865.24/1–2348: Telegram

The Secretary of State to the Embassy in Italy

top secret

238. Reur 319 Jan 23,1 OFLC confirms your figure of approximately $1–1 million (reported by OFLC as 13.9 million) as amount of credit available to Italy for further purchases surplus property located abroad. This figure arises from short-falls in deliveries on 36 contracts entered into prior to Sept 9, 1946 embraced into the Bonner–Corbino Agreement.2

OFLC also confirms that a substantial underrun is expected in deliveries under Bonner–Corbino Agreement with respect to surpluses for which contracts had not been entered into prior to Sept 9, 1946 and which were contracted for by Bonner–Corbino Agreement itself.

Your figure of 840 million resulting from this underrun on the Bonner–Corbino Agreement does not agree with any figures made available by OFLC Paris in terms of either original cost or purchase price. Any arrangement to permit Itals to purchase surplus outside of Italy against the “credit” made available by this second type of underrun would, according to present thinking, require an amendment to Bonner–Corbino Agreement to (a) permit use of such “credit” for purchases of surpluses outside of Italy and (b) provide for charging such purchases at individual contract prices rather than at 18.2 percent of original cost. Before considering further the nature of such an amendment, OFLC Paris is hereby instructed to cable you (rpt Washington) estimated aggregate amount of underrun which will result when deliveries under Bonner–Corbino Agreement are finally completed.3 Amounts shd be stated in terms of both original cost and purchase price of all property transferred or to be transferred under that Agreement, excluding 36 prior contracts.

Pending receipt of this info and further consideration as to how Bonner–Corbino Agreement shd be amended to permit purchasing beyond 13.9 million dollar credit presently available, OFLC has agreed [Page 764] that principle may be established permitting Itals to purchase surplus located abroad to extent that aggregate of prices for all purchases made does not exceed $160 million, including (a) total charges arising from Bonner–Corbino Agreement, including 36 prior contracts; (b) $18 million charge arising from Taff–Del Vecchio Agreement4 and (c) charges for all new purchases made since Taff–Del Vecchio Agreement.

Dept considers unnecessary to contact NAC for authorization to charge further Ital purchases on basis outlined above. As you are aware no further purchases may be made after Jan 31, 1948 from declared surplus in Germany, except property of a type denied the German economy by Allied policy and excluded from the sale to Germany, principally combat material, aircraft and maritime equipment. There is no deadline for purchase of this type of property. Such materiel will be declared surplus for sale to Italy only after requirements have been examined, availabilities determined, and authority for their transfer issued by appropriate Dept offices.

OFLC is unable to include costs of transportation from German border or from US in contract price of purchases. OFLC has no appropriated funds with which to reimburse transportation agency. Purchases made in Germany will, however, be packaged and transported to the German border by US Army without charge to Italy.

Sent Rome as 238, rptd Paris for Hyssong OFLC as 262.

  1. Not printed.
  2. See Foreign Relations, 1946, vol. v, p. 932, bracketed note.
  3. In telegram 646 of February 5, 1948, to the Department, repeated to Rome as 47, OFLC Paris expressed the view that $12 million was all that was available to Italy under the Bonner–Corbino Agreement without amending it, but that that sum would be adequate (865.24/2–548).

    However, in Rome telegram 812 of February 25, Dunn referred to Paris 646 and stated: “Having studied in detail combat material needs of Italian armed forces we disagree with statement in reference cable that $12,000,000 is adequate to cover foreseeable requirements.” (865.24/2–2548)

  4. See Foreign Relations, 1947, vol. iii, p. 939.