Foreign Relations of the United States, 1949, Council of Foreign Ministers; Germany and Austria, Volume III

740.00119 Council/7–149: Telegram

The Secretary of State to the United States Deputy for Austria at the Council of Foreign Ministers (Reber)

secret

Washington, July 1, 1949—7 p. m.

2297.¹ Audel 65. For Eeber. Fol are comments and specific instrs where indicated re Art 35 in forthcoming discussions:

We consider Deputies discussions on points specifically referred by Ministers will be crucial not only in obtaining final settlement Aust Treaty but in determining Aust exact status in post-treaty period and its ability maintain independence in face of extent obligations to Sovs. Maximum clarification shld be obtained on remaining unagreed points either in exact language of Treaty or as part of record for future interpretation. In each case involving either Aust obligation to Sovs or exercise of Sov rights in Aust, it shld be clearly understood how settlement will operate in practical terms.

1. Settlement of disputes. Key point in future agreement, in connection technical and legal problems listed below, will be satis agreement on settlement of disputes. Our position shld be that disputes arising under Art 35 must be settled either by Art 50 or 57² since Aust shld at least be accorded same type treatment provided in treaties with ex-enemy states. Insistence on this point is particularly necessary if there any question about exact meaning other aspects settlement. It may be possible in negotiating to agree to Sov position on some other point in obtaining Sov acceptance US position on settlement of disputes.

2. War Booty. You shld seek maximum return to Aust of property or goods now held or claimed by Sovs as war booty. Legal analysis concept war booty in US policy will be forwarded you. In no event shld any proposal be accepted which involves retention by Sovs any industrial enterprises or rolling stock still in Aust without specific instrs from Dept.

3. Waiver of Claims. Agreement reached on waiver claims shld be clarified in Deputies discussion by obtaining for record Sov statement such waiver includes claims for improvements and additions made by Sovs to so-called Ger assets while under their control.

4. Alienation. Clarification shld be obtained on meaning of “alienation”. We do not under any circumstances consider alienation implies immunity of transferred property from judicial process connection enforcement appropriate Aust laws such as tax laws. Our interpretation is limited to provision that Aust shall not take any transferred properties into public ownership pursuant to nationalization, eminent domain or similar act.

5. Profits or Other Income.

a. A major difficulty will be encountered in clarification and exact agreement on Sov phrase “profits or other income, i.e. rents” in view of uncertainty whether Sov accept concept of net profit under Aust law and precise definition of “other income.” There is no serious objection to apparent Sov dichotomy relating “profits” to operation of enterprises and confining “other income” to rent return on leases, provided net income or net profit as commonly determined in Aust law is meant in both cases. This dichotomy is cumbersome and a draft based on net profit (or net income) arising either from operations or leases would be a neater and more exact description.

b. It is essential that privilege to export free of Austrian regulation be confined to net aggregate profits (income) from property, rights or interests transferred under Art. 35. Sov cannot be permitted acquire new income producing sources in Aust with earnings of transferred enterprises and claim transfer or export privilege for profits of newly acquired enterprises. Nor can one Soviet Company lease properties to another at a fictionally high rental and claim export privilege for lessor’s corresponding high net income, ignoring lessee’s loss. Possibly ultimate solution for this danger lies in further work which may have to be done re nature of Sov organizations permitted to hold transferred assets. Para (d) of draft in fol message³ designed to preserve this point initially.

c. We agree Sov shall have freedom from Aust commodity export controls now or in future re portion of production in kind from transferred enterprises corresponding in schilling value to net profit in schillings. We also agree USSR shld be free of Aust foreign exchange controls re use or disposition outside Aust of fon exchange derived from sale of production corresponding to net profit. USSR may also lease installations in Aust for fon exchange and have that portion of gross rentals corresponding to net profits free for use outside Aust. Foreign exchange earned from sale of production of transferred properties or from leases are subject to Aust foreign exchange control over and above portion corresponding to net profit (income). USSR may not use permitted foreign exchange acquisition or retention for black market acquisition in Austria of Aust schillings, but may withdraw such exchange from Aust. Use of Aust schillings or of this foreign exchange to acquire goods in Aust shall not confirm privilege to export the goods. “Foreign exchange” means any non-Aust currency. We see no reason for emphasis on convertibility as USSR will have complete control of situation as to where and for what currency it will sell its profit product.

Further comment and draft of possible agreement on export of profits will be transmitted in subsequent message.

Acheson

1. Repeated to Vienna as 666.
2. Article 50 (Settlement of Disputes) and Article 57 (Interpretation of the Treaty) provided for the settlement of disputes by direct negotiations between Austria and the government concerned. If agreement could not be reached by direct negotiations, a third member could be selected by the two parties. If the third party could not be agreed on then either party might request the Secretary-General of the United Nations to select the third party.
3. Telegram 2293 (Audel 64), July 1, not printed. (740.00119 Council/7–149)