315 Mr R. G. Casey, Minister to the United States, to Department of External Affairs

Cablegram 196 WASHINGTON, 2 February 1942, 12.02 a.m.

Lease-Lend Agreement. At direction of President [1], Acheson [2] saw British Ambassador [3] on 29th January with advice that United States Administration would like an early decision so that agreement could be signed. This has been communicated to London.

President and his advisers are taking the view that in continuing to approach Congress for lease-lend funds they must be supported by an agreement indicating among other points general basis to be aimed at in the ultimate settlement.

British Embassy here appears to hold the view that the proposed agreement deals more with past transactions and possibly with current approaches to Congress for funds. Men handling the subject at British Embassy have apparently agreed among themselves that in future it is likely there will be much more pooling of goods without effort at identification or without regard to the particular Government which ultimately uses the goods. Thus they suggest lease-lend transactions may, with the entry of America into the war, be logically expected to become less and even possibly to disappear. When in an informal talk this was put to Americans by us, answer non-committal. Notwithstanding their view on this aspect, United Kingdom representatives here think they have got to make an agreement now even if ultimately it is found to be in consideration of past lease-lend tranactions only.

There is a further point of principle that there might be 'offsets' in the shape of services rendered by United Kingdom and other Governments such as equipment, even foodstuffs for American troops in (for example) British areas. As far as we can learn, however, this has not yet been seriously discussed.

Points around which all discussions have centred are those contained in Article 7 which it is understood has been forwarded to you. There have been several drafts however and in order to avoid the possibility of confusion the last (drafted by the United States) is quoted.

[Matter omitted. Article 7 as redrafted is published in paragraph 5 of Document 324.]

Points they desire to cover in this article are:

(A) There shall be no war debts. This is the significance of the passage containing the words 'such as not to burden commerce'.

(B) Agreements which have for their objective the expansion of international trade by the removal of barriers. In particular, elimination of discriminatory measures, reduction of tariff and adjustment of currency difficulties.

(C) It is also clear that the Americans have fears that after the war England might revert to [4] policies of bilateralism- statements of Keynes [5] (when he was in the United States a few months ago) raised these fears. I am informed that Phillips (United Kingdom Treasury Representative here) who supported post- war bilateral idea has now changed to the extent that he now supports the above-quoted proposed agreement.

In discussion, the Americans admitted they have in mind the removal of Imperial preferences, though they say it is an objective and not a specific undertaking and that ways and means have got to be explored in an effort to reach the objective. They said 'agreed action directed to' did not mean that an agreement to removal of margins was being made. Our impression is that they do not hope to secure the entire removal, but to make material progress to this end. The point was put by us to Hawkins [6] that one of the strong reasons for Imperial preference was the extraordinarily high American duties. The United Kingdom and the Dominions might argue that American duties should be reduced more heavily than the present Trade Agreement Law permits to justify substantial or entire removal of preferential margins. He agreed that the point was legitimate but came back to his often-repeated argument that American protective duties (or for that matter Australian protective duties) were in an entirely different category to duties not designed to protect industries of the country imposing them. Under this principle they contended that British Imperial preference was wrong as, of course, their treatment of Cuba and the Philippines. He agreed, however, that bargaining must cover both (as current treaty negotiations demonstrated) and speaking for himself only, he thought before they could claim that the whole of the preferential duties be removed America would probably have to bring her duties below 50% of their present level.

It is clear they have designs on Imperial preference though they think it should be one only of several measures designed to make and keep international trade fluid.

The United Kingdom reply said it was undoubtedly an attack on Imperial preference, but it would have to be faced. They did not seem to think it meant complete elimination, however, and they quoted the words 'directed to' in Article 7.

Both British representatives here and Americans consider inter alia the agreements are in accordance with the last paragraph of Article 7 and (hat Article 7 strengthens the case for proceeding with trade treaty negotiations. The Americans are definite in saying that, in their view, continuance of the present negotiations is in fact one of the most fruitful of the lines of the 'agreed action' contemplated by Article 7 and would be considered by them to be one important form of compliance with Article 7.

The British Embassy representatives handling the subject spoke freely in informal conversation, but asked that their views be not quoted.

I learned confidentially that Canada has notified her agreement with the whole proposed agreement including Article 7 in the form as quoted above in the telegram.

I believe you will receive telegraphed views shortly from the British Government on the agreement and Article 7. [7]

CASEY

1 Franklin D. Roosevelt.

2 U.S. Assistant Secretary of State.

3 Lord Halifax.

4 The original was here annotated 'word inserted'.

5 U.K. economist and Director of the Bank of England.

6 Chief of Division of Commercial Policy and Agreements, U.S.

State Department.

7 See circular cablegrams D66 (AA:A3195, 1942, 1.4745) and D67 (AA:A3195, 1942, 1.4743) of 6 February. D66 reported that the U.K.

Govt intended to suggest to the U.S. Govt that at the same time as the Lend-Lease Consideration Agreement was signed there should be an exchange of Notes setting out an agreed interpretation of the meaning of Article VII. D67 contained the proposed texts of the Notes.

[AA:A3830, 1942, 553]