CFM Files

United States Delegation Press Release

[Mr. Thorp:] Mr. Chairman, the Members of the Commission will doubtless remember that we had a prolonged discussion concerning United Nations property in Rumania several days ago. In the course of that discussion a number of the speakers were disturbed because there was so little factual information available. The Delegate of the Soviet Union declared that he did not have sufficient data to make a satisfactory judgment on the problem. Similarly, the Delegates of Yugoslavia, Byelorussia and Ukraine all indicated their wish to have figures and precise facts as a basis for determining a just solution of the problem. This is a point of view with which I have a good deal of sympathy. We are accustomed in the United States to use facts and figures to guide our policy decisions whenever possible. That is why I have tried to assemble as much and as accurate data as possible bearing on the particular problem dealt with in paragraph 4 of Article 2a, namely the compensation to United Nations nationals for damage to their property in Rumania. We now present to the Members of the Commission the results of our investigations.

In the first place we endeavored to get some sort of estimate for the total damage caused to the property of United Nations nationals in Rumania, We do not have exact figures, but thanks to the replies given by the Rumanian Delegate to my questions yesterday morning,12 it is now possible for us to reach a fairly good approximation of the total of the damages. Assuming that the figures given by the Rumanian [Page 517] Delegate are correct, we have a definite basis on which to approach the problem. The Rumanian Delegate declared that the total value of United Nations property in the petroleum industry is $150 millions. He said in answer to an oral question that the total value of all property of the United Nations was somewhat more than $200 millions. On this basis we are justified in placing the value for the total of United Nations property at $250 millions. As a matter of fact, this figure is somewhat more than that which we had estimated ourselves from other sources, but for our purposes here let us assume that it is correct.

As to the damage, we have a reply given by the Rumanian Delegation placing the damage in the petroleum industry at between $47 and $50 millions. You will recall that in response to an oral question from me, the Rumanian Delegate stated that the greatest damage to property in Rumania was done to railroads (obviously no railroad property belongs to nationals of United Nations) and the petroleum industry. In other cases the damage was at a substantially lower rate. Since the figures for the petroleum industry indicate the damage to be about one third of the total value, it would seem to be reasonable to fix the corresponding rate for the remaining property at 20 percent. I am sure this is on the liberal side. At any rate it would indicate that the damage for this remaining property was $20 millions. We therefore arrive at a figure for total damages of $70 millions, $50 millions for petroleum and $20 millions for all other types of property.

The Rumanian Delegation also indicated that $10 millions of damages to foreign property in the petroleum industry have already been taken care of by the Rumanian Government through the medium of loans. However, their reply also indicated that these loans were repayable in lei, and in view of the subsequent inflation they have been virtually wiped out. Therefore, of the $70 millions of original damage, $10 millions have already been cared for by the Rumanian Government, and there remains a potential cost to the Rumanian Government of $60 millions under this paragraph in the Treaty.

This figure, I must repeat, is my own estimate based on the facts and statements which I have reported to you. It is obviously an approximate figure, but I am sure that it cannot be substantially above or below the actual fact. I repeat, therefore, that by virture of paragraph 4 of Article 24 the Rumanian economy would have to meet a charge of approximately $60 millions.

But this figure alone does not provide the necessary basis for judging the total situation. We must also have some idea of the total burden which the Rumanian economy must carry at the present time. The Rumanian Delegation has alleged that its burdens are tremendous, [Page 518] and that the compensation demanded by the United Nations nationals when added to that imposed from other sources is more than the Rumanian economy can bear. In order to meet the points made by the Yugoslav and Byelorussian Delegates, it would seem to us necessary to value as correctly as possible the total burden on Rumania so that we could see the burden of this particular paragraph in its true perspective.

You may recall that I asked the Rumanian Delegation to give me their best estimate as to what the total burden growing out of the war on their economy might be, and you also may recall that the answer was that they had no such estimate. Incidentally, it seems to me quite extraordinary to insist that a weight is intolerable if one has no idea of what it is. For this reason I think we can disregard any conclusions which the Rumanian Delegation may have made about this Article, since they clearly were not basing them on anything more than hypotheses.

We have endeavored to make such an estimate based on the best evidence which we could obtain. I would certainly not pretend that we have exact figures, but at least we can give some idea of the general order of magnitude of the burden. Some figures have appeared in the public press; some figures have even been available from official sources. I shall therefore give you the figures which seem to me to give the most accurate picture taking into account the various items in the total burden on Rumania. I shall not give you merely a total figure, but figures for a series of subheadings. While particular subheadings may be greater or less than actual fact as it is ultimately determined, these individual variations should tend to offset each other, and the total figure should be more accurate than the figure for the individual parts.

The main burdens on Rumania are established by certain clauses in the Armistice Agreement and the draft Peace Treaty.

In the Armistice Agreement,13 Article 10 relates to the maintenance of occupation troops. On the basis of comments made by the Rumanian Delegation, we can establish this figure in the general neighborhood of $325 millions.

Article 11 relates to reparations payments. We of course all know that the total reparations agreement for Rumania requires delivery of goods worth $300 millions. However, the goods are to be valued in terms of 1938 dollars. In view of the rise in the world price level, this means that the total amount of goods which will be delivered in connection with reparations will be substantially more than $300 millions of current dollars. If one considers the $70 odd millions which I understand have been paid up to now by Rumania, it would [Page 519] be a reasonable estimate that the cost to Rumania in current dollars would be in the neighborhood of $100 millions.

Passing now to Article 12, that relating to restitution, the best figure which I can establish is that up to the present time approximately $175 millions have been spent under this heading by the Rumanian Government.

Finally, there is an item which is very difficult to value for requisitions and other direct takings of goods and services which, of course, do not enter into the fiscal Records of the Government. This, we understand, is in the neighborhood of $425 millions.

In addition, there are several smaller items which can be valued at $25 millions so that I think we can take as a total cost up to the present, a total of $1,050 millions.

Incidentally, I perhaps might mention briefly that there is another article in the Armistice which has to do with the restoration of rights of United Nations nationals. As far as I can determine, the total expenditure by the Rumanian Government which can be allocated to this purpose, is less than $100 thousands.

Up to now, I have been discussing only the figures which relate to burdens on Rumanian economy in the past. Now, we must turn to the question of the future. Here, obviously, we are in an area of speculation. We can easily underestimate because the reparations arrangement permits of certain penalties. Of course, we cannot tell what those penalties may amount to but in order to be on the conservative side, let us assume that what we all hope will be true and the Rumanian Government will escape from increasing its already heavy burdens. I have already said that approximately $70 millions have been credited against the reparations obligation. This leaves $230 millions yet to be paid in the future. However, again I must remind you that this $230 millions is that value of goods at 1938 prices but that the Rumanian Government will have to obtain commodities at current prices. Having in mind the increase in world prices since 1938, I should think that we would have to regard the future reparations burden as being in the neighborhood of $350 millions.

Now as to restitution, I understand that the remaining obligation is for approximately $200 millions. In this case, we have to make two corrections. Not only is there a price correction since April 1945 (the price base in the convention dealing with this matter) but also an allowance must be made for the cost of transportation and various other charges. It is difficult to know what these additional costs will be and I have seen estimates which bring the total up nearly to $700 millions. However, again I wish to be conservative and shall suggest that we include for our calculation a figure of $350 millions for completing the restitution program.

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The next item is the continued cost of occupation. Presumably, this will continue in substantial form until 90 days after the Peace Treaty is signed and possibly beyond that in connection with the maintenance of lines of communication with Austria. Again, to be on the low side, I would include $100 millions for this item.

Finally, there are various German and Italian assets which one might have expected could revert to Rumanian ownership but which are in the process of being transferred to other foreign ownership in connection with relevant international agreements.

It may be that there are other items which should be included beyond these four but they make a total of $950 millions. When the past and future costs are added together, we get the staggering sum of $2 billions.

Again, I must say that I am sure that these figures are not exactly correct. The total may be somewhat smaller or it may be somewhat larger, but at any rate, we do have a clear impression of the very substantial character of Rumania’s financial obligations.

The exactitude of this figure of $2 billions is not important. What is important is its contrast with the $60 millions which would be required for the full compensation for the nationals of all the United Nations. This $60 millions represents 3 percent of the $2 billions. It is not important as to whether the figure is 3 percent or 2 percent or 4 percent. What is important is the tremendous difference between the two figures.

I must confess that these estimates reinforce the surprise which I have felt at the attitude taken by the Rumanian Government. Their representatives have protested most vigorously against the heavy burden of the $60 millions. They have never even mentioned the items involved in the $2 billions. Under such circumstances I find it very difficult to give any weight to the wailings of the Rumanian Government about the provisions for treatment of United Nations nationals. They remind me of an old saying “One should not be concerned with a fly in the drinking water if there is a hippopotamus in it”.

I believe that it is necessary to keep this total picture in mind if we want to appreciate the burden imposed on the Rumanian economy by the Treaty. That burden is so great that the United States does not wish in any way to be responsible in however little measure for increasing the difficulties of Rumania which arise primarily from the various clauses and articles in the Treaty. Though it is not substantial as compared with the total picture, we propose to reduce our own requests for full compensation as presented in Article 24. This will parallel the action which we have taken in the case of the Italian Treaty.

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However, I must point out that any such reduction can only remedy in a very slight way the serious situation with which the Rumanian economy is threatened by the totality of all of the clauses in the Armistice and the Peace Treaty. Even if all the United Nations nationals eliminated their demands completely, the reduction of $60 millions would make only the smallest dent in the $2 billions total.

There are two other questions which I want to touch upon briefly because they have arisen in the course of this discussion.

In the first place there is the question of the extension of compensation benefits to corporations. It has been said that such an extension is improper because the corporations are not United Nations nationals but rather Rumanian. But we in the United States have frequently found it necessary to “pierce the corporate veil” to use the technical expression—that is, to look behind the corporation and to ascertain its ultimate ownership. It has also been said that corporations in Rumania, particularly oil companies, have not suffered any real net damage because the value of their shares has increased. I am not aware that the shares of the companies operating in Rumania are generally quoted on any stock exchanges. It is the shares of the parent companies which are quoted and I do not think that the situation in Rumania would affect appreciably the value of the shares of these parent companies. Also it is said that the provisions of Paragraph 4 of Article 24, by conferring certain benefits upon corporations owned by United Nations nationals, would establish a continuing discrimination and would in effect create two categories of companies in Rumania. We have, however, heard a good deal of discussion in this Commission of the status under the Petroleum Law of 1942 and otherwise of “ethnic Rumanian companies” and “foreign companies.” It is clear that the provision of compensation to United Nations companies would not establish a distinction between two categories of companies. That distinction has already been established.

The second point which I wish to discuss has to do with the suggestion by the Rumanian Government that it would be necessary for them to control the funds that might be received by United Nations nationals as compensation proceeds. The fear was expressed that in the absence of such control foreign industrialists receiving compensation would increase an existing over-capacity in certain lines of industry and would thus unbalance the Rumanian industrial economy. It seems to me, however, that the persons who will receive such compensation funds will be persons who know how to use funds and who will be aware of their own interests and understand their own business. Consequently, if there is an over-capacity in certain lines, these industrialists are not likely to invest their capital in those lines. One [Page 522] of the basic principles of our private enterprise system is that we rely upon the good sense and judgment of the private investor. He will not invest his funds where capital is not needed, where it will not be productive, where, in other words, he cannot make a satisfactory profit. This has certainly been true in the past. It is exemplified in the entire development of the petroleum industry in Rumania which was established and brought to a high degree of efficiency as the result of wise investment of capital by private investors. I do not think, therefore, that the Rumanian Government has any need to fear that compensation funds will be wasted by being invested where they are not needed.

In conclusion then we have submitted an amendment to Paragraph 4 of Article 24.14 Unfortunately we have copies only in English.

The amendment is similar to the one that was submitted by the United States Delegation in the Economic Commission for Italy. It differs from that amendment in that it incorporates certain changes which were contained in the French and British amendments submitted in the Economic Commission for Italy. I have not, however, discussed this amendment with my French and British colleagues and I do not know whether it meets their thoughts. I believe, however, that the amendment as now presented will enable us to dispense with discussion of questions merely of form.

As regards the percentage of compensation the question is still open and the percentage has been left in blank.

I should like to stress once more, in conclusion, that we do not want it to be said that the United States is responsible for aggravating the already immense burden placed upon the Rumanian economy. The facts which I have adduced this morning all show that the difficulties which the Rumanian economy will have to cope with and the burden which it will have to bear are the consequence, not of this paragraph of Article 24, but of other clauses and articles in the Armistice and in the Peace Treaty.

  1. See the United States Delegation Journal account of the 24th Meeting, September 22, p. 507.
  2. See footnote 9, p. 50.
  3. For text, see C.P.(Plen)Doc. 29, Report of the Commission on the Draft Peace Treaty with Rumania, vol. iv, p. 434.