Current Economic Developments, lot 70 D 467

Current Economic Developments

[Extract]

secret

Issue No. 420

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Analysis of Provisions of Foreign Aid Legislation1

Just before adjournment of the first session of the 83rd Congress, three bills were passed which provide for foreign aid. One was the Mutual Security Appropriation Act, 1953;2 a second was the supplemental appropriation bill which, in accordance with the President’s request, provided for $200 million for Korean relief and rehabilitation out of savings in defense funds resulting from cessation of hostilities; and the third was an emergency famine relief bill which authorizes the President, within certain limitations, to furnish agricultural [Page 634]commodities held by the Commodity Credit Corporation to countries suffering from famine.

Mutual Security Appropriation. The appropriation in the foreign aid bill totals $6.6 billion, of which approximately $4.5 billion is new money and $2.1 billion represents unobligated balances remaining from previous appropriations which may be used in the 1954 program. The breakdown of the program, as finally passed, follows:

New Funds Unobligated Balance
Military Assistance
Europe $1,860,000,000 $1,311,977,003
Near East and Africa 270,000,000 312,713,221
Asia and the Pacific 1,035,000,000 256,843,411
American Republics 15,000,000 50,723,170
Total Military Assistance 3,180,000,000 1,932,256,805
Mutual Defense Financing
Europe 220,000,000 115,706,906
Formosa and Indochina 84,000,000 17,821,596
UK NATO Aircraft Production 85,000,000 ——
French NATO Military Production 85,000,000 ——
Indochina force support 400,000,000 ——
Total Mutual Defense Financing 874,000,000 133,528,502
Mutual Special Weapons 50,000,000 ——
Technical Assistance
Near East and Africa 33,792,500 ——
Asia and the Pacific 51,278,001 10,821,999
American Republics 22,342,000 ——
Total Technical Assistance 107,412,501 10,821,999
Basic Materials Development 19,000,000 ——
Special Economic Assistance
Arab States, Israel and Iran
Dependent Overseas Territories—Africa 147,000,000 ——
Palestine Refugee Program —— 44,063,250
India and Pakistan 75,000,000 ——
Total Special Economic Assistance 222,000,000 44,063,250
Multilateral Organizations Movement of Migrants 7,500,000 ——
[Page 635]Multilateral Technical Co-operation 9,500,000 ——
International Children’s Emergency Fund 9,814,333 ——
Ocean Freight for Relief Shipments 1,580,166 244,834
UN Korean Reconstruction Agency 50,700,000 ——
Total Multilateral Organizations 79,094,499 244,834

While the total amount lacks about $670 million of the Administration’s reduced appropriation request, it is considerably more than the original figure passed by the House, and it is generally considered that the funds appropriated are adequate to do an effective job.

Reaction Abroad to Cuts. During Congressional consideration of both the authorizing and appropriation legislation, considerable concern was manifest abroad about inadequate aid and about future US aid plans. This was compounded in Europe because of the amendment in the House version of the authorizing legislation which provided that not less than 50% of the funds authorized for military assistance to Europe in fiscal 1954 be made available only for the European Defense Community. However, the bill as finally passed provides that 50% of the equipment and material procured from fiscal 1954 military assistance funds for Europe shall be transferred to the European Defense Community or to the countries which become members thereof, unless the Congress, upon Presidential recommendation, provides otherwise. Thus, should EDC not come into being and should the President consider that conditions might nevertheless warrant release of equipment and materials earmarked for the organization, Congress would reconsider the provision. Meanwhile, orders for equipment and materials may be placed under these funds but delivery of the assistance will not take place until the organization is formed. Because of the time required between placement of orders and their manufacture and delivery, the amendment will probably not have an appreciable effect on most items for a year or eighteen months. Moreover, this limitation applies only to equipment and materials and not to training and other services. We have taken the position with the EDC countries that this provision should not cause concern to European [Page 636]countries but be regarded as US interest in European unity and in the effective defense of Europe.

As to concern abroad about future US aid plans, it is true the authorizing legislation did not extend the termination date of June 30, 1954 for the program as requested by the Executive Branch. However, the legislation did extend the terminal date for deliveries and liquidation to June 30, 1956 for economic assistance and to June 30, 1957 for military assistance and issuance of investment guaranties. Termination dates are elements of US legislation and do not necessarily imply future US policy. The June 30, 1954 date was maintained, according to the conference report, not because it was believed that all forms of assistance to other nations would finally terminate on that date, but because it was considered necessary that there be a basic overhauling of the legislation dealing with foreign aid before that date.

The cut in multilateral technical assistance, while not large in size, is especially serious because of its probable impact on a highly-regarded UN program and because it is damaging to US prestige in the United Nations. The Administration had requested $13,750,000 for this purpose for fiscal 1954 and $4,595,812 as a supplemental appropriation for 1953. We had pledged the latter amount for the 1953 UN program, making the pledge contingent upon Congressional appropriation of funds. As finally passed, the bill appropriates only $9,500,000 for fiscal 1954 and eliminates entirely the supplemental appropriation. The cut came at an extremely bad time as the Economic and Social Council was convened in Geneva, where news of this reduction in one of the UN’s most successful programs spread like wildfire. Moreover, it came immediately after announcements by the USSR and Polish delegates that, for the first time, their governments would make a contribution to the UN technical assistance program. In view of the legislative history, it may be possible to fulfill the 1953 program and for the Administration to request a supplemental appropriation for the amount authorized but not appropriated.

Transfers of Funds. The authorizing legislation permits the President to transfer up to 10% of the total of funds for military assistance and defense support in Europe from one of these purposes to the other in that area, and to transfer 10% of the funds available for military or defense support and technical assistance in any one area to other areas to be used for the same purpose. Balances of prior appropriations may be included in the base on which such percentages are computed. The President is authorized to use $100 million anywhere for any purpose, if he determines that such use is important to the security of the United States, provided no more than $20 million is used for any one country.

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Surplus Agricultural Commodities. Section 550 of the act provides that not less than $100 million and not more than $250 million of any mutual security appropriations for fiscal 1954 should be used, directly or indirectly, to buy surplus agricultural commodities. Legally it is possible under this provision to use military end-item funds as well as economic assistance and defense-support funds. The Mutual Security Appropriation Act requires that, of this amount, at least $100 million come from funds other than those authorized by Section 541 (economic assistance and defense support in Europe, Formosa and Indochina). Agricultural commodities sold under this section should not displace or substitute for “usual marketing of US or friendly countries” to that country. The commodity would be sold to the country for local currency and, to the extent practicable, at maximum market price. Local currency funds thus received would be put into a special US account to be used in specified ways, with particular regard being given to use for military assistance, loans for increased production of items including strategic materials, grants to increase production for domestic needs, and purchases of materials needed for stockpile in the US, and goods or services that could be used for assistance to third countries.

Meanwhile, in a separate piece of legislation, Congress authorized the President to furnish emergency assistance to friendly countries in meeting famine or other urgent relief requirements, by using agricultural commodities which have been accumulated by the Commodity Credit Corporation under the domestic price support program. This aid may also be furnished to friendly, needy populations, without regard to the friendliness of their government, provided the commodities will be so distributed as to relieve actual distress among such populations. Such aid is limited to $100 million and the time limit for such programs is set at March 15, 1954. The cost of ocean transportation of such products will either be borne by the receiving country or come from its share of MSP aid.

Interagency discussions are now going on as to the implementation of both the legislation for emergency famine assistance and Section 550 of the Mutual Security Act.

Other Provisions. While the Benton and Moody amendments of previous foreign aid bills are omitted in the new legislation, the conference report reiterates the principles of the Benton amendment. It states that it is the policy of Congress to encourage the efforts of other free countries in fostering private enterprise, in discouraging monopolistic practices, and in the strengthening of free labor unions, and to encourage American private investment abroad.

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Section 105 of the appropriation act provides that none of the funds nor any of the counterpart funds generated as a result of assistance may be used to make payments on the debts of any country, nor shall any of these funds be expended for any purpose for which funds have been withdrawn by any recipient country to make payment on their debts. This will be particularly relevant to Israel, where, in the past, mutual security funds have been used for refunding purposes.

The same section also provides that after September 1 none of the funds shall be used to make up any deficit to the European Payments Union for any nation of which a dependent area fails to comply with any treaty to which the US and such dependent area are parties nor shall any of the counterpart funds generated as a result of assistance under the act be made available to such nation. This was aimed at the problem which exists between the US and France with respect to treaty rights in Morocco. While it does not have any effect on funds that are already obligated for aid to France, it may affect counterpart generated by fiscal year 1953 funds in the event that some of the funds already in the pipeline are de-obligated and re-obligated. The Foreign Operations Administration still has not decided on the effect of this provision on counterpart funds and has requested a legal opinion from the Department on the treaty problem in Morocco.

A shipping provision in the appropriation act requires that insofar as practical steps should be taken to assure that at least 50% of the gross tonnage of commodities, procured within the US out of funds made available under the act and transported abroad in ocean vessels, is transported on US flag vessels to the extent such vessels are available at market rates.

The investment guaranty program was broadened in the hope of stimulating greater investor participation. The terms were extended to 20 years and guaranties can be made in countries not otherwise participating in the mutual security program. Such guaranties may be issued until June 30, 1957.

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  1. Further documentation on foreign aid legislation is in U.S. House of Representatives, Mutual Security Legislation and Related Documents, December 1953, 83d Cong., 1st. sess.
  2. Public Law 83–118, enacted July 13, 1953, signed by President Eisenhower July 16, 1953. For the text, see 67 Stat. 152.