862.60/10–649: Telegram

The Secretary of State to the Office of the United States High Commissioner for Germany, at Frankfurt

top secret

2314.1 For McCloy.

Dept has reviewed dismantling program in light proposal outlined in New York’s 1235 Oct 62 rptd Frankfort as USUN 3 for study by High Commissioners and review by Govts and suggestion urtel Bonn 12 Oct 63 that PRI plants not be allocated to IARA pending completion review by Govts or survey by ECA if undertaken.
We are fully aware desirability finding solution which will reduce friction caused by dismantling. We also agree we shld retain our maneuverability far as possible and seek over coming weeks avoid actions which might prejudice decisions to result from governmental review. We hope UK will soften its position in near future, and do not overlook possibility, though remote, Ger Govt may find formula to ease problem. Situation, however, is extremely delicate and involves not only our relations with Gers but also agreements with Brit and Fr. Necessary therefore keep clearly in mind field in which we have freedom to operate.
Nub of situation lies in plants which have not yet been dismantled. As we see it retention plants already dismantled wld not relieve situation, but on contrary might even feed public discontent at continued removal plants still in process being dismantled. Certain plants now scheduled for dismantling are being removed or destroyed pursuant agreed security arrangements. These include war plants and [Page 615] relatively small number plants in prohibited and certain restricted categories under PRI agreement, such as beryllium, magnesium, synthetic oil, and aluminum. Retention such equipment wld represent modification agreed security arrangements which might impair unity of three powers achieved at London and Wash discussions. There is another group of plants, principally steel plants, whose removal was agreed to in dismantling agreement following Humphrey Committee survey. Finally there are certain so-called set-aside plants not within category of war plants which are still being dismantled. It is among last two groups that area of maneuverability exists. As between two groups, public interest has centered chiefly on steel plants. Little concern has been expressed as to set-aside plants. Steel plants, however, have already been allocated to IARA. Set-aside plants have not been allocated to IARA.
Scheduled review of dismantling by Govts will not modify PRI agreement or dismantling undertaken pursuant to agreement, recognizing, as explained below, removal steel plants, although these industries are covered by PRI agreement, was reached as part of agreement on plant removals negotiated on basis Humphrey Comite report. Although dismantling issue figures largely now in our relations with Ger Govt, our preoccupation with this problem shld not distract us from major objectives sought in London and Wash agreements. As you know, Fr regard their agreement to establishment responsible Ger Govt with freedom action contemplated in Washington agreement as bargain in which they obtained agreed security arrangements. We can expect difficulties with Fr in working out agreement in practice. Our difficulties will be intolerable if they believe we are seeking withdraw from our part of bargain, particularly as regards security.
Apart from our relations with Fr, we must consider our relations with Gers. Ger agitation has been particularly intense concerning prohibition against synthetic oil. US at cabinet level determined this particular prohibition to be wise and necessary in interest our natl defense. PRI agreement was laboriously negotiated as one of basic security arrangements underlying Washington agreement. Although there may be some doubt as to necessity each specific prohibition and restriction, each provision agreement was accepted by three powers. We cannot yield to Ger pressure on question of security.
For same reason, removal of PRI plants determined for reasons security cannot be reviewed in light purely econ considerations. US through Hoffman and Douglas gave UK and France categorical assurance in Dec 1948 there wld be no review under Section 115 (f) of ECA Act of removal of plants resulting from decisions taken in PRI agreement. [Page 616] (See Deptel 4593 to London Dec 9, 1948 rptd to Berlin as 19334 and Embtel 5212 from London Dec 13, 1948 rptd to Frankfort as 49.5) We cannot go back on this agreement.
Within this framework of security arrangements, we propose, subj your comments, fol course action, looking toward removing principal source irritation with Gers:
Discontinuance all dismantling in Berlin, In view situation Berlin, further dismantling in Western sectors is source major political embarrassment. Understand plants involved are in Fr sector. Borsig plant in this group is listed as war plant and has already been allocated to IARA, and may cause complications. Nevertheless, believe it desirable you indicate your support to Fr High Commissioner of any action he has taken or may take toward halting removals from Berlin in present situation, and in support action already taken by UK (See Embtel 4214 Oct 20 from London rptd Frankfort as 1306).
In view major emphasis placed by Gers on unit of Gelsenberg synthetic oil plant engaged in hydrogenation process, Dept is considering discussion with FonOff through Amb Douglas following expedient for softening impact PRI agreement in Germany:
Limiting dismantling at Gelsenberg for time being to units necessary for preparation of coal for hydrogenation. This wld permit completion study situation and preparation definitive proposals. This suggestion based on assumption, which we believe shld be verified by Frankfort, proposed limitation dismantling is feasible without seeming to local population as evident sign of change in dismantling policy there.
We have in mind possibility raising with UK and France granting permission for six-month period for operation of unit for hydrogenation of oil. We do not wish make such proposal however until we are absolutely sure existing refining facilities not adequate meet current requirements or that alternative arrangements cannot be worked out. In any event plant will be obsolete after repair or construction of other more economic facilities has been completed. We have conflicting estimate as to time when Gelsenberg unit will be clearly surplus to Ger requirements. We intend raise this matter with Fr only after UK has agreed to whatever proposal we decide to make.
Amb Douglas will be asked raise with FonOff problem created by continuing dismantling of plants which may upon review be retained in Germany. He will inquire of Brit if they have considered [Page 617] slowing down or stopping dismantling plants whose retention in Germany UK regards as reasonable and likely be agreed in course of review. He will remind UK steel plants have been chief source controversy on part Gers. In pointing this out he will state retention such plants wld not involve any change in PRI restrictions on steel industry. He will emphasize that US will not, in governmental review, propose seek change in production limitation or in licensing requirements in respect of type of capacity or construction of new capacity. If question is pursued, he can explain PRI agreement did not place any specific limit on steel capacity (as distinguished from production) and that amount steel capacity to remain in Germany was covered in agreement relating to removals which was based on Humphrey Committee survey. We do not propose undertake similar discussions with Fr with respect to their Zone at this time inasmuch as time table for review set forth USUN 3,7 is still under consideration by French Govt and dismantling in Fr Zone is not a source of acute difficulties with Germans. Amb Douglas wld, however, indicate to Brit we wld appreciate being kept advised of such action in respect to slowing down of dismantling in Brit Zone they may consider desirable, and presume they wld keep French also advised.
In view necessity removing PRI plants and war plants, further delay in allocations these plants to IARA does not protect our position and raises unnecessary alarms on part Brit and Fr, as evidenced by representations already made to Dept by Brit Emb and Fr Emb. We do not underestimate problem of IARA relations but plants we may seek to retain in Germany are only among those already allocated to IARA, viz. Borsig plant and steel plants.

Delay in allocating PRI plants will not give us any bargaining leverage with IARA since plants in this group cannot be retained in Germany. On other hand, refusal on part US proceed with allocation will create presumption US intends at time review to reopen PRI agreement and to recede from agreed security provisions. As result, possibility obtaining reasonable solution from Fr and Brit will be seriously reduced. Dept therefore requests you proceed without further delay with allocation PRI plants to IARA.

As regards set-aside plants, Dept has already agreed with UK and Fr allocate these plants to IARA. We shld proceed to do so with respect to war plants in group for reasons outlined above. We can see some advantage in your proposing to withhold allocation balance these plants for time being. Although unlikely any such plants, particularly those already dismantled, will be considered desirable to retain in Germany, it may be desirable not to foreclose decision at this time before governmental review. These plants may also offer some bargaining leverage with IARA and facilitate negots which may be required to retain in Germany other plants already allocated to IARA. [Page 618] We recognize deferring allocation these plants is contrary to understanding reached by Dept with UK and France last month. This may create difficulties.

In view complexities situation, we are convinced our best hope for progress lies in avoiding implication US bringing pressure on Fr and Brit for retention plants in Germany. Approach outlined must therefore be handled without publicity any form either here or in Germany and nothing must be done which cld give rise to inference US is seeking impose solution on Fr or Brit. Issue has been kept in public attention in part through exaggerated and misleading statements which private sources in Ger or in this country have made and which gain wide currency. It wld be helpful if your staff wld keep Dept advised of significant distortions of fact which come to their attention and of correct factual situation so that issue can be played down for time being.
We will take advantage any opportunity that presents itself for advancing date of governmental review. You may find it possible when study in Nov initiated by High Comm to persuade your colleagues to complete report to Govts much sooner than Jan 1.
For London and Paris. Comments of Douglas and Bruce wld be appreciated.

ECA concurs.

  1. Repeated to London, Eyes Only for Douglas, as 3838; to Paris, Eyes Only for Bruce, as 4074.
  2. Ante, p. 610.
  3. Not printed.
  4. Not printed; but see footnote 3 to telegram 5157, December 8, from London, Foreign Relations, 1948, vol. ii, p. 843.
  5. Ibid., p. 849.
  6. Not printed; in it Douglas reported a conversation with Kirkpatrick regarding the employment of slow-down tactics in dismantling the Borsig plant in the French sector. Kirkpatrick said that Schuman was not receptive to this suggestion and instead offered to slow down dismantling on other plants in the French zone. Kirkpatrick indicated to Douglas that the British Foreign Office planned to discuss this problem again with the French and would welcome United States support in its efforts. (740.00119 EW/10–2049)
  7. Ante, p. 610.