Numbers appearing in square brackets (ex. ) within the transcript indicate the pagination in the original, hardcopy version of the oral history interview.
Opened April, 1989
Oral History Interview with
July 6, 1973
by Richard D. McKinzie
Topics discussed include the influence of Middle Eastern oil on U.S. policy toward that region; the General Agreement on Tariffs and Trade; U.S. trade agreements with China; the International Trade Organization; the Economic Commission for Asia and the Far East; U.S. trade relations with Japan; the economic reconstruction of Japan; the economic reconstruction of Korea; the Colombo plan; the standardization of trade statistics; U.S. aid programs in the Far East; regional conferences in the Far East, including the Bandung conference; the Southeast Asia Treaty organization; exports of U.S. films; U.S. private investment in foreign countries; and the Lend-lease program.
Names mentioned include John D. Condliffe, General Douglas Mac Arthur, John Foster Dulles, J. Arthur Rank, Stuart Rice, Dean Rusk, and Harry S. Truman.
MCKINZIE: Professor Gay, why did you choose Government service? You did prepare for an academic career at the University of Michigan and the University of Illinois.
GAY: My interest in international economics goes back quite far. I was aided and abetted by the fact that at the University of Michigan I did most of my work under Prof. John B. Condliffe, the great English -- New Zealand to be exact -- economist, who used to write the annual World Economic Surveys for the United Nations. He was a great scholar and friend. He stimulated an already incipient interest in international economic affairs. Consequently, throughout my graduate study I aimed toward concentrating in this field, and I located in the East
near Washington, with this in mind. This strategy worked at least to the extent of soon obtaining a position in the State Department during a very interesting period. It started in 1943 just before Bretton Woods, the creation of the World Bank, the Monetary Fund, the GATT, and some of the UN structure. It was a period of innovation and intellectual excitement. One of the first things that struck me in coming into the Department was that everybody was talking about "postwar planning;" it was a period that attracted many high caliber "professionals."
MCKINZIE: How did you feel about Cordell Hull's view that after the war there was going to have to be more economic integration than there had ever been before?
GAY: This was one of the reasons I wanted to get into this work. My views were essentially the same as those supported by Mr. Hull. My doctoral thesis was in the field of commercial policy. I felt that the terribly bad situation we found ourselves in after World War I, leading to the great Depression of the '30s, the rise of Hitler; and eventually World War II, was basically the outgrowth of extremely unwise economic policies following World War I. Consequently, it was a great satisfaction --
almost at the beginning of my career -- to be involved in a program which was aimed to avoid a repetition of similar mistakes.
I might say, before we proceed further, that a couple of the things that were done later in the period -- the creation of the Marshall plan and lend-lease -- in my opinion were accomplishments of politico-economic genius with deep impact upon the course of world development, helping to avoid the kind of economic deterioration that followed World War I. These were very controversial matters, but I look upon them as works of vast importance -- episodes in our history in which the United States can take considerable pride.
MCKINZIE: You worked first with Harry Hawkins. Could you describe how you happened to get into the Far Eastern and Middle Eastern Branch of the Division of Commercial Policy?
GAY: I did have at that time a particularly strong interest in the Far East. This may have been partly because of my close association with Professor Condliffe who was a long-time expert in Far Eastern affairs. Within a year or so, I was made Chief of the Far and Middle Eastern
Branch, which was composed of some twelve, fifteen people -- professionals on international economic problems. Of course, bureaucracy being what it is, one can't make blanket statements without some reservations, but economic problems, particularly trade problems, anywhere in the Far and Middle East and South Asia that had trade and commercial policy implications, were supposed to funnel through my branch. Obviously, we had contact and certain responsibilities with many interesting developments.
MCKINZIE: As the end of the war approached, do you recall what you anticipated about trade with the Middle East and the Far East? There never had been very much trade with the Middle East except for oil, and the Far East was always more potentiality, I think, than it was actuality. What kinds of projections were you making at that time about trade?
GAY: Well, I recognized, as you say, that trade with that part of the world had not developed as much as it could have under different circumstances, and that this was an area where there was a great need for finding ways and means to exploit those potentialities. I was particularly
pleased, therefore, to get into the part of the Department concerned largely with Far and Middle Eastern problems. This involved an early and intensive introduction into petroleum matters. Petroleum matters, of course, were always an important element in our international economic policy; particularly in that part of the world. It was always a very active field. Many things had been going on which were not widely understood by the public, or perhaps even known by the public. The Department tried to keep it developing in a mutually satisfactory way from the standpoint of the oil countries and the consuming countries. This came to a dramatic climax at the time of the Suez crisis in 1956.
MCKINZIE: Also, there were some discussions in State about what effect bringing in Jewish refugees from Europe might have upon the attitudes of the countries exporting oil to the United States -- this, even before the creation of Israel. Do you recall that issue entering into discussions of the Division of Commercial Policy, or was that considered too much a plain political matter?
GAY: That kind of problem always lurked in the background to some extent. We had fairly forthright relations with
the oil producing countries during the period in which I was involved. We kept in close contact also with other major consuming countries, such as Great Britain, and the oil producing countries -- trying to maintain a stability in the growth and conduct of the industry. The Department itself also maintained a fairly close relation with U.S. investors, partly due to their considerable initiative in keeping in touch with the Department.
MCKINZIE: Did you deal with those people?
GAY: Oh, yes. Looking toward their handling of their part of this evolving relationship, which was of such great importance to both the development of the oil producing countries and the oil consuming countries, in a way which would encourage long-range stability of mutual benefits to the oil countries and the consuming countries. This was not always an easy task, but it was always there. It was always a subject of a good deal of discussion among the tripartite arrangement I mentioned -- the officials of the producing countries, the leaders of the private sector of the petroleum industry, and the officials of the consuming countries like Great Britain and ourselves.
MCKINZIE: There was talk at the end of the war about the revolutionary rising expectations. Some said that increased living standards were going to be necessary just about every place as a result of the communications revolution during the war, and all kinds of other developments. The same people usually said that one way of bringing about higher living standards was through a vast increase in world trade. Did it seem to you that it was possible to raise the living standard -- given the political situation -- in the Middle East through trade?
GAY: Yes. That theme has been an important one, but with relative degrees of importance, at various times, for many years. It was certainly much in our thinking in this period. It came to the forefront, perhaps even more noticably, in connection with the growth of our foreign aid programs, which is another part of the economic work of the department in which I became considerably involved. I got into it in one way or another, particularly after shifting from the Bureau of Economic Affairs to the Bureau of Far Eastern Affairs around 1950.
MCKINZIE: Franklin Roosevelt said that China was going to
be one of the "big four" in the world at the end of the war. This must have had some impact upon the workings of the Department, did it not?
GAY: I'm sure it did. I recall that I personally shared that view very emphatically. I felt that China had a great potential and was certain, in the long run, to exercise great influence on world affairs. I spent five or six months, as the head of the negotiating team, with China in the first session of GATT (General Agreement on Trade and Tariffs). We got out of that negotiation a fairly good trade agreement, but it took a long time to get it, and it was only a year or two after that until the revolution, and much of the work done went down the drain. I say this only to indicate the belief that China would inevitably play an important role in the course of world trade.
MCKINZIE: In a narrative way could you outline how you got involved in the U.N. Conference on World Trade and Development (UNCTAD), and explain, then, how you came to Geneva to be the negotiator with China?
GAY: From the organizational point of view, I suppose
I was the logical one to do this. I had been working on Far Eastern problems from the beginning of my assumption of the role as Chief of the Far and Middle Eastern Branch. There had been many smaller problems that had come to our attention. We already had two or three trade agreements that had been negotiated earlier on a bilateral basis. When I first came into the Far and Middle Eastern Branch we were negotiating a treaty of friendship, commerce and navigation with China -- a broad bilateral trade agreement. I thus had had some experience in this area. I also had got into this kind of thing in some depth in my doctoral thesis, even before I had entered the Government.
So, in response to your question, it was this background, and the fact that from the organizational point of view I was the logical one to head up the team to negotiate with China, that it fell my lot to do so. We -- the team -- had members drawn from the Tariff Commission, from Commerce, from Agriculture, the Treasury, and occasionally ad hoc members. I was the spokesman for and the coordinator of the team's work.
MCKINZIE: That whole convention in Geneva was supposed to be a prelude to an international trade organization, which
much more than just the things that you mentioned here. Did you personally subscribe to the goals of the International Trade organization, which would have involved "full world employment?"
GAY: Yes, indeed, I did. In fact, that might be said to be the final objective, which was to have a world production -- including the integration of economies and the healthy movement of trade. This was the organizational aspect of it; that is, the creation of an International Trade Organization (ITO). In Geneva, as a matter of fact, we negotiated various parts of that proposal with the other countries. I spent quite a bit of time trying to negotiate various parts of the ITO Charter with my opposite members in the Chinese delegation, and also with Syria, Lebanon and their Customs Union. In fact, it only took about six weeks to finish up with them, but it took about seven months to finish with China. This was a very interesting experience. I had the responsibilities for certain chapters given me to specialize on from time to time, and instructions to try to win the acceptance of the Chinese delegation to these particular parts of the International Trade Organization. This was sometimes
an exercise in frustration. The Chinese would assign somebody to be a specialist on this chapter. He and I would discuss it for several weeks. I would feel that I had just about accomplished the desired results and would pull out, and some completely new man would be given that assignment. I'd have to start de novo educating and converting another Chinese delegate to accept this chapter. So it was a rather tortuous overload on top of the negotiation of the tariff agreement.
MCKINZIE: That tariff negotiation was unprecedented in that you had so many multilateral negotiations on an item by item basis.
GAY: Yes. There were critics who didn't see how it could be done. I think we proved that it could be done. In fact, considering the objectives, it was probably the most efficient way to do it.
I think that a good deal of thought was contemplated, as the functional role of the ITO has in subsequent years been gradually taken on by the structure in Geneva -- the GATT structure -- so that this wasn't a complete loss. It was a different way of organization than was originally contemplated, but it's been a going concern, and much of
what was thought of as being the central role of the ITO has been carried on through the GATT organization.
MCKINZIE: There is some indication that the Chinese were angling for fantastic concessions (US concessions) at the end of the war -- concessions of a tariff nature which would ultimately mean a kind of economic aid. Did you have that feeling when you were negotiating with them?
GAY: Not to the extent that you imply, but they probably did have larger expectations. I think we came out with a good agreement from our point of view and, perhaps, probably from theirs too. I think it was a reasonably balanced agreement. The Trade Agreements Organization, which was sitting in Geneva and reviewed all these agreements as we made accomplishment, certainly looked at it from that point of view. I think there was a feeling on the part of the U.S. Government that we had struck a pretty good balance in the agreement with China. I never had the feeling that the Chinese were terribly unhappy about it or unhappy at all as a matter of fact. They never gave any indication that they felt that they had taken us for a ride. That was my own judgment.
MCKINZIE: During this same period -- 1944 to 1949 -- when you were in the Far Eastern and the Far and Middle Eastern Branch of the Division of Commercial Policy -- you also had to think about Japan. I wonder if you could describe your part in that?
GAY: Yes. I think the main thing that I'd like to say about Japan is what I would pick up just a little bit later -- particularly during and after the period in which I, for a number of years, was head of the U.S. delegation to annual meetings of the Economic Commission for Asia and the Far East (ECAFE) which was the Far Eastern Branch of the United Nations. To the Far East, that is perhaps the most vivid part of the U.N. In many Asian eyes, that was the U.N.
First, I might say that some of the Asian countries, without much doubt, anticipated this new ECAFE organization, which is the product of the U.N., as a possible means of getting more assistance from the West. It was soon determined, however, that this organization was not primarily an "aid organization," in the sense that the term is usually used. It was an aid organization in the sense .that we were constantly talking about programs and policies and issues which would have to do with economic
growth and development and integration among the countries of the area. But it was not to direct economic assistance. In other words, they soon found that it was not, in itself, a direct channel through which to get external aid.
MCKINZIE: I take it then that some delegates did approach you about this possibility.
GAY: Oh yes.
MCKINZIE: Do you recall any notion in particular which did this at an early point?
GAY: Well, the one that comes to mind first of all is Malaysia. For a period of two or three years they made quite a point of that. This was a difficult problem for the United States because we looked upon Malaysia as primarily a responsibility of the British. I think, finally, we did find ways and means of cooperating with them on a somewhat stepped up basis. Now, you asked me a few minutes ago about Japan. Well, I know that there was a great deal of interest in Japan's postwar role, and a recognition on the part of the United States -- certainly supported by the President at the time -- that it was to our advantage as well as to the advantage of the world at large for Japan to
reconstruct itself and become an active participant in world trade matters. Very early in my own experience with ECAFE we made quite an effort to bring Japan into it, and later into other economic organizations which had to do with economic cooperation, mutual assistance among the countries of the area, and between countries of the area and countries such as the United States, and to get for Japan "most favored nation treatment." That would indicate they would not be discriminated against by the trading countries, and that would have, we thought, tremendous physiological effect on the Japanese, as well as direct economic effect over time.
The United States took a good deal of leadership in attempting to persuade other members of the organization to put Japan in the category of a "most favored nation," which means that it would have treatment equal to that of any other country. Of course, that philosophy was really part of the very basic philosophy of the whole GATT operation. As part of this thrust, we undertook to get Japan into ECAFE and we served, as a matter of fact, as the advocate for their becoming a member. This was around 1950-51. Japan was strikingly modest and free of anything approaching aggressive tactics to push
itself into the international programs such as this one, or, later on, the Colombo plan. In fact, a good deal of encouragement was necessary to bring them to the point where they really wanted to become participants.
In the United States Government no single individual has full responsibility for anything, as you well know; it's a teamwork undertaking. As Chairman of the U.S. delegation, I was spokesman, and I did take a good deal of initiative in writing papers -- drafting papers -- including an aide memoir to the British to try to get them to support us in this, and also to exercise their influence on various Commonwealth countries. As the head of the U.S. delegation, it more or less fell on my shoulders, in a modest way, to serve as their advocate in the plenary sessions where this matter was taken up.
MCKINZIE: In what way did you encourage them? By collaring them...
GAY: I think that might almost describe it. Most of the specific efforts, I think, were aimed at other members of the organization to get agreement in the plenary session to accept their membership. I do remember that I made the first major statement in the plenary session in support
of Japanese membership, and other statements from time to time. The Japanese were modest in answering questions; they didn't push themselves. There was a surprising friendliness on the part of many Asian countries -- in view of the recent past. That wasn't the case always, of course. The United States did take considerable leadership, I think it's fair to say, in bringing Japan back into the family of the economic cooperating nations, in the immediate sense through membership in such U.N. organizations as ECAFE and the Colombo plan. That helped bring them back into cooperative activities in U.N. programs.
MCKINZIE: To what do you attribute the lack of enthusiasm on the Japanese part?
GAY: I don't think there was any lack of enthusiasm. I think they were timid and self conscious and perhaps a little ashamed; in general they were not particularly articulate. I think they felt a high degree of sensitivity, in view of the attitude of some Asian countries toward them -- having in mind the old "Asian co-prosperity sphere" experience and so on. I don't think they wanted to appear in any way to be pushing themselves. I think
they leaned over backwards to avoid that.
MCKINZIE: Could we go back to the period before 1950 when Japan, for all practical purposes, was under the control of General Douglas MacArthur. Japan's situation was quite different from that of Germany. Germany began to evolve toward participation in regional economic plans much earlier than Japan. Can you shed any light on the reason why Japan was slower in integrating into the regional economies than was Germany?
GAY: I think the Marshall plan had a great influence in Europe. Many of the European countries, including Germany had much in their economic and social background that was similar to ours; they thought the way we did about economic matters. It was easier to negotiate economic matters with countries of similar background -- similar economic points of view. This fact was brought out on later occasions when there was talk of some kind of a Marshall plan program in some other part of the world, such as the Far East or Latin America. I remember frequently commenting that it was very questionable whether a Marshall plan would work in any other part of the world, because of that difference in the background
and the experience of working together as we had over many decades with the European countries. I think Japan actually moved very fast when you consider the degree of destruction -- the fact that, as an economy, Japan was flat on its back after the war. I was there many times for a number of years; the progress that was made from one six months to another was almost astonishing.
You’ve asked about MacArthur’s influence on this situation. That’s pretty hard to assess. I consulted with SCAP [Supreme Commander of the Allied Powers in Japan] frequently when I would be in the Far East for perhaps two or three different reasons. I think that SCAP in many ways was very helpful in bringing Japan back, although there may have been some misunderstanding and resentment from time to time. I had some feeling myself, occasionally, that certain details might have been handled from a psychological point of view with more skill.
If I may inject a sidelight on this matter: Coming back from Tokyo on one of the old China Clippers, leaving in the middle of the night, I found myself down below in the underbelly (the bar area) with a European gentleman
of very interesting background. I found that he had certain royal family attachments in Rumania. In a sense, he was a man without a country. He had a most unusual passport. As I sensed the situation, he had been in quasi exile status for a while. He had been in Japan a number of weeks prior to this conversation day. He was a very intelligent, sophisticated gentleman. We got to talking a little bit about what was going on in Japan and about SCAP. I raised the question as to whether the Supreme Commander was in all cases handling matters in the most desirable fashion -- having in mind the fact that many of the finest homes were taken over for SCAP personnel to live in, and things of that sort. Whereupon this gentleman differed with me sharply. He pointed out that this was the first time in history that a conquering nation had treated the defeated nation with such farsightedness, decency, and humanity, in spite of these surface matters that I had noticed. At no time in history, that he knew of, had this ever happened before. He felt that there was no need for the United States to be apologetic about the performance of SCAP -- quite the contrary.
This would go down in history as an almost unique new type of relationship between the defeated and the
conquering nations. Of course, we can all see now that Japan has taken advantage of our friendship and help in subsequent years, and has grown perhaps more rapidly than almost any country in the world. So I guess he must have been right.
MCKINZIE: Did Mr. [John Foster] Dulles or anyone on his staff consult with you at the time he was negotiating the peace treaty with Japan?
GAY: Yes. There were a number of us who prepared basic directives for SCAP. I participated in some of that work. I think from a personal standpoint I had more consultation with him in connection with Okinawa. Partially by accident, we both happened to have been there at almost the same time, and both of us were talking about the same kinds of issues, and we consulted in Tokyo and then back in Washington.
As far as the SCAP [General Douglas MacArthur] is concerned, I don't recall much personal discussion with him. There was the Far Eastern Commission of which, for a while, I was Chairman or Acting Chairman. We did have a number of directives which were worked on by the relevant parts of the Department of which the Bureau of
Economic Affairs was certainly one. I participated in some of that work.
MCKINZIE: It seems that the Far Eastern Division never had the kind of influence over policy in Japan that a lot of people expected it might have when it was created in 1942.
GAY: I think that's true. But I do think that, in summary of what I have been saying, that what the United States did during the Truman years in taking leadership in pulling Japan back into the channels -- trade channels -- and into the economic integration process, into membership in organizations, and the "most favored nation treatment," may historically turn out to have been of great importance.
MCKINZIE: There were, before 1950, a couple of missions to Korea; there was an economic mission in Korea, for instance. Could you describe your involvement?
GAY: Yes. The picture is somewhat the same. We also made some efforts in this later period to bring Korea back into the family. I was in Korea occasionally on a consultative basis. I don't believe I was ever
actually in one of the missions. But my branch of specialists -- twelve to fifteen varying from time to time -- participated in many Korean policy decisions. Korea was also brought into the ECAFE and the Colombo plan. And like Japan, even hosted the Colombo plan in more recent years. Like Japan, too, I guess one could say partly because of the very efficient economic assistance that the United States has provided to Korea, Korea has had a tremendously rapid reconstruction and economic growth, almost a phenomenal one. If those two countries can be harnessed together and will cooperate in a fully friendly and mutually advantageous fashion, that will undoubtedly have a tremendous bearing on the future of Asia, and, consequently, on the future of the world's economy. And, of course, if you add to that China, the potential of which is very great, you will have...
MCKINZIE: But if you do that, don't you almost have the Greater East Asian Co-prosperity Sphere?
GAY: Well, what's the matter with a Greater Asian Co-prosperity Sphere if it's properly defined and properly structured? The psychological aspect of the old notion,
I suppose, is hard to get rid of in some countries, but I think to a large extent it has been eradicated.
After moving out of the ECAFE around the mid-fifties, the Colombo plan became my conference responsibility. The Colombo plan was set up under the aegis of the [British] Commonwealth with the primary, almost singular goal of stimulating economic cooperation in that part of the world. It was a catalyst for understanding each other's economic problems, for coordinating their economic policies, and also for stimulating better understanding between the developing countries and the Western members (which were traditionally called "donor" countries). Japan is now considered a donor country in the Colombo plan.
There was a degree of friendship and mutual cooperation which was spawned under this organization. The annual meetings were in the general nature of confrontations of initial explanation of the problems they were experiencing in their economic growth and economic planning; these confrontations inevitably led to a measure of coordination. It must be noted, though, that economic plans of these countries were not closely coordinated -- perhaps not as closely coordinated as they
should have been. But it was the only device available at the time, and we tried to make as good use of it as possible.
MCKINZIE: In connection with that, could I ask you to address yourself to the dispersion of donations. The United States in 1949 had proposed the Point IV program of technical assistance to underdeveloped areas of the world. Then the Colombo plan was a kind of veneer over that. The Colombo plan, in some ways, seems a duplication.
GAY: I am glad you mentioned that because this is very widely misunderstood. The United States has had aid programs with many of the members of the Colombo plan -- bilateral agreements under which we have made our assistance available. In other words, these bilateral agreements have been the legal basis on which we have operated. We have continued to do that and insisted on being able to continue to do that when we became members of the Colombo plan about 1951. With respect to the other members, that was not the case. It was much more an avenue of negotiating aid arrangements between members (with the other members) than it was with us. Our negotiations were, as I say, almost entirely done
bilaterally. In many cases, we had missions on the spot -- in Korea for example, in Taiwan -- all over that part of the world. But many of the countries, and particularly the Commonwealth countries, used this device as their legal device to go to their parliaments for the appropriations necessary to render aid. Relatively more negotiations -- "corridor negotiations, "you might say -- took place between the other members than was the case for the United States. In a sense, the Colombo plan was superimposed so far as the United States was concerned. We probably would have done pretty much what we have done whether we had been a member or not. This would have been much less likely to have been the case for all the other members. One of the objectives of the Colombo plan was to stimulate cooperation -- find ways in which they could help each other. This was of help to us, too. We were then able to find out what the other countries wanted; what they had been doing; what their major problems were. It had some usefulness to the United States, but not relatively as much as in the case of Canada or Australia.
Now, in regard to the idea of a dichotomy between the donor and recipient countries which has prevailed
pretty much throughout the history of this organization (now twenty odd years old): One of the interesting consequences of the way this mutually cooperative effort worked was to stimulate the so-called underdog countries to help each other. This was one of the original objectives, as a matter of fact. Increasingly, the regional members have tried to find ways of becoming donor countries on a limited basis. India, in particular, has offered various educational opportunities to members of the littler countries, and has taken great pride in the fact that it was not only a recipient country, but also now is a donor country. The Philippines -- other countries -- wherever there was a little bit of donorship built into their relationship with some other country in the area, they took great pride in it and made a great point of it at the annual meetings. Consequently, these two to four week sessions, I think without question, stimulated cooperation among the members of the region, as well as a better understanding of their mutual problems.
MCKINZIE: From the tenor of your remarks I gather that you believe the ECAFE and the Colombo plan organization are working as effectively as things might have worked
had the United Nations itself become the instrument for economic cooperation and development.
GAY: Yes. Of course, ECAFE was an U.N. organization, but it was not, as I said earlier, directly an aid-giving [entity]. We did not, for example, provide funds to ECAFE to be dispersed over the area. We did try to help in other ways. We made many suggestions to the ECAFE commission, some of which were accepted and have been quite significant. One suggestion th