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

841.24/10–1644

The British Minister (Campbell) to the Under Secretary of State (Stettinius)⁹³

Washington, September 23, 1944.

My Dear Mr. Stettinius:

1. I have been asked by His Majesty’s Government in the United Kingdom to say that the authorities in London have been giving thought to the position which will arise in respect of supplies in the United Kingdom and the Colonies (among which supplies of lend-lease origin will be an important element, involving special considerations) which will become surplus to military requirements and available for disposal to civilians or otherwise.

2. The volume of movable stores no longer required for military use in the European theatre on conclusion of hostilities with Germany is likely to be considerable. While a large part will be used in the Far East, and a further quantity for relief and rehabilitation purposes on the Continent, nevertheless a substantial balance will be available for disposal to civilians or otherwise. The problem created by these surpluses will largely be a new one. Up to now movable stores have been made available for civilian purposes either because it has been essential for the efficient conduct of military operations that they should be supplied to civilian economy or because the stores in question had become, through destruction, deterioration or obsolescence, useless for the purpose for which they were originally intended. In the first case the military authorities are only acting as a necessary channel of supply in the light of military necessities; in the latter, the supplies thrown up are of the nature of scrap and salvage. In contrast, military supplies thrown up at the end of the European war will be different both in volume and character. In volume they will be far greater. In character for the most part they will not be essential to civilian economy, although many of them may be readily saleable.

3. Special problems are presented by the intermingling of supplies of lend-lease origin. In order to provide orderly disposal, arrangements have been made by the British Government to govern the marketing of surplus stores, as they have been by the United States Government in the United States of America. But lend-lease stores cannot automatically be treated under these arrangements. The United Kingdom Government has not the power to divert supplies of lend-lease origin to ordinary civilian use without the consent of the President of the United States. Further, Article 5 of the Mutual Aid Agreement of February 23rd, 1942⁹⁴ puts certain obligations upon us—that article reads: “The Government of the United Kingdom will return to the United States of America at the end of the present emergency, as determined by the President, such defence articles transferred under this agreement as shall not have been destroyed, lost, or consumed and as shall be determined by the President to be useful in defense of the United States of America or of the Western Hemisphere or to be otherwise of use to the United States of America.” It follows that special arrangements are therefore necessary to deal with supplies of lend-lease origin.

4. The Government of the United Kingdom cannot however contemplate, as a general arrangement covering all types of goods, a solution whereby the disposal of goods of lend-lease origin should proceed subject to financial adjustments being made subsequently either by paying over the direct proceeds of the sale of such goods or on some proportionate basis.

This would not be possible in view of the drain on the foreign exchange resources which would be involved. The exchange reasons which prevent the importation into the sterling area of American goods which are not absolutely essential prevent the United Kingdom Government from being able to contemplate an arrangement of this kind. However desirable administratively an overall settlement on these lines might appear, we should not be justified, either from our own point of view or that of the United States, in entering into such a commitment in respect of supplies whose priority cannot be represented as being in any sense high.

5. The only alternative therefore that is left is to make arrangements so that surplus supplies of lend-lease origin are available for return to the United States. It is recognized this is likely to present administrative and other difficulties which should be explored well in advance, and that channels and machinery of recapture will require considerable thought. It would therefore seem desirable for joint discussions to be undertaken as soon as possible.

6. There remains the special case of supplies (whether of lend-lease or United States Army origin) which are surplus to military requirements but essential to the civilian economy. Here it would appear reasonable that the ordinary ruling of lend-lease eligibility should apply and that where such supplies are required for civilian end use and are eligible for procurement under lend-lease, permission for re-transfer under lend-lease should be given, during the currency of the Lend/Lease Act, without question of payment arising. Where however such supplies are ineligible, they would be purchased on such a basis as might be arranged and subject to the usual exchange control and procurement machinery.

7. Mention has been made of United States military supplies, as opposed to lend-lease supplies. The arguments set out in paragraph 4 above apply even more strongly here, and there would be no possibility of purchases of non-essentials for civilian purposes in this sphere.

8. It must be emphasized that the above proposals relate to the United Kingdom and Colonial Empire only. The United Kingdom Government is not in a position to speak for the Governments of the Dominions, or of India or the other Governments of the countries in the sterling area. Nevertheless the same broad considerations must inevitably apply as in the case of the United Kingdom and the Colonies, since for any payments that are to be made to the United States, dollars must be found from the common Sterling area pool. It is hoped, therefore, that in the case of these countries, similar principles will be applied as regards surplus lend-lease or United States army goods which may be found there. Furthermore that in the case of non-British countries in the sterling area consultation and parallel action will be maintained by the United States and the United Kingdom in regard to principles of disposal.

9. His Majesty’s Government would be grateful for the views of the United States authorities on what is recognized to be a difficult and complicated problem. If the State Department would like to enter into the discussions envisaged in paragraph 5 above, we should be happy to make the necessary arrangements. If it were thought the said discussions would be useful, I would propose to designate a small committee of United Kingdom representatives for this purpose comprising Mr. F. G. Lee of the United Kingdom Treasury Delegation, Mr. J. H. Penson of the British Ministry of Supply Mission, Mr. T. Childs and a representative of this Embassy.

10. I am sending a copy of this letter to Mr. Crowley.⁹⁶

Yours sincerely,

Ronald I. Campbell

93. Original not found in Department files; this copy made from a carbon attached to a memorandum of conversation of October 16, 1944 (not printed) by Mr. Frank W. Fetter, Adviser in the Division of Financial and Monetary Affairs.
94. Preliminary Agreement between the United States and the United Kingdom regarding principles applying to mutual aid in the prosecution of the war against aggression, signed at Washington, February 23, 1942. For text, see Department of State Executive Agreement Series No. 241, or 56 Stat. (pt. 2) 1433. For documentation concerning negotiation of the Agreement, see Foreign Relations, 1942, vol. i, pp. 525 ff.
96. Leo T. Crowley, Foreign Economic Administrator.