that these goods are not in any case diverted to the furtherance of private interests.

Export Policy.

2. No lend-lease materials sent to this country have been used for export.

3. For some time past exports from the United Kingdom have been more and more confined to those essentials (i) for the supply of vital requirements of overseas countries, particularly in the sterling Empire; (ii) for the acquisition of foreign exchange particularly in the Western Hemisphere. His Majesty's Government will now adopt the policy summarized below:

(1) In the future no materials on which the use is being restricted in the United States on the grounds of short supply and of which we obtain supplies from the United States either by payment or on lendlease terms will be used in exports with the exception of the following special cases:

(a) Material which is needed overseas in connection with supplies essential to the war effort for ourselves and our allies, and which cannot be obtained from the United States. This would enable us (i) to export supplies essential to the war effort to countries within the Empire and to our allies, and (ii) to export such articles as tinplate for canning to Portugal and the Argentine for our food requirements, if such tinplate could not be supplied by the United States of America.

(b) Small quantities of such materials needed as minor though essential components of exports which otherwise are composed of materials not in short supply in the United States.

(c) Repair parts for British machinery and plant now in use, and machinery sea plant needed to complete installations now under construction so long as they have already been contracted for.

Steps will be taken forthwith to prevent the execution of existing contracts for the export (except to Empire and Allied territories) of such goods which do not come within the exceptions referred to in (a), (b) and (c) above. (i. a.) Materials which are not in short supply in the United States but which we obtain on lend-lease terms will not be used for export in quantities greater than those which we ourselves produce or buy from any source.

Distribution in the United Kingdom Chancelleries Lend-Lease Goods.

4. The general principle followed in this matter is that the remuneration received by the distributors, whatever the method of distribution, is controlled and will be no more than a fair return for the services rendered in the work of distribution. The arrangements rigorously exclude any opportunity for a speculative profit by private interests from dealing in lend-lease goods. In most cases lend-lease supplies will be distributed through organizations acting as agents of His Majesty's Government in the strict sense of the term and not as principals. Where, for strong practical reasons, this cannot be done a full explanation will be supplied to the United States administration and their concurrence sought beforehand in any alternative arrangements proposed. The justification for retaining existing

channels of distribution operating under strict Government control is that the creation of elaborate new organizations in their place would inevitably result in loss of efficiency and the wasteful use of manpower, and retard the war effort.

5. Food is a special case. Only some 5 or 6 percent of the total British food supply will come from the United States and without great practical complications it would be impossible to have a separate system for the distribution of lend-leased food. Food distribution is carried out in the United Kingdom by wholesalers to whom the Government sells food as principals. In fact the Ministry of Food has established a close control over all district margins so that neither the wholesalers nor the retailers receive any greater remuneration than is adequate to cover the cost of the services performed. No food obtained on lend-lease terms is or will be sold at uncontrolled prices. Thus, the general arrangements as regards the issue of lend-leased food fit into His Majesty's Government's policy of stabilizing the whole price level of foodstuffs, a policy to which the Government contributes pounds 100 millions a year.

6. In some cases direct free distribution is practicable and will be adopted. For example, some milk products (including lend-leased supplies from the United States) are distributed direct and free of charge to children and others in need through schools, clinics and hospitals. The distribution is undertaken by state agencies and the cost of the distribution is borne by the Government."

The statement handed me by the Chancellor should be read in connection with the public announcement made in the House by the Prime Minister in his address of Tuesday (see message 3278, July 29).

Coe is preparing, with the cooperation of British Treasury officials an exact description of the methods of distribution of all articles under the Lend-Lease Bill which will be forwarded on completion.

I would appreciate your informing the President on this matter as I understand from Mr. Hopkins that he is interested in this situation. It would also be helpful if you would let General Burns 24 have copies of this entire correspondence for his own information and for Mr. Hopkins on his return.

I explained to the Chancellor that I was forwarding this statement to you. An early answer would be greatly appreciated.

841.24/6431

WINANT

Memorandum by the Chief of the Division of Commercial Treaties and Agreements (Hawkins) to the Assistant Secretary of State (Acheson)

[WASHINGTON,] August 1, 1941.

MR. ACHESON: Mr. Keynes' views on the most-favored-nation clause are not very clear from this letter.25 It is apparent, however, that he

24 Maj. Gen. James H. Burns, Executive Officer, Office for Emergency Management, Division of Defense Aid Reports.

25 Letter to Assistant Secretary of State Acheson, July 29, p. 16.

doesn't like it. Taking some of his oral remarks in conjunction with this letter, the main terms of his indictment can be made out. I set them down with my comments:

On one occasion recently Mr. Keynes stated that obviously the mostfavored-nation principle did not in fact result in nondiscriminatory treatment since it often happens that a country, despite its mostfavored-nation obligations, will apply a generally higher level of duties to the characteristic products of a particular foreign country than those applicable to the characteristic products of another country; hence it discriminates against the former without calling it discrimination. For example, France used to claim that we discriminated against her because our level of duties on her typical products (luxury products) were higher than those on the typical products of other countries.

The answer is, of course, that the most-favored-nation clause does not pretend to insure that a country's policy will be wholly nondiscriminatory or even equitable. It has a much more modest and attainable objective which is simply that any given product of a particular foreign country will not be placed at a competitive disadvantage as compared with the like product of any third country. It aims to prevent artificial diversion of trade as between foreign supplying countries; to insure that the efficient producer in one foreign country will not, because of discriminatory practices in the importing country, lose his market to less efficient producers in other countries.

Mr. Keynes' argument regarding discriminatory general tariff levels is not an argument against the most-favored-nation clause because that clause does not even profess to cover such generalities. Our tariff rates on silk fabrics may, for example, impose a greater burden on this typically French product than do our rates on Argentine canned beef. The most-favored-nation clause does not even seek to cover such a situation since no diversion of business away from French producers and into the hands of less efficient foreign suppliers is involved.

This leads to another contention of Mr. Keynes which is set forth in his letter to you of July 29, namely, that the most-favored-nation principle is a shelter for reactionaries. There is an element of truth in this. The policy of the United States during the twenties illustrates the point Mr. Keynes has in mind. During that period we insisted on the right to impose any tariff we saw fit for the protection of domestic producers and at the same time insisted on receiving as favorable treatment in each foreign country as that granted to our competitors in third countries. In short, if we could have made this stick, we could have maintained any tariff we chose without danger of paying a stiff price for it by having our export trade diverted into the hands of our competitors. In those days we did in fact what Mr. Keynes suggests;

attempted to take shelter behind the most-favored-nation clause in order to impose exorbitant tariffs without suffering the consequences. It is to be admitted that the most-favored-nation principle alone, without a moderate level of nondiscriminatory rates, is not sufficient of itself to promote a healthy international trade. The United States has since recognized this fact in the enactment of the Trade Agreements Act.26 In the post-war period we should seek to get the widest possible acceptance of both of these principles.

Mr. Keynes argues in this letter to you that the most-favored-nation clause "made a hash of the old world", (presumably meaning the prewar world). This is a most unwarranted statement. It would be much more accurate to say that the British, and other countries, made a hash of the most-favored-nation clause by negotiating bilateral arrangements and other agreements which resulted in widespread discriminations.

On the whole, the tenor of Mr. Keynes' argument seems to be that we are attaching too much importance to nondiscriminatory treatment of our trade; that discrimination is not after all a matter of such significance as to justify our interfering with the bilateralistic plans which Mr. Keynes has in view. If definite proof were needed that nondiscriminatory treatment is important, and important to the British themselves, it could easily be had by suggesting that this obsolete instrument, the most-favored-nation clause, be omitted from the revised trade agreement now under discussion. This would allow us to impose higher duties on British goods than apply to like products from competing sources, and would be our counterpart of the freedom which the British wish to reserve for themselves to discriminate in the application of their exchange control. It would be a perfectly safe experiment, as they would never agree to it.

It seems to me that what Mr. Keynes has completely failed to see and understand is that the idea of nondiscrimination (in the properly limited sense as used above) is not a philosophical concept but rather a matter involving considerations of practical politics and economics. The imposition of high, though nondiscriminatory, trade barriers for the protection by a country of its own producers does and has aroused resentment, but this resentment is mitigated by the fact that a certain degree of preference by a government for its nationals is understandable and tolerable. But discrimination in favor of other foreigners is not so regarded. And above all, he fails wholly to see that after the sacrifices the American people are being called upon to make to help Great Britain in the present emergency (even though we are thereby helping ourselves), our public opinion simply would not tolerate discrimination against our products in Great Britain

and, at Great Britain's instance, in other countries. Mr. Keynes' failure to grasp this humble fact probably explains his failure to understand the impossibility of collaboration between the United States and the United Kingdom in the atmosphere which his kind of policy would create and hence the serious consequences to both countries and to the world which could result from that policy.

841.24/659a: Telegram

The Secretary of State to the Ambassador in the United Kingdom

(Winant)

WASHINGTON, August 6, 1941-7 p. m.

2994. Personal from Harriman:

"Brendan Bracken 27 asked me to report to him misconceptions that America had of Britain. Will you please tell him the belief is prevalent among political and business circles that:

1. Britain is using Lend-Lease materials to foster and retain her commercial export markets.

2. Large profits are being made by commercial interests in processing and distributing Lend-Lease raw materials.

I believe Bracken has an interest in getting the facts and seeing that in future accurate information is released from London so that the Americans will understand the British Government's general attitude and will not be upset by accidental incidents that may occur from time to time even after the understanding which you are now working on is reached."

HULL

841.24/688: Telegram

The Secretary of State to the Ambassador in the United Kingdom

3165. From Oscar Cox.28

(Winant)

WASHINGTON, August 15, 1941-6 p. m.

"I am told by the British Purchasing Commission that London is holding up formulation of a definite policy with respect to the reexport and commercial distribution of Lend-Lease articles pending receipt from us of comments on Sir Kingsley Wood's memorandum forwarded by you on July 31, 1941.29 I understand also that on receipt of this memorandum the Treasury cabled you suggesting that Mr. Purvis was familiar with our point of view here and that you might wish to get in touch with him.

27 British Minister of Information.

28 Counsel of the Office of Emergency Management. 29 See telegram No. 3310, July 31, noon, p. 17.