Foreign Relations of the United States, 1949, Western Europe, Volume IV

840.00/3–1149: Telegram

The Secretary of State to the Embassy in the United Kingdom

top secret
niact

Washington, March 12, 1949—5 p. m.

834. To Douglas, Chairman Correlation Committee from FACC. Reurtel 910.

1. On question (a) difficult to be more precise at this time. Yesterday NAC after prolonged and difficult debate approved the following on this point: “The NAC is of the opinion that the proposed military assistance program for fiscal 1950 might appropriately include provision for some dollar financing of the costs of a limited program of incremental defense output in the recipient countries. The Council calls attention to the necessity of minimizing conflict with the objectives of ERP by limiting extent to which such output places demands upon resources in ERP countries which could otherwise be used for increasing output of essential goods for European consumption, capital development or exports.” In discussing this with Europeans you should again emphasize our desire to see that military assistance program does not impair ERP objectives, especially in the financial field. NAC language permits compensation not only for raw materials, eqpt and supplies required from dollar areas but also for impact as reflected in civilian production and hence availabilities for civilian consumption and export.

2. On your (b) your answer, which we assume you intend to be polite no, is correct.

3. On your (c) your answer correct. It should be made fully clear final decision is in US hands. Cannot formalize specific procedure for allocation at this time.

4. As of possible value in connection forthcoming meetings, our present thinking on arrangements for intra-European transfers and on equality of sacrifice problem (Deptel 627¹ to London, rptd Paris 573; urtel 838 from London and Repto 3012) is as follows:

Subpara 3, d, 2 of Deptel 627 is not intended to mean that European members should transfer all equipment and supplies at no cost to recipients. Agree we should be prepared to accept any arrangement for financing transfers not involving use of pool of US dollars, which is fully agreeable to all WU countries so long as such arrangement does not disrupt intra-European payment scheme or seriously affect long term European credit stability of countries involved, with the additional proviso that any arrangement adopted must provide for realistic implementation of concept of mutual aid. Arrangement should, however, be separate from intra-European payment scheme.

Equality of sacrifice is certainly desirable ultimate objective, although as stated by you, percentage of national income expended on defense would not seem to be a complete criteria to measure relative effort. Suggest, however, that this objective should be achieved gradually over extended period. Proposals for immediate substantial increase of military expenditures by any country to achieve equality of sacrifice would unquestionably have serious political repercussions, and even if approved could seriously disrupt economy of the country. Equality of sacrifice principle should be focused on the distribution of the financial burden of program among countries in such a way that financial considerations do not prevent fullest and most economical use of available physical resources.

Would appear that equality of sacrifice principles as defined by UK could substantially affect intra-European payments scheme. For example, payments to England by countries without Sterling balances above requirements for civilian imports and necessary reserves would create a deficit for essential civilian imports which UK would presumably cover only if equivalent dollar allocation was made.

Suggest that countries might well accept general principle of equality of sacrifice, but that there also should be taken into account availability of foreign exchange and extent to which feasible to move towards equality of sacrifice under existing conditions. A workable arrangement could perhaps be developed by creditor nations contributing funds to a common pool to finance transfers. The amount to be contributed by each nation would be determined by negotiation in accordance with the above factors, including equality of sacrifice, with interim contributions so transfers can be initiated immediately.

Under such an arrangement, Belgium, for example, as a creditor nation with relatively small military budget might pay for equipment and supplies received from other WU countries, and transfer Belgium equipment and supplies to other member nations either without charge or by making local currency grants to finance such transfer. France, however, might not be required to make payment for equipment transferred from UK, even if degree of sacrifice not as great as that of UK. Belgium might well be required to contribute funds to finance some transfers of equipment and material from UK to France, but UK should not insist that Belgium finance all such transfers under concept of equality of sacrifice.

Items from surplus stock should perhaps be treated differently with provision for transfer without payment, or as in the case of previous disposals of property by the US, at a small percentage of original cost. Consideration might also be given to possibly providing for joint use of some equipment whereby use of equipment would be authorized without payment or transfer of title, with provision for retransfer to other countries in accordance with strategic plans to be developed.

US would provide dollar assistance to a country for additional military production undertaken for transfer to another country in the same manner as dollar assistance would be given for additional military production for the countries’ own use. Cost to recipient would be reduced by the amount of dollar assistance except to extent such assistance intended to compensate for indirect impact. Additional dollars, however, would not be allocated in return for grants to other countries or to a common pool. Some flexibility possible in compensating producing countries for indirect impact where necessary to facilitate transfers otherwise impossible despite reasonable efforts to achieve mutual aid and equality of sacrifice principles.

5. Consideration being given here to extension these mutual aid principles to non-WU Atlantic Pact countries. Please discuss with WU countries and report urgent your and their comments.

Acheson

1. Not printed.