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THE AMERICAN EOONOMIC FOUNDATION,

New York, May 25, 1948. CONGRESS OF THE UNITED STATES, Committee on Foreign Affairs,

House of Representatives, Washington, D. C.

(Attention Hon. Walter H. Judd.) GENTLEMEN : Since having the honor of testifying before your group on the proposed United Nations reform embodied in Resolution 163, certain events suggest that the following remarks be added, if possible, to my testimony.

I am still unalterably in favor of three specific steps: (1) The elimination of the veto regarding matters of aggression; (2) The extension of the legal power of the World Court so that it may judge agression, and (3) The creation of a neutral, professional, superbly equipped police force under a United Nations general staff. I can see no assurance of peace without all three.

However, the approval of Senator Vandenberg's "Working Paper" changes my feeling as to the timing of debate on Resolution 163. The Working Paper's proposals do not conflict with the ABC plan; they move in the same direction, tut toward a much more limited objective. In other words, the failure of the Working Paper's efforts (and I am morally certain they will fail) will merely serve to reinforce the need for the ABC plan and, in the meanwhile, will have broken trail in the right direction.

Therefore, as a sponsor of Resolution 163, I would like to see it emerge from your committee as something that should be immediately brought to the floor of the House, when and if the Working Paper measures prove inadequate.

May I repeat that I deeply appreciate the courtesies shown to me by your committee. Very sincerely,

R. S. RIMANOCZY.

DEPARTMENT OF STATE,
Washington, May 26, 1948.

MEMORANDUM FOR THE CHAIRMAN, COMMITTEE ON FOREIGN AFFAIRS OF THE HOUSE OF

REPRESENTATIVES

The following comments are submitted with respect to the bill authorizing the President to accept on behalf of the Government of the United States, the convention on the privileges and immunities of the United Nations.

The bill would amend the United Nations Participation Act of 1945 (Public Law 264, 79th Cong.) by providing, among other things, that

"(b) Insofar as any provisions of said Convention and the International Organizations Immunities Act (Public Law 291, Seventy-ninth Congress), as applied to the United Nations relate to the same manner, the two provisions shall, wherever possible, be treated as complementary to each other so that both provisions shall be applicable and neither shall narrow the effect of the other; but in any case of absolute conflict, the provisions of the Convention The bill also would amend the United Nations Participation Act of 1945 by authorizing the President, following appropriation of the necessary funds by the Congress, to bring into effect on the part of the United States, the loan agreement between the United States and the United Nations. The Participation Act would be amended, among other changes, by providing that the President could bring the loan agreement into effect “with such changes therein not contrary to the general tenor thereof and not imposing any additional obligations upon the United States or relieving the United Nations of any obligations, as the President may deem necessary and appropriate."

shall prevail.” A comparison of the provisions in the convention with those in the Immunities Act will show that some provisions are virtually identical, while others add new elements or modify corresponding provisions in the Immunities Act. In the view of the Department of State, there are no conflicts between the convention and the Immunities Act. The only question which has been raised in this regard relates to the problem of so-called "reciprocity” with respect to the granting of privileges and immunities to representatives of member nations to the United Nations. In a letter dated April 29, 1948, addressed to the Honorable Lawrence H. Smith, chairman, Subcommitee No. 6 of the Committee on Foreign Affairs, the legal adviser of the Department analyzed the background and provi ons of the Charter, the United Nations Headquarters Agreement, the Immunities Act, and the general convention on privileges and immunities bearing on this point. The conclusions were reached that the Charter of the United Nations imposes an obligation on member states to grant certain privileges and immunities not conditioned on reciprocity and that the International Organizations Immunities Act merely leaves the Secretary of State with such authority to enforce conditions of reciprocity in the granting of privileges and immunities as he may possess apart from the Immunities Act. In other words, there is no conflict between the convention and the Immunities Act in this or any other respect.

The quoted language is put in solely as a safeguarding clause and the Department of State does not have in contemplation any changes in the loan agreement. However, the safeguarding clause is suggested in order to obviate the necessity for new legislation in the event language corrections or changes in detail prove to be necessary, provided that such changes or corrections do not in any way impose any additional obligations on the United States or relieve the United Nations of any obligations arising under the loan agreement in its present form.

ERNEST A, GROSS,

The Legal Adviser,

DEPARTMENT OF STATE,
Washington, May 27, 1948.

MEMORANDUM FOR THE CHAIRMAN OF THE FOREIGN AFFAIRS COMMITTEE OF THE

HOUSE OF REPRESENTATIVES RE EXEMPTION FROM FEDERAL INCOME TAXATION ON SALARIES AND MONEYS PAID BY THE UNITED NATIONS TO OFFICIALS WITH UNITED STATES CITIZENSHIP

This memorandum analyzes the actual operation of the proposal in section 7 of the bill pending before the committee which would allow United States citizens who are officials of the United Nations to deduct from their Federal income taxes amounts paid to the United Nations in the form of staff contributions. Such a United States citizen would be required, as are other citizens, to file an incometax return reporting his entire income, in accordance with the Internal Revenue Code. The United Nations would compute all salaries paid to its employees on a gross basis and would, in the employment contract with each employee, provide for payment by the employee to the United Nations of a determined percentage of his salary. This percentage would be computed essentially in the same way as the United States and other governments compute income taxes and the contribution paid by the employee would go into the treasury of the United Nations and would be available for expenditures of the Organization.

In the case of United States citizens, employees of the United Nations, the proposed United Nations staff contribution scheme would actually involve contributions by citizens to the United Nations greater than they would be required to pay under the Internal Revenue Code as income taxes to the Federal Government. The reason for this is that certain other governments levy higher income taxes than does the United States Government and the objective of the United Nations staff contribution scheme is to equalize the wage and salary levels of its employees. United States citizens employed by the United Nations would therefore not constitute a privileged class of citizens since they would not have immunity from the Federal income tax.

The United States citizen would be entitled to claim a credit on his Federal income tax not greater than the amount he had actually paid to the United Nations in his staff contribution. However, he would not be entitled to claim credit on account of such staff contributions greater than his income tax liability on that portion of his income which was derived from the United Nations.

ERNEST A, GROSS,

The Legal Adviser.

STATEMENT BY AMBASSADOR AUSTIN, FOR PRESENTATION TO HOUSE FOREIGN AFFAIRS

COMMITTEE, ON INCOME TAX PROVISION OF GENERAL CONVENTION ON PRIVILEGES AND IMMUNITIES, MAY 27, 1948

General Assembly of the United Nations decided in London in 1946 that members of the Secretariat should receive the same net pay for the same service regardless of nationality. In order to achieve equality among personnel of the Organization, the General Assembly held it to be indispensable that members should exempt from national taxation the salaries and allowances paid by the United Nations. Pending the extension of such exemptions, the United Nations has reimbursed from its general funds the amounts paid by its employees to their governments as income tax on United Nations salary. The present situation is that United States nationals and Canadians (who have been resident in Canada for part of the tax year) are the only staff members who receive tax reimbursements which amount currently to $750,000 a year.

During the last regular session of the General Assembly, which opened in New York on September 16, 1947, other members of the United Nations made it clear that they were unwilling to continue such reimbursements since the effect was that other member governments indirectly were paying income taxes into the United States Treasury in the amount of approximately $400,000. It was great difficulty that the United States delegation prevented a special assessment against the United States for the amount paid by the United Nations as reimbursement for income taxes to United States citizens. At present, the alternatives appear to be

1. To attempt to reverse the attitude of the General Assembly toward equal pay for equal services;

2. To except a special assessment against the United States for the amount of income taxes reimbursed to United States citizens;

3. To grant full income-tax exemption on salaries paid by the United Nations; or

4. To authorize United States citizens employed by the United Nations to offset against their Federal income-tax obligation the amount paid by

them to the United Nations under a staff contributions plan. Alternative 1 does not appear to be a practical possibility in the light of the attitude taken by other governments in the General Assembly. The principle of equal pay for equal work has been reaffirmed at every regular meeting of the General Assembly as a principle which is vital to the efficiency and morale of the Secretariat. The ability of the United Nations to recruit competent Americans is important from the point of view of the United States itself.

It should be specially noted that the United Nations, in establishing its pay scale, used a survey of the prevailing gross pay scales in the New York area which was made by the Commerce and Industry Association for New York business firms. The United Nations subtracted from the best prevailing pay scales the amount which would normally be paid in Federal income taxes in order to arrive at the United Nations net pay scale. For example, if it were found that the prevailing gross pay for a particular class of employment was $3,000 per year, and that Americans without dependents employed in the New York area were paying an average of $400 each in Federal income tax, the United Nations determined to pay $2,600 per year for similar employment in the United Nations. Unwillingness of the United States to grant income-tax exemption would result in a payment of income tax on the $2,600, thus bringing the pay of Americans employed by the United Nations below the pay scale of the general area. This consideration is of particular importance because it directly affects all of the 1,500 Americans now employed by the United Nations and, of course, is of most serious concern to those in the lower-income brackets.

Alternative 2 is most undesirable because it would result in a special assessment of some $700,000 against the United States. A special assessment of this nature would create a precedent for the fragmentation of the budget, according to which members might refuse to contribute to the expenses of those United Nations activities to which they were opposed on political grounds.

Alternative 3 represents the principle accepted by the General Assembly and originally recommended to the Congress. It is simple, easily understood, and conforms to the broad concept of the independence of the United Nations as the principal international organization. Although it is recognized that it might create an undesirable taxation precedent, it is believed that the advantages clearly outweigh the disadvantages.

Alternative 4 represents an attempt to find a compromise between needs of the United Nations, as an international organization, and the understandable reluctance of the Congress to permit full tax exemption. The principle of tax offsets for taxes paid to foreign governments is well established. With United States encouragement, the General Assembly instructed the United Nations Secretariat to develop for the next regular session of the General Assembly a contributions scheme under which salaries would be determined on a gross, rather than a net, basis and assessments similar to income taxes would be paid on such

salaries directly into the United Nations treasury. If the Congress finds itself unable to accept section 18 (b) without reservation but would be willing to accept the compromise proposed by the Department of State, it would be possible to meet the minimum needs of the United Nations in order to achieve equity among members and equality among the staff. Under the compromise United States citizens would continue to be subject to United States tax laws. They would receive credit toward their Federal tax liability for the amounts paid by them to the United Nations. If their payments to the United Nations are less than their liabilities for Federal income tax, they would pay the difference to the United States Treasury. The loss of tax revenue to the United States will be offset by a corresponding reduction in the United States contribution to the United Nations except for the tax revenue of $400 now indirectly paid to the United States by other member governments.

It is strongly urged that the Congress make possible a positive solution to the present inequity among members and resolve the political difficulties facing the United States delegation by providing tax credits for staff contributions to the United Nations. This compromise is fair and sound and protects the interests of the United Nations in providing equal pay for equal services, and at the same time protects the United States against the creation of a tax-privileged group of citizens.

DEPARTMENT OF STATE,

Washington, October 22, 1947. The Honorable CHARLES A. EATON,

House of Representatives. DEAR MR. EATON: I enclose for your information a memorandum which deals with the question of financing the construction of the headquarters of the United Nations in New York. The General Assembly of the United Nations is currently considering this problem and will need to reach a decision before the end of the present session.

It is contemplated that Ambassador Austin, Chairman of the Headquarters Committee of the present Assembly, by the end of this week or early next week, will express in the Headquarters Committee the willingness of this Government to conclude a loan agreement whereby an interest-free United States Government loan, not to exceed approximately $65,000,000, would be made available for the purpose of financing all or part of the cost of constructing the United Nations headquarters. He will at the same time make clear that the loan would be subject to congressional authorization, concerning which no commitments can be made. Such a loan would be extended for a period to be be determined by negotiations with the United Nations, and would be repayable in annual installments from the budget of the United Nations. The reasons for the decision to make this offer are set forth in the enclosed memorandum.

The Department will be glad to supply you with any further information you may desire. Sincerely yours,

ROBERT A. LOVETT, Acting Secretary.

FINANCING THE UNITED NATIONS HEADQUARTERS CONSTRUCTION

The United Nations is now ready to proceed with the construction of its permanent headquarters in New York City. There remains, however, the question of how to finance the initial capital expense at a time when many members of the United Nations are facing a severe economic crisis and an acute shortage of dollars.

LOCATION OF UNITED NATIONS HEADQUARTERS IN NEW YORK

A brief survey follows summarizing the events leading to the decision to locate the headquarters in New York City.

The Charter of the United Nations was written at San Francisco in the spring of 1945, and ratified by the United States later in that same year. Likewise, on December 10 and 11, 1945, the two Houses of Congress unanimously adopted a concurrent resolution inviting the new organization to locate its permanent headquarters in the United States.

The best location for the headquarters of the United Nations was debated at length in the Preparatory Commission which preceded the first session of the General Assembly, and at the first part of the first session of the General As.

sembly which met in January and February 1946. Throughout these discussions the United States representatives conveyed to the other members the cordial welcome of the Congress and the President, but abstained from taking a position on the issue. The Assembly decided to accept tthe invitation to establish its permanent headquarters in the United States and to make its temporary home in New York City. A Headquarters Commission was appointed to select a specific site in the vicinity of New York for approval by the Assembly.

The General Assembly at the second part of its first session, held October to December 1946, gave careful consideration to several alternative sites in the vicinity of New York, within the city, and in the areas of Philadelphia, San Francisco, and Boston. It finally determined to accept the offer of Mr. John D. Rockefeller, Jr., and the city of New York of a free site of approximately sis city blocks on the East River in New York City. The Assembly decided to build its permanent headquarters on this site, and authorized the Secretary-General to acquire the land, undertake any necessary demolition, and prepare plans for the architecture and financing of the headquarters itself.

PLANNING FOR CONSTRUCTION

Once the basic decision was made, events have moved rapidly during the last year. The Congress at its last session approved the necessary legislation to exempt the Rockefeller gift from Federal taxation. The property along the East River was duly acquired, and title passed to the United Nations in March. The city of New York presented to the United Nations the properties required to complete the site, and subsequently has undertaken extensive commitments estimated at about $20,000,000 to make alterations in the surrounding roadways and approaches. The buildings on the site have been demolished, except for one building which is suitable for immediate office use by the United Nations.

Plans for the construction of the new headquarters have been developed under the guidance of the Headquarters Advisory Committee, a 16-nation committee under the chairmanship of Ambassador Warren R. Austin. A group of internationally famous architects, led by Mr. Wallace K. Harrison of the United States, prepa red the architectural plans for a skyscraper headquarters. The original plans called for an expenditure of about $100,000,000. By simplifying the plans and postponing certain of the proposed construction, the estimates were reduced to $85.000,090, and subsequently to the present estimate of approximately $65,000,000.

PRESENT SITUATION

The General Assembly now in session in New York is much concerned about the headquarters construction. Its special headquarters committee has given tentative approval to the plans and cost estimates of about $65,000,000, subject to agreement on satisfactory arrangements for financing. Most members of the United Nations are eager to proceed with the construction without delay. There is a general feeling that postponement would be seriously detrimental to the efficient operation of the United Nations. The temporary headquarters are in a converted factory, where the space is cramped and in large part unsuitable for use as offices. Likewise, the location is inconvenient, requiring the delegations and the secretariat to spend many hours commuting to and from New York City.

It is anticipated that the costs of construction will be borne by the 57 members of the United Nations in accordance with their proportionate contributions to the annual budget of the Organization. However, most of the members are faced with such a severe shortage of dollars that it would be virtually impossible for them to pay their respective contributions in dollars immediately.

ALTERNATIVE METHODS OF FINANCING

Several alternative methods for financing the construction costs over a period of years have been considered. At the beginning, the possibilities of private financing were fully explored. The most feasible scheme under private financing would call for immediate payment in cash of the United States share of about $26,000,000, the remainder to be financed by contributions from other members and loans at interest by private institutions such as insurance companies. This method would involve complex legal difficulties, owing to the immunity of the United Nations from suit, would complicate the planning by having to take into account the views of the holders of a mortgage, and would require the payment of interest at about 3 percent.

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