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ANNEX

GERMAN INDUSTRIAL CONTROLS

I.-WORK OF THE STUDY GROUP ON THE REVISION OF THE PROHIBITED AND

LIMITED INDUSTRIES AGREEMENT

On 19th September, 1950, in the course of the Foreign Ministers' Conference in New York, the then Secretary of State, with the prior approval of the Cabinet (C.P. (50) 199 of 4th September; C.M. (50) 56th Conclusions, Minute 6), joined with Mr. Acheson and M. Schuman in directing the Three-Power Study Group on Germany to review the Agreement on Prohibited and Limited Industries, and to submit recommendations for its revision in accordance with the following principles: -

(a) The elimination of restrictions which have proved to be unduly burdensome

in administration.

.....(b) The elimination of security restrictions, which, within the framework of the present relations between Germany and the Occupying Powers, appears justified.

(c). The elimination of restrictions which would impede the common defence

programme of the West.

2. As interim measures, the Foreign Ministers agreed to instruct the High Commission:

(a) To inform the Federal Government that the High Commission, by unani- mous agreement in consultation with the Military Security Board, is free to permit steel production to rise, so that steel which may be exported or otherwise devoted to the defence effort of the West, will not reduce the amount of steel available for German consumption. (b) To announce the removal of all restrictions on size, speed and number of commercial cargo ships for export, pending the study by the Inter- Governmental Study Group of the removal of similar restrictions on shipbuilding generally.

3. Before the Study Group met, the instructions to the United Kingdom Delegation were considered and agreed inter-departmentally, and approved by Mr. Bevin. The provisions of the Agreement had been inspired exclusively by considerations of security as assessed at the date (1948-49) when they were negotiated; and were re-examined by Departments of His Majesty's Government concerned in the light of subsequent changes in the international situation, with particular reference to the development of the Soviet threat, and the creation of a democratic Federal Government in Western Germany.

4. The instructions given to the United Kingdom Delegation reflected the general conclusion of Departments that the transfer of the rôle of potential aggressor from Germany to the Soviet Union, and the steadily developing policy of the Allied Powers of integrating Federal Germany in the Western system, would justify a substantial relaxation of restrictions imposed upon industries which are as important in time of peace as in time of war. It seemed prudent to them, however, not to enlarge the capacity of restricted German industries, whose product could contribute significantly to Soviet war potential in the event of an early occupation of Federal Germany by Russian Forces.

5. On this basis, it was decided that the following should be the objectives of the United Kingdom Delegation:-

(a) The manufacture of pure war material should continue to be prohibited. If any specific items were required for Western rearmament, their production could be licensed by decision of the High Commission acting on instructions from the three Governments.

(b) The limit upon the level of crude steel production (11.1 million tons per annum) should be removed, but no increase should be permitted in the capacity to produce crude steel in Federal Germany (estimated at about Page 113 945llion tons per annum).

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