Report of 19th July on Work of Co-operation Committee

1. The purpose of the Conference was, as you know, to set up an organisation to carry out a specific task, viz., to draw up an inventory of European needs and resources for presentation to the American Government. Having set up the organisation, the Conference came to an end on Tuesday, the 15th July. There is apparently still some doubt as to whether the Conference has gone out of existence or has merely adjourned, but the general view favours the former construction.
2. I shall not prolong this report by describing in detail the organisation set up by the Conference. A full account of it has been given in the newspapers. This report and its successors¹ will deal with the work of the Co-operation Committee, on which - for the present at least - I am acting as delegate. This Committee held its first meeting on the 16th July, met again on the 17th, will meet again today, and is expected to continue to meet with a similar degree of frequency for the next four or five days or so. As soon as the Technical Commissions have started work, the Co-operation Committee will hardly have much to do until it comes to drafting the Final Report.
3. Before coming to the work of the Committee, I might dispose at once of a preliminary point. Doubts were expressed during the Conference as to whether, when it came down to brass tacks, the effective control and direction of the work of the new organisation would be found to lie with the Co-operation Committee - on which, of course, all Governments invited to the Conference are represented - or with the Executive Committee which consists merely of Britain, France, Italy, Norway and Holland. So far at any rate, the Co-operation Committee seems to be the controlling body and it gives every indication of a firm determination to maintain that position.
4. When the Co-operation Committee met for the first time on the 16th July, Messrs. Bevin and Bidault attended for a quarter of an hour or so, merely for the purpose of 'handing over' from the Conference to the Committee of Co-operation and wishing the Committee a rapid and successful conclusion of its labours. They set September 1st as the dead-line for the submission of the final report to the American Government. As soon as the two Foreign Ministers had withdrawn, Monsieur Alphand submitted to the Committee in documentary form a proposal as to the information which Governments should be asked to furnish so as to enable the organisation to get down to work. This document, of which I enclose a copy (marked 'A'),² became the basis of a discussion which is still (19th July) continuing and which has already brought to light a number of significant divergences of view among the various delegations.
5. The principal critics of the French proposal were the delegate of Holland (who, although he has not expressly said so, is generally understood to speak for Benelux as a whole), and the Swedish delegate who was supported in his criticisms by the delegate of Denmark. Mr. Hirschfeld, the Netherlands delegate, is obscure and faltering in his utterance, but the fundamental idea underlying his remarks seemed to be that the kind of report envisaged in the French proposal was unnecessarily wide in scope and that the French seemed to be assuming an unduly large degree of European dependence on American economic aid. Mr. Hirschfeld elaborated these arguments in a carefully prepared statement on the morning of the 17th July. He attributed Europe's present difficulties to four causes - firstly, lack of production mainly due to non-utilization of existing productive capacity in Germany; secondly, lack of normal trade exchanges with Eastern Europe, particularly the Danubian basin; thirdly, falling off of pre-war trade with overseas colonial territories; and, fourthly, decline of invisible exports, especially those arising from foreign investments and shipping services. More important than American aid, he thought, was that European countries themselves should between them seek practical and permanent solutions for these difficulties, and, to his mind, the obvious solutions were, first, the full utilization of European industrial capacity, particularly in Germany, and, secondly, the restoration of European trade to a multilateral basis, getting away from the bilateral pacts and monetary arrangements on which so much of European trade exchanges is at present based.
6. It is only natural, of course, that the effect of credit-financed American exports on Benelux's position in European markets should play some part in the views of the Belgian and Dutch delegations, and Mr. Hirschfeld proceeded to make this point pretty obvious when he came to deal with Part IV of the French proposal. Arguing that the proposed programme of American aid should be restricted to remedying the really pressing short-term difficulties in Europe, he scouted the idea that Governments should be encouraged to put forward post-war plans and programmes of industrial development in connection with the Marshall proposal. He said that if, with the help of American credit, the programmes of industrialization which some European Governments seemed to be contemplating were carried into effect, there would be industrial over-production, with consequent cut-throat competition in Europe when German industry got going again, as he hoped it would.
7. It was not surprising that Mr. Hirschfeld's references to Germany should have immediately evoked a vigorous rejoinder from the French delegation. Monsieur Alphand, speaking with what many delegates thought was a rather unnecessary degree of solemnity and emphasis, said that, in no circumstances, was the French Government prepared to agree to the kind of industrial regeneration of Germany suggested by Mr. Hirschfeld. He said that the question of industrial production in Germany was a matter not for the Committee of Co-operation, but for the Council of Foreign Ministers and the Allied Control Council in Germany. He went on to state the policy of the French Government as being that they were anxious to see German coal production increased for the sake of Europe as a whole; that it was also their aim to increase agricultural production in Western Germany to the greatest extent possible so as to relieve the Allied exchequers of the present deficits on Germany's foreign payments; but that, so far as German industrial production was concerned, French security was involved and the French Government would never agree to the increase of German industrial production to a level that would enable Germany to threaten French security in the future, as she had done in the past.
8. The Swedish delegate, Mr. Hammarskjöld, framed his objections to the French proposal more cautiously than his Dutch colleague. He thought that the questionnaire suggested by the French covered far too much ground. It looked too far into the future and called for information which, in many cases, would not be available and could not be given. The questionnaire should confine itself to the really urgent and pressing problems in the European economic position and should not go into such things as national reconstruction plans. The work would never be finished if, for example - as Mr. Hirschfeld had suggested - the Committee started reviewing bi-lateral trade agreements in an effort to put trade between the countries represented on a multilateral basis.
9. The Swedish delegate's remarks were interpreted as expressing two main preoccupations. In the first place, out of regard for Russia, Sweden is opposing any action by the new organisation which might suggest more than a purely temporary grouping of the countries represented at these talks and which might appear to trespass on the functions of the European Economic Commission of UNO at Geneva. This Commission is, of course, at present discussing the whole question of European economic reconstruction, and its Chairman is Mr. Myrdal,³ until recently Swedish Minister for Commerce. In the second place, Sweden doesn't like any undue emphasis on the question of what the countries represented at this meeting are doing, or are prepared to do, to help each other. Any such accounting is bound to bring under review Swedish trading arrangements with Russia and Poland, which have already been the cause of a good deal of friction with the United States.
10. These were the two main criticisms of the French draft. Other criticisms by the Swiss, Danish and other delegates related to points of detail, mainly the difficulty which Governments would experience in forecasting their national balances of payments with any pretension to accuracy beyond, say, the end of 1948.
11. The British delegate, Sir Oliver Franks,⁴ met the criticisms that had been made of the French draft by asking the Committee to remember the object of the work on which it was engaged. It had to produce a report for the American Government. To achieve its purpose, the report would have to be comprehensive, and the only comprehensive and effective way in which the information which the American Government would require could be presented was in the form of estimates of balances of payments covering the period selected. If it was to secure the results desired, this comprehensive report in financial terms would have to show a gradually decreasing deficit over the period, thereby holding out to American opinion the prospect that, if the aid required were given, Europe would be able to achieve a viable economy for herself at the end of the period and further grants of American financial aid would not be required. The British delegate proposed that the lines on which the estimates of balances of payments should be framed should be examined by a sub-committee of technical experts, and that the Technical Commissions concerned should examine the portions of the questionnaire relating to their work before it was sent out. The full text of Sir Oliver Franks' speech is attached (marked 'B').⁵
12. The views of the British delegate seemed to me reasonable and realistic. I had got the feeling that, if the Dutch and Swedish delegates had their way, all that the new organization would achieve would be a report so narrow in its scope as to be virtually useless for the general purpose in view. As Europe's reply to the Marshall suggestion, it would be more likely to raise questions and occasion doubts than to inspire confidence and help the section of American opinion favourable to the Marshall initiative. Accordingly, I supported the British delegate and took advantage of the opportunity to say that, while I agreed that the historical matter covered by Parts I, II and III of the French draft could be left over for the moment, as he had suggested, we hoped that it would find a place in the final report. By way of example, I said that, in our case, information about our increase of tillage and lack of fertilisers during the war years would be relevant, and indeed necessary, to a proper understanding of our requirements of fertilisers in present circumstances.
13. Finally, it was agreed at the Committee's meeting on the 17th July that the Executive Committee should be asked to produce a re-draft of the French proposal in the light of all the views that had been expressed. The re-draft was to have been placed before the Committee this (19th July) morning, but the meeting provisionally fixed for 10.30 a.m. today was postponed to 5 p.m. and it has just now been further postponed to 6 p.m. This indicates that the divergences of view which the French draft brought out are proving somewhat more stubborn of solution than was at first thought.
14. Concluding this interim report, I might add a number of general comments. In spite of an understanding that the meetings of the Committee are private, quite accurate accounts of its proceedings are appearing in the Paris press. Such breaches of confidence seem to be accepted as a normal feature of post-war diplomacy. In the second place, assuming that the present meeting is typical in this regard, it is very striking how 'regionalised' Europe has become since the pre-war years. The Scandinavian group and Benelux constantly act as units, and Greece and Turkey do the same. These three groups made formal statements to the Conference to the effect that, when one of their number was a member of a particular Commission, he would be assisted by technical experts drawn from the other members of the group. Leaving aside Italy, who is obviously trying to recapture the position of a leading European Power (I see that Tass has picked up a description of the Executive Committee in the Italian Areas as the 'Anglo-Franco-Italian directorate of Western Europe'), the only States at the Conference which are not associated with a specific economic grouping are Switzerland, Austria, Portugal and Ireland; and, of course, in our case, the importance of our trading relations with Britain, our membership of the sterling bloc, and our interest in the Commonwealth preferential system, constitute between ourselves and Britain - not, of course, an agreed unity of action such as now obtains between the members of the Scandinavian bloc and the States in the Benelux Union - but at least the occasion for a frequent coincidence of interests and points of view. Finally, it seems to be fairly common ground among all the delegates that the object in view at this Conference is not the extension of American credit to all the several units of Western Europe taking part in the organisation, but a programme of American aid sufficient in amount and duration to make possible the restoration of normal productivity and exchange convertibility in the principal economic units - Britain, France, Italy and Western Germany - on the prosperity of which the economic well-being of Europe is dependent. As the Swedish delegate said to me, what Sweden wants is not dollar credits for herself, but a remedy for the situation in which Sweden's exports to her traditional markets in Europe do not yield the means of paying for Sweden's imports from her traditional sources of supply overseas. Probably most of the smaller countries at this meeting are in a similar position.

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15. I add this final paragraph on my return from the meeting at which the Executive Committee's draft was discussed and - with very minor changes - accepted. I enclose a copy of this document (marked 'C')⁶ with the changes shown in pencil. It is self-explanatory to a large extent, but I will add some comments on it in a report which I hope to airmail tomorrow. The cause of the delay was the reluctance of the Dutch and Norwegian delegates on the Executive Committee to agree to anything which might be regarded as endorsing the idea of the continuance of the present grouping longer than was necessary to frame the reply to the Marshall suggestion.
16. The Technical Commissions begin work in the morning and the Co-operation Committee meets again on tomorrow afternoon.