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

247. Memorandum From the Deputy Under Secretary of State for Economic Affairs (Dillon) to the Secretary of State¹

Washington, April 16, 1957.

SUBJECT

• U.S. Position on Polish Aid

The economic discussions with Poland now hinge on whether the United States can meet the hard core of the Polish requests. Their original requests have been brought down to the lowest level of assistance which would appear necessary to enable the Polish regime to move forward soon with its internal economic reforms and make a beginning on inceasing coal exports to the West. In particular, the level of our aid will determine whether the new regime will be able to tell the Polish farmers—about half the population—that the present system of compulsory farm deliveries to the State will be ended.² An estimate of the political consequences of aid to Poland, signed by the Director of CIA and dated April 15, is at Tab A.³

Original Polish Request

The Poles originally asked for about $300,000,000 in long-term credits (not grants) for cotton, fats, wheat, machinery and other products. The details are at Tab B.⁴ This figure was based on the export value of agricultural commodities. At CCC costs, which are higher, the figure would be over $400,000,000.

The Poles asked that this amount be financed under a long-term dollar credit from the Export-Import Bank, but this was out of the question because of the Battle Act.⁵

U.S. Offer

As approved by you (Tab C)⁶ we replied by offering a complicated package of P.L. 480 funds, Sec. 401 funds and CCC triangular credits through West Germany totaling $60–$80 million.

Within this range we pressed the Poles to state the relative priorities which they attached to their various commodity requests.

The Poles pointed out that if our offer were to stand unchanged, that would mean that they could realize only some $38–$40 million in actual commodities at export prices. Briefly, the reasons for this were that (1) the Poles primarily because of political problems could not use the $30 million of CCC triangulars through West Germany and (2) the $25 million of P.L. 480 funds was worth only $15–$17 million if used for wheat or cotton. These points are elaborated at Tab D. Also, transport costs—several million dollars—would have to be deducted.

New Polish Proposal

The Polish Delegation has put forward as a counterproposal substantially the U.S. aid package (i.e. about $81 million) but in terms of commodities at export prices and to be handled entirely under P.L. 480 and Section 401, plus $10–$15 million for transportation costs. At the same time, they agreed to our proposal to buy back, for dollars, such local currencies (zlotys) as the U.S. does not use for its own purposes after a period of five years, the payments to be made gradually. Thus, any P.L. 480 deals with Poland would be substantially harder than those we have with other countries.

The Polish counterproposal would furnish them 500,000 tons of wheat (half of their proposed reserve), 50,000 tons of cotton (their 1957 consumption deficit plus half of their proposed cotton reserve), about one-third of their requests for fats and oils to be used for current consumption ($10,000,000), and a small amount of drilling equipment for coal mines ($4,000,000 as against their original request of $46,000,000).

The Poles state they could move forward on this basis provided that we would state our willingness to consider further requests later in the year. However, in the coming months they would try to obtain some CCC exporter credits directly from private U.S. exporters and banks. To the extent that they succeed presumably further requests from us would be reduced.

Canadian Objections

Meanwhile, we have informed the Canadian government that the Poles have made wheat an essential and urgent part of their revised request for assistance. The Canadians object vigorously, claiming that any wheat shipments by the U.S. to Poland on a concessional or long-term credit basis will hurt future Canadian sales. Embassy Ottawa’s cables on this are at Tab E. Canada has itself just sold Poland 450,000 tons on a short-term (2–3 year) credit. We have asked Canada to join us in extending long-term credits for a Polish wheat reserve but so far they are unwilling. We have made it clear that our sole interest in the Polish situation is political, not commercial. We have pointed out that the wheat reserve is necessary if the compulsory farm delivery system is to be abolished, and that this is of great political importance. At our urging, the Poles have agreed to give assurances to Canada on future purchases of Canadian wheat. Senator Humphrey has let us know that there will be trouble if we refuse to provide wheat to Poland because of Canadian pressure. A further approach at a high level, as recommended by Ambassador Merchant in the telegram at Tab E, should be made to the Canadians to impress upon them the necessity of supplying wheat for the Polish reserve, and to ask them to consider seriously whether they could not join with the U.S. in extending long-term credits to the Polish government for this purpose.

Conclusions

I believe we should meet the new Polish request, which represents a strong effort by the Polish delegation to come close to our offer. In commodity terms their proposal is not too far away from the $80 million which we offered and which has found substantial public support. Although we would need some $92 million in P.L. 480 funds for the purpose, the actual P.L. 480 agreement would be recorded in export values at $65 million in actual commodities at export prices and $14 million in transportation necessary to move this volume, or a total of $95 million. An illustrative table is at Tab F.

We are in better shape now with the Congress than we were at the start. At our recent consultation on Polish aid with the Senate Foreign Relations subcommittee⁷ Senator Knowland was silent while Senators Sparkman,⁸ Mansfield⁹ and Humphrey spoke strongly in favor of adequate help to Poland. The vote in the Senate on deleting Section 304 of P.L. 480, which was widely (but incorrectly) thought to be a vote in favor of Polish aid, was 54–23.¹⁰

We could not meet the Polish request without using the new P.L. 480 authorization which has passed the Senate but is still before the House. Nevertheless, it is essential that we not delay our negotiations any longer. With the approval of the Department of Agriculture, it would be possible to negotiate the larger amount on a conditional basis, it being understood that actual signature of the agreement would be held up until after the Congress had completed its actions. This course was suggested to us by Senator Sparkman in summing up the views of the Senate Foreign Relations Subcommittee during our Polish aid consultations.

Recommendations

1. That you approve in principle:

(a) An increase from $25 million to $30 million in Section 401 funds to cover transport costs other than those which would be financed by P.L. 480 (funds to be obtained from ICA or Defense).

(b) An increase in P.L. 480 funds, with the approval of the Department of Agriculture, to the extent necessary to finance approximately $60 million in surplus commodities at export prices, and the transportation costs of $5,000,000 for that part of these commodities required to be shipped in U.S. flag vessels. (It being understood that any P.L. 480 agreement utilizing new authorizations would not be signed until the pending legislation has been approved by the Congress.)

2. That you authorize an immediate approach to the Canadian government at a high level to ask that they seriously consider joining us in supplying wheat for the Polish reserve, or if they are unwilling, to seek to persuade them not to press their objections to the U.S. proceeding with the arrangements now proposed.

3. That after these consultations have taken place with Canada, negotiations with the Poles be resumed on the basis of the authorizations set forth in 1, above.¹¹

1. Source: Department of State, EE Files: Lot 76 D 232, US/Polish Talks—Basic Preliminary Documents, #1. Secret. Drafted by John M. Leddy; concurred in by E, ITR, OFD, EUR, BNA, EE, U/MSA, and L/E.
2. Ambassador Spasowski called on Acting Secretary Herter on April 15 and stressed the importance of this point. (Memorandum of conversation by Trivers; ibid., Central Files, 748.5–MSP/4–1557)
3. Supra.
4. Tabs B, D, E, and F are not printed.
5. Leddy indicated in a memorandum to Dillon dated April 5, that the Poles wanted “to stay as far away from the mutual security program as possible” because of “their neighbors”. Even if the source of the funds was Section 401, they preferred that it come through the Export-Import Bank rather than ICA. (Department of State, Central Files, 748.5–MSP/4–555)
6. See Document 244.
7. A memorandum of this conversation of April 11 by Kalijarvi is in Department of State, Poland Desk Files: Lot 61 D 77, Economic Aid.
8. Senator John Sparkman (D.–Alabama).
9. Senator Mike Mansfield (D.–Montana).
10. The vote was taken on April 1. Section 304 reads: “The President shall exercise the authority contained herein (1) to assist friendly nations to be independent of trade with the U.S.S.R. or nations dominated or controlled by the U.S.S.R. for food, raw materials and markets, and (2) to assure that agricultural commodities sold or transferred hereunder do not result in increased availability of those or like commodities to unfriendly nations.”
11. Dulles initialed his approval of the recommendations on April 18. The original sum of $25 million derived from MDAP funds under the provisions of Section 401(a). At the Secretary’s Staff Meeting on May 2, Herter discussed the additional funding with Hollister who agreed to approach the Department of Defense to secure from them the additional $5 million. (Department of State, Secretary’s Staff Meetings: Lot 63 D 75)