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

611.41/3–553

No. 384
United States Delegation Minutes of a Meeting of Secretary of State Dulles and Foreign Secretary Eden at the Department of State, March 4, 1953, 5 p.m.¹

secret
WET MIN–1

March 4, 1953, 5 p.m.

Participants:

• U.S.

  • Secretary Dulles
  • Secretary Humphrey
  • Mr. Stassen
  • Mr. Douglas
  • Ambassador Aldrich
  • Mr. Burgess
  • Mr. Bissell
  • Mr. Linder
  • Mr. Overby
  • Dr. Hauge
  • Mr. Gordon
  • Mr. O’Connor
  • Mr. Corbett—Rapporteur

• U.K.

  • Foreign Secretary Eden
  • Chancellor of Exchequer Butler
  • Ambassador Makins
  • Sir Edwin Plowden
  • Sir Frank Lee
  • Sir Leslie Rowan
  • Sir Pierson Dixon
  • Mr. Rickett
  • Mr. Shuckburgh
  • Mr. Clarke
  • Mr. Armstrong

[Here follows a list of the subjects discussed.]

Secretary Dulles: The Secretary welcomed the British Delegation and indicated the importance which he attached to their visit. He appreciated the significance of the economic and political problems with which these discussions are to deal. He assured the British Delegation that we would give careful consideration to their views.

Press Release:

The press release to be issued following the first session was agreed upon.² Both delegations spoke of the necessity of a communiqué following the close of the meetings.

Schedule of Meetings:

The schedule of meetings distributed by the U.S. Delegation was accepted by the British.³ The British, however, reserved their views on whether the meetings could be concluded by Saturday. The Secretary had mentioned that his schedule called for him to be in New York Saturday evening and he had thought it was in accordance with British desires that we wind up the sessions by Saturday.

Presentation of British Proposals:⁴

Foreign Secretary Eden: The Foreign Secretary said that the British proposals had been talked over a great deal within the British Cabinet and among the members of the Commonwealth. All were agreed that at this stage a strong free world economy was needed to underpin the defense effort, to supply the material needs of the people and to attract to our side those people who are still on the fence. The keynote of the British proposals, he continued, was one of economic expansion and consolidation of the free world. The political and economic problems of the free world cannot be solved by the creation and maintenance of blocs, whatever may have been the justification for this approach in the past. There appears today some stagnation in trade, a tapering off of inflationary forces and some leveling of the defense effort. The Foreign Secretary felt that the free world must move forward with positive policies lest political and economic disintegration occur. He would hope that some scheme might be devised to achieve progress without a continuation of annual appropriations of U.S. assistance.

The only way forward, as he saw it, was to take action on a combined basis. At this point, he would like to emphasize that none of the Commonwealth was committed to the particular course laid out in the British proposals. The thinking so far has been tentative and, indeed, no Cabinet decisions have been taken. The U.K., however, has been asked to explain to the U.S. Government the broad purposes of the Commonwealth meeting, such as freer trade and currencies on a collective basis.

As the Foreign Secretary saw it, there are three main questions which the U.S. might ask the U.K.:

1. Can the U.K. and the Commonwealth play their part successfully?

2. What will be the impact of these proposals on Western Europe?

3. What is the U.S. expected to do?

In response to the first question, the U.K. thinks it can undertake the responsibilities entailed in the proposals. The Foreign Secretary laid great stress on the risks of doing nothing. The plan, he believes, constitutes a move in the right direction.

With respect to the second question, the U.K. would not have put the plan forward had it believed a disruptive effect upon Western Europe was involved. The U.K. did believe it was necessary to broaden our approach to the economic problems of Western Europe from a regional to a world-wide setting. Of course, problems are presented in this effort to broaden our approach. The Foreign Secretary was of the opinion that they could be overcome and the U.K. Delegation had plans for further discussions of these matters with the Western European countries.

With respect to the third question, it was almost axiomatic that no scheme of this sort could come into being unless the U.S. put its weight behind it. As the British saw the problem, the U.S. should adopt “good creditor” policies and provide financial support to create confidence and to bolster British reserves.

The U.K. was not now seeking any decisions from the U.S. It wished to explore these matters with the U.S. However, there were questions which the U.K. would wish to put to the U.S.:

1. Are the U.K. proposals sufficiently in line with views of the U.S. to permit discussions with Western Europe and to continue discussions within the Commonwealth? Or is the U.K. working along the wrong lines? If so, the U.K. would wish to be told.

2. Are any of the basic points of the British proposals unacceptable to the U.S.?

3. What can the U.K. say to Western Europe and the Commonwealth about U.S. reactions and U.S. ideas?

The Foreign Secretary emphasized again that these discussions were only exploratory and did not involve negotiations. Indeed, even if these discussions were for the purpose of negotiation, the U.K. would have to hold itself free to decide if it could go ahead with any plans that might be evolved.

Chancellor of the Exchequer Butler: The Chancellor stated that he had been in close touch in the past year with the Finance Ministers of the Commonwealth. He referred to the Commonwealth Finance Ministers meeting of January a year ago and to the recent meeting of the Commonwealth in London.⁵ He felt he knew their problems and their thoughts concerning these problems. He also thought that one could ask the question: Why should the Commonwealth do anything at this time? Improvement, albeit slight, was being made. This improvement is due to the terms of trade, to import cuts and lastly to increased confidence in sterling. This confidence is what the British wish to keep going.

There have been changes in the directions of internal policies; civil government expenditures have been held at a steady level despite increasing costs; the defense burden is of unrivaled size in peacetime history; and overseas commitments are great. The Chancellor did not think the U.K. and the sterling area could go on indefinitely with the present external finance system, especially when one considered the small reserves with which the vast transactions of the sterling area are being supported.

The proposals have been put forward as a basis of talks with the full support of the Commonwealth although no final decisions or commitments can be undertaken. Basic ideas in these proposals involve (1) freeing of trade, even though there were still groups which favored the increase of preferences within the sterling area, and (2) convertibility of sterling, which simply means making it a good currency.

What are the conditions which are necessary to carry out these ideas? The Chancellor listed the following:

1. Strong anti-inflationary policies within the U.K.

2. Combined efforts on the part of the dollar and non-dollar world to bridge the dollar gap.

3. The provision of financial support.

The Chancellor thought that those who had made plans after 1945 had failed to link properly the problems of finance and trade. Some of the present British proposals are aimed at a comprehensive and realistic approach to trade and finance problems.

The Chancellor did not believe that convertibility at a fixed rate is a possibility. It would be considerably more expensive than the same operation at a floating rate. He remarked parenthetically that from the point of view of a social democracy a fixed rate would be much better. The U.K. would try to keep the rate as stable as possible. If support is adequate, stability would be possible while allowing market forces to operate. He commented on recent decisions to allow market forces to operate in the field of agricultural commodities. A matter which the Chancellor said was not a detail was that of financial support. He did not believe that the operations of the sterling area could be successfully conducted at the present level of reserves. While the British have a credit in the IMF (1.3 billion dollars—which is the British quota) this would not be adequate. The Chancellor stated that he would explain what he thought adequate financial support would have to be when the appropriate time in the discussion came.

The Chancellor then addressed himself to the question of the use of existing international institutions. In general, he believes it would be desirable to continue to try to make the best use possible of the institutions which we now have. He thought that the proposal to have a joint committee of the IMF and the GATT was necessary to bring the problems of trade and finance together. In any event, he would prefer to make some valiant effort to give the Fund more life. While “some of us” are impatient with the fund, he felt a good case could be made for its continued use.

The Chancellor illustrated the second reason for his preference for existing international institutions by referring to the case of India. He feels that India would resent it deeply if the West (or NATO) should undertake to establish a small committee to deal with world trade and finance problems. He said that for some strange reason the Indians seem to have a passion for the Monetary Fund.

With respect to Europe, he believed only a collective approach for the free world would make it possible to bring the Continental countries along in a broader finance and trade system than now exists. He believed that if the EPU were to be linked in some fashion to the IMF that this would constitute a salutary influence on the attitude of the Western Europeans towards further world-wide steps. In any event, he promised to develop more detailed British views on the future of the EPU. Certainly, it would be much easier for the U.K. Government politically to say that a working international organization is not to be destroyed in efforts to make further progress on a broader basis.

The Chancellor then addressed himself to the matter of “good creditor” policies. He recalled that he had coined the phrase, fortunately or unfortunately, “trade not aid”. Now it seemed somewhat difficult for him to explain precisely what this phrase meant. He made several remarks on the generosity of the U.S. in providing the means with which other nations could meet their deficit with the U.S. Indeed, he felt that the extent of U.S. generosity was not fully known. However, now all countries, including both debtors and creditors, feel that a greater independence must be achieved. The U.S., therefore, must find some method to finance its surplus with the world. At this time he would not go into details with respect to “good creditor” policies but he felt that tariffs and shipping, for example, were vital features of “trade not aid”.

Secretary of State Dulles: The Secretary stated he was glad to have had this exposition of British views and that he attached great importance to the objectives which had motivated the British and other members of the Commonwealth. He thought the British concern with the workability of the free world economy was all the more appropriate when reference was had to the statement by Stalin last fall.⁶ In that statement Stalin laid down lines of guidance to Communists all over the world. They were to believe that the free world had inherent weaknesses and basic elements of divisiveness. Stalin felt that the addition of West Germany and Japan to the free world economic system only made problems of competition for markets more acute and thereby added force to economic disintegration. He even suggested that present Allies would fall out with each other and perhaps war among themselves. With that knowledge, the Secretary indicated that we would indeed be foolish if we did not treat seriously the economic problems of the free world. These trade and finance problems ranked with the problems created by the military situation—they were, in fact, closely intertwined because of their interdependence. Therefore, the U.K. exposition had evoked a responsive note in our minds.

Foreign Secretary Eden: The Foreign Secretary professed not to understand all of the ins and outs of the economic problems which had been discussed but he could not fail to be impressed with the importance which the Commonwealth countries attach to the need of going forward. He very much hoped that these discussions would have some constructive results. He also felt that Communism would be put back on its haunches if we were able to devise a bold and forward-looking plan.

Secretary of State Dulles: The Secretary agreed that these are the directions in which we must seek to move. However, many of the problems could not be conquered at once.

(At this point, the Secretary and Foreign Secretary Eden left the meeting. Mr. Douglas took the Chair for the U.S.)

Mr. Burgess: Mr. Burgess described the schedule for Thursday morning when the Chancellor and his associates would meet with Secretary of Commerce Weeks, the Federal Reserve Board, and Mr. Dodge, the Budget Director.

The Chancellor of the Exchequer Butler: The Chancellor wondered whether he should give the Secretary of Commerce his views on the role of “good creditors” and see what reaction he obtained.

Mr. Burgess: Mr. Burgess thought that this approach would be all right.

The Chancellor of the Exchequer Butler: The Chancellor wondered whether he should have to say anything in particular to the Federal Reserve Board or to Mr. Dodge. Perhaps the latter would like to hear something about the budgetary situation in the U.K. He also expressed the desire to have Sir Frank Lee accompany him tomorrow morning.

Mr. Burgess: Mr. Burgess did not think any particular remarks need to be made to the Federal Reserve Board and he thought that the detailed presentation of the British budgetary situation might be reserved for later. Of course, it would be all right to have Sir Frank accompany him and, for that matter, such other of his associates as he desired.

Mr. Douglas: Mr. Douglas raised the question about the establishment of working groups. He thought some of the problems which would arise could be usefully explored by the technical people.

The Chancellor of the Exchequer Butler: The Chancellor was not much inclined to delegate discussion of these matters to working groups, rather he thought it would be better for the group to hold together as long as possible.

Mr. Douglas: Mr. Douglas thought that the relationship of IMF and GATT could perhaps be usefully explored by a smaller technical group, say at the end of meetings tomorrow. However, he was willing to wait until tomorrow afternoon to make a decision on this matter and would reserve his position on the establishment of working groups to deal with other special areas.

The Chancellor of the Exchequer Butler: The Chancellor mentioned that he would want to take up with the Secretary of the Treasury some treasury questions—Treasury to Treasury discussions. These would not take very long and perhaps some time could be found for them.

Secretary of Treasury Humphrey: The Secretary agreed that such discussions would be desirable and possible.

Mr. Douglas: Mr. Douglas referred back to one question which the British, in fact, had raised and that was the role the Commonwealth is capable of playing. Mr. Douglas thought that this was an extremely significant question and involved profound considerations of the rigidities which existed in present day economics.

The Chancellor of the Exchequer Butler: The Chancellor explained the difficulty the U.K. had in conducting these discussions. While they are entitled to speak for the Commonwealth countries, they are not representing them here. The Commonwealth countries are sovereign powers. Therefore, great care must be taken in discussing the situation of the Commonwealth countries but he was in a position to answer clearly all questions about the U.K. He also could give, he thought, fairly valid opinions about the viability of the sterling area.

The Chancellor referred to the questions which had been given the British Embassy earlier and said that they were fairly well briefed on replies to these questions, some of which went very much to the point. He referred particularly to the question of savings.

1. Drafted on Mar. 5.
2. For the text of this release, see the New York Times, Mar. 5, pp. 1 and 4.
3. A copy of this schedule is in Conference files, lot 59 D 95, CF 139.
4. Regarding the British economic proposals, see Document 375.
5. Regarding the Commonwealth Conference in December 1952, see Documents 371 and 372.
6. The reference here is to Stalin’s article “The Economic Problems of Socialism”, Bol’shevik, Sept. 15, 1952; extracts from which were printed in the New York Times, Oct. 4, 1952 and in Documents (R.I.I.A.) for 1952, pp. 224 ff.