37 Dedman to Chifley

Cablegram 1 LONDON, 13 July 1949, 12-45 a.m.

IMMEDIATE SECRET

Received 14 July 1949 Formal opening of the Conference this morning was followed by a meeting of the heads of delegations. Concurrently there were preliminary discussions among officials. At the Ministerial Meeting, Cripps circulated a copy of a communique issued after talks with Abbott and Snyder. In case you have not got the full text, I am repeating it in my immediately following telegram.

Cripps did not break any new ground and the discussion was mainly confined to a reaffirmation of the desirability of achieving the long-term objective of multilateral trading conditions. It was then agreed after the discussion, that the Conference would discuss the problems under three heads- (a) The long-term objective of achieving multilateralism.

(b) The intermediate problem of achieving increased dollar earnings.

(c) The immediate problem of checking the drain on reserves in 1949-50.

It was decided that item (a) would be discussed at this afternoon's meeting.

2. At the meeting of Ministers and Officials this afternoon, Cripps asked for the views of delegations on the long-term problem.

3. The Canadian Minister of Finance, Abbott, referred to Canada's special position as a member of the Commonwealth, but outside the sterling area. Speaking frankly he said that political and security aspects of relations with the United States should influence discussions on solutions for the dollar problem. Canada subscribed to the general objectives of multilateral trade and had particular interest because of heavy cuts in sterling area purchases from Canada.

4. He felt too much weight was given to the United States recession which was relatively minor and in any case, the United States could not be expected to maintain inflation to help other countries. The United States income levels are still high by any test. Furthermore, Truman's message to the Nation emphasised the need to maintain imports and to adjust budget policies in relation to the external situation. Abbott also challenged the over-all effects of restrictions which tended to create an insulated high cost area. He conceded the need [for] urgent first aid measures.

Nash indicated New Zealand's willingness to fit in with both long and short term plans to meet difficulties. He felt that multilateralism and convertibility which are interdependent are not yet practicable. He also stressed the importance of efforts to raise living standards.

6. Havenga [1] raised gold aspects on familiar lines.

7. The Indian Finance Minister, Matthai, stated necessary prerequisites for multilateral system- (a) Balanced two-way trade at adequate level.

(b) Free movement of capital for investment purposes.

(c) Adequate geographic distribution of gold reserves.

8. Matthai referred, however, to uncomfortable transition period in which sterling area must develop resources and set up machinery for ascertaining such resources. Suggested special bilateral arrangements with the dollar area and [Russia]. [2] President of the Board of Trade [3] summed up a rather nebulous discussion up to that stage by stating that there seemed to be general agreement on long term objective of one world economy rather than, say [3] blocs dollar, sterling, rouble. He then indicated six lines along which the United Kingdom proposed to explore the solution of the long-term dollar problem.

(a) Surplus countries must free their markets to imports from deficiency countries.

(b) The reserves of deficiency countries must be protected.

(c) Non-dollar countries must achieve costs reasonably comparable to those in the dollar area.

(d) Dollar countries must pay reasonable prices for their purchases of staple commodities from the sterling area, i.e.

support prices for primary products must not be confined to those produced in the United States. This implies the conclusion of more international commodity agreements.

(e) Full employment must be maintained, especially by surplus countries.

(f) Need to clarify the position and improve prospects for United States investments abroad by surplus countries either by providing conditions for flow of 'risk' capital, or by planned over[sea] [4] investment.

9. Wilson summed up by reiterating the objectives of one world economy, multilateral trade and convertible currencies.

10. At this stage, I suggested that the discussion so far had not faced up to the real issues involved in a solution of the long- term problem. I made clear that Australia joined with other delegations in supporting the broad long-term objectives of multilateralism, but pointed out that, as one of the purposes of this Conference was to consider an immediate intensification of discrimination, it was necessary to consider how the immediate necessities could be reconciled with the long-term objective and the conditions necessary for the achievement of that objective brought about. I emphasised the obligations of creditor countries which Australia had stressed at Bretton Woods, Geneva and Havana.

America, for instance, might consider tariff reductions increased investment abroad, further contributions to development of backward areas, such as in Asia, and might re-examine political policy in order to assist expansion of trade between East and West Europe, which could make an important contribution both to the dollar problem and the easing of the political tension.

11. I concluded by expressing the hope that the Chancellor would give some indication of the concrete proposals which the United Kingdom had in mind for further discussion with U.S.A. and Canada as a means of solving the long-term problem. I pointed out that, although these matters might necessarily be handled by the United Kingdom as leader of the sterling area, Australia was vitally interested in the issues. Cripps merely indicated that Wilson's outline of broad objectives (see paragraph 8 above) would be the basis of the September talks in Washington, and that it would not be wise to say more at this stage.

12. Cripps concluded by suggesting that officials be instructed to draft agreed minutes, recording the outcome of the day's discussions. I shall keep you fully in touch with developments on this.

13. There is some suggestion that the agreed minutes should included a subscription by the whole conference to the text of the communique issued after United Kingdom talks with Snyder and Abbott.

14. On timetable, the United Kingdom desires the Conference to complete its policy discussions among Ministers by Sunday night (Cripps has indicated very confidentially that for medical reasons, (he will not be available after Monday). As a result a concentrated programme of meetings through the weekend is contemplated. With the Chancellor occupied in the House on Thursday there will be a meeting of Ministers and officials on petroleum products in the morning. In addition officials are to meet to discuss- (a) Statistical appreciation of the position in 1949-50.] [5]

(b) Preliminary aspects of short term action.

15. My general feeling is that discussion of the long-term problem today was rather unsatisfactory and that as yet, little progress has been made.

1 N.C. Havenga, South African Minister of Finance.

2 Word in square brackets inserted from correcting cablegram 3, dispatched 14 July 1949.

3 J. Harold Wilson.

4 Matter in suare brackets corrected from cablegrams 3, dispatched 14 July 1949 5 Portion in square brackets inserted from correcting cablegram 3, dispatched 14 July 1949.

[AA: A9879, 3350/902]