740.0011 EW (Peace)/10–1047: Telegram

The Acting United States Representative on the Austrian Treaty Commission ( Ginsburg ) to the Secretary of State 43

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1012. From Ginsburg. Following statement proposed to be issued on termination ATC, noon, Saturday, 11 October. Carefully reviewed with and approved by Gruber. Designed to supplement Dept statement44 [Page 627] by providing factual basis for reasons why agreement has not been reached. Most of such material released by US delegation during past months but total estimates are new:

“Statement by David Ginsburg, acting US representative, Austrian Treaty Commission, October 11, 1947.

After 85 sessions over a period of nearly five months the Austrian Treaty Comission adjourns today without four-power agreement on any of the major unresolved issues in the Austrian Treaty. Once again the central questions which prevented agreement were the amount of ‘foreign assets’ to be transferred as German reparations under the Potsdam Agreement, and whether such assets shall have extraterritorial status under Austrian law. These questions, with others, now go for decision to the Council of Foreign Ministers meeting in London on November 25.

The US regards as the outstanding accomplishment of the commission the accumulation by each delegation of a vast quantity of detailed information regarding the former German ownership of assets in Austria. As a result, each delegation now knows with reasonable accuracy what the several competing formulas or definitions would transfer in terms of specific properties. The concrete facts accumulated by the commission, and the clarification of issues resulting from its long discussions, will undoubtedly speed consideration of the problem by the Foreign Ministers at their forthcoming session.

Throughout the conference three delegations almost always managed to find a common basis for agreement. From the viewpoint of these delegations, therefore, a survey of the reasons for disagreement necessarily becomes a survey of positions taken by the fourth delegation—the Soviet delegation.

i. german assets

A. Extent of Soviet claims.

There is nothing difficult or technical in the so-called German assets problem, nor is there any mysterious reason why four-power agreement has not yet been achieved. The heart of the problem is the matter of amount. Soviet claims, in the opinion of the US delegation, are unbearably excessive—far more than was awarded at Potsdam, and far more than a free Austria can afford.

The following are conservative US estimates of Soviet demands:

1.
Oil: Two-thirds of Austria’s entire oil production; one hundred percent of its oil reserves; three-fourths of Austria’s refining capacity.
2.
Danube shipping ( DDSG ): All barges and other DDSG property located in eastern Austria, Hungary, and elsewhere in Soviet reparation areas. This represents about three-fourths of the property of the DDSG company.
3.

Industry: Complete or partial ownership of nearly 300 individual plants in eastern Austria, including: Most of the larger [Page 628] iron and metal fabricating plants in eastern Austria; the majority of Austria’s important machinery plants; most of Austria’s heavy chemical plants; the largest textile mills in eastern Austria; Austria’s only plate glass factory; Austria’s largest steel construction companies; half of Austria’s capacity to produce optical and precision instruments.

Concretely these claims against Austrian oil, Danube shipping and industry means: About one-half of all industry in eastern Austria; between two-thirds and three-fourths of all industry in eastern Austria, other than food and textiles; industrial enterprises employing about 50,000 workers or nearly one-third of all industrial employees in the Soviet zone.

4.
Banks anal insurance companies: One-fourth of all German shareholdings in banks and insurance companies or, in the discretion of the USSR, a proportionate share of the assets of these companies.
5.
Creditor claims: The USSR regards as German assets all debts which Austrians owed to Germans at the end of the war but refuses to take into account debts which Germans owed to Austrians. So far as can be ascertained, the Soviet delegation demands for itself more than a billion Austrian schillings, even after allowance is made for uncollectable claims.
6.
State property: The USSR regards as German assets all property owned by the German Reich at the end of the war, except such assets as were already in existence and owned by the Austrian Govt before the annexation. This includes (for all of Austria) nearly 200,000 hectares (500,000 acres) of land; supplies for and the road beds of super-highways; public buildings such as customs houses; numerous smaller pieces of property and the substantial investment made by Germans in the Austrian railroads. No allowance is made for the fact that these Austrian natural resources and properties were largely paid for by the Germans with funds collected as taxes or borrowed from the Austrians.

B. Nature of Soviet claim.

With respect to all of these claims the USSR insists on the transfer of assets free of liabilities. In the case of a German-owned house in Austria subject to a mortgage, for example, the Soviet delegation claims the house itself but refuses to pay the mortgage. The Soviets thus demand as German assets far more in fact than the Germans owned. In substance this means that reparations would be exacted by the USSR from all those who extended credit on the security of German assets in Austria.

In the case of banks and insurance companies this means that Austrian depositors and policy holders would be required to pay heavy reparations since the USSR claims the assets of their institutions free of all obligations.

Similarly, in the case of all other corporations, the USSR asserts that the transferable reparation asset is either the stock itself or a proportionate share of the company’s tangible properties, as the USSR may choose, free of all liabilities.

Under the Soviet position United Nations nationals would also be forced to pay reparations since assets in eastern Austria held by corporations [Page 629] organized in Germany are treated by the USSR as German even if all the shareholders of the corporations are non-German.

The first victims of Nazi persecution, persons of Jewish faith, would be required to pay reparations to the USSR on behalf of Germans, since the USSR demands the right to retain all Jewish property if ‘any’ compensation was received by the former owner.

Austria’s natural resources in the form of oil and natural gas in undeveloped reserves would also somehow be transmuted into ‘German external assets’, since the USSR claims all German acquired rights for ‘the development of natural resources’—even though such rights were acquired by the Germans during annexation and without payment.

C. Value of Soviet claim.

The value of German assets claimed by the Soviet delegation in Eastern Austria is estimated by the US delegation at more than dollars 700 million.

D. Applicability of Austrian law.

Although the USSR has stated that it is prepared to operate reparation assets under Austrian law, it has nevertheless demanded: (a) permanent immunity from any form of nationalization (without regard to compensation which may be provided); (b) permanent and substantial exemption from Austria’s foreign exchange and export controls through complete freedom to export ‘profits or other income in the form of production or foreign exchange’. The Soviet delegation has advised the commission that this means freedom to export either net or gross profits, in the form of goods or money, as Soviet administrators may see fit.

E. Settlement of disputes.

Disputes relating to every other topic in the treaty are ultimately subject to some form of arbitration. Nevertheless, the Soviet delegation has advised the commission that with respect to disputes regarding German assets it insists on ‘bilateral negotiation’ with the Austrian Government and will not accept arbitration.

ii. soviet monetary claims

In addition to its claims regarding German assets the USSR demands that Austria pay for all relief supplies and services delivered to it since liberation, and further insists upon 600 million Austrian schillings in exchange for German reichsmarks acquired by the USSR on the entry of the Red Army into Austria.

iii. yugoslav reparation and territorial claims

The Soviet delegation also supports a Yugoslav claim for dollars 150 million of reparations from Austria, despite an agreement at Potsdam that reparations would not be exacted from Austria.

The USSR further supports a second Yugoslav Government claim for a border adjustment which would transfer the Slovene-Carinthia area of Austria to Yugoslavia. This areas has a population of about 180,000 people.

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iv. other restrictions on austria

Apart from reparational and monetary claims, the USSR insists that the military forces permitted to Austria be armed with ‘weapons and technical equipment of national manufacture’. This would prevent Austria from purchasing armaments abroad and would require her to divert resources badly needed for reconstruction into the rebuilding of an armaments industry, the destruction of which is now being completed.

The USSR has further joined the French delegation in demanding that Austria be prohibited from possessing various types and quantities of industrial machines and products, conducting research in specified fields, manufacturing numerous listed items, etc., in order to prevent ‘German’ rearmament.

v. treaty guarantees

Finally, the Soviet delegation believes it is unnecessary to include the following article in the treaty:

Article 2—Preservation of Austria’s independence

1.
The Allied and associated powers declare that they will respect the independence and territorial integrity of Austria as established under the present treaty.
2.
The Allied and associated powers shall oppose any action, in any form whatsoever, that may threaten the political or economic independence or the territorial integrity of Austria, and in event of such threat will consult with one another and with the appropriate organs of the United Nations with regard to appropriate action.’

The agreed preamble of the treaty recites that in the Moscow declaration of 1 November 1943 the Governments of the USSR, the United States and the United Kingdom, and later of France, affirmed their wish to see Austria reestablished as a free and independent state. Article 1 of the treaty, which is also agreed, expressly affirms that Austria is recognized and reestablished ‘as a sovereign, independent and democratic state’. The United States believes that if present Soviet claims are accepted, Article 1 of the treaty would automatically be nullified.

It is evident that the gap betwen the USSR and the other Allies is wide. Nevertheless, in the view of the US delegation, after a most careful consideration of the facts, this gap is not unbridgable, assuming, first, willingness to join in a treaty, and second, willingness to make some steps toward compromise. If a treaty is not desired, the German assets problem will readily lend itself for use as a pretext to avoid agreement. And if positions taken and rejected both in Moscow and in Vienna are again reaffirmed in London, it is equally clear that agreement will not be possible. The facts would not permit it.

The United States has repeatedly offered to negotiate a settlement which would be bearable to Austria and yet generously satisfy the Allied obligation to transfer to the USSR German foreign assets in Eastern Austria. At the end of the Vienna Conference, and on the eve of the London meeting of Foreign Ministers, it once again renews that offer.”

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  1. An earlier, shorter draft of the statement contained in this telegram had been transmitted in telegram 978, October 7, from Vienna, not printed (740.0011 EW (Peace)/10–747). Telegram 817, October 9, to Vienna, not printed, stated that the Department considered that the indictment of Soviet tactics in the Austrian Treaty Commission as set forth in Ginsburg’s draft statement ought to be reserved until there was a clarification of Soviet intentions as gauged by the reaction by the U.S.S.R. to a concrete offer on German assets. Until the negotiations in the forthcoming meetings of the Council of Foreign Ministers revealed whether the Soviet Union was willing to compromise on the Austrian treaty, the Department doubted if it would be useful to place in the public record the United States positions and the Soviet demands on specific points of disagreement. The Department preferred to release to the press the statement already prepared in Washington (740.0011 EW (Peace)/10–947).

    Telegram 832, October 11, to Vienna, commented as follows on the proposed statement by Ginsburg contained in this telegram:

    Dept regards this as excellent analysis of specific demands USSR re outstanding issues Austrian Treaty which should be kept in reserve for possible future use in building up US or tripartite case before world opinion if later developments make this advisable.” (740.0011 EW (Peace)/10–1147)

  2. Regarding the Department statement under reference, see the editorial note, infra.