21. Memorandum for the Files1
PARTICIPANTS
- The Secretary
- Mr. Ball
- Mr. Johnson
- Mr. Tyler
- Mr. Schaetzel
- Mr. Popper
- Mr. Conroy
- Mr. Blitgen
- Mr. Weiss
SUBJECT
- U.S. Contribution to NATO Infrastructure
Background
Secretary Rusk called a meeting on May 2 to discuss the U.S. share of NATO infrastructure costs and a proposed letter drafted in EUR replying to one from Secretary McNamara on this subject.2 Mr. McNamara had proposed that he send letters initiating bilateral discussions with selected NATO MODs to lay the ground work for obtaining a reduction in the U.S. cost share for NATO infrastructure. Mr. McNamara’s letter also made reference to his conversations with Mr. Stikker in which the [Page 45] Secretary of Defense had stated that the U.S. would contribute no new funds to infrastructure until the cost sharing formula is put on a more equitable basis.3
The proposed reply to Mr. McNamara agreed that a substantial reduction for the United States in future infrastructure cost sharing was in order. The letter took the line, however, that we should seek this reduction beginning with Slice XVII (1966) and that we should continue to provide funds as necessary to Slice XVI, with an overall ceiling of 50 million pounds ($140 million) at our current cost share of 30.85%. The proposed reply also cautioned against extensive pressure on the FRG at this time in order not to jeopardize current offset negotiations with the Germans. The letter further pointed out that it would be undesirable from a U.S. point of view for the Germans to become the major contributor to NATO infrastructure, thereby eroding or counteracting U.S. influence on this major NATO program. (End of Background)
The Secretary stated his concern regarding the high cost of infrastructure and the changed economic conditions both in Europe and the United States. He emphasized that our allies are not shouldering an equitable share of the overall NATO defense burden. He observed that the Europeans pay for no defense infrastructure here so he wondered why we should continue to pay for infrastructure in Europe. He was not sure the infrastructure principle for establishing cost sharing was “good enough”. He believed it necessary for the allies to take on more of the multilateral costs in the European area.
Mr. Tyler and Mr. Schaetzel agreed that the allies should assume a greater share of the NATO defense burden. They pointed out, however, that the issue at the moment is how to handle the short term problem of funding Slice XVI. They believed that any serving of an ultimatum by the Secretary of Defense on the allies which threatened to contribute no new funds to Slice XVI would seriously jeopardize our longer term interest in the program and would be thoroughly disruptive within NATO generally.
The Secretary pointed out that we are in a “desperate situation” regarding our costs in comparison to those of Europe and that the allies “will not move unless we are harsh”. Unless the United States starts now it will be too late. He agreed with the Secretary of Defense that we should start negotiations now for a substantially reduced share and that our proportion should be not more than 25%. He said that politically, it would be of great advantage if we could get our cost share of infrastructure down to 25%. The Secretary said he was bothered by the tone of the proposed State letter to Mr. McNamara. Mr. Rusk felt that the possibility of a collapse [Page 46] in the infrastructure program if the U.S. contributed no new funds to Slice XVI was only one side of the coin. We should also consider that the other side of this coin is that the allies must have our consent for these programs. He asked again why the United States should pay for facilities in Europe when the allies do not pay for our facilities in the United States. It was explained that the infrastructure facilities are for support of the NATO forces in general, including our own. He was advised that there is a very small amount of NATO infrastructure in the United States at SACLANT headquarters at Norfolk. The concept of obtaining NATO funding for other U.S. defense installations within the continental limits is being considered, pro and con, in the interagency study on infrastructure soon to be forwarded for his approval. At this point the Secretary said he was less interested in having the Europeans share the costs here in the United States but he firmly believed that the Europeans should assume an increased share of the cost in Europe.
In response to numerous questions from the Secretary, Mr. Conroy and Mr. Blitgen described the composition and geographic distribution of the infrastructure program, the method and criterion for developing both the annual and long term programs, the timing involved, the cost shares and method for determining these shares, the financing of usership charges and the relationship of these charges to the infrastructure budget and the status of certain individual projects such as NADGE. Secretary Rusk asked what would be the effect of ending infrastructure. He was informed that this was a matter which had never really been seriously considered until now, that these infrastructure facilities formed a major system of fixed facilities in support of NATO combat forces, and that a cessation of the program would have very far reaching repercussions. The Secretary asked if the host country did not derive an ultimate economic benefit from the investment in facilities on its territory. If so he asked why the host country shouldn’t pay a larger share in anticipation of this benefit. Mr. Tyler and Mr. Weiss said that such an arrangement presumes that the facility would be withdrawn from NATO use, an eventuality we would be reluctant to concede in advance. Mr. Conroy and Mr. Blitgen also explained that in seeking to develop individual cost shares for a long term program, the contributive capacity of the individual nations, and the economic benefits of the infrastructure projects to the host nations are considered. Certain local costs such as public utilities services, access roads and land are contributed by the host nations and these costs are substantial. In the last analysis, however, the cost shares are determined by “horse-trading” at the conference table and these negotiations are usually arduous. If infrastructure projects were surrendered at some later date as no longer useful to NATO, a problem of determining the residual value of the facilities, i.e., how much the host nation should pay back to the other allies for obtaining full title to and use of the [Page 47] installations, would arise. This problem has not confronted the Alliance to date in any significant way.
Mr. Tyler and others emphasized that they were in fundamental agreement with the Secretary on the objectives of a reduced U.S. share. They felt the infrastructure program must be continued. The problem of an Interim Slice XVI had arisen after Mr. McNamara, on President Kennedy’s instructions, had informed Congress in June 1963 that we would renegotiate a new cost share this year, seeking a substantial reduction.
In this connection, Mr. Conroy pointed out that infrastructure has become the largest single item in the Military Assistance Program in Europe and the Congressional Committees therefore give it undue attention as another handout of grant aid, which it is not. The Secretary asked what progress had been made in removing the infrastructure item from MAP and transferring it to the defense budget. He was informed that Congress had been approached about this change. The Department understands, also, that for internal administrative reasons, DOD did not have sufficient time to make the change this year. Secretary Rusk hoped the change could be made.
It was pointed out that Interim Slice XVI is really a holding action which was designed to fill the gap until the NATO Force Planning Exercise and the general debate on strategy could be concluded. The NATO Military Authorities would then have a basis for formulating the next longer term infrastructure program and cost ceiling against which a new cost sharing formula could be negotiated. Secretary Rusk questioned Mr. Stikker’s ability to come up with an agreed strategy upon which to develop new military requirements. Mr. Popper observed that there has been some progress in the NATO Force Planning Exercise.
Secretary Rusk again alluded to the unfavorable situation which the United States faces and stated that the U.S. still bears a disproportionate share of the defense burden. He said he was in sympathy with the McNamara position expressed in the Sec Def letter. Mr. Weiss pointed out that, while as a matter of principle we should work for an immediate reduction, the amount saved for the U.S. in connection with Slice XVI, would be relatively small as compared to the next four-year program. Mr. Tyler said that the amount appeared to be no more than $5 to 7 million. The Secretary said he agreed that we should make a reduction in the next four-year tranche our primary objective and work towards that end. In order to facilitate that effort, and recognizing the greater financial implications of the four-year program, we should put the heaviest emphasis on this objective rather than on Slice XVI. He accepted the suggestion that bilateral conversations should be started now to lay the ground work for obtaining the longer term reduction. He concluded by asking that the proposed letter be redrafted, making his position more responsive to Mr. McNamara on this problem.
- Source: Department of State, Secretary’s Memoranda of Conversation: Lot 65 D 330. Secret. Drafted by Blitgen on May 14. The conversation was held in Rusk’s office.↩
- Neither McNamara’s letter nor the draft reply has been found.↩
- A memorandum of Stikker’s conversation with McNamara on March 18 is in Department of State, Central Files, DEF 4 NATO.↩