Foreign Relations of the United States, 1952–1954, Western Europe and Canada, Volume VI, Part 1

ECA–MSA–FOA files, lot W–13, “FY 1954 Mutual Sec. Presentation”

No. 278
Paper Prepared by the Department of State, Department of Defense, and the Foreign Operations Administration ¹

confidential
[MS/54 D–206/8 (10)]

[ Washington ,] July 17, 1953.

European Defense Production Study

Summary

a. the u.s. program for fiscal year 1954

In attacking jointly with NATO the specific problems of meeting equipment requirements of our NATO partners, and working at the same time toward the more general objectives of economic strength and political stability, a program is planned for FY 1954 comprising offshore procurement, assistance to facilities which would be needed in wartime, defense support and direct special payments programs.

b. u.s. particiation in european defense production

Economic capabilities of the Europeans are inadequate to enable them alone to provide for the defense of Western Europe. The effect of these limitations is most sharply felt in the matériel procurement budgets. Accordingly, the U.S. is making a major contribution to European equipment needs through MDAP end-items (including offshore procurement), mutual defense payments, and encouragement to European governments to release counterpart for defense production purposes.

c. summary of major u.s. objectives

The U.S. is making its contribution to the joint effort in such a manner as to ensure the most efficient use of available, combined resources, in order to meet buildup, post-buildup, and wartime requirements, meanwhile seeking to minimize the need for U.S. aid.

1. Relationship of Defense Production and OSP to Meeting Buildup Requirements

The timing set by the military planners demands the current use of the bulk of hard goods production facilities adopted to munitions output. The U.S. is using its own facilities for its own military production as well as for equipment aid to other NATO countries, is increasing the ability of the Europeans to use their own facilities through the effects of mutual defense payments and special preproduction assistance to facilities, and is placing orders in European plants which the Europeans cannot afford to use even with aid. The FY 1954 program provides for continuing these activities.

2. U.S. Longer Range Objectives in the Post-Buildup

In order that the European countries can afford to maintain the forces built up, especially the U.S.-produced end-items, the U.S. is placing contracts in Europe for items for which further capacity is needed in Europe.

3. Wartime Requirements

It is necessary, because of the time lags involved in getting production underway on the Continent in the event of war, for the U.S. to support the Europeans in their effort to develop a needed wartime mobilization base that will ensure adequate supplies of ammunition, spare parts, and other critical items needed in wartime. The intended facilities assistance program and the FY 1954 OSP program will help to answer this need.

d. economic considerations relating to defense production and osp

The limited economic capabilities of NATO Europe are a basic reason for the entire Mutual Security Program, along with inefficient use of resources available. Offshore procurement and defense support (with its accompanying counterpart and productivity elements) have successfully attacked these limitations in the past. With the continued assistance to be provided by OSP in creating a demand and providing financing to put resources to work, and by mutual defense payments in supplementing budgets, providing needed dollar exchange, and carrying out productivity and technical assistance programs, they can carry forward the attack on these limitations in the coming year.

e. political considerations relating to defense production and osp

On the political side, OSP can effectively contribute to the achievement of important U.S. political objectives as a result of promoting a coordination and integration of NATO or EDC defense production, by reducing the need for direct dollar aid, and by establishing a base for ultimate European self-sufficiency in munitions production. The results of these actions are to foster general unity and integration, to reduce the political irritant involved in donor-donee relationships between nations, and to strengthen certain countries against potential internal aggression.

European Defense Production Study

a. the u.s. program for fiscal year 1954—summary

1. Purpose of Program

The interests—military, economic and political—which the U.S. has in European defense production relate to problems of both a general and a specific nature. The purpose of the U.S. program for FY 1954 is to aim as accurately as possible at the specific problems, working out solutions for these, that, taken together, will also contribute toward the solution of the general problems.

The specific problems are those of satisfying equipment and production deficiencies, regarding which the U.S. is working as one member of NATO. They are the problems of meeting existing deficiencies for specific end-items, of providing adequate peacetime supplies of spare parts, ammunition, and replacement equipment, and of preparing to meet wartime demands for certain items—all out of Western European production. The means of solution are those of procurement and investment, of financing and foreign exchange, of production assistance and standardization, and of supplies of raw materials and production equipment.

The general problems are the ones basic to maintaining economic strength and political stability. These objectives will be attained only if the total amount and cumulative effect of the separate measures taken are adequate and coherent. The U.S. program of participation in European defense production has been, and should continue to be in FY 1954, a contribution supplementing the Europeans’ own efforts to reach the buildup goals, to lay the foundations for post-buildup supply, and to prepare for wartime production. At the same time, the U.S. contribution as a whole must help to strengthen Europe economically and to stabilize Europe politically.

The successful administration of the U.S. program in terms of attaining the U.S. objectives requires working with and through the NATO to the greatest possible extent. The initial NATO planning which the U.S. program supports is on a regional basis, in which national interests are to a certain extent merged in order to achieve the maximum combined effect. Successes in the past, e.g., the NATO Aircraft Program, promise every hope for accomplishment during the next year.

2. Program for FY 1954

A three-part program is planned for FY 1954. Each of the parts involves the use of a technique for administering the U.S. contribution to European defense production and is aimed at one or another of the specific objectives already briefly discussed. In other papers there is fuller discussion of the regional development of requirements and defense production programs for the various equipment categories, of the individual countries’ contributions and capabilities in defense production, and of some special problems in these areas.

The intended program provides for continuity of U.S. effort in the continuing mutual effort through offshore procurement, assistance to facilities needed for wartime production, and mutual defense payments.

a. Offshore Procurement

The present objective is the use of some $1.5 billion out of the requested end-item funds for offshore procurement, of which the great bulk will be spent in European countries. The OSP technique is well suited to picking off, one by one, individual specific objectives represented by the most urgent end-item deficiencies. At the same time, OSP can help to strengthen the industries concerned and to mitigate the general dollar shortage.

The expected OSP program for FY 1954 will, in essence, satisfy urgently required end-item equipment deficiencies and provide major assistance to NATO Europe in establishing a European military production base. Since the MDA program on which the OSP program is based reflects screened military deficiencies and valid military priorities, the OSP program has these paramount military considerations built into it.

Critical deficiencies of military end-items exist in Europe, while at the same time large production capacity to reduce these deficiencies lies idle. The primary obstacle to use of this capacity is and has been the lack of funds. Sufficient usable capacity for an OSP program of the sort presently planned exists in Europe for FY 1954. The utilization of this capacity would permit a more rapid and profitable expenditure of needed funds.

As with the FY 1953 OSP program, the FY 1954 program is expected to place great emphasis on the categories of ammunition, aircraft, electronics and ships, as well as on spare parts for several categories. Significant amounts of artillery will likely be included, as well as some small arms, and aircraft and naval equipment. The purposes OSP is to serve in each of the nine categories of major matériel are discussed at greater length in other papers.

b. Assistance to Facilities Needed in Wartime

Facilities assistance for expansion of the existing munitions industry in Europe is necessary to meet requirements for the NATO forces buildup, but particularly to provide manufacturing capacity for “high rate consumables”, requiring large amounts of shipping space during wartime, such as ammunition.

European manufacturing capacity for ammunition is significantly limited due to certain bottlenecks. However, if European facilities for the production of explosives and propellants and for loading were balanced with European metal-working capacities, the European ammunition industry would be able to supply approximately 25 percent of estimated wartime requirements.

To bring the explosive, propellant and loading capacities in France and Italy up to a point where they are in balance with the metal component capacities requires a $112 million expansion program. Of this $112 million, France and Italy have undertaken to expend $34 million, leaving $78 million required to complete the International Staff program.² In return for a contribution by France and Italy of $28 million more, the U.S. is considering making a contribution of much or all of the remaining $50 million to develop facilities in these countries.

In addition to completing the initial $112 million International Staff program, the U.S. is also considering a further increment of assistance for ammunition capacity expansion through assistance to the U.K. and to Greece, Portugal and Turkey, to relieve further these critical deficiencies in the NATO wartime mobilization base.

Finally, some consideration is being given to using approximately $5 million in U.S. equipment aid for conversion of European facilities to production of steel cartridge cases, predicated upon the assumption that Europe would make an equivalent contribution. World copper shortages make it essential that European manufacturers convert to steel cases, the raw materials for which are indigenous to Europe.

c. Mutual Defense Payments

The U.S. is planning assistance in the form of direct special payments programs for France and U.K. The U.S. interest in defense production in Europe supports this recommendation strongly for these countries which are making, and with defense payments can continue to make, major contributions to NATO Europe’s military equipment needs. The use of counterpart funds contributes directly to equipment production.

b. u.s. participation in european defense production

A defense effort in Western Europe adequate to counter Soviet strength is still clearly beyond the capabilities of the Europeans themselves, and American participation in this effort must continue to be substantial. However, the contribution we have made in the past is beginning to pay dividends: the capabilities of our Western European allies are rising steadily. As we progress, the form and content of American participation must be adjusted to take best advantage of Europe’s own abilities, and to insure that the total defense effort does not slacken.

In the past several years, our contribution has taken a number of forms:

(i) We have contributed indirectly through the deterrent power of our Strategic Air Force and our atomic weapons.

(ii) We have made a most direct contribution in the form of American forces in Europe, which not only represent the strongest element in the SHAPE army, but which have had a decisive effect on European morale at a time when the Soviet threat seemed almost irresistible and have acted as a catalyst for the effective organization and training of Europe’s own armed forces.

(iii) We have also contributed reinforcement and supplement for the military effort of Europe with the aim of minimizing the need for U.S. troops stationed abroad.

Since the beginning of the Korean war, the composition of this aid has gradually come to focus on the problem of military matériel. In effect, a sharing of tasks has developed, in which the first claim on Europe’s own financial resources is for raising, training and maintenance of troops, whereas the primary assignment of American aid is to provide these troops with modern equipment as rapidly as it can effectively be used.

Two techniques are being used by the U.S. for supplying end-items to NATO forces:

(i) Sizeable amounts of U.S.-produced equipment have been shipped to Europe under the MDA end-item program.

(ii) This MDA end-item program also includes purchases of end-items in Europe to be turned over to the European forces. This technique of providing end-items, known as “offshore procurement”, has proved to have a number of advantages, and its use has been expanded greatly during the past year.

We have also encouraged European governments to supplement their normal budgeting appropriations for defense purposes with releases, for procurement of major matériel, of large sums of the counterpart of aid provided both under the European Recovery Program and the Mutual Security Program.

In addition, we have contributed directly to specific defense production projects by the MAP program, and to production in general by dollar defense support assistance, both of these in the form of dollar financing of imports from the U.S.

Within the total of FY 1954 mutual defense financing, there are two specific programs for financing $100 million of aircraft in the U.K. and $100 million of weapons and ammunition in France. These programs would be carried out on the basis of written agreements with the British and French Governments, and would involve some system of direct payment to these governments to cover the production costs of the equipment as provided in the agreements. It is not intended to use a dollar-commodity programming technique in connection with these programs; dollars received under these special defense payments programs will, however, of course increase the availability of foreign exchange to cover needed dollar imports.

c. summary of major u.s. objectives

The production of military equipment in Europe has two major objectives: first, for NATO Europe to develop combined strength sufficient to prevent aggression, and, second, for NATO Europe to become as self-sufficient as possible. The efficiency with which European resources are employed in building up Europe’s defense strength has a direct bearing on the volume of U.S. aid required and on the effectiveness with which such aid is used. It has a bearing, too, on how soon and by how much U.S. aid of all sorts can safely be reduced.

Under the offshore procurement program the U.S. is purchasing a large proportion of the military hard goods produced in the NATO countries. Such procurement must be coordinated with the plans of other countries. The totality of planned European production and procurement, including that financed by U.S. contracts or with U.S. aid, must represent an efficient use of the combined U.S. and European resources. It must be developed in such a way as to be consistent with the military, political and economic objectives which have as their common goal building on a stable and enduring basis the defensive strength of our European allies. This consistency can be achieved by coordinating U.S. plans, through NATO, with those of the other countries.

The NATO defense effort has several phases. In approaching the problem of producing major military matériel, it is necessary to work with the supply implications of each of these phases, as follows:

Buildup Requirements: The equipment, ammunition and supplies for equipping and training the military forces must be available to the forces as they are called into being. In view of the shortage of funds, it is particularly important that this military requirement be met as economically and efficiently as possible.

Post-Buildup Requirements: The matériel assigned to forces in being must be maintained in operable condition and replaced as it wears out or becomes obsolete. The European production facilities out of which buildup requirements are being met are those on which NATO Europe will largely have to rely to meet post-buildup requirements. Thus, it is important to plan production now which will (a) minimize Europe’s long-run dependence on U.S. assistance; and (b) achieve a balanced expansion of production capable of meeting post-buildup requirements.

Wartime Requirements: The consumption of all major military matériel rises sharply in time of war, and logistic considerations demand that certain items be readily available to the forces in the combat zone. Accordingly, for selected items, wartime requirements must fundamentally affect present production and facilities planning. In formulating resultant defense production plans for Europe as a whole, and for individual countries, both NATO and the U.S. must take into account the objectives of political stability and economic strength.

1. Relationship of Defense Production and OSP to Meeting Buildup Requirements

It was recognized early in the effort that the costs of NATO rearmament were beyond the ability of the European NATO countries to finance without external assistance.

The basic industrial capacity of Europe, given ample time and financing, might have been adequate to enable European governments to eventually meet most of the equipment requirements from indigenous sources. However, given the urgency of meeting the equipment requirements of the agreed forces buildup, and the far greater delay involved in equipping European forces from European production (the U.S. led Continental European countries by about a year in retooling for military production), it was evident that at that time the U.S. was the best available source for most items of heavy military equipment.

The fact that European governments could not cover the total financial cost of the military effort which their assigned part in the NATO military program required, and the special difficulties involved in European production of required matériel as compared with European contributions of forces, construction, and operating expenses, left little choice in deciding that U.S. aid should be concentrated on delivering military equipment from U.S. sources. It was also clear that this aid should be concentrated in those categories where apart from financial limitations European production would be unable to meet the deficiencies in the time required. The table below gives an estimate of that portion of the overall costs of the current NATO buildup program borne by European NATO countries and by the U.S. and Canadian aid programs.

European NATO Defense Expenditures and U.S./Canadian Aid

(in millions of dollars)

FY 1950 through FY 1953

	Expenditures	European Expenditure	U.S./Can. Mil. Aid Deliveries	Total
I.	Personnel	$10,995	—	$10,995
II.	Major Equipment	7,105	*$4,328	11,433
III.	Military Construction	2,340	†151	2,491
IV.	Operation & Maintenance	10,636	‡916	11,552
V.	Other Defense Expenditures	1,937	—	1,937
	Total	§33,013	$5,395	$38,408

The figures in the preceding table show the very considerable effort the Europeans have contributed to the mutual effort. The following table indicates the increase in European military expenditures over the years since Korea, and particularly the increasing proportion devoted to procurement of major matériel during the period—rising from 16% to over 30% of the total.

Military Expenditures of European NATO Countries^║

(in millions of dollars)

		Expenditures	Actual		Estimated
		FY 50	FY 51	FY 52	FY 53	FY 54
I.	Military Personnel	$1,893	$2,411	$3,237	$3,454	$3,489
II.	Major Equipment	845	1,082	2,028	3,150	3,369
III.	Military Construction	223	290	743	1,084	1,115
IV.	Operation & Maintenance	1,931	2,226	2,997	3,482	3,608
V.	Other Defense Expenditures	433	417	498	589	549
	Total	$5,325	$6,426	$9,503	$11,759	$12,130

It is clear that this rapid early rise in equipment expenditures is reaching its limits. Total defense expenditures are pushing against limitations of total budgetary resources of the NATO countries, and at the same time unavoidable defense expenditures for other purposes than major matériel are rising as new forces are activated and trained. We are approaching the point, therefore, where European expenditures on procurement of major matériel will be expanding only slightly. However, even though the European matériel budgets level out, they will cover an increase in the proportion of buildup costs assured by the Europeans.

The European defense production potential has grown in both volume and versatility over the past three years. This is due to European-financed orders to U.S. offshore procurement, and, less directly but very importantly, to the European Recovery Program and defense support aid under the Mutual Security Program. It is believed that this growth has been marked by increased efficiency in many cases, and has been reflected in lower prices and shorter delivery times. These results are encouraging not only to the placement of U.S. orders offshore where appropriate, but also to laying out a rational defense production plan for the longer term.

Likely OSP in 1954, taken together with end-items procured in the U.S., will substantially meet the high-priority deficiencies remaining in the buildup. At the same time, the use through OSP of European production facilities increases the self-sufficiency of our NATO partners, as does self-financed production.

2. U.S. Longer Range Objectives in the Post-Buildup

In the process of promoting, and participating directly in, the buildup of the European forces, the U.S. must keep in mind that the financial burden required by the maintenance of such forces cannot be beyond the collective capabilities of the European governments, plus whatever continued U.S. assistance we wish to provide. This requires a reconciliation of the military targets with economic capabilities, presently undertaken by NATO in the Annual Review process.

At the same time, in view of the probable continuing dollar shortage which will make future procurement of any substantial portion of such maintenance requirements from the U.S. a doubtful possibility without U.S. assistance for this purpose, the U.S. must promote the establishment of a physical capacity for indigenous production of most of the U.S.-type equipment and spares required for replacement and maintenance purposes.

Attainment of this objective requires some joint programming of defense production in Europe, a process in which OSP can play a crucial part. What is required, broadly speaking, is a selective balanced buildup of military production in Europe to insure that physical capacity will exist for the production of most of the items of equipment including spares, components, etc. (other than those which for strategic or security reasons should be supplied from U.S. sources)—capacity, that is, defined in the narrow sense, i.e., ability to produce a specific item in the desired quantity after a reasonable time-lag for tooling and conversion. Thus, the OSP program should give special consideration to items where capacity for production is below the long-run recurring requirements.

For U.S. types alone, by the end of the buildup the annual recurring, maintenance cost for spare parts and equipment for aircraft, electronics, combat and non-combat vehicles and other major categories in NATO Europe has been estimated at approximately $880 million, while annual capacity available for such production is now only $300 million. Apart from wartime logistical considerations, the magnitude of these costs points up the desirability of establishing European sources of supply if European independence from U.S. aid is to be progressively achieved.

In this expansion of European production it is important insofar as possible to avoid over-expansion of productive capacity during the buildup period for individual items of military production which would represent a significant waste of resources when peak production has been passed.

The expected OSP program will provide the financial and technical means for establishing in existing facilities the types of production most urgently needed in the post-buildup period.

3. Wartime Requirements

Wartime requirements demand a large increase in the volume of production. Finished items must be readily available to the combat zone. Production facilities must be as safe as possible from damage or capture. From all three points of view, Europe is capable of making an important contribution to wartime supply.

The huge increase in demand for all military matériel to be expected in case of war, especially for hard goods, will tax all available production resources. Consequently, preparatory measures to establish an adequate base on which industries can be mobilized are needed. In the U.S. we have recognized that no matter how great our resources may be, the pattern for the use of these resources for war will be strikingly different from that which obtains in peace. In the U.S. we are making large expenditures to ready ourselves for this rapid change in the pattern of production. In Europe, because of the nature of its industrial economy, particularly the lack of a well-developed consumer hard goods industry, the job will be more difficult.

In addition to longer range measures, it is recognized that orders or assistance given to European munitions industries now will affect their future contributions to wartime needs. This recognition is basic to the programs recommended for FY 1954: even though buildup and post-buildup considerations have shaped the OSP program, the recommendation for assistance to explosives and propellants plants, for example, is based on the need to act now to meet the high priority wartime requirements for these items. It must be recognized, however, that some conflict will inevitably exist between the objectives of building a base adequate for wartime mobilization and a base designed for meeting post-buildup requirements, and some adjustments in specific targets will remain necessary.

It is expected that the U.S., at least during the first full year of an all-out war, would not be able to meet all requirements for military hard goods from its own production. Therefore, increased utilization of Europe’s industrial potential would be crucial for adequate support of NATO European forces in combat operations.

Wartime needs would be met through some combination of reserve stocks and production capacities. Some of the plants needed in wartime are not needed for peacetime maintenance of forces. These must be kept in standby condition. Generally speaking, standby capacity is believed to be less subject to obsolescence and easier to modernize than the end-items which could be produced and stocked. The cost of excess end-item capacity will also often be less than the equivalent amount of war reserves required to meet time-phased requirements after the outbreak of conflict. However, the length of time required to activate standby capacity must be taken into consideration.

Another source of capacity in wartime is conversion of facilities normally producing civilian durable goods. Closely related to this is the diversion of raw materials into the expanded production of military goods. Neither of these areas is directly affected by the likely FY 1954 OSP program, but both must be kept in mind.

Competition for OSP orders has led to the extension of subcontracting arrangements, a very desirable development in the European defense production base, and it is expected that the OSP program for the coming year will continue to bring more companies into some aspect of defense production.

Wartime logistics are significant in establishing the relative importance of facilities producing any type of major matériel. They are overwhelmingly so in the cases of ammunition and spare parts. Consequently, these two fields have been the first ones selected for study by the NATO International Staff, and it is to the results of the ammunition study that the facilities assistance program intended in FY 1954 is primarily directed.

The defense production program must insofar as possible move in step with actual strategic possibilities. Production must first be fostered in those areas which are the most secure in military terms, wherever possible from an economic and a political point of view. Of course, it must be recognized that the industrial potential of Europe is to some extent constrained within the pattern set by the location of natural resources and existing facilities.

The facilities assistance program and expected OSP of ammunition and spare parts from existing facilities will make a vital contribution toward preparing European industry to meet wartime requirements of these necessities, rapidly consumed in combat.

d. economic considerations relating to defense production in europe and osp

The self-interest of the U.S. in reducing the burden on its economy of assistance to European defense production in present magnitudes is a major motivation for U.S. interest in European defense production. A long-run U.S. goal is clearly that of meeting European needs from self-financed European production to the extent that European financial capabilities permit utilization of the growing European productive capacity, and subject to the desirability of the U.S. supplying for the foreseeable future a very limited number of highly classified weapons.

Of course, to date, for both productive and financial reasons, the U.S. has had to supply from U.S. production the bulk of the major items of equipment needed for the forces buildup, and many of the items requiring greater technological skills and more advanced industrial plant. However, the growth of European productive capacity and of financial resources, together with the reduction in equipment needs for the buildup, suggest that the U.S. MDAP contribution may, indeed, be much smaller in the foreseeable future. Clearly, the composition and disposition of European defense production, and the efficiency with which European resources are employed in building up Europe’s defensive strength, have a direct bearing on the volume of U.S. aid required, on the effectiveness with which such aid is used, and how soon and by how much U.S. aid can safely be reduced.

U.S. assistance in various forms to European defense production is of economic advantage both to the U.S. and the European Governments. U.S. OSP is a significant, growing factor in stimulating the development of basic European resources, in training the European labor force and European managements, and similarly in improving the European dollar position.

OSP is of general economic assistance to a country. The dollar receipts from OSP contracts provide the producing country with the means of increasing its dollar imports, including those generated by the production for OSP itself. However, OSP contracts can be let only where productive facilities are available to make military goods and this, rather than dollar need, must remain the principal determining factor in distributing OSP by country. To some extent, also, the dollar receipts from OSP are, and must be, timed by the lead time of production, as payment is made on delivery. In practice, this is not a serious limitation—the possessor of an OSP contract has assurance of future dollar receipts and can view its current dollar position in that light.

OSP makes a contribution to productivity and a more effective use of resources. Through OSP we are introducing the production in Europe of many modern American weapons, and we are insisting on the same quality standards as are required from American manufacturers. We are supplying drawings and specifications, and assisting the European firms to develop relationships with American suppliers of proprietary parts. In certain cases, OSP and defense support are being concerted, so that tooling and technical assistance financed by defense support make it possible to get OSP production under way more quickly and effectively.

OSP has its most immediate and powerful effect in absorbing resources which a country is unable, for budgetary reasons, to make available to the defense effort. Our procurement is bringing defense production potential nearer to uniformly full use throughout Europe, providing European forces with matériel which would not otherwise have been produced, and keeping the defense industry of Europe intact until such time as the capability of Europe to finance its use increases.

It is clear that the form which U.S. assistance takes is steadily moving in the direction of OSP.

However, other forms of aid have a continuing role to play. U.S. defense support assistance over recent years has further increased the availability of critical dollar items, a large part of which are directly or indirectly required for the European defense effort. Defense support has strengthened the economies of Europe and the will of European governments, and expanded their budgetary capabilities for defense expenditures. U.S. technical assistance has helped to train European workers and management in fields associated with European munitions industries. The U.S. productivity program has increased the productivity of European industries and has started a series of developments which may be expected to increase Europe’s ability to meet its own defense requirements.

Defense support, as it has been called in the past, is a net contribution to resources, focussed on the dollar import requirement. The goods shipped under the defense support program can be and are adjusted to meet the needs arising from increased defense production: needs for machinery, for special metals and other raw materials. Defense support funds are also used for technical assistance and productivity programs, with special emphasis on the setting up and improvement of lines of production for modern weapons. Finally, encouragement can be given to the use of the counterpart of defense support for a supplement to the defense production portion of a country’s budget. Very important amounts of counterpart were released or have been earmarked for defense purposes in the period 1951/52 through 1953/54. The flexibility of defense support is very great. Since the lead time of commodity shipments is relatively short, the contribution to total resources can be adjusted rapidly to meet particular needs as they arise. Counterpart funds can be accumulated, released en masse against a defense production need, or used to cut back a country’s internal debt if resource mobilization is not a problem.

The expected program for OSP in FY 1954, taken together with release of counterpart, the technical assistance program and defense payments aid will continue an effective attack on the resources limitations preventing expansion of defense production in Europe.

e. political considerations relating to defense production in europe and osp in europe

The U.S. offshore procurement program contributes to several of our major U.S. foreign policy objectives. These include fostering the development of European integration and unity, strengthening countries against internal aggression, promoting the sense of U.S. and European partnership, promoting free enterprise, combatting communism, and increasing European self-sufficiency and strength to resist aggression. The U.S. offshore procurement program achieves these objectives as by-products of the process of increased U.S. participation in the defense production program in Europe.

One of our major foreign policy objectives is to encourage European unity. The development of an integrated defense production program by NATO or EDC countries will represent a significant step towards achieving this objective. Since individual country programs inevitably reflect in part consideration of national prestige, protectionist interests and other domestic political, economic and social pressures, offshore procurement can be an effective lever to induce European countries to direct production into channels calculated to achieve a more integrated pattern of defense production.

Meeting our military, political and economic objectives in NATO requires a sense of full U.S. partnership and participation on the part of our European allies. The offshore procurement program by combining U.S. financing with European capacity affords tangible evidence of such participation, thus fostering a sense of common purpose and substantial identity of interests. The greater this sense of common purpose and partnership, the more it will succeed in alleviating the political irritant inherent in donor-donee relationships such as exist between the U.S. and NATO Europe.

By expanding the European military production base, OSP at the same time decreases European dependence on the U.S. as a source for its military equipment requirements. Apart from the evident gain in terms of military logistics, this increase in the self-sufficiency of European nations will help restore their self-confidence and instill in their peoples a greater sense of control over their own destinies. The result can be a more effective European contribution to and more unreserved public support for the mutual defense effort.

The offshore procurement program by increasing employment and industrial activity in general can also contribute towards furthering free-enterprise and reducing communist influence in European countries. It tends, simultaneously, to strengthen them against risks of internal subversion. In the present cold war the heightened level of economic activity among our allies provided by OSP can be a significant factor in developing a political climate favorable to their maintaining a continuing burden of defense over an extended period of time.

1. A covering memorandum signed by Joseph S. Toner, Acting Executive Secretary of the Foreign Operations Administration, states that the source text was prepared for use in the fiscal year 1954 Congressional presentation by the Departments of State and Defense and the FOA. A number of other such papers, bearing the series indicator MS/54 D– are in the ECA–MSA–FOA files, lot W–13, “FY 1954 Mutual Sec. Presentation”.
2. For a discussion of the production program evolved after 1952 by the Production Division of the International Staff of the Office of the NATO Secretary General, Lord Ismay, see Ismay’s report, NATO : The First Five Years, 1949–1954, pp. 128–130.
3. Estimate includes $300 million estimated from Canadian aid. [Footnote in the source text.]
4. Estimate based on Table 6, NATO Annual Review, 1952. [Footnote in the source text.]
5. Estimated non-concurrent spares under end-item programs. [Footnote in the source text.]
6. Source MSA/W estimates of 5/1/53. Greece and Turkey included. Includes use of counterpart (program approvals for military purposes totalled $1,324 million as of 28 February 1953). Also includes expenditures from budget-supporting OSP for France totalling slightly over $200 million. [Footnote in the source text.]
7. Source: MSA/W—5/1/53 estimates. Includes Greece and Turkey. [Footnote in the source text.]