Foreign Relations of the United States, 1952–1954, Western European Security, Volume V, Part 1

751.5 MSP/2–2752

United States-French Memorandum of Understanding¹

top secret

[Lisbon,] February 25, 1952.

I—In conformity with the engagements undertaken in common in the North Atlantic Treaty Organization and with specific reference to the approval by the Council on February 23, 1952 of the Supplementary Report of the Temporary Council Committee,² The Government of France and the Government of the United States have made the following arrangements:

1. The report of the Temporary Council Committee recommended French military expenditures at 1190 billion francs in October 1951 prices, of which 1100 billion francs was to be the financial contribution from France’s own resources. This contribution was accepted by the French Government as corresponding to the economic and financial capabilities of the country. Since this report was prepared in addition to necessary adjustments for price increases there has been an unforeseen increase in the expenditures for military operations in Indo-China. Faced with the necessity of constituting forces in Europe as well as carrying these additional charges in Indo-China, the French Government has decided to contribute to defense in excess of the amount recommended in the report. The French Government underlines, however, that it considers this supplementary effort to have an exceptional character and stresses that the level of its 1952 contribution is not to serve as a basis for any estimation which might subsequently be made by the NATO organizations of the capability of France to contribute to the defense effort in 1953.

2. In consideration of this decision by the French Government and subject to its approval by the French Parliament, the United States Government has decided, under the conditions set out below, to modify its program of assistance to France out of fiscal year 1952 funds in a manner which will provide additional budgetary resources for the defense effort to be carried out by France in 1952.

3. In view of these financial resources the French Government has declared itself prepared to establish the defense forces set forth in Annex B of the Supplementary Report of the Temporary Council Committee as approved by the North Atlantic Council in its meeting on February 23, 1952.

II—In accordance with this agreement the representatives of the United States Government informed the French Government that the program of assistance from the United States from fiscal year 1952 funds would be as follows:

1. An amount of $500 million is to be made available to the French Government from the funds voted by Congress for the fiscal year 1952 under the Mutual Security Act. This $500 million will give rise to financial resources in francs which can be applied to defense expenditures foreseen in the French budget for 1952.

The $500 million is to be broken down in the following four categories:

(a) An amount of $170 million in economic aid has already been made available to the French Government.

(b) An additional amount of $100 million in economic aid has been earmarked to be made available to the French Government before March 15, 1952. It is understood that of this $100 million an amount of $25 million is to be available to the French Government before the end of February, 1952. The two Governments agree that in future discussions to take place in Paris to determine the utilization of the French franc counterpart of American assistance, the counterpart of this additional amount of $100 million is to be earmarked for defense expenditures in Indo-China.

(c) An amount of $30 million will be applied to finance French orders for supplies in the United States for the needs of the forces in Indo-China. These funds are available for orders previously placed in the United States by the French Government.

(d) The remaining $200 million will be provided under “offshore purchase” contracts to be placed in France primarily for arms and equipment for the forces in Indo-China, and if funds of this amount cannot be fully utilized for forces in Indo-China, for arms and equipment for the French forces in Europe, subject to the following conditions:

1. The realization of these offshore purchases is dependent upon the conclusion very promptly of an agreement now being discussed between the two Governments concerning taxes in France applicable to United States expenditures in France for the common defense and upon the coming into force of that agreement soon enough to permit the offshore program to be carried out.

2. It will only be possible to place these contracts for offshore purchases if the French prices quoted are in general comparable to the going prices for similar items delivered in France from the United States.

3. Subject to the two reservations indicated under Paragraphs 1 and 2 immediately above, the United States Government will take all practicable measures to provide that the French Government will receive for balance of payments purposes the $200 million before the end of June, 1952, or in any case as soon thereafter as is administratively feasible, although the timing of the actual payments of liabilities in French francs under the contracts is to take place in accordance with the terms of the contracts. If the United States Government so elects, it may obtain this result by increasing the sum of $100 million foreseen under paragraph (b) above as a substitution for a comparable amount of offshore purchases under the $200 million foreseen in this paragraph. The United States Government may also substitute for a part of the $200 million procurement program, if this cannot all be placed in France, the purchase in the United States of items now budgeted by France for the needs of the forces in Indo-China.

4. The offshore purchases may, if the United States so elects, apply to contracts already placed, if the French Government had been forced to cancel such contracts.

5. The United States Government is to select the items to be included in the offshore purchase program of $200 million from the contracts which are scheduled for franc financing under the French defense program for 1952 as defined in Section V below.

6. The United States Government may, if it so elects and with the agreement of the French Government, make a contract with the latter for all or part of these items. Appropriate procedures are to be evolved permitting the representatives of the United States Government to participate in inspection to insure minimum quality standards of deliveries and in consultations to insure prompt payment arrangements with producing firms in France to encourage rapid production.

III—The two Governments agree that the receipts in dollars of the French Government coming from the expenditures of American forces in France, including the contribution by the United States to infrastructure and the purchase by the United States of material and supply,³ are likely to reach a level of $100 million before June 30, 1952. Accordingly, the present arrangements are considered as superseding earlier discussions relative to assistance to France from fiscal year 1952 funds.

IV—The two Governments agree that the conversations now in progress with a view to facilitating the placement in France by the United States of contracts for material, supply, and labor, and for infrastructure, including airfields and other installations must be brought to a prompt and satisfactory conclusion in the interest of the common defense.

V—In view of the new program outlined by the representatives of the United States in Section II above, which will provide budgetary assistance not previously foreseen, the French representatives stated that the French Government will provide for a military budget of 1400 billion francs in 1952 (according to NATO definition of defense expenditures).

This budget of 1400 billion francs is to be based on the provision of the forces committed by France to NATO at the Ninth Session of the Council at Lisbon and included in Annex B of the Supplementary Report of the Temporary Council Committee, dated February 24, 1952.

VI—(a) The two Governments recognize that the French program of 1400 billion francs set out under Section V above will result, despite the $200 million offshore purchases to be effected by the United States Government, in the cancellation of a certain number of production contracts and the severe curtailment of new contracts. Thus the level of defense production in France will be seriously reduced.⁴

It is therefore requested urgently by the French representatives that the United States Government carry out purchases in France over and above the program of $200 million of offshore purchases mentioned under Section II above, either for the needs of the French forces or for the needs of the forces of the United States and of the forces of other countries of NATO. The representatives of the United States indicated that this possibility was not excluded if the prices and technical conditions were acceptable, without, however, being in a position to take any engagements on this subject. It was understood that the French Government would present to the Government of the United States a list of equipment which is now being produced in France or which could be undertaken within a very short time for possible procurement by the United States.

(b) The French Government pointed out that, in any case,⁵ the French program as set forth in Section V above will only permit French forces to be equipped in small measure from the French financial resources foreseen. In view of this and the changes in the French military program, the French Government requests a review of the end-item program with a view to offsetting the shortfalls in French production by a reprogramming of end-items and also to including, if necessary, a wider range of articles in the end-item program for French forces. The French Government requests strongly that any deliveries of end-items which may be feasible for these purposes be filled at least in part by production in France financed in accordance with Paragraph (a) immediately above.

VII—The Government of the United States makes clear that it is not able to take any engagement with regard to fiscal year 1953 funds, including the utilization of counterpart, before Congress has voted the necessary funds. The Government of France is informed, however, that in the projected budget for the fiscal year 1953, the United States Government has made provision whereby the amount of funds which could be made available to France under economic aid and under offshore purchase program for end-items could during the course of that fiscal year be comparable to the level available in the fiscal year 1952. The Government of the United States also points out that any additional financial resources in French francs which might become available to the French Government from these funds can be utilized only in connection with defense expenditures in France and only in the course of the calendar year 1953.

For the Government of the Republic of France: ______________
For the Government of the United States of America: ____________

1. The source text is included in the Department of State files under cover of a memorandum of Feb. 27 from Lincoln Gordon of the Office of the Director of Mutual Security which explained that this copy was brought back to Washington by Harriman. Authenticity of the text was subsequently explained in telegram 5098, Feb. 29, to Paris (quoted in footnote 2, p. 142) reporting on the American-French meeting of Feb. 23. The text of this memorandum of understanding was originally sent to Washington in telegram Actel 10, Feb. 25, 9 p.m. from Paris, from Secretary Acheson to Acting Secretary Webb with instructions to bring the telegram to the attention of President Truman and to limit distribution to Lovett, Snyder, and Harriman. Actel 10 also contained the following explanatory sentence: “Following is American text of memorandum of understanding to be signed this afternoon after confirmation with French text.” (751.5/2–2552) Two corrections to the memorandum were subsequently transmitted to Washington in telegram Actel 12, Feb. 26, from Lisbon. (751.5 MSP/2–2652) The nature of those changes is indicated in footnotes 3 and 5, below.
2. For the text of the Supplementary Report of the Temporary Council Committee, Feb. 8, 1952, see p. 211; for an account of the meeting of the North Atlantic Council on Feb. 23 at which the report was approved, see telegram Secto 59, Feb. 23, p. 150.
3. Telegram Actel 12, Feb. 26 (see footnote 1, above) amended this sentence by adding the phrase “for its own use” after the word “supply”.
4. Telegram Secto 76, Feb. 25, from Bruce, Lovett, and Harriman in Lisbon, reported that, with reference to Section VI, paragraph a of the memorandum of understanding “to be signed today”, Bourgès-Maunoury considered the question of off-shore purchase over and above $200 million particularly urgent and had instructed his Ministry to prepare information on French production in progress which might have to be cut back or canceled. Telegram Secto 76 requested that American officials in Paris prepare such information for consideration in advance of the scheduled meeting in Paris on Mar. 3 of Draper, Pawley, and officials of the French Ministry of Defense. (740.5/2–2552)
5. In the text transmitted in telegram Actel 10 (see footnote 1, above), the phrase “in any case” was not surrounded by commas. Telegram Actel 12 directed that the commas be inserted.