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We discussed the problems presented by re-export and commercial distribution of Lend-Lease articles fully with Mr. Purvis, and expressed the policy which would be satisfactory to us in two letters, which Mr. Purvis took with him to London and with which I understand he was in substantial agreement. Mr. Harriman has also been consulted about these letters and has approved them. I am transmitting at the end of this telegram the texts of these two letters with slight modifications recently developed here.

You will see that the only basic difference between our statement and Sir Kingsley Wood's is that his criterion for limitations on reexport is short supply, whereas ours is competition.

Would you be able to find out from Sir Kingsley Wood whether he discussed these letters with Mr. Purvis and whether he approves the policy which they express. If so, we can exchange them with the British here immediately."

Following is the text of a draft letter dated August 14 from General Burns to the Chairman of the British Supply Council:

"In view of current public discussions of British export policy and its relation to the administration of the Lend-Lease Act, it seems timely to set forth in concrete form certain of the principles which have guided this Division in the administration of the Lend-Lease Act and will continue to do so in the future.

As you know, it has been the policy of this Division from the outset to limit the aid rendered under the Lend-Lease Act to that which is essential to the maintenance of the war effort and to refuse consent under Section 4 of the Act to the use of Lend-Lease articles for reexport in commercial trade. To execute this policy we have required a stipulation in the requisitions that Lend-Lease articles which might be available for such export be used in the United Kingdom or in other parts of the Empire and only for needs essential to the maintenance of the war effort.

We appreciate that Great Britain must continue exports in order to obtain imports. However, this Division has urged and will continue to urge upon His Majesty's Government the importance of Great Britain's making every effort to concentrate her exports in the field of traditional articles and to cut down exportation of articles similar to, or made of materials similar to, those being provided through Lend-Lease funds to the irreducible minimum necessary to supply or obtain materials essential to the war effort.

I would appreciate your confirming that the foregoing conforms to your understanding of the basis upon which Lend-Lease articles are being provided and receiving your assurance that every effort will be made to carry out the foregoing policy to the fullest extent."

Following is the text of a draft letter dated August 14 from General Burns to the Chairman of the British Supply Council:

"Section 4 of the Lend-Lease Act requires the consent of the President to any retransfers of lend-lease articles by His Majesty's Government. Distribution through commercial channels in the United Kingdom and in other parts of the Empire of necessity involves a retransfer and Presidential consent.

In the administration of the Lend-Lease Act the President will expect that, insofar as practicable, lend-lease articles will be distributed through Government agencies and, in the case of foods, on the free list. Where such distribution is not practicable, the President will, before granting his consent to commercial distribution, require assurances that:

a. The articles to be distributed commercially, and those into which they are incorporated, are essential to the British war effort.

b. The commercial channels of distribution to be used are the most effective and economical means of assuring the efficient use of the articles or their prompt delivery to the places where they are needed.

c. No profiteering by commercial distributors of the articles will be permitted.

d. There will be no discrimination against American firms. Since the nature of distribution and ultimate destination of the various articles to be commercially distributed either in their original or in an advanced form naturally varies widely with a particular article, it is impossible for any blanket consent to retransfer to be given and each case must be determined on its own facts. The following, however, are suggested as items of information which would assist the President in determining whether the basic criteria set forth above have been met:

1. Destination of articles-in original and advanced form, e. g. United Kingdom, Dominions, Colonies, etc.

2. Intended use of articles and those into which they are to be incorporated, e. g., military, civilian, etc.

3. Method of distribution to be adopted, showing the channels through which the materials pass to the user.

4. Availability of Government distribution agencies.

5. The status of the distributors, i. e. whether they are acting as agents of the distributing Government or as principals purchasing to re-sell to consumers.

6. The extent to which Government supervision is exercised over distributors to insure that the prices and fees charged by them will be limited to a minimum reasonable remuneration for services actually performed.

7. Details of distribution, e. g. will the recipient Government sell the articles to a manufacturer, or will it deliver them to him gratis for incorporation in a completed article.

More detailed information will be expected in case of distributions in the Dominions and other parts of the Empire than in the United Kingdom in view of the strict controls known to be in force in the United Kingdom.

The foregoing are suggestions only and are not intended to be allinclusive, as the necessity for further and different information will undoubtedly become apparent in particular cases. I am confident that most cases will fall into more or less standardized patterns, so that a method of presenting the necessary information can be worked out which will avoid useless repetition and complication of requisitions."

HULL

841.24/689: Telegram

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

LONDON, August 19, 1941-1 p. m. [Received August 19-10: 30 a. m.] 3722. Personal for Oscar Cox. In answer to your 3165 of August 15, I had a long talk with Mr. Purvis the morning of August 14. We discussed at some length the negotiations in regard to the treatment of British exports in relation to the materials received from the United States under Lend-Lease. He was leaving that afternoon at Lord Beaverbrook's 30 request for Scotland to take a plane back to the United States without having finished the contacts he meant to make here or completing discussions on important items. He intended to return to London within 4 or 5 days. He told me that he had not as yet taken up with the Chancellor the draft letter from General Burns directed to the chairman British Supply Council. When I called on the banker yesterday afternoon he confirmed this fact. I gave Sir Kingsley Wood a copy of General Burns' letter which he read and after reading said he wanted to take time to consider it. When I saw him the last time in regard to this matter I explained that it would be necessary to wait until Mr. Hopkins returned before reaching a decision. I told Mr. Hopkins this just before he left. Mr. Purvis planned to talk about this situation again with Mr. Hopkins as a result of our conversations. He also took with him a letter to Mr. Hopkins and copies of all exchanges of messages on this subject. This letter was burned with all other documents that Mr. Purvis took with him. I had copies made immediately but due to the delay in arrival of the American transport plane it will probably not leave before Thursday. It should reach Mr. Hopkins the end of the week as I explained to him in my message 3653 of August 15, 3 p. m.31

You suggest in your message 3175 [3165], August 15, 6 p. m. "that the only basic difference between our statement and Sir Kingsley Wood's is that his criterion for limitations on re-export is short supply whereas ours is competition". The idea of including short supply as the criterion was suggested by Mr. Hopkins and I insisted on its inclusion in my discussions with the Chancellor.

I found indirectly that a copy of General Burns' letter had been forwarded from the United States to the [apparent omission] here and had at least been discussed by the men who have to deal directly with these problems.

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The British would like to export cotton goods and other articles where the raw materials are not in short supply in the United States.

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Your first principle of competition would seem to prevent this but your second principle would seem to allow it. Since the British consider cotton goods exports to be important it would be helpful to receive your interpretation of whether your draft proposals would allow such exports. A decision on this commodity might or might not apply to other commodities. In my discussions with Mr. Purvis he suggested exceptions and said he thought that you had committee machinery in Washington that might deal with these specific problems. Would you please ask Mr. Hopkins after he has read your cable to me and my reply to you if he would personally take the matter up with Mr. Morgenthau explaining the reasons for delay which trouble me as I realize that a conclusion on the subject in principle at least should be reached promptly.

WINANT

841.24/698: Telegram

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

of State

LONDON, August 22, 1941-midnight. [Received August 22-9: 10 p. m.] 3821. Personal for Mr. Hopkins. I would greatly appreciate a reply to my 3722 of August 19 directed to Oscar Cox.

The day before yesterday the Chancellor of the Exchequer asked me if I would have an informal talk with him at the Treasury. He there explained to me that I had asked for a conference on the use of lend-lease materials in the British export trade and that several ministers of the Government had sat in on that conference, that after considerable preliminary investigation and discussion he more than 2 weeks ago had submitted a memorandum 32 which I had agreed to forward to the United States for consideration and comment, that simultaneously with my action here a letter covering the same subject was submitted by General Burns in Washington.

The Chancellor suggested that he would be glad to have the discussion undertaken in Washington or in London. He said he would be. glad to withdraw the memorandum of his Government which he submitted to me and which I communicated to Secretary Morgenthau and read to you. He then said that after withdrawing his memorandum he would be willing to negotiate on General Burns' letter. He did not feel that to negotiate in London on his memorandum while a counternegotiation was going on in Washington was particularly helpful.

I asked that he continue to stand on the memorandum as presented to me until you personally could reply from Washington.

See telegram No. 3310, July 31, noon, p. 17.

The increasing number of people who negotiate with the British Government often without definite assignment to the Embassy and efforts to reach agreements on both sides of the water at the same time seriously interfere with the work of the Embassy. The more times I uselessly contact government agencies here the less chance I have of making effective contact when action is necessary. I want very much to have our relations with the British both friendly and orderly so that we can build confidence that permits continuing trust and cooperation. Please help me.

WINANT

841.24/698: Telegram

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

WASHINGTON, August 28, 1941-7 p.m.

3466. In reply to your 3821 to Mr. Hopkins and 3722 to Oscar Cox, who have both been away. The Chancellor's statement forwarded in your 3310 has been considered by Mr. Hopkins, Secretary Morgenthau, General Burns and representatives of this department. This Government regards it in the main as an admirable statement which would be acceptable if the following modifications could be made:

1. Section "2" to read "Lend-Lease materials sent to this country have not been used for export and every effort will be made in the future to ensure that they are not used for export."

We think it important to establish the principle that actual material furnished under Lend-Lease should not itself be re-exported. We can assure the British that in cases where complete physical segregation of Lend-Lease material is impracticable, we will be satisfied that they have lived up to their undertaking if they consume as much or more of the material in the United Kingdom as they obtain under Lend-Lease.

2. Last sentence of last paragraph of section "3" to read "Where materials being provided through Lend-Lease funds are not in short supply in the United States, the export of similar materials or articles made of similar materials will not be restricted except in cases where such exports compete with American exports. In such cases of competition, every effort will be made to restrict such exports to the irreducible minimum necessary to supply or obtain materials essential to the war effort." This would permit export of cotton, for example, to the extent that such export is necessary to supply Dominion or Allied forces or to obtain foreign exchange for imports essential to the war effort.

3. Add to paragraph "4" the sentence: "In the distribution of LendLease goods there will be no discrimination against United States

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