Foreign Relations of the United States, 1949, Council of Foreign Ministers; Germany and Austria, Volume III

Executive Secretariat Files

Progress Report on the Austrian Treaty Prepared in the Department of State for the National Security Council¹

top secret

[Washington, undated.]

I. Status of the Negotiations.

The Austrian Treaty has been under negotiation since January 1947. To date, agreement has been reached on 44 of the 52 articles proposed for the Treaty. Two of the major issues hitherto preventing conclusion of the Treaty were discussed at the Paris meeting by the Council of Foreign Ministers. The Ministers agreed on June 20, 1949 that Austria’s pre-1938 frontiers would not be altered and accepted a framework for the settlement of the German assets problem in Article 35. The Deputies were instructed to complete the Treaty in accordance with this agreement.

The Deputies met in London from July 1 to September 2, [1] 1949, reaching agreement on eleven articles, but failing to complete the detailed implementation of the Paris Agreement respecting German assets. Negotiations were resumed by the Deputies in New York on September 23. Three informal meetings of the Ministers have been held in New York on the Treaty. At the meeting of October 6, the Ministers instructed the Deputies to resume their consideration of the remaining eight disputed articles on October 10 and to report in two weeks. The negotiations are now in progress.

The agreed articles in the Treaty are satisfactory to the U.S. The only major issue still in dispute is the German assets settlement (Article 35) which fundamentally involves the obligation to be placed on Austria by the Treaty.

II. Austrian Obligations as Envisaged in the Paris Agreement.²

A. The Obligation to the Soviet Union.

The Potsdam Agreement (1945) provided for the transfer to the Soviet Union of all German assets in Eastern Austria. Since 1945, Soviet military authorities have held the vast majority of the industrial enterprises and all the economic resources in their zone, which they claim as German assets. By the agreed terms of the Treaty, the Soviet Union will relinquish to Austria all rights and interests in properties now held or claimed in return for the transfer to Soviet ownership of specific property rights in oil and shipping and the payment of a lump sum of $150 million by Austria. According to the Paris Agreement, this will constitute a final and complete settlement of the Soviet claims under Potsdam. The details of this settlement are attached.

B. Other Obligations.

In addition to the above obligation to the Soviet Union, other Austrian obligations under the Treaty payable in schillings within the next ten years may total between 3–4 billion schillings. This estimate includes claims payable to Austrians, compensation to UN nationals, restitution expenses, repatriation, etc. The value equivalent of this figure can not be computed until the new rate of the Austrian schilling is determined. It is not anticipated that the value equivalent will exceed $90 million in local currency.

III. Present Soviet Demands.

The Soviets have interpreted the Paris Agreement in such manner as to add to the total obligation on Austria. The present Soviet demands include:

1. Acceptance of the Soviet list for the division of oil exploration areas. If this Soviet proposal is accepted, 100% of the proven oil resources and 84% of the possible resources in Austria would be transferred to the Soviet Union, Austria would retain 2 million tons of possible resources. The Western counterproposal would give Austria possible resources of approximately 5 million tons. If oil were discovered the Soviets would profit to the extent of $30 million at current prices.

2. Acceptance of the Soviet proposals for shipping properties and leases. Although it was agreed in Paris that the Soviet Union would receive what the Danube Shipping Company possessed, the Soviet Delegation demanded perpetual leases. The present modified demand is for extension of the leases for the life of the buildings or improvements located thereon.

3. Acceptance of the Soviet position that transportation equipment taken as war booty need not be returned to Austria, under the lump sum settlement. If the Soviet position is accepted the loss of locomotives roughly equivalent to 25% of Austria’s operating locomotive park, will be serious, although locomotives which would otherwise be returned to Austria may require replacement within a few years. The cost of new machines would amount to approximately 20 million dollars at present prices. A U.S. counterproposal is contained in Article 35 bis.

In addition, the Soviets demand in Article 48 bis, which was not discussed at Paris, payment by Austria to the occupation powers of claims for supplies and services since 1945. If this proposal is accepted Austria will be required to pay to the Soviet Union an acknowledged debt currently estimated to be 150 million schillings. There is no indication, however, that the current estimate is definitive and unless a fixed amount is agreed it may be anticipated that the Soviets would find reasons for further claims for an additional 100 million schillings and possibly more.

IV. Other Unagreed Issues in the Treaty.

The remaining unagreed issues are as follows:

1. Article 16. The Soviets have offered to accept the U.S. position on “voluntary repatriation” and the inclusion of refugees with DP’s in return for U.S. acceptance of paragraph 5 prohibiting Austria from granting relief to persons refusing to return to their native country or who fought or collaborated with the enemy during the war. This proposal would give the Soviet authorities another form of pressure on the Austrian Government.

2. Article 27. The Soviets have agreed to eliminate the restrictive annexes in the military articles but insist on inclusion of a provision prohibiting employment of foreign technicians. Acceptance of the Soviet proposal would make difficult both effective work by a MAP mission and implementation of plans for development of Austrian civil aviation.

3. Article 32. There is no basic objection to the Soviet proposal for an article on War Graves and Memorials.

4. Article 35. In addition to the German assets settlement discussed above, the Soviet proposal provides an arbitration procedure for the settlement of disputes. The U.S. position has been that appointment of the third arbiter by mutual consent is not adequate and that the Secretary-General of the United Nations should be empowered to appoint the third arbiter in the event of disagreement between the USSR and Austria.

5. Aricle 42. This article relating to UN property remains unagreed, although the Soviets have stated that if their other demands are met, the conclusion of this Article would present “no difficulties”.

6. Article 48. The Soviets propose inclusion of a phrase releasing the Austrian Government from obligations in respect of certain Austrian securities which were the subject of payment agreements between Germany and the creditor states after March 13, 1938. The Soviet amendment would adversely affect British and French security holdings but would not affect U.S. interests.

V. Views of the other Powers Respecting the Conclusion of the Treaty.

A. Soviet Position.

The Soviet Union has shown no indication that it is ready to compromise on basic issues, although minor concessions were made in the recent informal meetings of the Ministers. This may indicate that the Soviets are disposed to agree to the Western position on provisions of the Treaty which do not directly affect Soviet interests but are considered important by the Western powers. It is, of course, not certain that the Soviet Union is ready to conclude a Treaty at this time. The development of the Yugoslav situation may have served to make the Soviets hesitant to withdraw their troops from Austria, thus eliminating the legal basis for their continued military occupation of Hungary and Rumania.

B. British and French views.

The British and French Governments favor conclusion of the Treaty at this time even at the price of the present Soviet demands.

C. Austrian views.

The Austrian people are becoming restless under military occupation now in its fifth year and the Austrian Government has urged conclusion of the Treaty as soon as possible. The Austrian Government has indicated that it views the U.S. as primarily responsible for the failure to conclude the Treaty.

VI. The U.S. Position.

The early conclusion of an Austrian Treaty, based on the Moscow Declaration, has been a consistent objective of U.S. policy since 1943. Prolonged efforts have been made since January 1947 to conclude a Treaty in accordance with the principles of the Moscow Declaration.

Although the U.S. is reluctant to accept the present Soviet proposals, it is recognized that definite advantages would follow from the early conclusion of the Treaty.

A. The demand for U.S. direct aid would be substantially reduced. In the absence of a Treaty the outside assistance which Austria will require to sustain its present economic level may amount to a total of approximately $600 million over the next six years. This estimate does not include the U.S. cost of occupation. With a Treaty it is estimated that this sum could be reduced to a total of approximately $350 million for the same period. The latter sum does not include MAP assistance, the cost of which in the first year is estimated at approximately $80 million.

B. Withdrawal of the Soviet military forces will make difficult any direct aid they might give to the Austrian Communist Party and thereby reduce the threat to Austrian internal security. The insignificant Communist vote in both post-war elections demonstrates the extent of Austrian resistance to Communism. Austrian requirements for the maintenance of internal security are the subject of an NSC Staff Report (“Future Courses of U.S. Action with Respect to Austria”)³ on which early action is anticipated.

C. Political advantages of the first magnitude will be obtained through the withdrawal of Soviet forces from Austria. Conclusion of the Treaty will make possible the first rollback of Soviet Military control in Europe since the end of the war, thereby reducing existing tension in the entire Danubian area and encouraging various groups, such as in Yugoslavia, to resist Soviet pressure. Withdrawal of the troops will terminate the paralyzing effect of Soviet military intimidation and intervention in Austria. Abolition of the zones will restore to the Austrian Government freedom of action and full use of the political and economic energies required for the consolidation of Austria as a Western outpost. Conclusion of the Treaty will enable Austria to participate in the Western European regional organizations.

The alternative to conclusion of the Treaty involves the danger of a partition of Austria and the certainty of continued occupation costs and large scale financial assistance. It may not be assumed that the status quo can be maintained. In the absence of a treaty, both a change in the Austrian attitude and increased Soviet efforts to consolidate their position must be anticipated. Any deterioration in the Austrian situation would involve additional liabilities for the U.S. and adversely affect the U.S. position in Europe.

In light of the above considerations, the U.S. Delegation is endeavoring to conclude the Treaty, but is making strong efforts to reduce the Soviet demands.⁴

1. The source text was transmitted to the National Security Council as an enclosure to a memorandum from Webb to the Executive Secretary, Admiral Souers, dated October 14.
2. The communiqué of June 20, p. 1062.
3. NSC 38/4, November 17, p. 1190.
4. The Progress Report was discussed at the 47th meeting of the National Security Council, October 20, and transmitted to the President along with the views of the Department of Defense, which are printed infra. The Department of State then telegraphed Reber to obtain British and French concurrence for an extension of the Deputies’ meetings in New York. The United States Deputy was not to modify any Western position in the extended negotiations without receipt of further instructions. (Audel 195, October 20, to New York, not printed, 740.00119 Council/10–2049).