protection, which formerly were in the Division of Investment and Economic Development, and the Division of Occupied-Area Economic Affairs. The policy matters thus transferred related to American property interests in Germany, Austria, Japan, and Korea, and the nationalization or expropriation of American property and interests abroad. Because of the substantial character of the claims and the high-level negotiations both with foreign governments and domestic concerns, it has become necessary to give added weight to these increasingly important functions, especially as they relate to claims and compensation.

RELATION TO THE FOREIGN SERVICE

Finally, I should like to say a brief word about the Foreign Service. I indicated earlier that we are dependent upon the Foreign Service establishments for facts regarding the economies of the other nations of the world.

We also depend upon this force to execute such arrangements as we make with other countries. During these days when our international government operations, and those of the American business community, are so substantial in amount, and when there is so little stability and certainty to be found, we must be able to count on a strong overseas force. While it does not come under my direct jurisdiction, I cannot over-stress the importance to good economic work of strong political officers here at home and competent and adequate representation abroad.

FUNCTIONS OF THE OFFICES IN THE ECONOMIC AREA OF THE DEPARTMENT

The functions discharged by each of the three offices in the economic area of the Department are outlined briefly as follows:

The Office of Transport and Communications Policy directs and coordinates the work of the Aviation Division, the Shipping Division, and the Telecommunications Division. This office and its constituent divisions are responsible for the coordination of all phases of international transportation and communications policy.

The Office of International Trade Policy directs and coordinates the work of the Division of Commercial Policy, the International Resources Division, the Petroleum Division, and the Division of International Labor, Social and Health Affairs. This office and its constituent divisions have responsibility for the development of the comprehensive United States trade program, aiming at the widespread reduction of trade barriers, employing the instrumentality of reciprocal trade-agreements legislation, and looking to the establishment of an international trade organization as a specialized agency under the Economic and Social Council of the United Nations.

The Office of Financial and Development Policy directs and coordinates the work of the Division of Investment and Economic Development, the Division of Financial Affairs, the Division of Economic Property Policy, and the Division of Occupied Areas Economic Affairs. This office and its constituent divisions are responsible for the formulation, coordination and implementation of foreign policy with respect to international financial affairs and economic development, as well as with respect to economic phases of the occupation of

Germany, Austria, Japan and Korea, and the liquidation and elimination of enemy external assets and economic influences.

PERSONAL SERVICES

For the work of the economic area of the Department we are asking for a total of 531 positions, or 12 fewer than were appropriated last year. In my opinion, we could not safely operate with less.

Mr. STEFAN. There is some increase there.

Mr. HALL. Largely Ramspeck promotions. There is a reduction of 12 positions.

Mr. STEFAN. I see. Proceed, Mr. Thorp.

PROGRESS OF WORK

Mr. THORP. During this last year there has been substantial progress made in connection with the establishment and implementation of international organizations and in connection with the work on commercial treaties and commercial policies. On the other hand, the economic situation in the world has been getting somewhat worse and we have had to devote a good deal of time to the development of programs for dealing with these conditions.

Actually, if one breaks it down by individual topics, you will find that in the field of air transport, something like 37 agreements have been concluded and there is much more order in that field than there has been before, although once agreements are established, they develop a good many continuing problems in their operation.

The same thing has been going on in the field of telecommunications where the postwar period left a good deal of disorder and now we are gradually getting it back into some kind of order again.

You may remember that last year I reported on the problem of developing lend-lease and surplus property dispositions and we now have carried that development to the point where we no longer have a separate division to handle these problems and the remaining functions have been grouped in the Division of Economic Property Policy.

ELIMINATION OF OFFICE OF ECONOMIC SECURITY

I think you will be interested to note that we actually have one less office than last year. There are now three Offices for Economic affairs instead of four. The one which has been eliminated was the one which worked particularly with the problems of occupied areas, namely the Office of Economic Security Policy.

Two years ago our budget had, I believe, something like 190 people working on these problems, particularly those having to do with what we call economic security that relates to German assets, Japanese assets, and the liquidation of those assets as they may have been found in other countries.

Now we have reduced this problem of the economic affairs in occupied areas and of foreign German assets around the world so that there are only 65 people in our group that work in that particular matter. The elimination of the office, of course, has tended to streamline our operation and increase its efficiency.

I can talk about these things indefinitely, Mr. Chairman.

GERMAN AND JAPANESE EXTERNAL ASSETS

Mr. STEFAN. Talking about German assets, how much do you have, for instance, in Switzerland? I believe I asked that question last year.

Mr. THORP. We have now an agreement with Switzerland.
Mr. STEFAN. If you find any money at all?

Mr. THORP. Yes; there are substantial German assets in Switzerland. They do not come to the United States, but there is an agreement with respect to which the Swiss have undertaken to liquidate them and a turn-over procedure to the Reparations Agency.

Mr. STEFAN. Please put in the record at this point how much you have discovered and developed as a result of this activity. Mr. THORP. I will be glad to provide that.

STATEMENT REGARDING GERMAN AND JAPANESE EXTERNAL ASSETS

In the Potsdam protocol of August 1945 the United States, United Kingdom, and Soviet Governments agreed that all German external assets should be liquidated. The purposes of this agreement were (1) to assure that Germany would not again be able to use her substantial foreign investments as aggressive weapons threatening world peace, and (2) to provide some small repayment for the damages and cost to the Allies attributable to the war.

In the Potsdam protocol the United States and United Kingdom renounced to the Soviets all interest in German external assets in Finland, Rumania, Bulgaria, Hungary, and appropriate German external assets in the eastern zone of Austria. The Soviets, in turn, renounced to the United States and United Kingdom any interest in all other German external assets. France, as one of the occupying powers, and, hence, bearing an equal responsibility on the security and reparations question, was subsequently included with the United States and United Kingdom in the settlement of issues involving German external assets not of concern to the Soviets.

Thereafter, an agreement was made at Paris on January 14, 1946 (the Paris reparation agreement), among the nations entitled to share the reparations allotted the United States, United Kingdom, and France. Article 6 (C) of the agreement provides that German assets in those countries which remained neutral in the war against Germany shall be removed from German ownership or control and liquidated or disposed of in accordance with the authority of France, the United Kingdom, and the United States, pursuant to arrangements to be negotiated with the neutrals by these countries. The net proceeds of liquidation or disposition are to be made available to an interallied reparation agency for distribution on reparation account.

Pursuant to this agreement, the United States, United Kingdom, and France signed an agreement with the Government of Switzerland in May 1946. The agreement provides for the liquidation of German assets under the supervision of a joint commission composed of representatives of the four signatory Governments. Of the proceeds of liquidation, 50 percent are to accrue to the Swiss in partial satisfaction of certain legitimate claims against Germany; the remaining 50 percent are to be placed at the disposal of the three allies, which, in turn, will deliver them to IARA. The agreement also provided for compensation in reichmarks to the German owners of the properties. The Swiss Government has taken the position that it will not implement the agreement until a rate of exchange has been fixed between the Swiss franc and the reichsmark, and payment of compensation made to the German owners of the properties. The allies have disputed this position. Recent developments encourage the hope that the deadlock will be broken in the near future, and that liquidation of assets and distribution of proceeds will begin.

A similar agreement was reached by the three allies with the Government of Sweden in July 1946. Under this agreement, the Swedish Government appropriated 150,000,000 kronor (approximately $40,000,000) to the three allies, to be used in imports from Sweden for prevention of disease and unrest in Germany; 50,000,000 kronor for the intergovernmental committee on refugees for rehabilitation and settlement of nonrepatriable victims of German action; and 75,000,000 kronor for other countries signatory to the Paris reparation agreement. The Swedish Government has proceeded with an orderly and satisfactory program of

liquidation. It has also made available the aforementioned appropriation to the three allies. Thus, the United States is now using, for the support of the German economy, $17,000,000 in credits in Sweden. Negotiations for the same purposes were initiated with the Government of Portugal in September 1946 and with the Government of Spain in November 1946. Negotiations with both of these countries are now in a stage where it appears likely that an agreement will soon be reached for the liquidation of all assets, and for the distribution of the great majority of the proceeds to IARA. Under an agreement reached last year, the Spanish Government surrendered possession to the three allies of German official property valued at approximately $8,800,000; this amount will be distributed immediately upon signing of an agreement with the Spanish Government on German private investments.

Pursuant to resolutions at various inter-American conferences, the other American Republics have virtually completed their programs for the liquidation of German assets. A special commission of the Inter-American Economic and Social Council prepared a set of recommendations on the ultimate disposition of the assets. Among these was a recommendation that all of the countries would pool the German assets, that each would remove from the pool assets to the extent of certain types of claims against Germany, and that any remaining surplus would be devoted to relief and rehabilitation of war-devastated areas. This recommendation was rejected by the majority of the countries. Thus, it appears unlikely that any part of the German assets in the other American Republics will be available for purposes other than compensation for war damages and cost. The same appears likely with regard to all other countries.

Thus, with the exception of domestically situated German external assets, the only definite source of reparation from external assets is from those located in the neutral countries. The most recent estimate of those assets and of the return to this Government is as follows:

The

Under the Paris reparation agreement, the British Government will receive an amount identical with that of the United States, and the French slightly less. remaining signatories to the agreement will receive small percentages.

This Government has advocated the liquidation of Japanese external assets. These assets are much smaller in amount on a global basis than the German assets, and have been liquidated by practically all countries except the neutrals. Plans for dealing with the Japanese assets of the neutrals are now nearing completion, and, if successful, will indirectly yield a substantial benefit to this Government.

OFFICE OF UNDER SECRETARY FOR ECONOMIC AFFAIRS

ADEQUACY OF PRESENT PERSONNEL

Mr. STEFAN. Mr. Secretary, I understand that the Office of Under Secretary for Economic Affairs was established primarily for the purpose of promoting international trade agreements which are now being consummated at Habana, Cuba. Since the position of Under Secretary has been vacant for several months, do you not believe the Office of Economic Affairs can get along without the present staff of 21 persons assigned to the Under Secretary's office?

Mr. THORP. Mr. Chairman, that is the office which was held by Mr. Clayton. I do not think it would be a fair statement to say that it was established for the purpose of the negotiation of the charter,

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and so forth. It was established because when Mr. Clayton was Assistant Secretary for Economic Affairs, the burdens on him were so great that it was felt necessary to have two individuals who could qualify as having been approved by the Senate and therefore could represent this Government in situations requiring such designation. Mr. Clayton as Under Secretary, and I as Assistant Secretary, worked together on the various economic problems. Mr. Clayton has, as you indicate, resigned and that position is now vacant. The positions that were immediately related to him were, of course, his secretary and his chauffeur.

We have already eliminated the chauffeur from the budget, but the remaining positions were positions, having to do with the work of all the economic offices. The individuals who operate what we call our message center were attached to Mr. Clayton's office because they served everyone in the three offices and both Assistant Secretaries. Those positions represent work which will have to be done whether or not the Office of Under Secretary is filled.

CONCEPT OF ECONOMIC ACTIVITIES OF THE DEPARTMENT

Mr. STEFAN. What is your concept of the economic activity of the State Department?

What I want is your own concept of economic activities in the entire Department. I have asked other witnesses who have testified here, justifying appropriations, about economic work here and economic work there.

Mr. THORP. Mr. Chairman, a great many, perhaps the largest number of foreign policies and problems today, have their economic aspects. It is necessary that we treat these various problems consistently as they may relate to various countries. It is also true that throughout this Government and in international organizations, the organization for dealing with these problems is in terms of the problem itself rather than the geographic area covered. Therefore I regard our economic activity in the State Department as working with the political officers when the problems relate to particular areas, but trying to make sure that the treatment of any economic matter is done consistently regardless of the area; also to see that it is done with a close relationship to whatever branch of the Government outside the State Department might be concerned with the problem, such as a shipping agency, the Department of Commerce, the Treasury, the Export-Import Bank-all these agencies outside the Department touch on problems that relate to all parts of the world, but relate to specific economic functions in themselves.

Mr. STEFAN. With respect to why the Department is deeply involved in economic and commercial activity, you partially answered that but I would like to know if you can expand on that.

Mr. THORP. I do not think that it is a matter of choice. It is because the problem of our foreign relationships with other governments throughout the world is so largely economic at the present time that we cannot escape from the fact that our visits from ambassadors. the aides-memoire of the problems that are brought before us, are very largely economic in nature.