Foreign Relations of the United States, 1950, Western Europe, Volume III

840.00R/8–1250: Telegram

The Acting United States Special Representative in Europe (Bonsal) to the Administrator of the Economic Cooperation Administration (Hoffman)

secret

Paris, August 12, 1950—6 p. m.

Repto 4492. For Bonesteel¹ and Breithut.² Reference: Torep 6470,³ July 29, 8 p. m. and Cleveland–Gordon telecons 8/8 and 8/9.⁴

1. Herewith comments OEEC–NATO relationships based on discussion within OSR, August 10 conversation among Stikker, Bonsal and Gordon and discussions London and Paris with members major OEEC delegations and Secretariat. All conversations have been informal. It is clear that no PC Government has yet arrived fixed views, although active consideration proceeding several capitals. There is strong tendency to await US lead and general agreement that US position will be decisive. We believe highly desirable have clear US position when NAT deputies resume London August 22 and essential have firm position at least by time mid-September New York meetings.

2. All views canvassed thus far, including our own, generally accord reftel. Several considerations clearly combine make desirable maintenance OEEC not merely alive but vital instrument West European economic cooperation.

• (a) Whatever pace developments German participation western defense efforts, can not expect early German membership NATO. There is thus important advantage maintenance effectively functioning European Economic Organization in which Germany already full member.
• (b) Obviously desirable maintain economic cooperation among NAT members and Switzerland and Sweden. Note that both latter could probably undertake substantially increased national defense efforts. So far as possible, desirable encourage action paralleling that NAT members.
• (c) Although less important, membership Greece, Turkey, Ireland, Austria and Trieste in OEEC also militates against idea complete replacement by some form NAT economic committee.
• (d) Maintenance OEEC not only as symbol continued interest but also as effective instrument continued promotion of economic recovery, long-term economic expansion, increased living standards, and closer European economic integration of major importance general psychological and public relations view points.
• (e) OEEC is competent and proven organization with excellent Secretariat, while NATO lacks Secretariat other than for purely mechanical duties. Moreover, OEEC delegations and Secretariat familiar basic economic problems and by now enjoy effective mutual working relationships. Minimum of several months would be required to recreate this situation in new location under new auspices.
• (f) NATO itself must be regarded as still on trial in terms actual effectiveness cope problems joint planning and implementation major defense and definite production effort. If even fair likelihood reconstitution on streamlined basis, such as suggestion occasionally heard of more centralized direction through tripartite combined boards, hasty shifting bulk OEEC functions to NATO would be dubious move.

3. Assuming maintenance OEEC on active basis, its operations must obviously be adjusted to deal realistically with changing economic problems arising from partial economic mobilization. For substantial range of topics, division of function between OEEC and NATO clear-cut. We concur fully statements this subject paragraph 4 reftel and much paragraph 5. In summary, (a) joint military effort and common defense production planning and execution obviously NATO functions, while (b) analysis economic impacts both near and long-term, and adjustments cooperative economic policies, national policies impinging thereon, and such functions as international allocation source raw materials (if that contingency arises), should all be assigned OEEC. Including non-NAT members in organization handling latter topics should raise no objections by neutrals and should be positive advantage, since non-NAT members have major stake in decisions and may contribute much to success over-all western European objectives.

4. Crucial problem of relationship, in which boundary very difficult to define, arises in connection special economic adjustments for equitable sharing common defense burdens among NAT countries, including especially supplementary US economic aid. Expected US aid to other NAT countries basically in three categories—(a) military end products, (b) raw materials, components, and production equipment specifically involved in expanding European defense production, and (c) general economic support. Mechanics for providing (c) might take form off-shore procurement European-produced military end products (including so-called off-shore procurement for use in country where manufactured), goods and services meeting cover dollar gap on traditional ERP lines, or united loans or grants.

5. Whatever the mechanics, considerations involved in determining amounts and distribution necessarily require analysis total economic positions, including national accounts, dollar and non-dollar balances of payments, changing terms of trade, internal financial equilibrium, and rest familiar ERP criteria. From view point of recipient country, whatever differences in conception or administration, supplementary economic aid to support its expanded defense effort indistinguishable from remainder ERP aid. We assume, moreover, that both will be administered by ECA and that for fiscal 1952 even legislative distinction may become blurred. How such supplementary aid is divided will of course be subject intense interest to NAT partners, as OEEC experience in aid division clearly indicates.

6. Assume there must be some form multilateral consideration this problem if basic NAT concepts of integrated defense and defense production plans, balanced collective forces, et cetera, are in fact to be implemented. Actual handling might range from (a) completely multilateral extreme of internationally administered pool (which we guess to be impracticable) through (b) something like OEEC agreed recommendations on aid division, through (c) multilateral discussion general criteria but unilateral US determination actual distribution to (d) other extreme purely bilateral handling on lines MDAP to date. Actual degree multilateral consideration should be maximum consistent practical requirements of speed and effectiveness in decisions. By very nature, this problem intimately related both to common defense effort and common production plans worked out through NATO and to broader economic developments of primary concern to OEEC. If handled in London through NATO machinery, PC should, in fact, transfer most competent personnel from Paris, since staffing general economic organizations in two locations out of question. OEEC would rapidly wither as effective instrument for economic cooperation even though EPU and a few other residual activities might remain. Yet impossible assign this whole task to OEEC with its inclusion 6 non-members NAT.

7. Only constructive means resolving this dilemma, which has emerged simultaneously and independently in our own thinking, in Stikker’s, in several other delegations, and in OEEC Secretariat, is possibility creation NATO economic committee in Paris composed de facto of OEEC delegations from 12 member countries. Would work most effectively if arrangement could be made for part-time use OEEC Secretariat, OEEC organization being reimbursed for services. Working quarters and documents would of course be kept separate and subjected rigorous security precautions. While on many issues of detail, questions would arise on assignment to OEEC as such or to Paris NAT group, ad hoc resolution would be far simpler than in case separate locations with separate staffs.

8. Of course recognize considerable difficulties raised by this suggestion. Disadvantages existing arrangements for location standing group in Washington and bulk NATO in London would be multiplied by adding third locus major NAT activities. Question would arise whether DFEC permanent working staff should not be fused into such broader economic committee; our tentative view is that it should. It would be necessary devise means for effective line between military production and supply board work in London and economic committee work in Paris. On basis general considerations outlined above, however, believe this most effective solution to exceedingly difficult dilemma.

9. Establishment NATO economic committee in Paris composed of same individuals as OEEC delegations should in itself raise no issue with neutrals. On other hand, use OEEC Secretariat services would require formal action OEEC council. This might create concern, especially in Sweden and Switzerland. Stikker believes should be possible obtain Sweden cooperation such action, but is more uncertain on Swiss.

10. Stikker has discussed issue OEEC–NATO relationships in very broad terms with Unden (Sweden)⁵ at Strasbourg and in Paris with Bauer⁶ (Switzerland) and Von Sydow (Sweden). Has taken general line that (a) EPU and broad trade liberalization movement in OEEC-wise basis must go out (b) OEEC must not be directly concerned with military or military production issues, and (c) economic consequences changed defense plans, whether made collectively by NAT members or individually by others, and economic readjustments to facilitate implementation such plans should be handled realistically by OEEC and are necessarily of interest to all OEEC members. Stikker has found favorable attitude this line by both neutrals. He has not yet raised question of possibility formal arrangement for partial use OEEC Secretariat to assist NATO in general economic work.

11. Stikker will probably make informal visit Bern week of August 14 or August 21 to consult Federal Council members these issues. He would welcome further enlightenment US views if possible before such visit.

12. Desire your views soonest as these questions under constant informal discussion here. Please repeat future messages this subject London for Bonesteel, Breithut and Gordon.⁷

Sent Washington, repeated London Repto 622.

Bonsal

1. Lt. Col. Charles H. Bonesteel, 3d, Executive Director of the European Coordinating Committee, the regional office of the Mutual Defense Assistance Program.
2. Richard C. Breithut, Senior U.S. Representative on the Permanent Working Staff of the NATO Defense, Financial and Economic Committee.
3. Not printed. See footnote 1, p. 665.
4. Record of these conversations not found in Department of State files.
5. Bo Osten Undén, Swedish Minister of Foreign Affairs.
6. Gérard Bauer, Counsellor in the Swiss Embassy in France.
7. Presumably Marcus J. Gordon, Executive Director of the Interim Office of Technical Cooperation and Development.