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

ISAC Files, Lot 53 D 443

Summary of Events Prepared in the Office of the Director of International Security Affairs (Cabot)¹

secret

[Washington,] June 23, 1951.

Current Developments in International Security Affairs

[Here follows discussion of subjects other than the Mutual Security Program.]

the mutual security program

The Mutual Security Program for Fiscal Year 1952 recommended by the President in his message to Congress of May 24,² brings together the various existing foreign aid programs, including MDAP, ECA assistance for Europe, and economic aid to underdeveloped areas under the Point IV concept. The total funds required under the MSP would be divided as follows:

	Economic	Military
	(in millions)
Europe	1,650	5,240
Middle East and Northern Africa	125	415
Asia	375	555
Latin America	22	40
Administrative Expenses	78
	2,250	6,250

The military aid for Greece and Turkey is included in the amount for the Middle East. The amount of the economic aid for Europe includes the economic aid for Greece and Turkey. For convenience, the estimated requirement for administrative expenses for the entire program—approximately $78 million—is shown as a single figure under economic aid.

The amounts requested for economic aid include $13 million to be furnished the United Nations and the Organization of American States for their technical assistance programs.

The President also recommended that the lending authority of the Export-Import Bank be increased by one billion dollars in order that full use might be made of the opportunities for loans, especially to develop strategic materials.

No administration bill covering the program is being officially transmitted to the Congress. However, a draft of a suggested Mutual Security Bill proposes, and the Administration is recommending that the new legislation provide that the aid requested should be furnished under the basic authority contained in those other laws under which foreign assistance has heretofore been made available. It is also proposed, however, that there be several amendments to these underlying acts, among which the following are the most important:

1. All forms of economic aid, including economic aid directly related to increased production abroad, would be included in the economic aid figure, and no sums for additional military production (AMP) would be included, as in the past, in the amount for military aid. This means that under the new Bill, it would be possible for funds to be made available under the ECA Act to be expended for objects which are prohibited under the MDA Act, namely, for construction of foreign factories or the provision of equipment, other than production equipment, for maintenance of such factories, for compensation for any country for diminution of export trade resulting from increased military production, or to pay for personal services rendered in any such factory other than U.S. technical assistance.

2. The authority to provide military aid to non-NATO European countries, which is contained in 408(c) of the MDA Act, is considerably broadened and made simpler of administration. Similarly, authority is provided to extend economic aid to non-OEEC countries under certain circumstances. Spain and Yugoslavia are thus added to the European countries presently eligible for economic assistance. Limited transferability between funds available for use under the MDA Act and funds available under the ECA Act is also sought.

3. Authorization is provided, upon certain prior determination of the President, for the transfer of military grant aid to countries of the Near Eastern area of up to 10% of the funds made available for military assistance to Greece, Turkey and Iran.

4. A program of up to $40 million in military grant aid to Latin American countries is authorized.

5. Up to 10% of the funds made available for use in one area under one Title of the Act can be transferred for use in any one of the other areas covered by another Title of the Act. However, funds so transferred may not be used to furnish any kind of assistance except the kind authorized to be furnished in the section from which the funds were transferred.

6. The use of Title I funds for paying the expenses of U.S. participation in NATO, including the U.S. contribution toward the expenses of SHAPE, would be authorized.

7. Contributions to the UN and Organization of American States for technical assistance programs carried out by those agencies, continuing the authority contained in the Act for International Development, would also be authorized.

8. An appropriation for the U.S. contribution to the UN Korean Reconstruction Agency (UNKRA) would be authorized. The amount of the U.S. share is $162,500,000.

9. The provision of an additional $450 million worth of excess military equipment and materials would be permitted. With this amendment, the amount of excess equipment which may be transferred without change to the MDAP appropriations would reach a cumulative total of $1,150,000,000.

10. The value of outstanding, unfunded procurement contracts which may be outstanding at any one time under the reimbursable aid program would be raised from $100 million to $500 million.

11. Certain amendments to facilitate the use of patents and technical information are also proposed.

(For further details on the MSP, see the “Presentation Book”, which has been sent to all missions.)

It is expected that hearings on the Mutual Security Bill will start on June 26 in the House Committee on Foreign Affairs, after certain of the Committee members have returned from their trip to Europe. Hearings before the Senate Committee on Foreign Relations and Armed Services combined are not expected to commence until after the MacArthur hearings are over.

Since the preparation of the presentation material for the MSP is virtually complete, the interdepartmental “Executive Group” which coordinated this work has been dissolved and Colonel Bonesteel, its Director, is returning to his regular post in London. Mr. Cabot, Director of ISA, from now on will be responsible within the State Department for direction of the presentation of the MSP to Congress, and for coordinating the work of the Department with that of other agencies in the presentation.³

Since the enactment of the MSP will probably be delayed for several months, the Bureau of the Budget is making plans for interim legislation. It is hoped that a joint House-Senate resolution will be enacted to extend the authority to commit funds under existing legislation not exceeding an amount at the annual rate at which funds have been obligated under the several acts during the last quarter of Fiscal Year 1951.

[Here follows discussion of other subjects.]

organization

U.S. Organization for Administering the Mutual Security Program

The following is the text of a memorandum forwarded by the Director of International Security Affairs to Congressman McCormack⁴ on the organizational plans for the Mutual Security Program.
June 11, 1951.

“A number of recent reports have suggested changes in the organization needed to administer foreign aid. Various organizational schemes have been proposed. The plan of organization adopted pursuant to memorandum approved by the President on December 19, 1950⁵ and contemplated by the new proposed Mutual Security Program seems most likely to achieve over-all objectives of foreign policy at minimum cost.

“It is generally recognized, and past experience has certainly demonstrated, that the actual operation of either military or economic aid—the mechanics of laying out a detailed program, of procurement or the financing of procurement, and the follow-up on the use made of the aid—is a specialized job that requires a specially equipped operating agency which can give full attention to it. Determination of arms needs is a military determination and must be done by military men. Arms procurement and military training are also jobs for military men. These should be the primary responsibility of the Department of Defense, as they have been under previous military aid programs. Similarly, the ECA has done a very commendable job in carrying out the Marshall Plan. It has an effective team trained in economic and production problems and has a great fund of information on European production capacities. To lose or impair the usefulness of this team would set back the effectiveness of the economic aid portion of the Mutual Security Program by many months.

“The basic problem of organization is how to tie together military aid and economic aid so that they will complement each other in operation and give most effective support to our total foreign policy. The primary objective of military aid is to arm and train the forces of friendly nations. Military aid has been the responsibility of the Departments of Defense and State. The primary objective of economic aid has been to prevent economic collapse and acceptance of Communism. Economic aid has been the responsibility of ECA. Now most economic aid will be directed toward the objective of increased military production.

“Increased European military production is of great importance to the American taxpayer. This increase is unlikely if the policy of eliminating from arms aid those items which can, within a reasonable time, be produced in the recipient country is not enforced. No country is likely to go to the trouble and expense of producing what it can get from us free of charge. Therefore, when the arms requirements of a country have been determined, they are screened so we will not furnish items which can be produced either in the recipient country or a neighboring country. When necessary, economic aid is adjusted to help the recipient carry the added burden of producing, or buying from its neighbor, items screened from the military aid program. It is evident that we cannot carry out this policy and get countries to build up their own production unless the arms and economic aid programs are coordinated. The logical place for coordination responsibility is in the Department of State where the two programs meet and where each respectively must of necessity be coordinated with the overall foreign policy of the Government.

“The need for either military aid or economic aid depends on the role a country is expected to play in the mutual security plans, the size of the forces it should maintain, the mission of these forces and the political and economic factors which condition its efforts. Judgment cannot be made solely on military or economic or political grounds. It must embrace all of these. It must be a composite judgment to which the Defense Department, the State Department and the ECA all contribute.

“Foreign aid must also be judged in relation to other instruments of our foreign policy. All aid can be useful in determining the courses recipient governments will take toward mutual security, including larger defense budgets, forces and production. While aid of course is extended without strings attached, the U.S. does take into account the willingness of other governments to make their own contributions to mutual defense. These contributions take many forms in the economic, political, and military field—not all directly related to the mutual aid program. We must use our total power, including our aid programs, effectively and avoid exhausting it on objectives of low priority. To do this, our negotiations must be coordinated so that all aspects of our relations with the recipient country harmonize with and contribute to the general foreign policy objectives, particularly in the international security field. Often our aid programs are in large part designed to supply the United States’ contribution to the collective security effort, the nature of which is determined through multilateral negotiations in NATO or some other international body.

“Although the total of aid is used for the total of our objectives, one cannot first determine the total and then divide it between military and economic aid, for economic and military aid needs are determined by entirely different processes and have different significance. Primarily, the process of determining military aid is to determine what arms are needed for the forces committed to our mutual security and when these arms will be needed. The timing of appropriation and obligation of funds for arms is different from the timing of deliveries of arms. This is due to variable time between placing the order and getting delivery of items of varying complexity. It is thus not feasible to allocate arms aid at the time of obligation in the same manner as with economic aid.

“Military aid and economic aid have a quite different significance per dollar. In fact, we do not tell recipients the dollar value of military aid. Some items from surplus are valued at a small fraction of the cost of similar items from new procurement. To bargain with military aid on a dollar basis would jeopardize our whole security program. We cannot afford to deny weapons to forces which desperately need those weapons. To do so would sacrifice our own security.

“Military aid and economic aid must be considered separately but related each to the other. A composite judgment is necessary to get maximum effectiveness in support of national policy. Although the Department of State will be charged with the responsibility for coordination of aid under the proposed Mutual Security Program, this does not imply direct control. It is expected that aid will be coordinated through the International Security Affairs Committee on which the three agencies—Defense, State, and ECA—will be represented (also Treasury and Mr. Harriman’s office). Agreement in this Committee must be unanimous. Failing agreement, matters can be referred to the Cabinet level (Foreign Mutual Aid Steering Committee), or to the President. Actually, experience of the last four months has shown a remarkable degree of unanimity in the Committee. The Chairman has, in fact, been able to resolve all problems submitted to the Committee without reference to the President.”

1. Circulated for information as ISA News Letter No. 2.
2. See editorial note, p. 317
3. Executive Branch organization for the presentation of the Mutual Security Program to Congress was set forth in Department of State Announcement 125, effective June 13; for text, see Department of State Bulletin, July 9, 1951, p. 53.
4. Representative John W. McCormack of Massachusetts, House Majority Leader.
5. See editorial note, p. 265.