Foreign Relations of the United States, 1952–1954, Western Europe and Canada, Volume VI, Part 2

DMS files, lot W–1444, “FY 55 Program Estimates”

No. 564
Memorandum by the Officer in Charge of European Program Affairs of the Mutual Security Agency (Schelling) to the Assistant Director for Programs, Office of the Director for Mutual Security (Ohly)

secret

Washington, January 23, 1953.

• Subject: Administration of Aid to France, FY 54

There are three principal alternatives for the treatment of aid to France in FY 54, which I assume at the moment to be $500 million, exclusive of the regular end-item program for France or the military and economic programs for Indochina already contained in the Title III budget presentation.

The first, suggested in your letter to Lawton,¹ is to orient the program as far as possible toward the campaign in Indochina, including in the “campaign” the build-up of Associated States troops. The second, proposed in the recent memo circulated by Harlan Cleveland,¹ is to orient the whole $500 million (perhaps jointly with other OSP in France or for France) toward French production of military equipment. The third is to proceed as we have proceeded this year and last year, which is to orient the program toward total French requirements taking into account the Indochina campaign, French defense production, the French balance of payments, and all the other elements that have gone into the Congressional justification or the negotiation with France.

My strong a priori preference is for an exclusive Indochinese justification, with the funds to be authorized under the Far Eastern title of the Act, and probably with our negotiating philosophy corresponding closely to the aid justification. Briefly, the reasons why I prefer this approach are:

a. The Indochina situation seems to me a much stronger argument to the Congress than either a defense production or a balance of payments argument;

b. I believe we may accomplish more in our relations with France by identifying our aid with Indochina than by negotiating with France on the details of its production program;

c. I believe it would be difficult to develop a good French defense production presentation for the Congress, and I doubt whether we want in our negotiations with France to concentrate exclusively on the production part of their military budget and military activity;

d. A huge amount of aid to France, approximately equal to the aid given in the two preceding fiscal years, at a time when no EDC country is receiving any aid except for the Berlin program and Moody Programs, and the small Italian investment program, could be misunderstood both by the French and the other European countries unless quite directly related to the unique characteristic of France, namely, that France is conducting a Far Eastern campaign costing between $1 and $1.5 billion annually.

The above preference is a priori because it may prove difficult to develop enough information about the Indochina campaign to present the justification adequately to the Congress and, more seriously, because it may be quite difficult to find an administrative technique satisfactory to Congress that relates the funds directly to the campaign in Indochina. Procurement of equipment in France for the Indochina campaign is the most obvious technique, and one that has been used on a significant scale last year and will be used again this year; it is quite impossible that this technique could exhaust the $500 million. Last year about $125 million for the Lisbon program was of this type, namely, equipment procured in France for Indochina, and this year I understand that Defense anticipates real difficulty in finding more things for Indochina. The total French army budget for Indochina in 1952 only contained $350 million worth of equipment of all kinds for both French and Associated States forces, and “soft goods” including POL, clothing, bedding, textiles, raw materials, etc. barely raises the total to $400 million. The rest is pay and allowances—nearly $.5 billion—local construction, food and miscellaneous other costs. Even if we financed all equipment, soft goods and food, we should barely reach $500 million and have no room to move around within these categories. Although this conclusion is based on the 1952 budget, the budget for 1953 is not greatly different and we have no reason to expect that the budget for 1954 would differ markedly; I believe there may if anything be some slight reduction in the equipment component of the total budget.

Incidentally, the whole cost of Associated States forces in the French 1952 budget, including pay and everything else, did not quite reach $200 million; any notion that the program could be identified with Associated States forces in its entirety would be completely invalid.

The fact that total equipment barely reaches $350 million on the basis of the 1952 budget pretty clearly demonstrates that the program cannot be simultaneously identified with Indochina and with French matériel production; there is simply not enough overlap.

As far as I can see, we are left with two possible approaches to the Indochina orientation of the French $500 million. One is to follow an eclectic philosophy, using a variety of opportunities and devices that present themselves to reach the required total, more or less as we did last year and are doing this year, but perhaps with a few new programming devices accounting for some of the funds, perhaps not quite reaching the total and justifying the remainder on a different basis. The other is to keep the funds all lumped together under a single programming device, possibly a wholly new administrative device, and support it with a single justification.

The first approach would probably lead to something like a couple of hundred million dollars of Lisbon procurement, $200 million of MSA assistance with the counterpart being used for Indochina, $40 to $50 million of common-use type equipment shipped from the U.S., additional to what has already been proposed for Indochina, and another $50 million added to the defense support or common-use program for Indochina already contained in Title III with the counterpart of the defense support in piasters being devoted to the build-up of Associated States forces. If these latter two small pieces prove inconvenient, we might just split half and half between Lisbon procurement and defense support. I am not quite sure that Lisbon procurement related to Indochina could even reach half of the $500 million unless procurement were undertaken even more loosely than was the case last year, or than will be the case this year.

In looking for a new kind of device there are two points to keep in mind. One is that the exchange rate for the purchase of Indochinese piasters is notoriously disadvantageous to the purchaser with dollars; MSA has requested the NAC to look into this and to see if anything can be done to influence a change in the exchange rate; unless (which seems very doubtful) this situation can be remedied in the next few months, we should probably run into serious embarrassment with any program that required conversion of dollars directly into piasters to support either French Union forces or Associated States forces, and it might even cause embarrassment in connection with a defense support program for Indochina where the rate at which counterpart were deposited would be affected by the same consideration and would be involved in any discussion of budget support for the campaign in Indochina.

The second point is that unless it would look attractive to the Congress to help pay the troops fighting in Indochina, we can probably not use a financial technique that identifies our aid with a specific $500 million worth of things purchased. In other words, if we were to transfer $500 million directly to France to help cover the Indochina army budget, it might be better to present our aid as so much support to a total budget and not identify it with particular items in the budget adding up to $500 million.

Following up the last point, it might appear administratively ideal to have authority simply to transfer $500 million to France subject to overall performance in Indochina; I am afraid there is a strong probability that Congress would insist that the money appropriated be identified with things purchased. A financial transfer was once made to the EPU, but the EPU is an inherently financial institution and the capital fund could not sensibly be identified with commodities; otherwise, except for minor purchases of local currency that I understand are authorized in other titles, we always provide things rather than cash, as witness the Lisbon OSP procedure. The latest MSA proposal comes close to eliminating the connection between funds and commodities, but as I understand that proposal it would still involve identifying the local currencies bought with dollars with specific items procured by the European governments and would not simply be a cash subsidy to the total procurement budget, unidentified with items. The administrative attractiveness of eliminating the commodity content of the program for France/Indochina is certainly great enough to deserve real consideration; in my judgment the idea would be very risky and I would guess that this estimate is shared by the people who are better than I at estimating Congressional reaction. This leads us back to a traditional technique for administering aid to France, a technique that does not exclusively involve goods and services procured by the U.S. for shipment to Indochina but which uses something like MSA counterpart to permit us to finance at arm’s length those items in the Indochina budget which we do not want to be directly associated with in procurement.

The eclectic approach mentioned above meets this condition. It suffers one serious disadvantage, namely, that in most respects it would look so much like this year’s program and last year’s program that it might be extremely difficult to convince Congress that it really did represent a program in support of Indochina. Transferring the procurement portion to Title III would undoubtedly be of great advantage, but since that was done by Section 513 transfer last year and may yet, to some extent, be done again that way this year, the difference could appear to be only the difference between correct programming at the beginning of the year and revised programming during the year. In other words, we should have done the same thing three years in a row, first calling it economic aid, next calling it defense support for France, and finally calling it support to the campaign in Indochina. This is not to say that we could not greatly improve the presentation by concentration on Indochina; we should certainly go back to last year’s technique by imputing the counterpart to Indochina, rather than this year’s technique of putting it into French defense production; and we might even consider some special appropriations treatment for the “MSA” type aid to France to make it clear that it was half way between Titles I and III (although, unless we were careful, this might fix the figure too rigidly in Congressional action). It would still, I think, be difficult to make an impressive, coherent Indochina case when the programming contents were very little different from the two preceding years when that case was not strongly made but only incidentally adverted to. If we do this, we should certainly take advantage of all possibilities for procuring equipment or even certain respectable types of soft goods and of maximizing the common-use stuff sent directly from the U.S. so that only the minimum amount would be administered directly to France. The usual objections against loose procurement in France as was done under the Lisbon Agreement, by those who have to carry it out, could undoubtedly be somewhat mollified by a very candid explanation to the Congress of what we were doing and why. (Possibly the technique suggested by Harlan Cleveland, or some variant that deliberately permits more lenient procurement practices than should apply regularly to OSP, would be ideal and should be authorized if necessary or made clearly allowable by legislative history.)

One other possibility would be to put all of our eggs in a single basket and rely on a convincing presentation coupled with a traditional technique. We might administer the whole $500 million as defense support for France with the counterpart required to be applied to the Indochina budget, with the justification focused on Indochina, and with the clear intent to make the aid available in relation to Indochina with negotiations concentrating on Indochina and with the aid conditional on French continuation of the campaign in Indochina. This is probably the only traditional aid technique that has the physical capacity to carry the whole $500 million program. It suffers two defects; the first is that the aid might have to be appropriated as defense support rather than military assistance, and under Title I rather than Title III. The second is that it would look very much like this year’s and last year’s aid technique, only worse, because of the larger MSA share.

The first disadvantage might partly be met by some new legislative arrangement under which the French figure could be identified as different from Title I and more like Title III, or half way between, and by a jurisdictional arrangement under which MSA, although carrying out the administrative function, shared responsibility with Defense and State under DMS supervision. The second disadvantage would have to be overcome simply by presenting and reiterating the Indochina story, making it clear that the French connection resulted from the fact that the Indochina campaign is fought with the French budget and making it clear that our intentions were to relate the aid directly to the campaign in Indochina and perhaps—if these can be adequately developed—to some new developments in connection with Associated States forces.

This defense support/counterpart device is clearly more risky than the eclectic approach; it should be used only if (a) there is great faith in the cogency of the Indochina argument, (b) if adequate information on which to develop an Indochina story, (c) perhaps some new and distinctive legislative or administrative features, (d) determination to stick to the Indochina angle and not clutter up the presentation with French NATO or French defense production objectives which, however important themselves, would contradict the whole premise on which the presentation was based.

For immediate action, I suggest the eclectic approach be adopted for tentative programming purposes, with quantitative estimates being developed that maximize the Title III procurement component and on the assumption that legislative history or legislative action will take the taint off Lisbon-type procurement for Indochina. Simultaneously, information should be gathered and a document prepared about the Indochina campaign for the purpose of justifying any part or all of the program for the Congress. Third, we should keep in mind two possibilities mentioned above, namely, the defense support/counterpart technique and the Cleveland-type technique, as devices that might prove superior after further consideration of likely Congressional response. These two techniques do not seem to require immediate quantitative programming beyond the development of facts and reasons which would be necessary in any way to support the eclectic program.²

1. Not further identified.
1. Not further identified.
2. On Jan. 26, Schelling sent Ohly a memorandum which dealt with the various kinds of offshore procurement programs in France and enclosed a Department of State paper on this subject. (DMS files, lot W–1444, “FY 55 Program Estimates”)