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Mr. FASCELL. I am not interested so much in the specifics at this moment as the fact that 3 years have gone by and you still have the same problem. You have been after it since you first got the branch open and now 5 years later you still have the same problem.

It would indicate that maybe we ought to point out to them that the General Accounting Office is a very important outfit and they ought to start paying a little attention to it. The taxpayers' dollars are involved and that makes everybody unhappy.

Mr. BLAIR. You will be getting specific information.

Mr. Hoagland will be talking to you about that. He is the representative of the Secretary of Defense over here studying the no-profits and related problems.

Mr. FASCELL. He is a one-man committee of the Secretary of Defense for Offshore Procurement problems?

Mr. BLAIR. That is right. I do not want to leave the impression that the departments have been doing nothing about it.

Mr. FASCELL. It is very kind of you to step in and try to erase impressions but 3 years are hard to erase.

Are there any other questions on this point ?
Mr. MICHEL. No.
Mr. May. No.

Mr. BLAIR. We are still developing data and sending it to our Washington office for use in the preparation of this report.

Mr. MICHEL. What was the per unit cost of those antitank grenades in Belgium?

Mr. BLAIR. They will vary within the contract, within the particular contracts.

Do you recall the unit prices, Mr. Hunter?
Mr. HUNTER. No.
Mr. BLAIR. We can supply that for the record, Mr. Michel.
(The information requested is as follows:)
Unit prices of Energa antitank grenades by offshore procurement contract

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1 These grenades are all of the rifle antitank type. All contracts were awarded to the Belgium firm S. A. Belge de Mecanique et d'Armament (MECAR) and a subsidiary company. * Other items totaling $264,798

included in the total amounts of these contracts. Mr. MICHEL. I notice that those dates correspond with the time during which we were engaged in the Korean war.

These contracts were entered into by the United States Army, Europe. Does that necessarily mean, then, that the use of those grenades must be confined to the European command ?

I realize that this may be out of your bailiwick, but is there anything in your investigation that pinpoints their being used strictly in the European command? My thought in that connection is that we would be procuring antitank grenades with the possibility of their being used in the Korean war.

Mr. HUNTER. In these specific instances, we have been advised that they were procured for our Korean forces.

Nr. BLAIR. That is my understanding.

Mr. HUNTER. I think one reason they did direct it to this firm was that they had developed this proprietary right for these grenades and through NATO tests, or some other tests, they determined it was the most satisfactory grenade, at least at that time. That is the reason it was a directed procurement. We apparently needed a specific type of grenade. I do not have too much detail in that respect.

Mr. Coons. I feel certain it was a directed procurement and some of them were used in Korea because it was for an emergency purpose.

Mr. MICHEL. Then I am more than ever interested in the per unit cost.

Mr. FASCELL. Would you please supply that for the record ?
Mr. BLAIR. Yes, sir.
Mr. FASCELL. Any other questions?

Mr. May. On the other reports and the acceptance of the reports by the Defense Department and in the case you mentioned, you say that in general you have received fairly good acceptance of your reports. Are there other examples of a 3-year lag in action on reports that you have made and suggestions that you have made!

Mr. BLAIR. Your no profits will fit in that same area.

Mr. FASCELL. In other words, the whole problem of offshore procurement is one that has been kicked around generally. However, we will discuss that at length with the Defense Department representative and see if he knows something about it.

Mr. BLAIR. I would like to point out that the acceptance of our reports on the part of the military is most gratifying. I would like to point out an action Mr. Rosenberger just effected.

You may want to mention that one, Bob.

Mr. ROSENBERGER. There is one I would like to mention if I may. This is a letter dated April 30, 1953, which was sent to the Navy Purchasing Office in London. We pointed out that in our examination of their offshore procurement contracts let in 1952, there was one contract we were particularly interested in let to an Italian firm. This is not classified.

We found that a 2 percent transaction tax, which is normally called the IGE tax, and about 2 percent for customs had not been excluded from the contract.

Mr. FASCELL. A total of 4 percent?

Mr. ROSENBERGER. Yes, sir. We do not have the value of that particular contract, but they came back and explained that we were absolutely correct and they proceeded to withhold 5 percent on all Italian contracts.

Mr. FASCELL. That is, the Procurement Office ?

Mr. ROSENBERGER. That is right, until it was finally determined by the Italian Government as to the amount of tax relief. It is done on a percentage basis. As a result of that, on the 1952 contracts, the

Navy Purchasing Office recovered about $60,000 and they have continued, to the best of my knowledge, to be pretty well on the ball.

Mr. FASCELL. If we continued at that same rate, in 5 years it will be $300,000.

Mr. May. How many corporations do you figure the Government does business with on offshore procurement program?

Mr. BLAIR. We do not have any figures on that, Mr. May.
Mr. MAY. Would you hazard a guess?
Mr. BLAIR. I would hesitate to do so.

Mr. ROSENBERGER. I would say a thousand at least. They range from small firms to large ones.

Mr. FASCELL. Any further questions on this point ? Mr. POLAND. Did not a question arise in the purchase of ordnance where assembled components were sold in the first place because the Germans were not prepared to subcontract the individual components, and they had to develop a whole series of practices with which the Germans were not familiar?

Mr. HUNTER. That did not have to do with pistons; did it?
Mr. POLAND. No; those were 155-millimeter shells.
Mr. ROSENBERGER. Are you speaking of the 155?

Mr. POLAND. I got this as an explanation of the failure to contract separately for components, the fact that they did not subcontract these.

Mr. HUNTER. That was not in Germany, though.
Mr. ROSENBERGER. You mean the contracting?
Mr. HUNTER. We understood contractors.
Mr. POLAND. Those were procured somewhere else?
Mr. ROSENBERGER. Yes.

Mr. POLAND. Perhaps I was in error then with respect to subcontracting practices.

Mr. FASCELL. I would like to ask Mr. Blair a question here.

Will you please turn to page 53 of this report for a moment? On report EU-196–1 (Frankfurt) Taxes in OSP Contracts, dated December 12, 1956, you tell me that your list on that is marked "confidential" ?

Mr. BLAIR. Yes.

Mr. FASCELL. Where did that classification arise since it is across the board, as somebody explained to me, involving all three military branches?

Mr. BLAIR. Maybe Mr. Hunter can give you the specific information, but it could arise this way, Mr. Fascell: If, during the course of a study of a particular contract, we may find classified information relating to that contract and if we include that information in the report, we are required, under the President's security order and under the Comptroller General's orders, to give that report the classification of the highest classified data in the report. Individual paragraphs, or specific individual information, may be unclassified, but the report has to bear the overall classification of the highest classified data that you are reporting.

Mr. FASCELL. Therefore, the highest classified data in that case was classified confidential ?

Mr. BLAIR. That is right.

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Mr. FASCELL. Do you have any way of telling us right now what it was? In other words, which branch marked this thing “Confidential"! Certainly that is not security information.

Mr. BLAIR. Whoever made the review would have put the classification on it on the basis of the classification of the data incorporated in the report.

Mr. HUNTER. In the report the specific paragraph will be indicated.

Mr. BLAIR. We indicate that portion in a report which is classified and that portion which is not.

Mr. FASCELL. I understand that, but the classification originated with whatever document came out of the military branch and the General Accounting Office must respect that classification?

Mr. BLAIR. That is right.

Mr. Fascell. In this particular case, did the General Accounting Office seek to have this report declassified? Did you ask the military to declassify this report?

Mr. ROSENBERGER. We did not at this level disseminate that report to the military, but if I may back up just a moment, that report is classified "Confidential.” To the best of my recollection it is a 30- or 40-page report and there are only 1 or 2 paragraphs classified.

Mr. FASCELL. That is what I am getting at. Did that deal with the material that was being procured!

Mr. ROSENBERGER. I don't remember what it was.

Mr. FASCELL. What I am after now is this: Do you have a draft copy of the report here in Paris which shows the material which is classified?

Mr. ROSENBERGER. Yes, sir.
Mr. FASCELL. Will you make that available to the committee?
Mr. ROSENBERGER. Yes.

Mr. FASCELL. How big a job is it? Can we get into it in the next few minutes ?

Mr. BLAIR. We will place a call to the office. That file can be pulled.

I would like to point out that it is an internal report, Mr. ChairMr. FASCELL. This is the one on which you based your final report?

Mr. BLAIR. It is a résumé of our work in the area up to that particular point. Since December we have been doing additional work and when that gets sent into Washington, then it will be processed.

Mr. FASCELL. This report is one that is being processed in the Washington office now?

Mr. Blair. That is right.

Mr. FASCELL. I would like to have a copy of the report. My purpose being, of course, that we could determine the confidential areas which are in the report being processed through the Department and extract those from the report. That is what my purpose is at this hearing, to take out from it all classified material. I cannot see any reason for classifying the whole thing when the classified material has been taken out of it.

Mr. Blair. When you take out classified material, you meet the requirements of the President's order.

Mr. FASCELL. I think we ought to make available as much information as possible. I assume that that is the attitude of the General Accounting Office, too

man.

Mr. BLAIR. That is right. Again, I would like to point out that it is an internal report and final action has not been taken. As a matter of fact, we are developing additional data in Italy at this time. At the present time, it represents a working paper.

Mr. FASCELL. I understand what you are getting at. This particular contract, or report, has not been finalized?

Mr. BLAIR. That is right.

Mr. FASCELL. Even though we took out the classified material you still would not want to release it since it is not a finalized report?

Mr. Blair. That is right. As Director of the European Branch, I would have no authority to do it.

Mr. FASCELL. Let us do it on this basis.

Mr. BLAIR. I am at liberty to show you anything that we have but as far as release of this report

Mr. FASCELL. I understand that. However, the subcommittee would still be interested in seeing the draft of the report and seeing the areas of classification. For ultimate release purposes is what I am thinking of now.

I would request that when this particular report is finalized some day in the future that you prepare a copy for this subcommittee in which the classified material has been extracted. We will then have in the record that area, from your draft report, of the classified material to date so that there will be no misunderstanding about the material which will be released.

Mr. Carlson. Mr. Chairman, I would like to ask Mr. Blair if the classified material that is in the General Accounting Office report has been reviewed by the military agencies concerned to make sure that the specific paragraph of classified material has not been classified merely because it has been lifted from a report which has similarly been classified confidential because some other paragraph in that report is classified ?

Mr. BLAIR. To answer you specifically, we will have to look at the report and determine the steps that were involved. It has not been referred to the military to determine whether or not that information can be declassified for the reason that we have not finalized the report to the agency: That is, to obtain their presentation of their views. In other words, it is the purpose of our office when issuing a report not to issue a prosecutor's views, but to get all of the facts, what our feeling is on the matter, plus what the agency's feeling is on the matter. Then the report gives you both sides of the picture, enabling a proper evaluation.

Mr. FASCELL. We appreciate the fact that we need an objective report and we certainly would want it that way and no other way. However, I think that Mr. Carlson raises a very fine point as to the extent and degree of classification.

Mr. CARLSON. That one classified document may spawn a whole series of classified documents on the basis of material that may remain buried in the original document.

Mr. FASCELL. In answering Mr. Carlson's question on that point, to what extent does the General Accounting Office get into this problem?

Mr. BLAIR. We are faced with it all the time. When we conduct an examination and use information from a file, if it is unclassified

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