Foreign Relations of the United States, 1955–1957, Foreign Aid and Economic Defense Policy, Volume X

33. Memorandum From the Chairman of the Council on Foreign Economic Policy (Randall) to the President’s Assistant (Adams)¹

Washington, March 14, 1957.

You will find in this folder the results of my effort to coordinate agency thinking with regard to the Fairless report.

I asked for written statements from: State, ICA, Defense, Treasury, Commerce, Agriculture, Budget, CEA, and the Eximbank.

I received such written statements from all agencies but Treasury.² You will find them in this folder, and I think that you will agree with me that they are thoughtful documents. In fact, one of the useful aspects of the appointment of the Fairless group is that it has caused the agencies themselves to re-survey their own questions.

Today, I invited the representatives of the agencies to meet with me for further discussion of this subject.

We found that the Fairless report presented 23 questions for decision, and we asked the agencies to address themselves to those specific points.

In this folder, you will find a page for each such question, which gives at the top the text of the Fairless recommendation, then the results of the discussion, and finally my recommendation.

You will find that some of these questions are so basic that they could not possibly have been resolved in the short period of time available since the filing of this report. All that I have been able to do on these is to outline for you the nature of the problem. Many of them must have further study.

Secretary Humphrey, General Cutler, and others felt that the proper forum for endeavoring to arrive at an agreed position in the first instance was the Council on Foreign Economic Policy, and I have therefore recommended that some of these come back here for further study.

Where it seemed appropriate, I have suggested that the problems be referred to other agencies for further study.

General Cutler, by his letter, has helpfully drawn attention to those recommendations in the Fairless report which contravene existing NSC policy.

I also took the liberty of asking for a confidential personal letter from Gene Black.³ This is in the folder, but should not be widely circulated.

There was agreement among us that, even though there were differences as to particular points of the Fairless study, it should not be forgotten that this group, by its unanimous and friendly report, has brought support to the Administration.

It was also pointed out that in the trade and foreign investment fields, which are not involved in my current studies for you because they required no action, the Fairless group has made an important contribution to the support of the President’s liberal views.

I shall be glad to follow through on the implementation of my recommendations if you wish to have me.

Clarence B. Randall⁴

Note: This memorandum is declassified when separated from the attached NSC secret document.

Enclosure

Fairless Recommendation 1

The United States Government should increase its efforts to make known, both at home and abroad, the productive contributions and possibilities of private capital. This can and should be done by our diplomatic missions and by friendship and commerce treaties. In our opinion, this effort has not been pursued, thus far, with the vigor that the obvious benefits that such an undertaking would justify. (Page 8)

Agency Position

State	Agrees with objective but states that already doing everything possible.
ICA	Agrees
Defense	No comment
Treasury
Commerce	Agrees
Agriculture	No comment
Budget	Agrees
CEA	Agrees with objective and use of treaties for this purpose but has doubts whether diplomatic missions should emphasize “the productive contributions and possibilities of private capital.”
NSC	No recommendation
ExIm Bank	No comment

Staff⁵ Recommendation

Seek consensus of agreement on this recommendation.

Fairless Recommendation 2

The United States should administer its assistance in a manner designed to overcome the obstacles to private investment. (Page 9)

Agency Position

State	Agrees with objectives but should not make economic assistance contingent on any rigid standards.
ICA	Agrees
Defense	No comment
Treasury
Commerce6	Agrees
Agriculture	No comment
Budget	Agrees
CEA	Agrees with objective but should not make aid conditional on changes in specific restrictions on private investment.
NSC	No recommendation
ExIm Bank	No comment

Staff Recommendation

Seek consensus of agreement on this recommendation.

Fairless Recommendation 3

Guaranties, loans to private investors with sharing of any losses, and joint investment of private and public capital should be tried in selected areas. (Page 9)

Agency Position

State	Recommends further study
ICA	Further study
Defense	No comment
Treasury
Commerce	Recommends further study
Agriculture	No comment
Budget	Agrees provided Government’s financial liability is included within currently approved Mutual Security budget, Government’s authority can be delimited, and additional private capital is attracted.
CEA	Recommends study of need for further legislation
NSC	No recommendation
ExIm Bank	No comment

Staff Comment

We believe that the guaranty program has been extended as far as it should be. It is our belief that guaranties against losses and the other proposed arrangements will not provide adequate stimuli to private foreign investment because business firms will not invest abroad unless they have reasonable assurance that their operations will continue in existence for a considerable period. In other words, they want going-enterprises abroad rather than guaranties against losses.

Staff Recommendation

Seek to obtain consensus that this recommendation should not be approved based on the above comment. Failing this, seek to obtain consensus that this recommendation be referred to the NAC for further study and report to this group.

Fairless Recommendation 4

The wider use of the services of private firms on a contract basis also is a desirable way to meet the recruitment problem. (Page 9)

Agency Position

State	Agrees
ICA	Agrees
Defense	No comment
Treasury
Commerce	Agrees
Agriculture	Agrees but considers close Government supervision necessary.
Budget	Agrees
CEA	Agrees
NSC	No recommendation
ExIm Bank	No comment

Staff Comment

We endorse the wider use of the services of private firms on a contract basis, not only to meet the recruitment problem but to improve the efficiency of the program.

Staff Recommendation

Seek to obtain consensus of agreement.

Fairless Recommendation 5

Improved coordination is needed between the Export-Import Bank and the World Bank. (Pages 9 and 10)

Agency Position

State	Agrees
ICA	No recommendation
Defense	No comment
Treasury
Commerce	Agrees
Agriculture	No comment
Budget	Agrees
CEA	Agrees
NSC	No recommendation
ExIm Bank	Agrees

Staff Comment

The report does not state in what ways improved coordination is needed between the Export-Import Bank and the World Bank. Coordination on individual loans is now achieved through the mechanism of the NAC and that aspect of coordination appears to be well done. Perhaps the coordination suggested by the report refers to exchange of information and policy coordination between the two banks prior to and over and beyond the kind of coordination that takes place in the NAC on individual loans. This subject should be studied.

Staff Recommendation

Seek to obtain consensus of agreement on this recommendation and that the recommendation should be referred to the NAC for implementation.

Fairless Recommendation 6

Loans by the United States repayable in the inconvertible currencies of foreign nations are undesirable and the practice of granting them should be terminated. (Page 10)

Agency Position

State	Disagrees because loans may be required for technically feasible and productive projects which do not save or generate dollars for repayment; such loans are not available from other sources.
ICA	Disagrees
Defense	No comment
Treasury
Commerce	Disagrees
Agriculture	Agrees in principle but not for implementation at this time; considers grants less desirable than foreign currency transactions.
Budget	Agrees
CEA	Disagrees. States that local currency loans may be useful to exert pressure on recipient countries to pursue sounder monetary and fiscal policies.
NSC	No recommendation7
ExIm Bank	No comment

Staff Comment

We do not agree that all such loans are undesirable and that the practice of granting them should be terminated as recommended in the Fairless Report. We believe that the granting of such loans should meet carefully developed criteria. At times such loans would certainly be in the national interest. Such loans contribute to the strengthening of the borrowing country’s economy and, therefore, improves its credit worthiness for conventional loans.

Staff Recommendation

Seek to obtain consensus that this recommendation be disapproved.

Fairless Recommendation 7

The validity of international contracts should not be undermined by the granting of loans in instances in which there is grave doubt as to the ability of the borrower to repay. There will, however, be cases in which it is in the interest of the United States to make dollar loans on more liberal terms than those of the established public banks with respect to interest rates and periods of repayment. (Page 10)

Agency Position

State	Agrees but would not limit loans to loans repayable in dollars.
ICA	Disagrees that instances of inability to repay will undermine validity of international contracts but agrees that softer dollar loans should be made.
Defense	No comment
Treasury
Commerce	Agrees
Agriculture	No comment
Budget	Agrees
CEA	Agrees
NSC	No recommendation8
ExIm Bank	No comment

Staff Comment

We agree wholeheartedly that the validity of international contracts should not be undermined by the granting of loans in instances where there is grave doubt of the ability of the borrower to repay. The granting of dollar loans on more liberal terms than those of the established public banks have adverse effects upon the terms of private loans and jeopardize the soundness of conventional dollar loans by increasing the foreign exchange obligations of recipient countries.

Staff Recommendation

Seek to obtain consensus disapproving soft dollar loans but approving balance of recommendation.

Fairless Recommendation 8

Assistance in grant form should be given only in those exceptional cases where it is clearly in the national interest to do so and when the recipient countries are judged to be unable to repay. (Page 10)

Agency Position

State	Agrees with criteria but believes that the number of cases in which grants may be made under the criteria will be more than the report implies.
ICA	Agrees, with deletion of word “exceptional”
Defense	Agrees
Treasury
Commerce	Agrees
Agriculture	No comment
Budget	Agrees
CEA	Agrees. Considers that grants may be required in more than exceptional cases.
NSC	No recommendation9
ExIm Bank	No comment

Staff Comment

We believe that assistance will be needed in grant form other than just in exceptional cases. We agree with this statement when the word “exceptional” is deleted.

Staff Recommendation

Seek to obtain consensus on this recommendation with the deletion of the word “exceptional”.

Fairless Recommendation 9

In all cases the guiding principle governing military grants should be the obligation of each country to bear its fair share of the cost of a common defense. (Page 10)

Agency Position

State	Agrees
ICA	Disagrees because there are cases where grants should be made even though country may not bear fair share.
Defense	Agrees
Treasury
Commerce	No position
Agriculture	No comment
Budget	Agrees
CEA	Agrees
NSC	No recommendation
ExIm Bank	No comment

Staff Recommendation

Seek to obtain consensus of agreement on this recommendation.

Fairless Recommendation 10

The contributions of other economically advanced nations to the task of providing external assistance to nations in need should be actively sought. For any country which the United States wishes to support, and for which substantial non-United States aid might be forthcoming, we should announce publicly our willingness to undertake appropriate joint assistance programs. (Page 11)

Agency Position

State	Agrees, but doubts wisdom of public announcement.
ICA	Agrees, but doubts wisdom of public announcement.
Defense	Agrees
Treasury
Commerce	Agrees
Agriculture	No comment
Budget	Agrees
CEA	Agrees
NSC	No recommendation
ExIm Bank	No comment

Staff Comment

The State Department gives no reason for withholding public announcement.

Staff Recommendation

Seek to obtain consensus of agreement on this recommendation.

Fairless Recommendation 11

Grants to provide capital for development purposes should be severely limited although there may be unusual cases in which they are warranted. (Page 11)

Agency Position

State	Disagrees because does not believe that grants for capital development should be as severely limited as report recommends.
ICA	Agrees
Defense	No comment
Treasury
Commerce	Disagrees
Agriculture	Disagrees on severe limitation
Budget	Agrees
CEA	Disagrees, because “unusual cases” may be more numerous than suggested by report.
NSC	No recommendation. Adoption of this recommendation would restrict or make difficult the extension of aid to certain countries now being assisted in accordance with NSC policy.
ExIm Bank	No comment

Staff Comment

The overall limitation on grants is contained in Recommendation 8. We disagree with the philosophy expressed in this recommendation. Grants for development purposes contribute more to the strength of the economy than grants for short-run purposes.

Staff Recommendation

Seek to obtain consensus disapproving this recommendation.

Fairless Recommendation 12

In foreign assistance programs a higher priority should be given to those countries which have joined in the collective security system. (Page 11)

Agency Position

State	Agrees except that economic development assistance should not be subject to such a preference system but that the criterion should be the importance to our security of maintaining their independence and stability.
ICA	Agrees in general, but there will be exceptional cases.
Defense	Agrees, but believes this should not be sole criterion for granting aid.
Treasury
Commerce	Recommends further study
Agriculture	No comment
Budget	Agrees
CEA	Agrees with respect to military assistance but with respect to economic assistance believes that priority should be given to those countries where aid can be used most effectively for economic growth and where democratic procedures are highly valued.
NSC	No recommendation
ExIm Bank	No comment

Staff Recommendation

Seek to obtain consensus of agreement that a higher priority in military assistance should be given to those countries which have joined in the collective security system, but that the criteria for economic assistance should be the importance of the countries to our security, their effective use of assistance for economic growth, and their adherence to democratic procedures.

Fairless Recommendation 13

A return to sound commercial marketing procedure in the disposal of surpluses of agricultural commodities should be our objective. The disposal program should be separated from our foreign assistance activities and the commodities sold at reduced dollar prices to those buyers who can demonstrate intended uses above normal consumption patterns. There should, however, be authority for future economic assistance appropriations to be used for the purchase at fair market prices of agricultural commodities for grants and loans abroad in appropriate circumstances within our foreign assistance program. (Page 12)

Brief

This recommendation would:

a. Eliminate local currency transactions both under P.L. 480 and Section 402 of the Mutual Security Act.

b. Provide for disposals for dollars only, at reduced prices, in cases where normal markets would not be disturbed.

c. Extend aid in the form of agricultural surpluses through appropriations in the aid program for the purchase of such commodities at world market prices from the CCC.

Agency Position

State	Agrees on objective of returning to normal commercial procedures in export of agricultural surpluses; disagrees with discontinuance of P.L. 480 and believes that surpluses may be usefully employed under Mutual Security Program; disagrees on selling surpluses at reduced dollar prices because of adverse repercussions on foreign relations and private competitive trade.
ICA	Agrees with State; recommends study of use of surpluses in connection with Mutual Security Program.
Defense	Agrees
Treasury
Commerce	No position
Agriculture	Disagrees with recommendation that surpluses be disposed for dollars only because present disposals for foreign currencies are being made in markets where dollars are severely limited.
Budget	Agrees to principle of early return to normal commercial practices but recommends that disposals outside of normal channels be restricted to aid program on grant or loan basis for time being.
CEA	No comment pending clarification of Fairless recommendation
NSC	No recommendation. Conflicts with NSC policy inasmuch as it would eliminate sales for local currencies.
ExIm Bank	No comment

Staff Recommendation

Seek to obtain consensus of agreement on the State Department’s position.

Fairless Recommendation 14

In order to improve administration, to clarify what is being done, and to facilitate the legislative process, it is recommended that there be a separation between economic and military contribution to the collective security program. All forms of proposed military assistance should be submitted to the Congress as a separate title within the regular Defense budget. That separate title should include all of which is now labeled “military assistance” in the Mutual Security Program and also that portion of what is now called “defense support” which is in fact for support of local military requirements. All forms of nonmilitary assistance should be submitted separately and labeled as economic assistance, to be justified and administered by the Department of State. (Page 13)

Agency Position

State	Agrees, provided that “defense support” funds appropriated to Defense Department are administered by ICA.
ICA	Disagrees because separation will not improve administration of program but will result in difficulties in presentation before Congress.
Defense	Agrees that military assistance should be included in defense budget. Defense believes that the military portion of defense support should be separated from the economic development portion in the Mutual Security Program budget but does not agree that the military portion should be included in the defense budget. Moreover, Defense believes it should control the release of local currencies generated from the military portion of defense support.
Commerce	Further study
Agriculture	Agrees
Budget	No comment pending discussions with Advisory Committee on Government Organization and your Wednesday morning meeting.
CEA	No comment
NSC	Disagrees. Believes it is difficult to determine which is military and which is economic aid. Considers that separation would make coordination of aid more difficult and thinks that identification of economic aid would make it more vulnerable to Congressional and public opposition. Points out coordination and administrative problems, which will have to be resolved, if appropriations are separated.
ExIm Bank	No comment
Treasury

Staff Recommendation

Seek consensus of agreement on this recommendation with the understanding that the military portion of defense support would be charged to the Department of Defense budget but would be administered by ICA.

Fairless Recommendation 15

For the administration of economic activities, the International Cooperation Administration (ICA) should be integrated into the Department of State, and merged with the existing economic activities within the Department. (Page 13)

Agency Position

State	Recommends further study
ICA	Recommends further study
Defense	No comment
Treasury
Commerce	Agrees
Agriculture	No comment
Budget	No comment pending discussions with Advisory Committee on Government Organization and at your Wednesday morning meeting.
CEA	No comment
NSC	No recommendation. Points out coordination and administrative problems, which will have to be resolved if appropriations are separated.
ExIm Bank	No comment

Staff Recommendation

Seek consensus that this recommendation be referred to the Bureau of the Budget for study pursuant to the President’s letter of April 15, 1955 instructing the Director of the Bureau of the Budget and the Advisory Committee on Government Organization “to give close attention to the new (Mutual Security Program) organizational arrangements and to recommend such organization improvement as will be considered appropriate.”

Fairless Recommendation 16

The existing coordination procedure needs to be strengthened. (Page 14)

Agency Position

State	Agrees
ICA	Agrees
Defense	Agrees
Treasury
Commerce	Agrees
Agriculture	No comment
Budget	No comment pending discussions with Advisory Committee on Government Organization and at Wednesday meeting.
CEA	No comment
NSC	No recommendation. Points out coordination and administrative problems which will have to be resolved if appropriations are separated.
ExIm Bank	No comment

Staff Recommendation

Seek to obtain consensus that this recommendation be referred to the Bureau of the Budget for further study with recommendations to be submitted to appropriate agencies.

Fairless Recommendation 17

It is recommended that both the military and economic assistance programs be presented to each Congress for approval rather than to each session of each Congress. (Page 14)

Agency Position

State	Recommends further study
ICA	Agrees but recommends study Disagrees
Defense	Disagrees
Treasury
Commerce	Agrees
Agriculture	No comment
Budget	Agrees but suggests obtaining program authorization without dollar or time limitation provided that annual request is made for obligational authority appropriation.
CEA	Agrees
NSC	No recommendation
ExIm Bank	No comment

Staff Recommendation

Seek to obtain consensus that this recommendation be referred to the Bureau of the Budget for study and appropriate action.

Fairless Recommendation 18

There seems to be a definite need in both the military and economic authorizations for greater discretionary power. (Page 14)

Agency Position

State	Agrees
ICA	Agrees
Defense	Agrees
Treasury
Commerce	Agrees
Agriculture	No comment
Budget	Agrees
CEA	Agrees
NSC	No recommendation
ExIm Bank	No comment

Staff Recommendation:

Seek to obtain consensus of agreement on this recommendation.

Fairless Recommendation 19

In our foreign assistance program we should concentrate on placing only highly qualified persons abroad. Quality, not quantity, must be our guide. The stationing of large numbers of United States employees abroad inevitably involves the danger of friction with people proud of their own national independence. (Page 14)

Agency Position

State	Agrees
ICA	Agrees
Defense	Agrees
Treasury
Commerce	Agrees
Agriculture	No comment
Budget	Agrees
CEA	Agrees
NSC	No recommendation
ExIm Bank	No comment

Staff Recommendation

Seek to obtain consensus of agreement On this recommendation.

Fairless Recommendation 20

A much greater selectivity of projects, a marked reduction in the number and a concentration on the most promising ones would offer relief on this personnel problem and save money. (Page 15)

Agency Position

State	Agrees in general
ICA	Agrees
Defense	No comment
Treasury
Commerce	Agrees
Agriculture	No comment
Budget	Agrees
CEA	Agrees
NSC	No recommendation
ExIm Bank	No comment

Staff Recommendation

Seek to obtain consensus of agreement on this recommendation.

Fairless Recommendation 21

Greater discretionary authority should be delegated to our representatives abroad in the fulfillment of projects. (Page 15)

Agency Position

State	Agrees
ICA	Agrees
Defense	Agrees
Treasury
Commerce	Agrees
Agriculture	No comment
Budget	Agrees
CEA	Agrees
NSC	No recommendation
ExIm Bank	No comment

Staff Recommendation

Seek to obtain consensus of agreement on this recommendation.

Fairless Recommendation 22

Effort should be made to concentrate economic assistance more upon long range economic development, and assurances should be given of our intention to continue it over a period of years. (Page 18)

Agency Position

State	Agrees
ICA	Agrees
Defense	No comment
Treasury
Commerce	Agrees
Agriculture
Budget	Agrees
CEA	Agrees
NSC	No recommendation
ExIm Bank	No comment

Staff Recommendation

Seek to obtain consensus of agreement on this recommendation.

Fairless Recommendation 23

Barring some major change in circumstances, the total collective security expenditures of the United States Government abroad for all purposes need not exceed the approximately $8 billion level of the fiscal year 1956. This total consists of $3.9 billion in military assistance to foreign countries, $1.7 billion in nonmilitary assistance to foreign countries, and $2.3 billion in expenditures abroad by our military forces and civilian agencies. (Page 18)

Agency Position

State	Since economic development expenditures may have to be increased, only experience can determine whether total level can be held to Fairless recommendation.
ICA	No comment on overall figure but concedes that economic aid need not exceed present level if there is no change in circumstances.
Defense	Agrees insofar as applies to military assistance
Treasury
Commerce	Disagrees
Agriculture	Agrees but notes that food distribution grants to voluntary agencies not included in $8 billion figure.
Budget	Agrees
CEA	Agrees that $8 billion will not unduly strain our economy but is not sure that $8 billion is amount that is necessary.
NSC	No recommendation. NSC study underway on “National Security Costs in Relation to Total National Resources” may have important implications as to this recommendation (CEA disagrees).
ExIm Bank	No comment

Staff Comment

While every effort should be made to keep expenditures within reasonable limitations, no arbitrary figure can be placed on the national security needs of the nation.

Staff Recommendation

Seek consensus disapproving this recommendation.

1. Source: Eisenhower Library, CFEP Chairman Records. Secret.
2. For the letters from the Department of State and ICA, see Document 30 and supra. For the Treasury letter, see Document 36. Individual responses from other agencies are in Eisenhower Library, CFEP Chairman Records. The enclosure below contains a summary of the positions of all major respondents on the 23 Fairless Committee recommendations with the exception of the Treasury which submitted its comments too late for inclusion.
3. Document 31.
4. Printed from a copy that bears this typed signature.
5. The staff of the Council on Foreign Economic Policy.
6. Department of Commerce entries under this and following recommendations were handwritten on the source text.
7. Adoption of this recommendation would restrict or make difficult the extension of aid to certain countries now being assisted in accordance with NSC policy. [Footnote in the source text.]
8. Adoption of this recommendation would restrict or make difficult the extension of aid to certain counties now being assisted in accordance with NSC policy. [Footnote in the source text.]
9. Adoption of this recommendation would restict or make difficult the extension of aid to certain counties now being assisted in accordance with NSC policy. [Footnote in the source text.]