Foreign Relations of the United States, 1961–1963, Volume IX, Foreign Economic Policy

358. Memorandum From the President’s Deputy Special Assistant for National Security Affairs (Kaysen) to President Kennedy⁰

Washington, September 19, 1962.

1. Attached is the report of the Executive Stockpile Committee on the Barter Program. The nine recommendations, pages 4 through 6, go to the objective of limiting the use of barter to those occasions where surplus agricultural commodities can be usefully exchanged for items that are clearly needed. Recommendation 6 provides for a list of exceptions to the general rule that barter should not be used to acquire strategic and critical materials in excess of national stockpile objectives.

2. These exceptions are appropriate and, aside from two, well-defined. These two (6 b. and 6 d.) raise some problems. Six d. provides for using barter instead of cash purchases when this can be done in such a way as to save dollar payments abroad. This is clearly a desirable objective. The recommendation would be improved, however, if it provided for consultation with the Treasury Department so that Treasury’s judgment as to whether in fact there was a real saving in our balance of payments would be available.

3. Recommendation 6 b. raises more difficult questions. This provides for barter to acquire raw materials for processing in the U.S. which would help in maintaining the materials processing mobilization base and relieve areas of unemployment. Both these goals are extremely broad, and the recommendation provides no procedure for determining whether they will be achieved in any particular instance. We have alternative and usually more efficient methods for assisting areas of substantial unemployment. There is no defined standard for the materials processing mobilization base and in the absence of a defined standard, this paragraph could be used to justify almost any barter transaction.

4. The objections to these two provisions were shared by the Bureau of the Budget and the Council of Economic Advisers. Ed McDermott, the Director of Office of Emergency Planning, would be perfectly agreeable to your making the suggested change in Recommendation 6 d. and reserving approval on 6 b. until further study. It is his judgment that such a directive would be sufficient to lead to the withdrawal of 6 b. by the other members of the Committee. Accordingly, I suggest that you send the attached memorandum to Mr. McDermott and the other members of the Executive Stockpile Committee.¹

Carl

Attachment²

Washington, August 23, 1962.

Memorandum From the Director of the Office of Emergency Planning (McDermott) to President Kennedy

I am pleased to submit a report on “The Barter Program” that has been prepared in response to your request made in NSAM No. 142 of April 10, 1962.³ It reflects the general consensus of the Executive Stockpile Committee, and of the Department of Agriculture whose representative was added to the Committee for the purposes of this review.

The diverse opinions of the different Federal agencies about the barter program have been carefully and exhaustively explored during the preparation of this Report. At the time this review was initiated early in May, the Department of Agriculture had almost completed proposals for a revised barter program which had been developed following consultations with a non-governmental task force and with other Federal agencies. Recommendation No. 9 of the attached Report proposes that:

“The Basic Principles and Rules of Application of the proposed Revised Barter Program (Tab A) prepared by the Department of Agriculture should be revised to reflect the foregoing recommendations, and should be adopted as thus revised.”

I believe it is important that the recommended revision be made and adopted by the Department of Agriculture as soon as possible, and without further detailed or prolonged consultations that may be merely a repetition of the process that has just been completed by the Executive Stockpile Committee.

Although the attached Report has been approved by the signatory departments, there are individual views which I wish to call to your attention:

Although the Department of the Treasury is not a member of the Executive Stockpile Committee and is not a signatory to this Report, its representatives participated fully in the staff and Committee discussions which resulted in the Report. The Department particularly feels that careful consideration must be given to the general effects of barter transactions on the balance-of-payments position of the United States and that, in this connection, appropriate attention should be given to the extent to which barter transactions might displace cash sales or are in addition to such cash sales, and to their competitive relation to other methods of procuring goods and services. The Department of Defense and other members share this view.

The Department of Commerce limits its approval to the Recommendations of the attached Report and specifically opposes any barter transaction carried out while a disposal program involving the same materials is in operation, as well as any multilateral barter transaction.

The Committee is continuing its study of other phases of the stockpile problem.

Respectfully,

Edward A. McDermott

Attachment⁴

Report on the Barter Program by the Executive Stockpile Committee to President Kennedy

[Here follow 3 pages of comments and considerations on the barter program.]

RECOMMENDATIONS

In light of the foregoing comments and its considerations of the barter program, as briefly reviewed in the following pages, the Committee recommends that:

1. Due regard must be given to foreign policy considerations and balance-of-payment problems in carrying out the barter program. The Secretary of Agriculture should consult with the Secretary of State and the Secretary of the Treasury, respectively, concerning the general impact which the barter program has on these considerations.

2. Greater emphasis than in the past should be given to the use of barter transactions for the procurement of non-strategic-materials items (including, but not limited to, offshore procurement) which meet approved program requirements of U.S. Government agencies within funds currently available or within procurement authority which extends over a period of years and for which dollars would normally be spent abroad.

3. The Department of Agriculture should review with appropriate Federal agencies the opportunities for the enlargement of the use of barter in support of currently budgeted programs or programs which have procurement authority extending over a period of years. The Department of Defense and the Agency for International Development should cooperate with the Department of Agriculture by effecting offshore procurement, using qualified barter arrangements to the greatest practicable extent when dollars would otherwise be spent abroad for the items being procured. In carrying out such procurement, the Department of Agriculture should absorb any increased cost incurred by the procuring agency above that which would have been incurred had dollar procurement been utilized. Off-shore military procurement by barter should not be effected in West Germany or any other country in which the United States has arrangements for payments to offset U.S. military expenditures in that country, except with the concurrence of the Secretary of the Treasury.

4. In addition to the foregoing, the Department of Defense and the Agency for International Development should continue to cooperate with the Department of Agriculture to convert to barter arrangements dollar contracts for foreign-produced items.

5. Barter should continue to be used to acquire strategic and critical materials within established maximum objectives.

6. With the exceptions indicated below, barter should not be used to acquire strategic and critical materials that are in excess of National Stockpile objectives. The exceptions are those cases where:

a. In the judgment of the Secretary of Agriculture, after consultation with the Secretary of State, and after consultation with the Secretary of the Treasury regarding U.S. foreign currency holdings, and consistent with disposal policies, it would be more advantageous to the U.S. to take a useful material in a barter transaction than to acquire additional foreign currencies;

b. The barter acquisition of foreign materials would involve in some cases domestic processing and thus help in either maintaining the domestic materials processing mobilization base or assisting areas of substantial unemployment;

c. In the judgment of the Secretary of Agriculture and with the concurrence of the Secretary of State, the barter transaction would further the international economic or foreign policy interests of the United States, including help for weaker independent states to resist economic overtures and pressures from unfriendly powers; and

d. An existing contract for a cash purchase can be converted to a barter arrangement on terms serving the best interests of the United States, thus relieving the United States of dollar payments.

7. Pending a decision on new legislation relating to the various inventories of strategic and critical materials, the materials acquired under Recommendation No. 6 should be transferred to the Supplemental Stockpile.

8. The Supplemental Stockpile Advisory Committee on Barter should continue to be used by the Secretary of Agriculture for advice and consultation regarding the barter program and the stockpile materials eligible for barter acquisition.

9. The Basic Principles and Rules of Application of the proposed “Revised Barter Program” (Tab A)⁵ prepared by the Department of Agriculture should be revised to reflect the foregoing recommendations, and should be adopted as thus revised.

[Here follow the final 10 pages of the report with sections on Disposal of Agricultural Surpluses Through the Barter Program, Uses of Barter, Future Bartering for Strategic Materials, and Barter’s Effect on Cash Sales and Balance of Payments. Also omitted are the signatures of George Ball, Roswell Gilpatric (Department of Defense), John M. Kelly (Department of the Interior), Orville L. Freeman (Department of Agriculture), Luther H. Hodges (Department of Commerce), Arthur J. Goldberg (Department of Labor), Ray S. Cline (Central Intelligence Agency), Bernard L. Boutin (General Services Administration), and Edward A. McDermott, Chairman (Office of Emergency Planning).]

0. Source: Kennedy Library, National Security Files, Meetings and Memoranda Series, NSAM 187. Official Use Only.
1. See Document 359.
2. No classification marking.
3. Document 353.
4. No classification marking.
5. Not printed.