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REPORT BY THE DIRECTOR MUTUAL SECURITY

AGENCY 1

TUESDAY, APRIL 28, 1953

UNITED STATES SENATE, COMMITTEE ON FOREIGN RELATIONS, Washington, D.C.

The committee met, pursuant to notice, at 2:30 p.m., in the Foreign Relations Committee room, U.S. Capitol, Senator Alexander Wiley [Chairman] presiding.

Present: Senators Wiley [chairman], Smith of New Jersey, Hickenlooper, Tobey, Taft, Langer, Ferguson, Knowland, George, Green, Fulbright, Gillette, and Mansfield.

Also present: Mr. Tighe Woods and Horace Smith, Liaison Division, State Department; Dr. Wilcox, Dr. Kalijarvi, Mr. O'Day, Mr. Marcey, and Mr. Holt, of the committee staff.

The CHAIRMAN. The committee will come to order.

We are very happy, Mr. Stassen to have you back safe from the jaws of Europe.

We understand you have something very interesting to tell us, so carry on in your own way.

STATEMENT OF HON. HAROLD E. STASSEN, DIRECTOR,

MUTUAL SECURITY AGENCY

Mr. STASSEN. Thank you, Senator, and gentlemen of the committee. In responding to your invitation, I will make a brief opening report and then respond to your questions.

THE NATO MEETING A SUCCESS

I, of course, report to you from the standpoint of the mutual security program, on the meeting of the North Atlantic Treaty Organization, which has just been held on April 24, 25, and 26, in Paris.

Let me say, first of all, that it is my view that this session was a solid success; that it marked a significant advance toward the mutual security objectives of our country, and established a sound base for further progress in the combined military strength build-up of the free nations of the Atlantic Community.

May I say that one of the major reasons for its success, in my judg ment, was the able affirmative participation of the Secretary of State of the United States. John Foster Dulles, who personally chairmaned and spoke for the U.S. delegation throughout the conference.

1 See note, p. 289.

I understand that you will hear the report tomorrow from him, and he will, of course, discuss with you the foreign policy questions involved.

I will speak of the specific operation of the mutual security program in relation to this NATO meeting.

There were six definite results obtained in this regard:

CONTRACTS FOR JET AIRCRAFT

The first was the signing of contracts for the long-term production of the very best type of modern jet aircraft with substantial participation of a number of NATO members in both the payment and the production. The United States commitment is entirely within the previously granted appropriations and previously approved programs of the Congress for offshore procurement.

Senator SMITH of New Jersey. Let me ask you, in connection with that offshore production over there

Mr. STASSEN. The production over there is on a combination of orders from us, and other countries.

These are the models of the ships.

This one on the left there is the British Hunter Hawker, and this has been evaluated by our Air Force as just one of the top planes in the world today, and is just going into production, and under this combined contracting that we worked out, the Belgians are buying some of them with their own funds; the Netherlands, some with their own funds; Britain, some with their own funds, and some with our offshore production; so we combine these various contracts and put them in one large contracting approach under which they will be built in England, Belgium, and the Netherlands, with combined participation on engine and component parts and airframes, and we feel that it is, from a production and a military standpoint, the kind of a matter in which you get the best production basis and the best economical results and topflight combat aircraft for the combat forces.

The other plane is the Mystere IV, which is a French plane. Here again it has been evaluated by our Air Force, and their evaluation is that it is just a topflight plane.

Senator HICKENLOOPER. We have heard of a different type of record for that one.

Mr. STASSEN. You heard of the Mystere II; the earlier model was not good, and one of the first things I did last February was to see that we did not continue to spend any money for anything unless our Air Force evaluated it to be topflight, and any partial commitments of that type, we wanted to liquidate them and get them out of the way, and make new contracts on planes our own Air Force would evaluate to be excellent.

Senator TOBEY. What about the cost of these planes?

Mr. STASSEN. These planes, the total contracts entered into are $559 million, of which the United States portion will be $260 million. Senator TOREY. What does that figure, per plane?

Mr. STASSEN. The detailed figures per plane I do not have. The Air Force can give you that in detail. I think that the earlier

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orders cost a little more, and as you get future years, they will cost less, as you project them.

Senator TOBEY. What is the title of the other plane?

Mr. STASSEN. The Hunter Hawker, a British plane.

Senator GILLETTE. What is the difference in the function of the two, or their purposes?

Mr. STASSEN. I would not attempt to give you the technical way in which they fight them, and so forth. That would be an Air Force matter, but our own Air Force has evaluated them and told us in February that they were just the very best of design and performance, and they tested them over there thoroughly.

Senator GILLETTE. Why the two types of plane, if they perform the same function?

Mr. STASSEN. They do not perform exactly the same function, they have different application; I don't know the exact details, but perhaps one is for high-level purposes and one for medium level. Senator TOBEY. Both are fighter planes?

Mr. STASSEN. That is my understanding, yes.
Senator TOBEY. How do they compare with the Migs?

THESE ARE FIRST RATE AIRCRAFT

Mr. STASSEN. They are supposed to be-I think when we get into the technicalities, you really ought to ask the Air Force officers, but I understand from our Air Force, if an occasion arose, where they had to fly some of them, they would feel quite happy about it.

In other words, these are more or less the cream of what has been developed. There are other planes over there on the drawing boards, in the testing stages, and so forth, that have bugs in them, but that is a different thing.

Senator TOBEY. That was an amazing proposition of my classmate, was it not?

Mr. STASSEN. Yes.

Senator HICKENLOOPER. What?

Senator TOBEY. Very poor taste, offering $100,000 to anybody to bring a Mig in.

Senator GILLETTE. Where did he get the money?

Senator TOBEY. Yes.

Senator GEORGE. He doesn't expect to get the Mig, probably.

WHOSE PROPERTY WILL THESE AIRCRAFT BE?

Senator GILLETTE. Another question, Governor: When these are manufactured, whose property are they?

Mr. STASSEN. Those that the United States pays for are U.S. property; and the anticipation is that they are then turned over to NATO forces, in this instance, some of these planes it would be anticipated would go to the German squadrons who would be a part of the NATO Force, which is projecting ahead, say, 3 years.

Senator GILLETTE. You spoke of the fact that out of the total cost, we would contribute a certain amount.

Mr. STASSEN. About half.

Senator GILLETTE. Does that amount to the entire manufacture of these planes, or were there some planes we were paying for in there, in their entirety, that would become our property?

Mr. STASSEN. In other words, there is a specific portion of the production in definite planes that becomes U.S. property, and it is planned that, if all goes well in Europe, and you get the German squadrons built up, the German squadrons would be equipped with some of these planes.

However, if something took a different turn, they could be taken into the U.S. Air Force. In other words, the title is in the United States until such time as we turn the completed product over to a European country for NATO Forces.

Senator GILLETTE. At our discretion?

Mr. STASSEN. At our discretion. It is part of the overall program requirement of the NATO Force.

WHERE WILL THE PLANES BE BUILT ?

Senator TAFT. Where are these being built? I am sorry to have missed the first part of your statement.

Mr. STASSEN. In Britain predominantly, and in Belgium, the Netherlands, and France.

Senator TAFT. Do they have factories in all those four places able to build planes like that?

Mr. STASSEN. No, Belgium and the Netherlands are only building parts of the planes. In other words, Belgium will do an engine building job, the Netherlands will do certain of the subassemblies, and final assembly with some of the parts coming over from Britain, but Britain builds the whole job.

BALANCE OF PAYMENTS AID

Senator TAFT. That $260 million we put in, do we pay that in dollars?

Mr. STASSEN. Yes.

Senator TAFT. Known as offshore procurement?

Mr. STASSEN. Yes.

Senator TAFT. They don't need the dollars, do they? They put their dollars in the treasury, and pay for the work and materials in the local currency, say francs or pounds.

Mr. STASSEN. It results in balance-of-payments support.
Senator TAFT. It results in $260 million in economic aid.

Mr. STASSEN. Not economic aid.

Senator TAFT. Why not?

Mr. STASSEN. They must pay out of their treasury for the production of these planes which are turned over to us.

Senator TAFT. But they pay out in francs or pounds.

Mr. STASSEN. Yes.

Senator TAFT. And keep the dollars for themselves, and it is equivalent to a gift of $260 million to help balance the payments; it is economic aid.

Mr. STASSEN. It is balance-of-payments aid, but it is not budget

In other words, it has one effect but not the other.

Senator TAFT. The whole theory of offshore procurement seems to me to be economic aid. I don't see any other purpose. Ordinarily, we could pay for them ourselves, and if we were going to pay for them, we could go and buy their pounds, and then give them their pounds.

Mr. STASSEN. It is equivalent, we buy pounds and give them dollars for pounds, and use the pounds to pay for the manufacture of planes. Senator TAFT. They don't need dollars to pay anybody in their own country for these planes. They pay their men in pounds, and pay for their materials in pounds.

Mr. STASSEN. That is right.

Senator TAFT. There may be a certain amount of material that has to come from here or elsewhere that has to be paid for in dollars. That would not be, I take it, economic aid in addition to military aid, and we turn around and give the $260 million to one or two NATO forces and we are also giving in effect $260 million in economic aid to the British or whoever is making the planes.

Mr. STASSEN. It depends on what you mean by "economic aid." It is balance-of-payments aid, but not aid in the British budget. Senator TAFT. That is all they want their aid for, not their budget, but we are not supposed to be helping their budget, even with our economic aid. We are supposed to be giving economic aid for economic aid.

It seems to me, I just think the nature of this is that it ought to be analyzed. I don't say that it is necesarily objectionable, but I do think that it means that military aid to the extent that it is provided by offshore procurement, is also economic aid to the extent of it

Mr. STASSEN. Of the balance of payments?
Senator TAFT. Of the balance of payments.

DOLLAR PURCHASES

Mr. STASSEN. I thoroughly agree with you on that respect, and they use these dollars then to buy the wheat, cotton, lard, nonferrous metals, and various other imports from the dollar areas, and that is where the British then use the dollars.

Senator TAFT. They buy most of them sterling.

Mr. STASSEN. No; the dollars they use to buy things in the dollar area with.

Senator TAFT. I mean, in a general way, but not necessarily thinking of this plane alone, the materials going into planes may well come from sterling areas, and probably do, in the most part.

Mr. STASSEN. They may use the dollars to buy the cotton, and none of it goes into the planes, but they use the cotton in their textile industry, or something of that kind, in their balance of payments, of course; that is true. So it is an aid to their economic balance of payments, but it does not go into their budget.

FIRST MAJOR COMBINATION OF AIRCRAFT PROCUREMENT

Senator MANSFIELD. Hasn't this program been going on for a number of years?

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