No. 401 NAI DT S14134A

Report of a meeting between James J. McElligott, S.P. Murray and Ernest Rowe-Dutton held on 5 September 1947

London, 6 September 1947

  1. Mr. Rowe-Dutton opened by saying that a copy of the communication which Mr. de Valera had handed to Lord Rugby yesterday afternoon had been received in the Treasury.1 The Treasury was, he said, very appreciative of the Irish Government's attitude and would take this opportunity, with gratitude and pleasure, of seeing what could be made of the suggestion contained in it. A solution of the difficulties mentioned in the note would, undoubtedly, be to the advantage of sterling, inasmuch as increased trade with Ireland in essential commodities would reduce pro tanto foreign exchange difficulties. There would, of course, be difficulties arising out of the special interests of the other Departments concerned but the Treasury would do their best to get over them.
  2. Mr. McElligott indicated that provided the special bilateral discussion referred to in the Taoiseach's Aide Mémoire was agreed upon an invitation could be issued to Ireland to attend the sterling area discussions without fear of rejection. The invitation would, he took it, be issued through the Department for Commonwealth Relations and he enquired on what level the talks would take place. Mr. Rowe-Dutton said that Australia, New Zealand, India, Pakistan, South Africa, Burma, Iraq and Palestine would be represented and the Colonial Office would be present on behalf of the Colonies. The talks which would probably commence in the second week of the session of the International Monetary Bank and Fund, say about the 18th or 19th September, would almost certainly take place at official level, as some of the countries for special reasons cannot send Ministers at this time. In addition to the general talks it was arranged that bilateral discussions would take place with South Africa who were in a special position on a gold footing and it was possible that bilateral discussions with other countries might arise out of the general talks. He suggested that it would be preferable that the bilateral discussions should take place after the general talks, when both we and the British would have the advantage of seeing our mutual problems in the light of the full information which these talks would produce regarding the general sterling area position. At the general talks Britain would, he said, make a full disclosure and welcome questioning and criticism from the other sterling area countries and he hoped that these countries would be equally frank. Canada was also interested in the general talks but in a somewhat different way from the sterling area countries, and it was possible that she would be represented at some stage.
  3. Mr. McElligott said that the Irish Government regarded it as fundamental that full disclosure should be made by Britain of all the relevant factors in the situation, and that he was glad to learn that this was the line which it was proposed should be adopted, and he stressed again the desirability of pushing on with the arrangements for the special bilateral discussions with Ireland as soon as possible.
  4. Mr. Rowe-Dutton said that a hopeful feature of the situation was that they had every reason to expect from figures and returns just available that Britain's exports which were now at a level of £100,000,000 a month would increase to £125,000,000 a month six or seven months from now, and that by June, 1948, there would be no gap in their balance of payments with non-dollar countries. The increase in exports would mean that there would be more goods available for Ireland to buy from Britain. As he had indicated at the previous meeting there would still be a dollar deficit in June, 1948, unless the drastic steps which the situation called for were taken. The most that could be hoped for from the most drastic action would be a reduction of the dollar gap to the smallest possible proportion so as to minimise the drawings of reserves. The gold and dollar reserves amounted to some £600,000,000 and the figures given in the Prime Minister's speech of August 6th might be taken as the most up-to-date information on the subject. He then asked whether Mr. McElligott was in a position to give an indication of Ireland's dollar requirements for the next nine months or so.
  5. Mr. McElligott said that figures in this matter were being compiled in response to the note to the Irish Government which accompanied Lord Rugby's letter of the 20th August.2 For the reasons which he had given at yesterday's discussion the task of compiling estimates of any value was a very difficult one and as he had left Dublin before the completion of the examination of the figures proposed by the Departments of Industry and Commerce and Agriculture under various headings, he was not in a position to give there and then any estimate. The difficulty was illustrated by the case of coal. Before the war we imported 50,000 tons a week from Great Britain. Our present allocation was 11,000 tons a week and we had just succeeded in getting from ECO an allocation of 16,000 tons of US coal. We naturally want to get our full pre-war requirements of coal from some source and in the absence of information of what the British are prepared to do in the way of giving us additional supplies it is hard to say how many dollars we shall require for coal next year. One million tons of US coal would probably be the lowest target and this would cost something in the region of $20 million. If additional supplies were forthcoming from Great Britain the dollar saving would be in accordance with the amount of these supplies.
  6. Mr. Rowe-Dutton said that there appeared to be an excellent case for spending dollars on coal at the present time, but he would like us to examine it critically, taking into consideration the maximum expected output of turf and the amount of conversion to oil burning which has taken place or could be expected to take place shortly. We should then be in a position to state definitely what our minimum requirements of coal were and to show by a note what dollar saving could be expected if these were all forthcoming from Great Britain. Other commodities could be treated in the same way.
  7. Mr. McElligott said that a further difficulty in preparing the estimates was that we were not clear to what extent it was desirable, if feasible, to substitute commodities bought with soft currency for dollar commodities. To what extent was any currency soft? Mr. Rowe-Dutton said that imports from any particular country had in general to be balanced by exports to that country and he saw no objection in present circumstances to the encouragement of trade by the making of deals, i.e., exporting one commodity on the basis of imports of another commodity from a particular country. As he had already said, the British thought that they had so arranged their import programme so that there would be no deficit with non dollar countries by June next, but they were not yet quite clear as to how sterling area trade with non dollar countries fitted into the picture. This was a matter which it was hoped would be clarified in the forthcoming talks; they had not in fact yet tackled the problem of the trade between the sterling area as a whole and the rest of the world. In general, however, the position was that the currencies of Sweden and Switzerland and Portugal were definitely hard, Sweden and Switzerland being, in fact, gold at the present time. Ireland, he thought, was not bound by any agreement with the USA, so, in general, there could be no US objection to the switching of purchases from USA to the soft currency countries. Where this was feasible it would be helpful, but, of course, there would be no point in switching from dollars to the hard currency countries.
  8. Mr. Rowe-Dutton went on to urge that we should thoroughly examine the feasibility of stimulating exports to the dollar area at this time. Trade treaties with other countries, such as the recent Irish-Spanish agreement, were a useful weapon towards general trade recovery. Referring to purchases of such goods as oranges, wines, etc., Mr. Rowe-Dutton said the UK used such purchases as 'bargaining factors', e.g. the taking of sherry from Spain might be made conditional on Spain supplying some more useful commodity in addition, or taking from Britain some goods which she was prepared to sell. Devices such as these appear to be necessary stimulants to the recovery of world trade.
  9. Mr. McElligott asked what was the British answer to the suggestion that if Ireland were sold more fertilisers Ireland could produce more food and thus save dollars. Mr. Rowe-Dutton said he had already fully agreed that this and kindred matters should be discussed at an early date, and that questions of price were highly relevant. For himself, he would have no doubt as to the answer but there were several other Departments concerned and he was well aware that the matter was not exactly straightforward, for example, there had been a big political row because any agricultural machinery was exported in view of Britain's own needs.
  10. Asked if he could give any indication at this stage as to what emergency measures had actually been taken by members of the sterling area other than the UK, Mr. Rowe-Dutton said that the only country regarding which he had details to his hand was Australia, who were reducing their imports of motor chassis by 20%, tobacco by 20%, newsprint by 30% and suspending imports of textiles and aircraft. They were also imposing a 25% cut in basic petrol allowances, prohibiting the export of an extended range of articles of value, reducing allowances for foreign travel and considering the feasibility of reducing expenditure on films by 30%. When questioned as to the realities of these measures, Mr. Rowe-Dutton said that the forthcoming conference would give the answer to this and similar questions. He reiterated that one of the objects of the conference was to enable the various countries to measure up the qualitative and quantitative aspects of the economies which each proposed. He hoped that the matter would be approached by all the countries concerned in the spirit of reasonable co-operation suggested by Mr. de Valera's communication. He emphasised that the United Kingdom would welcome criticisms and suggestions, but, of course, felt that the UK in its turn could ask questions, criticise and make suggestions.
  11. As regards the qualitative nature of possible economies, Mr. McElligott pointed out that in Ireland where economies in dollars would produce consequential disemployment, in most cases there would be no alternative occupation for the persons thrown out of work and they would be dependent on the dole or forced to emigrate. Mr. Rowe-Dutton agreed that this was very definitely a factor which we would have to take into consideration in considering what economies we could make.
  12. Asked regarding the probable outcome of the tussle between the Treasury and the US Film Companies over the tax of 75% on their earnings, Mr. Rowe-Dutton said that it was felt that the companies would eventually agree to continue importing, possibly there might be some slight reduction in the taxation as a compromise; the position was that the American film industry depended largely for its profits on the export market and in due time they would face the reality that a quarter of a loaf was better than no bread. Sir Wilfred Eady had been quite adamant with the film industry in his recent talks in USA and Mr. Eric Johnson of the Central Office of the US Film Industry was coming to Britain shortly with a view to a settlement being reached. Mr. Rowe-Dutton saw no reason why we should not make separate arrangements if we saw fit, but suggested that we might go slowly in the matter. Mr. McElligott said that this had in fact been our policy.
  13. During the course of the discussion, the following points and enquiries were raised:-
    • Mr. McElligott referred to the statement he had made at an earlier meeting that Ireland had contributed to the dollar pool approximately 50% of her total draws from it and he enquired how this proportion compared with those of other countries in the sterling area. Mr. Rowe-Dutton took a note of the point, which he could not answer at the moment, and he indicated that this was a pertinent question that would come out in the general discussions between the sterling area countries.
    • In reply to an enquiry, Mr. Rowe-Dutton stated positively that at no time during the events which led up to, or immediately prior to, the suspension of convertibility, were the other countries of the sterling area taken into consultation as to the action to be adopted by the UK. It would be appreciated, of course, that the Loan Agreement had been negotiated separately by the UK on her credit alone and that the question of modification or revision of any of the provisions of the Agreement was a matter for herself.
    • In reply to further enquiries, Mr. Rowe-Dutton said that the UK did not contemplate a devaluation of the £. The matter had not even been discussed at any stage; neither had the question of revaluation of gold been discussed. He mentioned a theoretical case that had been advanced in the Economist by Mr. Hawtrey for raising the value of the £ in terms of dollars.
  1. Mr. Rowe-Dutton suggested that there should be a further discussion in the course of to-morrow morning, 6th September, to sum up the general conclusions and this was agreed.

1 See above No. 398.

2 Not printed.



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