VERSA'T IO 7 OF SUBST CE O'F SECOND N EET _NG OF C A t A AJ W SSADOR · TH BRrr-s E CAB ll-IBl' MlThlBE S UNDM p terson wa s delayed i n tr ffic and a n t · y a t t a mee t l ne and e t the tune o f hi s arrival r • D a 1 t o n a · p e a 1 1 g abou t the coat of tha British A e l F orces which ware e in u a ed to 'belp the Un _ted St at es l th-e cont'fl 'ol of G-sri ·a 1 v r D a l t 011 r e ei wlf'·Od o r ulbb @r from whi ch -do 11 r e art1 i v ere f alJ 1n g J a p d - Tt wa $ t e 'be st do l la r e arr 81 r e mong Dolonia l exports am the b ea - in p 1 o-e a to Q_ l 8 st ts S·e ttl -e men t oent s 1 a e · _ otion of' ona-thi d or one - f ourth waB s e io 1 s I t w s ca used by U S p o · ic y re ardi ng B Tn thet ic r ub- b er which und e r mi xi rig r l'Ilg __ lat ona 1 red cons- t1v J X's t o i a s3m theti o prod e t o ot - hi oh ow a - ox m t ed 500 0 00 t o a an nu lly This rep s nta state in ' e r vent · on of a pro- ectio n cha raeteh The Ba t t _ port p r opo ed 250 00 0 t on o f ay nthet c a nd l t h1 a wa rnad 0 o pe t' t · 1 e the l' es l t n g a dd t ona l m ke t fo 2 o 000 't-or u of n atu J ··1bbe · 111ou l d mean $ 100 ndl lion to rubber expm ' 't er mo s t of whom wer e in 'bh e UK El l ea • fr • Da 1 ton kn ew that this lt l 9 1 ti Il-r 'l ra a coming 'be o rie· thf I r bbai r stud- g r oup t Far ia aho r-·t1y Referring t o M r Da lt m 1 is r ·efe·r enee t o exp · ns zonal r · rr e · ·t i 1P r • f o-r 'bi c l e yton _cp e ti on the a 'j 3 ert 1 m1 t lrn t t h e u wa a pu ti ng up money to help ·111 s o e cupy uropen • I t vrn a a j oint o-ecnpat on and the Er t ·sn'I re no-t · g_ _po s i tioR of p ng · ib in t hia en re l l iespec t he r eco i zed t h d · fa re· c e 1n · e TJK poa l t ion versus Co n t i e nt al ur-o 13a n countr i es A $ for bb · r l h A War Dlf _pa rtm e n t ins · a t -e d on mi x ing r- e quir emen ta in the prod c ti on of fi n 2h0d a rti-c l -e s ma inly t s _he·y _ s d 'b - u · a b le t ·o r gur- s ou t any o their method o r k e e p 1 - g synt heti c plan ts oing Th e i r p re ent c9i ps c 1 t w s ov0r a rn 1 11 on ton nnua lly -' a - d _popul a r d emroid was hRt one-gu rta be kept ·a s g 0111 g c on c e rn • n c a a o · t oub e i' e were oa ugh t _n a ba d iz' n th laa t r and ·- you l d not fil oon f org @t t 0 c 1 t ·a i1 t rer·e try ing to ' i r 1e· 8 wa y o f rjj p i · 5 S°J'll the i e p ant s g oi · th · t tha n by the mixinr law tr t mbs · d z a 1or was no t eas i ble p a _ tcm i nt e r j ecto'Jl d tha c pe·opl · pr ·_ e r n tu r a -l rubber fl n d r ee e i tred e n a f' f 1 t m e - v€1- ·e_p l y • M Clayton t n rei ter a ted t h a a-v 'bs _ za t • on 'Vlt' a no t orac t cable · pr-o c · 'beca · · _ l a subeidi '2 a tion wo u lcl ro iuc •e sy nth·e ti-e rubber i t • bttl ' not forc-e peo l t o us it I t wag in find ta to get a ynthe t lc prod'u et · n · own f rm 500 i000 ton a to 2 0 000 tons and the De_partm t wa ted the new la w l - ed to t wo yeJB rs • e · 9 v e d Byn the t 1 ¢ p rodu c on ·11ou l d be b r ou g d owl1 t o 2 50 00 t ons 1md on tha b a i s thought the TJ-S w tlU l d b ebe c _c to ts p rewar impo rtQt on o natu a l rub b e r r-n r s pon e to TOP SECRET - 2- to a request for 8$9ur-ance that the US woul oon be resumi ng rubb r- 1mpo1 ts 1 Mr Cl ayton said thA purcho tie of r ubber had been rele ased frotn governnient control and pri vo te buyers •H re doing the importing Mr Dalton er tphasi ted t bat 1•u bber was a sore point and Cripps asJ-ced if we crJuld oncour o ge peopl a to come i nto the ma rket early to which Mr Cla yton rAµ l ied t bet s i nce prive te people fere now doing the importing i t woul d be d ffic ult for the Gover n rr ent to do o nything ti oout the matter Mr Be 1 •in so id the rubber probleni ip pin ed upon UK treatt11ent o f natives '1'i th pr-ices t oP such i nd igenou-s product s falllns there was trouble to aug e nt that wh1 ch a lr e-ady ex-1sted on a low r a t i on of fou r to fi ve ounces cf 't' 1¢8 dail y He said thi s wv s e 'undamental consideration and had politic al implications The UK was on u ra2 o r edgA lo Ma la ya t nd we Jh Ould avoid making a gift t o ou r 11mutua l friends He spoke of the Bri ti sh Soec1al Conmiasionor rs wc1•k in South-Ee st Asia Lord Ki l l orn tho report s fron lf alcoln lf tlcDonald in Singa pore Be vin sa id t h a Co'CL uni at rnov eoH m t was going in IndorwS1a a gents pouring in and this development wo s on top of other difficu l tie s in Sou th- Eo at Asia He a sked 1£ us rul ° -er bu · 1ers cou l d be th own t he w1odonl of t he bnaic p rice and Nr Clayt on would l ook into this but tho'l tg h t it would in- ✓ vol ve an agreemen t amon g 1 u yers in con fl1ct wit li our basic laws anti- trust but Bavin aal d so ething alm1lsr 8d been done wi th t ·1n in which the us had cooperated or a t le-a st abided by an agreement Bevin s aid the tin people did not gru i ibla but s aw ad vantr ge-s in e stet d y s nd ate bl le vel for tin Bevin favored stabi lity in prices o_f f u ndar i ent a lly importf s nt conmtod 1t1ea aa a pr nc iple nd augfi8 ite l on rut-b el· a pr L •a te e g1• ement ight be wol•ked u p 'I Ir Clay ton reiterated t hat US policy was to get Q t y from government put'chaae Hc'iJever he would take UP the qLtea tion of rubber nt hor 10 particularly l the v1 shift to 250 000 ton3 and 2 Wol l d look i nto u e r ket fo ctoi 9 and the _possible resumpt ion of pr i va te buying t r Clec1ton wo s surprised at t he reported p r i ce change Cripps 9 1d le• els wer e belo p1•oductlcn coot Mr Clayton - would not o v e •l ook the pol1tiC$ l con 1 1do rationa which r B v in o _g o in mentioned Mr B 'Vin a$ t h nox t point 3ought el u c1dat 1on of 1t1 · - Cl a ton I s bel ief t 'lat t ile U problem mu 9 t be l wnped into the problem of EUrop becu u ie it that were the cns e in fortheomlng meetings t t• Bevin I s o p1 roo ch would le ve to be cha t ged llr Bevin aad pl a1mod 1 a stee r i ng comr uttee 2 groups to analyze needs 1rt relation to Eur-o pean prod uc tion 3 group on f insoce 4 groups on ra iway proble s t helr- rHHJda ond ore an z ation 5 gr o ps on motor transport difficult because of cutdown in Germany t he bigr est p r oducer and 6 groups r egarding c red1 ta currenc y e tc Wben the pl ana of these wo rking parties were compl eted a nd in operat ion Be vin th mght the only e ffe c t on the UK would be that--in time a year or t wo- -Europe wou l d be in somewhat l ett er TCP SECRET -3- better pos1 1on to pay for British import b l a I nee la the lntf lrlm per ioj Europo ould consl l le all sho could prOOuce thoro would b e l ittle of roet on the i K position except perhaps for an i n creas e 1n dollo r r ec eip t s f 1 om Gernum ex port a As to Ge rman ' J tl Dalton men t ioned t be coot of the 3 yrn 'IS Agreemen t Or iginally 1·01• an $ightee n -month por1od f r om J anu ary 1947 t ot a l cos t woo con temp l ated a $860 1nill ion of wh i ch tho UK share wos $460 mi l lion which in t e l''l IS of dollar dr ain o t the 1TJ was e • t i mated • l2CO r tl llion Thi• loot f lgure revleed because o pr1co changes was no $27 mi llion A further overall tncreoee 1n coats or Ge rmany to provide add1 1on l calories ba d added $150 1ll1on to the totol bill $ 5 lt illion to tho u K irhieh Mdo tho present rate of dra l n on the UK for • Oerciany some S350 a1ll1on Pretty poor eeordi ng to Da lton v r Bevin noted tho t if Poland t eedo Europe Pol8nd donar du doll ar s in e xcha n ge bocau d tha Pol ish Pr ime M1nloter h as a s o U d ca s e as t o h i8 need8 ot u s e qu i pmen t Be vin wa a cul tlvet1n5 the Pol1• h Prlme Min i ster bav1t 5 deolded to cent e r 3-rlt i s h pol icy Bl o und tho n e w l e ader when he hAd consul t ed on retur n f r-om Moscow He b eli eved t J a plan 'llould be f ruitf u l Similar approach es were Ooing rnade i n Yugoalavtn wh e r e Bevin bad tttlked Ho wao conv1ncod that Yugoslav Le ·•ould g adually co no west IUgosl av noeds •er asrlc4ltur¥l implements rail#ay equipment tlml r- cutti-113 equipment • e which x ss1e could not • p ly In oonnoct1on with Y lgoslavia mention was made of Tries t e a nd tho etfec or u e opening or that port on YUgoalovie 1 s wester 1 connections 'But when Bovln asked Crippa what he cou ld g i ve up for Y t go 3la 1a Cr1ppa could offer li ttl primarily because of t ho atoel s hor tage Thi• wn• the patter n wherein Br i tain got into n dollar ta og l e l n order to ge t goi ng on oons t r • ct ve pol i tical ro l ati ons h i s Mr l ov l n dld not torosec early sol ution of those pol i t i cal d1 l 'fioul t 1eo We must h ve patience bu t ho wae confiden t Mr Bevin s a i d t hat tf tho u s took sh e lino 1' at the U K wo• the so me •• an other European coun try th1a would b e unfortunf te beoo use t ho ' OK co lld ontribute to economic revi val The i 'K hold stock or rubber and wool and •e as t he 3r1t1sh Emp1ro 11 coul d as alat materi all y The Sr 1t 1•b did noe want to go into the progr 11 d - ot do an thlni --this would aaerl floe the little bit ot dignl ty we have lott• Mr Clayton did not quitt 38e hov the '17 poa1t 1on was differ en t from t hat of oth r Europoan countrleo The whcl@ trou'ble aros e frot 1 o ohoJ tnge of dc l l t1 r a bu t this 1n turn repro Hm ted f a ilure of a urope to pr odu ce Tho productlon bottl eneck should 'oe eaeod in a t e i years --por haps by 1$51 'l'h Ult had a doll ar shor t 5e t he s ame as othor b'UX'o ean countri es a nd if tbe US cou l d do s ou ethi n g to esao this s or t ge he w nder ed •bero tho difLorence i n i paet upon the jK a se Sir St ffor d Cr pps res Onded that t he CK wa s a natural l t £ rket or European good s tor which tho us were not buyers 11%- Clai ton bad some q 1estlon on this oint but Cr ppa 11entloned tlrd er toodot- u'fs especially por1ohables c y procl11cte and dried ru1te and saie •1r you want to rehab111taee b U rope that arke t the TI must be roha b litoted ' 'ho dollar dr 11n 1• ccr ing thro115h the UK11 • b' Cl ay t on ✓ • 1'0P Sl iCRE' -4- Ir Clayton still eoult not ee the d 'reronco He thought if the trt reee1 ved dollars f r oo 1ts t rade wi 1'h uro_po tl eil' p osition would be· oat1 af ctory Mr Clayton thou bt the l nr• oliall idea would put dollar s into Europe by to l in g care of tbe1l stJontlal impo1 ta ltHlving rno1 c oC' t h p roceeds o f t h 1r ox o rts avail able for paymen t fo r coods 1m_por tod from Bri t o i i Mr Clayton •aid that i n tho us o cai11natlon of tne dollar problem it seeaed to r l l into two pnrto-- l • hort- range proble alnl y re4 ireaents ot food end t tol •-per ap3 r1ber--wbieh mglit cost three aod ooe- balf to four billion dollars 2 reconstruction and develop i nt e ber e responsi bility fell on the i temat1onal Bank ho Sank o• g ett1n6 •• ll orgoclzed hnd a good staff snd US and JX controlled it If here was a s ol ution of t he sh o t- tero European probl em there wou l d be a firm t·oun0rit1on for tho Bu nk t o go tL ead with longer -term ra constl JCtlon nnd develop- nent l 1r Cl a yton thought he nay have 51 ven o n 1 n correct impr ession t hat ·1s aid 'llould ·o e set for th opo c1 r 1 oally in food and ba s i c raw 11 terial s I f t ba UK noeded food we d i d not mean that the s would nece oaarily •uppl y i t There should be no tied l oun principl e The US would •lmply look at tho omoreenc y Europoan problam in bulk ma i nly the three 11 £ 13 - - tood ' 141 a d f iber n these obs er vat1ono V Clayt n w s merel y thinking aloud but 1 t wa i hl 3 idea tJ Mlt ·• ate ·er tbe US would do '6 uld probabl1 be untied just a s was the Bri tish loen lb' Bevin asked tr the US could n ot bring Conada and Argentina into 5uc'h A Lend IAQae eonception ond thus aawc tbe UK on d ollars I n mentioning Lend- Lease J Jr Su vln d id not oon templo t e s t rict repeti tion of s ueh o d ev ices b l t thou oht some thing sl in t o Lond-Leaoo would t e tho end rooult Sir Edward Bridge s rocap l t ulatod thG ltist point t hat Mr Cl• ton gnve-- l •hort-torm aosi s ta nce ror Eu rope 2 as sura ces 'r om 2'Jrop aa to wh at it 'NOuld do to hel lt s elt and 3 a car-taln integ r ation of eegre-e o f clollonea a of eco 10 oi c relations in BUr ope s an essential component no ua1d the OK did not contem lato going into a lropean Custor s nlon ven • UK- French pla r a ror ntegrstion e e not co p1ete and altho h Belgiuo etberle nds ar d r x bour g were going ahe ad w th the CUotoms Onion they he d enc ountorod dlttl c lti es Cul l blue prin t for Europe woul d take too l on tor tho r•sont emergency Sil' Edward nok d ho w Ir n 1 tnin would fl l t n l o the p lan k ind fr om tho US t he effect would b• onl to prol ong by o f ew months tho dot e when t he t l1e US was t hinking o ' help n cred1t would be exhnuoto i He t houg h t r r Clo yton 1 s t-eml t l'ka ahowed an understand lng t tt6t as far a3 tho UX WQ6 eoncernej their roquir einent• could not be confine t o good • tro tbe OS bu t wou1d be neec 1 ed · t'ro1n usual sources ae understood tbere •as a rurther point namely that E t ope ehould Join together in giving as3urances The UX had a toor of t he Eu -opean pool ideo 1n tho l1 A-r3hall lan YhiOh he t long ht would b ring t h e UK down to the lev·e l of t ho lowoat in Eu ropo Sir Edwa r d a lso understood the US c o n templatod a a tries of bila tere l a greernenta 1i th 1 n d 1v1dual Eur opean countries ·t 1hicb would take i nto a covnt tbo d lf' f'e't'an c es 1n eco nomi c needs of the var'lous countr10 1 o nd yet p ermit be µrogro m t o be put t o C 1 g re3s as a unified scheme Mr Gla i t on s oid thera wa s n o 'I'O S'EC - 51n 11a h i n · n 1 l g r €i1em vd t ' S id lui 't ··n irlc r f bnbil t on a _ d t 1com · w th ern t h l ata 11' ilil th t Thil- lo _ w matt-F l Iii uo· Co f non e ' £2 ' SECllllT - 6- con gree3 and roUef on nondi cr1cinot1oo meant posat ge or a joint s solut1on whore ' 7 questions WOllld bo ask an6 tbls might call fo1• expo3ua·e or aome revoleit1on or the UK aituation Sir Ed•al'd Brl lgoa »entl oned tho cl u• regal'CSine porta fro f' cot ntr iea with war- shattered econ ies nci '-1r Dougl as agreed that ·110 and tne Er l t1 3h coul d t ake • loo at variouQ v commodities ond theh• sources to -a E'lo what oould bo done Mr Dalton s aid tho last th ing ho want ed was a dobet• in cong1•oso on nondl scri ination and dr Cl •ton thought an approach to Congreeo on this subj ect would endanger larger plans now underraot Sir Stafford Cripps mentioned oteol and CK dependence on imports Two years ago be pl•ced contr acts ln the OS and because of understand able d1t' f1oul ties ther e the 1teel v a not obto1ned Th1u had ha ndic 11 ped UK a id to T Uropo tbe m muraeture of trac tors ond other p rod uotl ve equipw eot i 'as there any poooible way of getting steel The British bAd given UK steel p rod ucers their full coal req_u1rectente l' d would get thirteen mi llion t on• of st e l this ycor b- t their requJr•tllents were 1xteen rr 1 llion ton s J lr Clayton o utl in d the di f 1cult1ea rlein g t'rcm 3bortagea at ho o factories on ehort-t1oe bee use ot lack or steel and i r t erns l pressure for steE l b u t t houe ht thore 0 wns al ·ays a poss1b1li ty Tho o partment of Stu te 1 a f ighting f or o q ort• every d l ' MX' ✓ Clayton asked for a r emori mdUJQ f 1•oti Sir sto 1' 'ord on t heir Gto•l need a rtir Bavin t hen o sked Co a aotnev1bst more concieo 3tatomont or tho pres•nt US tti tuOCJ towt r Europo end the MG l'Ohul l progrA Dl In r espcn n - Clayton aa id tha t he foroso - tho following pbaae s l ·EUrope 3 ould explain wn o e p osress ba not t hu6 far boen made since the cossat1on er hoeti11t1ea · with tbe b0lp a l r dy rec o 1 ved 2 11 t ropee n cou n tr e a s hoa d set forth in a conc roto and aubst ent1al way A s t otoment of what t ey proposed to do o help u emsel ves how lone it wa1 take and by ·Rh at stepa- whRt nin1 mmn ttssistance is roqui red i'rom tbe t s wh y i t 1o nec£ l8o ry and when l he load on the US would be reduccd- - prm1u mnbly on a tl Ld ' ng acal e l r Cln· t ton ega1n stressed it would not be easy to aall the tdon i n t he vs here wa ouch 1n the press or what the US 11 ha e got to do ' and much about tneric n ne de tor e xpot't l111l rkots IJr ClAyton knew tho US nee-d L'or expor t nw rke tn bu t t 111ny of' bin te llCTt cit1tons had othax· views ctnd in ordor t o put the p 1'ogram o cro ls the OS must know when Europe will bo able to eet on it5 own foot o upplmont this 1t possible tho US oul4 11✓ e eme p ror oaals rAgo rding dlo3e r in t egr•stlon or European economy ✓ Fie di 'l not e3oume t l l t rnyth1ng ln greut detuil eoul t e provided 1n a ahort t ime and c1ted bin conver ra tion wlth Sena tor illlken as en exa plo of why a 1MD pls n or Europe tnclud1 g European in tegra tion wa ne ecBoary to cotlVi ncc Congress on the necos li ty of 9 ddit ional a se i 1to nce t y t he 08 l' r Eevln •aid integr ation raisod on 1ntar eot1ng point beceuoe w enever he took steps in this diroctlon for exmple v · i t h F1ranc-0 end Bol51um Si t• Stafford Crl ppa as id he r aa vlo- lsting I'PO princip l e A porcnt l y to p o int out the US need for oxpor ta h s aid in l l27 h e bad OXB llin od economic f aotora 'I• P SECR r -7 - in the OS a nd g1 vcm 1 he narrowing of ou1• irr ports and t he wo stef'ul chara cter of cur i nvest ment e 9-e had predicted the Ame-ri ean slu 1 1p t wo ·y es rs in a dva nce Bu t oo t h e point of integx-ation he found 1n ' 1rope e de51 re t o d o what Mr Clay- · t-on soug ht but found Eut•ope in a Cf Act comn11 tt$d b y ITO not to 1ntegrs t e If Mr Clayton could ms ke a public s tatement on EUropQS n i ntegration ·l hi3 ' 'ould hel p ''In EU rope we ean 1 t reaeb e custons union a t oneo 1 ut JA1• Bevin suggcr5tod Europe sh ou ld act -sensib l y He had i o mind Rn inta r1u1tiono l 'board to develop and u t ilize ws tc n - po·11 er f rom l he A lps Te also mention ed t ha Teschan politic al prob lem and t hot p ht a coal mine · as ut th root of t hi3 e nd the solution would be found in joint operat on 0£ the rr 1n e and sharing or t b0 output 30 t thes e attemp ts tOW$J rd r ebu i lding cane in t o conflic t With tradin g r1oles Mr Clayton mentioned the progr••• mad• 1n the Be nlux cuatoms 1Jn1on a nd $ id this cer tai nly did no t vlolete ITO r- _ 1es Mr Bev in then mentioned Anglo - Ft'ench plans f or inteE r ntioh--tro ctors t o · e produced in t -- e JK f ood in Fr ance and a free exchange of' the t wo mus tcal ln9tru -neots t o b8 produced 1n -r anee no ccrnpe ti tiv o plant $et up in tho U and 'French lnst1 wne nt s f reely adcnissib l e i nto t he UK even t hough they might b e t a ed f'rom other 3ources Si r St fi'ord Crip9s said such plan l n0ecled P $9· r- r c a if s om pe rc tanencA IJl• Cla ton a g reed that t h e principle of nondi scri ination as now tmde1 - st od would he vi olated 1n auch p2•o posal s 11 r Bevlr ae 1d t h o Brlt lllh migh t obtain agr ee ncnt 1n p 1•1nciple f'ot• a Cttstoms TJn t m and wonde rod t f th1 s T C · 1ld be enoush t o comp l y with IT rules 111 1 e ha ve in I'l'C l n 1deo- l og ical p l an which t·nwarts 1 eco nst1 n ctlontt and fel t a fiveyear pla n for the f i rst stag es o f i n tegration would be necessary The ve1 y wo1 d $ 11 customs un1cn 11 would l c objected to in France by the Conn 1unists 1 Mr J oug l a thought the h 1togrG tioh p1•oblcm rs J - ed t wo queetion-s Fi rst deci sions reg ard i ng 1nt erchnnges arising f1•om ne• plan t s s nd onla1•gements of o l d plant s to 71hich poi nt Sir· S1 afl'ord Cripps in terj e cted thAt the Br1tiol n uot have free entPy '01• tho products conce -ned This i nter j ec t i on precluded M1· Douglas f r o' n de fining he second c ategcr-y of goods n moly prod ct i on trom exist i n g plant s b r l ougl s 'J intended to oxplore the po ssi bilit y o f specia l t reatment f o r integration of new product i on and noncii s cl'itr11nat ion i n trnde arising from e x i sting p l ant 1 r ClD yton said tha t o nce t r e o a 1•s were let down on t he pr1nc1plo or nond i lcrim1 at ioo a ll k ind s of u1desira ble a rr ngem-P nta ·11cul d te ke place t-ending tov a rd b ilaternl1 9m which had been p1•cved unsoun d M r Stafford Cripps thOllf ll t the I'l'• Del e gation 1 iight make pro vi sion for certain phases o f lnteg ro tlcrt o nd we t1ight l oo k lnto t b c matter j ointly Mr Clayton thin king nlou d said s omething 1n tho nat ure o f 3peci al inte r im exceptions to n orid i sc r rr ination wo rk 1n6 g r adually u p tc a Cust oms Union m1eht be pr esented t o our poo plc a t GAnevl l Ai'te l' thE l Pr-irae in ister i ndicated t i1 e ntee t1ng must trree lc up beca use of t ho hour M r· Dougl$ s added on e further p oint to tbe g enePo l plan for Eu l op t h ere mus t be accep-to nce in µ rt n - · d of f sea l • r pr eB sur·€ an a pp1 -0a ch tn 1P vl v s