Foreign Relations of the United States, 1952–1954, General: Economic and Political Matters, Volume I, Part 1

700.5 MSP/3–1952

Memorandum by Leonard H. Price of the Office of Mutual Security Affairs to the Consultant to the Secretary of State (Cowen)¹

secret

[Washington,] March 19, 1952.

In compliance with your request, there is set forth below a summary of problems of current interest to S/MSA:

Far East

1. U.S. organization for economic activities in Japan during the post-treaty period.

This subject has been under discussion among officers of the Department of State, ODMS and MSA. It has now been agreed that officers of the Department and MSA should jointly outline the job to be done both in Japan and in Washington with respect to Japanese economic mobilization activities and to suggest possible areas of responsibility for State and MSA, taking into consideration the experience, staff and resources of each agency. A tentative draft of such an outline has now been prepared and is under active consideration in the Department.

2. Administrative Agreement in Formosa.

A draft Administrative Agreement designed to facilitate the operations of the United States MAAG personnel in Formosa has been prepared and approved by the Departments of State and Defense. Negotiations are now under way between our Embassy in Taipei and the Chinese Nationalist Government and it is expected that an agreement based upon the draft will be concluded within the next few days.

3. End-Item Aid in Formosa versus Assistance in Obtaining Raw Materials now in Scarce Supply.

An effort is being made by the Chinese National Government to obtain drawn steel and other strategic materials in scarce supply for use in the manufacture of armaments in local arsenals in Formosa. The Department of Defense has refused to approve China’s first request for priority assistance in obtaining materials of this nature. In an effort to encourage the Formosan Government in the promotion of local manufacture of needed armaments, MSA has agreed to act as a claimant agency in presenting requests of the Chinese National Government for materials to be supplied on a reimbursable basis under Section 408(e) of the Mutual Defense Assistance Act.² The Department of State favors this agreement for the reason that the Chinese National Government will be inclined to provide greater cooperation in a program in which it is participating with its own funds. The Department of Defense has not yet formulated a definitive opinion respecting this arrangement, but FE feels that this situation may give rise to a basic question of policy in the near future.

4. Application of Investment Guarantee Provisions (Section 520) of the Mutual Security Act of 1951.³

Negotiations are now under way between officers of the Department and MSA on the one hand and the Chinese Embassy in Washington on the other hand looking to the establishment of satisfactory conditions for the application of investment guarantees to U.S. investments in Formosa.

5. Economic Support Program in Indochina.

In Indochina, the question of the $35 million economic support program has two unresolved aspects: (i) the composition of the program, and (ii) whether MSA or the MAAG will administer it. Neither Defense nor MSA has taken an adamant position on either question, steps to resolve the matters are progressing satisfactorily, and State is taking a neutral position, participating and assisting in discussions as appropriate.

6. Agreement with Indonesia, under Section 511 of the Mutual Security Act of 1951.

In Indonesia, the questions of both military and economic aid are affected by the recent Cabinet fall brought about by the Section 511 requirements of the Mutual Security Act of 1951. The next move, however, is up to the Indonesians. Unless they repudiate the Section 511(a) agreement signed by the Foreign Minister, we consider it binding.

7. Development of Industrial Capabilities in non-Communist Asia.

Efforts are being made to develop capabilities in this area for the production of military and para-military equipment for use both in the producing countries and elsewhere. Connected with this problem is, of course, the question of coordinating Japanese industrial capabilities with Southeast Asian raw materials. Data on this entire subject has now been assembled and is being discussed among the interested agencies, i.e., Defense, ODMS, MSA and State.

Near East and South Asia

1. Locke proposal re Arab States and Israel.⁴

The Locke proposal regarding the Arab States and Israel currently under consideration in NEA from the standpoint of type and total dollar aid, with detailed program justification.

2. Iran.

A temporary solution has been reached on leaving our military mission in Iran without renewing the agreement which expires on March 20th.

. . . . . . .

4. Middle East Command.

Establishment of the Middle East Command and designation of participating countries. This question is being considered at the present time and a status statement is attached.⁵

5. Egypt, Arms Aid to.

Defense has agreed to join the Department in recommending to DMS the establishment of eligibility for Egypt to purchase arms under Section 408(e) of the Mutual Assistance Act. A memorandum is being forwarded to DMS requesting eligibility.

6. Ethiopia.

We have written Defense a letter asking their assistance in getting Ethiopia declared eligible for limited grant military aid under Section 202, which would also cover eligibility for reimbursable aid under Section 408(e), if approved by DMS.

7. Syria.

Syria has expressed an interest in sending military personnel to Turkey for training purposes. The Embassy in Turkey has expressed its willingness and progress in this direction appears favorable.

8. Pakistan.

We are trying to expedite reimbursable military assistance to Pakistan, particularly three destroyer escorts pending availability by Defense.

9. India.

The level of aid designated for India in 1953, while an increase over that initially authorized, is considerably below what Ambassador Bowles wanted. It is possible that he will periodically press for additional aid.

Latin America

The pending problem in Latin America consists of reaching agreements on military aid. Three countries (Ecuador, Peru and Cuba) already have signed; negotiations are under way with three other countries (Brazil, Colombia and Chile). Negotiations with Mexico have been suspended indefinitely and it is not contemplated that Mexico will participate in the FY 1952 program. Whether discussions with another country, Uruguay, will be opened is still unresolved. It is not presently contemplated that approaches will be made in the near future to any countries other than those mentioned.

Europe

1. Aid to Britain.

A decision to give $300 million in economic aid to the UK during the fiscal year 1952 was made subject to the following conditions: 1) that the funds would be used only to purchase items directly related to military uses, and 2) that payments would only be made against contracts yet to be signed, with exceptions in specific cases, providing past shipments were not covered. During the past two months British reserves have continued to decline at an alarming rate. In the opinion of Embassy London, if the drain continues at the current rate, the British economy may be brought to a point where the entire British military effort would be threatened. It has been estimated that, even under the most favorable conditions, on the present basis of eligibility the actual impact of aid on British reserves before June 30, 1952 will fall significantly short of $160 million. According to Embassy London, therefore, the full $300 million can be reflected in reserves by that date only if 1) we allow reimbursement for past shipments which can be fully documented and 2) we extend the range of eligible commodities to include some items not directly related to military uses.

2. Union of South Africa—Proposed Grounding of Air Squadron in Korea.

The South African Ambassador informed Under Secretary Webb on February 12 that the South African squadron in Korea would be grounded on March 31 for a period of three months, at the end of which time the situation would be reviewed. This action is the result of the failure of South Africa to obtain jet aircraft to equip the squadron. The Union Government had promised the squadron jets as far back as May 1951, and inability to make good on the promise has, according to the Union Government, accentuated the problem of obtaining volunteers for the squadron. Our Ambassador at Capetown⁶ was instructed to take the matter up with the Prime Minister,⁷ pointing out possible repercussions on the UN military and diplomatic position in Korea which might follow the grounding of the squadron. The Prime Minister indicated that if South Africa had definite assurance of receiving the jets in six months, the decision could be reconsidered. We have asked the Department of Defense to reexamine the problem and furnish us with information on the earliest date jets for the South African squadron can be provided.

3. Canadian Military Procurement in U.S.

Canada has again requested the US to set up a revolving fund to obviate Canadian administrative difficulties in making payments for procurement in the US under the Mutual Defense Assistance Program. We have informed the Canadians that there is little hope for the establishment of a revolving fund, but that we are strongly urging the military departments to expedite their accounting procedure, in order to provide Canada promptly with the necessary documentation.

4. Australia and New Zealand—Implementation of Security Treaty.

Following ratification this year of the security treaty with Australia and New Zeland, it can be expected that Australia will suggest an early meeting of the council provided for in the treaty. It will be necessary for EUR to assist Ambassador Cowen in the implementation of the treaty provisions on the establishment of a council.

5. Denmark.

(a) Aid for Danish Switch from Polish Coal.

Our discussions with Denmark on East-West trade matters are still pending and we have sent to Embassy Copenhagen joint State-MSA guidance on reaching an agreement with the Danes on the amount of dollar aid required to compensate for the denial of a tanker to Poland.

(b) Economic Aid.

Discussions with the Danes concerning the levels of US economic aid and Danish defense expenditures are still pending.

6. Norway—Economic Aid.

Discussions with the Norwegians on development of an accelerated military program in line with recommendations of the Wise Men Committee’s⁸ Screening and Costing Staff are under way. The receipt by Norway of $9.8 million additional economic aid for fiscal year 1952 plus Norway’s healthy economic status warrant a higher level of performance by Norway in its defense build-up.

7. France.

(a) US Aid to France.

We must continue to follow various problems raised by the understanding reached with the French at Lisbon regarding US aid to France in 1951/52. During the coming months it will be necessary to work out the details of this commitment as it is related to the French defense effort and balance of payments.

(b) Indochina.

We are endeavoring to determine the relationship between additional French aid requirements in Indochina in fiscal years 1952 and 1953, and the overall program of US aid for France.

(c) North Africa.

The important current problems in this area affecting US interests are: 1) the question of our position in the event that the so-called Tunisian case is introduced in the Security Council; 2) implementation of the basic agreement with the French regarding US military bases in Morocco; and 3) the Moroccan case before the International Court.

(a) [sic] Near Eastern Assistance and Defense.

Discussions with the French regarding our Near Eastern assistance program will continue. The role that France will play in the defense of that area continues to be a problem under study.

8. Switzerland—Reimbursable Military Assistance.

The Swiss Federal Council is currently examining a proposed note which the Swiss Minister here drafted in consultation with the Department embodying the assurances which governments receiving reimbursable military assistance under Section 408(e) of the Mutual Defense Assistance Act of 1949, as amended, are required by the Act to provide before sales of military equipment may be effected.

9. Austria—Aid Figure for Fiscal 1953.

MSA now advises that it will find it possible, subject to Congressional approval of the overall figure for foreign economic aid in fiscal 1953, to raise the Austrian aid figure from $80 million to $96 million, a figure which the Department still considers too low.

10. Italy.

(a) Italian Defense Expenditures.

In light of the refusal of the Italians to accept the recommendations of the NATO Wise Men Committee for an expenditure of $920 million in fiscal year 1952 and their indication that they will spend only at the rate of $810 million, MSA is considering holding back part of the economic aid available ($160 million plus $19.2 million for naval components). MSA has proposed that $24 million be withheld unless the Italians agree to increase the use of their resources for defense in fiscal year 1952 by 24 billion lire (approximately $38 million).

(b) Economic Aid for Fiscal Year 1953.

MSA originally proposed $75 million for economic aid to Italy. The Department has expressed doubts as to the economic validity and, more, the political feasibility of this figure. On the basis of Departmental objections, MSA has revised the estimate upward to $110 million.

(c) Italian Arms to Egypt.

It is becoming increasingly difficult for the Italian Government to refuse export permits for the shipment of arms and munitions to Egypt. Generally recipients of US arms have recognized the incongruity of making arms shipments to other countries at the same time they are receiving arms from the US. The Department, through its representatives in Rome, is seeking to dissuade the Italians from making such shipments. In the event of failure, the Department has indicated that it will make no objection should the British raise the matter before the NATO Council Deputies.

11. Netherlands.

(a) End-Item Deliveries.

Representatives of SHAPE and the Joint American Military Advisory Group and US representatives at The Hague have met with representatives on the Dutch side to try to reach agreement regarding end-item deliveries to enable the Dutch to participate with two divisions in the Allied maneuvers scheduled for next fall. At the present time it does not look as if the recommendations which SHAPE will make will relieve the Dutch of their worries with respect to filling out what they regard as minimum deficiencies for the two divisions. The Embassy continues to believe there is some danger that the Dutch may actually make some reduction in their conscript levies unless SHAPE is able to dissuade them from taking this action.

(b) East-West Trade.

The Dutch have decided not to delay further the shipping of some oil well equipment to Poland although the equipment is included in Category B under Title I of the Battle Act⁹ (the category which applies to “petroleum, transportation materials of strategic value and items of primary strategic significance used in the production of arms, ammunition, and implements of war”). Their major argument has been that the shipment in question arises from a prior commitment and that, in their opinion, an exception could be granted under the Battle Act. We have to date not granted an exception but have consistently maintained the view that the Dutch should try to discover a basis for refusing to permit shipment. It is anticipated that we will have continuing difficulties with the Dutch, as with other COCOM countries, regarding shipments of this kind which involve long-standing contracts.

12. Yugoslavia—East-West Trade Controls.

At the suggestion of the Department, the Embassy in Belgrade has approached Yugoslav Government officials with the suggestion that they refer to the Department of Commerce’s “Check-Lists” before permitting the sale of strategic materials to consignees who may engage in transshipment to the eastern bloc. Yugoslavian officials are exploring the suggestion. The Department is presently studying further means to strengthen Yugoslav trade controls, a task complicated by the recent decentralization of authority in trade matters to local enterprises.

13. Regional Affairs (European).

(a) Airfields Agreement with France.

We are considering a French proposed draft agreement covering necessary operating rights for the US Air Force in France in connection with the construction and operation of eight airfields and support facilities under the Ottawa agreement regarding second-slice infrastructure.

(b) Agreement Regarding Contractual Procedures with France.

We are considering a draft proposal submitted by the French stipulating the procedures under which contracts will be made and executed for construction of US military facilities in France under NATO plans.

(c) Morocco Status of Forces Agreement.

A US position on a French proposed draft agreement covering the status of our forces in Morocco is in preparation.

(d) Protocol to NATO Status of Forces Agreement.

It is understood that a working group in London is now trying to finalize the text of the protocol extending the NATO agreement on status of forces to cover Allied Headquarters.¹⁰ Mid-March seems to be the target date for completion. We have commented extensively on the drafts to date, but we have had no reaction to our latest views regarding the protocol’s provisions on the matters of convertibility of currencies and exemptions from taxes. The existing text permits our headquarters to hold currencies of any kind and convert them into any other currencies; we feel it is too ambiguous and vague in defining the responsibilities of a headquarters and member countries. The last draft included no article regarding exemption of a headquarters expenditures from taxes. The US seems to be the only country urging the inclusion of such a provision; our suggestion is to include an article of the “most favored nation type” which will give a headquarters benefits of US bilaterals now being negotiated on taxes with other NATO members.

(e) SHAPE-French Bilateral.

As soon as the protocol referred to above is adopted, the Government of France and SHAPE intend to conclude their bilateral agreement regarding special conditions applicable for the establishment and operation of Allied Headquarters on French territory. We desire the inclusion of provisions giving SHAPE the maximum exemption obtainable from the payment of French taxes.

(f) NATO Transport Planning.

The NATO Council Deputies have under consideration a resolution to establish a Planning Board for European Inland Surface Transport (PBEIST). We have urged that the resolution be so worded that it is clearly understood that the PBEIST would confine its planning to inland surface transportation requirements in an emergency or war and that it not engage in any current operations.

(g) NATO Petroleum Planning.

The NATO Petroleum Planning Committee (PPC) is holding its first meeting in London at the end of this month. This planning organization was established recently by the Council Deputies to engage in wartime petroleum planning and to recommend readiness measures to meet a grave petroleum shortage in the event of war.

(h) Wartime Food Planning.

Informal exchanges of views with the UK have resulted in general agreement on the principles of a possible NATO wartime food planning group. The UK is now engaged in similar discussions with certain NATO members and the US is exchanging views with Canada. In view of their importance as food producing countries we are also keeping the Australians and the New Zealanders informed of these developments.

(i) NATO Civil Aviation Planning.

The UK has indicated a willingness to exchange views concerning the feasibility and desirability of undertaking NATO wartime civil aviation planning. These discussions will take place later this month in London.

(j) Ocean Shipping Planning.

The North Atlantic Planning Board for Ocean Shipping (PBOS) will hold its fourth and probably final meeting in Washington on May 12. This Planning Group has virtually completed its work.

(k) Battle Act Exception Cases.

All COCOM countries have submitted inventories of their outstanding commitments to ship Title I items under the Battle Act (items of primary strategic importance) to the Soviet bloc. … An interdepartmental Exceptions Working Group is considering each of these in order of prior commitment cases involving shipments from Italy.

(l) Transit Trade.

We are disturbed over continued reports of strategic goods reaching the Soviet bloc as a result of inadequate controls over transit movements through COCOM countries. The UK recently inaugurated licensing controls over the physical movement pf goods in transit and urged the countries participating in export controls to adopt similar controls. COCOM, due largely to Dutch, Belgian and French opposition, turned down this proposal. We are gratified at reports of Belgian-Dutch negotiations understood to involve the adoption of licensing controls over the physical movement of goods transiting their countries. It is understood, however, that the Dutch are imposing a condition that the UK adopt financial controls, similar to those in the Netherlands, which the UK is known to oppose. If these differences are resolved and the Belgians and Dutch adopt licensing controls over transit movements, it should go a long way in plugging the breach in existing controls and would afford a basis for getting other countries to adopt similar measures.

14. United Nations Affairs—UN Action on Korea in event of Armistice.

If an armistice is concluded, we envisage the following steps in UN: a short resolution of the SC approving the armistice and referring the problem of a political settlement to a special session of the GA; the GA would designate six or seven countries from among those fighting in Korea to act on behalf of the UN in participating in a conference with the Chinese Communists and North Koreans confined to a political settlement of Korea (the tentative list is US, UK, France, Australia, Thailand, Turkey and Colombia). The GA would invite the USSR to participate, but not on behalf of the UN. Preliminary consultations with the UK, France and the older Commonwealth countries reveal 1) an inclination on their part to include India in the conference; 2) a desire to explore the problem confidentially with the USSR, preferably before an armistice; and 3) a reluctance to include in the SC and GA resolutions references to previous UN action, to Chinese “aggression”, to the consequences of a breach of the armistice, etc., on the ground that these “provocative” portions might prejudice Soviet participation in a settlement.

Legal Problems

1. Legislation. The Department of State participated with Defense, MSA, ODMS and Budget in the formulation of the Executive Branch’s proposals for the Mutual Security Act of 1952.¹¹ This involved the formulation of basic policy positions regarding the future course of the program, the preparation of presentation materials, the briefing of witnesses, and the drafting of legislation. The draft bill (H.R. 7005) was introduced in the House by Mr. Richards¹² on March 11, 1952.

2. Spain. The Department worked with MSA and Defense to complete the preparation of a draft bilateral agreement to cover the furnishing of military and economic assistance to Spain pursuant to the provisions of the Mutual Security Appropriation Act, 1952.¹³ The drafting of this agreement reached its final stages in mid-March, with negotiations scheduled to begin when our Ambassador arrives in Madrid.

3. Taxes. Negotiation of agreements with the NATO countries (except Canada and Iceland) to provide relief from readily ascertainable taxes on U.S. expenditures in the common defense effort reached the final stages in late February and early March. By March 18th three agreements had been concluded and substantial agreement on most major issues had been reached in the case of the six others, with signature expected shortly.

4. Anti-attachment. Agreements had been reached with almost all countries receiving assistance under the Mutual Security Act that they would undertake mutually agreeable procedure to safeguard all funds allocated to or derived from any U.S. assistance program as specified in Section 515 of that Act. Four countries which were asked to provide this assurance have not yet fully complied: Mexico, Venezuela, Burma, and the United Kingdom. In the case of the United Kingdom somewhat limited assurances were provided, on the understanding that the United States might resume negotiations for more complete coverage. It is expected that negotiations with the other three countries will all result in obtaining an assurance in accordance with the Act.

In almost all of these countries, however, the specific procedures which will be necessary in order to provide the desired protection are yet to be worked out, and detailed studies must be undertaken to determine what protection is required in the light of the types of funds involved in any particular country and the varying systems of creditors’ rights which may jeopardize these funds.

Publication Information

1. The observance of the third anniversary of the North Atlantic Treaty involving (a) a ceremony in Washington with participation of high government officials and attendance of distinguished guests and others on April 4 at the Inter-departmental Auditorium; (b) the special NATO postage stamp issue involving possible participation of the President in the advance notices of first day of sale.

2. Tour now in progress by eleven correspondents from NATO countries to observe the defense buildup and other aspects of the United States.

3. Continuation of the above project to bring 60 additional NATO correspondents to the U.S. for this same purpose between now and July 1, 1952.

4. Establishing a flow of information from the field concerning the defense buildup, determination to defend themselves, etc., in the countries recipient of military assistance from the United States (Mr. Francis Russell, Director of Public Affairs for the State Department, is now in Europe making these arrangements under a recommendation by PIC).

5. Reinstating the project lately canceled by the Department of Defense to take American correspondents, radio commentators, editors and other key leaders to Western Europe to witness the progress of the defense buildup there.

6. Working out plans for coverage by means of news stories and photographs of the trainees from foreign countries now in the U.S. for use in the press of the countries which they represent here.

7. A domestic information program on the Mutual Security Program shortly to be proposed to Congress by the President.

Reimbursable Aid Program

Efforts are being made by State and Defense to expand the categories of countries which may submit requests for Reimbursable Assistance directly to Defense rather than through State to Defense.

1. A covering memorandum from William J. McWilliams, Director of the Executive Secretariat, to Secretary Acheson, dated Mar. 21, 1952, reads: “When Ambassador Cowen took over on the Mutual Security Affairs job I urged him to get a complete inventory of the active problems for which he would have varying degrees of responsibility. He did this and the attached paper, which he gave me to read and asked me to pass to you, is such an inventory. Since this covers the waterfront without going into too much detail, I think it will be useful to you to look it over. Ambassador Cowen says there are one or two of these subjects which he would like to discuss with you after you have looked over the paper.” Ambassador Cowen had responsibility for MSA from the latter part of March until his appointment as Ambassador to Belgium on May 10, 1952. No record of any discussion between Ambassador Cowen and Secretary Acheson as mentioned in the covering memorandum has been found in Department of State files.
2. Reference is to the Mutual Defense Assistance Act of 1949 (Public Law 329), approved Oct. 6, 1949. For the text of this Act, see 63 Stat. 715.
3. For documentation on the application of investment guarantee provisions under the Mutual Security Act of 1951, see pp. 227 ff.
4. Reference is to a proposed Middle East development program advanced by Edwin A. Locke, Special Representative of the Secretary of State and Ambassador to the Near East, 1951–1953. The proposal was discussed at length at the Secretary’s Staff Meetings of May 1 and May 6, 1952, where a consensus was reached that it was at once too ambitious and too vague. At the May 6 meeting, Secretary Acheson revealed that he had talked to President Truman “and the President felt that it would be unwise to come up with an additional program at this time because of the very critical status of the Mutual Security Program Bill.” (Secretary’s Staff Meetings, lot 63 D 75, “Documents, Jan–Aug, 1952”)
5. Not printed.
6. Waldemar J. Gallman.
7. Dr. D. F. Malan.
8. Reference is to the Temporary Council Committee of the North Atlantic Council. For documentation, see vol. v, Part 1, pp. 1 ff.
9. For documentation on the Mutual Defense Assistance Control Act (Battle Act) of 1951 providing for automatic termination of aid to any countries shipping strategic goods to Communist nations, see pp. 817 ff.
10. Extensive documentation on the ongoing NATO status of forces negotiations is in Department of State file 740.5.
11. For information on the Mutual Security Act of 1952, see the editorial note, p. 470.
12. Representative James P. Richards (D.–S.C.), Chairman, House Foreign Affairs Committee, 1951–1953.
13. For information on appropriations to carry out the Mutual Security Act of 1952, see the editorial note, p. 470.