Foreign Relations of the United States: Diplomatic Papers, 1944, General: Economic and Social Matters, Volume II

840.50/7–2044: Telegram

The Ambassador in the United Kingdom (Winant) to the Secretary of State

London, July 20, 1944—9 p.m.
[Received July 21—2:05 a.m.]

5766. For those concerned with Article VII discussions: No. 12 of series.

(1) Regarding the question of bulk purchases and state trading which has recently been discussed by the Committee on Trade Controls and some aspects of which have formed the subject of Department’s 4783, June 16; and 5473, July 12; and Embassy’s 4956, June 22; 5171, June 30; and the immediately preceding telegram,⁷⁶ we wish to emphasize that there is no evidence that any new long-term commercial policy concerned with state trading or bulk purchases has been adopted by the British Government.

(2) The points made in the penultimate paragraph of Department’s 5473, July 12, are valid in relation to a general policy in favor of bulk contracts over the whole field of raw materials or any part of it that included any products likely to be in abundant supply soon after the war, particularly if such contracts are discriminatory and cover long periods.

(3) But the contracts referred to in Department’s 5473, July 12, are concerned only with certain finished foodstuffs which it is generally agreed will be in scarce supply for some time to come. The concern of the UK in these arrangements is to keep up the supply and keep down the price of essential scarce food imports. The Dominions happen to be the most convenient source of supply at present available for the particular products concerned. The British are extremely anxious on two points—first, as to their food supply and second, as to their balance of payments. Having regard to the second point we do not believe that, because of sentiment towards the British Empire, they would be willing to pay any more than is necessary for their imports of the scarce food products.

(4) We doubt the applicability of the term “contracts” to the arrangements under negotiation between UK and the Dominions with respect to meat, cheese and butter. These arrangements are not contracts in any legal sense and there is no legal commitment. Only statements of agreement to purchase are under consideration. Only in the case of Canadian bacon are definite quantities specified. In the other cases what is contemplated is an agreement to purchase the exportable surpluses. As regards the agreement on Canadian bacon the operative position at present concerns only the period up to the end of 1945. The Canadians had pressed for a 4 instead of a 2 year arrangement. UK was willing to agree but at prices lower than those ruling up to the end of 1945. The Canadians, however, have rejected this on the ground that the proposed price for 1946–47 is too low. There is in addition an agreement to purchase the exportable sugar in British Caribbean areas. In all these cases the UK is greatly concerned to avoid excessive prices in the later war and early post-war periods.

(5) It should be noted also that these arrangements do not prejudice the question of state or private trading on the side of British imports. If the Government should decide to hand back the importing business in these lines to private trading channels the arrangements in question would not form any obstacle. The late Sir Josiah Stamp⁷⁷ laid down the pattern of state importing arrangements early in the war in such a way that the brokers and other intermediaries, were taken into the government organization. The private trading; channels could easily be reconstituted and all the obtainable imports could be absorbed.

(6) There appear to us, however, to be some differences between public sentiment and perhaps governmental attitudes in US and UK towards the continued need of controls after the war. The damage and impoverishment on the European continent, the continuing damage in southern England, the prolonged low rations of meat, cheese, eggs and milk, the consciousness of the large scale needs of areas in close proximity that are about to be liberated, have combined to create in Great Britain a first hand experience and a strong consciousness of the realities of scarcities in the goods needed to supply basic needs, together with a restraint on the tendency to assume that the fall of Germany will bring a speedy end to the existence of scarcities and the need of controls. There are even doubts whether existing rations in UK can be wholly maintained in the early period after the end of the war in Europe.

(7) Moreover, the attitude to controls appear to be less impatient and less hostile here than in many parts of the world. We have had frequent occasion in Embassy reports in the last few years to point out the high degree of efficiency and equity which have been attained in the operation of most of these controls. During the war reduced supplies in relation to total needs have been distributed so effectively through wartime control measures that much greater equity has been attained and fewer people have been in extreme want than in the pre-war days.

(8) An understanding of present British attitudes depends in part upon an appreciation of the effectiveness of government controlled operations in wartime, with a related absence of doctrinaire attitudes of hostility to governmental intervention in economic matters. Controls are not desired for the sake of control but there seems to be a good prospect that in the early post-war period particular controls will not be lightly discarded if it can be demonstrated that they are necessary to equitable and orderly distribution and readjustment in the interests of the general welfare.

(9) Applying this to control of imports, it seems most unlikely that direct government control of imports of essential rationed foods will be abandoned until scarcity conditions no longer exist. The fundamental principle underlying British food control and food rationing is that the Government must control all stages from production or import to retail sales as long as there is any actual or prospective shortage. Control of supplies at the source is regarded as essential and the success of food control has been greatly aided by the ability of the Government to organize and take possession of food imports. Controls over any particular food are not likely to be abandoned piecemeal, starting with the import stage or any other stage. Rather the Government is likely to wait until it is quite clear that supplies are so abundant that rationing and other controls can be dropped simultaneously with relaxation of import controls.

(10) The central issue in the question of bulk purchases discussed in Department’s 4783, June 16, and 5473, July 12, and Embassy’s 4956, June 22, 5171, June 30, appears to us to concern the length of the contract or other arrangement and the probable world supply position in respect of meat and dairy products in that period. As to the reference to raw materials in the penultimate paragraph in Department’s 5473, July 12, there is no reason to believe that the measures under negotiation concerning meat and dairy products have any relation to or constitute any precedent for UK policy on raw materials.

(11) The bases of food requirements for the post military period have now been adopted by the European Committee of UNRRA and the detailed requirements are in course of preparation. When taken in conjunction with the figures of plan A for the military period and with requirements for USSR under Lend-Lease, they should give a rough picture subject to quarterly amendment of a large part of anticipated food demands in liberated areas. If in addition an appraisal can be made, perhaps by the Combined Food Board, of the probable world position of meat and dairy products, a rough judgment can be made of the probable supply and demand position of these foods for limited future period. In London it is strongly believed that there will be a substantial scarcity. As indicated in Embassy’s telegrams cited above, the British consider that measures are necessary to secure an increase or even to prevent a decrease in the production of some of these goods in overseas areas. We should appreciate information as to whether Washington shares the view that a substantial scarcity is anticipated and that measures should be taken to offset it.

(12) On the question of restoring trade to commercial channels, we understand that British opinion is still divided on the question how far there should be a return of food importing to the pre-war channels and how far and in what form the state should participate in organization of food imports after the transition period. There seems, however, to be substantial agreement that the state must continue to play a large part in the transition period and that if and in so far as it continues to take part in trading in the long run it should make purchases on commercial principles. The internal differences on state trading after the transition are sharp and have given rise to considerable controversy, in the course of which we understand from private sources that the advocates of private trading have used the argument that USA would be opposed to any other form of trading by UK. This in turn, in so far as it has been, believed, has led to criticism of any attempt that might be made by USA to interfere in such British decisions. It is clear that the interest of USA is nondiscrimination and in the avoidance of undesirable monopoly or monopoly practices will be recognized on all sides. But if USA attempted to bring pressure on UK to adopt private trading only and avoid all state operations as a matter of policy in respect to all imports the effect would probably be to create resentment among the British people. It would probably be felt, even apart from the economic merits of the question, that the role of the state in external trade, like its role in internal trade, is a matter for domestic decision provided that certain standards of relations with other countries were observed. British civil servants have pointed out in personal conversations with us that it is possible and even likely that in some of the European countries after liberation governments will play a considerable role in external trade even beyond the transition period. The right of the Soviet Union to engage in state trading is recognized.

(13) This analysis does not imply that UK will probably continue some form of state trading after the transition period. There are strong interests opposed to such forms of trading. Post transition policy on the subject cannot be predicted at present.

(14) American emphasis on the necessity of restoring multilateral trade as soon as possible and on reducing trade barriers and eliminating discriminations serve a valuable purpose here. But if in addition American statements were made which might be interpreted by UK and the European Allies as an attempt to bring pressure on them concerning the extent of private enterprise which they should maintain in their economic systems, the effect might be to alienate opinion and sentiments towards the United States among the peoples concerned.

Winant

76. Telegram 5765, July 20, not printed.
77. Killed in an air raid in April 1941; he had been Director of the Bank of England, member of the Economic Advisory Council, and Adviser on Economic Coordination to a Ministerial Committee since 1939.