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

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

No. 34
Report Prepared by the Secretary of the National Advisory Council¹

confidential

[Washington,] May 1, 1952.

Subject:

• European Payments Union

Recommended Action:

The National Advisory Council advises the Director for Mutual Security that:

I. General Principles

The Council, having reviewed the developments under the European Payments Union in the past two years finds that the European Payments Union has facilitated the development of transferability of European currencies and promoted the liberalizaton of trade among participating countries, including trade required for the current large-scale European defense program, and reaffirms the principles set forth in Part I of its action of January 23, 1950 (Action No. 383²), and considers that in future relations between the U.S. Government and the Union the following additional considerations should guide the U.S. Government.

A. While the future of the European Payments Union in form and function is primarily a European problem, the U.S. should, in keeping with the resolution unanimously adopted at Lisbon by all North Atlantic Treaty member governments, continue to give support to effective measures to provide for a satisfactory functioning of the European Payments Union during the defense build-up. The European Payments Union is not, however, to be regarded as a permanent institution in its present form, but is rather to be regarded as an organization transitional to full currency convertibility and non-discriminatory multilateral trade, and leading to closer integration, including possible political federation among some of its members. An appropriate review of United States policy with respect to the European Payments Union should be made annually.

B. The Council considers that the U.S. Government should continue to oppose any action by the Union favoring measures by any participating country to impose discriminatory restrictions on transactions with the dollar area for purposes of adjusting intra-European balances of payments. The Council also recommends that the U.S. Government should continue to exercise its influence to facilitate movement toward non-discriminatory trade on a global basis and convertibility of currencies, and to bring about a balanced competitive relationship between the European economy and the rest of the world, and thus to facilitate better utilization of resources.

C. The Council wishes to emphasize the general policy of the United States, in both bilateral and multilateral relations, of exerting its influence to strengthen weak currencies within the Union, and to discourage pressure from any source on stronger countries to weaken their currencies for purposes of adjusting balances of payments within the Union.

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

A. So far as can be foreseen, the U.S. Government should not make any further contribution to the capital fund of the European Payments Union.

B. In the allocation of United States assistance and the administration of offshore procurement, the Council is of the opinion that decisions designed primarily to affect the assets and functioning of the European Payments Union should be taken only after consultation with the National Advisory Council.

C. The Council further recommends that, where dollar assistance is being given to countries to cover their over-all deficits in their balances of payments, and consequently their deficits in the European Payments Union are being covered 100 percent on a dollar basis, consideration should be given to the feasibility of requiring such countries to pursue a non-discriminatory policy with respect to imports from dollar and non-dollar sources.

III. Management of European Payments Union and United States Participation Therein

A. The Council reaffirms its recommendation of January 1950 that the United States should not participate in the management of the European Payments Union. To the extent that any United States representatives participate as observers in discussions of European Payments Union problems they should endeavor to further the objectives of United States policies, including the NATO defense effort, the promotion of economic unification and political federation in Europe, and the financial and commercial policies as set forth in IMF and GATT. In dealing with questions related to U.S. financial policies, there should be consultation with the National Advisory Council as specific problems of coordination arise.

B. The Council notes that during the period in which the original United States capital contribution continues to be drawn upon, United States veto power on drawings against such contribution would continue to exist, and that, in general, the role of United States observers should be one of intervening to promote United States interests.

IV. Coordination of US. Position in the European Payments Union with U.S. Position in International Monetary Fund and GATT

A. The Council considers it a matter of highest importance that any position taken by United States representatives with respect to the European Payments Union or its individual members should be consistent with the policies of the United States in the International Monetary Fund and GATT, particularly with respect to exchange rates, exchange restrictions, monetary policies and commercial policies. It recommends that the agencies of the Government principally concerned with the United States positions in IMF, EPU and GATT obtain or make proposals which would promote the effective coordination of the important financial policies and actions of these institutions for consideration by the Council before the views of the United States Government are expressed.

B. The Council draws attention to the great importance in European payments problems of appropriate exchange policies and recommends that exchange questions arising in connection with the European Payments Union be referred to the International Monetary Fund for appropriate review in accordance with the general procedures of the Fund.

1. The report, which was circulated as NAC Document No. 1273 (Second Revision), was approved by members of the National Advisory Council in a telephone poll completed on May 5. For a record of the discussion of an earlier draft of this document, see Document 10.
2. See footnote 3, Document 9.