ECA message files, FRC 53 A 278, Paris Torep: Telegram
The Administrator for Economic Cooperation (Foster) to the United States Special Representative in Europe (Katz), at Paris1
Torep 5906. ToISA.
1. ISAC–ECC decided last week on US program of offshore military procurement (US procurement with dollars of military end items in Europe for transfer to European forces). Purpose of this program is to activate idle productive resources in Europe and supplement European military production efforts in line with DPB guidance. Offshore procurement also designed to establish broader production base in Europe adequate to meet most equipment needs of European forces after period of initial equipment completed.
2. In order to forestall any expectation that US is embarking on all-inclusive European procurement program with consequent discouragement of or conflict with countries’ own procurement plans US orders will be limited to categories approved by ISAC on basis of Defense and DPB recommendations. Programs for ammunition and spare parts will probably be undertaken first. Defense is concurrently requesting DPB to prepare programs in other categories for consideration by ISAC. European governments will be kept advised of categories of US procurement and categories in which they are expected to procure for themselves and US will avoid creating impression that US “in the market” for all types military requirements of Eur forces.
3. US offshore procurement will be financed from MDAP end item funds. All European dollar receipts will of course be taken into account in developing economic aid programs necessary for higher European military efforts.
4. Equipment procured will become property US Government and may be transferred to any NATO country, including producing country.
5. US orders will be coordinated with DPB and local governments. All contracts will be placed in local currency of producing country.
6. ISAC working group under Defense lead will be considering policies and procedures for guidance field on selection producing and [Page 247] receiving countries; how much of which items should be purchased overseas; conversion of dollars into local currencies; how and to what extent the contracts entered into by the US under this program can be taken over by the appropriate European governments; relationship between this procurement program and other priority requirements on the budgets of the European NATO countries; and adjustments in MDAP and economic aid, in manner best calculated to obtain highest military effort and desirable impact of dollar receipts and local currency expenditures on external and internal financial position of NATO countries. Issues involved include whether local currency should be purchased from central bank or treasury of producing country, or from recipient country with transfer financed via EPU.
7. ECA/W current thinking: We believe that some objectives of offshore procurement program can also be achieved by earmarking of European counterpart funds for specific military procurement within DPB approved programs. ECA/W is now considering proposal to make provision of some part of future economic aid conditional on prior agreement on uses of counterpart. Uses of counterpart could include end item procurement in specified categories on basis DPB recommendations; uses could also include contributions to a NATO or continental central procurement agency, if established.
8. In general we conceive implementation of this program should take into account need to achieve twin objectives of rearmament and development of economic potential through higher productivity. ECA missions activities in this procurement program should be guided by ISAC D–8/1, especially Attachment 1 (“Detailed Responsibilities of Members of Country Teams”).2 In addition to mission responsibilities that may arise out of further ISAC consideration mentioned para 6, ECA missions should be in a position to advise EuCom procurement officers in placing contracts within producing countries. In particular OSR and missions can help by (a) identifying most efficient producers and plant management most interested in improving productivity and sharing benefits of improved methods with workers; (b) advising re areas where least additional tools, power, etc. would be required; (c) advising re plants with reliable, non-Communist labor situations; and in other ways related to overall objectives aid program in Europe and as requested by Defense.
9. Having decided on offshore procurement as a method of expediting European military production we believe vigorous efforts should be directed to making it as effective as possible, recognizing that in [Page 248] light experience we may be able to develop other, better methods to supplement or supplant this method of aid.
10. Defense naturally anxious to proceed with an operation within its primary responsibility and will probably give major consideration to elements of time, quality and cost. We are particularly anxious to have views as to how OSR and missions can advise and assist without hindrance to operations and how program might spur greater productivity.
11. ECA/W views in paras 7 through 9 are provided for information and comment. Substance has been discussed with State and Defense but not cleared with ISAC agencies pending your comments and further consideration here.
12. Please discuss at Mission Chiefs meeting and provide by Aug 23 OSR comments in light of views expressed.
- Drafted by Najeeb E. Halaby, Jr., Assistant to the Administrator for International Security Affairs; repeated to London for SUSRep and USDep, and to Oslo, Copenhagen, Lisbon, Rome, Brussels, The Hague, Frankfurt, and Paris.↩
- ISAC D–8/1, “Memorandum of Understanding Between the Departments of State and Defense and the ECA on Relationships and Organization of U.S. Representatives and Certain NAT Bodies in European Production and Economic Aid Programs,” March 6, 1951, is not printed; for a copy of this document, see the ISAC files, lot 53 D 443, D–8/1.↩