ECA message files, lot 53 A 278, box 78, Frankfurt Ecato: Telegram
The Administrator for Economic Cooperation (Foster) to the Office of the United States High Commissioner for Germany, at Frankfurt1
Ecato 279. 1. This joint State/ECA message gives background on our approach to problem of Ger contribution to defense raised in para 6 Toeca 208, rptd Paris Torep 293, London 597.2
2. Nothing in this message of course is intended to propose placing of military end item orders in Ger which would contravene provisions or procedures of revised PLI agreement.3
3. On contribution to defense ECA/W and State fully agree desirability coming forward with “specific defense requirements” soonest. However, this will still take some time as this task not yet done for NATO countries. Problem receiving attention in number of grps and somites in Wash., London and Paris.
4. Ger contribution to defense can be approached in two ways. First, there is question of amount of contribution to defense which is to be financed from public funds appropriated by Ger Govt. Second, there is question of how much production should be obtained from Ger facilities and resources for purpose strengthening Western European defenses, irrespective of whether financing is by Ger Govt or by purchase from outside Ger.
5. First, as to how we arrive at amount and composition of Ger financial contribution to defense. Ger situation is unlike that of other Western European countries because there will be stationed in Ger large number of foreign troops provided with their own materiel and supplies. Ger is only country where direct govt financial contribution will largely go to finance services such as use of realty, transportation and communication facilities, repair shops, labor, etc., rather than to pay for materials and manufactures produced for defense. However [Page 1630] Ger can manufacture larger volume for defense even though not able pay for it out of govt budget.
6. Financing services and other supporting activities for Allied troops out of public funds now takes form of occupation costs. When Ger participates militarily in defense arrangements, financing will continue out of public funds in form of contribution under contractual arrangement, with proviso that support of Ger troops will take precedence over support of other NATO troops if contribution not sufficient to cover all requirements. Total amount Ger contribution will presumably be arrived at on formula comparable to that applied to other NATO countries. We place great importance on Ger Govt contributing 8 or 9% of GNP (roughly 8 or 9 billion DM) in FY 1952 which we estimate wld probably cover total support of NATO troops and Ger troops and leave in addition some amount to be used by Govt to finance provision of commodities and manufactures from Ger as a contribution to NATO military effort. However, contribution from Ger public funds will not cover as large defense production as Ger plant and manpower are capable of. On other hand, Ger support NATO forces is “tangible evidence” that Ger economy is supporting defense effort. Since this form of support places comparatively smaller burden on Ger industry than on industries of NATO powers, Ger will physically be able make industrial contribution addition to support of troops.
7. In Toeca 208, you suggest that in order to convert Ger industry into production for defense, it is incumbent on us to come forward with specific defense orders and a long range program. In view situation described Para 3, it is too early at present time to expect substantial orders for military end products to be placed in Ger by other Govts. However, it is our impression that substantial defense orders (other than military end items) are being placed in Ger through commercial channels, and that as you said to Adenauer some of these orders are going begging or at best are accepted with long deferred delivery dates. Immediate problem therefore is not only to stimulate placement of military end item orders but also to identify present defense orders and assign to them suitable priority.
8. Following are reasons why presently difficult to discern pattern of requirements being made or to be made upon Ger in terms of specific orders. In past few months, implementation of programs based upon definition of requirements and exploration of production possibilities abroad has been delayed by difficulties attending fiscal aspects of procurement. In this process Ger has been left aside for following reasons: (a) govt budgets had not been recast to take care of financing orders in Ger: (b) PLI Agmt appeared to limit drastically ability Ger to accept orders for military end items and certain other nonmilitary defense items, even if funds are available; (c) lack of assurance [Page 1631] of prompt delivery by Ger producers discouraged placement of orders for defense items.
In our view combination imminent revision of PLI Agmt and prompt estab in Ger adequate priorities system will not only increase flow of defense orders handled through normal commercial channels, but also will permit placing of increasing amounts of orders by Govts. In line with policy stated Todep 303 rptd Paris to OSR 48064 which we are repeating to you for information, we have initiated discussions with Defense looking toward possibility switching portion of MDAP end-items programs from US to Ger production and as parallel effort, emphasizing importance of stressing in DPB and thru US elements in various NATO capitals placement Eur defense orders in Ger where appropriate.
9. Matter of Congressional presentation for FY52 aid in connection with above will be subject separate cable. In general justification U.S. aid which would be submitted Congress prior Ger military participation defense would in addition to other factors of political and economic nature i.e. Berlin etc. be based on provision in national budget of 8 or 9 billion DM and institution suitable administrative arrangements i.e. a system of priorities and allocations which will serve as evidence Ger willingness to join effectively in defense production effort. Fact that even if there were no defense requirement for immediate future Ger needs such a system to (1) support claims for imports of scarce and critical materials under internatl allocations and (2) to provide method of increasing exports as part of program of alleviating current payments crisis, should strengthen your bargaining position vis-à-vis Gers in obtaining such suitable administrative arrangements.
10. In a separate message which we expect to have completed and cleared soon we will give you results of extensive discussions and specific comments on question priority for NATO country defense orders designed to help you implement proposal to Federal Government reported in Toeca 247 repeated Paris Torep 242.5 This very complicated [Page 1632] problem which might involve policy decisions concerning NATO relationships has been under active consideration here for the past week.
11. In conclusion, we therefore endorse your efforts to press Ger Govt for adequate financial contribution, on one hand, and for adequate administrative arrangements, to bring about optimum physical contribution on other.
- Repeated to London for Spofford and Bait, and to Paris for Reinstein.↩
- Dated February 27, p. 1620.↩
- For documentation on the revision of the Prohibited and Limited Industries Agreement, see pp. 1344 ff.↩
- Not printed.↩
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Not printed. The proposal asked the Federal Republic
- “(1) To establish internal allocations and priorities regulations for commodities in short supply and for the channelling of imported strategic materials into industrial sectors which are clearly useful for defense exports;
- (2) To establish a priority system for essential imports. This can be done and still maintain trade liberalization at a lower level;
- (3) To establish a priority system for defense type exports to NATO countries, since I understand that increasing numbers of export orders are being refused or deliveries delayed in order to satisfy internal demand;
- (4) To utilize the allocations and priorities system for the purpose of satisfying mandatory occupation requirements. In this connection, I need to point out that the US Occupation Forces are experiencing considerable difficulty in satisfying many of their essential requirements, and;
- (5) To enforce strictly the necessary credit restrictions and to place the granting of bank credits on a far more selective basis than heretofore to ensure that essential investment and production are accommodated.” (ECA message files, lot 53 A 278, box 27, Frankfurt Toeca)
For the text of the separate message under reference, see ECA message files, Ecato 315, March 27, lot 53 A 278, box 78.
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