Foreign Relations of the United States, 1961–1963, Volumes VII, VIII, IX, Arms Control; National Security Policy; Foreign Economic Policy, Microfiche Supplement

425. Circular Airgram CA–241 to Certain Diplomatic Missions, February 14¹

February 14, 1963

SUBJECT

• Policy Guidelines for A.I.D. Administration in Countries Receiving Communist Bloc Aid

REFERENCE

• AIDTO CIRCULAR XA–17 (July 7, 1962)

This message transmits the policy guidelines adopted by the Acting Administrator of A.I.D. on January 11, 1963, which are to apply in situations in which U. S. and Communist Bloc assistance activities seem likely to become associated.

The following is the text of the guidelines, which is being issued by A.I.D. as a Policy Determination, as a Manual Order, and in such other documentary form as may prove appropriate:

U. S. Assistance Policies and Procedures in Countries Receiving Communist Bloc Aid

I. (a) General.

The foreign assistance programs of the United States must be conducted so as to avoid furthering Communist Bloc interests inimical to the U. S. The use of U. S. aid in conjunction with Bloc assistance may, under some circumstances, result in damage to U. S. interests. Under other circumstances it may yield a net advantage to the United States. This is likely to be a growing problem and must be examined on a case-by-case basis. The following procedures have been developed to assure that U.S. actions in such cases are carefully analyzed with respect to their implications for U.S. interests. Washington agencies and country teams are required to remain alert to developing situations, to assess them, and to take action in the manner prescribed below.

(b) Definitions.

(1) Project. The term “project” as used herein refers to specific, current undertakings of identificable scope and duration, including on-going assistance to a particular institution, plant or training program. The term does not normally apply to the product of completed project assistance unless it continues to be clearly identified with the aid donor. Nor does it apply to an entire economic sector or an entire governmental department or public body parts of which are receiving foreign assistance.

(2) Non-Project Aid. The term “non-project aid” refers to all forms of assistance, including PL 480 commodities, which are not attributed to specific projects.

(3) The Communist Bloc. The “Communist Bloc” for purposes of this paper includes: Albania, Bulgaria, mainland China, Czechoslovakia, East Germany, Estonia, Hungary, Latvia, Lithuania, North Korea, North Vietnam, Outer Mongolia, Poland, Rumania, Tibet, Cuba and the U.S.S.R.

(4) Bloc Project. A “Bloc Project” is a project sufficiently assisted by the Communist Bloc to be so identified. It is normally a project to which an official agency of a Communist Bloc government is a primary contributor. It does not include projects of the host country using purchased Bloc materials, nor projects assisted by technicians of Bloc countries serving the U.N. or other international agencies.

II. Project Aid.

(a) The United States normally will not provide funds, commodities or personnel, nor agree to the release of counterpart funds or U.S.-owned or controlled local currency, to Bloc projects or to projects whose primary utility would be to support or facilitate Communist Bloc projects. The United States normally will not agree to the provision of such direct support from the Communist Bloc to projects identified with the United States. Exceptions to these policies will be made on the recommendation of the Ambassador and the senior representative of the Agency for International Development (A.I.D.) in the country concerned and on the approval of the Administrator of A.I.D. Considerations upon which exceptions will be based include opportunities for advancing the interests of the United States through exceptional action, the degree of Communist Bloc or United States identification with the project, likely consequences of enforcement and of waiver of this policy, political relations bearing upon the issue, and proposed means of assuring favorable consequences of a waiver, such as local publicity on the U.S. action.

(b) The United States, at its option, may withhold further funding from a project for which the cooperating country accepts Communist Bloc project assistance. With respect to grant projects, authority for this action is derived from the interrelationship of Standard Provisions C and P of Project Agreements. With respect to project loans, a provision such as that given below will henceforth be incorporated in loan agreements.² The applicability of these Provisions to the particular circumstances dealt with herein shall be explained as promptly as feasible following issuance of this directive to appropriate officials of countries where there are actual or prospective Bloc assistance programs. It shall be explained subsequently to host government officials of additional countries at such time as Bloc aid programs may be initiated or contemplated in those countries. A record of such explanation, including the date, form, to whom made, and host government response, shall be sent to AID/W. The exercise by the United States of this option shall be determined by the considerations brought out in paragraph II(a) above. This provision does not preclude the use on a U.S. project of goods of Communist Bloc origin and available on the local market, except when such use is found by the Ambassador and the senior A.I.D. representative to be against the interests of the United States.

(c) Equipment and supplies provided by the United States for a project shall not be made available to, or used in support of, a Communist Bloc project without advance approval by the United States. This policy shall be implemented through timely explanation to the host government of the applicability to the situation of (1) the present Standard Provision H in project agreements and (2) the comparable language, if any,³ in loan agreements, and through enforcement of said provisions. A record of such explanations, including the date, form and to whom made, shall be sent to AID/W.

(d) The United States normally will not undertake to train cooperating country technicians whose known future assignment is to be to Communist Bloc projects. Exceptions to this provision may be made in the field on a finding by the A.I.D. Mission Director or Representative that the placement of U.S.-trained technicians in Communist Bloc projects would be likely to serve U.S. interests. This provision does not preclude training of technicians for service in cooperating country institutions or facilities established by completed Communist Bloc aid or in cooperating country governmental agencies dealing with Communist Bloc aid.

III. Non-Project Aid.

(a) The United States will not agree to the use of counterpart funds or other U.S.-owned or controlled local currency for purposes which are likely, in its judgment, to serve the interests of the Communist Bloc.

(b) The United States will not undertake to provide funds or commodities under non-project programs for the known purpose of facilitating a Communist Bloc project. This provision also applies to financing non-project imports for a State-owned enterprise which is publicly identified as a Communist Bloc “project”. In administering this provision, A.I.D. Missions and Representatives shall inform themselves, to the extent practicable, of the degree to which proposed U.S.-financed commodity imports would be likely to facilitate Communist Bloc projects. A.I.D. Missions and Representatives shall consult with appropriate country officials regarding the basis for estimates of commodity import requirements reflected in Procurement Authorization Applications, with the objective of avoiding U.S. aid-financing of the principal commodity import requirements of Communist Bloc projects. The United States will not, however, require guarantees by cooperating country governments that commodities imported through U.S. non-project programs for commercial sale will be withheld from Communist Bloc projects.

(c) The United States will require that, in applications for non-project assistance, cooperating countries guarantee that commodity imports financed by the United States under such aid programs and retained under the title of the government or of state-owned enterprises of the cooperating country will not be sold, transferred, or otherwise made available directly to Communist Bloc projects.

(d) The United States normally will not provide balance of payments assistance (i.e. cash transfers, local currency purchase or commercial commodity financing) at a time when the cooperating country is transferring significant amounts of its foreign exchange resources to the Communist Bloc in repayment of credits. Special circumstances which may seem to justify exceptions to this policy should be fully explained to AID/W.

(e) Exceptions to the foregoing provisions covering non-project aid shall be governed by the procedures and criteria, where applicable, set forth in paragraph II, above.

Rusk

1. “Policy Guidelines for AID Administration in Countries Receiving Communist Bloc Aid.” Confidential. 6 pp. Department of State, Central Files, AID (US) 1.

2. Other Contributions to the Project. The Borrower and A.I.D. may obtain the assistance of any third party, public or private, in carrying out their respective obligations under this Agreement. However, except as financed under this Loan, the Borrower covenants that unless A.I.D. otherwise agrees in writing, it shall obtain the express consent of A.I.D. before any property, services, facilities or funds may be furnished, whether by loan, grant, sale or otherwise, by any third party, public or private, for use in connection with the Project or before any such third party may participate in carrying out activities related to the Project. (This provision is designed to accomplish purposes similar to those of Standard Provision C in Project Agreements.)

   NOTE: It is intended that the foregoing clause be substituted for the current Standard Provision, if any, of project loan agreements governing “The Source of Other Goods and Services Utilized on the Project”.

3. It appears that most loan agreements now in force do not contain a provision comparable to Standard Provision H in project agreements. Accordingly, all project loan agreements hereafter entered into shall contain a provision substantially similar to the following:

   “Utilization of Goods and Services. The Borrower shall cause all goods and services financed by the Loan to be used exclusively for the Project described in Sec. ; provided that in the case of any goods which are not fully expended through their use for such Project, the foregoing provision shall apply until completion of the Project or until such time as such goods can no longer be usefully employed for the Project and thereafter may be utilized for any purpose at the discretion of the Borrower subject, however, to such terms and conditions concerning utilization as A.I.D. may impose during the period of repayment; and provided further that no goods financed by the Loan shall be exported from (country) without the prior approval of A.I.D.”.