A study of the draft Schuman Treaty confirms the expectation that its objects and the functions of the proposed High Authority overlap to a very large extent with the objects of the Ruhr Agreement and the functions of the I.A.R. The only important task actually performed by the I.A.R. has been to direct German coal production between domestic purposes and export. It is doubtful whether, in face of increasing opposition from the Germans, it could continue effectively to perform this task, and it is desirable that the main importers of German coal, who are al so participants in the Schuman scheme, should have their needs satisfied under that scheme, in which the Germans will join much more readily. I consider that on this ground alone the abolition of the I.A.R. is inevitable. Moreover, the functions of the I.A.R. which are not covered by the Schuman Plan High Authority are those which overlap most noticeably with the powers of the High Commission. The I.A.R. cannot be regarded as an effective instrument for maintaining control over the re-cartelisation of German industry or the nature of its ownership or management. The High Commission has broken down the Ruhr concentrations and in the political circumstances of Germany today we must rely on the Germans to maintain the industrial patterns which the Occupying Powers will have established before they surrender their reserved powers (see paragraph 6 below). Further, there are general arguments of a political character in favour of dissolving I.A.R. at this stage. The abolition of I.A.R. would be popular in Germany as removing what the Germans have always regarded as a servitude imposed upon them and an obstacle to equal status in the Western European community. For our part, it will be recalled that we agreed to the establishment of the I.A.R. largely because we wished to obtain French agreement to the establishment of a German Federal Government; if the French, in view of the establishment of the Schuman Plan High Authority, are willing to contemplate the abolition of the I.A.R., we may regard ourselves as honourably discharged from that bargain.
5.
I therefore recommend that, in view of the overlap of functions between the I.A.R. and the Schuman Plan High Authority and the other con- siderations mentioned in paragraph 4, we should take part in discussions regarding the future of the I.A.R, and should agree to its dissolution as soon as it can be replaced by machinery set up under the Schuman Plan.
6.
The Allied High Commission's powers over German coal and
steel.
The powers of the Allied High Commission are exercised through the Combined (Tripartite) Coal and Steel Groups, and a distinction must be drawn between the machinery (which might well be abolished) and certain of the powers (which might still have to be exercised). Subject to the views of the United Kingdom High Commissioner, it may be said that the functions of the Groups in respect of increasing German coal and steel production are outdated. The control of investment has comparatively small importance in respect of the coal industry. In respect of steel, the control of investment involves security functions which would be super- fluous if the limitation on capacity were removed in accordance with the French proposal (see paragraphs 8 to 12 below). In any case any remain- ing control function might be exercised as well by the Military Security Board as by the Steel Group. By far the most important function of the Groups is to supervise the reorganisation of the coal and steel industries under Allied High Commission Law 27. The main task the formation of new companies should be completed by the end of the year, i. e. probably before RageFrench proposal for abolishing the High Cagai3300€587powers could take effect. It is, however, essential that, irrespective of the machinery by which this task is carried out, the High Commission should retain powers to supervise the completion of the reorganisation of the coal and steel industries.
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7.
In this case therefore I recommend to my colleagues that we shouldagr27ltofjom the talks after the Treaty is sigRager2garafing The future functions of the Allied High Commission in respect of the German iron and coal industries, and that subject to the views of the High Commissioner which are being sought, we should agree during these discussions to the abolition of the Groups, provided that the functions now performed by them in connection with Law 27 should be carried out by the High Commission until the reorganisation of the German coal and steel industries is completed, or until we have some guarantee or con-- tractual arrangement with the German Federal Government to carry out Allied policies and programmes in this field.
8.
Removal of present limitations on steel production and capacity.
The present position is that there is a nominal limitation on German crude steel production of 11.1 million tons per annum, but steel used or exported for the purposes of Western Defence is permitted outside this quota.
This control, which was instituted as a temporary system after the New York meeting of Foreign Ministers in September, 1950, and has been maintained in the Agreement on Industrial Controls of March, 1951, at the insistence of the French, is more nominal than real and is largely unworkable. German steel production has been fluctuating between annual rates of 13, 3 and 12.0 million tons in the last six months. The controls on steel production and finishing capacity in the Agreement on Industrial Controls are operated on a licensing system which permits additions and modernisations provided they do not substantially increase the capacity of the plant in question.
9.
Under the Schuman Plan arrangements now proposed by the French, there would be no limitation on production as such, but any extension of capital plant requiring new investment is liable to scrutiny by the relevant organs of the High Authority. Approved projects may receive direct or indirect financial assistance from the Authority. Projects which are not approved will be entirely dependent on the funds of the enterprise concerned. The text of the relevant Article 54 of the Schuman Plan Treaty is attached (Annex ). . It is difficult to say how this provision will work out in practice but it is safe to assume that, at least in the initial period, the French will use every means open to them to prevent a rapid increase in German capacity for crude steel production or for steel finishing.
10.
Under the policy, approved by the three Foreign Ministers in Brussels and now being worked out in detail, of placing upon a contractual basis all reserved powers now exercised by the High Commission except those which must be reserved for a Peace Treaty, there will be little prospect of retaining effective controls over German steel production or capacity. It is, moreover, our avowed intention to bring Western Germany fully into the community of western nations as an equal partner without disabilities save those imposed by the absen ce of a formal Peace Treaty, the occupation of Germany in the interests of Western Defence and the maintenance of our position in Berlin. From this point of view there is everything to be said for removing existing controls on production and capacity at an early date. These controls were instituted for security purposes. The Chiefs of Staff agreed at a meeting on 12th February, 1951, that the security risk involved in waiving restrictions on steel-making capacity was acceptable. They added that there would be definite advantage if the lifting of restrictions were to result in an increase in the availability of steel for Western rearmament as a whole 2Even in the
5im absence of a German military contribution, German industry, with steel as its core, can be of substantial assistance to Western Defence programmes
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and the prolongation of antrols camot fail to discourage the Germans from Pagaiding of58assistance. Moreover, it is vePagtutulfBether, in terms of our German policy, we can afford to stand out for long against Franco-American agreement to remove these controls, even if we wish to do so.
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11.
I fully realise the need to maximise imports of steel scrap from Germany if our steel industry is to maintain its production. The French proposal, by substituting a loose control by a new and untried body of which we are not members, for a close control by the High Commission, may be thought likely to result in substantial increases in German steel capacity and thus further reduce the scrap available for export. I would not pretend that this danger does not exist. But our prospects, which are in any event poor, of obtaining adequate quantities of scrap from Germany depend, in my view,far more on German efforts to increase scrap produc- tion than on the level of production in the German steel industry. If anything could increase German scrap production, the removal of existing controls on German steel capacity might do so. Our insistence on their maintenance in the face of our Allies could only reduce our prospects of obtaining German scrap. Insofar as our difficulties in obtaining scrap lead us, as I believe they may, into purchasing semi-finished steel in Germany in its stead, the removal of existing controls on steel production and capacity should operate to our advantage.
12.
In view of the considerations set forth in paragraphs 10 and 11 above, I recommend that we should participate in the discussions proposed by the French concerning the present limitations on the German steel industry and should agree to their removal when the Schuman Plan Treaty takes effect.
13.
Declaration of Policy.
Given the French intention to announce their policy in advance (paragraphs 1 and 2 above), it seems essential that we should be in a position to do the same. A failure to do so would be interpreted by the Germans as indicating a more restrictive policy towards German industry than that of the French, and might be used by the German opponents of the Schuman Plan as evidence of our opposition to it and thus used to delay ratification. This could be very damaging to our relations with Western Europe and with the United States.
14. If therefore we are prepared to associate ourselves eventually with the French proposals, I recommend that we should let this be known to the Germans at an early date, and should be prepared to give publicity to our views if the French or Americans do so to theirs.
15.
Recommendations,
I ask my colleagues to approve the recommendations that we should agree to the disappearance of the Ruhr Authority (paragraph 5) of the Coal and Steel Groups (paragraph 7), and of the existing controls on German steel production and capacity (paragraph 12), to take effect as soon as practicable after the Schuman Plan Treaty becomes operative.
16. I also ask my colleagues to agree that we should be ready to announce this policy at short notice in the circumstances described in paragraph 14,