Foreign Relations of the United States, 1955–1957, Eastern Europe, Volume XXV

215. Memorandum Prepared in the Department of State¹

Washington, December 19, 1956.

SUBJECT

• United States Economic Aid to Poland

The purpose of this memorandum is to outline the actions and Plans developed since Ambassador Jacobs at Warsaw was informed on November 29² that the Polish Government would like to send three economic experts to Washington in the near future to discuss trade and credit matters.

United States statutes and policies established over a number of years impose a variety of limitations and discriminations in economic relations with the Polish Government. Some of these limiting factors are indicated below:

Considerable preparatory work was required to lay a basis for discussions which can foster our objectives and offer promise of arrangements which are practical and which are acceptable from the Polish standpoint. In accordance with NSC 5616/2 (paragraph 11),³ the Department of State and the other interested agencies have concentrated first on lines of action which could be taken under existing legislation.

The Council of Foreign Economic Policy on December 18 recommended approval of the Department of State proposal that United States export policy be modified to allow dollar sales of surplus agricultural commodities on a selective basis to Eastern European bloc countries at world market prices.⁴ The Interagency Committee on Agricultural Surplus Disposal had earlier recommended approval of State’s proposal. The Department of State believes it would be desirable for this changed policy to be discussed with Congressional leaders before it is placed in operation; this consultation, however, need not result in delay in meeting with a Polish delegation.

The Treasury Department was informed that the Department of State would concur in a decision to purchase Polish gold.⁵

Except perhaps for triangular sales transactions, the Battle Act prohibits the use of Mutual Security Program funds other than under the authority of Section 401(a), and that section limits the use of such funds to a maximum of $30,000,000 in any one country.

State has established that some funds are not yet committed under Section 401(b) of the Mutual Security Act. The amount of such uncommitted authority and funds is limited. The use of these funds of course would be at the expense of other actual or potential requirements. It would be desirable to draw on them only for the most compelling needs and in the absence of other readily available sources of funds. Any resort to Section 401 funds should be confidential as public knowledge might be embarrassing to Poland to an extent which could preclude an arrangement.

The Battle Act also precludes an extension of credit by the Export-Import Bank or the Commodity Credit Corporation. The restrictions imposed by the Battle Act on these available sources of loan financing are significant, since Poland has expressed an interest in short-term credits for the purchase of such products as cotton, grain, fats and oils, fertilizer, and various types of machinery. Polish officials have made clear that they do not desire emergency types of relief or gift transactions in agricultural products. Poland is not prepared at this time to enter into any arrangement which has the appearance of involving political interference. Consideration is being given to a reexamination of the statutes and determinations under which short-term credit extended by United States Government lending institutions has been deemed to constitute foreign aid within the meaning of the Battle Act. Preliminary indications are that difficulties will be encountered in modifying existing policy on this subject.

The Secretary of State has determined, and will explain to Congressional leaders that Poland is a “friendly nation” under the definition of Section 107 of Public Law 480, that is, that Poland is not now “dominated or controlled by” the U.S.S.R. This finding opens the way for the sale of surplus agricultural products for Polish currency or for barter transactions. Two important limiting factors, however, continue to apply to the use of Title I of PL 480 to meet the Polish situation. Authorizations under Title I of Public Law 480 are approaching exhaustion and steps are being taken to establish priorities on progress already submitted by other governments. Additional Title I authorization will be sought from Congress early in the legislative year. The provisions of the Battle Act would presently prevent any loan to Poland of foreign currency accruing through sales under Title I of P.L. 480; but this currency might be held by the United States for U.S. uses including procurement of items in Poland needed for U.S. purposes elsewhere.

The Section 107 determination regarding Poland also furnishes a basis for later consideration of making a similar determination under the Trade Agreements Act,⁶ with a consequent reduction in the rates of import duty applicable to Polish products.

The position of the Department of State is that the necessary preparations under existing legislation and policies are rapidly approaching completion and that in accordance with paragraph 11(a) of NSC 5616/2 the Polish delegation could be received at an early date. The United States might be in a position at that time to negotiate concerning a significant number of the products having special interest for Poland, even if these were chiefly agricultural products and relatively limited selected types of machinery and other products which Poland has mentioned. Without new legislation, however, the ability of the United States to extend credit on machinery and other products would be very limited. Some changes in export licensing policy would also be required, depending upon the types of machinery involved.

As regards paragraph 11(b) of NSC 5616/2, the Department of State has taken appropriate steps to encourage the reorientation of Polish trade toward the West, especially West Germany, France and the United Kingdom. France, according to reports, has concluded a trade agreement with Poland involving the supply of two large electric generators to Poland. State has indicated to the French its support of an exception being made to the COCOM restrictions on the export of such equipment to the bloc countries. West Germany recently concluded a $70 million trade agreement with Poland. Economic difficulties have thus far hampered, and may prevent, the U.K. in extending credits to Poland.

State has also had preliminary discussions with a German group which might be able to participate in a triangular form of arrangement which could involve Export Import Bank loans to West Germany for U.S. commodities. These would be re-exported to Poland under West German credits. The legality and feasibility of this arrangement is in doubt and is being explored. The Department of State also believes it advisable for all possibilities of direct bilateral arrangements to be explored before turning to such indirect arrangements involving a third country.

The overcoming of the remaining obstacles in achieving closer economic relations with Poland would leave a need for new legislation if operations of any considerable size prove to be desirable in the furnishing of non-agricultural products on a credit basis. It may become necessary, for example, to meet the objectives of paragraph 11(c) of NSC 5616/2, to recommend more flexible statutory authority, such as a larger fund similar to the present Section 401 of the Mutual Security Act. It may also be appropriate to examine the existing legislation and particularly the regulations under the Battle Act with a view to putting the Executive Branch in a position to exploit promptly and effectively opportunities to advance United States interests.

In view of the urgency of the matter, the present plan is to seek a sufficient basis within the possibilities and limits of existing legislation for initial detailed discussions with Poland. State has in mind that these discussions could proceed bit by bit, with opportunities to review at each stage the scope and form of operations to be considered in subsequent stages.⁷

1. Source: Department of State, EE Files: Lot 76 D 232, US/Polish Talks: Basic Preliminary Documents, #1. Confidential. The memorandum is a copy of the progress report submitted to the OCB on December 19. In its original form, it was sent to the OCB by Staats on December 17 and was considered by the CFEP on December 18. (Ibid., US/Polish Talks: Preparations)
2. See footnote 13, Document 204.
3. Document 196.
4. The CFEP agreed at its 50th meeting on December 18. (Minutes of the meeting by Cullen; Department of State, EE Files: Lot 76 D 232, US/Polish Talks: Preparations)
5. On December 11, Hoover wrote Under Secretary of the Treasury William Randolph Burgess to indicate that since “we are now prepared to make a distinction between Poland and the Soviet Bloc” the Department of State would concur in the decision of the Department of the Treasury to buy Polish gold. (Ibid., Central Files, 848.13/12–1156)
6. P.L. 86, enacted June 21, 1955; 69 Stat. 162.
7. At the December 19 OCB meeting, this memorandum was discussed and a few minor corrections made. (Department of State, OCB Files: Lot 61 D 385, Minutes—Preliminary Notes) At his December 19 Staff Meeting, Dulles instructed the Bureau of Congressional Relations to brief members of Congress “in a manner which will preserve the President’s Constitutional authority for the conduct of foreign affairs without consulting Congress at every step.” (Ibid., Secretary’s Staff Meetings: Lot 63 D 75) Assistant Secretary of State for Congressional Relations Robert C. Hill sent identical letters to the Chairman of the Senate Committee on Foreign Relations, the House Committee on Foreign Affairs, the Senate Committee on Agriculture and Forestry, the House Committee on Agriculture, and to the ranking minority members of these committees. Copies were also sent to the Departments of Agriculture, Defense, and Treasury, and to the CFEP and ICA. (Letter from Hill to James P. Richards, December 28; ibid., Central Files, 411.4841/12–2856)