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. 254
Mutual Assistance Advisory Committee Draft Minutes of Meeting, February 21, 1952, 3–6 p.m.¹

secret
[MAAC M–13]

Washington, February 26, 1952.

Present:

• Office of the Director for Mutual Security

  • Mr. Gordon, Chairman
  • Mr. Cabot
  • Mr. Schelling
  • Mr. Wolf

• Department of State

  • Mr. Merchant
  • Mr. Barnett
  • Mr. Cowan
  • Mr. Jacobs
  • Mr. Kranich
  • Mr. Margolies

• Department of Defense

  • Col. Van Syckle
  • Col. Thielen

• Mutual Security Agency

  • Mr. Cleveland
  • Mr. Baum
  • Mr. Gordon
  • Mr. Stettner

• Department of the Treasury

  • Mr. Hebbard
  • Mr. Harley

• Bureau of the Budget

  • Mr. Nelson
  • Mr. Hirschberg

• Secretariat

  • Mr. Christensen

• Office of Defense Mobilization

  • Mr. Rock

FY 1953 Presentation Problems

Germany

1. The Chairman reported that an emergency issue had arisen in connection with Germany. According to reports from Bonn, the German Cabinet is vigorously opposed to the recommendation by the TCC Executive Bureau² of an 11.25 billion DM defense contribution by Germany, with this figure to include those expenditures for “defense purposes” in Berlin. According to reports from Mr. Harris, there was a possibility that the German Cabinet might make a decision by that night on the German contribution.³ The Chairman said that there were three main questions involved: (1) whether the 11.25 billion DM contribution was exclusive of counterpart, (2) whether the Germans are expecting U.S. aid for a defense contribution of this magnitude, and (3) whether there was sufficient time to indicate to the Germans the amount of aid that we intend to request from Congress for them in order to use the aid figure as a bargaining factor in securing the size German defense budget that we desire. Mr. Margolies said that another question was that of Berlin. The Germans have contended that the expenditures for Berlin should be counted as part of the defense contribution. If Berlin is excluded from their defense contribution, the question then arises as to who will pay for the support of Berlin.

2. The members then discussed in detail questions relating to the composition of the German defense budget, the use of counterpart funds for Berlin support requirements, and the question of using U.S. aid for FY 1953 as an immediate bargaining factor with the Germans. It was agreed that representatives of State and MSA should prepare a draft cable reflecting the views of the Committee for consideration prior to adjournment. The draft prepared was considered at the close of the meeting and as revised was approved for transmission to the field. (Note: This cable was sent to HICOG in Bonn as niact 1696, February 21, 1952,⁴ and repeated for information to Embassy Paris as number 4969).

3. Immediately preceding adjournment, Mr. Harley reported that it was his understanding that Defense is proposing to take $30 million from the U.S. Treasury Surplus Property Funds for use in the rehabilitation of end-items in Germany which would be distributed in Europe as part of the U.S. end-item program. Consequently, this proposal may involve an additional $30 million in available funds for Germany. Mr. Margolies said it was his understanding that the surplus funds have already been committed for a different purpose. Mr. Hebbard said that under these circumstances Defense would be buying $30 million worth of DM’s if they go forward with this proposal, and Mr. Harley noted that Defense is apparently planning to spend these funds within the next several months. The Chairman indicated that he would contact Defense for the details of this proposal and report to Mr. Harriman as soon as possible in view of the direct effect it would have on German aid requirements.

Military Expenditure Figures

4. The Chairman inquired as to the status of the re-examination of the military expenditure figures. Col. Thielen said that Defense still feels that the figures discussed earlier in the week are the best available at this time. Mr. Cleveland said that MSA was still dissatisfied with the figures but that they had no facilities available to prepare better ones. He added that the trade adjustment figure will be worked into the internal accounts tables instead of showing it as a one line adjustment at the end. The total adjustment, he continued, will probably be about $200 million instead of the $300 million originally estimated. Mr. Baum reported that the Working Group had not yet completed its analysis of the defense expenditure figures but that there has been some discussion of sending the present figures to our country team in France for a spot check. Mr. Cleveland indicated that such a spot check would be undertaken under the terms of an agreement reached with Assistant Secretary McNeil of Defense in order to check the discrepancies between the Defense estimates and those of the French on the amount of U.S. expenditures that actually accrue to the French Government. Mr. Merchant asked whether the $100 million now available through the reduction in the trade adjustment figure would help to cover the gap in country aid funds. Mr. Cleveland said it would help somewhat, and Mr. Baum pointed out that the adjustments would be largest in the countries that need aid the most.

Changes in MSA’s Projections of Title I Defense Expenditures and Aid

5. A memorandum from Mr. Cleveland to the other members of MAAC⁵ was circulated recommending changes in the MSA projections for Title I. The following changes were suggested: France—defense expenditures increased from 3,700 to 3,800 and aid reduced from 400 to 380; Italy—aid increased to 110; Netherlands—aid reduced to 80; Norway—aid increased to 10; the U.K.—aid reduced to 639.

6. With reference to France, the Chairman said that the question of defense expenditures was a most serious one. He pointed out that the FY 1953 program was supposed to be ready by March 4; and although there may be some slippage in this date, it will be necessary to keep it to a minimum. He pointed out that the French problem must be solved very quickly and asked what effect the lack of a definite figure for France would have on the other Title I figures. Mr. Cleveland said that the French case might not be as difficult as originally thought since the only factor affected on the translation of the defense expenditures into forces would be their state of readiness. Mr. David Gordon pointed out that one factor that reconciled the difference between the French defense expenditure figures was the allowance for inflation of 40 billion francs in the French budget. Although the French estimates are on the price basis of 1951–1952, the Chairman noted that they are already considerably above this level and are expected to rise even more. Consequently, this may be a serious factor in the presentation to Congress. He asked what MSA’s timetable was for the preparation of its final figures. Mr. David Gordon said that it would be necessary for MSA to complete its figures by the first week in March. Following further discussion, it was agreed to postpone further consideration of the level of French defense expenditures and U.S. aid to France until the following Monday (February 25).

7. With reference to Italy, Mr. David Gordon reported that the Working Group at its meeting on February 19 had discussed the Italian situation and had arrived at the unanimous conclusion that from a political standpoint and from the point of negotiations, Italy’s aid should be increased by $35 million through reductions in aid for France and The Netherlands. It was also agreed to reduce Italy’s defense expenditures from $1,120 million to $1,075 million. Mr. Kranich asked whether it was considered wise to reduce any of the defense expenditure figures below the levels recommended by the TCC. The Chairman replied that the main purpose in a reduction is to have the figures closer to reality and prevent giving an overly optimistic picture of what can be expected from aid. Moreover, the recommendation of the TCC Executive Bureau for Italy was made with grave doubts, particularly on the part of the French and British members. He said that he did not feel the U.S. should take a rigid position that these figures developed in December were completely right. Mr. Hebbard asked whether the estimate of an increase in Italian reserves assumes a change in Italy’s EPU position and whether that change was reflected in the figures for the other countries. Mr. David Gordon reported that these changes would be worked out in the MSA tables, U.S. aid for Italy will be used to increase imports and for development programs thereby helping Italy to achieve a balance in the EPU.

8. With reference to Norway, Mr. David Gordon reported that $10 million was the minimum feasible amount of aid; and, therefore, an increase of $5 million had been recommended.

9. With reference to the U.K., the Chairman indicated that he would like to have an aid figure no higher than $600 million aid if possible to use the remainder of the aid contemplated for procurement in Canada for the U.K. Mr. Cleveland reported on the results of the conversations held with representatives from the British Embassy in which the questions of the U.K. defense expenditures and the decline in reserves were discussed. He reported that a cable had been sent out (Musto 225, Feb. 20)⁶ on the results of the conversations but that in view of the lack of information at the Embassy it had been decided to send a U.S. representative to London the following day for discussions with the British. On this basis, it is hoped that the necessary facts and the assumptions of the British will be available by the middle of next week (February 27). He reported that in a conversation with Mr. C. Tyler Wood the latter had indicated that aid for the U.K. should not be more than one-half of the total for Title I and that if possible we would not show a decline in the U.K. reserves for 1953. He said that the net result will probably be a reduction of the deficit for the U.K. shown in MSA’s figures and that some of the deficit will be covered by aid. An additional problem he concluded will be the length of time necessary to build up the pipeline to the U.K. as a result of recalling aid.

10. With the above reservations on the U.K. and France, the following revised projections were approved by the Committee:

	(In millions of dollars)
	Defense Expenditures	Defense Support
France	3,800	380
Italy	1,075	110
Norway		10
United Kingdom		639

Belgium

11. The Chairman recalled that at the meeting of February 18⁷ Defense had agreed to the proposal for selling to the Belgians a portion of the end-items which will be programmed for them in FY 1953, with the reservation by Defense, however, that such a proposal must not lead to a position where all U.S. end-items would be cut off for Belgium. The Chairman indicated that the figure proposed might be too high but that a specific proposal should be developed for presentation to the Belgians. He recalled that the U.S. has already indicated that it would not program end-items which the countries can procure in Europe. Col. Thielen said that this was true but that it is necessary that there be specific production in being before we refuse to program such items. He reported that JAMAG and the MAAG in Belgium had started a thorough screening process on the Belgian end-item program several weeks ago. He pointed out that it is particularly difficult to find essential long-lead time items already in production and available. Mr. Cleveland said that procurement by the Belgians in Europe would have the same effect as the proposal to sell U.S. end-items but that it will require considerable initiative to achieve the desired results and there will be a greater chance of success if the U.S. pushes its proposal. Mr. Kranich said that another possibility arises from the indication in the Belgian response to the TCC Report that their production of some items will taper off in FY 1953 and 1954. If requirements are accelerated, it will be necessary to increase obligations in those years; and he said we should make certain that we do not supply these types of goods. Col. Thielen pointed out, however, that Belgium has already brought its forces to a higher state of readiness. Mr. Barnett said that the country desk and regional level officers in State were in agreement that the U.S. bargaining position would be very weak in the event of a showdown with the Belgians. Moreover, negotiations on the proposal would probably take many months and the U.S. position will be dependent upon the willingness of Defense to suspend end-item deliveries if the Belgians refuse our offer.

12. Mr. Hebbard said that it was impossible to separate this proposal from the EPU and recalled Treasury’s reservations concerning the latter. Treasury’s position is that the U.S. should not put any more dollars into the EPU and he also expressed concern over making definite assurances on the amount of offshore procurement planned for Belgium in FY 1953. He asked whether the Belgians would actually achieve the additional effort recommended by the TCC through this proposal. The Chairman replied that in effect the real Belgian effort would be higher. He said the result would be the same as if the Belgians bought $360 million of end-items in Europe thereby relieving the U.S. of this burden and leaving us free to use this sum for other aid purposes. Mr. Schelling said that the proposal really amounts to the Belgians buying equipment in the U.S. with the U.S. taking payment in “EPU’s” which could be spent in Europe for other European countries.

13. It was agreed that MSA would develop a draft negotiating paper on the proposal for selling some end-items to the Belgians, in consultation with Treasury, Defense and State. On completion of an agreed draft, it will be forwarded to Ambassador Draper and the Belgian Country Team as a draft instruction for their comment. It was also agreed that the legal advisors would be consulted with reference to the legal authority for spending Belgian francs in connection with the proposal.

1. The identity of the drafting officer is not indicated on the source text.
2. For documentation on the Temporary Council Committee of the North Atlantic Treaty Organization, see Foreign Relations, 1951, vol. iii, Part 1, pp. 1 ff., and ibid., 1952–1954, vol. v, Part 1, pp. 203 ff.
3. For documentation on negotiations regarding the contribution of the Federal Republic of Germany to the Western defense effort in 1952, see ibid., pp. 107 ff.
4. Not printed; it stated that officials of the Federal Republic of Germany might be told that U.S. economic aid for Berlin would be forthcoming from a number of hitherto unemployed sources in order to offset proposed increases in the budget of the Federal Republic due to an assumption of new defense burdens under the European Defense Community. (740.5/2–2152)
5. Not specifically identified from Department of State or Mutual Security Agency files. Presumably it was a further elaboration or comment upon Mutual Assistance Advisory Committee document MAAC D–4 of Nov. 29, 1951 entitled “Review of FY 1952 Economic Aid Commitments and Requirements—Title I and Review of FY 1953 Economic Aid Programs for Europe.” (ECA–MSA–FOA files, lot W–13, “MAAC Documents”)
6. Not printed; this three-page telegram dealt with problems encountered by the MAAC in devising a suitable aid program for the United Kingdom in fiscal year 1953 and included summaries of conversations between MSA officials and members of the British Embassy at Washington. (741.5 MSP/2–2052)
7. For a record of Feb. 18 meeting of the MAAC, see the minutes, supra.