Minutes of the conference between representatives of the United Kingdom and Ireland
(Secret) (I.N. (38) 3^rd Meeting) (Copy)

CONFERENCE
between
REPRESENTATIVES OF THE UNITED KINGDOM AND ÉIRE

Secretary's Notes of the Fourth Meeting of the Conference held at 10 Downing Street, on Tuesday, 18th January, 1938, at 3.0 p.m.

PRESENT
UNITED KINGDOM	ÉIRE
The Rt. Hon Neville Chamberlain, M.P., Prime Minister.	Mr. Eamon de Valera, Prime Minister and Minister for External Affairs.
The Rt. Hon. Sir John Simon, G.C.S.I., G.C.V.O., O.B.E., K.C., M.P., Chancellor of the Commerce. Exchequer.	Mr. Sean F. Lemass, Minister for Industry and Commerce
The Rt. Hon. Sir Samuel Hoare, Bt., G.C.S.I., G.B.E., C.M.G., M.P., Secretary of State for the Home Department.	Mr. Sean MacEntee, Minister for Finance.
The Rt. Hon. Malcolm MacDonald, M.P., Secretary of State for Dominion Affairs.	Dr. James Ryan, Minister for Agriculture.
THE FOLLOWING WERE ALSO PRESENT
The Rt. Hon. Oliver Stanley, M.C., M.P., President of the Board of Trade.	The Rt. Hon. W.S. Morrison, M.C., K.C., M.P., Minister of Agriculture and Fisheries.

Secretaries

Sir R.B. Howorth, K.C.M.G., C.B. Mr. C. N. Ryan, D.S.O., M.C.

CONFERENCE BETWEEN REPRESENTATIVES OF THE UNITED KINGDOM AND ÉIRE
FINANCE

MR. CHAMBERLAIN suggested that the Conference should further examine the question of Finance in regard to which he understood that a meeting of the Treasury Officials of the two countries had been held that morning¹.

SIR JOHN SIMON said that he would make a very brief report in regard to the meeting in question, as no doubt Mr. de Valera had already heard from his own representative what had taken place. Mr. Chamberlain had, himself, suggested that the most hopeful procedure would be to search for some figure which might form the basis for a financial agreement without the use of any labels. He (Sir John Simon) was sorry to say that up to the present the figures which had been suggested by the representative of Éire were quite inadequate and could not possibly form the basis for a negotiation. The discussion between the officials had proceeded on the basis of the payment by Éire of a capital lump sum, this capital payment to be in final settlement and to close all the old disputes. It would be settled on the assumption that both the special duties and the Éire retaliatory duties would be taken off. The representative of Éire had at the outset offered a lump sum capital payment of £2 million which he had subsequently increased to one of £3 million. The representative of the United Kingdom Treasury had intimated that he was not authorised to accept a smaller capital payment than one of £37 million and this was on condition that the £250,000 a year for Compensation would continue as an annual payment. The United Kingdom official had also intimated that while the offer of a capital sum of £8 million could not be entertained, an offer of £25 million, e.g. in three annual instalments, might be a basis for discussion.

As he (Sir John Simon) had pointed out, at the meeting on the previous day, the existing payments due by Éire to the United Kingdom amounted in round figures to £5 million per annum in respect of which the United Kingdom were at the moment receiving in round figures some £4 million per annum from the special duties, plus the £250,000 per annum in respect of Compensation. It was generally recognised that there was room for some reduction in this figure of £41/2 million per annum. He, himself, was convinced that in order to avoid any recurrence of debates and controversy it would be much better to terminate the system of annual payments by Éire to the United Kingdom in favour of a capital sum payment. The difficulty that Éire might be unable to make a single capital payment could be got over by arranging for the payment to be made say in two or three annual instalments. In any case, whether there was a single payment or a payment in instalments, his idea was that the whole question should be finally got rid of. He hoped that by continuing the discussions between the officials of the two countries it might be possible to reach some figure which would be a reasonable and proper compromise. At the moment, it was no use pretending that the representatives of the two Governments were in sight of any agreement.

MR. DE VALERA said that the point of view of himself and his colleagues in regard to this matter might be stated as follows. For the reasons which he had already given it was quite out of the question for the Government of Éire to contemplate the payment of any capital sum which would include either directly or by implication the land annuities. When he had discussed this question with Mr. MacDonald he mentioned the possibility of a compromise; but in referring to this possibility he wished again to emphasise his conviction that none of the payments in question were legally or properly due from Éire to the United Kingdom. He recognised that no useful purpose would, however, be served by a restatement of the very strong arguments on which he relied and he had greatly hoped that on the present occasion it would have been possible to have discovered some compromise figure, the payment of which he could have justified to his own public opinion. The figures which had been mentioned by the United Kingdom Official at the meeting that morning were in his view open to the insuperable objections that they were much greater than Éire could afford to pay, and their size was such that it would be hopeless for him to attempt to justify them to his own people. He fully appreciated the point of view of the United Kingdom in this matter and he sincerely hoped that it might be found possible to reach a settlement on a much smaller figure than those which Sir John Simon had mentioned.

SIR JOHN SIMON enquired what kind of a figure Mr. de Valera had in mind.

MR. DE VALERA said that it was inevitable that Éire would in future have to carry a very heavy financial burden in regard to defence. Having regard to future commitments in regard to defence and other services he thought that it would be very difficult for Éire to make a capital sum payment in excess of £10 million. The most he thought she could offer to pay was £8 or possibly £9 million.

Taking the particular items other than the Land Annuities he (Mr. de Valera) was advised by his Experts that the capital value of the Local Loans annual payment was something over £4 million.

SIR JOHN SIMON said that the United Kingdom Ministers were advised that the capital value of this item was £7.35 millions.

MR. DE VALERA observed that in speaking of these items he must not be taken as finally committing himself and his colleagues in any way. He would always argue, as he had done in the past, that payments in respect of them to the United Kingdom were not legally or properly due, but he would have to explain that in order to reach some settlement he had been obliged to bring them into account. As regards the R.I.C. pensions this, of course, was a decreasing service and he was advised that the present cost of the payment to R.I.C. pensioners resident in Éire amounted to about £750,000 per annum, while the cost of the R.I.C. pensions in the case of persons resident outside Éire amounted to about £240,000 per annum. The suggestion made to him was that Éire should assume financial responsibility for the R.I.C. pensioners resident in Éire in which case the charge would continue to be an annual one, while in respect of the R.I.C. pensioners outside Éire the matter should be disposed of by being brought into account in the lump sum capital payment. In this connection, however, the point had occurred to him that the United Kingdom might in all the circumstances wish to retain control of the expenditure on this particular service, especially in view of the consideration which he had always urged that the R.I.C. were a special responsibility of the United Kingdom and were, in fact, a United Kingdom and not an Irish service.

MR. MacENTEE observed that the Government of Éire were without any information of their own as to the capital equivalent of the present annual expenditure on R.I.C. pensions. He understood that the United Kingdom Experts estimated that in the case of the pensions of R.I.C. resident in Éire the capital equivalent would be about £9.1 millions, the corresponding figure in the case of those resident outside Éire being £3.2 millions.

SIR JOHN SIMON referred to Mr. de Valera's observations on the serious burden which Éire would have to assume in respect of Defence, and enquired whether he was right in understanding that in calculating the lump sum capital payment which Éire could afford to make Mr. de Valera was proceeding on the assumption that Éire would assume complete financial responsibility for the capital cost of the reequipment of the ports to be handed over to her, and for the future maintenance of those ports and of their garrisons.

MR. DE VALERA said that his calculations had been made on this basis. In any new financial settlement that might be reached it was imperative that account should be taken of the fact that Éire would have to find both the capital cost of the re-equipment of the ports and the very serious recurrent annual expenditure of their maintenance.

SIR JOHN SIMON said that he was prepared to agree that this was a consideration which it was possible to take into account.

MR. DE VALERA said that his idea was that the items other than the Land Annuities should be carefully examined with a view to arriving at some lump sum capital payment which could be accepted by both Governments. He would certainly be asked as to the nature and extent of the commitments which he had entered into in regard to Defence. This was a matter on which public opinion in Éire was extremely sensitive. It would be necessary for those concerned in Éire to confer with the Defence Experts of the United Kingdom in regard to Defence generally, and in particular in regard to the re-equipment of the ports. It might well transpire as a result of these discussions that both the capital cost of re-equipment and the annual cost of maintenance would be beyond the capacity of the people of Éire. If he were in the place of United Kingdom Ministers he would reply to any criticism of the financial arrangements by pointing out that the Government of Éire was going to enter into very heavy commitments, both capital and recurrent, in regard to Defence and that this expenditure would indirectly greatly benefit the United Kingdom by relieving her of the necessity in future of contributing to the defence of Éire.

He repeated that he saw very great difficulty indeed in agreeing to any lump sum capital payment in excess of £10,000,000.

SIR JOHN SIMON agreed that in justifying in the United Kingdom Parliament any arrangements that might be reached it would be right and proper to emphasise that in future the Government of Éire would meet the whole annual cost of the re-equipment of the ports and all future maintenance charges in respect thereof.

MR. MacENTEE said that the Government of Éire had never been in a position to make any estimate of the capital expenditure and annual maintenance charges which would be necessary to meet in regard to the ports now to be taken over. Figures prepared by the United Kingdom authorities had, however, been furnished to them and he confessed that these figures were very alarming.

MR. DE VALERA said that what caused him very great anxiety was not so much the capital cost of re-armament in Éire, great though that would have to be as measured by the financial resources of the country, but the very grave burden which Éire would have to bear in future, by reason of the increased maintenance charges, in regard not merely to the ports to be handed over, but as regards the general defence of the country. Public opinion in Éire argued that their country enjoyed friendship with every other country and that there was no reason whatever why they should ever engage in war, except in some war in which the United Kingdom was a participant. In these circumstances, it was urged that there was no justification for further expenditure on defence in Éire and that the more money that was expended on this service the more likely was it that Éire would sooner or later be plunged into war. Public opinion definitely thought that no more, or, at most, that very little more should be expended on defence in Éire than was being expended at present, namely about £1.5 million per annum.

MR. CHAMBERLAIN said that Sir John Simon had already pointed out that United Kingdom Ministers would have to explain and justify to Parliament a proposal, under which, in effect, the United Kingdom revenues would be reduced by several million pounds. Disregarding for the moment the point of view of public opinion in Éire it must be recognised that public opinion in the United Kingdom would be certain to ask how much the Exchequer of the United Kingdom was being saved, both in regard to the capital cost of re-equipment and future maintenance charges, by the assumption by Éire of responsibility in future for these charges as regards the ports to be transferred. Whatever might be the position in regard to these particular ports, it could not, for a moment, be argued that the United Kingdom was in any way responsible for expenditure on the general defence services of Éire. Indeed, it would be in the highest degree improper and unconstitutional for the United Kingdom to attempt to concern herself or interfere in any way with the defence of Éire, which was the responsibility of the Government of Éire. In these circumstances, he felt that it was imperative to accept the situation as it is at the moment, namely, that the financial responsibility of the United Kingdom for the defence of Éire is strictly limited to the three defended ports, while the Government of Éire are responsible for the defence of the rest of the country. Under the arrangements now contemplated the three defended ports would pass from the responsibility of the United Kingdom to that of Éire. He fully appreciated that the figures to which reference had been made of the cost of re-equipment and maintenance of the ports must, from the point of view of Éire, appear very substantial.

MR. DE VALERA said that the point which he wished to emphasize was a somewhat different one. The Government of Éire had to carry very heavy burdens in connection with their present defence commitments. Public opinion in Éire was disposed to be very critical of this expenditure and to argue that it would be much better for Éire to have no defence forces at all and for her to rely in future on a policy of neutrality and to follow the example, in this respect, of Denmark and other small Powers. In order, however, to prevent Éire being used by some enemy of the United Kingdom, as a base for attacking the United Kingdom, it had become necessary to contemplate the expenditure of very large sums of money in re-arming the country for a purpose which many people in Éire would argue was much more a United Kingdom interest than an Éire interest.

MR. CHAMBERLAIN said that he must have regard to the point of view of critics in the United Kingdom. It would be urged that at a very dangerous and critical time the United Kingdom Government had decided to hand over the defended ports in Éire and, in so doing, were running very grave risks. More than this, it would be represented that, by making financial settlement with Éire of the kind contemplated by Mr. de Valera, and for the reasons urged by him, the United Kingdom were, in fact, being called upon to pay indirectly for the whole of the defence of Éire.

MR. DE VALERA said that the United Kingdom could always rely on the assurance that, so far as Éire was able to do so, she would deny the use of her country to any foreign power, as a base for an attack on the United Kingdom. But this assurance would be rendered nugatory and impossible to implement if the United Kingdom maintained her demand for such a heavy capital lump sum payment as would make it quite impossible for Éire to find the necessary money to put her defences in order and thereafter to maintain them. In other words, Éire would have to forego her promise to defend herself against a foreign aggressor.

MR. MacENTEE said that he also wished to stress the very important consideration of securing the goodwill of public opinion in Éire. A better understanding was quite impossible so long as the special duties remained. Compared with the United Kingdom, Éire was a very poor country and burdens which could readily be borne by the United Kingdom represented very grave difficulties in Éire. It was no exaggeration to say that, in present circumstances, every beast exported from the country to the United Kingdom was a source of irritation and indignation to the Éire farmers.

MR. DE VALERA observed that the only way in which it was possible for his colleagues and himself to justify the payment of any capital sum, was that it was essential to make such a payment in order to end the economic war. He and his colleagues recognised that the United Kingdom were in a position effectively to put pressure on Éire by means of the special duties, and he could assure United Kingdom Ministers that if the Government of Éire had been able to discover any effective answer to that policy they would not have hesitated for a moment to have adopted it.

THE HOME SECRETARY enquired whether any estimate had been formed of how much the Treaty Ports would cost Éire to re-equip and maintain.

MR. DE VALERA replied that it had not been possible for the Éire authorities to prepare any estimates on the subject, but some figures had been furnished them by the United Kingdom experts.

MR. CHAMBERLAIN said that the United Kingdom figures for the future annual maintenance of the ports was about £230,000 per annum, while the capital cost of re-equipping the ports had been estimated at about £750,000.

MR. DE VALERA said that he would much like to receive expert advice as to the best line on which the Éire re-armament scheme should proceed; for example, would it be better to develop the Air side of their defence forces or spend money on some types of small naval vessels? At present the Government of Éire had no plans, and before making any start it was of course essential that they should have some idea of what the financial commitments would be. He had seen some very hypothetical figures, but felt little confidence in them. SIR SAMUEL HOARE assumed that the re-equipment of the ports now to be handed over would in any case be properly carried out. This was a very vital consideration from the point of view of the United Kingdom.

MR. DE VALERA and MR. MacENTEE stated emphatically that the ports in question would in any event be properly re-equipped and maintained.

THE SECRETARY OF STATE FOR DOMINION AFFAIRS, replying to a suggestion that the inhabitants of Éire were subject to much heavier taxation than comparable inhabitants in the United Kingdom, pointed out that if some compromise could be reached on the financial question, the result would be the disappearance of the Special Duties, which would mean that the Éire farmer would have more money to spend, while the cessation of the bounties would mean relief to the Éire tax-payer.

MR. MacENTEE agreed that this would have been so, if there had been no necessity for the Éire taxpayer to assume the heavy additional burden of rearmament, which represented in his view the export of so much capital. The capital cost of re-armament in Éire had been put at £10,000,000 to £15,000,000, and this included the provision of reserves of ammunition, equipment, etc. As Mr. de Valera had stated, this expenditure would be generally regarded throughout Éire as having to be made much more in the interests of the United Kingdom than in those of Éire. This constituted a strong argument in favour of the United Kingdom assuming responsibility for the expenditure.

MR. CHAMBERLAIN stated that in the last two or three years the United Kingdom Government had been faced with ever increasing pressure and urgency to expend larger and larger sums on every form of re-armament, protection of the civil population, and kindred services. The commitments and estimates had grown to such vast figures that the United Kingdom Government had been forced to inform their experts that it was quite impossible to carry out in all respects the advice which was given to them, and which was based on insuring the country against all likely risks and dangers. It had, in fact, been necessary for the United Kingdom Government to reduce their commitments, and in doing so to take certain risks. Considerations of this kind made it very difficult, if not impossible, to entertain suggestions such as that the United Kingdom should contribute towards the cost of the defence of Éire, or should keep up reserves of ammunition and equipment in that country.

MR. DE VALERA observed that inevitably it must be a cause of great anxiety to the Government of the United Kingdom to have so close upon their flank a large island which a hostile power might use as a base for attack upon the United Kingdom. As the result of the assurances which he had given, the United Kingdom was being protected against this serious danger, and it was in his view very important that the United Kingdom should do nothing in regard to finance which would make it impossible for Éire to fulfil the assurances that he had given, that she would defend herself against a hostile aggressor. The present time, with the possibilities of war on the horizon, was, he was convinced, the very worst time to persuade the people of Éire to undertake additional defence burdens. They would certainly say that any new defence commitments were merely the result of some alliance with, or pressure from the United Kingdom. He must repeat that it was impossible for himself and his colleagues to entertain the lump sum capital figures which had been mentioned at the discussion between officials that morning, and had been repeated by Sir John Simon that afternoon.

MR. MacENTEE observed that it was quite impossible for Éire to spend money on re-armament if this meant cutting down social services. It was inevitable that more money would have to be found for social services in Éire from now onwards.

SIR JOHN SIMON thought that it would be advantageous to continue the conversations between the Treasury officials. The result of the discussion that afternoon had shown that there was considerable common ground. For example, it appeared that in calculating the lump sum capital payment regard might be had to items such as R.I.C. Pensions, Local Loans, and Judicial etc. Pensions. There were, in fact, three or four items of a quite substantial character outside the Land Annuities, which could profitably be brought into account. No doubt Mr. Chamberlain would indicate the United Kingdom view of the relationship between the financial and trade issues.

MR. DE VALERA said that a financial agreement would have to be closely linked with a trade agreement. From his point of view a trade agreement was essential. In the absence of such an agreement his people would feel that there was no guarantee for the continuance of the peaceful relations between the two countries.

MR. CHAMBERLAIN said that, as he saw it, the position was that this country was asked to make bigger reductions in the special duties than they felt could be justified to the House of Commons. The question was, therefore, first whether some further adjustment of the financial proposals could not be effected, and secondly, how far it was possible to bring in on the one side defence expenditure in Éire, and on the other side advantages to this country from a trade agreement to which attention could be drawn in the House of Commons. By some such procedure as this they might hope to find a basis for a general agreement. As regards the defence problem he recognised that at present the Government of Éire was in the dark as to the exact requirements and the expenditure that would be needed to meet them. He would be glad to hear the views of the Éire Delegates as to what might be expected to follow the disappearance, or reduction to a great extent, of the special duties. He assumed that the retaliatory duties would also disappear.

MR. DE VALERA agreed.

MR. CHAMBERLAIN then referred to the bounties to the farmers. Would they disappear pari passu with the special duties?

MR. RYAN said that so far as live stock was concerned he thought they would, but in the case of other produce, such as butter, bacon and eggs, marketing schemes were in existence under which exports were to some extent subsidised by the home consumers.

MR. MORRISON said he thought that the details might be left for discussion at a later stage. He was concerned that if the special duties disappeared, then insofar as the assistance of bounties was inaugurated to counteract the special duties, those bounties would disappear also.

MR. LEMASS referred to the effect of the Ottawa duties on certain classes of goods. Some bounties were given to offset the effect of those duties.

MR. STANLEY said that he thought that no goods affected by the Ottawa duties were also subject to the special import duties.

MR. MORRISON said that butter was subjected to a 40% duty plus an Ottawa duty of 15s. per cwt. He suggested that it would be a wise move in undertaking the trade agreement discussion to take the line that the special duties were a financial measure imposed to compensate this country for payments to which they thought they were entitled, and which had been withheld, and that any modification in them was in liquidation of the financial dispute. This avoided the difficulty of looking upon the special duties as protective duties, and would make it easier for him to justify any reduction to the farming community in this country. The trade agreement could then be considered in the light of the Ottawa and other duties on the basis of mutual tariff preferences.

MR. STANLEY said that there would be some political difficulty if the bounties did not disappear. If the special duties were removed, but the bounties remained, United Kingdom farmers would say that they had to compete against bounty-fed produce. MR. MacENTEE suggested that some political advantage might result from the benefit accruing to the urban population. The imports of such produce might help to keep down the cost of living.

MR. MORRISON said that he felt that the section of public opinion which would be most sensitive to the removal of the special duties would be the rural communities.

MR. CHAMBERLAIN asked whether the matter could be carried any further.

MR. DE VALERA said that he quite appreciated the difficulties of the position and the different avenues of approach which the two Governments were obliged to take. At the same time, if the United Kingdom Government maintained their position, the only course open to the Éire Government would be to continue to endure the existence of the special duties as best they might. If there was a chance of agreement it would be worthwhile making one in terms on which they would be able to carry their own people with them.

MR. CHAMBERLAIN agreed that if no settlement could be effected, all that remained was to carry on as at present, but he would not willingly fall back on that state of affairs until he was quite certain there was no chance of some settlement. Sir John Simon was going to look into the question again and see if it was possible to make a more favourable report.

SIR JOHN SIMON enquired what the relation between the financial settlement and the defence problem would be.

MR. CHAMBERLAIN said that the heads of subjects for discussion in regard to the defence problem were being put down on paper and this would be completed later in the day. He suggested that the matter might be further discussed tomorrow.

The question arose whether in any case it would be possible to reach a final all-round settlement at the present series of meetings, and if not, in what way they should be suspended so as to facilitate their resumption later on. Further information and data were required bearing on both the financial and defence problems which could be explored in greater detail if there was an interval in the meetings of the Delegations.

MR. DE VALERA said that he was rather apprehensive of the result of undue delays which provided an opportunity for interested parties to influence public opinion and to spread all kinds of rumours. If they could secure some form of agreement at an early date which they could take back to their colleagues for endorsement, such a course would have many advantages. What would be acceptable to-day might become impossible in three weeks' time.

MR. LEMASS said that all their exporters knew that these negotiations were going on and the fact of their existence created a great deal of uncertainty and difficulty. He hoped that the period of negotiations would be as short as possible.

MR. CHAMBERLAIN agreed that this was most desirable. No final general settlement could, however, be secured until a trade agreement had been completed in detail, which must be a matter of several weeks. Uncertainty was an inevitable factor during the negotiations for any trade treaty and he did not see how this could be avoided. This country had had experience of this uncertainty on several occasions in the past.

MR. DE VALERA said that delay would give chances for persons to create an outcry that, although partition continued, Éire was to be committed to Britain's wars and that, though they might be going to be relieved of one burden, it would only be exchanged for another. He recognised, however, that time was required for consideration of the details of the trade treaty and that his Government would have to face this position.

MR. STANLEY said that by reason of the Coal-Cattle Agreements his officials were already in contact with a great deal of the detail work in relation to trade between the United Kingdom and Éire. The completion of a treaty that would be really worth while must inevitably take some weeks.

MR. DE VALERA said he wondered whether the best course would be to suspend the meetings between the Delegations without referring to any tentative agreements which might be reached to-morrow.

MR. CHAMBERLAIN said that from the British point of view it would be difficult to justify coming to any settlement on the financial dispute in advance of the conclusion of a trade agreement.

SIR JOHN SIMON felt that the result of their meetings should be presented as a whole: it would have some good and bad elements from the point of view of both sides. He would certainly find it very difficult, in advance of a general settlement, to inform the House of Commons that the Special Duties had been given up.

MR. MACDONALD said that in the interval, contact could be maintained throughout in regard to finance and defence questions.

MR. DE VALERA agreed. He had deliberately avoided bringing over representatives of the Department of Defence as he did not wish to excite public opinion in Éire. He thought it would be much better to consider the problem on the basis of seeing what is necessary and preparing a plan in accordance with the requirements. They were anxious to know what Great Britain would do if they remained responsible. When they knew what the requirements were they would be able to estimate their cost. This could be taken into account in any compromise effected on other aspects of the financial dispute but he must make it clear that if that cost, when added to any lump sum that might be agreed upon in settlement of the financial dispute, encroached into the sphere of the land annuities payments, he could not take the responsibility for urging such proposals as a solution of their difficulties.

In answer to a question by Mr. de Valera, MR. MACDONALD suggested that any information given to the Press in regard to the interval in the negotiations should indicate that the Delegations had carried out a preliminary exploration of the questions under consideration, that no agreements had yet been reached and no commitments entered into, but that a stage had been reached at which a detailed examination of the various questions was to be carried out by officials who would report to their Ministers with a view to further meetings between the latter being held later on.