The Assistant Secretary of State ( Clayton ) to the Army–Navy Liquidation Commissioner ( McCabe )

Dear Tom: I am replying in further detail to your letter of May 25 which I acknowledged on May 30,87 in regard to policy on the [Page 1262] disposal of surplus property in Italy and the terms of the aide-mémoire to be presented to the Italian Government.

I agree with the view of your office that it would be unwise at this time to present uniform aide-mémoires to all countries. Financial conditions, as well as attitudes on trade policy, are so different in the countries in which we would be disposing of surplus that the wise policy is to prepare our aide-mémoire, even when some leeway is intended for bargaining purposes, so as to take account of what might reasonably be expected in that country.

I also share your view that at least some of the surplus property disposed of in Italy that would qualify for the FEA list of supplies essential for relief and rehabilitation in Italy be paid for out of the troop pay dollars. The administrative difficulty that Ambassador Kirk spoke of can undoubtedly be taken care of. You ask about the control that the United States has over these troop pay dollars. They are under the control of the United States Treasury, and I think there is no doubt of the right of the American Government in its negotiations with the Italians to insist that some of these dollars be used to pay for surplus items. In view of the very serious financial position of Italy, it is my present thought that this figure should not be over $25 million. The entire Italian financial situation is now under review by the interested American agencies, and in the light of these discussions it might be desirable to reconsider this figure.

I am, however, puzzled by your remark in this connection about “the principle of insisting on the sale to foreign governments of surplus goods for dollars in preference to the purchase by other U.S. agencies of similar goods for transfer on credit lend-lease.” If by this statement you mean that surplus goods are not to be used to fill a lend-lease program, if the goods can be sold to a foreign government for dollars, that would appear to be contrary to the provisions of the Surplus Property Act.88 Goods to fill a lend-lease program are acquired by a U.S. Government agency, which therefore has a priority in their acquisition as compared with a foreign government purchasing for dollars.

You ask the view of the State Department as to the terms and conditions of payment on which surplus goods are to be sold, if they are not sold for dollars or guaranteed lire. It is the view of the State Department, and I understand that it is also the view of the Treasury Department, that you should not accept lire without an exchange guarantee. I sympathize with your desire to get dollars but you may have to make a choice between the exercise of the right to sell for dollars in third countries and the making of an arrangement with the [Page 1263] Italian Government that will enable you to dispose of all of the surplus in Italy for dollars or guaranteed lire. It would seem to me that the willingness to sell individual items for lire in Italy, even if those items could be sold for dollars elsewhere, may not only be in your own interest when the problem is looked at in its broader aspects, but also may be more nearly in accord with the objectives of the Surplus Property Act than placing the entire emphasis on the receipt of dollars. As you know, Section II of the Act sets as a price criterion to obtain “as nearly as possible, the fair value of surplus property upon its disposition”. This statement as to price policy is preceded however by a number of other objectives including those:

To establish and develop foreign markets and promote mutually advantageous economic relations between the United States and other countries;

To avoid dislocations of the domestic economy and of international economic relations.

I can well see why, both on grounds of obtaining dollars and on grounds of getting a distribution of surplus property that will meet the pressing needs of some of the war devastated countries of Europe, that surplus will be disposed of other than in the country in which it happens to be located, but certainly in view of the objectives of the Act this disposition in third countries should not be made solely on the basis of a dollar priority.

Sincerely yours,

W. L. Clayton
  1. Neither letter printed.
  2. Approved October 3, 1944; 58 Stat. 765.