Page 115. The United States Delegation were prepared to proceed in the manner proposed, although they reserved their decision upon acceptance of the plan pending agreement upon the relaxations to be made in Phase Two. The French Delegation, however, rejected the proposal on the grounds that relaxations approp- riate to Phase Two could not be devised until the terms of Germany's contribution to Defence, and the circumstances attendant upon it, were known. After further prolonged and abortive discussions, the French Delegation, under Anglo-American pressure, were authorised to re-examine the Agreement with a view to establishing what modifications could, in the view of all three Delegations, be put into effect at an early date, and in advance of the determination of Germany's defence contribution. Re-examination resulted in a series of agreed recommendations which were submitted to the three Governments on 16th March.
II. AGREEMENT CONCERNING INDUSTRIAL CONTROLS
12. The approved recommendations of the Study Group comprise the text of an Agreement concerning Industrial Controls, which replaces the Prohibited and Limited Industries Agreement, and a series of confidential agreed instructions to the High Commission on the administration of certain of its provisions. Copies of both documents are annexed to this memorandum. The effect of the new Agreement, taken in conjunction with the administrative instructions, are analysed in paragraphs 13 to 15 below.
13. (a) Steel. The limit on the production of crude steel of 11.1 million tons per annum, imposed by the old Agreement, has been maintained in the new, with the proviso that the High Commission may authorise produc- tion in excess of this limit of steel needed for Western Defence. The “interim" decision taken at New York (paragraph 2 above) has thus been incorporated in the Agreement, as a result of failure to agree upon any alternative. In theory, steel could, under this provision, be produced up to the level of existing capacity (about 14 million tons per annum) provided enough approved orders were received, and the High Commission agreed that they should be met. But the existing capacity may not be exceeded. Capacity for the production of electric arc and high frequency furnace steel will also be controlled, although the High Commission has been instructed to consider whether the needs of Western Defence would justify an increase in this class of capacity. A number of categories of steel finishing equipment will continue to be limited as at present.
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(b) Merchant Ships.--The capacity to build merchant ships will be limited to that at present existing in Federal Germany. Federal Germany may build for export, or build, or otherwise acquire for her own operation, merchant ships without limit of type, speed or tonnage. These ships may not possess certain " prohibited features" which would enable them to play an offensive part in war; but some of the more" defensive " of these "features" may, under licence from the High Commission, be incorporated in ships built in German yards to the order of countries members of the N.A.TO., or other approved countries.
(c) Synthetic Rubber and Oil produced from Coal. The prohibition upon the production of these materials is removed, but existing capacity to produce them may not be increased. In practice the rehabilitation of all these plants, which in some measure depends upon the installation of new equipment, will not be permitted so long as the diversion to them of German solid fuel would reduce the quantity available for export to countries who import it.
(d) Electronic Valves.-Control of production will continue to be exercised,
but in a modified form.
(e) Ball and Roller Bearings.-Control will be retained over the capacity of this industry, but its scope will be restricted to precision bearings. Permitted capacity will also be increased by the re-installation of some of the equipment of the plant at Kugelfisher. Production within permitted capacity will be unrestricted.
(f) Primary Aluminium, Synthetic Ammonia, Chlorine, Styrene, and Machine
Page 115Tools for Civilian Purposes. No restriction will be imposed upon
production, or capacity to produce, in these andustries. A system of