Foreign Relations of the United States, 1951, National Security Affairs; Foreign Economic Policy, Volume I

ISAC Files, Lot 53 D 443¹

Memorandum by the Foreign Supplies and Requirements Committee²

restricted

Washington, June 6, 1951.

FSRC Doc. 6

Foreign Economic Development Projects and Programs

Any determination of which foreign development projects or programs contribute sufficiently to U.S. policy objectives^* to warrant support in the form of government priority or directive assistance, must necessarily be flexible as supply conditions change and as actual experience accumulates. Sound appraisal of each project’s contribution is especially important so long as the U.S. mobilization plan utilizes only a single rather than multiple dividing lines to determine essentiality in terms of priority assistance.

The following discussion and statement of policy guides applies to foreign projects or programs regardless of whether they are financed abroad or in the U.S. by government loan or grant, by the IBRD, or by private enterprise.

Two general groups of considerations should be taken into account in the formation of policy, as follows:

(1) Considerations affecting decisions on the basic need of foreign projects for U.S. support and assistance:

(a) The paramount consideration should always be the contribution of a particular development project toward the stated general United States policy of providing for the maximum strength and security of the free world.

(b) Projects for increasing foreign production, whether entirely new or expansions of existing facilities, may frequently depend for their effectiveness (unlike the normal situation in the United States) upon simultaneous expansion of power, transport, communication and other supporting facilities, such as health, education and sanitation.

(c) Many nations have been dependent in recent past years on varying amounts of essential U.S. products, and chronically have suffered deficit balances of dollar payments. In many such cases, they have required U.S. economic assistance. Therefore, foreign development projects which can result in more exports and more self-support can make a permanent contribution to an expanding world economy in the long run, as well as a present contribution of materials for the common mobilization effort.

(d) Projects in friendly foreign countries may be of direct value in reducing the dependence of themselves and other friendly countries upon supplies from Soviet-bloc sources.

(e) The natural tendency is for most American producers of equipment and supplies for projects, in periods of shortage, to favor their established customers.

(f) There is a real value to the United States, and to the free nations collectively, in maintaining the long-run political and psychological advantages of the Point IV Program, which would be jeopardized if long-term development programs abroad were to cease for want of materials and equipment. Individual projects may in addition make particular contributions to political stability, internal resistance to subversion, and to short-run economic improvement leading to higher living standards.

(2) Considerations affecting decisions on the degree and extent of priority or directive assistance needed in individual cases:

(a) Some projects require assistance for only a minor portion of their total needs of short-supply items, either because the projects have already received substantial deliveries or because requirements have been or will be available from non-U.S. sources. Such requirements thus have a special degree of importance.

(b) Failure to complete foreign projects already under construction could be wasteful of materials and potential production. There may be cases in which a speeding up or redirection of projects would be wiser than a “start from scratch” elsewhere. Or, conversely, results in terms of actual production may be obtainable much more slowly from some proposed foreign undertakings than from a similar expenditure in the United States or in another country.

(c) Certain short supply items of equipment may be obtainable, for use in foreign projects, from foreign sources without interference with other equally essential demands. Such use may or may not be desirable, in the light of the guiding principle that all facilities within the free nations for producing critically needed types of equipment should, to the fullest extent feasible, be used first for the most essential purposes. The fact that there is financing or ownership by American agencies of a particular project should not affect the choice of sources of supply for needed equipment or materials.

(d) Although in general the contribution of a project to free world strength is the basic criterion, and not the particular sponsorship or ownership of a project, there may be cases where ownership, beneficiaries, or sources of financing may be of such nature as to be undesirable in terms of the best interests of the United States and/or of those nations actively associated with the United States in common defense planning. A careful preliminary check with the proper governmental agencies will avoid a frontal issue when a project is being given formal review.

(e) Other considerations which will apply in varying degree to particular projects include:

(i) the indirect contribution of a given project to defensive military strength;

(ii) the degree of political and transport risks involved in the location of the project;

(iii) the special importance of increased agricultural production in particular areas;

(iv) the efficacy of controls over the outflow of materials or products to Soviet-bloc countries in the particular nation or area where the project is to be located.

Preliminary Determination of Scope of Assistance

A peculiar problem arises in cases where a decision to finance, or not to finance, a given project is to be reached by an American governmental agency, by American private financing agencies, or by American corporations. The decision itself may in some cases turn on the likelihood that needed priority or directive assistance will in fact be obtainable when a subsequent formal presentation is made. Therefore, a careful preliminary survey is of great importance in order to determine whether the project will qualify under the general standards indirected [indicated] herein and to be explicitly applied by the operating agencies concerned.

There is a second danger to be avoided in the making of financing commitments before the scope of assistance is finally determined. Regrettably, foreign governments or other sponsors of development projects have in the past interpreted a decision by American agencies to extend financial assistance as an irrevocable decision to supply the needed materials and equipment from American sources. The preliminary survey indicated above should minimize the number of cases of embarrassment and ill-will resulting when assistance in obtaining equipment is, rightly, not forthcoming for an already-financed project.

Policy Guides

In setting forth the following general policy guides to be followed by all United States government agencies dealing with foreign economic development projects, no effort is made to formulate or to repeat similar standards of essentiality and other tests to be applied to domestic American projects. Nor is it the intention to specify assistance for foreign projects differing from that available for, or accorded to, domestic projects of equal essentiality, except where peculiar circumstances encountered in meeting foreign needs may make it necessary. Adequate procedures are available within the mobilization agencies to provide review in the same forum of foreign and domestic projects, and to provide for the maintenance and operating requirements of existing foreign enterprises which are essential in a sound economy.

The policy guides to be applied by the agencies concerned are as follows:

(1) Foreign development projects shall be generally supported and facilitated in a manner conforming to the general policy laid down in the statement of Foreign Allocations Policy approved by this committee.

(2) After a critical examination utilizing the considerations and standards indicated above, and parallel with the current examination of similarly essential domestic projects, priority and/or directive assistance equally effective with that currently available to highly essential domestic projects shall be provided for foreign development projects (either new, or expansions of existing facilities) if they will result in:

(a) direct military production of friendly nations, as required within the limits of military objectives to which the United States has agreed, including the time-phasing, the location of facilities, and the beneficiaries of the planned production;

(b) essential support for the military production described in (a);

(c) production, or required support for production, of highly essential materials or products which are, or are expected to be, in critically short world supply;

(d) production of clearly essential products or services for the civilian economy of friendly nations, but assistance shall be confined to those cases where it is needed only for procurement of a minor portion of the total quantity of short supply items.

(3) Projects other than those described in paragraph (2) which will, (a) expand essential civilian services or facilities, particularly those which form part of a long-term development program, (b) reduce future dependence upon military or economic assistance by the United States, (c) reduce future dependence upon Soviet-bloc sources of supply, or (d) help to prevent political deterioration in nations or areas essential to free world strength, shall be given needed priority or directive assistance providing that a critical examination and an investigation of domestic producers’ schedules show that such action will not interfere with military production, defense-supporting production, or with projects for expanding output of critical materials.

(4) In determining the form and extent of priority assistance required for foreign projects, account should be taken of the possible reluctance of domestic producers, during periods of shortage, to fill foreign orders at the expense of established domestic customers unless clearly directed to do so.

(5) The nature and objectives of a project, and not the source of financing nor the ultimate owners and beneficiaries within the free world will ordinarily be the tests by which to determine essentiality and the need for assistance; but the particular circumstances of ownership or sources of equity financing, and the likely beneficiaries of resulting production or service must be examined, and should be of such nature as to promote the current over-all diplomatic and military objectives of the United States or those of nations closely allied with the United States in common defense planning.

(6) The United States should promote by all practicable means the adoption of criteria similar to the foregoing by friendly foreign industrialized countries capable of supplying equipment and products for economic development projects and programs, and the exchange of information relating thereto with the United States through appropriate channels.

1. Basic collection of documents, action summaries, memoranda of meetings, and related records of the International Security Affairs Committee (ISAC), 1951, retired by the Executive Secretariat of the Department of State.

2. The Committee on Foreign Supplies and Requirements was established on January 1, 1951, to advise the Director of Defense Mobilization regarding foreign requirements for supplies produced in the United States and U.S. requirements for supplies from foreign sources. William C. Foster, Administrator of the Economic Cooperation Administration, was Chairman of the Committee; Willard L. Thorp, Assistant Secretary for Economic Affairs represented the Department of State. Other agencies represented included the Departments of Defense, Treasury, Interior, Agriculture, Commerce, and Labor; the Defense Production Administration; the Economic Stabilization Agency; the Export-Import Bank; and the office of W. Averell Harriman, Special Assistant to the President.

   This memorandum was circulated in the International Security Affairs Committee as document ISAC D-3/8, June 11, with the notation that it contained the basic policy guidance for agencies interested in sponsoring or examining foreign economic programs or projects.

3. See Annex A [Footnote in the source text. Annex A, containing extracts from public statements by President Truman on foreign aid, is not printed.]