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

S/S–NSC (Miscellaneous) files, lot 66 D 95, “Misc. NSC memos”

Memorandum by the Special Assistant to the President for National Security Affairs (Cutler) to the President¹

secret

Washington, August 30, 1954.

• Subject:
• Foreign Military Assistance

1. Early in August, with your approval, the above-mentioned item was scheduled on the Council agenda for the meeting on Thursday, September 2. However, this matter will not be ready for consideration on that date, and postponement is requested.

2. On February 4, 1954, the Council adopted and you approved the following action:

“No. 1029–c Requested the Department of Defense, in cooperation with the Foreign Operations Administration and the Bureau of the Budget, to study and report to the Council on a flexible program of providing U.S. military assistance to foreign nations in accordance with the availability of end-items and relative priority among recipient nations.”

Up to the present time, the NSC Office has not received the report requested of the Department of Defense on the above subject. On August 10, 1954, the NSC Office received Mr. Hensel’s preliminary “Suggestions for Securing Maximum Flexibility in the Mutual Defense Assistance Program”.² However, the coordinated position of the Department of Defense is not yet available for Planning Board use.

3. On March 24, 1954, you appointed a Special Committee, composed of the Secretary of the Treasury, the Under Secretary of State, the Deputy Secretary of Defense, the Director of the Foreign Operations Administration, and the Director of the Bureau of the Budget, to consider various administrative and organizational aspects of the economic and military aid programs for FY 1955 (See Annex A). This Committee held a number of meetings, and reached decisions on certain proposals to be presented to Congress and on certain changes in the relationship between Defense and FOA (See Annex B). Congress recently completed action on the Mutual Security Act of 1954.³ This Act provides for the termination of the Foreign Operations Administration by June 30, 1955, or sooner at the discretion of the President. While continuing in the Director of FOA the pre-existing function of coordination of all foreign aid programs and the operation of the economic and technical aid programs, the Act eliminates the previous assignment to the Director of FOA of continuous supervision and general direction of the military assistance program.

4. I am advised that the Bureau of the Budget has prepared and circulated to interested agencies for comment a draft Executive Order to deal with certain administrative and organizational aspects of the mutual security program.⁴ Attached is an explanatory statement prepared by the Bureau of the Budget on what it considers to be the major points in its draft of a Mutual Security Program Executive Order and the accompanying Presidential letter (See Annex C). Certain of these points may have to be referred to the Special Committee for further discussion. It would seem appropriate for the Bureau of the Budget to complete its work on the Executive Order before the Planning Board undertakes whatever further action in this field may be suitable.

5. After consideration of this subject, I have come to regard it as having two main aspects. One aspect is the administrative and organizational set-up which will make possible flexible handling of the military assistance program. The second aspect of providing flexibility concerns a periodic review of current programming of unexpended MDAP funds in the light of the availability of end-items, relative priority among recipient nations, and current U.S. objectives, strategic concepts, etc.

6. With respect to the first aspect, the Department of Defense has submitted to the Bureau of the Budget its views on the draft Executive Order. I have also transmitted Mr. Hensel’s preliminary memorandum to the Director of the Bureau of the Budget for consideration, in connection with its study of the proposed Executive Order. When the NSC Office receives from the Department of Defense the report requested of it, I will see that appropriate parts thereof are also transmitted to the Director of the Bureau of the Budget for consideration.

7. With respect to the first aspect of this subject, I therefore recommend:

a. That the Special Committee take prompt action on any unresolved issues referred to it by the Bureau of the Budget on the proposed Executive Order, and that the latter be transmitted to you for signature as soon as possible,

b. That the Planning Board suspend consideration of the administrative and organizational aspects of this subject.

8. With respect to the second aspect of this subject, I recommend that the Planning Board give urgent consideration to developing recommendations, for submission to the Council, as to a mechanism to provide a periodic over-all review for the NSC of the broad aspects of the military assistance program, such as force levels, priorities and allocations of end-items and production capacities included in all uncompleted military assistance programs (totaling at June 30, 1954 approximately $7.6 billion), in the light of U.S. security objectives, strategic concepts and other relevant considerations, and with the objective of obtaining the best possible balance in terms of U.S. security. The first of these reviews should, in connection with NATO, consider the possibility that General Gruenther’s “New Approach” may be adopted.⁵

Robert Cutler

Annex C

[Washington, undated.]

Paper Prepared in the Bureau of the Budget

Explanatory Statement on Major Points in the Mutual Security Program Executive Order

The following list covers most of the main points included in the attached draft Executive order under the new Mutual Security legislation.⁶ Some of the material below such as that relating to interagency relationships, is not appropriate for the Executive order itself, but the issuance of the order will be accompanied by a Presidential letter covering the pertinent items of relationships.

1. All military aid funds are to be automatically allocated to Defense.

2. All other MSP funds are to be automatically allocated to FOA.

3. FOA will continue the coordination of all foreign aid programs, but not supervision and direction of the military aid program. FOA will be subject to policy guidance from the Secretaries of State, Defense, and Treasury, in their respective fields. Within this context FOA will continue to exercise the determination of the dollar value of country military aid programs.

4. The Direct Forces Support programs (Indochina, Aircraft Manufacturing in U.K., and common use) will be administered by FOA.

5. The Director of FOA will exercise the functions relating to loans and the use of counterpart local currencies after consultation with the National Advisory Council. In the case of loans involving military aid, the Secretary of Defense shall be included in the consultation.

6. There will be reserved to the President the functions with respect to findings, determinations, certifications, agreements, transfers of funds, etc., in the same manner as provided by the current Executive order.

7. The Director of FOA will operate the Battle Act program⁷ within specific appropriations for that purpose, with additional funds available for this purpose from military aid appropriations only on Presidential determination.

8. The functions of Munitions Control will be delegated to the Secretary of State subject to consultation with the interested departments and agencies as at present.

9. The Director of FOA will coordinate the implementation of the congressional requirement that $350 million of MSP funds be used for surplus agricultural commodities. The Director will determine the portions of the $350 million that will come from each of the various components of the MSP program and the utilization of local currency resulting from the sale of the commodities. The Director will coordinate this surplus disposal program with that under the Agricultural Trade Development Act, within the framework determined by the President in a separate Executive order on that Act.

10. The Secretary of Commerce is designated as the Officer to carry out the program to encourage travel. This assignment in no way diminishes State and FOA responsibilities to operate exchange and technical assistance programs, nor does it affect the responsibility of State to carry on diplomatic negotiations with other countries regarding the removal of legal barriers to international travel.

11. The responsibility for “finding” opportunities for investment and development abroad is delegated to the Director of FOA. The Secretary of State is to continue his regular work relating to finding opportunities abroad. The responsibility for “drawing the attention” of private enterprise to these opportunities is delegated to the Secretary of Commerce as part of his regular operations. The negotiation of treaties for commerce and trade is assigned to the Secretary of State, and the investment guarantee program remains in FOA.

12. The Office of Small Business is to be continued in FOA, and FOA will continue to cooperate with other agencies in carrying out this program.

1. The source text is accompanied by two memoranda. The first, dated Aug. 30, 1954, is from Acting Executive Secretary of the National Security Council Gleason to the NSC informing the Council that President Eisenhower had on that date approved the recommendations contained in this memorandum, copies of which were being transmitted to the NSC, the Secretary of the Treasury, the Chairman of the Joint Chiefs of Staff, and the Directors of the Bureau of the Budget and of Central Intelligence for their information “and is scheduled to be noted at the Council meeting on September 2.” Also enclosed for information of the addressees was Annex A, a memorandum from Budget Director Dodge, Mar. 24, 1954, p. 733; Annex B, a memorandum, dated Apr. 6, 1954, of major decisions taken at the meeting of the Special Committee on the Foreign Operations Administration, p. 734; and Annex C, “Explanatory Statement on Major Points in the Mutual Security Program Executive Order”, below. The second covering memorandum, dated Sept. 1, 1954, is from Nolting to Acting Secretary of State Smith and summarizes the Cutler memorandum with the recommendation that the “Council note Mr. Cutler’s memorandum to the President.”
2. Not found in Department of State files, but see Annex C, below.
3. See Current Economic Developments, Issue No. 449, Aug. 31, 1954, infra. Hearings on the Mutual Security Act of 1954 had been held in the House between Apr. 5 and June 8, 1954. They are printed in U.S. House of Representatives, The Mutual Security Act of 1954, April–June 1954, 83d Cong., 2d sess.
4. Not found in Department of State files, but see Annex C, below.
5. The memorandum of discussion at the 212th meeting of the National Security Council indicates that at that session Cutler informed the Council that President Eisenhower had approved the recommendations contained in paragraphs 7 and 8. A copy of the memorandum of discussion is in the Eisenhower Library, Eisenhower papers, Whitman file.
6. Not found in Department of State files, but see the editorial note, p. 792.
7. For documentation on the Battle Act, see pp. 817 ff.