16. Circular Telegram From the Department of State to All Diplomatic Missions0

98. With regard to recent announcements by SecDef concerning efforts to reduce U.S. defense expenditures abroad, the following is provided for your guidance in response any official or public queries.

Defense, under Presidential instructions and as part Government-wide program to lower balance of payments deficit by reducing foreign exchange expenditures, has initiated a number of study projects towards this goal and which would at the same time not repeat not impair U.S. combat effectiveness abroad. These studies, scope of which has been made public, will cover U.S. military operations worldwide. They will involve overseas procurement of supplies and services for U.S. Forces, construction programs, expenditures by U.S. military personnel and their dependents abroad, use of foreign labor whether by direct or contract hire, review of overseas procurement for MAP, etc.

To date, SecDef has issued instructions on overseas procurement of supplies and services for use by U.S. military forces abroad. These require purchase from U.S. sources if contract does not exceed $10,000 or if delivered cost is estimated to be not more than 50% greater than the cost from foreign sources. If contract is over $10,000 and cost differential exceeds 50%, procurement action must be referred to SecDef to determine whether it should be awarded to U.S. sources. Directive exempts all procurement from indigenous sources which is undertaken pursuant to a treaty or executive agreement and excludes purchases for overseas construction, petroleum, MAP, and non-appropriated funds which are covered by separate directive. Programs under excluded categories are now under study.

Also SecDef has directed that all proposed purchases abroad for Defense purposes for use in U.S. under existing “Buy American Act” regulations will be referred to SecDef to determine whether exception to normal procedures would be in national interest.

It is important to emphasize that other specific Defense actions within this over-all policy are in the study stage preliminary to decisions which will be made in the future.

FYI. Department is coordinating closely with Defense on study projects and implementing procurement directives. Both agencies recognize [Page 30]political and economic ramifications involved. Where military commands, MAAGs, or missions are located in your country and are undertaking reviews on overseas procurement pursuant to Defense directives, all posts should work closely with those organizations in this activity. Political and economic implications which may result from implementing projects should be brought to the attention of military commanders. Posts should similarly advise Department of specific problems they foresee as a result of assessments by posts and overseas Defense organizations. End FYI.

  1. Source: Kennedy Library, National Security Files, Subjects Series, Balance of Payments and Gold, 6/62-9/63. Confidential; Priority. Drafted by George S. Newman on July 19; cleared in E, EUR, FE, ARA, NEA, AF, U, S/S, the Department of Defense, and the White House; and approved by Newman. Repeated to Paris for Stoessel and McGuire and to CINCLANT, CINCARIB, and CINCPAC for the Political Advisers.