Letter (extracts) CANBERRA, 18 January 1943
SECRET
POST-WAR ECONOMIC TALKS, LONDON, OCTOBER-NOVEMBER 1942
I have the honour to submit the following report on my mission to Great Britain to attend a series of Post-War Economic Talks between representatives of the British Dominions and Indian Governments.
I left Brisbane for London by air on 5th October, 1942, and arrived in Washington on 10th October. I left Washington on 15th and arrived in London on 21st October. The first formal meeting of the Conference took place on 23rd October, and the talks continued until the final meeting on 9th November. It was anticipated that the Conference would go into recess for a few days about that time, in order to enable a revised edition of the British paper on ‘The International Regulation of Primary Products’ to be prepared for further discussion. This proved impossible, however, because of the recall of the Canadian delegation and of the inability of the British representatives to complete the revision in the time available.
I found many difficulties in securing a return passage to the United States, but finally left London on 26th November, arriving in Ottawa on 30th November. I spent the next days in Ottawa exchanging views with representatives of the Ministry of Finance and of the Bank of Canada, and also spent some time in discussing matters of mutual interest with representatives of the Ministry of Labour and with the several Departments and other authorities responsible for reconstruction planning in Canada.
I arrived back in Washington on 6th December, where I remained until the 14th of that month. While in Washington, I took the opportunity of discussing various problems associated with reconstruction planning with officials of the United States Government and with members of the Australian Legation in Washington. Because of the protracted delay in securing passage from London my time in Washington was very limited, and I was unable to pursue my enquiries as far as I should have wished. I left Washington on 14th December for Australia, but owing to unexpected transport difficulties I did not arrive back in Canberra until the 12th January, 1943.
The talks in London were conducted entirely at the ‘official’ level, and there was no ministerial participation at any stage of the discussions. The chair was taken at the initial meeting by Sir Richard Hopkins, the permanent head of the Treasury, but at subsequent meetings the position of Chairman was filled by Sir Frederick Phillips, of the Treasury, who is now stationed more or less permanently in Washington.
[A full list of delegates attending the conference has been omitted.]
The formal discussions at the Conference dealt with four main topics, namely- (1) Proposals for an International Clearing Union.
(2) International Regulation of Primary Products.
(3) International Commercial Policy.
(4) Post-war Relief and Rehabilitation.
The proceedings took the form, in the case of the first two subjects, of a close examination and revision of documents submitted to the Conference as a basis for discussion by the British representatives. The intention appeared to be to arrive at agreed statements of proposals which might be submitted to the United States Government by the British Government as a basis for preliminary discussion between those two Governments, in such form that the British Government would have some reasonable ground for hoping that their proposals would secure the general support of the Dominions and Indian Governments at the appropriate time. [1] On occasions, it appeared that we were being invited to assist in the revision and even the editing of the papers under discussion, while at other times a suggestion appeared to be in the air that the British representatives retained full freedom to make such modifications in the proposals as they might subsequently deem fit. Despite the lack of clarity on this point, the Dominion representatives went to some lengths in revising the documents, whilst avoiding any suggestion that they were responsible for their final form. Papers were not circulated in connection with the third and fourth subjects on the agenda, the proceedings taking the form of round-table discussions.
(1) Proposals for an International Clearing Union A paper embodying the original British proposals was circulated to the Conference, and a summary was cabled by me to Canberra immediately it became available. [2] A copy of the full text was also forwarded by air mail [3], and has already received some examination by the Government’s advisers. [4] This document was subsequently amended and a revised copy was circulated to Dominions representatives at the conclusion of the talks. A copy of this document is attached hereto (marked ‘A’). [5]
The document itself describes briefly and succinctly the essential nature of the proposals, and there seems no need to summarise them in this report. The cables forwarded by me through the High Commissioner [6] give a full account of the course of the discussions on detailed aspects of the proposals, and indicate the nature of the amendments made in conference.
The Conference was concerned, on the one hand, with a consideration of the technical aspects of the proposals and, on the other, with the problem of moulding them into the form considered most likely to improve their chances of acceptance by the United States Government. From the latter point of view, the presence of Canadians at the Conference table was of considerable advantage, as the close economic relations between the Canadian and United States Governments placed the Canadian delegates in a special position to advise on likely United States reactions. To some extent, I felt that the Canadians were inclined to lean a little too heavily in the direction of concessions to supposed American opinion, but my subsequent discussions in the United States convinced me that American opinion was likely to be a most critical factor.
Shortly after the talks concluded, Sir Frederick Phillips returned to Washington and submitted a copy of the final document to the United States Government. By the time I arrived in Washington it had received preliminary examination by Treasury and State Department officials, and certain questions had been submitted to and answered by the British Government. No indication, however, had been given at this stage of the official American view. Sir Frederick Phillips was inclined to hope for the best, but I myself encountered some scepticism in certain quarters as to the political practicability of the proposals.
One of the difficulties appears to be that a good deal of work has been put into an alternative set of proposals by the advisers of the United States Treasury, who have produced the outlines of an American plan covering much the same general ground, but differing quite considerably in approach. Naturally the Treasury is inclined to prefer an American document as the basis for inter-governmental discussions.
I was informed that the draft of the American proposals was not available at this stage for communication to other Governments, as it had not yet proceeded very far beyond informal consideration by Mr. Morgenthau. I was able, however, to secure access to what was described as a very early and tentative draft of the proposals, but which I suspect will be very close to any counter-proposals which Mr. Morgenthau, at least, may wish to make. The United States Treasury proposals are contained in a somewhat massive memorandum, which has been reproduced in Canberra from a microfilm copy. [7] A short summary of the proposals is attached hereto (marked ‘B’).
I gathered-although there was a good deal of mystery-making about it-that certain British Treasury officials had also had access to this document [8], and were not particularly attracted by those parts of it which purported to cover the same general field as the proposed International Clearing Union. Whether proposals along these lines will in fact be made by the United States Government is not yet clear, as I was informed on fairly good authority that the Vice-President ‘thought they did not go far enough’. I was unable to ascertain in what direction. It seems clear, however, that the author of the Treasury proposals, while fairly close to Mr. Morgenthau, is not particularly influential outside the Treasury. It is possible that, in the present American set-up, the views of the State Department may in the long run be more important. Officials of the State Department were less willing to discuss the merits of the British proposals with me than was the author of the Treasury proposals, but on the whole I felt that the nature of their criticisms disclosed a more sympathetic approach.
The most serious criticism advanced was that the British proposals were too ‘unrealistic’-meaning, I gathered, that it was felt that it would be exceedingly difficult to get Congress to accept them.
Put in its crudest form, the critics hold that the British plan is simply one which would confer on other countries an unlimited right to purchase United States goods with their own local currencies. They do not seem to be greatly impressed by the safeguards provided in the plan, whether in the form of maximum overdrafts or subjection to some measure of financial and economic discipline when overdrafts exceed the limits laid down. It is also felt in some quarters that the voting strength provided for in the plan would be unduly unfavourable to the United States, even after taking into account certain modifications made in the document during the London discussions. The proposal for charging interest on credit balances was considered to be impossible politically, and quite ineffective as a means of forcing creditor countries to take substantial action to rectify their balance of payments position. These views, while generally expressed, seem to be held more firmly in the Treasury than in the State Department, which I feel has a far more open mind on this subject.
The United States Treasury plan involves the creation of two bodies, closely linked but separate in constitution. One would be called a ‘United Nations Stabilisation Fund’ and the other a ‘Bank for Reconstruction and Development of the United and Associated Nations’. The Stabilisation Fund is designed to perform very much the same functions as the International Clearing Union, while the Bank for Reconstruction and Development would fill a need which is not referred to specifically in the British proposals, but which is quite consistent with them. The most useful approach from our point of view appears to be to press the British proposals in regard to the International Clearing Union as strongly as possible, while supporting that part of the (probable) American proposals providing for a Bank of Reconstruction and Development.
A ready welcome to the latter might help to cure the United States Treasury of any infatuation with its own scheme for an Exchange Stabilisation Fund, and would have the added advantage of allowing the Americans to take the initiative in designing a long-term lending institution to which they would necessarily be the largest contributors of capital. At the same time, there are certain subsidiary proposals in the outline of the plan for a Stabilisation Fund which would be well worthy of adoption in any revised draft of the International Clearing Union proposals. In particular, there is a scheme for dealing with the ‘unfreezing’ of blocked funds which is particularly ingenious and helpful.
While the American proposals for a Stabilisation Fund can be described as ‘generous’ they proceed on very much more orthodox lines than the British proposals. One of the more important weaknesses of the American scheme is the fact that capital would have to be subscribed by all the participants, and a certain proportion of the capital would have to be put up in the form of gold. Naturally the United States would be the greatest subscriber to any scheme of this kind and, even with what might be regarded as generous concessions in the matter of control, the United States would still remain the dominant partner. With South American voting strength added, other countries and even the British Empire as a unit would find it difficult to exercise much control over the operations of the Fund. Another unpalatable feature of the proposals is the exalted position given to gold which, under the British proposals, takes a much more subordinate place. Even more important is the fact that the American plan lacks the psychological advantages of the British plan in assisting towards an understanding of the fact that persistent credit balances on current international accounts are equally if not more reprehensible economically than persistent debit balances. The American plan also involves an even greater sacrifice of economic sovereignty by participating Governments than is contemplated under the British proposals, which probably go as far, but no farther, than most Governments could be induced to accept. It would appear, for example, that a country’s rate of exchange would be much more under the control of the Stabilisation Fund than would be the case under the International Clearing Union, while the American plan involves rather wide restrictions on a country’s freedom in regard to ‘monetary or general price measures or policies’. The voting strength would come more from the gold-holding countries than under a scheme which based voting strength on the volume of foreign trade. Moreover, the maximum advantage in ready access to international funds, without the special permission of the governing board, would be only double the amount of gold that a country contributed initially, and this might have little relation to that country’s real need for short- term international finance. It is also difficult to appreciate what is to happen if and when the Stabilisation Fund runs out of creditor-country currencies, which it could quite conceivably do.
Presumably recourse would then be had to a new international agreement. There are other technical details which would require very close consideration, but as the American plan is only a preliminary and unofficial draft, deliberately prepared to provoke discussion in American circles, it would be unfair to criticise it too strongly as a definite proposal.
The proposed Bank for Reconstruction and Development is much more satisfactory, and appears to be conceived on fairly sound and generous lines. It would be concerned chiefly with long-term lending for international reconstruction and development, which will have to be financed in very large measure by the United States and a few other creditor countries. From this point of view, there is a lot to be said for encouraging the Americans to prepare the document to serve as a basis for international discussions on this subject, and I have reason to believe that the British officials would give an American plan along these lines a very ready welcome. Certain criticisms might be made of particular aspects of the plan, such as the proposal to issue notes against obligations of member Governments with a 50% gold reserve, the purpose of which is not quite obvious, but it is too early yet to consider technical questions of this kind.
The document in its present form, however, should receive the close scrutiny of the Government’s financial advisers, so that Australia may be prepared for subsequent discussions.
Just before leaving Washington, I was informed by Sir Frederick Phillips that he was pressing the State Department for an official indication of the American Government’s views on the International Clearing Union proposals, and that he expected a fairly early reply. The British have invited the Americans to discuss the matter either in London or Washington, but Sir Frederick inclined to the view that the discussions would probably take place in Washington. This was in the middle of December, and the position may have been further clarified since then. [9] I found it exceedingly difficult to get, either from British or American sources, any firm opinion as to the procedure likely to be followed in advancing the matter, or the time at which further discussions would take place. A good deal of confusion has been introduced by the American practice of signing up other countries under the Lend-Lease Agreement, Article VII of which commits the United States and the other participating Government to the same sort of conversations as were originally envisaged between the United States and Great Britain. It appeared to me that the State Department was far from clear on the actual procedure it would desire to adopt. I gained the impression, however, that on this subject the United States would not be averse to having the Dominions keep fairly closely in touch with any conversations that might ensue between the British and United States Governments.
(2) International Regulation of Primary Products A formal paper on this subject was circulated by the British representatives and discussed in detail. A summary of the paper was cabled to Canberra as soon as it became available [10], and the full text was forwarded by air mail. [11]
This paper was far less assured in tone than the paper on the International Clearing Union, and it was admitted by the British representatives that its preparation had involved some compromise between the views of the several British Departments concerned in this matter. There was also a somewhat sharper conflict between British and Dominion views in this field. The course of the discussion has already been fully reported in my cabled advices, and no purpose would be served by reproducing them here. [12]
Towards the end of the detailed discussions, it was intended that the British representatives would retire for a few days to rewrite this paper in a form more in conformity with the views expressed at the Conference table. Unfortunately this proved impossible in the time available, and it was not until several weeks later that a start was made on a revised draft. This had not been completed by the time I left England, but I was able to secure a copy of the revised edition which Lord Keynes had submitted for circulation to the British representatives present at the talks. This draft had still to go to the Hurst Official Committee [13] for formal approval before submission to the Committee of Cabinet dealing with these matters. The draft in my possession, therefore, is not to be taken as final, although it is unlikely that any substantial changes will be introduced. (Draft marked ‘C’.) I understand that the original paper did not get a particularly fervent blessing from the Cabinet Committee, but it was claimed by the Treasury representatives that there was a very fair chance of the Cabinet Committee finally accepting a document revised along the lines forecast at the talks.
At the time I left Washington, no approach had been made to the United States Government on this subject, nor had any document been submitted, even at the ‘official’ level. It was known in American official circles that the British Government was preparing proposals along these lines, and that some communication could be expected within a reasonably short period. Any delay in bringing this matter before the attention of the United States Government is not very serious, as I gathered that American preparations in this direction had not advanced very far. Most of the agricultural economic experts of the United States Government appear to be much more preoccupied with internal problems peculiar to the war-time agricultural economy.
(3) International Commercial Policy At the beginning of the Conference it seemed evident that the British representatives were not anxious to enter into discussions on International Commercial Policy. This seemed somewhat surprising, as I left for London with the impression that the talks were to revolve about the whole of the subjects associated with Article VII of the Mutual Aid Agreement. As a result of some accidental publicity which was given to my presence in London [14], the British representatives assumed that the Australian Government was very anxious to press questions of commercial policy, and particularly of Empire preference, and finally arranged for a round-table discussion to take place on these subjects. I have already cabled the gist of the discussions in some detail. [15]
The discussions were somewhat discursive, no very strong lead being given by the British representatives, amongst whom Board of Trade officials predominated in numbers. It soon became evident that little serious thought had been given to this whole subject by any of the British Departments, and that views generally antagonistic to the relinquishment of Empire preference and to any substantial reduction of British agricultural production after the war were fairly firmly held in certain quarters, notably in the Board of Trade and Ministry of Agriculture. A somewhat more liberal attitude of mind prevailed in Treasury and War Cabinet Secretariat circles, but even here it was felt that Great Britain had so little to give, apart from the reduction or abolition of Empire preference, that it would be wiser to allow the Americans to bring the subject forward. In the latter quarters, it was felt that concessions in regard to preference were about the only strong bargaining counter available to the British Government, and that any concessions should be sold as dearly as possible. Feeling in the Board of Trade, Ministry of Agriculture and the Dominions Office appeared to be, with some reservations, against selling them at any price, unless there was no alternative.
The Canadian view, as expressed partly at the Conference and partly in subsequent discussions which I had in Ottawa, is generally favourable to a relaxation of Empire preference, which is not regarded as a very serious matter for Canada. She would, however, insist upon compensating tariff reductions from the United States. The Canadian view is tinged with some fears that Britain may be too slow to respond to American advances in this field, thus perhaps giving an impression of reluctance to seek wholeheartedly the objectives of Article VII. It was agreed, however, that it would be tactically better to allow pressure to come, at least in the first instance, from the American side.
There are some fears in Canada, also, that progress towards the elimination of discrimination might result in a general raising rather than a general lowering of tariff rates. The Canadian Government would be very bitterly opposed to this.
South African opinion appears to be not unlike that of Canada, but the South African representative may not have been speaking with the full authority of his Government. The most notable point made by the New Zealand representative was his appeal for the continuance of bulk-purchasing arrangements which, while they present many attractive features, may be somewhat difficult to reconcile, unless very carefully supervised, with the non- discrimination envisaged by Article VII and the proposals for the International Regulation of Primary Products.
Two matters were raised either at the Conference or subsequently which merit attention. The first is the procedure which could be followed in the attempt to get any sort of general reduction in excessive tariffs. Opinion was widely divided, but very uncertain, on the practicability of pursuing a multilateral approach, while there were grave doubts as to the possibility of encompassing anything worthwhile within a reasonable time by the method of independent bilateral negotiations. Informal opinion seemed to incline towards a series of bilateral bargains arranged more or less simultaneously between a group of countries all represented at the same time and place. The protracted history of the negotiations over the proposed Australian-United States Trade Treaty at present under discussion appears to support those who contend that all the parties, including those indirectly as well as those directly concerned, should be brought together at the one time and place.
The second matter concerns a method of defining the degree of industrialisation and industrial diversification which countries in a relatively early stage of development may desire to attain.
It was fairly generally agreed that countries were entitled to a reasonable degree of industrialisation, according with their own particular desires, but it was felt in some quarters that the pursuit of an unspecified degree of industrialisation was frequently liable to lead to an uneconomic and generally undesirable extension into secondary production. It was suggested that, if some reasonably satisfactory measure of the degree of industrialisation could be devised, and countries in the developmental stage were invited to specify in such terms the objective at which they aimed, a lot of the ground for misapprehension and suspicion would be removed, and agreement on tariff matters would be considerably facilitated.
While I was in London, but after the talks had concluded, some fears were expressed to me by cable [16] that the sentiments appearing in a covering note [17] attached to the first draft of the British paper on Primary Products were inconsistent with the basic philosophy of Article VII. I subsequently took this matter up with the economic advisers to the Treasury and with the Chairman of the Conference, and am now able to confirm my cabled advice [18] that the covering note is not necessarily to be taken as indicative of the views of the British Government itself I pointed out correctly in my cable that the covering note is to be regarded rather as a hurriedly introduced safeguard inserted by permanent officials, who knew that the Primary Products paper had not at that stage been approved on behalf of the British Cabinet.
On my return to Washington, I formed the impression that American opinion might be satisfied with something short of a complete abolition of Empire preference. There is, in responsible circles, a fair realisation of the difficulties which Great Britain and some of the Dominions may have to face in regard to their post-war balances of payments, and there appears to be no desire anywhere to prejudice the return of Great Britain to a strong international economic position. At the same time, there is a good deal of emotional reaction against discriminations in international dealings, and Empire preference is the one discrimination which leaps to the American eye. In addition, some manufacturers and exporters find Empire preference interfering with their particular commercial interests. It is possible that, by some concessions in particular directions, and some wide but no particularly significant gestures, hostile American opinion could be placated without interfering unduly with some of the more valuable intra- Empire attachments that the preferential system has produced.
The return of the new Congress was responsible for a good deal of speculation during my presence in Washington on the possibility of a renewal of the Trade Agreements Act, which expires in 1943.
Opinion was very divided on this subject, but I gathered confidentially from very reliable sources in the State Department that a ‘check-up’ on the new members of Congress disclosed a reasonable possibility of getting the Act renewed in a form which would at least preserve the President’s present powers. Some weight was also given to the possibility of Willkie [19] splitting the Republican Party if the pendulum should swing too far in the direction of economic isolation.
(4) Post-war Relief and Rehabilitation Proposals The only paper circulated by the British representatives on this subject was the draft agreement which Sir Frederick Leith-Ross had brought back from Washington a little earlier. The text of this was cabled at the request of Canberra. [20] The proceedings commenced with a historical summary of the position by Sir Frederick Leith-Ross and progressed into a round-table discussion, the gist of which was cabled to Canberra immediately. [21] As the matter was being dealt with actively by the High Commissioner in cables to the Prime Minister [22], and as the subject was placed on our agenda merely to provide Dominion representatives with background information, I was not called upon to take the initiative in discussions with Canberra. At that stage the chief question between Governments was the proposal to increase the number of representatives on the Policy Committee from four to seven. I understand that the Commonwealth Government later accepted this proposal and that it has now been adopted. [23] When I left England the Russian Government had still not indicated its approval of the draft Agreement, but I learned that it had done so by the time I reached Washington.
By this time ex-Governor Lehman had been appointed by the President to take charge of American participation in the relief and rehabilitation measures. I understand that at a meeting of the Pacific War Council the President casually indicated that ex- Governor Lehman was intended to become the Director-General of the United Nations Relief and Rehabilitation Administration. I was able to see his chief lieutenant, Mr. Appleby, until recently a high official of the Department of Agriculture, but his appointment was so recent that I was unable to get information of any real value. I did learn, however, that the Soviet Government, before giving its approval to the plan, had asked a number of pertinent questions in regard to the control which de facto Governments would exercise over the distribution of relief. The United States was able to satisfy the Soviet Government on this point, by agreeing that no activities would be undertaken without the consent of the Government actually in control at the time. It was pointed out, however, that this would obviously not apply in any area where no Government was in effectual operation. I was informed earlier in London, very confidentially, that the Soviet Government entertained fears that relief might be used as an instrument of economic imperialism and political manoeuvring by the United States and possibly by other Governments, and that these fears had been responsible for the Soviet Government’s delay in accepting the plan.
I gathered that work has been started in a preliminary way in the United States on the important question of the actual supplies which are likely to be available at the end of the war, rather than on estimates of probable needs. On the latter question, a considerable amount of work has, of course, already been done by the Leith-Ross Post-war Requirements Bureau. [24]
ROLAND WILSON
_1 See Document 54.
2 See cablegram 9789 (dispatched 24-25 October 1942) on file AA:A989, 43/735/56/1.
3 Distributed to the Interdepartmental Committee on External Relations as document B29 (on file AA:A989, 43/735/56/2).
4 See Document 72, note 4.
5 All attachments mentioned in this letter are on the file cited in note 2.
6 See Document 72 and cablegrams 9870, 9975, 10211, 10261, 10468 and 10525 (all dispatched between 27 October and 13 November 1942) on the file cited in note 2.
7 Not found on Commonwealth Govt files. Other copies of the ‘Draft Proposal for a United and Associated Nations Stabilization Fund’ are on the file cited in note 3.
8 See Document 98, note 3.
9 Parallel discussions were held on the Stabilisation Fund and Clearing Union plans in Washington and London during the first half of 1943, culminating in joint discussions between the U.S.
Treasury, U.K. representatives and others in Washington on 15, 16 and 17 June.
10 See cablegram 9953 (dispatched 29-31 October 1942) on the file cited in note 2.
11 Not found on Commonwealth Govt files.
12 See cablegrams 10006, 10143, 10180, 10261, 10468 and 10525 (dispatched between 30 October and 13 November 1942) on the file cited in note 2.
13 i.e. the Reconstruction Committee of the U.K. Cabinet.
14 This refers to an article on Wilson’s visit and Australia’s attitude towards post-war commerce which appeared in the Times of 22 October 1942, p. 3. The information in the article was from Curthoys, the Times correspondent in Melbourne. Following this discovery, censorship was imposed on the subject. (See Prime Minister’s Dept cablegram 479 of 3 November 1942 on the file cited in note 2.) 15 See Document 72 and cablegram 10343 of 9 November 1942 on the file cited in note 2.
16 See Curtin’s cablegram 10266 of 10 November 1942 on the file cited in note 2.
17 For a summary of this note see the cablegram cited in note 10.
18 See cablegram 10525 of 13 November 1942 on the file cited in note 2.
19 Wendell L. Willkie had been the Republican Party candidate in the 1940 U.S. Presidential elections.
20 See cablegram 10384 of 10 November 1942 on the file cited in note 2.
21 See cablegram 10467 of 12 November 1942 on the file cited in note 2.
22 See cablegrams on file AA:A989, 43/735/751/1, i.
23 See cablegram 11390 of 12 December 1942 on the file cited in note 22.
24 The U.K. Govt set up this Bureau to assist the Inter-Allied Post-War Requirements Committee.
_
[AA:A989, 43/735/56/1]