740.5 MAP/3–151: Telegram
The Ambassador in the United Kingdom (Gifford) to the Secretary of State 1
4709. From ECC for ISAC. Subject is expansion European military production.
1. Believe there is urgent need to dispel uncertainty in European countries re general system for financing intra-European transfers military equipment. These uncertainties are major factor retarding development rationalized European production. Recommend US press for action soonest in NATO to reach multilateral agreement on general system for financing intra-European transfers by ordinary commercial payments through normal EPU payments mechanism rather than by “free transfer” system or (except in special circumstances) US off-shore procurement. Further recommend that any resulting undue strains on European payments relationships be offset later by intra-European burden-sharing transfers in the form of financial contributions among the European NAT countries. US should use its aid programs as a lever to obtain satisfactory pattern of intra-European contributions as US interests require. Use of off-shore procurement to finance intra-European military transfers should be confined to cases where clearly necessary to break particular log-jam, and limited to scale which will not create European expectations that such use will become generalized. Finally US should declare that US-produced end-item program will in general not include items which can be efficiently and timely produced in Europe.
2. We are convinced long step could be taken toward badly needed acceleration intra-European military transfers if these basic policies were adopted. However, assuming that necessary progress will be made on these and other factors retarding European defense production, believe also there is room for use of additional “pump-priming” financial devices to stimulate production for transfer or perhaps production more broadly. We believe any such scheme should involve multilateral sharing of risks involved. However, as soon as reasonably firm agreement in principle is reached on such risk-sharing believe US funds might be put into scheme. Our specific recommendations this subject follow shortly. Meanwhile, we recommend proceeding with case of French mortar ammunition as in Embtel 4710.2 [ECC.]