740.5 MAP/4–451: Telegram
The Counselor of the Department of State (Bohlen) to the Secretary of State 1
5242. From ECC for ISAC. Fol message regarding interim financing devices for purposes stimulating Eur production supplements our recommendations in London Embtel 4709 of Mar 1.2
1. We believe main fin obstacle to activation un-utilized Eur mil production facilities is inadequate Eur mil budget appropriations. We must maintain constant pressure for increases such appropriations, and shld take care not to ease this pressure unnecessarily by offering alternative financing opportunities. Nonetheless, we believe that in some circumstances interim financing for critically needed Eur production might be provided through device described below. The principal case in which this device might be employed wld be where one country has productive capacity exceeding its own requirements in items which will reasonably clearly be needed elsewhere in the NATO area, but for which orders have not yet been placed by eventual recipients because of their uncertainty as to their source of supply.
2. The device which we recommend in these circumstances represents an adaptation of the technique which we proposed for handling the French mortar ammunition project. It incorporates the fol basic elements:
- a.
- Earmarking a portion of US aid funds (say $500 million) as a revolving fund to support US procurement and interim financing of selected Eur military production—such procurement to be financed in local currency acquired from producing country for dollars, with [Page 119] view to resale of items against same local currency to eventual Eur recipients. It shld be made clear to Eur countries that funds employed for this purpose wld come out of appropriated funds which might otherwise be made available to them as aid.
- b.
- Agrmt of producing country to resell dollars to US in exchange for local currency obtained by US from resale of items.
- c.
- Assignment to DPB (acting on info from Standing Group) of responsibility for determining types and sources of items to be produced.
- d.
- Assignment to appropriate NATO mil authority of function of allocating to Eur countries useable items not sold to Eur recipients at time of delivery.
- e.
- Agrmt by Eur countries that they will purchase items thus allocated to them, paying in currency of producing country.
- f.
- Agrmt by Eur countries that they will share in such losses as may result from unsaleable items not considered by appropriate NATO mil authority suited to mil requirements of any NAT country. We recommend that our Eur partners be asked to bear half of total losses or—if such procedure wld unduly reduce Eur appropriations available for current defense expenditure or make Eur countries inordinately cautious about approving procurement projects—half of losses up to agreed fraction of the total value of procurement. In latter case, US cld protect itself against undue risk by itself limiting amount and character of procurement under scheme through its voice in DPB.
3. Further joint msg from our respective agencies follows with more detailed explanation mechanics this proposal.3 [ECC.]