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The Acting Secretary of State to the Ambassador in the United
WASHINGTON, July 9, 1941–6 p. m. 2483. From Hopkins.
"The Lend Lease appropriation may be made more difficult by reports that British are exporting steel manufactured into consumer goods items to South America, Canada and the United States. Have heard rumors of other consumer goods material requiring aluminum. Would it be possible for you to examine the items of British export during recent months and let me know whether there is anything in this criticism and if so what steps, in your opinion, are to be taken to correct it. There are also reports here that American cheese is sold at as much as 90 cents a pound and is unrationed. I have been wondering whether all food sent from here should not be rationed. Obviously our agricultural people will go into this later. My concern now relates to the next lend lease bill and I am anxious to have no unnecessary hurdles to get over. Have seen Woolley."
811.20 (D) E. M. D. E./111a : Telegram The Acting Secretary of State to the Ambassador in the United
WASHINGTON, July 18, 1941–3 p. m. 2657. For Frank Coe 16 from Secretary Morgenthau. Please take up with Hopkins and Harriman 17 the question as to how Lend-Lease commercial items purchased by Procurement Treasury are distributed in England. Is the English middleman permitted to make a profit on these items? Get authority from Ambassador Winant and Hopkins to investigate this question yourself. Please give me an answer as soon as possible. [Morgenthau.]
15 Harry L. Hopkins, Special Assistant to President Roosevelt, with primary responsibility at this time for Lend-Lease affairs.
Assistant Director of the Division of Monetary Research, Treasury Department, on detail in London.
17 W. Averell Harriman, Special Representative of President Roosevelt in the United Kingdom, with rank of Minister, to expedite lend-lease aid to the British Empire.
811.20 (D) E. M. D. E./116: Telegram The Ambassador in the United Kingdom (Winant) to the Secretary
LONDON, July 24, 1941–9 p. m.
[Received July 24—6 p. m.] 3189. Personal for Mr. Morgenthau. Delivered message to Coe as your telegram 2657 July 18, 3 p. m. Two weeks ago I asked Sir John Anderson, Lord President of the Council, who has charge of the over-all statistical and accounting services which reach into all the Ministries of the Government to give me information on some aspects of the problem you raise in your telegram. At the same time I went to the Prime Minister and told him it was essential we have information and he promised his support and cooperation.
For your information, I brought to the attention of the Chancellor of the Exchequer 18 and Mr. Keynes before he left for the United States the possible embarrassments that might result from introducing raw material purchased under the Lend-Lease Act into ordinary channels of commercial trade, particularly the export trade. I suggested an independent accounting of such material with return payment. There is also reference to this problem as it relates to food stuffs in a confidential report I forwarded sometime ago to Washington.
Ben Cohen 19 is aware of the conversation and has read the report.
Yesterday I took Coe to meet the Chancellor and Sir John Anderson. The Chancellor has promised us as soon as possible a full report on the distribution of lend-lease articles. Sir John Anderson gave me a short memorandum in answer to my earlier inquiry.
It is substantially similar to Keynes' statement on the re-export problem issued in Washington a fortnight ago. He also answers the inquiry about 90-cent cheese.
Today Coe met other Treasury officials working on the problem and expects by a series of interviews and memoranda from various Departments to obtain a general picture for you in the next few days.
Following is the text of Sir John Anderson's memorandum: "We fully realize the importance for the appropriation debates of giving a full and clear answer to the suggestions that we are using lend-lease goods to push our export trade to South America, Canada and the United States.
So far as goods containing steel are concerned, individual orders from Canada are carefully examined and steel is not released for their manufacture unless we are satisfied either that they are essential to the Canadian war effort and cannot be supplied from the United States or Canada, or that they can be produced and shipped without interfering with war production in this country and represent a high conversion value. As for the United States, it is our policy only to export goods containing steel where it is in the interests of both countries that we should do so. The amounts concerned are small. For South America we try to export no goods containing steel in appreciable quantities, except that we have felt bound to maintain in some degree our export trade with the Argentine in view of the necessity of keeping up means of payments for our food supplies from there; but the amount of exports containing steel has rapidly diminished and if it is needed from the Congressional point of view, we are prepared to stop any new orders being accepted with very minor exceptions.
18 Sir Kingsley Wood. 19 Legal adviser to the Ambassador in the United Kingdom.
As regards aluminum there is no found action [no foundation?] for this criticism. Civilian use in this country and export use together amount to less than one percent of our consumption. Tiny amounts are found 'necessarily in electrical equipment and machinery and thus a few pounds may have got to South America but that is all.
In general, exports made now which give rise to many of the complaints are in fulfillment of orders placed months ago when the circumstances were completely different. There must always be a time log [lag] where production is involved between policy and its final performance.
Keynes has been taking up all these points in Washington and we have given him the material for a detailed answer which he drafted in consultation with the State Department and the Treasury. He tells us that it seems to have been completely adequate.
The Ambassador also mentioned reports in the United States that American cheese is being sold unrationed at as much as 90 cents a pound. There is no truth in this rumor. There was a small quantity of Argentine cheese which for special reasons as a non-recurring matter we allowed to be sold without restriction and off the ration so that it fetched a fancy price. Probably this is at the bottom of the
Thank you for assigning Coe here.
Memorandum of Conversation, by the Assistant Secretary of State
[WASHINGTON,] July 28, 1941. Mr. Keynes called at my request in accordance with the instructions of the Acting Secretary. I handed Mr. Keynes a copy of the draft proposal 20 for a temporary lease-lend agreement which had been approved by the President and told Mr. Keynes that the President saw no reason why he should change his plans, which contemplated flying to England on Tuesday, July 29. I also told him that the President did not regard the draft as final on his part, but that he had given his approval for a discussion of it with the British Government as a basis
20 See annex.
а for a temporary lease-lend agreement.
Mr. Keynes, after reading the draft, inquired whether Article II meant that the United States might require the British to furnish articles, such as tin, rubber, etc., without payment. I replied that Article II was inserted to provide for reciprocal action on the part of Great Britain to the extent that Great Britain might be in a position to take such reciprocal action and in the event that the necessities of our national defense might require us to ask for it; that it did not imply any present intention on the part of this Government to alter existing arrangements, but that no one could foresee the future and that, if the necessities of the future required us to request action by the British comparable to our own lease-lend procedure, Article II meant that the British would take such action, just as we were now taking it, so far as they were in a position to do so.
Mr. Keynes then turned to Article V which requires the United Kingdom to return at the end of the emergency such articles as have not been destroyed, lost, or consumed, and which the President may request to be returned. He pointed out that in his draft the obligation to return had been “so far as practicable”, and stated that this phrase had been inserted to cover the situation in which the United Kingdom, with the permission of the President, might have transferred to another Government lease-lend articles, thus placing them beyond the control of the British Government. I replied that this situation might be taken care of at the time of such transfer in one of two ways. Either the President's permission might exempt such articles from the provisions of Article V, or the terms of the transfer might provide that the transferee Government should return them to the United States under the same conditions as provided in Article V. He seemed satisfied with this.
Mr. Keynes then raised Article VII, and stated that very serious considerations were raised by the provision that the final settlement should provide against discrimination in either the United Kingdom or the United States against the importation of any product originating in the other country. He asked whether this provision raised the question of imperial preferences and exchange and other trade controls in the post-war period. I said that it did raise these questions, but that the Article was drawn so as not to impose unilateral obligations, but rather to require the two countries in the final settlement to review all such questions and to work out to the best of their ability provisions which would obviate discriminatory and nationalistic practices and would lead instead to cooperative action in preventing such practices.
Mr. Keynes then spoke for some time quite strongly about this provision. He said that he did not see how the British could make such a commitment in good faith; that it would require an imperial conference and that it saddled upon the future an ironclad formula from the Nineteenth Century. He said that it contemplated the impossible and hopeless task of returning to a gold standard where international trade was controlled by mechanical monetary devices and which had proved completely futile. He said that the only hope of the future was to maintain economies in balance without great excesses of either exports or imports, and that this could be only through exchange controls, which Article VII seemed to ban.
He went on to say that the language used in Article VII had a long history; that it permitted all sorts of cunningly devised tariffs, which were in fact discriminatory and prohibited sound economic monetary controls. Finally, he said that at the end of the war we will probably have a great excess of exports, the British would require a considerable excess of imports, and that the formula provided in Article VII was wholly impossible.
I replied to Mr. Keynes that I thought he was taking an extreme and unjustified position and that it must be clear to him that no one would be less likely to impose a rigid and unworkable formula upon future developments than the President.
I said, and Mr. Keynes agreed, that the proposal made by him had been wholly impossible, inasmuch as it provided merely that lease-lend aid should be extended; that the British should return what was practicable for them to return; that no obligation should be created; and that they would be glad to talk about other matters. I pointed out to him that such a proposal could not possibly be defended in this country. To this he did not demur.
I then said that the purpose of Article VII was to provide a commitment which it should not be hard for the British to give that, after the emergency was over and after they had received vast aid from this country, they would not regard themselves as free to take any measures they chose directed against trade of this country but would work out in cooperation with this country measures which would eliminate discrimination and would provide for mutually fair and advantageous relations. I added that there was nothing narrow or technical about the provisions of Article VII, but that the British should realize that an effort of the magnitude of the lease-lend program on our part imposed upon them the obligation of continuing good will in working out plans for the future and that they must consider our position as well as their own during that future period.
After some further discussion along these lines, Mr. Keynes stated that he would take the proposal back to London and would discuss