751.5/2–2552: Telegram

No. 507
The Secretary of State to the Acting Secretary of State1

top secret

Actel 10. Please call attention President. No distribution except Lovett, Snyder, Harriman. Following is American text of memorandum of understanding to be signed this afternoon after confirmation with French text. See Actel 9.2

Begin text. I. In conformity with engagements undertaken in common in North Atlantic Treaty Organization and with specific reference to approval by Council on February 23, 1952 of supplementary report of Temporary Council Committee, the Government of France and Government of United States have made following arrangements:

The report of Temporary Council Committee recommended French military expenditures at 1190 billion francs in Oct 1951 prices, of which 1100 billion francs was [to] be financial contribution from France’s own resources. This contribution was accepted by French Government as corresponding to 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 expenditures for military operations in Indochina. Faced with necessity of constituting forces in Europe as well as carrying these additional charges in Indochina, French Government has decided contribute to defense in excess of amount recommended in report. French Government underlines, however, that it considers this supplementary effort to have an exceptional character and stresses that level of its 1952 contribution is not to serve as a basis for any estimation which might subsequently be made by NATO organizations of capability of France to contribute to defense effort in 1953.
In consideration of this decision by French Government and subject to its approval by French Parliament, United States Government has decided, under 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 defense effort to be carried out by France in 1952.
In view of these financial resources French Government has declared itself prepared establish defense forces set forth in Annex B of supplementary report of Temporary Council Committee as approved by North Atlantic Council in its meeting on February 23, 1952.3

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

[Page 1172]

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

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

An amount of $170 million in economic aid has already been made available to French Government.
An additional amount of $100 million in economic aid has been earmarked to be made available to French Government before March 15, 1952. It is understood that of this $100 million an amount of $25 million is to be available to French Government before end February 1952. The two governments agree that in future discussions to take place in Paris to determine utilization of French franc counterpart of Amer assistance, counterpart of this additional amount of $100 million is to be earmarked for defense expenditures in Indochina.
An amount of $30 million will be applied to finance French orders for supplies in United States for needs of forces in Indochina. These funds are available for orders previously placed in United States by French Government.
Remaining $200 million will be provided under “off-shore purchase” contracts to be placed in France primarily for arms and equipment for forces in Indochina, and if funds of this amount cannot be fully utilized for forces in Indochina, for arms and equipment for French Forces in Europe, subject to following conditions:
Realization of these off-shore purchases is dependent upon conclusion very promptly of an agreement now being discussed between the two governments concerning taxes in France applicable to US expenditures in France for common defense and on coming into force of that agreement soon enough to permit off-shore program to be carried out.
It will only be possible to place these contracts for off-shore purchases if French prices quoted are in general comparable to going prices for similar items delivered in France from US.
Subject to two reservations indicated under paragraphs 1 and 2 immediately above, US Govt will take all practicable measures to provide that French Govt will receive for balance of payments purposes $200 million before end of June 1952 or in any case as soon thereafter as is administratively feasible, although timing of actual payments of liabilities in French francs under contracts is to take place in accordance with terms of contracts. If US Govt so elects it may obtain this result by increasing sum of $100 million foreseen under paragraph (B) above as a substitution for a comparable amount of off-shore purchases under $200 million foreseen in this paragraph. US Govt may also substitute for part of $200 million procurement program, if this cannot all be placed in France, purchase in US of items now budgeted by France for needs of forces in Indochina.
Off-shore purchases may, if US so elects, apply to contracts already placed if French Govt had been forced cancel such contracts.
US Govt is to elect items to be included in off-shore purchase program of $200 million from contracts which are scheduled for franc financing under French defense program for 1952 as defined in Section V below.
US Govt may if it so elects and with agreement of French Govt make a contract with latter for all or part of these items. Appropriate procedures are to be evolved permitting reps of US Govt participate in inspection to ensure 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 govts agree that receipts in dollars of French Govt coming from expenditures of American Forces in France, including contribution by US to infrastructure and purchase by US of material and supply4 are likely reach level of $100 million before June 30, 1952. Accordingly present arrangements are considering superseding earlier discussions relative to assistance to France from fiscal year 1952 funds.

IV. The two govts agree that the conversations now in progress with a view to facilitating the placement in France by the US 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 US in Section II above, which will provide budgetary assistance not previously foreseen, the French reps stated that the French Govt will provide for a military budget of 1400 billion francs in 1952 (according to NAT’s definition of Def expenditures).

This budget of 1400 billion francs is to be based on provisions forces committed by France to NATO at ninth session of Council at Lisbon and included in Annex B of supplementary report of Temporary Council Comite, dated Feb. 24, 1952.

VI. (A) The two govts recognize that French program of 1400 billion francs set out under Section V above will result, despite $200 million off-shore purchases to be effected by US Govt, in cancellation of a certain number of production contracts and in severe curtailment of new contracts. Thus level of defense production in France will be seriously reduced.

It is therefore requested urgently by French reps that US Govt carry out purchases in France over and above program of $200 million of off-shore purchases mentioned under Section II above, either for needs of French forces or for needs of Forces of US and of Forces of other countries of NATO. The reps of US indicated that this possibility was not excluded if prices and technical conditions were acceptable, without, however, being in position take any engagements [Page 1174] on this subject. It was understood that French Govt would present to Govt of US a list of equipment which is now being produced in France or which could be undertaken within very short time for possible procurement by US. (B) French Govt pointed out that in any case French program as set forth in Section V above will only permit French Forces be equipped in small measure from French financial resources.5 In view of this and changes in French military program French Govt requests a review of end-item program with a view to offsetting shortfalls in French production by a reprogramming of end-items and also to including if necessary a wider range of articles in end-item program for French Forces. French Govt requests strongly that any dels 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. Govt of US makes clear that it is not able take any engagement with regard to fiscal year 1953 funds including utilization of counterpart before Congress has voted necessary funds. Govt of France is informed however that in projected budget for fiscal year 1953 US Govt has made provision whereby amount of funds which could be made available to France under econ aid and under offshore purchase program for end-items could during course of that fiscal year be comparable to level available in fiscal year 1952. The Govt of US also points out that any additional resources in French francs which might become available to French Govt form these funds can be utilized only in connection with defense expenditures in France and only in course of calendar year 1953. End text

Labouisse is requested make distribution of text to members of country team without ref to agreed minutes in reference cable.6

  1. Repeated to Paris “for absolutely eyes only Bonsal and Labouisse.”
  2. Supra.
  3. For the text of the Supplementary Report of the TCC, see vol. v, Part 1, p. 211.
  4. According to telegram Actel 12 from Lisbon, Feb. 26, the words “for its own use” were to be added at this point in the text. (751.5/2–2652)
  5. Telegram Actel 12 from Lisbon, Feb. 26, corrected this sentence to read as follows: “The French Govt pointed out that, in any case, the French program as set forth in Section V above will only permit Fr forces to be equipped in small measure from the French financial resources foreseen.” (751.5/2–2652)
  6. According to telegram 5098 to Paris, Feb. 29, this memorandum of understanding as corrected by telegram Actel 12 was signed by Acheson and Schuman in Lisbon on Feb. 25. The minutes transmitted in telegram Actel 9 (supra) were also initialed by Acheson and Schuman. (751.5/2–2852)