MUTUAL SECURITY ACT EXTENSION TUESDAY, MAY 19, 1953 HOUSE OF REPRESENTATIVES, The committee met in executive session pursuant to call in room G-3, United States Capitol, at 10:45 a. m., Hon. Robert B. Chiperfield (chairman) presiding. Chairman CHIPERFIELD. The committee will come to order, please. Mr. Wood, proceed in any way you desire. STATEMENT OF HON. C. TYLER WOOD, DEPUTY TO THE DIRECTOR FOR MUTUAL SECURITY Mr. Wood. We planned to present to you this morning the offshore procurement program and the infrastructure program. Offshore procurement, as members of the committee know, has become a very important element in our total military end item materiel aid. In fact, it has become so important that we felt it deserved one special session at which our past activities and future plans in this area could be fully laid before the committee. To make this presentation we have Mr. Halaby, who is Deputy Assistant Secretary of Defense for International Security Affairs, and General Finlay, who is the Deputy for Defense Affairs in the Office of the Special Representative in Europe. Without further ado I would like to turn the session over to Mr. Halaby. STATEMENT OF HON. N. E. HALABY, DEPUTY ASSISTANT SECRETARY OF DEFENSE FOR INTERNATIONAL SECURITY AFFAIRS Mr. HALABY. This offshore procurement program was conceived in the late summer of 1951 and it was launched by a directive from Secretary Lovett in late August. We actually got organized and started placing contracts last spring, during fiscal year 1952. The bulk of them were placed in the last quarter of the fiscal year. The new program which we will lay out to you is a continuation you might say that this program has been conceived by Mr. Lovett and Mr. Foster, a banker and an industrialist, and it is being carried on and pushed forward by Mr. Wilson and Mr. Kyes, two great production men. We believe we have been getting our money's worth in this program. We want to, today and in the future, get your ideas. We want to work out the best possible program we can for fiscal year 1954. We believe your visits to Europe and the ideas you may have can be extremely useful and where they improve the program they will be used. We have an enormous amount of data. I have here in front of me, for example, copies of summaries of the contracts that have been let up to March of this year. We have any amount of detail that you may want. We want to give you all the facts, the good and the bad, and all the data that you want. Now, I said a moment ago that we thought we were getting our money's worth. I think the thesis of this offshore procurement program really is that these are triple-duty dollars. In the first place, they buy hardware for the end-item program. In the second place they build military production in Europe toward a self-supporting defense production. Incidental to the first two duties they provide economic benefits. They provide dollars with which to help close the balance-of-payments deficits; they provide an increase in the gross national product of these countries; they provide employment and they provide a renewed spirit in some of the peoples of these countries because they feel that they are earning their way. They are earning self-defense, you might say. In a sense these 3 purposes also strike at 3 threats to Europe. In the first case, the hardware is the kind of thing that the Communists respect. In the second place, the mobilization base which we are helping to create is one that will be available, in being, in a greater emergency than the present, if one arises. Finally, one of the greatest problems of all, morale, spirit, determination, is improved, we believe, by the fact that these are hardworking dollars which are being put to use in the form of earnings. I would now like briefly to lay out 10 reasons why it seems to us to be a very good piece of business to place some of these end-item contracts overseas. In the first place, it fills an urgent requirement. This program fills urgent military requirements for aircraft, minesweepers, ammunition, radar, and similar items. Those are among the highest deficiencies, as General Ridgway told you yesterday. In the second place, the production is on the spot where the equipment is going to be used and therefore the replacement problem is simplified. Chairman CHIPERFIELD. What if Russia overruns Europe? Mr. HALABY. If Russia overruns Europe, there are lots of changes that would be made in this whole program. (Discussion off the record.) Mr. HARRISON. In that connection, you are not building any new industrial installations, but are utilizing a part of such facilities as are there? Mr. HALABY. That is correct, sir. With regard to production of end items, however, there is expansion going on because to get the order and fulfill it they may have to expand, modernize, or improve their facilities, but there are no construction contracts. Mrs. CHURCH. What proportion of the amount you are asking for offshore procurement is going into the expansion of plants? Mr. HALABY. We have not that figure. It would be most difficult, if not impossible, to obtain in a short time. If we can come to that question a little bit later in some of the data I will present to you, I believe you can get a general idea, but, unfortunately-in the over 400 contracts that have been let--in each case, we do not have an estimate of just how much plant expansion they undertake to do. Mrs. CHURCH. You do not mind if I come back to the question later? Mr. HALABY. I cannot promise to give you very much of an answer. Chairman CHIPERFIELD. How much is in this new program of $5.8 billion for offshore procurement? Mr. HALABY. I have that at the very end and, if I could build up to it, I would appreciate it. Mr. Wood. I believe Mr. Halaby may have misunderstood Mrs. Church's question. The amount he is talking about that is included. in this request includes funds for the purchase offshore of the military end items and does not include any funds for construction. It may be, as they will tell you later, that we might wish to use a small amount of this for the provision of certain necessary tools and things of that sort, but the amount Mr. Halaby is now talking about, Mrs. Church, does not include any funds for construction of plant overseas as such but rather the funds for the purchase of the military end items. I think Mr. Halaby was mentioning or thinking of the funds which the countries themselves might put into construction. Is that correct? Mr. HALABY. No. I believe she was asking what plant expansion results from the placement of these contracts. Mr. WOOD. With the funds of the Europeans? Mrs. CHURCH. No, with our funds. I understood Mr. Halaby to say that we were putting in no funds for construction but under the program there would be expansion and my question was, what percentage of the funds we are being asked for would go for expansion of existing plants. Mr. HALABY. Since we have gone into it at this point I think I had better give you my best answer and that is I do not know. However, we could, I suppose, over the coming weeks, get you an estimate of that. You can imagine the problem of getting that answer with respect to United States production. What the percentage of the total that we have spent over the last 5 postwar years has gone into plant expansion? It would be a terrific statistical job to get you that information. We will go back and think about it and try to give you an answer to that question but as of the moment I do not know. Mrs. CHURCH. I would like very much to have it eventually. Mr. HALABY. Just to summarize very quickly, we fulfill urgent military requirements. We do it on the spot where maintenance and replacement is simplified. Third, we create what you might call a minimum mobilization base in Europe. Fourth, the packing, handling, crating, and transportation problem is greatly eased, particularly with respect to heavy items like ammunition which are consumed at a high rate. Fifth, incidental to this program we reduce the requirements for dollar aid. Sixth, there is an impetus built into this program toward self-supporting military production in Europe. Seventh, there is a multiplier effect here. For example, in the NATO aircraft production program, our funds combined with theirs get a total number of aircraft produced that is larger than what would have otherwise have been produced. One dollar in the aircraft procurement field is returning more than $1 worth of airplanes. Eighth, through combined planning which has been going on in this program, we are moving slowly toward standardization, not at any gallop but more toward a gradual improvement in the situation. Ninth, there is as a result of this program improved technology, greater skilled labor pools, and related benefits in Europe. Finally, I emphasize again there is a morale improvement which comes from earning, rather than receiving what often seems like charity. Now, if I can get right into the program itself, I believe you have before you a booklet. This was intended to provide the committee with all the information that we have available, and we are prepared to supplement it with everything that is available in Washington as of this morning. Now, if I can go right to the program and come back and show how we developed the program. (A chart was referred to entitled, "Offshore Procurement by Service and Commodity (in Millions of Dollars)," as follows:) Mr. HALABY. This is the second chart in your book. This is "Offshore Procurement by Service and Commodity (in Millions of Dollars)." It shows data on contracts placed up to the second of May, 1953. I am sure you realize this data is being supplemented by more recent data on a weekly basis. For example, as of the 13th of May, this figure had increased from $705.4 million in the case of the Army, to $812.5 million. Mr. VORYS. When does it start? |