The birth of the plan to create the DAG (and the OECD)

5.2.1 France and Britain: contrasting solutions to the OEEC’s future

Throughout the summer and autumn of 1959, Dillon grappled with three lingering issues in his Western European dossier (see Chapter 4 and CDD [C. Douglas Dillon personal papers], 1959; FRUS [Foreign Relations of the United States], 1959, 24 November). First, he wanted to find a way to spur Western development aid to shift some of the burden from the US. This was key to both the political imperative to contain the Sino-Soviet economic offensive and the economic necessity to reduce the mounting US BoP deficit.

Second, Dillon needed to defuse the intra-European feud between the EEC Six and the EFTA Seven, without sacrificing US interests. This Six and Seven imbroglio was tearing apart the OEEC, to which all 13 countries belonged (Cahan, 1959). Thus, the third issue of his dossier was how to sort out the crisis of the OEEC.

To resolve these issues, Dillon entered into dialogue with France, which led the EEC, and the UK, which led EFTA; both of them being at the same time the other major Western donor players in the aid development agenda.

The French view was put forward forcefully, albeit semi-officially, by Jean Monnet, the architect of the European movement (Duchêne, 1994).

Although he had strained relations with French President Charles de Gaulle, Monnet had a strong influence in the French cabinet and good relations both with Dillon (a Francophile and former US ambassador to France) and John Tuthill, the number two at the US Embassy in Paris. Tuthill embraced (and even helped to radicalise) Monnet’s stance, becoming, along with trade expert John Leddy, one of Dillon’s key associates throughout the venture (Tuthill, 1987, 1996). In diagnosing the situation, Monnet echoed the American narrative: the US BoP deficit and more generally the Western postwar order had reached a stage that called for more economic cooperation between North America and Europe. The OEEC, Monnet believed, was not the right place to facilitate that, as it was rejected by France and the US was not even an OEEC member.

In June, Monnet presented Dillon with a note suggesting that the US should join a revamped OEEC led by an “Action Council” comprising four permanent members (US, Canada, the EEC and the UK) and one or two

“rotating members” representing the rest of the OEEC membership (Duchêne, 1994, pp. 322-333). This Council would deal with trade, development aid and broader issues of transatlantic economic cooperation. After consulting with Tuthill, Monnet raised the stakes in a second memo to Dillon in late July. Now the Action Council would be an organisation in its own right with the same four permanent members, but the two rotating members would represent “small and developing countries”. In this new scheme, the US would not need to join the OEEC, which would remain a regional body with little relevance that would eventually wither away.

The British approach was very different. The UK had the OEEC in its grip and wanted to revitalise and save it. Not surprisingly, a key ally in this endeavour was the OEEC secretariat itself. They shared the US and Monnet’s diagnosis of the international economic situation: the Western economy now required more transatlantic cooperation to deal with the issues at hand. But they considered the OEEC as the right institution for the job. If the US engaged more actively with the organisation – they argued – the French would eventually do so as well. To entice the US to participate more, the secretariat and the UK were aiming at an OEEC ministerial council meeting by the end of the year which would explore the “new themes” that the secretariat proposed the organisation should deal with in the coming years (CDD, 1959, November 17, November 20). These themes were strategically chosen to reflect US priorities, starting with its BoP deficit. The ministerial thematic sessions would encourage Europeans to end discrimination against

US exports and to boost their supply of development aid (OECD, 1960, January 8a). In the British proposal, the US was not expected to join the OEEC (the British did not want to forfeit their leading role in the body) but rather to activate its slumbering associated status, which in practice gave it more power and say than most of the OEEC’s formal members.

Dillon listened to both the French and the British but clearly sympathised with the former. The French lobby was reinforced when Tuthill, Monnet’s friend, left Paris in September to join Dillon’s staff in Washington. Not long afterwards, Tuthill presented Dillon with another memo, which proposed getting rid of the OEEC and replacing it with a new organisation “with different personnel” (Tuthill, 1987, p. 18). Although Dillon was largely convinced, he could not follow this advice as the US Treasury had ruled out the creation of any “new machinery” and the elimination of the OEEC would be a complex venture that would face much resistance. It was also impossible, however, to adopt the British proposal of more active US participation in the old OEEC. Dillon was not willing to put the Western aid agenda in the hands of the OEEC, where the US was not a formal member. Moreover, the US had taken the side of the EEC in the European trade imbroglio and he could not let his French allies down. In the end, therefore, Dillon opted for a midway formula: the US (hopefully followed by Canada) would join the OEEC as a full member, but the OEEC would be transformed into a new organisation. Tuthill despaired when he learned that Dillon wanted to join the hopeless organisation that he and Monnet wanted to undermine. His boss had misunderstood their scheme, he complained to Leddy (Leddy, 1987). Yet, by chance or intuition, this formula proved magical and eventually allowed Dillon to overcome some of the many political obstacles he encountered down the road.

5.2.2 The 24 November memo and the solution of a revamped OEEC

In a memorandum dated 24 November, meant for the US president and signed by his boss, Secretary of State Christian Herter, Dillon presented his plan for dealing with the three issues of his European economic portfolio:

the conversion of the OEEC into a new organisation (the future OECD) with full US and Canadian membership, which would handle the Western aid problem, the trade imbroglio and offer a way out to the ailing OEEC – killing three birds with one stone as it were (FRUS, 1959, November 24).

Although Herter was a weak Secretary, Dillon was a strong Undersecretary with direct access to the US president. He would keep tight control of the agenda throughout.

The memo starts by spelling out the two urgent challenges, beginning tellingly with the aid issue:

The first is: how can we mobilise the energies and resources of the other industrialised countries to assist the development of Asia, Africa, the Near East and other development-hungry parts of the Free World? The enormous task of developing these areas must go forward or we will, in the end, lose out to the Communists. The United States cannot provide the needed capital alone. On the other hand, Western Europe and Japan, because of the great improvement of their monetary reserves – the reverse of the large payment deficits of the United States – are now financially capable of mounting a sizable effort which could powerfully assist our own, thereby greatly adding to the overall strength and cohesion of the Free World. What steps can the United States take to enlist the full cooperation of Western Europe and Japan in making this effort? The second problem is: how can we help to redirect the emerging trade rivalries within Western Europe into constructive channels? […] Otherwise, the antagonisms between the Six and the Seven might develop into a trade war which could gravely divide our NATO partners on political and security issues. (FRUS, 1959, November 24)

Dillon then argued that a new “revitalised” and “reorganised” OEEC,

“appropriately renamed to avoid a purely regional connotation”, with full US and Canadian membership and “with some sort of participation” from Japan, should take on these two urgent tasks. Following Monnet’s idea, Dillon proposed a limited Steering Group that would keep control of the revamped OEEC, which would itself have modest powers: “A reorganised OEEC should not go beyond the adherence to general objectives, undertakings to discuss and the provision of information”. The US Congress would not accept more than this. Dillon’s proposal was meant to stay within the boundaries of the Treasury’s veto on creating “new organisations”: it involved joining or rather upgrading the status of the US in an existing one. An enclosure in the 24 November memo identified the shortcomings of the current multilateral architecture to deal with the tasks at hand. It argued that the General Agreement on Tariffs and Trade (GATT), with its broad membership, was not the proper place to deal with the Six and Seven imbroglio. Regarding the aid initiative, the World Bank was inappropriate “because it [was] a lending institution rather than a policy organisation”, and because the management

was “too powerful”; while the United Nations (UN) was “obviously unsuitable because of its unwieldy structure, the character of governmental representation, and the presence of Communists”. (Intriguingly, Dillon failed to mention NATO, which, as we have seen, was also vying for the aid agenda.) The enclosure argued that a revamped OEEC would offer a space

“for harmonising development assistance policies among the industrialised countries”, a mechanism to induce the Europeans to create proper “national lending institutions (now almost lacking)” and a “suitable forum for the discussion of basic policies to guide development lending”. Dillon closed his message by suggesting that President Eisenhower announce the proposed policy package in his next State of the Union message scheduled a few weeks later – quite a bold proposal given that the US was not even a member of the organisation it wanted to rebuild (FRUS, 1959, November 24).

5.2.3 Shortcomings of the 24 November memo: