Foreign Relations of the United States, 1955–1957, Western Europe and Canada, Volume XXVII

66. Telegram From the Embassy in Italy to the Department of State¹

Rome, February 18, 1955— 4 p.m.

3005. Re Deptel 2530 Feb 9.² Following general and specific considerations re OSP developed from recent conversations with Hensel and Anderson and subsequent visit by USRO–USCINCEUR team.

(1) CT continues to believe optimum solution for OSP to Italy in FY 55 is in directed procurement. This would result:

(a) In assuring large level OSP required to maintain production base for ammo, electronics, spares, etc., which has been so successfully established;

(b) In retaining present political leverage for CT which has proved so useful in effecting improvements; and

(c) In permitting CT to continue exercise same degree of surveillance of potential contractors as in past without jeopardizing Ital share OSP through loss to other countries not adhering to similarly strict clearance system.CT believes that three years’experience in OSP contracting in Europe should provide contracting agencies with sufficient background re costs individual items so that directed procurement to Italy which it is particularly qualified to produce should probably not result in cost increase over open international competitive system.

(2) Only if directed procurement proves unfeasible would CT reluctantly agree institute some form of approved list system in order assure equitable consideration Ital firms by procurement agencies. Proposal developed in conversations mentioned above as follows:

(a) On receipt detailed procurement for FY 55: DEFREPNAMA would send rep to Rome for discussion program with CT.

(b) Individual items would be reviewed and CT would recommend several specific firms as potential contractors for each item (such recommendations would probably subsequently be lumped into general categories). This political approval by CT would be for purpose bid solicitation only and would be valid for say 30 days. However, no general “white list” as such would be compiled—simply recommendation of consideration specific firms for various categories of items.

(c) In event contracting agency desired solicit any firms not among those specifically recommended by CT, would first submit name of firm, item under consideration and approximate value of contract to CT. CT would reply immediately, either (1) approving or disapproving firm on basis info on hand, or (2) giving interim approval firm for solicitation only (if no info on file) pending full investigation.

(d) As determination re safeguards against sabotage (Section 107(2))PL 7785 will apparently be made by appropriate agency on basis certain final assurances of CT just prior to actual award, CT should have final opportunity approve or disapprove all contracts before final award. (CT understands consideration being given to visit Washington by USRO–USCINCEUR team to discuss possible directive re Sec 107 determinations in field.)

(e) As question international competition will affect prime contracts only, CT will expect to continue present system of clearance without change for all firms being considered for all subcontracts in excess of $1,000,000.

(3) Question which is becoming increasingly urgent and which overshadows foregoing procedural problems is actual level OSP which Italy can expect for FY 55 and when can be expected. Dept will recall CT’s repeated recommendations one year ago that OSP for Italy during FY 54 not fall below $100 million. However, despite fact that contracts let totaled $94 million, this sum included now concelled [less than 1 line of source text not declassified] contract of $18.8 million and approximately $14.5 million which Ital Govt must pay to North American for F–86K parts, etc., leaving net total impact in Italy of only approximately $60 million. Moreover, follow-on contracts which were expected early in fiscal 55 have never materialized and labor situation in several key plants now becoming critical. Bombrini Parodi Delfino, forced to dismiss 800 workers last fall, now plans to dismiss 600 more in April and some 1500 in June if additional ammo orders from some source not promptly received. (This occurring in firm where free labor overwhelmingly dominates and where still additional gains made in 54 elections.) CT therefore strongly urges that every effort be made to assure, insofar as possible, that Italy will receive minimum share of $90 million to $1000[100?] million from 55 OSP.

(4) Foregoing recommendation should be considered particularly in light of striking gains shown by free labor unions and increasingly enlightened attitude of management toward free labor during 1954. This improvement occurred over same period during which CT was applying strict political and labor criteria to firms under consideration for OSP contracts and cannot [we?] believe, be attributed solely to coincidence. If large slice OSP (with which firms which have shown total improvement could be “rewarded”) not forthcoming, political leverage for additional improvement will be lost and CGIL propaganda claims will be supported.

(5) Despite assurance Deptel 2384, no info yet received re possible reletting in Italy of all or part of cancelled contract.³ Directed procurement in Italy of this item at this time would do much to restore confidence in our OSP policy and would forestall many threatened dismissals in ammo industry ending award of new FY 55 contracts.

Luce

1. Source: Department of State, Central Files, 765.5–MSP/2–1855. Secret. Repeated to Paris.
2. Telegram 2530 to Rome dealt with the Department of Defense proposal for the creation of a “white list” of Italian firms that the United States would use in awarding offshore procurement contracts. In the telegram, the Department of State noted that it was prepared to develop such a list. If the Department of Defense decided against the procedure, however, the Embassy was instructed to explore alternatives that would ensure equal consideration of Italian firms by the procurement agencies. (Ibid., 765.5–MSP/2–955)
3. In telegram 2384 to Rome, January 26, the Department informed the Embassy of the results of discussions among Luce, Hensel, and Department officials concerning the creation of a “White List,” and explained the procedures for using such a list. Additional information concerning the reletting of contracts was to be sent separately. (Ibid., 765.5–MSP/1–2655)