751.5–MSP/12–2651: Telegram
The Director of the Planning Staff of the Bureau of European Affairs (Labouisse) to the Economic Cooperation Administrator (Foster)1
Toeca 1678. Toisa. Ref my immediately preceding tel, Paris Toeca 1677,2 fol is text memo of understanding:
Begin text. I. Reps of govts of France and US have consulted together during past few weeks with view to reaching understanding on certain matters of mutual concern and interest. It was recognized on both sides that problem of overriding consideration was necessity of finding procedures which wld enable France to develop maximum def program in line with her econ and fin capabilities. In this connection it was fully recognized that whereas certain assistance cld be given to France by the US, main determinations of policy and action to ensure def effort compatible with firm and stable econ base rested with the French govt.
II. It was further recognized that the realization of a French mil effort necessary to enable France to play her role in building her forces for the def of Eur, as well as to support her forces fighting in Indochina, was dependent among other important factors, upon the ability of France to maintain an adequate level of dol imports. It [Page 476] was agreed that the French financial situation was such that there was need for the most careful programming of imports based on the best possible estimate of the amount of dols that wld be available from all sources to meet import needs in order to maintain an adequate level of def and econ activity. The French reps estimated that a dol import program of approximately $825 million for the fiscal year July 1, 1951, thru June 30, 1952 was the minimum necessary to accomplish this purpose.
III. After a careful evaluation of availabilities and needs, the US govt represented to the French govt that, during the fiscal year July 1, 1951, to June 30, 1952, a total of $600 million wld be made available to France, by one means or another, thru expenditures under the US def programs and the mutual security program. These dol availabilities are in addition to “end-item” assistance to France in the form of mil equipment.
IV. In being prepared to make the above reps, it was understood by the US side that the French govt wld undertake the maximum balanced def effort possible in light of its financial and other limitations and that satisfactory arrangements wld be developed to meet the other points referred to below.
V. At the request of the French side, the US has made the fol tentative estimate as to the nature and timing of the availabilities of the above-mentioned $600 million:
| Blank | Total | Time phasing |
| 1. Econ aid | 170 | 141 already allocated. 29 to be allocated as soon as possible with expenditure by Feb 1 if necessary. |
| 2. US mil expenditures: | 30 | As purchased. |
| (a) Supplemental aid for Indochina, being petroleum and other mil end-use items for which French must pay dols. | ||
| (b) Off-shore procurement in France of mil items to be produced in France for use in Indochina. | 100 | As payments to manufactures are required. |
| (c) Expenditures in connection with airfields, telecommunications, and other infrastructure, line of communications, troops expenditures, etc. | 300 | 19 already spent. 281 as required under contracts. |
| 600 |
VI. With regard to above table, it shld be noted that, aside from the basic allotment of $170 million set forth in item 1, the figs are estimates which may be exceeded in some cases and not fully realized in others. Accordingly, it will be necessary to make adjustments in the estimates as the year progresses to take account of such developments. It shld be especially noted that in order to realize the figure of $300 million, set forth in item two (c) of above table, it will be necessary to make the maximum possible effort with respect to work on the airfields, telecommunications, infrastructure, line of communications, and the like.
[Page 477]VII. It is planned by the US to undertake offshore procurement in France of mil items to be used by French and other NATO forces, dol payments for which might be applied against item 2 (c) in the above estimate shld analysis indicate the unlikelihood of that estimate being fully realized.
VIII. For its part, the French govt has determined that it will develop and carry forward a mil program consistent with the financial outlay recommended for France in the report of the temporary council comite of NATO (for remainder of this sentence see immediately fol top secret tel). The French govt states, however, that it desires to develop a larger mil prog. This question will continue under consideration until the mtg of the NATO in Lisbon in early Feb.
IX. In addition to the above understandings, the representatives of the two govts reached understandings on a number of points, as fols:
Infrastructure, LOC, etc.
It was agreed that both sides must continue their efforts to expedite work on airfields, telecommunications, infrastructure, lines of communication and other facilities necessary for the support of NATO def forces including US forces, in Eur. It was recognized that a large portion of the $600 million availabilities referred to above wld derive from US expenditures for these purposes. Accordingly, the French side expressed its determination to effect such changes in present arrangements and procedures as may be required to permit work to proceed at the fastest possible pace.
Productivity.
The French reps explained in some detail the measures being undertaken to intensify the productivity program upon which the French govt has embarked. The French reps affirmed that this program has as its objective the sharing of the benefits of increased productivity thru higher wages and lower prices, and stated that concrete measures to these ends will be instituted.
The French reps explained that the productivity program is to operate directly thru production assistance and technical assistance to individual firms and industries and that in addition other appropriate econ and fin measures are to be proposed to provide incentives for increasing productivity and to re-enforce the direct programs of technical assistance. The French reps have supplied the Amer reps with a list aggregating 12.5 billion francs, in which it is proposed that counterpart financing be applied to loans to private industry designed to promote productivity, as well as to high priority production progs in the fields of agriculture. The French reps also stated that appropriate measures wld be taken to strengthen the existing productivity agencies of the French govt, and to provide them with the necessary staff and facilities to carry out the intensified program which it is the firm policy of the French govt to promote. The French reps expressed the determination of their govt to prevent interference with the productivity prog by restrictive practices.
[Page 478]The Amer reps took note of these French statements. The Amer reps welcome the decision of the French govt to intensify its productivity program and to promote thru concrete measures the sharing of the benefits of productivity increases. The Amer reps for their part stated that all appropriate aid and assistance wld be rendered by the Mutual Security Agency to the French productivity program, including the financing of dol costs of experts and the provision of other services from the US from a special technical assistance dol fund outside the regular econ assistance allocation, and agreed to release 12.5 billion francs in the first six months of the calendar year 1952 from accruals of counterpart during the same period to finance the expenditure programs contained in the French list referred to above, which list has been accepted by the Amer reps.
Offshore procurement.
The French side stated that the French govt had set up a central coordinating point for matters pertaining to the offshore purchase program. The Amer side for its part welcomed this action by the French govt and indicated that it intends to keep the appropriate French officials as fully and promptly informed as possible regarding present and future plans of the US govt for offshore procurement, including items, quantities, etc, and to consult with the French govt regarding capacity data, names and locations of individual firms with which orders might be placed, etc. Both the French and US sides agreed that close and frequent contact between reps of the two govts wld be most useful in coordinating US offshore procurement in France with the French govt’s own def production program, and in considering any overall econ problems, that may arise in the course of the offshore purchase program including questions of raw materials, machinery and equipment, etc. It is understood that the procurement officers of the US armed services, who will actually place offshore procurement contracts, will usually place these directly with French firms in the event such procedure proves most effective.
Counterpart.
The French and US sides agreed that, in addition to the use of counterpart in connection with the productivity prog as set out above, the distribution among categories of expenditure of counterpart accruing in the first six months of the calendar year 1952 from appropriations for the US fiscal year 1952 and previous appropriations wld be discussed at a later date, probably in Jan 1952. The US side indicated that, subj to mutual agrmt on the uses of counterpart, it was prepared to agree to the utilization during the calendar year 1952 of all counterpart accruing in that year from appropriations for the US fiscal year 1952 and prior appropriations.
Econ and fin policies.
The Amer side took note of the statement prepared by the French side indicating the lines of the econ and financial policies that the French govt intends to pursue, in order to restrain inflation and maintain internal stability, and to provide a firm econ [Page 479] foundation for the French def effort. The Amer side welcomed this statement by the French govt.
Tax negotiations.
The Amer side explained in gen terms the tax discussions which the two govts have agreed shld be begun in Jan 1952. The Amer side explained the reasons why it is highly desirable to bring these discussions to a satisfactory conclusion as rapidly as possible. The French side expressed their desire to arrive at such a conclusion without delay.
Amendment of ECA and MDAP bilateral agrmts.
The Amer and French sides took note of the discussions that have been begun, looking toward amendment of the ECA and MDAP bilaterals. Each side agreed that it was desirable to conclude these discussions and arrive at a mutually satisfactory text as soon as may be possible. The Amer side explained that the Mutual Security Act of 1951 requires that unless the bilaterals are appropriately amended by Jan 8, 1952, extension of assistance under the act to France is to be suspended. End text.