Mr. ENGEL. Off the record. Mr. ENGEL. Thank you, Mr. Secretary; both of you. PROCEDURE FOR DISBURSING FUNDS IN EUROPE Mr. PLUMLEY. I still do not understand how, inasmuch as $3,504,000,000 is to be expended, in title I countries if it is appropriated, to cover military assistance and so on, the economic status of these courtries in which that sum is to be expended is not involved. How can it all be expended under purely military direction? Mr. FOSTER. Mr. Plumley, I do not think there was any intimation by anybody who has commented so far that this will not affect the economic situation of these countries. I attempted to I attempted to point out in my prepared statement that there would be an effect. The $3,504,000,000 to which you have referred is, of course, an estimate as to the total actual production in the United States which will be supplied to the other nations, and it will, under the policies outlined by Secretary Johnson, necessarily mean an economic load through the maintenance of the forces which will be created to use that equipment, particularly in Europe. So that you are quite right, there will be an economic effect. There has been no desire to conceal that from the committee. Mr. PLUMLEY. What I am driving at is this, and I confess I am a little bit confused: Who is going to administer this fund in toto? Under whose directon is it to be expended? Who is going to allocate to these different countries, depending upon their economic status and their needs involving the military, as evidenced by our desire to get them to help us? Who is going to say what and when and how? Secretary ACHESON. Well, it will be worked out in accordance with a military plan. The military plan, so far as this Government is concerned, is dealt with by the Defense Department. So far as the North Atlantic Treaty Organization is concerned, it comes up from the Military Committee, through the Standing Group, to the Defense Ministers. You develop a plan which says, "This country is to have so many divisions of this sort, so many air groups, and so forth." The equipment is allocated in accordance with that military plan. Mr. PLUMLEY. You say "is allocated." Let me ask you this question: Has that plan been formulated definitely so that if we were to inquire now as to what was proposed to be expended in west Germany you could tell us anything about it? Secretary ACHESON. That would be from the portion of this sum which would be spent in Europe. You mean out of the $4,000,000,000? Mr. PLUMLEY. Yes. Secretary ACHESON. No. As Secretary Johnson says, the amount of money which would be spent in Europe is an estimate, and his guess was that the greater part of it would be spent in the United States. Some part of it, which he has put in here at $400,000,000, would be spent in Europe, but that is an estimate. Mr. PLUMLEY. That is all. Mr. MAHON. Mr. Taber? FORMULATION OF PRESENT MUTUAL DEFENSE ASSISTANCE PROGRAM Mr. TABER. Can anybody tell me the present status of the mutual defense assistance program? Secretary ACHESON. Yes. Mr. Ohly can give that to you. Mr. MAHON. Off the record. (Discussion off the record.) Mr. TABER. When was this program conceived? Secretary ACHESON. The program is the result, as Secretary Johnson said, of a long study. The group working on military assistance, and the people working on the North Atlantic Treaty Organization, have had the goals which have got to be reached in order to attain some sort of effective defense in western Europe for a good long time. Secretary JOHNSON. Compilation of this started last October. Mr. TABER. I am referring to this program you are up here with today, represented by the budget estimate of $4,000,000,000. Secretary ACHESON. The Secretary says that particular thing was started last October. Secretary JOHNSON. Last October 5th, the Ministers of Defense first met. Is that correct? General LEMNITZER. Yes, sir. Secretary JOHNSON. They then authorized the Chiefs of Staff of the various countries, who compose the standing Military Committee under the North Atlantic Treaty Organization, to find out what it was and what it took for over-all defense. This thing has been building up since shortly after that period. The reports come from the standing Committee to the Defense Ministers and then go up to the Council of Foreign Ministers. This thing has been in an acute stage of arriving at this figure for some 6 or 8 weeks. The planning itself was approved at The Hague on March 31 and April 1, and out of it came the figures. This definite plan went to the President on the 14th of July, but it is not the product of any one group. It is the product of the Foreign Ministers, of Mr. Obly's MDAP, and of General Lemnitzer and his group. The people in Defense and in the State Department all work together. It is a composite arrived at on the basis of the military figures as to what it takes to do this job. Mr. TABER. I do not know how far you may be able to explain this, but the thing that impresses me with reference to it is this: Secretary Acheson and Secretary Johnson came before the Senate sometime in June. This military-assistance extension was reported. to the Senate on June 21 and passed the Senate on June 30, with about $1,147,500,000, as I remember it. Perhaps there was $75,000,000 more in connection with another item, but I am not sure. Nothing was said about this program. You came before the House committee sometime between the 30th of June and the 12th of July, when they reported the bill, and it was very evidently in being at that time, and yet the House committee and the Senate committee were not advised of that situation before the bill was passed, or that anything was coming up in connection with it. The bill was signed by the President on the 26th of July, which is just about an even 69887-50-pt. 2- -20 week ago, and nothing was said until the last of last week about this program. Now, I am wondering why that procedure was followed. Secretary JOHNSON. It is an excellent question, and I am glad to have the opportunity to answer it, and maybe Secretary Acheson will want to speak to it, too. We were moving along on a program that contemplated a longer period for building up the defense of the western nations. We were also confronted with the problem of getting those western nations to increase their own contributions to defense and making it possible for an over-all job to be done. Then came Korea; and the same sense of urgency affects them as affects us. That sense, plus the need as it has now been developed, means that this program, which has been under study since last October as a longer range program, now comes up on an urgency basis. And the President, as I said in my opening statement, did mention in his message of July 19 that he was going to ask for such a fund. Secretary ACHESON. I would like to say that I concur wholeheartedly in what Secretary Johnson has said. This is a stepping up of the program on which the whole defense of western Europe has been based. Korea was obviously as clear a warning as anyone could get that time was much shorter than anybody had supposed before. Also, there are two other titles in the act which were profoundly affected by events in Korea. One is the title relating to Greece, Turkey, and Iran, and the other is the far eastern title. The far eastern one was directly affected by Korea, and the problem of Greece, Turkey, and Iran was also directly affected. In fact, when we were preparing the program which has already been passed by Congress, it was contemplated that there could be a reduction in some of the Greek and Turkish forces. It now seems quite clear that this may not be possible and therefore supplemental amounts are necessary. The far eastern portion of the program is very clear, and I need not go into that. Not only did the President make this statement to which Secretary Johnson has referred, but I believe, Secretary Johnson spoke to the Armed Services Committees on the subject, and I know that I discussed it with the Foreign Affairs Committees. Secretary JOHNSON. We both did. I am glad you brought that out, Mr. Taber. It is an excellent question. USE OF INDUSTRIAL FACILITIES OF FOREIGN NATIONS Mr. TABER. You indicated that perhaps $400,000,000 out of this item, or 10 percent, might be expected to be produced abroad. I have here the table which was furnished me by the ECA as to the production of these different countries-the steel production. The production of the Atlantic Pact nations was somewhere around 44,000,000 tons in 1949, calendar year, as against a United States production of approximately 70,000,000 tons. It is rather apparent from the approach that we are making to things, that we are going to use about all of our own steel capacity and yet we are expecting the Atlantic Pact nations to produce only perhaps 10 percent of the whole amount of this picture, when they have a steel productive capacity that is awfully close to two-thirds of our own capacity. And they have a labor set-up available far more than we have. If we are really anxious to do business and get production, it would look as if we were not approaching this from the standpoint of a satisfactory method or the best method of getting the production that we ought to have in this situation. Frankly, I am very much disturbed by that picture. Mr. FOSTER. Mr. Taber, may I respond to that? I think you misunderstood the effect of the use of the $400,000,000. There is no idea whatsoever that the total production in Europe in terms of equivalent value would be only $400,000,000. The purpose of the $400,000,000 is to supply the missing component of dollars on which you will build a considerably greater military production. I used the example of a power plant, where you got 95 percent of the total from local resources and 5 percent from dollars. I do not think you will get any such multiplying effect as that, but you will get a multiplying effect of several times the $400,000,000 and it is that use which we are calling upon the European countries to make of the dollars. I am sure that you would be well satisfied with the use, because it will only be released when the European countries can indicate that that multiplying effect will take place. Mr. TABER. If you are going all out for production and getting this stuff into shape, as I remember it, there is in this 10-billion-dollar request for our own set-up approximately 2.5 billion dollar extra for personnel, and most of the rest of it goes into the production of either airplanes or ammunition and munitions. If we are not going to avail ourselves of that potential steel production in these European countries on somewhat of a proportionate basis, it looks to me as though the whole set-up was asleep at the switch. I do not know, but that is the way it looks to me. Mr. FOSTER. In addition to the use of the $400,000,000, we will expect that they will produce a great many hundreds of millions of dollars worth of equipment in which there would be no dollar component at all. In other words, this is simply to provide the missing element without which they could not produce certain kinds of equipment, and to lubricate the shifting as between countries where you can get in one country a better production of a certain item for use by another, than you could get if the latter country were forced to produce the needed items itself. Mr. TABER. I would like to see some evidence of life on the part of those Atlantic Pact nations, myself, in connection with this program that would show something. I do not like an approach of taking advantage of about one-half of what it seems there is in sight, of utilizing only a very small part of what ought to be available. Mr. FOSTER. Mr. Taber, Secretary Acheson earlier outlined the considerations being given by the Council of Deputies in which the European countries are examining their situation to see what the total amount is that they can produce. Mr. TABER. They ought to be doing a little more than examining it. Mr. FOSTER. Examining it and coming up with suggested programs. The whole intent of this thing is to get out of the European countries the fullest possible utilization of the resources that they have. The program of the $400,000,000 is based on that. Secretary Johnson's illustration here is an indication of about the kind of total that you may get by introducing this $400,000,000 into the stream. Mr. MAHON. Did you have something you wished to add to the discussion, Mr. Secretary Acheson? Secretary ACHESON. I just wanted to make it absolutely clear, if I can make it any clearer-I do not know that I can-that wholly apart from the $400,000,000, and without any consideration of that, it is essential to the success of this program that the European countries shall do exactly what Mr. Taber thinks they should do, which is to produce every bit of equipment they possibly can produce. In addition to that production, we are going to produce some in the United States. Also, in further augmentation of this production, we can, by the proper use of this sum, which we roughly estimate at $400,000,000, increase even more greatly production abroad. There will thus be three great streams of military production; first, that portion of European production which needs no help from us; secondly, what we produce in the United States; and third, additional production which the Europeans can undertake with some help from us. Mr. FOSTER. I think we ought to say that the $400,000,000 is an estimate and if they could produce more there would be variations in that total, and if they cannot use it properly, there would be less. Mr. SHEPPARD. Would you permit a question at that point? Mr. TABER. Surely. Mr. SHEPPARD. Is not that particular category of expenditure itself contributing to the domestic economy to a large degree? That is, the dollar shortage over there has been a very material factor; has it not? Mr. FOSTER. Yes. Mr. SHEPPARD. Will not this top-bracket operation that you have been referring to here represent a very large contributing factor to straightening that out? Mr. FOSTER. That is correct. It would certainly be a great help in making up the adverse effect on dollar positions brought about by the greatly expanded arms program in Europe. Mr. SHEPPARD. That is what I had in mind. STEEL PRODUCTION IN GERMANY Mr. TABER. I have one other line that I would like to take up. I am advised that the steel capacity of Germany presently, if it were fully utilized, would be 14.5 million tons. The limitation on the use of that is somewhere around 11.7 million tons. Production last year was something like 9,000,000 tons and production in the first 3 months of this year was about at the rate of 11,280,000 tons. Is any step being taken to allow that production to go up and allow those people to get to work so that they can furnish a reasonable part of the required steel capacity to make this program function? Secretary ACHESON. The High Commissioner has that question very closely under watch at the present time. Mr. TABER. I know, but is there any effort being made to get Britain and France to agree to stepping up, to increasing that limitation, so that we can take advantage of that situation? Secretary ACHESON. I think that will not be a problem, Mr. Taber. Mr. FOSTER. I think it should be mentioned that at the moment there is a surplus of steel from other countries and there is in addition |