893.248/11–2948
The Secretary of Defense (Forrestal) to the Secretary of State
Dear Mr. Secretary: Reference is made to the memorandum of 25 November 1948 from the Chinese Ambassador, entitled “Urgent Supplies Under the 7–Army–3–Reorganized Division Program and for the Chinese Air Force”.
Although the National Military Establishment accepted the entire request from the Chinese representatives in Washington, for the “7–Army–and–3–Reorganized Division Program”, no commitment was made by the National Military Establishment about the quantity to be supplied or the prices to be charged. While the Department of the Army subsequently accepted the $37,783,386.68, transferred for application to the program, it was the Department of the Army’s position that the prices to be charged would be in accord with the standard pricing formula, applicable to all foreign aid programs; and that the supplies would be furnished only within the limits of the $37,783,386.68, using such formula as the basis for computation.
The pricing formula, upon which the cost of this program is computed, is stated basically:
- (a)
- Items requiring replacement in Department of Army stocks to meet minimum known requirements will be charged at current procurement prices.
- (b)
- Items requiring replacement in Department of Army stocks to meet maximum known or anticipated requirements, over and above minimum requirements will be charged at 1945 or original procurement prices.
- (c)
- Items over and above the maximum known or anticipated requirements, i.e. surplus items, will be charged at 10% of original procurement prices.
Based upon the above formula, the cost of the Chinese “7–Armyand–3–Reorganized Division Program” will amount to an estimated $74,987,810. This figure includes costs for packing, handling and inland transportation, but not ocean transportation which presumably will be furnished free of charge by the U. S. Navy. Under these conditions approximately 50% of this program can be fulfilled with the $37,783,386.68.
Although the computations based upon 1945 prices, as submitted by the Chinese, are substantially correct, it should be noted that these [Page 223] figures do not include a provision for costs of packing, handling and inland transportation. Thus, again assuming free ocean transportation, a decision to charge 1945 prices for all items would permit fulfillment of no more than 90% of the Chinese request at the price of $37,783,386.68 unless these funds are supplemented to defray the administrative and transportation costs incident to the delivery of the supplies to the U. S. port of shipment.
Further, while a legal basis may exist to permit the President to direct the transfer of the supplies requested by the Chinese at 1945 or even lower prices, the deficiency created thereby within the Department of the Army could be corrected only by the Congress through supplemental appropriations. The attached compilation of costs of the Chinese request95 would result in a definite “out of pocket” expenditure by the Department of the Army of $62,500,000 if the entire request were fulfilled.
Under existing statutes and directives the Department of the Army has no authority to effect the expenditure of funds in excess of the $37,783,386.68 toward the completion of the “7–Army–and–3–Reorganized Division Program”.
Concerning the urgently needed supplies for the Chinese Air Force, it is likely that the seventy-three (73) B–26 attack bombers and the twenty-four (24) PB–4Y Navy bombers cannot be purchased within the $125,000,000 Program (P. L. 472). Therefore, should these aircraft be furnished to the Chinese, it is thought probable that the provisions of Public Law 472, 80th Congress, will not be applicable. Although no question is raised concerning the legal basis for effecting the transfer of these items, it is apparent that funding arrangements must be completed before the request is fulfilled.
B–26 aircraft have been retained in Air Force storage for War Reserve purposes, hence are not excess to U. S. Air Force requirements. However, seventy-three (73) of these aircraft can be made available to the Chinese on an “as is, where is” basis. Air Force maintenance facilities already are over-taxed with high priority projects which preclude their use for preparation and reconditioning of the aircraft for the Chinese Government. The supporting spare parts for these aircraft can be made available but likewise are not excess to U. S. Air Force requirements.
The twenty-four (24) PB–4Y Navy bombers similarly are not excess to U. S. Navy requirements and, therefore, could be supplied only from reserve stocks. U. S. Navy facilities are available for preparation and rehabilitation of these aircraft. It is estimated that these bombers can be made acceptable to U. S. Navy Fleet Standards in [Page 224] three months at a cost of $20,000 per plane. However, they could be made “flyable” with the expenditure of 300–400 man hours per plane at an estimated cost of $600 per plane.
The aerial bombs, to which reference is made in the memorandum of 25 November 1948, were requested by the Chinese Air Force on 24 November 1948, for purchase from funds already available to the U. S. Air Force in connection with the $125,000,000 Aid Program (P. L. 472, 80th Congress). The U. S. Air Force has taken action to furnish the total number of bombs requested. The bulk of the requirement is now available within the Far East Air Force. Delivery of the aerial bombs is being expedited.
Similarly, the request for P–47 N aircraft is taken care of in the $125,000,000 Aid Program already underway. These aircraft are being prepared and reconditioned by a commercial contractor. The U. S. Navy can deliver the P–47 N aircraft to China via carrier when they are ready for shipment. January 1949 is the earliest date on which delivery can be expected.
In addition, eighty-five (85) P–47 N aircraft were originally allocated from Far East Command for sale through OFLC to the Chinese Air Force. Of these, fifty-two (52) were contracted but only 51 were delivered, leaving approximately 34 available for future contract.96 However, it is possible that some of these aircraft may not be capable of rehabilitation. In view of these circumstances, expeditious action may be taken by the Chinese Air Force through OFLC in the Pacific to contract for the remaining aircraft which may be capable of rehabilitation and delivery.
In summation it appears that in order to furnish the total Chinese requirement reflected in the memorandum of 25 November 1948, there will be required additional funds to reimburse the National Military Establishment as well as an additional authorization to permit the transfer of supplies beyond the limit of the $125,000,000 program.
Sincerely yours,
- Not pointed.↩
- In a memorandum of December 1, the Chief of the Division of Chinese Affairs summarized Secretary Forrestal’s letter and added: “Since Secretary Forrestal’s letter was dispatched, Air Force officers have called the Division of Chinese Affairs and requested that the reference to the 34 planes be deleted. They stated that 16 more P–47’s will be transferred before the end of this year and that, depending on replacement conditions in the Pacific, further transfers may be effected after June 30, 1949.” (893.50 Recovery/11–2548)↩