B R I E F
His Majesty's Government have every intention of carrying out the obligations of self help and mutual aid which they accepted under the North Atlantic Pact. Indeed, they are already doing so.
2. So far as self help is concerned, the total military expenditure of the United Kingdom in the current financial year amounts to £760 million. This is equivalent to 7.7% of the national income in the year 1948. Of the principal members of the North Atlantic Treaty only one other country is spending a higher percentage of its national income. Admittedly not all this expenditure is connected with the defence of Western Europe. A large part of the residue, however, has been incurred in the defence of other areas whose security is of interest to the United States as well as to the United Kingdom.
3. So far as mutual aid is concerned, the United Kingdom is in fact the only one amongst the European countries which has in recent years provided, and is now providing, military assistance to the Atlantic Treaty and other friendly countries. This assistance to other countries has already, since the war, totaled some £400 million. Of this total more than half was in the form of gifts, loans and sales at greatly reduced prices, and thus represents an entirely unrequited contribution to the defence of the West. Furthermore, as part of the special defence programme agreed on by the Brussels Powers last spring, His Majesty's Government are spending an additional £81-1/2 million over the two-year period beginning in the summer of 1949. According to the information available in Washington, the expenditure of well over half the total sum of £81-1/2 has already been planned in detail. Of the expenditure already planned, by far the larger proportion, i.e. about 70%, is not for the United Kingdom itself, but for the other Western Union countries, and for building up a Western Union Tactical Air Force and a Western Union General Air Reserve at the disposal of the Western Union Command Organization. Thus a great part of the aircraft and other armaments produced are to go to other Western European countries and will not remain in Britain. Already 120 jet aircraft have gone to France without any payment. Finally, His Majesty's Government are providing without charge accommodation and other services for the United States Air Force in England at an estimated cost of £1,000,000 per year for current expenses excluding capital costs.
4. It has, however, been accepted that the economic recovery of the North Atlantic Treaty countries must not be jeopardized by their military expenditure. Indeed, in the Mutual Defense Assistance Act it was specifically stated that -
"The Congress recognizes that economic recovery is essential to international peace and security and must be given clear priority."
His Majesty's Government attach the highest importance to this principle. They feel that they have already gone to the limit in this matter and that their existing expenditure on defence is the most the United Kingdom can afford. They do not consider that it would be right or proper for them at this time to undertake any commitments to add to this expenditure, or even to take any steps which might suggest that they could undertake increased expenditure at some later date.
5. The aid which the United Kingdom might expect to get from the United States under the Military Assistance Programme is of two kinds: -
(1) Seventy B-29's to be delivered by June 30th, 1950. (2) Some machine tools and raw materials necessary for the British additional production programme of £81-1/2 million.
The maximum value of assistance which can be expected to be received under the last item is some $25 million. This is, in fact, considerably less than the sum which His Majesty's Government had originally understood that they might expect to receive. They had originally hoped to get some $60 million, and that it would be possible for the United Kingdom to recoup itself for dollar expenditure already undertaken on arms manufacture and for dollars to be provided to compensate the British economy for the diversion of resources and effort from economic recovery purposes to non- productive military expenditure. (It was on this expectation that his Majesty's Government came to the conclusion that they could afford to spend as much as £81-1/2 million on the additional programme despite the drop in dollar assistance. They are, however, still going ahead with this programme). Furthermore, it must be doubtful if the $25 million which is now the most that can be expected to be obtained will, in fact, be received, since the United States authorities in London have been taking the line that materials available in other Western European countries, such as Belgium and Luxembourg (for which the United Kingdom would have to pay gold) must be used before any United States assistance can be made available. In the circumstances, His Majesty's Government do not feel that despite the obvious value of the B-29's to Western European defence, the advantages which they would obtain under the United States proposals are sufficiently great to justify them in disregarding the considerations of principle set out in the preceding paragraphs.
6. There are two articles in the United States draft Bilateral Agreement, the provisions of which seem to His Majesty's Government to be incompatible with the principle of doing nothing to prejudice the economic recovery of the recipient countries. In the first place, Article I, paragraph (1) lays down that: -
"Upon such terms and conditions as may be agreed between them, each Government shall make available to the other, and to such additional Governments as the parties hereto may from time to time agree upon, such equipment, materials, services, or other military assistance as the Government furnishing such assistance may authorize."
It is appreciated that these words as they stand would not in themselves involve His Majesty's Government in any specific commitment, but they would imply that His Majesty's Government were willing to contemplate being able in subsequent negotiations to make some reciprocal assistance available to the United States. They would, in fact, constitute a moral commitment. For the reasons explained above, His Majesty's Government do not feel that they could properly accept such a commitment in present circumstances.
7. Secondly, Article I, paragraph (4) provides, inter alia, that no equipment, materials, etc. "identifiable as having been fabricated" with or by means of equipment received from the United States under the Act may be transferred by the United Kingdom to another country without United States consent; and that no arms or equipment "similar to or substitutable for" equipment furnished by the United States under the Act may be transferred to another country without notification to the United States. Such provisions would clearly greatly hamper the United Kingdom export trade and militate against its economic recovery. It might also make it difficult for U.K. to fulfill treaty commitments regarding the supply of arms, which it has with a number of friendly countries.
8. In addition to these two articles, which seem to His Majesty's Government to be open to exception on grounds of principle, there are others in the United States draft Agreement, such as II, IV, V, and VI which His Majesty's Government would find it difficult to accept in their present form or which they feel are inappropriate for inclusion in an Agreement of this nature.
9. For the foregoing reasons, His Majesty's Government regret that they do not consider that the United States draft Bilateral Agreement forms a basis on which it is possible for them to negotiate. They hope nevertheless that the United States Government may be able to see their way to provide assistance on terms which the United Kingdom can accept.
[Handwritten: Dec. 14]