Executive Secretariat Files
Report to the National Security Council by the Department of State 1
NSC 38
The Problem
The Austrian Treaty in the CFM.
Analysis
1. status of negotiations in the cfm
The Austrian Treaty has been the subject of negotiations in the CFM, the CFM Deputies, and the Austrian Treaty Commission since January 1947. During these negotiations a large area of agreement has been reached and numerous articles have been approved for inclusion in the final draft of the Treaty. A large area of disagreement, however, still remains. The issues in the Treaty subject to further negotiations, particularly the German assets question and the frontiers, involve the basis of Austrian independence and, consequently, have a vital effect on the fulfillment of U.S. policy objectives.
At the last meeting of the Deputies (London, February–May, 1948) negotiations were suspended during the discussion of the Yugoslav claims for frontier rectification and reparations (Articles 5 and 34). The representatives of the western states maintained that any agreements on a compromise proposal for the settlement of the German assets problem would depend on agreement on all remaining issues in the Treaty. When the Soviet Deputy refused to withdraw his support of the Yugoslav claim for frontier rectification and declared that some change would have to be made in the frontier to meet the legitimate interest of Yugoslavia, the western Deputies stated on May 6 that further discussion would be pointless. No further meetings have been convened. We have informed the Austrian Government, as well as the British and French, that we will concur in a projected Austrian proposal for a resumption of treaty negotiations early in 1949.
[Page 1511]2. unagreed issues in the austrian treaty
The remaining unagreed issues subject to further negotiations may be summarized as follows:
a. German Assets 2
In view of the impossibility of reaching agreement on a definition of “German external assets”, to be transferred to the Soviet Union in satisfaction of its claims under Potsdam, the CFM has endeavored to reach agreement on a compromise proposal introduced by the French in the Austrian Treaty Commission on October 7, 1947 and the counterproposal of the Soviet Delegation of January 24, 1948. The compromise offered by the French proposed that certain properties in the field of oil production, oil refinement, oil distribution and oil exploration, and certain properties belonging to the Danube Shipping Company be transferred to Soviet ownership in satisfaction of their claims to oil and shipping properties and that the Austrian Government pay a lump sum to the USSR in satisfaction of all other claims. In return the Austrians would regain control of all other properties now claimed by the USSR as German assets, the ownership of which would not be transferred to the Soviet Union by the Treaty.
The existing differences among the delegations on the various points involved in the German assets question are summarized in Tab A.
b. Frontiers (Article 5)
The Western Powers have agreed that the Austrian: frontiers of 1937 shall be restored and no territory be ceded to Yugoslavia. The USSR believes that legitimate Yugoslav claims should be considered.
c. Reparations (Article 34)
The Western Powers have agreed that in accordance with the Potsdam Agreement no reparations shall be exacted from Austria. The USSR holds that legitimate Yugoslav claims should be considered.
d. Military Defense (Articles 26 and 27)
The Western Powers insist that Austria shall be permitted to arm its military forces to the extent agreed in the Treaty with no restrictions on the source from which material is obtained.
The US and UK are agreed in opposing extensive restrictions on the economic life of Austria which are considered necessary for military security by France and the Soviet Union.
e. Independence (Article 2)
The Western States have proposed that all four powers agree to respect the independence and territorial integrity of Austria. The USSR does not consider that such a provision is necessary.
[Page 1512]f. Displaced Persons (Article 16)
The Western Powers insist that the principle of voluntary repatriation safeguarding the rights of refugees shall become the basis of the article dealing with displaced persons in Austria. The USSR opposes this principle.
Other unagreed articles such as United Nations’ property, the settlement of disputes arising from property questions and other related issues probably can be settled once agreement is reached on the foregoing basic questions.
3. the importance of the unagreed articles in u.s. policy objectives
a. The German Assets Question
The settlement of the German assets question on the compromise basis proposed by the French raises serious questions involving U.S. policy. The existing instructions to the U.S. Delegation (summarized in detail in Tab B3) hold that no settlement shall be accepted which imposes on Austria an obligation beyond its capacity to discharge, or which deprives Austria of resources to an extent making impossible the fulfillment of minimum requirements from indigenous production, or which creates in Austria any privileged position for Soviet enterprises exempt from the normal operation of Austrian law. A settlement of the German assets problem which would involve extensive foreign aid to effect fulfillment would be inconsistent with U.S. policy objectives. Likewise, a settlement, the terms of which could not be carried out and would in event of a default invite Soviet intervention in Austrian domestic affairs would create a security risk of major proportions. No settlement, therefore, should be accepted at this time which leaves the USSR in a position either to intervene in Austrian affairs in order to gain political advantage or to retard the present rate of recovery by preventing resources from being used to meet Austria’s own requirements. It is important that the amount and nature of the payments to be made under a lump-sum settlement should be such as not to jeopardize the viability of the Austrian economy or its present rate of recovery. Although it is recognized that property will have to be transferred to the USSR under the terms of Potsdam, the emphasis in any future negotiations should be on the conditions under which Soviet enterprises are to operate in Austria in order to avoid conditions permitting the exercise of undue pressure by the Soviets on Austrian national life.
b. International and Internal Security
The JCS recommended in March 1948 that from the military point of view it was not desirable to conclude at that time a treaty involving [Page 1513] the withdrawal of the occupation forces; if overriding political and economic considerations required, however, that a treaty toe concluded, the occupation forces should not be withdrawn until such time that the Austrians have organized, equipped and trained a security force reasonably adequate to perform the tasks envisaged in the treaty. In accordance with this recommendation, steps are being taken in the three western zones of Austria to train and equip the Austrian police, and to provide preliminary organization and training for the Austrian army. Since a treaty would not become operative for at least eight months, the training of police should by then be well advanced. Under existing agreements, the small nucleus of the army now being secretly projected, cannot be expanded to normal strength until 90 days prior to the withdrawal of the occupying forces.
The problem of internal and external security remains the basic problem in concluding a treaty at this time. In terms of external security, Austria’s geographic position in relation to the satellite states and the lack of any means of defense would make impossible any Austrian resistance of external aggression. Sufficient forces, however, can be formed within Austria to prevent internal disorder and any projected Communist coup d’etat, provided sufficient controls are left to the Austrians to assure that Soviet enterprises are conducted according to Austrian law and are not used for political objectives. Similarly, sufficient forces can be provided in Austria to combat any guerrilla activity which may follow a rejection of the Yugoslav claims and the restoration of the frontiers of 1937.
c. The Political Situation in Austria
The political situation in Austria, which is at present completely favorable to western objectives, requires that all possible steps be taken to secure the early withdrawal of Soviet forces.
The Austrian Government must utilize every means to obtain Soviet withdrawal, and since this can be achieved only by treaty, must push for the completion of the treaty at the earliest possible moment. It is for this reason that the Austrian Government has proposed the resumption of treaty negotiations.
The Austrian Parliament reconvenes in November and the Government coalition must renew its efforts to achieve complete national liberation, both in order to maintain the coalition as a functioning unit and to prevent the use of splinter parties or splits in the major parties over the issue of cooperation with the USSR in the hope of obtaining easier terms from their occupation forces. While there is no immediate possibility of such a development, the longer the Soviet forces remain in Austria the greater will be the pressure for an agreement accommodating Soviet political objectives in the hope that the burden of occupdation might be alleviated.
[Page 1514]d. The Extent of Economic Reconstruction
The conclusion of a treaty is essential to full recovery in Austria and the establishment of the Austrian economy on a sound, self-sustaining basis. In spite of military occupation, Austria has since liberation been able with extensive foreign aid to achieve a progressive improvement in production, volume of exports and the level of consumption. The average production of certain producers’ goods has now practically attained the pre-war level. Nevertheless, so long as occupation by the Four Powers continues Austria will be prevented from achieving maximum utilization of its own resources and facilities, and the Soviet position in Eastern Austria will mean a constant drain on the Austrian economy. There is, of course, further possibility of economic revival within the limitations resulting from the occupation, but the objectives envisaged in our ECA program for Austria cannot be fully attained by 1952 unless a treaty with acceptable economic provisions is completed at an early date.
Conclusions
- 1.
- Our primary objective in an Austrian treaty should be viable, independent state free from alien domination.
- 2.
- We should insist upon the recognition of Austria’s 1937 frontiers.
- 3.
- We should continue with the British and French, until the treaty becomes operative, the current program of training and equipping the Austrian police in the Western zones and the organization, training, and equipping of basic cadres in the Austrian army.
- 4.
- We should seek a settlement of the German assets question which is within Austria’s capabilities. The treaty should define precisely the amount, nature, and terms of the Austrian obligations to the Soviet Union and the conditions under which the Soviet enterprises in Austria will be operated.
- 5.
- We should seek the admittance of Austria to the United Nations at the earliest date, if possible before the completion of the treaty.