Repeat London No. 81; Washington No. EX-107.

Thomson of the UK High Commissioner's Office has spoken to us about suggestions which have been made that they should divulge these proposals at this time to the Secretary-General and to the Delegations in Paris. He has left with us a memorandum requesting our support in resisting any such suggestions that may be made in the OEEC. This memorandum notes that a firm decision on the question of entering formal negotiations destined to give effect to a definitive plan on the lines discussed at the Conference can only be made in the light of exploratory discussion with the United States and later with European Governments. The memorandum continues:

"It would clearly be impossible at this stage to make any precise suggestion as to how such formal negotiations might eventually be conducted; but it is certainly the intention of the United Kingdom Government that they should be designed to secure international agreement and collective action in which European Governments would be associated together with the United States and the Commonwealth.

The United Kingdom Government believe that the wider exploratory discussions which they intend to have after the first informal approach to the United States may to a considerable extent have to be conducted on a bilateral and inter-governmental basis because of the nature and secrecy of the proposals. They wish to assure the Canadian Government that they fully recognise the special interests of the Canadian Government and that it is their firm intention when the time comes to consult the Canadian Government and to have a full exchange of views with them.

At the same time, the United Kingdom Government realise that any proposals for moving towards freer trade and currencies must have important consequences for the work of the OEEC particularly in relation to the future of the European Payments Union and the liberalization of trade. They therefore intend that the organisation should be brought into these further exploratory discussions to the maximum possible extent and should be given adequate opportunity of examining the adjustments that might have to be made in the present arrangements.

For the time being, however, and until the exploratory discussions referred to above have indicated whether a satisfactory basis for international agreement is likely to be found, it appears to the United Kingdom Government that it would be unrealistic for the Organisation to attempt to take these longer term possibilities into account in its current programme of work. They consider therefore that the Organisation's work in regard to the continuation of the EPU after 30th January 1953, and to the liberalization of trade should be carried forward on the existing basis on the assumption that the EPU would continue until there was some change in existing international currency arrangements of such a broad character as to require major adjustments to be made to EPU. The Organisation would however be given ample time and opportunity for the study of those adjustments and their consequences.

The United Kingdom Government hope that in the light of the explanations given in this message the Canadian Government will feel able to instruct their representatives in the Organisation to support this line".

2. We agree that you should cooperate in helping to ease the pressure on the United Kingdom to inform the OEEC at this stage regarding the proposals discussed at the November Conference. Time should be allowed for the United Kingdom to complete the necessary soundings in Washington and to carry out the required bilateral exploratory conversations with the principal European Governments before this subject is thrown open for general discussion in the OEEC forum. Accordingly, it would not appear possible for the OEEC to make any allowance for the various longer term possibilities in any current discussion relating to the immediate future of the EPU.

3. It would not seem essential for us to support the view that the "existing basis" is necessarily the most suitable one for the continuation of the EPU or for carrying forward the liberalization of trade. Any improvements which can be made in the present basis, without involving assumptions concerning the "longer term possibilities", should presumably be considered.