(The material referred to follows:)

ASSISTANT SECRETARY FOR ECONOMIC AFFAIRS
Activity: Executive direction and policy formulation

Mr. ROONEY. Do you have a statement with regard to this requested appropriation, Mr. Thorp?

Mr. THORP. Yes, sir; I have.

Mr. ROONEY. We shall be glad to insert it in the record at this point and have you comment upon it.

(The matter referred to is as follows:)

STATEMENT OF THE ASSISTANT SECRETARY, ECONOMIC AFFAIRS

I am here to testify on the needs of the Economic Offices of the Department. The changes which have developed in the international economic situation as a result of the present world crisis have had a sharp impact on the character and emphasis of our work, increasing greatly our problems and responsibilities. I would like to discuss some of these changes and the implications which they have on our work.

Security considerations necessitated the tightening of export controls, an effort calling for close cooperation among the interested agencies of this Government. A wider range of raw materials and manufactured goods was brought under control. These measures were supplemented by intergovernmental consultation which had the objective of working out a system of United States export controls

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and friendly government controls that are mutually supporting and of maximum effectiveness. Increasing attention has also been given to the security aspects of the export of industrial technology.

It has

The present world supply situation indicates a shift from prospective surpluses to serious shortages in a number of basic commodities, accompanied by rapid price increases. These shortages are all the more serious in view of the accelerated defense and production requirements of this and other governments. been necessary to provide export measures which will assure the most efficient free-world use of these commodities. The upward revision of stockpile objectives has also contributed to supply and procurement problems. The result of these developments has been to increase substantially the number of items subject to control and allocation. This trend will continue as demand from both military and nonmilitary sources expands.

From its nature, the short-supply problem embraces the entire free world and cannot be limited to a regional basis. This problem has been considered over the last few months by the Governments of the United States, the United Kingdom, and France. The result has been to propose to the other nations of the free world the establishment of a series of intergovernmental standing commodity groups, on which the important producing and consumer countries will be represented, to recommend to the governments concerned action required to expand production, conserve supplies, and assure distribution in a manner to achieve most effective utilization of particular short-supply materials.

In the financial and economic development field, we are now faced with the necessity of concentrating on measures of economic defense and the development of economic programs which will make the maximum contribution to the military strength of the free world. The principal line of activity we see ahead will be the development of financial policy in connection with the control of foreign financial transactions. It will be necessary to develop financial policies and techniques to facilitate the mutual defense assistance program. The United States programs of economic aid to various areas of the world will need to be designed increasingly to promote the supply of needed materials to the United States and to relieve the United States of the burden of supplying those areas out of its own domestic supplies, which will be in many respects insufficient to meet the combined demand. There is the related objective of economic assistance programs to combat the influence of communism.

A major objective will be to recast loan policy so that supplies furnished by the United States will make the greatest contribution to the over-all mobilization effort.

In the pursuit of these vital defense objectives and in the carrying out of those programs closely related to our mobilization effort, we have not lost, and we do not intend to lose sight of our long-range commercial and financial objectives. We expect that it will be necessary to reexamine our goal of establishing general convertibility of currencies in the countries because of the situation which now faces the free world. While progress toward convertibility may have to be postponed by some countries, in others, recent considerable shifts in their balance of payments, particularly as regards dollar earnings, appear to have brought the achievement of a substantial degree of convertibility appreciably nearer.

In the trade field, while controls will become increasingly extensive, there will nevertheless continue to be wide areas of international trade moving with reasonable freedom from such controls. Through the trade agreements program and by making the general agreement on tariffs and trade more effective, this Government will continue its efforts to reduce unnecessarily restrictive tariffs and other barriers to production and trade.

In short, our objective is to take all necessary action to bring about maximum mobilization of the economic strength of the free world, but to realize that this does not and should not mean that our long-range goals are to be abandoned. In fact, the long-term foreign economic policy of this Government provides a firm foundation for the future and gives promise of a growing strength of the economies of those countries combating communism.

This balance between our special emergency programs and our long-range policy objectives is to be seen in the work of the Department in the field of cartels and restrictive business practices. Such practices as price fixing, limitations on production, division of markets, and related conduct will unjustifiably add to the burden of defense costs and contribute to inflationary pressures which impair our economic strength. With respect to foreign economic programs and operations, we are participating in interagency coordination to relate domestic control measures to such programs and operations.

We are confronted with the problem of increasing demands on the facilities for international transport and communications. In the field of telecommunications, like many others, we must both carry on our peacetime work and devote new energy to new defense activities. Specifically, the long effort to bring about international acceptance of engineering standards in the use of the radio spectrum must continue in spite of increasing difficulties. At the same time, control of clandestine radio operations and plans for the wartime usage of all international communications facilities must take our urgent attention.

In shipping, a major new element is the activation of the International Maritime Consultative Organization (IMCO). Emergency shipping activities under the North Atlantic Treaty Organization (NATO), the rapidly growing United States merchant marine fleet, and the changing international trade conditions have resulted in additional responsibilities.

The major emphasis in civil aviation continues to be on the obtaining and maintaining of the complex system of rates, routes, facilities, and services essential to the operation of United States aircraft on scheduled and nonscheduled civil and military flights to foreign points. In the present emergency period, the consultations with other agencies and the negotiations with foreign governments have increased in significance and urgency. In addition, the present situation demands concentration upon plans for the mobilization of international civil aviation resources.

The anticipated opening of the Inter-American Highway from the United States to Costa Rica in 1952 requires immediate negotiation of an international agreement to cover bus and truck traffic on the highway.

To carry our the responsibilities of the economic offices we are here requesting 303 positions and $1,784,185, an increase of 9 positions at $40,300 over 1951. This will not provide for many emergency responsibilities now being assigned to the economic area. We are now preparing an emergency supplemental estimate to cover these requirements.

Mr. THORP. Mr. Chairman, if I had been appearing before this committee last summer, I would have been able to give you a very optimistic picture with respect to the world economic situation, because the expansion and recovery which we have been working so hard to achieve in the postwar period was really taking hold. European recovery was moving rapidly; our own balance of payments was steadily improving; foreign countries which are underdeveloped were beginning to show more progress in developing realistic programs; the reciprocal trade program was beginning to show definite results in the removal of quotas, and so on. So I am sorry to have to report, which I am sure you all know, that since last summer the world economic situation has changed tremendously. We are now back in a condition which can be generalized as being a condition of shortages once more in the world.

What has happened, of course, is not only that we and a number of European countries have stepped up in a major way our efforts to rearm and thus have put on the world economy, which it did not have last summer, a tremendous demand for materials. The net result has been not only a shortage of materials but a considerable rise in the price level.

As a result of that sitution, our work in the State Department has multiplied in the economic field so that we are now back to the situation, which we have had at times in the past, of having to work a great deal of overtime and week ends.

The fundamental problems are the problems in the raw-materials field, where we have now set up some international machinery in the hope that it will bring some order into the picture. We also now, having had a steady stream of requests from other countries as to the way in which their economies are being affected by shortages, are having to rethink in terms of assistnce to foreign countries, because

this situation has changed the position of the countries. Some benefit from it, those which have raw materials to sell, like most of the Latin American countries. Some of the others which are dependent on foreign imports, like Greece, Austria, and even France, find their international situation much more severe, so that in that area we have a great volume of new problems to deal with.

We are working very closely with Mr. Wilson of the Mobilization Administration with respect to obtaining raw materials, which we are helping them to obtain in an international way. At the same time, we have also stepped up as part of this new situation consideration of what might be called the field of economic defense. By that I mean two things-trying to strengthen the free world and trying to hamper as much as we can the development of the Soviet economy. This involves something which the United States cannot do by itself, and we have had to put in a great deal of time working with other countries in an effort to get them to join in on this kind of program. And all along the line of this new situation of shortages and the new tensions, we have intensified problems which actually were easing up until last summer.

I think it is very natural that, just as we ourselves in the United States have a series of very serious economic problems to deal with in reorientating our country, this carries over to other countries, and the relationships between the countries. At the same time, there are many of the regular problems that are not affected and where the same burdens are with us, regardless.

In a field like aviation, for instance, we might think that would not be much affected. There we have a great many problems of the normal kind, because we operate on fairly short term bilateral agreements, but we also have new problems with respect to a more careful review for some months with respect to such things as the shipment of spare parts to other countries, and we have a shortage of new airplanes in the field.

The shipping field is another one where a whole set of new problems has developed because what seemed like adequate shipping is now proving to be a bottleneck at the present time, particularly if something develops which we very much foresee-that is, a serious shortage of coal in Europe. Coal is a bulk cargo which requires a lot of ships to move. So all I want to do in this introductory comment is to emphasize the fact that those of us concerned with the economic problems in the State Department find ourselves faced with a series of not entirely new problems. Some of them are new; some are intensified problems, and we are doing the best we can with them.

Mr. ROONEY. Will you please address yourself to the budget?

PERSONNEL INCREASE

Mr. THORP. Yes. The budget is virtually the same budget as we presented to you a year ago.

Mr. ROONEY. Oh, no; you are asking for nine additional employees. Mr. THORP. We are asking for 9 additional employees in a total of 303.

Mr. ROONEY. As a matter of fact, you are asking for 11 additional employees, but you are dropping 2 from the investment and economic development staff which is part of the item entitled "Office of Financial Development Policy." Is that correct?

Mr. THORP. That is correct. International Trade Policy.

The main increase is in the Office of These additions are in the part of its work which has to do with economic resources, which is where the commodity problems are found. This relates to the problem of rawmaterial shortages, the international stepping up of production, the efforts to get additional sources for the stockpile, and the efforts to restrict the flow of commodities to the Soviet Union. That is why we have asked for these additional people.

In the Office of Financial and Development Policy we believe we can get along with two less people because of the fact that certain work which this Office has had to do in the past with respect to development is now being done by the Technical Cooperation Administration on its own separate, independent budget. So that this, in a sense, is a transfer of work out of the State Department into the Technical Cooperation Administration.

In the Office of Transport and Communications Policy, the increases are (1) in connection with shipping, where we were down to seven people and where the problems have suddenly become major problems again and (2) in connection with aviation, where we have a very heavy schedule of international negotiations to carry out during the next

year.

I would not be frank with the committee if I indicated that this particular budget was one which would make it possible for us to meet our obligations and carry those responsibilities, but at the time this budget was prepared we hoped it would be possible to do it on this basis. But the much greater intensity of the whole program with respect to rearmament has magnified the problems, and I think it is only fair to say that we are going, if those problems continue, to have to have more people to meet our responsibilities.

Mr. ROONEY. Perhaps you are getting the cart before the horse. You are talking about a supplemental appropriation at a time when you are a long way from getting the 11 additional positions.

Mr. THORP. I was merely trying to be frank with the committee as to what the situation is.

PRESENT STATUS OF LEND-LEASE SETTLEMENT

Mr. ROONEY. What is the present status of the lend-lease settlement with the Soviet Union?

Mr. THORP. At the present time the Soviet Union negotiations are taking place. The Soviet Union has designated their Ambassador to negotiate here, and they have sent some people over from Moscow to support him on it. Ambassador Wiley is acting as the negotiator for the United States. They are having meetings now.

I must say it is very hard to anticipate any favorable result out of these meetings. We have placed a formal demand before them for the return of all American ships-merchant ships and naval vessels. Mr. ROONEY. When did you do that?

Mr. THORP. Well, we made a demand for about one-half of the ships several years ago.

Mr. ROONEY. What did you get?

Mr. THORP. We did not get anything I should not get anything; we got back 27 frigates and 8 merchant a promise of 3 ice breakers, but only 1 has ever come.

say we did not vessels; we got They say the