in pretty close quarters myself, but I suggest to you that it might be a good idea to review these problems as related problems, insofar as our future responsibilities are concerned, because these countries at the present time do not have enough even to satisfy their current needs.

I doubt that it can be successfully contended that the burdens placed on them by these treaties will not increase those needs and therefore increase our responsibilities.

Mr. CLAYTON. Of course, there would be a burden to the extent that Italy would have to supply coal in the manufacture of the goods which it would deliver as reparations, I do not understand, however, that any of the raw materials that actually enter into the processing of the goods would have to be furnished by Italy.

I understand they would have to be furnished by the people getting. the reparations.

Mr. LODGE. This is largely true about the reparations to be paid by Italy to the Soviet Government. I saw a statement by former Under Secretary Adolf Berle, in which he indicated that this treaty provided not only for the export of the results of labor on these raw materials, that is the finished product, but also that it would deprive these countries of a considerable quantity of their own raw materials, and consumer goods.

Mr. CLAYTON. Any raw materials which have been imported and which would require the expenditure of foreign exchange, would have to be furnished under the treaty by the country that received the reparations.

For example, if cotton goods are to be given by Italy as reparations to Greece or Russia, those countries must furnish the raw cotton to make the goods.

Mr. LODGE. Is it your contention, Mr. Secretary, that the only imposition made by these treaties or rather the only result of these treaties insofar as reparations are concerned, is to make use of the available labor in those countries?

Mr. CLAYTON. In large part that is true. It makes use of the labor and plant facilities which they have in excess now, beyond their current needs.

Mr. LODGE. In other words, you would be ready to say that these treaties, which are regarded by some people as perhaps the best that the hard working Mr. Byrnes was able to obtain under the circumstances, but nevertheless as Draconian in their measures, will not add to the relief needs of the countries involved.

Mr. CLAYTON. I think that is substantially correct. The relief needs from our point of view spring from the lack of foreign exchange by the respective countries with which to purchase the needed imports of food and other items.

I don't understand that the payment of reparations in the form in which it has been provided in the peace treaties would be a serious drain on the foreign exchange resources of these countries.

Mr. LODGE. Mr. Secretary, why do we care whether or not we furnish them with the dollars to purchase supplies from us, because we are after all primarily not a seat of dollars from their point of view but a seat of supplies.

Why do we care whether we furnish the supplies directly or whether we furnish them with the dollars with which to purchase the supplies?

Mr. CLAYTON. We do not care. We would rather do it the latter way if the country itself is able to do the procuring, shipping, and so on, as some of them certainly would be able to do under our supervision.

We would furnish the money as they have the need for it, to pay for the supplies that they themselves buy in our country. We would really rather do it that way, because it relieves our organization here of the work of making those purchases.

Mr. LODGE. You would rather furnish them with the funds and I can see how that would simplify procedure for you and the administration here and I think it is a good idea, but it does not seem to change the basic problem that what they need is not really dollars but supplies.

Mr. CLAYTON. They can get the things only if they have the dollars. Mr. LODGE. Unless we are willing to give it to them without the dollars.

Mr. CLAYTON. If you give it to them without the dollars it is equivalent to your giving them the dollars.

Mr. LODGE. I would rather put it the other way.

In other words, they cannot eat the dollars and they need something

to eat.

Mr. CLAYTON. We would hand them the dollars as those dollars are needed to pay for the goods that are being purchased.

Mr. CHIPERFIELD. Mr. Chairman, at that point would the gentleman yield for one second?

Mr. LODGE. Certainly.

Mr. CHIPERFIELD. I do not know whether it has been raised or not, but why could not the International Bank furnish this credit? Mr. CLAYTON. This is not a credit. We think to the extent that we have indicated, these countries are not good credit risks. We might make a credit to them and take their note, but we feel it would be a repetition of World War I mistakes. We feel this must be a grant.

The International Bank cannot make a grant.

Mr. CHIPERFIELD. Thank you very much.

Mr. LODGE. Would you say that the relief need of the Yugoslavs to which we supplied a great deal, is affected by the fact that they are reported to have a standing army of 600,000 men?

Mr. CLAYTON. I do not think they have an army of that size now. Of course, if a country maintains a large standing army and if they are not producers but consumers of food and other essentials of life, the extent of need is greatly affected. There is no doubt about that.

Mr. LODGE. In other words, the Hungarians' relief needs have been affected by the fact that there have been several hundred thousand Russian troops there living on the country?

Mr. CLAYTON. To the extent that troops were living on the country the extent of need would be affected; that is right.

Of course, I may say to you that the Yugoslavs claim that their troops are working all the time, that they are producing in different

ways. They say that they have helped to repair the railways and put them in operation again and done other things of that kind.

Whether it is true or not I do not know.

Mr. LODGE. May I ask one more question, sir?

One thing I cannot quite understand is in the last sentence of subsection d on page 3 with respect to reimbursement.

It is my recollection, Mr. Secretary, that you told us yesterday that as these supplies were sold by the governments in question, the local currency would naturally be ours, but we would spend it for charitable purposes in the country in question.

We do not expect or want to be reimbursed for this $350,000,000. Consequently, this last sentence was not quite clear to me.

Mr. CLAYTON. I said, I think, that we will provide that receipts of local currency for the sale of supplies will be put in a special account and will have to be used for relief needs locally; for hospitals, child feeding, or something of that kind. We would not keep the money ourselves but we would require the Government to put it in a special account and use it for general relief purposes.

Mr. LODGE. That was my understanding. That was why this clause was not quite clear to me. I did not understand that we were planning to be reimbursed.

Mr. CLAYTON. That is right.

You are speaking of the bill?

Mr. LODGE. Yes; that is on page 3, the last sentence of paragraph d. Mr. CLAYTON. Mr. Lodge, that has to do with reimbursement to procurement agencies here. If the Commodity Credit Corporation, for example, should buy wheat to give to a country, this refers to the reimbursement that is to be made to them for their expenditures. Mr. LODGE. Then it is a matter of bookkeeping between the various branches of the Government?

Mr. CLAYTON. Yes.

Mr. LODGE. Thank you very much, Mr. Clayton.

Mr. CLAYTON. I want the record to be clear on this point. I am informed that in the case of Hungary, reparations payments of $23,000,000 a year are of a character which would affect its relief needs. We have taken that into account in making these estimates.

Mr. LODGE. Why would that be true with Hungary and not with the others?

Mr. CLAYTON. It is handled in a different way.

Mr. LODGE. I understand from an article in The Nation that 8 percent of Rumanian production has gone to the Russians.

Mr. CLAYTON. I doubt if anybody outside of the Government officials of Rumania knows the exact amount.

Mr. LODGE. I believe we have a very good man there, General Richardson, have we not?

Mr. CLAYTON. Yes, sir; and we have been guided a great deal by reports coming from him.'

Undoubtedly a great amount of their difficulty has come from nationalizing the means of production which inevitably disrupts things greatly for a certain length of time. They put their experienced managers out, they broke up their great estates which were highly organized for production.

The land has been divided up.

I am not commenting on whether that is proper or improper, but I am saying that it does interrupt the continuity of production until adjustments have been made to the new system.

Mr. JONKMAN. Will the gentleman yield?

Mr. LODGE. Yes.

Mr. JONKMAN. I am a little confused on this matter of reparations: Is it not true that reparations takes exports? If they did not pay reparations with the exports, they would get exchange. Are they not being deprived of the exchange that we are furnishing them and are we paying the reparations?

Mr. CLAYTON. No; I think not. They have unemployed working people. The last figure I saw for Italy was a million and a half. They have unemployed plant facilities. As long as they have that and as long as the country receiving the reparations furnishes the raw materials which must be imported with which to make the goods, it does not deprive the paying country of anything in the way of foreign exchange.

Mr. LODGE. Mr. Secretary, it seems to me, that there is this to say with respect to Mr. Jonkman's remark, and that is that other things being equal, the Italians could perhaps under normal circumstances and without a treaty, import these raw materials, and export them for American dollars.

Mr. CLAYTON. They are importing all they possibly can. I am sure I can say that authoritatively, that at the present time they are importing all they possibly can and putting all the people to work that they can, so whatever they have now in the way of unemployed labor and excess plant facilities is really surplus.

I would like to emphasize that the reparations payments do not start for 2 years, until after the ratification of the treaties. Mrs. DOUGLAS. Will the gentleman yield.

Mr. LODGE. Certainly.

Mrs. DOUGLAS. Is not that the point? Isn't our immediate job that of getting people on their feet so they will not starve to death after the UNRRA pipe line line runs out? The problem of reparations comes much later. This relief program is expected to run for the calendar year of 1947 only.

Mr. CLAYTON. That is right.

Mrs. DOUGLAS. We can sit over here in the United States and be very objective about reparations but remember that much of Europe is in ashes and the Germans and Italians are responsible for this condition. Now, it is hard to say, "Greece you can have no reparations from Italy", the Greeks feel very bitter about the Italians.

Mr. LODGE. I said that I recognized that need and I wanted that need to be satisfied. However, we should not on the one hand recognize this need through this resolution and then increase the need through the treaties in question.

Mrs. DOUGLAS. The treaties provide for reparations to come along later.

Mr. LODGE. We cannot foresee it, but many thoughtful people think that these reparations will add to their relief needs.

Mr. FULTON. As to that particular subject, Mr. Lodge is on, section 2d is the section about which I made the comment yesterday stating that as drawn it was inadequate.

I still feel that it is a matter of statutory construction. If you would let me or my office know who has prepared that section, I would like to sit down with him and make it more clear, that whole particular item.

Mr. CLAYTON. We decided yesterday when we went out after the hearing, that Mr. John Howard, who is here with me today and who is counsel for the State Department, is going to get in touch with you and discuss this matter.

Mr. FULTON. And with Mr. Lodge, because we both objected.
Chairman EATON. Mr. Bloom would like to ask a question.

Mr. BLOOM. Mr. Secretary, how about the children. What provision have you made for the children in this matter, which, as you know, is very dear to my heart?

Mr. CLAYTON. I am glad you asked about that. I felt yesterday I should have said something about that and I wanted to this morning. As you know, the United Nations is making a careful study of the child-feeding job of Europe and are trying to get up an organization and funds to deal with the problem of child feeding.

Mr. BLOOM. Is that from private funds?

Mr. CLAYTON. They would receive private funds to the greatest possible extent but the base of it would be public funds.

It is a matter which the State Department has not gone into a great deal as yet. We are going to have to do that to decide what our policy will be. It requires a good deal of study and consideration.

We think that our request here is absolutely essential, though, for anything that might be done for the children later on. This would be the foundation of child relief and if anything should be done in addition to this, we think it should largely be in the nature of special foods like cod-liver oil and milk in different forms, which as you know, are essential in child feeding.

It is possible and perhaps even probable that we may want to come before you at some subsequent date and ask for some modest appropriation as a contribution of the United States to this child-feeding program of the United Nations.

Mr. BLOOM. Why do we not do it now?

Mr. CLAYTON. Because we have not had time to go into the matter fully and determine among ourselves as to how much we should ask for and the conditions under which it should be granted, and so on. It is a matter that requires a great deal of careful attention. We have been working on this $350,000,000 matter for at least 4 months.

Mr. BLOOM. Mr. Secretary, have we not been working longer on the children's welfare relief than we have on this, and still nothing has been done with reference to the children?

Why can we not do that now, or why can we not earmark a certain amount of this for the children? You must realize that they are the only ones not getting any relief today throughout Europe. Everyone that can comes in and takes and the poor children get nothing. That is a fact.

Mr. CLAYTON. The state of the children is a very sad one in these countries, but we feel that this bill is essential even for the child-relief