use of resources of the IMF and EPU. Alternative B stressed coordination of policies with respect to exchange rates, exchange restrictions and monetary and commercial policies, and emphasized that exchange rate matters should be referred to the Fund.

B. Discussion

Mr. Harriman indicated that there were two principal differences in the alternatives. One of the differences was that Alternative B called for limiting an extension of the EPU agreement to not more than one year. He pointed out that the Council must recognize that many political implications were involved in any position taken. The EPU is a European institution and as such, it has been put forward both in Europe and here in the United States as a substantial step toward what the Congress has demanded, i.e., the integration of Europe. There are many important developments going on in Europe, he continued, and there may be a real move toward federation in the next 15 months. Every member of the Senate and House who was in Europe last year has said additional efforts should be made to bring about integration. To announce that the EPU was to be extended for only one year more would have very definite adverse political effects both in Europe and in the United States, because it would be reversing our previous position that EPU is an important factor in bringing about integration along the lines the U.S. wants.

Mr. Harriman continued that the second principal difference in the two alternatives was the question of making any further contribution to EPU. He stated that it was not the policy of the Mutual Security Agency to give any indication of additional assistance to EPU, nor did the MSA have any plans to give additional assistance; but to close the door completely would be a mistake. He stressed the fact that the Mutual Security Agency would always come to the Council before giving an indication of any change in policy.

Mr. Harriman said he felt, therefore, that although he had not been able to study all the implications, Alternative A best described the position the Council should continue to take and recognized more accurately than Alternative B that although the EPU is a European affair, important U.S. interests are involved. He thought that most of the details could be ironed out on the Staff Committee level and that the differences involved matters of emphasis rather than of principle. The EPU had been useful in breaking down trade barriers in Europe, and much more would have been accomplished had it not been for Korea, with the doubling of the defense effort in Europe and the resulting balance of payments problem. We have been expecting many countries to do more than they can.

Mr. Harriman continued that the pressure of EPU for the liberalization of trade has been a healthy development. He concluded that the United States must realize that Europe is in an acute financial condition, and no impression should be given at this time that the United States is changing its attitudes and policies. Rather the United States should put pressure on specific things the Europeans should do to put their houses in order.

The Chairman commented that another question to consider was what the end result would be if we continue to encourage the EPU. The EPU was originally set up as a transitory arrangement, and it had been hoped that it would be able to accomplish something. But for the United States to continue to sponsor the EPU by supplying dollars was something that needed to be carefully considered. This might result in building up an area that would exclude United States trade, a condition that presumably we are trying to correct. There are two international organizations to which the United States has contributed very heavily. The building up of regional organizations which might compete with these global organizations is a matter that the Council should discuss carefully to see which way we are going, he said.

Mr. Martin remarked that he had a good deal of sympathy with Mr. Harriman with respect to the political aspect. He recalled, however, that the earlier decision to accept the concept of the EPU had been arrived at only after prolonged consideration, and with reservations on the part of several Council members. There was a great deal to the Chairman’s concern with the question of further dollar contributions. The critical point, he continued, was whether there should be a further U.S. contribution, and of not getting into a position where the whole effort will have been wasted if we do not continue to put in dollars. The EPU is essentially a European problem, and earning capacity should be developed, so that Europe can stand on its own feet without additional assistance. Involved in this is action directed toward multilateral trade on a non-discriminatory basis, and convertibility. This aspect was covered in both drafts, but it should be made clear that in its enthusiasm for the political aspect the United States should not become irrevocably committed to continuous additional dollar aid to maintain EPU. Mr. Martin added that he did not know at what point the possibility of further aid should be ruled out.

The Chairman commented that the Council was aware of the problem Mr. Harriman outlined. Europe is facing a serious situation, one we are struggling with constantly in NATO and the MSA. A part of the U.S. desire is to try to stabilize the economies of these countries in order to enable them to retain their sovereignties unimpaired while at the same time carrying out their part of the defense program. It was necessary to weigh carefully the implications of whatever decisions were reached.

Mr. Stinebower said the State Department was torn by the same conflicting considerations as everyone else. On balance it tended to look at the problem more from Mr. Harriman’s viewpoint rather than from the somewhat more restricted view of Alternative B. There were no fundamental differences, he observed, since the continuation of the EPU at this time was not challenged. Furthermore, all would agree that there was no intent now for an additional capital contribution. The flexibility implied in Alternative A would exist even if Alternative B were adopted. If overwhelming circumstances arose, Mr. Harriman would ask the Council to consider the problem, but perhaps there was a somewhat stronger presumption in Alternative B that no further capital contribution would be made even if dire circumstances should develop. The Department, and Secretary Acheson personally, he concluded, had come to appreciate the very real significance and importance the European countries attach to the EPU as a symbol of European integration. The State Department would tend to prefer Alternative A to B.

Mr. Schneider said the general feeling of Secretary Sawyer and of the Commerce Department was to prefer Alternative B. However, he could not see any really substantial differences with respect to Section II A in the two drafts, although Alternative A contained a sentence which was not in B. (“In the event that the Mutual Security Agency is of the opinion at some future time that an additional capital contribution to the European Payments Union is necessary, a proposal to make such a contribution should be brought before the National Advisory Council for consideration.”) He asked whether it was necessary to include this statement. MSA would naturally bring the question to the Council if it thought an additional capital contribution were desirable, and the Council would consider the proposal. If that language were left out there were no substantial differences between the two versions. Or, if the words “at this time” were added to Alternative B, the two formulations would be similar. Mr. Schneider added that there was some language in Alternative A that Commerce Department would accept in preference to the language in B, and that the foregoing remarks were directed primarily toward Section II A. However, if a vote were taken now, Commerce Department would take the language in Alternative B.

Mr. Arey said the Export-Import Bank also favored Alternative B.

Mr. Overby stated that the point of Alternative B is that the EPU should be regarded by the United States representatives as a transitional arrangement.

Mr. Harriman remarked that the psychological effect abroad of the two formulations would be quite different. Some of the language in Alternative B would have a depressing influence and would have an adverse effect on the force and vigor with which the Europeans pursue a policy of integration. In the executive and legislative branches of European countries there are strong pressures battling for integration while others are battling against it for selfish national reasons. Any indication that the United States is retreating from its support of integration will help those influences which are not working in the direction of our policies, and will weaken the position of those who are battling for us and who have the upper hand at this time. Although the language in the alternatives might not appear to be very different, they would give quite a different impression abroad.

Mr. Arey inquired whether it was not true that the action was designed to advise the Director for Mutual Security, and was not for publication.

The Chairman explained that the Council’s position was one of consultation and of expressing its views to one of its members in keeping with its responsibilities. There was another problem to consider, he continued. The more the United States supports and encourages institutions such as EPU, the more it solidifies the Payments Union and postpones the time when the United States can bring about better conditions with respect to the dollar and the U.S. trade position. It could be said there was no problem about the dollar now, but there may be a day before too long when we may be concerned about its position in world trade, and we do not want to build up an organization that would place us at a complete disadvantage in future world trade. The Chairman remarked that he did not believe Congress intended to support any such position.

The Chairman further observed that there seemed to be an underlying presumption that EPU had been a success. He did not think all the Council members would agree that EPU has been an outstanding success. There were some who had had doubts whether the Union should have been set up in the first place. Now that it is in operation, the Council had to take a position as to whether the Union should stay in operation.

Referring to Mr. Arey’s comment as to publicity, Mr. Harriman called attention to the “one-year clause” in Alternative B. He said it would be difficult to conceal such a provision from the people abroad, and, if they found out, the effect would be disastrous. MSA wished to use its influence to maintain an open position.

Mr. Schneider asked what was accomplished by saying that extension of the agreement should be limited to one year, and inquired whether the extension of the agreement could not be left with an open end.

The Chairman, emphasizing that he was speaking only as an individual and that each member of the Council could speak freely, said that in his view the action should indicate clearly that the EPU has a limited term of life and is not something the United States wants carefully to nurture into a permanent organization. Mr. Schneider suggested that this was on the theory that if the organization were to be permanent, it would adversely affect U.S. trade. The Chairman continued that the Council did not want to take any step that would upset any of the objectives of U.S. foreign policy, but that these problems must be faced with a full realization of what they may lead to.

Mr. Harriman stated that it would be disastrous to accept the recommendation of a one-year limitation. It would be reversal of all present policies, and he could not conceive of Europe’s going ahead with the defense program in this coming year if it were adopted. He reiterated that he could not express strongly enough that Alternative B, as now drafted, would have a disastrous effect on United States policy. Mr. Harriman continued that he agreed that the United States wants to work toward convertibility and nondiscrimination. He said his agency had tried to avoid discrimination in Europe, to develop one market, and to induce the European countries to adopt policies that will get them into balance and eliminate high cost production in Europe. This policy had had substantial effects even though there were difficulties ahead. However, to give any indication of a change in policy toward integration in Europe would be little short of disastrous.

Mr. Southard said there was one point in his special field of responsibility which he would like to make. The last sentence of Alternative A seemed to imply rather more confidence than the Council at this stage might have as to the extent to which the resources of the Fund and the EPU could be used in coordination with one another. The whole question of whether the Fund could have a relation with the EPU, as far as resources are concerned, depends solely upon whether the Fund permits drawings by European members of the Fund. The most important operating question the Council may face in the next six months may be related to possible drawings on the Fund by European countries. Mr. Southard said he hoped that sentence would not be interpreted as an order to Mr. Harriman and to himself to try to work out some kind of coordination. While something could be done in this respect, it was very much a matter of evolution and practical possibilities. Mr. Southard also expressed concern over the last clause (“by any United States representative”) in Section IV A of Alternative B, which could be interpreted by a conscientious U.S. Executive Director to mean that he should not express any views on important policy decisions before coming to the Council. He thought the difficulty was primarily a matter of wording. If the Council were to approve Alternative B, he would want to enter a small reservation; he would have a lot of worries about Section IV of Alternative A.

The Chairman said that this was an important point, involving United States representatives in two different spheres. One would have operating responsibilities which might be in conflict with the purposes of the other organization.

Mr. Southard suggested that the last part of Paragraph IV A of Alternative B could say that coordination should be brought about “through careful review by the National Advisory Council of all important policy questions before the views of the United States Government on them are expressed” (underlining indicates new language).⁴ This would differentiate between individual views of United States representatives and official views of the United States Government. Mr. Southard pointed out that in practice there had been no problem.

Mr. Stinebower commented that within the framework of Alternative B Mr. Southard had suggested a useful and almost necessary amendment. It would be a little difficult to modify the present language of Alternative B to take account of the fact that the EPU cuts across the IMF and GATT. This problem was handled somewhat better in Alternative A, and he hoped it would be possible to marry some parts of Alternative A, which was more particularly oriented toward all three institutions, to Alternative B. He said further that if Mr. Acheson were present, the Secretary of State would strongly support Mr. Harriman in his objection to a one-year limitation and in stressing the importance of moving toward closer European integration. He would feel strongly against any formal action which would put a specific time limit on the EPU.

Mr. Martin replied that he did not think the action was intended in any way to say that the Council was against the integration of Europe. Rather, he believed the question to be to what extent the United States was to pay the bill for Europe. He presumed the action was intended to focus on the fact that if United States assistance is the only way we can assist the integration of Europe through the EPU, the problem should be reviewed periodically, and if a definite time is not set for the review, the obvious implication is that the EPU would go on ad infinitum.

The Chairman concurred with Mr. Martin and added that otherwise the United States would be saying that it would support the EPU without limit. He thought this would be going beyond any dictates of good judgment as to what the United States should do.

Mr Arey said he understood that the one-year limitation was included in order to provide an appropriate review by the United States again at the end of that period.

The Chairman said the thinking was that the next year the U.S. would take another look and if the operations of the EPU were completely contrary to the national interest of the United States appropriate action could be taken. He thought the language of the proposed action could be modified so the operations of the EPU would not be disrupted. However, he did not think the impression should be given that the United States was approving the EPU for an unlimited time.

Mr. Harriman remarked that it would be necessary constantly to review everything EPU did. He added that MSA did not have any plans to put additional money into the EPU. The plans for integration would continue. However, it would be the announcement that the agreement is to last only one year which would have a bad psychological effect.

Mr. Schneider suggested that the language be modified to indicate that the EPU represented a transitional stage. Mr. Harriman questioned the use of the term “transitional”. The Chairman replied that the transitional aspect was just what the Council was concerned about at this time. If EPU should develop into an institution that will hurt United States trade, the United States would be working completely against its national interests. If the EPU is a useful institution, he added, the Europeans should build it up themselves. Mr. Harriman responded that the United States can very easily force Europe to return to bilateralism. The Chairman replied that no one desired that, but that it is important to promote European efforts to help themselves. If the Europeans are led to believe that the United States will support them continually, then they will never help themselves. Mr. Harriman stated that it was made very plain that the EPU is a European institution with European responsibilities.

The Chairman said that he understood the feeling around the table was that the Council was expecting to take a look at this problem annually to see how the EPU was operating, and how far the United States wants to continue to lend support to the institution, and that it should be made clear the United States was not implying further dollar assistance at this time. Mr. Harriman replied that there was no disagreement on the proposition that at the present time no additional funds were contemplated. However, he wanted the action to conform to the fundamental United States policy of working toward the integration of Europe and the breaking down of trade barriers, which have an effect on Europe’s ability to survive, let alone its ability to carry out a defense program. He thought the United States should continue to tell the Europeans that the EPU is an European institution designed to work toward convertibility and non-discrimination, but not to tell them it is a transitory institution. He suggested that we could say it is a transitory institution working toward federation, which is what we thought at the start.

Mr. Harriman added that all recognized at the beginning that the EPU was transitory in sense of progress toward something better, e.g., multilateralism. He did not like the implication that it was transitory in the sense of soon being broken up. The Chairman said his understanding was that EPU was to be transitory in existence, and that it was not intended to set up something which would be contrary to the Fund. Mr. Harriman replied that there was certainly no disagreement that we should not support an institution that is not in our interest, but he was concerned about the political consideration abroad and by the demands of Congress that the United States should press toward federation and the breaking up of historic trade barriers. He thought it was a bad moment to imply that the United States is going to try to break up the Union. MSA was in hearty agreement that we shold try to have the EPU move in the direction we wanted it to move.

Mr. Schneider asked whether it was correct that the EPU was solvent and was not likely to need funds in the near future. The Chairman said he understood the dollar position of EPU was fairly comfortable at present, but there was no telling how long that condition would last.

Mr. Harriman added that the position of some countries was acute as a result of their position in dollar trade. The French, as a result of capital flight and other factors, are in a difficult position. The EPU can bring pressure to change policies to assist countries in difficulty, as in the Dutch case. Therefore, there have been some helpful influences exerted in getting countries which have been in a bad way to adopt appropriate policies. The EPU has enough money but some countries have difficulty in finding ways and means of paying up under the provisions of EPU. This has lead to substantial intra-European credits which have been useful.

Mr. Schneider further inquired whether the United States would get back its capital contribution if the EPU were closed out. Mr. Locker said that in the event of liquidation the United States would have control over the disposition of dollars remaining in the capital fund.

The Chairman suggested that the Staff Committee be asked to go into immediate session to see if they could resolve the difficulties and then circulate another draft action among the Council members. This was agreed, and the meeting closed with the understanding that the Staff Committee would draft a new recommended action based on the Council discussion. (The Staff Committee convened immediately following the above meeting (Staff Meeting No. 329⁵).) A new draft action (NAC Document No. 1273–Revised⁶) was prepared and was subsequently distributed to Council members for consideration. After several suggested changes in the draft action had been agreed upon (NAC Document No. 1273–2nd Revision⁷) the action was approved unanimously by the Council through a telephone poll completed on May 5, 1952 (Action No. 546⁸).

1. No drafting date was given in the source text. The last paragraph of these minutes indicates that they were not completed until after May 5.
2. See footnote 3, supra.
3. Supra.
4. Printed here as italics.
5. Not printed.
6. Not printed; it was a draft action prepared by the Staff Committee following this meeting of the Council. (NAC files, lot 60 D 137, “NAC Documents”)
7. Document 34.
8. Not printed; it reported a unanimous action by the Council obtained through a telephone poll. (NAC files, lot 60 D 137, “NAC Actions”)