751G.5 MSP/11–954: Telegram
The Ambassador in France (Dillon) to the Department of State1
priority
1971. Repeated information priority Saigon 273. Ref: Deptel 1692, rptd 1875 to Saigon, Nov. 5.
1. Welcome opportunity comment on reftel. I note that although Dept’s framework for consideration Indo-China aid problem is comprehensive in terms of the factors bearing directly on Indo-China, it omits mention of other equally relevant factors, e.g., possible effects of such a decision on overall 1955 budget prospects, NATO goals, etc. Accordingly, while Part I below is limited to direct comments on contents reftel, Part II attempts analyze effects Dept’s proposed position re 1955 aid on other factors referred to above. Part III contains Embassy’s overall conclusions.
Part I
2. I suggest that if point numbered 3 is adopted as final U.S. position, it be presented first, followed by a statement on 1954 aid, and that in addition to statement we are prepared to finance in 1955, [Page 2226] through our direct aid to A.S., French cadres serving with national armies, we also indicate to French that we prepared to agree to their utilization of remaining counterpart pipeline (from FY 1953 and prior aid to France) in connection with FEC budget in 1955. This would not involve any new dollar aid but would supplement presently foreseen 60 billion franc contribution in CY 1955 from French financial resources by an additional approximately 15 billion francs.
3. On point numbered 2 of reftel, however, I foresee very considerable difficulties, with possibly serious political repercussions, if U.S. does not carry through as originally envisaged $400 million aid program for FEC in 1954 budget year. I see nothing to be gained by opening the debate that certainly would follow statement to French along lines first sentence point numbered 2. Fact is that U.S. memo of April 26, 1953,2 which is basic document regarding $400 million commitment, did not contain an escape clause such as was included in Sept. 29, 1953 exchanges of letters regarding additional $385 million in aid. While U.S. may have technical grounds for a legal argument that we not bound continue aid after end Indo-China war, French would strongly resist such an interpretation as contrary to spirit of April 1953 memo, especially if only advanced at this late date. French are, we believe, prepared agree that reductions in FEC equipment and matériel costs (through non-placement or cancellation of contracts) should operate to reduce $400 million aid figure, and this should be formally proposed to them. As regards principle of $400 million program, I believe that on grounds of policy and equity we should continue reimburse eligible 1954 expenditures up to an amount of $400 million (less, of course, contract savings), including, as provided for in March 1 memo understanding,3 expenditures obligated before Dec. 31, 1954 but effected during 1955 “periode complementaire”. This recommendation assumes that total FEC expenditures in 1954 budget will, as French claim is case, equal or exceed original estimates (approximately 290 billion francs), and that French contribution from own resources will remain as presently budgeted.
4. French 1954 Indo-China budget was based by French in good faith on certain aid undertakings by us, and it was impossible for French substantially to reduce FEC expenditures in six months immediately following the Geneva Armistice. If, as we expect they will be, FEC expenditures in 1954 budget are equal to or in excess of original estimate of 290 billion francs (less contract savings), and if U.S. were to refuse to reimburse its agreed share of expenditures, thus leaving French with payments not covered by expected receipts, French Government would feel it had legitimate grounds for maintaining that U.S. had broken its word.
[Page 2227]5. In view recommendations set forth above on 1954 aid, and in view extreme difficulty in making worthwhile calculation at this time, we are not attempting to estimate amounts referred to in items (a) and (b) of penultimate para of reftel. However, as indicated above, total of (a) and (b) will be extremely close to $400 million. Since we believe we should fulfill our commitment, $400 million less possible contract savings and less payments to date ($119 million—a figure which would be considerably larger except for the FOA slowdown) would in our view be only reasonable lump-sum settlement. However, we consider that it would be in U.S. interest to make reimbursements only as they come due under March 1 memo procedures. This, among other reasons, because it lessens short-run pressure on U.S. Treasury and because existing procedures assure adequate expenditure documentation for accounting and GAO purposes. Our comments on items (c) and (d) of penultimate para of reftel follow below.
6. As regards (c), obviously, if there is no 1955 aid we lose one of our principal levers in influencing French Indo-China force levels and the timing of FEC phase-out in these circumstances. We cannot be certain of French reaction, but we believe that unless the Vietnamese Government (over which we presumably will continue to have substantial influence) were to request an earlier withdrawal of FEC, French in pursuit of their own interests will maintain it at some reduced level during 1955. Indeed, complete withdrawal on an orderly and economical basis does not appear to be feasible much before beginning 1956.
7. As regards (d), termination of aid will certainly not enhance French cooperation with U.S. in Indo-China program; however, aid consideration is only one factor among many which bear on this problem, and there are latent conflicts over such questions as makeup of Vietnamese Government, nature of aid coordination machinery, need for holding 1956 elections, and best way to deal with Viet Minh which can lead to French non-cooperation, even though aid were continued. (Should note here it also seems likely if there is no U.S. aid for FEC in 1955, French will reduce or eliminate their proposed economic aid to Associated States.) Aid termination would, however, provide additional ammunition to leftist or neutralist opponents of U.S. policies, even though in principle such elements object to concept of military defense of Vietnam which FEC signifies.
[Here follows Part II containing a detailed analysis of the relationship between United States aid to France for operations in Indochina and the French budget as a whole.]
Part III—Conclusions
19. In view of past commitments, and in order to make decision re 1955 aid as palatable as possible to French, U.S. should reimburse [Page 2228] French for eligible expenditures under 1954 Indo-China program up to a total of $400 million, subject to caveats set out in para 3 above.
20. Re question of 1955 aid to FEC, after weighing financial and political considerations applicable to metropolitan France, we conclude that position Department is now considering is justified. Certainly, there is no economic justification (balance-of-payments or budgetary) for any such aid. Above analysis accepts Department’s view that on military grounds there is no justification for maintenance of FEC forces in Indo-China at a level which would exceed France’s own financial capabilities.
21. On political grounds, there remains a possibility that a negative decision re new aid, by adding to Mendes’ problems with Parliament over the 1955 budget, could endanger life of government. There is also risk that French cooperation with U.S. in development various programs in Indo-China would be lessened by a decision to grant no aid in 1955. Of course, we should not overlook possibility that adroitly timed aid offer could be used as positive incentive to obtain FEC force reduction. These broader political factors give us cause to hesitate before ruling out all aid, and should be carefully considered by Department. If after reconsideration Department concludes broad political factors make it essential that some aid be given, we would recommend following formula. After 1954 FEC program completed and after planned 60 billion franc French contribution to FEC in 1955 entirely expended, U.S. might match additional French contribution franc for franc up to total U.S. contribution of 35 billion francs including remaining counterpart, accruing in 1955 (estimated to be $40 billion). (In any case, we recommend that this counterpart, which is French-owned, be made available to France to supplement France’s own FEC contribution.) This would allow for 130 billion franc FEC program and would help Mendes with his parliamentary budget problem. Offer should of course be accompanied by statement that unless circumstances greatly changed there would be no U.S. aid in 1956.
22. Much will depend, of course, on how decision, negative or otherwise, is presented to French. We would hope aid questions could be kept separate from any prestige considerations arising from Mendes’ Washington visit and therefore hope that French will not raise it there. However, as Department aware, French under definite impression that Governor Stassen will come Paris not later than December 1 for renegotiation 1954 aid agreement and to give answer re French request for 1955. If this is not U.S. intention, French should be definitely so advised, so that they can raise question during Washington talks if they so desire.
23. In any case, I do not favor my discussing aid question with Mendes prior to forthcoming talks in Washington.
- This telegram was transmitted in three parts.↩
- See footnote 2, p. 507.↩
- Not printed.↩