Foreign Relations of the United States, 1951, European Security and the German Question, Volume III, Part 1

CFM files, lot M–88. box 159, Briefing Materials for Forthcoming
NAT Council Meeting

Memorandum of a Joint Meeting of the International Security Affairs Committee ( ISAC ) With the European Coordinating Committee ( ECC ) at the Department of State, July 30, 1951, 2:30–5:15 p.m.

top secret
ISAC 35

[Washington,] July 31, 1951.

Present:

• Department of State
• Messrs. Cabot, Chairman
• Bell
• Bray
• Martin
• Parsons
• Stone
• Sheppard
• Department of Defense
• Mr. Nash
• Maj. Gen. Scott
• Colonel Beebe
• Colonel Van Syckle
• Captain Thorp
• Mr. Van Atten
• Economic Cooperation Administration
• Messrs. Halaby
• Bissell
• Paul
• Department of the Treasury
• Messrs. Hebbard
• Widman
• ECC
• Ambassador Spofford
• Ambassador Katz
• Mr. Batt
• Maj. General Kibler
• Lt. Colonel Powell
• Mr. Ketcham, USDEP
• Mr. Knapp, USDEP
• Mr. Haun, OSR
• Mr. Lindeman, OSR
• Mr. Ostrander, OSR
• Colonel Goodum, JAMAG
• Colonel O’Hara, JAMAG
• Colonel Pattison, JAMAG
• Executive Office of the President
• Messrs. Gordon
• Schelling
• Bureau of the Budget
• Messrs. Staats
• Lawson
• Macy
• Secretariat
• Messrs. Hickman
• Christensen
• Denny

MTDP—Meeting the Gap

1. Mr. Cabot referred to the NSC review on the status of programs¹ and indicated that the ECC members would be sent copies of the ISAC review of foreign aid programs.²

Improvement in European Production

2. Mr. Cabot noted that the second ECC proposal on increasing production in Europe had been approved by the ISAC agencies, and that they were prepared to go even further than had been proposed by ECC. Mr. Bissell reported on the proposal which he had prepared, and referring to Todep 468 and Depto 88,³ he said that the steps outlined in these cables have 4 general goals: (1) to expand the total amount of military production; (2) to carry out (1) in a manner which will stimulate the European countries to finance more of the production themselves; (3) to promote a more rational distribution of production; and (4) to give stimulus to making the European countries more self-sufficient. He proposed the following lines of action: (1) to proceed with the approved plans for off-shore procurement as outlined in Todep 468 and modified by Depto 88; (2) while not delaying (1), to induce the Europeans to set aside as large a portion of counterpart funds as possible for procurement under plans developed by the DPB; and (3) to work toward the establishment of a central procurement agency in Europe, a long-range objective relating to the establishment of a European army. He noted that the following rationale should be applied to any plan for off-shore procurement: (1) the U.S. should press the European countries to the feasible limit of their capabilities; (2) off-shore procurement should begin in those countries which come closest to having an adequate defense effort. In countries like France additional economic aid might be given in order that they would be capable of filling off-shore procurement orders. Mr. Bissell said that it should be possible and desirable to carry out these steps in such a way so as not to breach the reserve principle and to still serve the principle of burden sharing. Off-shore procurement when carried out within a country should reduce the amount of economic aid needed. Initially it is contemplated that off-shore procurement will be carried on with end-item funds and then as savings accrue in economic aid, funds for the latter will be transferred to the end-item funds. In conclusion he said that nothing in his paper contradicted the two cables ref erred to above, and that he attached great importance to proceeding with the counterpart proposal.

3. Mr. Cabot asked if our off-shore procurement would be limited to those items listed in Todep 468. Mr. Bissell said that it probably would be for the time being, but added that at any given time the Europeans should know that the DPB is developing additional programs which may be carried on through this special device. Mr. Gordon suggested that Mr. Bissell’s statement on “guidance by the DPB” be amended to read “upon the recommendation of the Coordinator” in Order that the difficulties presented by the unanimity rule in DPB be avoided. Mr. Batt pointed out that the DPB has not followed a unanimity rule. Ambassador Katz suggested that since a procedure for coordination on U.S. procurement through SUSRep had been agreed upon only after lengthy negotiations, this system not be changed. Mr. Batt said that it was his understanding that this would not constitute a change in procedure since coordination would still be handled through SUSRep. Mr. Gordon said that his suggestion was designed to strengthen the DPB through acceptance of recommendations of the Coordinator and his staff.

4. Ambassador Spofford suggested that the U.S. utilize existing procedures but that Mr. Batt should consult the Coordinator and give weight to his views in the placing of procurement orders. Mr. Halaby asked if this meant that the Coordinator would recommend programs and then that our procurement agents would carry them out if possible. Mr. Batt said that this was his understanding but in the event that it was not possible to carry out the recommendations that Mr. Herod should be notified as soon as possible and he could submit alternative proposals.

5. Mr. Gordon noted that in paragraph 3 A of Depto 88 it is hinted that the U.S. will limit the recipients of off shore procurement to those who are coming closest to their defense targets and he asked if this was the understanding of the group. Mr. Batt said that he did not think that this could be applied. When the goods are produced they will be given to those who need them. Mr. Gordon pointed out that the Belgians, for example, are doing less than they are apparently capable of. However, since they are a good source of ammunition production, if orders were placed there it would probably be better to give the ammunition to the French. Mr. Batt said that the placing of orders was not a military matter but a production one. Mr. Martin pointed out that not all orders placed would be “bonuses” in view of shortages in material, the necessity for greater imports, etc. Mr. Bissell said that it would not be feasible to avoid placing orders in countries falling short of the production goals which we feel are possible. He said that if orders were placed in a country like Belgium that it might be possible to subtract the dollars added through this method from their portion of economic aid. However, he suggested that a decision on this portion of the question be delayed until a later date.

6. Mr. Cabot asked if it was the view of Defense that off-shore procurement should be limited to ammunition and spare parts. Mr. Nash stated that it was the view of Defense that procurement should begin with these two items but that they would like to see the principle extended beyond these two items if possible.

7. Mr. Batt referred to contracts being placed by private firms in Western Europe and expressed the view that where private firms develop plans for the production in Europe of spare parts, for example, that it would not be a matter of concern for DPB. Mr. Bissell expressed agreement and said that it should be made clear that a plan being discussed involved off-shore procurement for the Europeans and that it should not interfere with the regular procurement by the U.S. Air Force, etc. Ambassador Spofford suggested that since we will gain a considerable amount of experience in the next 60 days that many of these problems be worked out as we go along. Mr. Cabot then proposed that Mr. Bissell draft a paper on his proposal for submission to ISAC and it was agreed that this paper would be considered at the next joint session with the ECC representatives if possible.

8. With reference to central procurement, Mr. Batt proposed that a definite decision on this be delayed, as in the case of distribution of off-shore procurement items. He suggested, however, that Defense should make certain that the legislation be amended with reference to procurement procedures in order that buying abroad will be made easier. Mr. Nash said that the main question was that of how to approach Congress. Although it might be possible to seek an amendment in the MSP for more liberalized provisions, the chances of the bill might be hurt in view of the strength of the “buy American” forces.

9. Mr. Bissell said that the Congressional Committees had already been given testimony on off-shore procurement and that they seemed generally to approve it in principle. Mr. Gordon said that this question should be pursued now before Congress if at all. He added that the MSP seemed to be a favorable framework for this device and expressed doubt that the “buy America” group would carry too much weight against a provision for production in Europe for the Europeans. Mr. Cabot suggested that Defense investigate whether an amendment was necessary to overcome the obstacles presented by the renegotiation and buy America provisions. If so, he asked that Mr. Nash work out a plan for an approach to Congress and the other agencies will give their support to it.

10. Mr. Cabot said that even though Mr. Batt had suggested that we should delay action on the use of counterpart funds as proposed by Mr. Bissell in order to concentrate on off-shore procurement, would it not be possible to take the two steps simultaneously. Mr. Bissell said that the counterpart problem was an urgent one and one which ECA wished to discuss with the European countries under the August allotments. He felt that both off-shore procurement and the counterpart measures could be undertaken concurrently. Mr. Gordon asked how much of the counterpart funds would be set aside in view of Mr. Bissell’s statement indicating that it should be “as large an amount as can be negotiated.” He said that we would have to wait and see what the DPB is capable of doing in order that portions of the Defense budgets not be immobilized through waiting for DPB recommendations. Mr. Bissell said that he agreed, but although negotiations on setting aside counterpart funds for procurement will begin in August, a sizeable sum will probably not be accumulated until mid-autumn.

11. Mr. Martin suggested that the first step should be to go ahead with the programs recommended by DPB while not immobilizing any of the funds, and secondly, to get as much counterpart as possible set aside in the European budgets as we reach agreement on progams. Mr. Bissell noted that it was Ambassador Katz’s view that there should be no U.S. dollars in a central procurement fund and that the Europeans themselves should decide on the disposition of these funds. He added that the Ambassador also felt that U.S. dollars should be used instead for off-shore procurement. Mr. Gordon said that this would mean in fact that we would be urging the Europeans to cooperate in a venture to which we would not contribute. He said that our rationale for using a system of off-shore procurement rather than contributing to a central fund could easily be applied to all other countries.

12. Ambassador Katz, who had just returned to the meeting, said that in considering contributions to the central procurement agency he did not believe that it was possible to separate the method of procurement from the things procured. He pointed out that each European country would receive equipment equivalent to the amount of money contributed while this would not be true for the U.S. should it contribute to a central fund. Actually, he continued, a central fund would be an indirect method of procurement and the central procurement agency would not distribute the items procured.

13. Mr. Cabot asked how orders and items procured would be distributed under the counterpart plan proposed by Mr. Bissell. Mr. Bissell expressed the belief that we should avoid restrictions on the placing of orders. He said that he was not certain that a country contributing $10 million in counterpart funds would necessarily receive $10 million worth of items. Ambassador Katz said that actually the countries would be buying through Mr. Herod rather than directly under a central procurement agency. Mr. Gordon said that Mr. Herod would be providing guidance to the countries rather than acting as a regular procurement officer such as we have for the U.S. He suggested that the U.S. should also be subjected to such “guidance”. It was agreed that Mr. Martin should draft a cable requesting SUSRep to begin working with Mr. Herod on plans for procurement.

14. Mr. Batt said that both Mr. Herod and SUSRep were very concerned because an enormous amount of unused military production capacity was going to waste each month in Europe. Mr. Gordon pointed out that DPB has not considered all of the “bottlenecks” in production and moreover he felt that it would not be desirable to use, for example, the full munitions capacity in Europe since it would mean that more consumer goods would have to be supplied.

15. General Scott asked whether a determination could be made as to what goods could best be provided to the Europeans by end-item aid and which by off-shore procurement. He expressed the view that off-shore procurement would probably be limited to ammunition and spare parts. Mr. Martin said that the DPB would not be limited to consideration of these two items alone, but that primary emphasis would be placed upon them initially. General Scott also pointed out that there are already a great many demands on counterpart funds and many of the purposes for which these funds are presently used are highly important. It was agreed that further consideration would be given to the question of improving European production at the next joint meeting of ISAC and ECC.⁴

[Here follow discussions of the NATO forces gap, the pattern of aid negotiations for fiscal year 1952, and the extent of German production and troop contributions to the European defense effort.]

1. For documentation on NSC review of national security programs, see vol. i, pp. 1 ff.
2. The ISAC review has not been found in the Department of State files.
3. Dated May 29 and July 20, p. 168, and supra.
4. The second joint meeting was held on Wednesday, August 1, 3:30–6: 20 p. m. at the Department of State. Assistant Secretaries McNeil (Defense), Bendetsen (Army), and McFall (State) were present and participated in a detailed discussion of the infrastructure program. Also under discussion were the U.S. policy toward burden-sharing, a memorandum by Lincoln Gordon on the work of the DPB, the development of the fiscal year 1953 aid program, and the attitude of NATO countries toward rearmament. The memorandum of this meeting, dated August 2, is in the CFM files, lot M–88, box 159, Briefing Materials for Forthcoming NAT Council Meeting.