Foreign Relations of the United States, 1952–1954, Western Europe and Canada, Volume VI, Part 1

ECA–MSA–FOA files, lot W–13, “MAAC Action Summaries”

No. 253
Mutual Assistance Advisory Committee Draft Minutes of Meeting, February 18, 1952, 3–6: 30 p.m.¹

secret
[MAAC M–12]

Washington, February 20, 1952.

Present:

• Office of the Director for Mutual Security

  • Mr. Gordon, Chairman

• Mutual Security Agency

  • Mr. Cleveland
  • Mr. Gordon
  • Mr. Hill
  • Mr. Schelling
  • Mr. Wolf

• Department of State

  • Mr. Merchant
  • Mr. Barnett
  • Mr. Kranich

• Department of Defense

  • Mr. John Umbarger
  • Col. Thielen
  • Lt. Levy-Hawes
  • Mr. Stettner

• Department of the Treasury

  • Mr. Harley

• Bureau of the Budget

  • Mr. Wilhelm
  • Mr. Hirschberg

• Office of Defense Mobilization

  • Mr. Rock

• Secretariat

  • Mr. Christensen

MSA Projections of Country Defense Expenditures and Country Aid for Use in the FY 1953 Presentation

Germany

1. The Chairman reported that a cable on Germany (Secto 13 February 18²) had been received containing the recommended German contribution for FY 1953, and he requested that MSA revise its cables on German defense expenditures accordingly.

France

2. The Chairman indicated that further discussions would probably be held by our officials at Lisbon³ on a February 9 cable from Paris on the factors related to a French defense effort of 1225 billion francs.⁴

3. Mr. Merchant said that the present figures on France set forth by MSA seemed to indicate a balance of payments deficit in 1953 of $118 million after OSP. Mr. David Gordon said that this calculation had been made on the basis of the present rate of OSP expenditures. Mr. Merchant said that this in effect raised the question of the adequacy of the $400 billion [million] in defense support planned for France in FY 1953. The Chairman said that perhaps a more serious question raised was that of the military expenditure figures, and he called upon Mr. David Gordon for discussion of the investment program in Europe. Mr. David Gordon said that of the total $1.4 billion in defense support planned for Europe in FY 1953, it is estimated that all but about $300 million will accrue to the European banks. He then outlined the various purposes for which this $300 million would be used. Mr. Cleveland said that this general problem had been discussed with Mr. McNeil of Defense. At that time it was requested that the Defense Department re-examine the estimated defense expenditures in order to see if they were realistic. The problem of trade adjustment was also discussed with Mr. McNeil. Mr. Cleveland indicated that he personally felt that this was the last year that it would be necessary to make an estimate on trade adjustment since additional experience gained during the coming year will provide a sound basis for future calculations. He indicated that the trade adjustment figure would be re-examined to see how it was made and to see whether it was cut down from an original estimate. He indicated that he shared the Chairman’s unhappiness over the size of the adjustment and that the figures involved would be thoroughly examined by the country desk officers. Mr. Umbarger reported that France was being used as a “guinea pig” in attempting to provide a sound basis for estimating defense expenditures. He reported that Defense and MSA representatives would be meeting on February 20 with representatives of the French clearing house, and on the basis of this meeting it should be possible to accurately determine the actual receipts of the French Government through the experience of the French of U.S. defense expenditures through calendar year 1951. He noted that the three Services are insisting that the defense expenditure figures are actually very conservative and will run much higher than has been previously estimated. He added that the information received on the French test case could probably be applied across the board in Europe.

4. The Chairman noted that this question was closely related to the balance of payments problem and offshore procurement. With reference to OSP, the Chairman said that assuming that there would be $500 million of obligations in FY 1952 and $1 billion in 1953 there are a number of problems which must be faced. Perhaps the most important is that of taking action which will speed up the OSP processes. He suggested that this could be done by loosening up the list of items eligible for procurement and reducing the administrative bottlenecks that now exist. He added that it was his understanding that General Finley was now in Heidelberg to discuss what could be done to improve the present administration of the program. Lt. Levy-Hawes said that General Finley had just arrived in Heidelberg and consequently no reports had as yet been received. With reference to expanding the lists of eligible items he reported that this was being given active consideration by Defense. Mr. Cleveland said that he felt that the figure of $1 billion in OSP obligations for FY 1953 should be accepted although he questioned the current estimates on the rate of payments for these obligations. With respect to the $500 million of obligations estimated for FY 1953 he asked whether it was realistic to continue using this figure if the obligations will not actually be that large, and if the funds are not obligated whether we will have to ask Congress for a carryover. The Chairman replied that this should not be an immediate problem since the funds could be carried over with the others not expended in Title I. He also expressed the view that it would be unfortunate to abandon the $500 million figure for FY 1952. Mr. Cleveland commented that it would be even more unfortunate if it was found necessary to cut the figure downward during the Congressional presentation of the FY 1953 program, and that if any cuts are to be made they should be made now. The Chairman said that he would agree with this statement if it was obviously impossible to obligate all of the $500 million in FY 1952 but that he was not as yet prepared to agree that this would happen. The Chairman then indicated that it would be necessary to decide on some operating procedure to straighten out the military defense expenditure figure in order that the defense forces’ figures could be developed. He asked whether it was contemplated that there would be any advance payments on OSP contracts. Mr. Cleveland pointed out that discussion had been postponed several times on the proposal for advance payments (MAAC D–1/1).⁵ However, revisions of OSP procedures would probably speed up expenditures since the French Government, for example, normally pays some in advance on its contracts, and payments would probably exceed the estimated U.S. rate of 15 percent for the first twelve months. Mr. Schelling said that it was his understanding that the 15 percent estimate made by Defense on the basis of its contract experience in the U.S. was an overall average including long lead-time items and that if the U.S. is procuring primarily spare parts and ammunition in Europe it would probably be wise to examine what the normal rate of payments were in the U.S. on these particular items. Lt. Levy-Hawes said that there was already an assumption of payments as high as 40 percent during the first year on some of the OSP items. Mr. Schelling recalled that Colonel Van Syckle had once said that most of the contracts for OSP placed in FY 1952 would not run for more than a year or a year and a half. Consequently, Mr. Schelling said that the entire $500 million program for OSP in FY 1952 might be expended before the end of 1953 and therefore the impact in 1953 would be much greater than originally estimated. He pointed out that in the present MSA figures under consideration it looked as though only about 10 percent of the $1 billion for FY 1953 would be expended during that same period.

5. Following further discussion it was agreed that:

(a) A reinvestigation would be made of the rate of expenditures on OSP contracts, and that further discussion of accelerated payments would be deferred.

(b) Defense and MSA should undertake further consideration of the military expenditures estimates. It was specifically requested that representatives from these two agencies meet following the discussions on Wednesday morning with the French clearing house officials, since those discussions will probably provide a firm basis for estimating all defense expenditures in Europe.

United Kingdom

6. Mr. Gordon said that U.K. presented a very real problem since it seems almost impossible to assume that projected level of expenditures for 1953 in view of the British estimate of their reserve losses during that period. He indicated that the aid for the U.K. would probably be the most difficult part of the program to present to Congress. Nonetheless, he indicated that if the figures projected by MSA for the U.K. were accurate, it would probably be necessary to plan an entirely different type of program for Britain. He also asked whether it would be practicable to present to Congress a program of defense support of which over 50 per cent of the European aid would go to Great Britain. Mr. Merchant said that he thought this should be possible since the British are making over ⅓ of the total NATO effort in Western Europe. Mr. Schelling raised the question of reconsidering the proposal made some time ago for an off-shore procurement program in Canada to buy for the U.K. those items for which the British would otherwise spend dollars. The Chairman also inquired as to the status of the proposal for purchasing in the U.K. munitions for American forces. Lt. Levy-Hawes replied that SusRep was being asked to investigate this possibility.

Following further discussion it was agreed that:

(a) The British would be contacted in Washington for their views on the U.K. defense expenditures and reserve position. The MSA figures will not be released to the British, but they will be requested to supply estimates on the same categories as those used by MSA. A cable will be prepared informing Mr. Batt of this action, and he will be kept informed on the progress of the discussions with the British.

(b) The proposal for procuring in Canada material for the U.K. for which the U.K. would normally spend dollars will be investigated, and the MAAG Chief in London will be asked to comment on this proposal and to supply information on the magnitude of such U.K. purchases in Canada.

(c) The Chairman will investigate the status of the “dove-tail” proposal for production planning between the U.S. and Britain.

(d) The status of the draft cable on the purchases of munitions in the U.K. for U.S. forces will also be checked.

Austria and Greece

8. Mr. Merchant replied that it was the view of State that $80 million in aid for Austria in FY 1953 would be insufficient. State also feels that the figure contemplated for Greece will have serious political repercussions in view of the large reduction involved and since such aid will barely maintain present standards and leave little room for further development of production. He conceded, however, that it was difficult to see how else the non-NATO aid for Title I could be adjusted. Mr. Cleveland said that this had been the dilemma faced by MSA. In the case of both Austria and Greece, it had been hoped that their internal demands could be lowered and their import requirements thereby reduced. In view of the limitations on available aid for FY 1953, he concluded that there was little hope of increasing the aid for these two countries. Mr. Merchant said that State had considered as minimum figures aid of approximately $120 million for Austria and $165 million for Greece. He stressed that he was not requesting a revision in the MSA projections but wanted to bring to the attention of the other members the political damage that would probably result from these levels of aid. Mr. Cleveland asked whether State considered that this size of aid would put Austria on a “post war disease and unrest” level. Mr. Merchant replied that the situation in Austria is extremely inflexible because of Soviet occupation forces and the consequent inability of the Austrian Government to take decisive action. Mr. Cleveland suggested that since Greece and Turkey are to be admitted to NATO, it would probably be best to show them in the NATO part of the presentation and thereby reduce the number of special cases from 5 to 3. Mr. Merchant and Mr. Gordon expressed agreement with this suggestion; and the latter added that if solutions to the British and French problems can be reached, it might be possible to program additional aid for Austria.

Italy

9. Mr. Merchant said that it was the view of State that defense expenditures of $1120 million would probably be the maximum feasible for Italy in FY 1953 and that $110 million in aid for the same period was recommended. He added that these recommendations were being made primarily on the grounds of budget deficits. Mr. Cleveland asked whether it would be possible to show aid in excess of the needs demonstrated by the balance of payments chart for Italy. The Chairman replied that the Italian question, as in other countries, was primarily one of utilizing total resources and that if the bottleneck for Italy is the supply of lira, the U.S. should not be restricted by figures which show a slight increase in Italian reserves. Mr. Harley said that he would question whether the budget deficits indicated are actually occurring. Mr. David Gordon pointed out that the Italian rate of expenditures runs far behind their rate of obligations.

10. It was agreed that the Italian country desk officers in State and Treasury would contact their counterparts in MSA for further discussion of this problem.

Norway and Denmark

11. The Chairman reported that the same considerations which prompted Mr. Harriman to request that $10 million in aid be set aside for Norway in FY 1952 would probably apply for FY 1953, and he also noted that there was the problem of dangerous comparisons between Denmark and Norway on the basis of such figures as those shown in attachment 4 of Mr. Cleveland’s memorandum of February 15, 1952. Mr. Merchant said that State had been considering a token amount of aid to Norway in FY 1953 although not in an amount as great as $10 million. He then briefly discussed the problem of Danish coal imports and the U.S. commitment to Denmark. Following further discussion, it was tentatively suggested by the Chairman that $5 million of aid be included for Norway for FY 1953.

Belgium

12. Col. Theilen reported that Defense was agreed in principle to the proposal for selling some U.S. end-items to Belgium. However, Defense feels that this proposal should not affect past end-item programs, and that we should seek payment up to the amount contained in the proposal only for those items programmed for FY 1953.

13. It was agreed that the Committee would meet again on Thursday morning, February 21, for further consideration of the problems connected with the FY 1953 program for Europe.⁶

1. The identity of the drafting officer is not indicated on the source text. The interagency Mutual Assistance Advisory Committee was established by a letter from MSA Director Harriman to Secretary of State Acheson on Nov. 1, 1951, as a successor to the International Security Affairs Committee (ISAC). For documentation on the creation of the Mutual Assistance Advisory Committee, see vol. i, Part 1, pp. 460 ff.
2. Not printed. (CFM files, lot M–88, “London–Lisbon, Secto–Tosec”)
3. For documentation on the Ninth Session of the North Atlantic Council at Lisbon, Feb. 20–25, 1952, see vol. v, Part 1, pp. 107 ff.
4. Reference is to telegram 4884 from Paris, Feb. 8 containing the text of a presentation made by the Embassy at Paris to the French Government outlining a projected program of $500 million in aid to France for fiscal years 1952 and 1953 based upon an assumption by France of a defense budget of 1225 billion francs. (751.5 MSP/2–852)
5. Not printed; it comprised a memorandum of Jan. 24 by John F. Hickman, Secretary to the Mutual Assistance Advisory Committee, entitled “Fiscal Arrangements for Offshore Procurement Settlements” and two papers prepared in the Mutual Security Agency on a proposal for the redistribution of dollar payments under offshore procurement. (ECA–MSA–FOA files, lot W–13, “MAAC Documents”)
6. For a record of the MAAC meeting of Feb. 21, see infra.