the North Atlantic Treaty defense plans. More important, this equipment must be ready when it is required under these plans. In order that this equipment can be on hand as early as 1 and 2 years hence, we must place our contracts now, not next year.

However, it is not enough to have initial equipment for these forces. We must also begin to establish the military production base necessary to assure continued logistic support at wartime rates of depletion, should this become necessary. This can only be started by placing new procurement orders now, in such substantial volume as will materially stimulate the recreation of this military production capacity The new procurement which will be made possible by the Preisdent's supplemental request will, of course, be integrated with the procurement programs of our own Army, Navy, and Air Force. It will thus constitute a material contribution toward the creation of such a solid base for industrial mobilization, if and when it is required.

INCREASE IN PLANS FOR COMMON DEFENSE OF NORTH ATLANTIC TREATY AREA

The Deputies of the North Atlantic Treaty Council are now working in London toward the goal of speeding up the fulfillment of the plans for the common defense of the North Atlantic Treaty area. Study is also being given by us in Washington and by our military advisers in the field to the military needs of other free nations in the Near and the Far East. The work of the North Atlantic Treaty Organization, as well as our own studies here, show that the minimum requirements for the common defense of the free areas of the world are very large. Both directly and through the North Atlantic Treaty Organization the United States is now emphasizing the need for all the other member nations to make a substantial increase in their defensive strength. In view of this progress in planning and the sharply increased awareness of the necessity for increased collective security shown by our allies, I feel confident that this acceleration of our program for mutual defense assistance now will be met with corresponding increases in their own support for the forces needed for common defense of the free world. These nations are anxious to do their share and are looking to the United States to set the example in establishing the goals which they must reach in the commensurate increases of their own defense forces. We must set these goals in terms of equipment because the increases in their forces can have meaning only to the extent that we participate with our partners in equipping the expanded forces for the defense of the North Atlantic

area.

The danger we face is clear. The way to meet this danger is equally clear. The free world must raise and equip minimum forces sufficient to deter further aggression. These new forces must also be sufficient, when and if the Communist attack comes, to defend the vital free areas until the full strength of the United States and its allies can be brought to bear. Four billion dollars, plus the regular fiscal year 1951 mutual defense assistance appropriation is our best estimate of this year's part of the additional funds which should be made available.

USE TO BE MADE OF ADDITIONAL FUNDS

The supplemental appropriation requested by the President will be used mainly for new procurement of military equipment and the stimulation of greatly increased military production in Europe.

FUNDS REQUESTED FOR IMPLEMENTING TITLE I OF THE MUTUAL DEFENSE ASSISTANCE ACT

Broken down by titles, $3,504,000,000 is to cover military assistance under title I for the North Atlantic Treaty countries. The amount for our treaty partners is, of course, related to the strategic importance of western Europe for the defense of which we have fought twice in the last 25 years. The supplemental program for title I will include not only end-item military equipment and training, but also assistance in the form of equipment and materials to step up the military production of western Europe. The military equipment required for this program will be obtained in Europe, as well as in the United States, to the extent that direct purchases of new equipment manufactured in Europe will be both efficient and in furtherance of the supply programs required by the North Atlantic Treaty defense plans.

New procurement by the United States from foreign sources will have the incidental effect of cushioning pressures upon the economy of Europe which may result from a large-scale diversion of European industry from civilian production to military production. It will also lessen the effect on civilian durable goods production in the United States which might otherwise result from fulfilling the rearmament requirements of both the United States and the other North Atlantic Treaty nations. However, procurement abroad, now authorized by the Mutual Defense Assistance Act, will be primarily governed by the need for obtaining the maximum amounts of equipment in the shortest time at reasonable rates, regardless of the sources from which it may be obtained.

How much production assistance can be effectively used by our partner nations that is, how much of our new procurement will have to come from European sources will depend upon the relative manufacturing capacities, prices, and rates of delivery, both here and abroad. Tentatively, we believe that in the neighborhood of $400,000,000 of the amount requested for title I can be effectively employed during this fiscal year in obtaining increased military production abroad. This, however, is only a rough estimate and may well be too low.

TYPE OF EQUIPMENT TO BE EMPHASIZED

In this program, the emphasis is on tanks, artillery, and modern aircraft to withstand a mechanized assault-more than $2,000,000,000 of the total will be in these categories.

FUNDS REQUESTED FOR IMPLEMENTING TITLE II

Of the $4,000,000,000 requested, $193,000,000 will be for military assistance to the forces of Greece, Turkey, and Iran, which stand between communism and the vital oil resources of the Near and Middle East. Although the Greek forces have suppressed virtually

all organized Communist guerrilla activity, Greece, as well as Turkey and Iran remain subject to possible Communist attack which could have grave strategic consequences.

FUNDS REQUESTED FOR IMPLEMENTING TITLE III

For the Far East and the general area of China, including the Philippines, the Administration is requesting $303,000,000 for military equipment and training. The immediate need created by the North Korean aggression for strengthening the Asiatic defenses against communism, has been recognized not only by our defense of South Korea and Formosa, but by the acceleration of military assistance elsewhere in the general area of China.

RATE OF DELIVERY OF EQUIPMENT TO FOREIGN NATIONS

One point should be made unmistakably clear: Our increased military assistance in the form of finished equipment, whether procured in the United States or elsewhere, will be geared directly to the rate at which the recipient nations raise, organize and train the expanded forces to employ this equipment. Thus, the rate at which we will actually transfer the equipment to be procured with this $4,000,000,000 supplemental appropriation will depend upon the rates at which our partner nations raise their additional forces. The transfer of the equipment in all cases will be phased with their build-up and training of the defensive forces for which it is to be provided.

In order to protect ourselves against the threat of communism— now made unmistakably clear by the North Korean aggression-we will have to continue procurement at the accelerated rate represented by the President's supplemental request. Only at this rate can we meet the present time-schedule which underlies the North Atlantic Treaty defense planning. The $4,000,000,000, primarily for new procurement and production of matériel for which we now seek authorization, of course, represents a calculated risk. All measures to attain security represent a calculated risk. There can be no such thing as absolute security. And, in any event, the pool of defense equipment which will result from this program will be ready for use in the common defense of the United States and the other free areas of the world. With this supplemental program we believe that a reservoir of equipment can be produced for all the North Atlantic Treaty countries which will be ready for use when and where it may be most needed. With this supplemental program we will take a long stride toward the greater capacity for collective defense without which we cannot long survive.

Mr. MAHON. Thank you, Mr. Secretary.
Mr. Foster?

STATEMENT OF WILLIAM C. FOSTER

Mr. FOSTER. I am pleased to have the opportunity to testify in support of the request by the President for an additional appropriation of $4,000,000,000 to supplement current mutual defense assistance to other free nations. In my opinion, the necessity for an immediate expansion of this type of aid is urgent since the Kremlin has translated into brutal action their intention to dominate the world.

The task of the United States and other free nations is now clearly defined. The price of the survival of freedom and democracy is the attainment, within the shortest possible time, of the physical strength of free peoples to meet and counter Communist aggression wherever and however it strikes.

Secretary Acheson has outlined to you the manner in which the augmented mutual defense assistance program is to be administered, and the objectives to be reached. Secretary Johnson has spoken of the military and strategic importance of an immediate acceleration of the program, and the magnitude of the defense posture to be attained, in terms of forces and equipment. I shall confine my remarks to the broad economic aspects of the program, as they relate to the greatly increased defense efforts which we are all agreed our allies must make, if the job is to be done.

It is apparent that the United States cannot alone undertake the task of equipping the forces of the free nations. We must therefore look to Europe, with its highly developed productive facilities and its resources, to do its full share in equipping the forces needed for the defense of the North Atlantic area. There exists in certain areas of Europe today a large unutilized industrial potential which is capable of producing a wide variety of essential items of military equipment. This potential must be immediately put to work in the interest of the common defense. There are, in addition, other facilities which can and must be diverted from the production of peacetime commodities to the production of military end items. Broadly speaking, it is estimated by the military authorities that production of military goods within Europe itself must be at least doubled in the near future if it is to fulfill its share of equipping the forces needed for the common defense.

ABILITY OF EUROPE ΤΟ ASSUME THE BURDEN OF AN INCREASED MILITARY PROGRAM

It has been impossible in the last few weeks accurately to assess Europe's economic potential, that is, its ability to assume the economic burden of a greatly increased military establishment. On the basis of preliminary projections, however, we have concluded that with adequate financial support by the United States and assuming a realistic distribution of the burden of military production among all the North Atlantic Treaty countries, Europe can make its required contribution to the western defense effort, in terms both of manpower and of finished items of military equipment. It is important to note that this conclusion assumes that the economic resources not only of the North Atlantic Treaty members but of other western European countries be employed for this purpose. I refer particularly to the economic resources of western Germany which are as basic to the attainment of military strength as to the accomplishment of a healthy economic recovery in Europe.

This does not imply a revival of the German military production machine, but with its highly developed facilities for the production of noncombat items essential to the defense effort, and with increasing shortages bound to occur in steel and other basic elements that go into military production, Germany can certainly become an important factor in the common defense effort.

The expansion of military production on the scale now contemplated and the subsequent maintenance of European military forces at adequate strength will, of course, impose major economic burdens on the European countries. Part of the resources that will be required for this essential but economically unproductive purpose can come out of expanded production, that is, out of a fuller and more effective utilization of industrial plant and manpower that is not now fully employed. But a considerable part will have to be diverted from other uses in order to become available for military production. Specifically, this means that the volume of capital investment must be reduced in Europe, that investment must be redirected from peacetime purposes into building up industries whose output will have to be expanded to turn out military equipment, and that the standard of living in Europe, as in the United States, will suffer by comparison of what would have been possible in a more peaceful world.

These sacrifices, that will result in a slower pace of economic recovery and development and a lower standard of living than would otherwise be possible, will have to be made by the Europeans themselves. But the economic impact of rearmament in Europe will be felt in other ways. First, Europe is going to have to import more goods and services from abroad as military production increases. Second, after the pace of military production has reached the level that it must attain, Europe will not be able to export as much as we had hoped. Third, the changes in prices that are already occurring in the world under the stimulus of stepped-up demand for goods will work to the serious disadvantage of the highly industrialized European countries.

As is evident at this moment in our own country, sensitive agricultural and raw material prices rise first and farthest under the economic pressures that are bound to be generated by greatly expanded industrial production. These are the prices generally of things that Europe must buy from the rest of the world. They have already risen far more than the prices of the things that Europe has to sell, and there is little likelihood that this development will be reversed. Taking these three factors together, it is clear that Europe's trading position in the world is bound to deteriorate.

There will be one favorable factor affecting the financial position of the European countries which will partly offset the deterioration I have just described. As this country buys more tin, rubber, copper, and other raw material imports, the independent countries of the sterling area and many of the dependencies of the European countries will earn more dollars. On balance, however, we expect Europe's dollar position to be worse by a substantial sum in this fiscal year, even though military production in Europe cannot hit its full stride for many months. The dollar balance of payments should not deteriorate much more in 1951-52 but the increasing strain that will be felt in that year may well prevent the improvement that we have been counting on and that would otherwise take place.

Faced with these developments, the basic problem for the Europeans as for ourselves, is to find a means of maintaining economic strength while diverting resources to the task of rearmament. Essentially, this is a problem the Europeans must solve. A very large proportion of the burden of rearming themselves will inevitably have to be borne by them. However, the financing with MDAP funds of machinery