Foreign Relations of the United States, 1951, National Security Affairs; Foreign Economic Policy, Volume I

NAC Files, Lot 60 D 137

Memorandum by the NAC Staff Committee to the National Advisory Council

secret

[Washington,] April 18, 1951.

NAC Doc. No. 1126

Subject: U.S. Loan Assistance and Purchases in Third Countries

Problem

In connection with the administration of the foreign assistance program for fiscal 1952 it will be necessary for the Administration to have a clear position with respect to the extent to which loan and grant funds may be available for expenditure in areas other than the United States. This problem is particularly important at the present time in view of the supply problems both here and abroad. This paper is directed exclusively to the question of the use of loan funds in other areas, more particularly, Export–Import Bank funds. This paper is also predicated on the assumption that, in the case of loans for expenditure in third countries, as in the case of all loans made by the Export–Import Bank, the borrowing country is making appropriate use of its resources.

Discussion

The relation of United States loan assistance to procurement in this country has been reviewed in the National Advisory Council on a number of occasions. In 1948 the Council approved the following principle with respect to purchases in third countries: “In those cases where the purposes of Government lending can best be served by providing funds for purchases in countries other than the United States, arrangements are made to permit the proceeds of loans to be so spent.” This statement was intended to serve as a guide to executive agencies in further development of foreign lending programs. The statement has not been made public.

The concept of a loan that would limit a borrower in purchasing the most useful goods in the cheapest market clearly cuts across the broad philosophy of this Government with regard to the objectives of multilateral and non-discrminatory trade. Lending in this sense means in fact that the currencies involved in the loans are not convertible.

The Export–Import Bank Act of 1945, as amended, provides: “The objects and purposes of the Bank shall be to aid in financing and to facilitate exports and imports and the exchange of commodities between the United States or any of its Territories or insular possessions and any foreign country or the agencies or nationals thereof.” In the light of this statement, the Export–Import Bank has considered that Congress intended that the relationship between its loans and U.S. foreign trade should be more or less direct. At the same time the Bank has declined to use its financing authority to force U.S. exports. It has rejected credit applications which would have financed U.S. exports when the goods to be so financed could be obtained more economically abroad and the means of financing them were readily available. The Export–Import Bank does not consider itself bound either as a matter of law or as a matter of policy to make loans exclusively for purchases in the United States, but it has been reluctant except in exceptional cases to use its funds to finance non-United States exports.

The general policy statement (revised August 1, 1947) of the Export–Import Bank, which has been made public, states: “As a general rule, the Bank extends credit only to finance purchases of materials and equipment produced or manufactured in the United States and of technical services of American firms and individuals, as distinguished from outlays for goods, labor, and services in the borrowing country or purchases in third countries.” However, the Bank has been prepared to recognize exceptions to this “general rule.”

Conclusion

In connection with the development programs being undertaken by this Government in this period it will be important to have a considerable degree of flexibility in obtaining supplies in other areas. As the general guide to the minimum degree of flexibility desired, it is suggested that funds be available for expenditure in other areas under the following conditions, among others:

(1) Where procurement can be made at a substantially lower cost for the project; or

(2) Where goods are not available for export from this country or where purchase abroad would clearly be preferable in any event due to supply conditions here; or

(3) Where procurement abroad can be made on a substantially more advantageous delivery schedule and will materially expedite the development projects undertaken.

The Export–Import Bank has advised the Staff Committee that no amendment of the Export–Import Bank Act is necessary in order to carry out this policy.