Chairman CHIPERFIELD. Yes.

Mrs. CHURCH. I wish to ask if the NATO countries have the right to review the non-NATO expenditures in each national budget. Is the United States military budget reviewed by NATO, too?

Mr. HALABY. The United States budget is set forth in answer to a NATO questionnaire and the facts are laid on the table. Questions are asked about it and some criticisms are made of it-Mr. Martin in the State Department is more of an authority on this-but to date I would say our military budget has not greatly changed in the light of the observations made by the other countries.

Mrs. CHURCH. Our atomic expenditures and everything else is brought to the review of the NATO countries?

Mr. HALABY. All our expenditures that come within the NATO category of defense expenditures are laid out, but not in great detail. For example nothing is said in detail about our atomic energy program. That would be a violation of the law. The Atomic Energy Act prevents that.

Mrs. CHURCH. I repeat that I hope the other countries do not get the idea that they cannot make their contracts and that we will pick up the tab.

Mr. HALABY. As has been pointed out, the whole French end-item program is a form of meeting French requirements with American

resources.

Mr. HARRISON. Is it not a question of which pocket you take it out of? You either pick up contracts that they have made or you go out and make new contracts for them. It is merely a distinction without a difference, or is it?

Mr. HALABY. I would say on that point, sir, the most striking difference is that we do not expect to allocate any of the items bought with this special military support fund, to other countries, whereas all of the stuff we are buying in the United Kingdom or Italy or Belgium, are allocated as the military authorities think best.

In this case it is in France or France and Indochina, north Africa, and so on.

However, in Belgium we allocate it wherever we wish.

Legally I think we could allocate this stuff, but it is of French type predominanty, and it is peculiarly designed for French forces. Therefore, we have no expectation of allocating it away from France. We reserve the right but we do not expect to exercise it.

Chairman CHIPERFIELD. Following your suggestion, we might have Mr. Martin make an explanation. I understand from Mr. Wood he is familiar with this situation.

STATEMENT OF EDWIN M. MARTIN, SPECIAL ASSISTANT FOR MUTUAL SECURITY AFFAIRS, OFFICE OF THE SECRETARY OF STATE

Mr. MARTIN. I happened to be at Lisbon and participated in the discussions which led to the initiation of this special program for France which you have been talking about.

One of the main reasons, as we understood it, for handling it in this special way which results in its being shown in a special line in the chart, was to avoid just the danger that you have referred to.

In other words, we had a program based on certain criteria set up by the JCS, and followed it fairly carefully as to the types of enditems equipment which we would be prepared to supply to the various NATO countries.

There were other types which we felt it was essential to hold the NATO countries to supply out of their own budgets and we tried to keep a fairly close line and to keep very heavy pressure on them to meet the requirements for items of a more specialized local character-personal items of equipment, French types of artillery and ammunition for the French types of artillery, for example, and various things of that kind.

We felt it was very important from an incentive standpoint to have it clear in their minds that here were things we would not supply and that it was up to them to supply.

What we were faced with in the case of France was almost entirely attributable to the very heavy drain of the Indochina war, which grew more and more expensive as time went on and grew expensive to a point where the French could not manage out of their own resources and out of the level of resources in the form of economic aid, defense support that we had contemplated or felt could be beneficially transferred to France.

Therefore, we devised for France and France alone, a special scheme which we wanted to identify, first as much as possible with Indochina, and tie it down to the fact that France was involved in Indochina so it would not establish a precedent for picking up things in country budgets in other cases.

Secondly, we wanted to tie it down to getting specific items of hard goods that we could pass judgment on as being of a high priority in meeting the requirements either of the Indochina war, or the NATO buildup.

Thirdly, we provided in our agreement on this, that the price had to be right. We did go in and work with the French on the price that we would pay for some of these things. The agreement provided that the price could not be higher than the normal price for United States goods delivered in France of a similar type.

Now in this background of trying to keep this a special deal politically justified and financially justified by the Indochina situation, we have shown this as a special item and not lumped it with the last of the normal OSP. We felt if we did that, it would be more of an invitation for other countries to try to bring into the normal end-item program, the check which we felt they should pick up themselves and pay for, and that there was only justification for our handling it in a special case like the Indochina case in France.

I would like to comment on one other question that comes up with respect to the NATO review of the United States budget. I think everything Mr. Halaby said is correct. I have been to Paris participating in this a couple of times in the last 6 months. I would just add that the concentration in NATO is not so much on the budget themselves as it is on the forces to be raised.

The forces have implications for the budgets but by concentrating on the forces to be raised for the benefit of NATO, we avoid having to deal with the question which really is not proper to NATO.

On the one hand we have the question of whether France is wisely spending the money that is in its Indochina budget which is not, as

was suggested, a NATO question, or having the NATO deal with the moneys that are in the United States budget for our global responsibilities which are much larger and more significant than our NATO responsibilities dollarwise.

So we have, by concentrating on force plans and having the monetary consequences flow from them, avoided getting into this overall budgetary problem which is not within the NATO responsibilities.

We have also avoided any discussion at any time of the example given of our atomic energy expenditures.

They have lumped into a one-line figure of total United States defense expenditures. That is all that is seen.

Mr. BENTLEY (presiding). Mr. Burleson

Mr. BURLESON. Aside from France's economic capabilities, was there not also something of a compromise as befitting their political situation? By that I mean their political willingness and their political abilities to perform?

Mr. MARTIN. I would think from a long-term standpoint we were concerned with whether or not the French situation was politically strong enough in the absence of some form of aid in the amount provided, to maintain both the effort in Indochina, and we were greatly concerned lest they withdraw and maintain a NATO effort which would encourage them to go ahead with EDC and the other things. They feel they must have a relatively strong NATO force if they are to sit down in the EDC, with a prospective German force which they know will be strong.

Now I think it is only really in a long-term sense that the splinter party and the other political problems which France has, have a direct impact on this. The French have a very difficult economic situation. Despite the high taxes in France and large collections, some things make it difficult for them to support a defense effort in NATO and Indochina as large as the facts of their international situation would require.

Now, if there were a stronger French Government, it is at least theoretically possible that that Government could take more vigorous economic measures and establish the French economy on a basis which would be sufficiently sound to pay, shall we say, a larger proportion than they are now paying because of these efforts, but that is a very difficult business.

Mr. BURLESON. You are saying that it is outside their economic capabilities to meet this obligation, and not a political compromise? Mr. MARTIN. That is correct. In a longer term a strong political situation would create a better economic situation in France, but that cannot happen overnight in France.

That is something for a number of years. In the short term I think it was basically economic. Because we did not want to have happen the things that would have happened to the French military effort if we had not helped them.

Mr. BENTLEY (presiding). Mrs. Kelly

Mrs. KELLY. Mr. Chairman, I would like to know if it is included in this "201 defense payments, $400 million for Indochina," or is it included in "401, no breakdown, developments and technical."

Mr. WOOD. You are speaking now of the fiscal year 1954 requests? Mrs. KELLY. Yes, Mr. Wood; is this outlay included in one of these or was it in excess?

Mr. WOOD. This outlay was in the total appropriation for military end-item aid and the funds for the financing of this came from that

source.

I think that maybe part of this was transferred-I am not surefrom economic aid, but I am not sure as to that-I guess that is not the case.

It was in the military end-item funds, Mrs. Kelly.

Mr. BENTLEY (presiding). You may continue, Mr. Halaby.

Mr. HALABY. This inner portion of the chart which you have before you, attempts to give you our best estimate of what contracts will be placed in the remainder of this fiscal year, that is during the last 2

months.

Recall, if you will, that this data is as of May 2, 1953.

The hatched portion here indicates contracts remaining to be placed. I will come to another chart and break that down.

You will note in general then that about $600 million was placed in fiscal year 1952 and about $1,400 million this year is expected, or a total of about $2 billion.

That $2 billion relates to a total cumulative appropriation for end items of about $14 billion, so about 1 out of 7 end-item dollars will be working in Europe.

Mrs. CHURCH. Would you mind repeating that?

Mr. HALABY. About one-seventh of your appropriations for MDAP end items

Mrs. CHURCH. Do you mean one-seventh of the United States share? Mr. HALABY. One-seventh of the total amount you have appropriated, $14 billion, is now at work or will be by June 30, in Europe. Now I neglected to mention one point.

You will note here, Japan and Formosa totaled to date about $15 million. It will be increased next year. It is primarily for ammunition.

There are some compasses and miscellaneous items in Japan.

(A chart was shown entitled "Fiscal Year 1951 and 1953 Offshore Procurement Programs, Value of Contracts Placed by Service and Country of Procurement" and is herewith inserted.)

Mr. HALABY. Now to refer to this figure which will soon be $2 billion, we have taken a map of Europe and attempted to show you by country, just what it looks like.

Again, France stands out as the recipient of the greatest number of these contracts.

Again, Mr. Vorys, just to be sure that there were not any hookers in this arrangement, we have shown the special military support and normal offshore procurement separately.

I am afraid the chart that I put in front of you there is not fully legible. These little symbols, the square red blocks are vessels.

For example, in France we have placed contracts in Cherbourg, Le Havre, Marseilles, Avignon, and Saint Nazaire for vessels and in another moment the Navy will explain a little bit about one type of minesweeper.

Mr. BENTLEY. Is this as of May 2, or is this contemplated through the end of the fiscal year?

Mr. HALABY. This is also as of May 2. I am sorry there is no date on it.