171 Bruce to Shedden (in London)

Letter LONDON, 27 May 1944

I enclose herewith two Notes which I have run out in an attempt to clear my mind, on- (a) Future World Organisation; [1]

(b) The Article VII discussions.

(a) I showed you the other day and I left a copy of it with the Prime Minister when I saw him on Thursday.

(b) you have not seen, and I think it might be desirable if you got the Prime Minister to read it.

S. M. BRUCE

Enclosure

26 May 1944

NOTE ON ARTICLE VII

We have all subscribed to the principles embodied in Article VII and have an obligation to do all we can to ensure their implementation.

To this end discussions have taken place between the United Kingdom and the United States of America representatives and there have been two meetings with Empire officials in London. [2]

These discussions have been primarily concerned with- (a) Monetary Policy (b) Commercial Policy (c) Commodity Policy and as a result of the strong representations of the Australian delegates at the last London Conference- (d) Employment Policy.

The full examination of all these problems on the official and technical level, has been admirable. Much first class thought has been put into the work and the issues that have to be faced have been fully explored.

It seems to me, however, that the point has now been reached when nothing further can be achieved on the official and technical level without political direction on policy.

In order to determine what form this political direction should take it is necessary to examine what we want to achieve and how far the discussions to date have paved the way for its accomplishment.

What we want to achieve cannot be better expressed than in the words of Article VII itself, namely-The expansion of production, employment and the exchange and consumption of goods; the elimination of all forms of discriminatory treatment in international commerce, and the reduction of tariffs and other trade barriers.

In the discussions to date the problem of bringing about an expansion of production, employment, and the exchange and consumption of goods has been exhaustively examined clown the lines of a multilateral reduction of tariffs; the elimination of import prohibitions and quotas, and the creation of monetary machinery for currency stability. Little progress, however, has been made save in the monetary field. There the way has been paved for the conclusion of a Monetary Agreement to ensure the smooth running of the International economic machine, when that machine has been repaired and put into working order.

So far no practical proposals have emerged for the restoration of the economic machine. The fact we have to face is that until they do we are merely bluffing ourselves in imagining Nations will be prepared to enter into commitments curtailing their freedom with regard to Tariffs, Currency depreciation, Import Prohibitions, Quotas, or any other action they might deem necessary for the safeguarding of their internal economy.

It is therefore necessary to examine what is required to restore the International economic machine to running order.

Clearly it must be to provide in the immediate post war period for the needs of the countries whose financial and economic positions have been thrown completely out of gear either by the magnitude of their war effort or by enemy occupation.

If these countries have to look to their own unaided efforts the actions which they would be compelled to take would destroy all possibility of achieving our objectives in connection with tariffs, import prohibitions, quotas, and currency depreciation.

For example, if the United Kingdom is to be forced in the immediate post war years to attempt to bring about a 50% increase in her prewar exports, which, in an expanding world economy, would be a perfectly legitimate long range objective, the effect would be disastrous.

It therefore seems to me essential that we recognise the necessity, if we are to achieve the objectives set out in Article VII, of providing in the immediate post war period the credits requisite for Nations to rehabilitate themselves and reconstruct their economies.

This requirement has taken no practical form in the proposals up to date.

While rehabilitation is included in the title of UNRRA there is, I think, to-day a growing appreciation of the fact that the activities of UNRRA will be confined to relief.

The American proposals for a Bank of International Investment are, I am advised by my experts, quite unrealistic and impracticable.

The original Keynes Monetary plan would have gone far to meet this difficulty. Unfortunately it is now so watered down in the joint proposals that any agreement which may emerge can not be regarded as designed to do more than meet temporary dislocations in the smooth running of the International economic machine.

The Monetary proposals, however, are much the most advanced and I understand the President of the United States contemplates the holding of a meeting of the United Nations with a view to arriving at agreement upon them.

The result of this meeting must, I think, be that even if agreement can be reached by the smoothing out of difficulties which exist at the present time, e.g. Australia's requirement of a larger quota-such agreement would be qualified in the case of the majority of countries by the condition that it should not operate until agreement had also been reached on other questions such as full employment, tariffs, etc.

We have therefore to consider the position which would arise upon this happening and what is the next step that would have to be taken.

After a meeting of the United Nations has been held at which the post war financial and economic set up had been the subject of examination and discussion and at which different countries had placed varying emphasis upon full employment-monetary policy-trade barriers etc. it will be impossible to withdraw these subjects for further bilateral discussions between the United Kingdom and the United States of America. The meeting will insist that further consideration of them must be on a United Nations basis.

We have therefore to determine what would be the method of handling this demand with the best prospect of obtaining results.

In my view it would probably be to obtain agreement to the setting up of a Committee with a limited personnel to examine further the different problems as a whole which would report to Governments with a view to the holding of a further meeting when sufficient progress had been made.

Owing to the political implications of the questions involved I think the Committee should be on the Governmental level and not merely composed of experts. It would, however, have power to call in the assistance of such experts as it deemed desirable.

Prior to the holding of the meeting of the United Nations I suggest the position as we see it should be placed before the Americans in the frankest terms and an effort made on the highest level to induce them to be, more realistic and forthcoming with regard to meeting the needs of countries whose financial and economic structures have been dislocated by the war.

If the Americans could be induced before the meeting to agree to a practicable scheme to meet this need the existing gap in the proposals for achieving the objectives set out in Article VII would be closed.

If they can be so persuaded I am hopeful that something of real value might be achieved by the holding of the meeting.

S. M. B.

1 On file AA:A5954, box 659.

2 Discussions at official level were in fact held in London in October-November 1942, June 1943 and February-March 1944.

[AA:A5954, BOX 658)