In evaluating that, you have to remember that they are carrying on trade abroad with various other countries. Last year Russia and her satellites sent to Europe about $200,000,000 worth more than they bought from Europe. So that there is a big item of earnings obtained by them, and on top of that is the fact that Russia and her satellites are gold-producing countries, so that they are building up several hundred million dollars each year on gold production. I think you have to conclude that $40,000,000 is not particularly important in terms of the other sources which they have for getting foreign purchasing power.

SHIPMENT OF WAR POTENTIAL TO RUSSIAN SATELLITE

Mr. STEFAN. You have covered point No. 1, our imports from and our exports to satellite countries. What would you say about the consistent report that last year the so-called Marshall-plan countries shipped to Russian satellites over a billion dollars' worth of war potential?

Mr. THORP. Well, I think I would have to say in the first place that I do not think their authority amounted to too much

Mr. STEFAN (interposing). The Commerce figures indicated that, and they were placed in the Congressional Record.

Mr. THORP. A billion dollars last year?

Mr. STEFAN. Yes, in 12 months.

Mr. THORP. I was going to say it was nearer to $800,000,000. Perhaps it is not important.

Mr. STEFAN. This is in your point No. 2, to endeavor to make some arrangements to stop shipping our money and war potential to our potential enemies.

Mr. THORP. We might add to that that some of it is only by a far stretch of the imagination war potential. Some of it is machinery, but a lot of it is clothing and foods. Iceland, for instance, sells a good deal of fish oil, and you get a lot of Swiss products that are not really war products. Our effort has been to get them to restrict on things that were war potential, not merely defense items, but things specifically used for manufacturing defense items. The problem is very difficult because of the Western European countries who in turn get from the Soviet Union and the satellites a number of things which are essential to them, coarse grains and particularly coal. The Polish coal is one of the important sources of coal for Austria and Italy. What we have been trying to do is to work out a basis which will not cut off all trade. We should not be embargoing all of these countries and the Russian satellites because, after all, they are types of trade which are of great value to Western Europe; but we endeavor to get restrictions and embargoes on those items that are military potential, and I think in that part of the trade there has been a very substantial reduction.

MARSHALL-PLAN FUNDS

Mr. STEFAN. That being true, what would you say about these newspaper stories of ECA or Marshall-plan money being used to build factories that manufacture machinery which goes directly to Russia or to the Russian satellites?

Mr. THORP. I would say that is a very unfair way of summarizing what has happened. Of course, ECA money has gone to build factories but, to the extent to which those factories produce items required or stocked for war potential, I believe that there is very little if any of that, depending upon the country and the product, going to Russia and its satellites.

Mr. STEFAN. For your information, we have the fact that those stories are true; that they are using Marshall-plan money for the construction of factories which manufacture war potentials which are sent to Russia and her satellites, and which eventually got into the hands of the Chinese and the North Koreans.

Mr. THORP. I have no information that verifies that statement. Mr. STEFAN. You have not?

Mr. THORP. No.

Mr. STEFAN. All you have to say about that is that Marshall-plan money is being used to build such factories?

Mr. THORP. Yes; that Marshall-plan money is being used to build factories, and I would also want to say that these countries are restricting the flow of things that may be regarded as war potential to Russia.

Mr. STEFAN. You would not deny that some war potentials are going to Russia and Russian satellites from countries that are benefited by United States dollars through ECA?

Mr. THORP. No; I cannot deny that because of the fact that there are some situations-and we have been working very hard on them--where the controls are difficult. Just to make it very specific, there is the difficult situation in Western Germany. Western Germany is an area with a boundary line with Eastern Germany, which is an artificial boundary line. Western Germany has policies, governmental policies, with respect to limiting the items that can go into Eastern Germany or into satellite countries, and so forth; but I would not want to take the position that Western Germany has yet built up an effective way of stopping what virtually is smuggling of items across from Western Germany into Eastern Germany.

We have had discussions about that with the German Government, and they are trying to do what they can to meet the problem, and I am sure that they have done a great deal, but you are asking me if I can make a flat statement that it is being controlled. I have to explain to you, therefore, that there are those things which we do not know about, because it is smuggling of stuff that does not go through any of the normal channels there. It is a very difficult problem. It is like drawing a line somewhere across the United States and then trying to stop goods from flowing across that line.

Mr. STEFAN. What about the United Kingdom shipping war potentials to Russia?

Mr. THORP. I would have to know what the case was and then examine it, because certainly and generally any knowledge we have insofar as we are concerned is that they are not shipping. I think I should, perhaps, make this additional point: That we have been working on this with the European countries for virtually 3 years now. Mr. STEFAN. Your office has handled this business; has it not? Mr. THORP. Yes.

Mr. STEFAN. And there is no other staff in the Department of State that deals with Marshall-plan countries in connection with economic problems?

Mr. THORP. Of course, the European Office is always interested in these problems and works with us closely, but I would accept this as being our responsibility with ECA. What I wanted to say was that the British and the French and various other countries went along part of the way with us on these policies even 2 years ago. The great step forward has come since the attack on Korea. Since the attack on Korea there has been a different attitude in Europe with respect to this whole great matter of trading with Russia, and the situation has tightened up to a very great degree, just in the matter of the last 6 months.

RELATIONSHIP WITH ECA

Mr. STEFAN. Have you made an educated guess of the percentage of ECA money that is going to Russia and Russian satellites to buy war potentials from Marshall-plan countries? Have you worked with ECA on that matter?

Mr. THORP. Yes. We have discussed this with ECA; and, as far as we know, it does not happen.

Mr. STEFAN. Why, they have figures on it.

Mr. THORP. Yes; they have figures of trade with Russia, if that is what you mean.

Mr. STEFAN. I mean they have the percentage showing approximately how much it is. You do not have it?

Mr. THORP. I wonder if their figures are not more related to trade with Russia rather than how much has come out of ECA? We have figures about the trade with Russia from each country and all that sort of thing.

Mr. STEFAN. Does ECA consult with you as to what they should do with these American dollars going into Marshall-plan countries? Do you have any approval or disapproval of them?

Mr. THORP. No; we do not have approval; but I think, if we were disturbed by something which ECA was planning to do, we would take it up with them, and I would expect ECA to give great weight to our attitude. We do not have a formal approval procedure.

Mr. STEFAN. They work absolutely independent of the Department of State, then?

Mr. THORP. Oh, no, sir. What I was saying is that the authority is theirs and the facts are theirs, but we work with them, and we can make recommendations to them on particular subjects; and, when we do, I think they respect our recommendations.

Mr. STEFAN. Now, when their representative goes into a country to do a rehabilitation job and he finally comes to a decision as to how much money he is going to spend in that country, does he do it with the approval of the chief of the regular mission, or does he do it independently?

Mr. THORP. Well, he would not finally make the decision. He would make recommendations.

Mr. STEFAN. He would?

Mr. THORP. Yes, to the ECA in Washington; and he could make that recommendation without consulting the chief of the mission in person.

Mr. STEFAN. He could make it without consulting the chief of mission?

Mr. THORP. That is right.

Mr. STEFAN. Have you had a case where the chief of mission indicated disapproval of a loan or grant of American dollars in a certain country by ECA?

Mr. THORP. No, I do not recall of any, but I have not thought about this particular problem for some time. May I ask if Mr. Stinebower knows of any such case where the chief of mission has specifically recommended against such a program?

LOCAL STATUS OF CHIEF OF MISSION AND ECA CHIEF

Mr. STINEBOWER. The chief of mission has sometimes sent in qualifications for consideration here of the programs suggested; but, as you gentlemen know, the decisions are not made there by ECA. They are made by ECA here at Washington.

Mr. STEFAN. In Washington?

Mr. THORP. Yes. In such a case the chief of mission would merely send the recommendations back to Washington to be approved here. Mr. STEFAN. You mean that there has been a case or two where the chief of mission disapproved the use of a grant or a loan of ECA money in a certain country?

Mr. STINEBOWER. What I meant to say was that the chief of mission may not have concurred. In other words, sometimes you will get a joint recommendation from the chief of mission and from the chief of ECA. In other cases the chief of mission or the Ambassador or Minister in the country may send in his comments, which may not be altogether in accord with those of the ECA mission, and they attempt to resolve those here in Washington.

Mr. STEFAN. As I understood from the previous statement of Mr. Thorp, the chief of mission is not always consulted as to what grants should be made in such-and-such a country.

Mr. THORP. No; he does not have to be consulted under the present arrangements. Of course, the ECA people and our people are Americans working in a foreign country, and it is the natural thing for them to discuss their problems together, but there is nothing that establishes the chief of mission as being the responsible officer for all American activities in the country.

Mr. STEFAN. The chief of mission is the representative of the United States politically and diplomatically. Why should he not be

consulted?

Mr. ROONEY. I do not believe Mr. Thorp said that.

Mr. STEFAN. Mr. Thorp said he does not have to be consulted. Mr. ROONEY. Yes; he said he does not have to be consulted, but he did not say that he was not consulted.

Mr. STEFAN. No; they do not have to be, and in some cases they have not been, according to the testimony here. What I am driving at, Mr. Chairman, is why bypass the chief of mission, and why have diplomatic representatives in foreign countries? We have about 300 regular American missions scattered over the world with representatives of the United States in charge of those offices. Now, the head of the mission and his staff know more about conditions in a country than any new men coming in. Along comes an ECA representative with diplomatic status of at least social value, making it possible for him to bypass the chief of mission with the result that he is looked upon in some countries as keeping the books, and our

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chief of mission becomes nothing but a glorified clerk, and the effectiveness of his political association with the government of that particular country in which he represents our own United States relegates him to disrespect and he is bypassed not only by the representatives of some agencies of the United States, but certainly by the officials of the government where he represents our Government. Then we find these conditions that exist here, which makes our own Foreign Service absolutely ineffective, in my opinion. That is what I was driving at.

STOCKPILING

Your next point was about stockpiling. What do you do about stockpiling? We have an agency set up for that.

Mr. THORP. The stockpiling problem comes in these terms. The great problem, of course, in terms of stockpiling, is to find sources and make arrangements to get an even larger amount of materials to be available.

Mr. STEFAN. Do not the commercial attachés in the foreign countries do that?

Mr. THORP. Well, someone has to act as liaison between our people abroad who are working in those embassies and consulates and the agencies here in Washington who are concerned with the stockpiling itself, because very frequently the program is done through private contracts, but in order to make sure that as much comes out as possible the State Department tries to get the foreign government to facilitate the flow of goods to the United States.

Mr. STEFAN. We do that through our representatives in the missions?

Mr. THORP. That is done primarily through our representatives abroad.

Mr. STEFAN. These 300 people that you have working with you do that through correspondence with the agencies in Washington and the attachés in the various missions?

Mr. THORP. Yes.

Mr. STEFAN. And you have them get in contact with the representatives in that particular country?

Mr. THORP. That is always a problem, depending wholly on the caliber of the people and the country. Sometimes when we are dealing with foreign governments we do it through Washington. When we do it in Washington we send the ambassador abroad information to keep him up-to-date on what we are doing, but if it happens that the Government has an ambassador here we do it here if they prefer. I would say that as a general rule it is done abroad.

Mr. STEFAN. Who else works on that stockpiling besides the commercial attachés in the field and your other correspondents?

Mr. THORP. In the Government, of course, the Munitions Board, which is in the Defense Department sets the goals for the stockpile. At the present time the purchasing is done by GSA, the General Services Administrator, Mr. Larson, and he develops the contracts or whatever arrangement is made, insofar as it is possible to work out a purchasing arrangement. Very frequently he does his purchasing through private channels, so that insofar as the foreign government is concerned, Mr. John Doe in the foriegn country has made a contract to sell to Mr. Smith in the United States, and Mr. Smith, in turn, is acting for Mr. Larson in General Services Administration."