Foreign Relations of the United States, 1949, Eastern Europe; The Soviet Union, Volume V

660H.119/7–2949: Telegram

The Ambassador in Yugoslavia (Gannon) to the Secretary of State

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Belgrade, July 29, 1949—7 p. m.

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728. Both arguments advanced by Defense Department against blooming mill project (Deptel 403 July 26¹) demonstrate urgent need for high level reiteration of basic concepts in our Yugoslav policy.

I thought we had long ago passed stage where doubt still lingered on whether our revised Yugoslav policy was to our national interest in our dealings with USSR. Contention that approval blooming mill project would increase overall Soviet area steel production capacity seems to rest on proposition that Tito break, if not hoax, is at best of only ephemeral utility. Surely in light developments of past year this opinion cannot be seriously held. Equally invalid is contention that Yugoslav economic military potential will be greatly increased. Blooming mill is not designed to handle alloy steels used in armaments. It is part of total operation which Yugoslavs hope eventually will meet much of their domestic peace-time steel needs. I wonder if Defense may not be overrating Yugoslav steel potentialities. Their whole industrial stage of development is far below modern standards and their possible rate of improvement will perforce be slow. I had supposed these risks duly calculated and discounted when whole problem was discussed last winter. Washington has abundant material on this topic. See for example Major Zeller’s study of use of German reparations machinery and effects of loss of POW skilled labor in despatch 70 February 18.²

I had long discussion with Ambassador Harriman at Paris on Yugoslav industrial position. Suggest consulting him if available in Washington.

We read NCS’s decision 18/2 to mean Washington in general agreement with this Embassy’s conclusions regarding actual and potential value to us in maintaining break between Yugoslavia and USSR. Hitherto we have been gaining much at no cost. We are only now entering phase of real help. We know and have so reported that blooming mill license in Yugoslav eyes is test of our intentions. We here are convinced that major element in maintaining vigor of Yugoslavia’s resistance to everything combined viciousness of Eastern bloc has been able thus far to bring against them has been reliance on Western grasp of political realities. If we are not going to follow through, we should promptly begin evaluation of consequences of letting situation go by default.

Cannon

1. Not printed; it reported the license for export of a blooming mill to Yugoslavia had not been issued because of objections by the Secretary of Defense on the grounds that the project would increase overall Soviet area steel production capacity and because of a general opposition to increasing Yugoslav economic-military potential (660H.119/6–2049).
2. Not printed.