860S.5151/6–2548: Telegram

The Secretary of State to the United States Political Adviser (Joyce), at Trieste


319. The Dept has requested the Brit Emb here to transmit the following to London:

“The Department of State proposes to the British Foreign Office the adoption of the following to serve as an agreed US–UK position [Page 564] regarding financial and economic policy for the British-US Zone, Free Territory of Trieste:

In view of their occupation and governing responsibilities, the US and UK Govts will give special consideration to the Zone in financial and economic matters, as outlined below, with a view to raising, wherever possible, industrial output and trade at least to pre-war levels as has already been achieved by such countries as France and Belgium.
The US–UK Govts take note of the basic economic recovery program for Trieste as transmitted to the Combined Chiefs of Staff by Taf 1071 and propose the following specific measures:
That the negotiations with the Ital Govt on finance and foreign exchange which reached three initial agreements on March 9, 1948, be resumed early in July in order to clear up the question of troop pay which was left unsettled and to seek the concurrence of the Ital Govt in an interpretation of a provision of the Agreement dealing with foreign exchange, as follows
That 50 percent of the dollars and sterling received by the Zone for the lire expenditures of the US and UK forces for supplies, services and facilities be retained by Allied Military Government. The balance would be transferred to the Ital exchange authority.
That the following provision of the foreign exchange Agreement of March 9, 1948:
  • The Command of the Zone shall however retain for such disposition as it may consider appropriate any special dollar or sterling grants or advances which it may receive as international aid, which for the purpose of this Agreement shall not be deemed to be current earnings.

    be interpreted to mean that any foreign exchange earnings arising from the use of such special dollar or sterling advances shall also be retained for disposition by the Command of the Zone in order to provide for the repayment of such advances.

That AMG, to the extent practicable, take measures to put into appropriate use assets held abroad by residents of the Zone and that residents of the Zone owning blocked dollar assets in the US be given the option of (1) selling their dollars to AMG for lire, or (2) placing them in an AMG revolving fund to finance Trieste processing industries. Such foreign exchange resources are not considered current earnings in the sense of the foreign exchange agreement of March 9, 1948.
That during the hiatus period, which is assumed to be July 1 to September 30, 1948, when Trieste will be operating outside commodity allocations recommended by OEEC or established by ECE, special provision for allocations be established for Trieste by the US and UK Govts as follows:
That a recommendation be made to the United States Dept of Commerce that for this period export licenses be granted to [Page 565] Trieste for 1,500 tons of steel of shipbuilding types and reasonable quantities of Douglas fir and other essential materials, to be financed from ‘a(1)’ above or possibly by ECA after Trieste admission to OEEC;
That for this period the UK Govt establish a special allocation of 3,000 tons of steel products of shipbuilding types to be financed from ‘a(1)’ above or possibly by ECA after Trieste admission to OEEC;
That for this period the UK Govt make a special allocation of 55,500 tons of coal, of which 40,500 tons must be metallurgical coking coal, to be financed from (1) the $144,168 contribution offered by the UK in the note from the Brit Emb dated June 1, 1948, (2) the proceeds of troop pay as in ‘a(1)’ above, and if necessary (3) an ECA off-shore purchase in dollars.
That OFLC be approached with a view to concluding an agreement for the transfer to AMG, under terms of payment to be agreed, of US property in Trieste which has been or may in the future be declared surplus; provided that the Ital Govt agrees to assume whatever obligation relating to this transfer would remain at such time as Italy might succeed AMG as the governing authority in the Free Territory.
That the ECA and US and UK military authorities in Austria and Germany be approached with a view to concluding arrangements under which the port facilities of Trieste will be used to the maximum extent possible for transit trade with Austria and Germany, and that the petroleum and vegetable oil refining facilities of Trieste be utilized to process products for those same areas.
That it be recommended to ECA that the local currency counterpart of ECA grants to the Zone be utilized (1) for investment to improve the Zone’s industrial productive facilities, and (2) if necessary to assist in providing working capital for ERP industries in Trieste.
That the base figure, recommended in the Stopford-Hawes report, of 25 billion lire, be adopted as a basis for requests to the Ital Govt under the currency agreement of Mar 9, 1948; provided, however, that AMG be directed to explore all possibilities of reducing this amount through economies in expenditures, improvement in tax collections and other appropriate measures. Joint discussions should be held between AMG and the Ital Govt on this matter early in July. It is understood that this amount is exclusive of lire for shipbuilding financing which will be dealt with in separate negotiations.
That the fund specified in the foregoing para be advanced by the Ital Govt to AMG in quarterly allotments at the beginning of each quarter, effective July 1, 1948; and that any savings which can be effected as outlined in the foregoing para be deducted from the amount to be made available for the quarters following the quarter beginning July 1.
That a special effort be made to meet the key civilian personnel requirements as requested by the Zone Command, with the Brit Govt filling the positions of chief of the Dept of Industry and chief of the section in the Secretariat dealing with external financial and trade [Page 566] matters, and that the US Govt fill the positions of special asst, and chief of the section of the Secretariat responsible for programming, and that the position of chief, Dept of Finance, be filled, as suggested by the UK Govt (Battensby).
That the foregoing be sent to the Amer and Brit Embs at Rome for their guidance in giving dipl support to the Reps of the Zone Command in the latter’s negotiations with the Ital Govt in pursuance of those of the foregoing points which require Ital implementation or concurrence.
That the Zone Commander be informed of the agreement reached by the UK and US Govts; that at the same time the Commander be reminded of the tripartite declaration of Mar 20 looking toward the reincorporation of Trieste in Italy and be directed to continue to frame his policies in the light of this declaration and to work in close-consultation with the Govt of Italy in all matters concerning Trieste administration which are of interest to Italy, including those which will concern Italy as the probable successor to AMG in the Free Territory.”

In accordance with your 359 June 192 White will proceed to Trieste, arriving there on or about June 30.

Sent Trieste as 319 rptd Rome as 1747.3

  1. Not printed.
  2. Not printed.
  3. The Department’s telegram 333 of July 6 to Trieste, not printed, proposed a series of amendments to this draft statement (860S.5151/6–1948).