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Mr. Bohlen, the counselor, or Mr. Rusk, the director of the Office of United Nations Affairs, will be glad to discuss the matter with you at your convenience. It is expected that the agreement will be finally negotiated and signed about February 24. Promptly thereafter, it will be submitted to the Congress for formal approval. Faithfully yours,

ROBERT A. LOVETT, Under Secretary.

MEMORANDUM-BUILDING THE PERMANENT HEADQUARTERS OF THE UNITED NATIONS

The United Nations is now ready to build its permanent headquarters in New York City. The site has been substantially cleared. Plans have been drawn. Construction can start as soon as funds are available. To provide these funds, the Congress will be asked to consider a proposed interest-free loan of $65,000,000.

This memorandum describes the developments leading up to the proposal of the loan. It explains why, from the point of view of world peace and United States security and leadership, this proposal, although involving a relatively small sum, is one of the most important matters which will be before the Congress at its present session.

CHOICE OF THE SITE

The United Nations Charter, adopted at San Francisco on June 26, 1945, left the location of the Organization's headquarters for determination by the General Assembly. In December of that year the Congress unanimously adopted a concurrent resolution inviting the new Organization to locate its permanent headquarters in the United States. The General Assembly decided to accept this invitation and to make its temporary home in New York City while looking for an appropriate permanent location.

The General Assembly, during the autumn of 1946, considered several sites which had been proposed in or near New York City, Philadelphia, San Francisco, and Boston. It finally accepted the offer of Mr. John D. Rockefeller, Jr., and the city of New York of a free gift of land covering approximately six city blocks on the East River in New York City.

Once the site was chosen events moved rapidly. The Congress approved legislation exempting the Rockefeller gift from Federal taxation. Title to the property was transferred to the United Nations. The city of New York undertook extensive commitments valued at about $20,000,000 to make alterations in the surrounding streets and approaches. Nearly all the buildings on the site were demolished except an office building now being used by the United Nations.

LEGAL ARRANGEMENTS

The rights of the United Nations and the United States with respect to control over the site are defined in the headquarters agreement which became effective November 21, 1947, pursuant to approval by the Congress (Public Law 357, 80th Cong.). The site remains part of the United States and of the city and State of New York, while the United Nations is given specified privileges and immunities comparable to those enjoyed by foreign embassies here and by United States Embassies abroad.

BUILDING PLANS

Plans for the new headquarters have been developed under the guidance of the headquarters advisory committee, a 16-nation committee chaired by Ambassador Warren R. Austin. A group of outstanding architects and engineers from various member nations, led by Wallace K. Harrison, of the United States, collaborated in preparing plans for an assembly hall, office building, and conference facilities. These were unanimously approved by the General Assembly at its last session,

COST

The plans as originally drawn called for buildings that would cost approximately $85,000,000. These plans were revised in an effort to bring costs down to the minimum consistent with efficient operation and room for moderate expansion in the immediate future. As a result, the estimated cost was reduced to $65,000,000.

MATERIALS

Estimates made by the headquarters planning staff of the United Nations indicate that the total steel required for construction of the permanent headquarters will be approximately 40,000 tons, or about 0.4 percent of the total steel used in the United States for construction and maintenance in 1947. Less than one-half of the steel going into the project will be required during 1948. The type of steel used will, in general, be different from that which is used in multipledwelling housing structures. Thus no appreciable competition with housing requirements is expected.

Cement requirements are estimated at less than one-half of 1 percent of the amount of cement which was shipped to New York State in 1947 when the industry was operating at 75 percent of capacity.

The lumber required for the construction will be mostly concrete form lumber of which it is expected that there will be an adequate supply without competition with housing.

IMPORTANCE OF STARTING CONSTRUCTION PROMPTLY

The temporary headquarters of the United Nations are in a converted factory at Lake Success where the space is cramped and in large part unsuitable for office use.

The General Assembly meets in the New York State building at the old world fair grounds, about 20 minutes drive away. Both buildings are far from hotels, with the result that delegates have to spend many hours commuting to and from New York City.

In addition to operating efficiency, however, there are more fundamental reasons why it is of vital importance that the permanent headquarters of the United Nations promptly became a reality. Recent deterioration of international relations has led the nations of the world to put their faith all the more earnestly in the United Nations as their best ultimate hope for lasting peace. Failure to proceed promptly with the erection of the permanent headquarters would be construed, rightly or wrongly, in many member nations as lack of faith in the future of the organization.

Not only is the success of the United Nations and the assurance of its future development as vital to the United States as to any other member Nation, but the United States is even more vitally concerned than the other members in the establishment of the United Nations headquarters on a permanent basis. Location of the headquarters in this country is a source not only of pride to the United States but a very important factor in the prestige and leadership of this country in the activities of the United Nations.

The decision to locate here was made in the face of strong opposition on the part of many nations who felt that the headquarters should be in Europe. Most of those nations now feel that, once the decision has been made to locate here, it would be calamitous to reverse it. Nevertheless, the permanence of this decision cannot be assured as long as the United Nations remains in makeshift quarters. During the deliberations in the fall of 1946, when the site was chosen, the Soviet Union appeared to regret its original support for location in this country and sought to have a European location reconsidered.

At the last session of the General Assembly it was voted to hold the next session in Europe. Some members opposed this for fear that it would lead to a diminution of United States leadership. The United States felt bound to support the wishes of the majority of the members in this respect as long as the organization had not yet found satisfactory quarters in this country. If, at the time of the next assembly meets in Europe, the construction of the permanent headquarters in this country is not assured, there is a serious possibility that the old question of where the headquarters should be located may be reopened.

DIFFERENT METHODS OF FINANCING CONSIDERED

In normal times, a project such as this would, of course, be financed by cash contributions of member nations. The critical dollar shortage, however, makes this method a practical impossibility for most of the members of the United Nations.

The possibilities of private financing were carefully explored, and the most favorable arrangement that could be developed was submitted to the headquarters advisory committee. This was found to have serious disadvantages. It would still be necessary for a substantial part of the cost to be put up in cash by the members, and they were not in a position to do so. There were legal difficulties in providing for the possibility of suit against the United Nations, and there was the complicating factor of clearing the plans with the lenders so that the buildings would be adaptable to other use in the theoretical event of foreclosure. Furthermore, it was the feeling of many members that it would be inconsistent with the dignity and prestige of the United Nations for the organization to be under obligation to private financial interests. In view of these considerations, the members of the headquarters advisory committee (the United States representative abstaining from the discussion) unanimously requested the Secretary-General to approach the United States Government regarding the possibility of its making a loan.

In connection with this request, consideration was given to the possibility of making the loan through the Reconstruction Finance Corporation or the ExportImport Bank, but it was clear that neither of these organizations had the necessary statutory authority. A loan by the International Bank for Reconstruction and Development would also be impracticable since it can only loan to a member nation or to a business, industrial or agricultural enterprise on the guarantee of a member.

THE UNITED STATES OFFER OF A LOAN

Following consultations between representatives of the Department of State, the Treasury Department and the Bureau of the Budget, it appeared that the most appropriate arrangement would be a direct loan by the United States Government. In response to the inquiry of the Secretary-General, Ambassador Austin was authorized by the President to state that the President would recommend to the Congress the granting of an interest-free loan of $65,000,000. Ambassador Austin's letter of October 29, 1947, to the Secretary-General on this subject is attached. Letters explaining the proposed financing procedure had previously been sent on October 22 to the chairmen and ranking minority members of the Senate Foreign Relations Committee, the House Foreign Affairs Committee, and the Banking and Currency Committees of both Houses.

REASONS FOR MAKING THE LOAN INTEREST-FREE

It was originally contemplated that a loan by the United States Government would bear interest. On further consideration it appeared, however, that a loan without interest would probably in the long run be to the advantage of the United States from a strictly financial point of view, since it would strengthen the hands of the United States delegation at the recent General Assembly in resisting efforts to call upon the United States for the payment of a bigger share of the cost of construction than its share of the regular budget of the United Nations.

The United States now pays 39.89 percent of the budget of the United Nations. If contributions were strictly on the basis of ability to pay, it would have to contribute a substantially larger share. The basis on which the United States contribution has been kept down to this figure, and on which it is hoped that it may ultimately be reduced further, is that it would not be consistent with the sovereign equality of members if the organization were dependent upon one member for an excessive portion of its revenue. This argument, however, does not carry much weight in cases such as the construction of headquarters since it could be urged that this is an isolated transaction not establishing any precedent. In support of a larger contribution by the Federal Government toward the headquarters, attention might be called to the generosity already displayed by a private citizen and by the city of New York. Finally, the actual economic advantage to the United States arising out of the location of the headquarters in this country would be a powerful argument in favor of a larger contribution. It was feared, however, that if the United States should make a contribution to the cost of the headquarters greater than its proportional share of the regular budget this might, in turn, be used as leverage for future efforts to increase, or at least to prevent the decrease, of the United States' regular contribution to the budget.

The definite economic advantages accruing to the United States from the location of the headquarters in this country would seem to justify the Government in making a special contribution toward the construction. Making this contribution in the form of a waiver of interest has the great advantage of not prejudicing the position of the United States with regard to its contribution to the budget of the organization. The principal of the loan would be repaid in annual installments out of the regular budget of the United Nations.

ECONOMIC ADVANTAGES TO THE UNITED STATES

Apart from the enhancement of United States leadership and prestige in the organization, and the benefit to our foreign relations of having an increasing number of influential citizens of foreign countries learn from direct contact the advantages of the American way of life, the location of the headquarters in this country results in a definite economic benefit to the United States.

Certain immediate and concrete benefits will arise from the construction itself, since almost the entire cost of construction will be spent in the United States. For example, American labor will be used for the building, the bulk of the materials will be purchased in the United States, and the existence of the buildings will be a permanent asset both to New York City and to the Nation.

The location of the United Nations headquarters in the United States brings about a constant inflow of funds from other countries. It is estimated that about $20,500,000 is transferred every year from foreign hands and spent in the United States in connection with the United Nations. This includes contributions by foreign countries to the United Nations budget, expenditures of the permanent delegations stationed in New York, and expenditures by delegations coming to special meetings held at United Nations headquarters throughout the year. This is an annual inflow of money which may be expected to increase rather than to become smaller in the future. Another saving to this Government is in the travel and communications expense that would be involved in maintaining a mission and sending representatives if the headquarters were located in Europe. This is estimated at over $300,000 per year.

ACTION OF THE GENERAL ASSEMBLY

The General Assembly received the United States offer warmly and with real appreciation of the support thus demonstrated for the United Nations. It authorized the Secretary-General to negotiate a loan agreement with the United States for a period of not less than 30 years subject to repayment in annual installments from the budget of the United Nations. The Assembly's resolution expressly recognized that the loan was dependent upon approval by the Congress.

NEGOTIATION OF THE LOAN AGREEMENT

Pursuant to the resolution of the General Assembly, representatives of the Department of State and the Treasury, in consultation with the Bureau of the Budget, participated in negotiations with officials of the United Nations regarding the terms of a loan agreement. The result of these negotiations is the draft loan agreement which accompanies this memorandum. It provides for payment by the United States to the United Nations of a total of not more than $65,000,000 as required by the United Nations for the construction of the headquarters. Repayment is to be made in annual installments, beginning July 1, 1951, when it may be expected that the United Nations will be installed in the new headquarters, and ending July 1, 1982. The payments begin at $1,000,000 for the first 2 years and rise gradually to $2,500,000, tapering off again toward the end of the period. Under this schedule half the loan will have been repaid by 1966, but the United Nations will have relatively small payments to make during the first few years when the dollar shortage may still be acute and the United Nations may have additional organizational expenses. The United Nations undertakes not to allow the creation of any mortgage or other encumbrance on the real property without the permission of the United States, so long as the loan is outstanding, and recognizes that, as provided in the headquarters agreement, it cannot dispose of any of the real property without the consent of the United States, which consent may be conditioned upon repayment of the balance of all installments of the debt outstanding.

The loan agreement is now ready for final negotiation and signature. Promptly after signature, it will be submitted to the Congress for approval and implementation.

(Attachment: Letter to Secretary-General from Ambassador Austin.)

OCTOBER 29, 1947. His Excellency, TRYGVE LIE, Secretary-General of the United Nations,

Lake Success, Long Island, New York. MY DEAR SECRETARY-GENERAL: I wish to reply to your request for information concerning the extent to which the Government of the United States might be willing to assist in financing the costs of construction of the United Nations headquarters.

The Government of the United States would be prepared to enter into negotiations with the Secretary-General of the United Nations with a view to concluding a loan agreement whereby an interest-free United States Government loan would be made available for the purpose of financing all or part of the cost of constructing the United Nations headquarters. It would be the understanding of my Government that such a loan would be for an amount not exceeding $65,000,000. Further, it is understood that the loan would be extended for a period to be determined by negotiation with the Secretary-General and would be repayable in annual installments from the ordinary budget of the United Nations.

Such a loan would, of course, require the approval of the United States Congress. The President of the United States would be willing to request the approval of such a loan by the Congress upon conclusion of negotiations between the Secretary-General and my Government. It is assumed that the General Assembly will at this session make the necessary decisions and give the necessary authorizations required to proceed with the construction and financing of the headquarters. Sincerely yours,

WARREN R. AUSTIN.

FEBRUARY 11, 1948.

DRAFT FOR LOAN AGREEMENT BETWEEN THE UNITED STATES AND THE UNITED

NATIONS

It is hereby agreed by the Government of the United States of America and the United Nations as follows:

(1) Subject to the terms and conditions of this agreement, the Government of the United States will lend to the United Nations a sum not to exceed in the aggregate $65,000,000. Such sum shall be expended only as authorized by the United Nations for the construction and furnishing of the permanent headquarters of the United Nations in its headquarters district in the City of New York, as defined in the Agreement Between the United States of America and the United Nations Regarding the Headquarters of the United Nations, signed at Lake Success, N. Y., on June 26, 1947, including the necessary architectural and engineering work, landscaping, underground construction and other appropriate improvements to the land and approaches, and for other related purposes and expenses incident thereto.

(2) Such sum, or parts thereof, will be advanced by the United States through the Secretary of State, to the United Nations upon request of the Secretary-General or other duly authorized officer of the United Nations and upon the certification of the architect or engineer in charge of construction, countersigned by the Secretary-General or other duly authorized officer, that the amount requested is required to cover payments for the purposes set forth in paragraph (1) above which either (a) have been at any time made by the United Nations or (b) are due and payable or (c) it is estimated will become due and payable within sixty days from the date of such request. All sums not used by the United Nations for the purposes set forth in paragraph (1) will be returned to the Secretary of State of the United States when no longer required for said purposes. No amounts will be advanced hereunder after July 1, 1951, or such later date, nor after July 1, 1955, as may be agreed to by the Secretary of State.

(3) All sums advanced hereunder will be receipted for on behalf of the United Nations by the Secretary-General or other duly authorized officer of the United Nations.

(4) The United Nations will repay, without interest, to the United States the principal amount of all sums advanced hereunder, in annual payments

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