ESTABLISHMENT OF A DEFENSE FOREIGN ECONOMIC ADMINISTRATION

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP75-00662R000100170043-9
• Release Decision: RIFPUB
• Original Classification: R
• Document Page Count: 7
• Document Creation Date: December 9, 2016
• Document Release Date: December 5, 2000
• Sequence Number: 43
• Publication Date: December 21, 1950
• Content Type: MEMO

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December 21, 1953
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The purpose of this memorandum is to recommend the lined ete esteblieh-
sent of a Definve Foreign Econcnic Administretion (DMA), bailt around the srezent
Cooperation Administretion ree a be.Se and embracing in a single egency
ting prom= neceseary to the execution of an integreted foreign economic
The menoret.. sets forth the reesoning vhich leads to this recomnenc:a-
% ouggests the degree to 'which eertein current progress arhould be coneol-
DFEA?
The President has eaphanized the danger which threatens this nation end
the free world. A Notional Emergency has been procleimed. National sobiliseltion
authority has been concentreted In the Director of Defense Mobilieetion. Militry
strength end defense production are to be greatly eceelereted at home, end ne are
bending every effort to secure a similer baild-up by other free nations. In a
situetion of this urgercy, it is clearly imperative to so orgeniee our efforts
that vs ean be sure Vest all national programs and policice, exiting or ccntem
plated, will directly support the overrieline nationel objective c contribute
to it with i effectFrene.
To achieve this tightened unity of purpose in foreign econcesio policy
end to insure its effective execution through operating presneems, three actions
are necessaryt (1) a 4,16gallim to review, am', if neceastry to reshepo, ell exist
ling foreign 'commie policier end progreas to fit A the economic atrrtegy, et-
tuned to existing urgencies anet positively geared in with current reiliter7 end
other strategies. (2) institution of high-level n t for briegine to beer
political, silttstry, psychological, ATV resource consider- tions in aepreirins And
guiding such an intemted economic strategy end in centinuouely controlline its
exeenstion throne' appropriate operating devices; end CI consolidation: of the
various operating progrsms into a single foreie. operating agency responsive to
the aver-all strategy, playing e mejor role in evolving it, and able to 'Carry it
out thr variety of instruments.
ileum for achieving the first two of these actions are wderstoo< to be
under consideration elseeihere in the Executive Brench; vhtle the recomendetiene
of this memorandum eheuld be of eesietence in the first to fields they are prt.
sartir direeted to the third.
Daring the eerly part of Vend Ifer II the division of responsibility
for foreign operating programs among a, number of separate end often competing
agencies premed Ineffective. Various interagency coorlineting devices were tried
bat failed to remedy the situation. Finally, drestic action to achieve a con-
siderable degree of integration proved necereary and a rt`frel, Itconomic Adetinis-
tretion we formed with predectinant reeponeibility for nen-mil itery lend-lease,
foreign proesmement and doveloixaent, p. number of foreien economic centrals and
sareations, foreie relief end rehabilitation, and a pert of the research Nan' in-
telligence operetions to eurport there functions.
4.1
At pros, t, the severe' foreign operating progrens are ennin videly
dispersed throutfhout the Goverment. The lergest foreinn aid progrens ere the
responsibility of !CA, but the Amy, the Ftate Denartment, the nxport-Inport
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Beak an4 to s lesser extent other Goverment agencies are tIl ongoged in foreign
grant, loan or technical *millstone. operation. The U.S. chonnel to United
Nations relief ond technicol asoistonce progroma it through etote, while the U.
contact with the Internetionol Bank it through Treaoury. GSA, Interior, ECA?
Munitions Board end Agriculture all have reeponeibility, either for actually pro-
curing foreign supplies for United aotes use, or for determining the kind ond
amount of such procurement, or for developino odeitionol foreign prouction for
each use. export controls are aelminiotered principolZy by Commerce; financial
controls have just Imez instituted under Treoauoy. There is no oloarlyesoigned
responsibility for determining the urefulneau of more than one coo o10 sanction
agoinat it particulor nation or for selecting nd operoting in vsrying comlAnations
the most suitable sauctione.
The disadvontagee of this dispersal hove been
even before the full grtvity of the present amergency wo
Hoover Commission Report of 1949 and the Groy Report of
combination of oajor foreign operoting progrems in a
ir for tlore acute today.
ganerol4 recoonired,
appereot. Both the
last mommer recomoended
le agency. The red
FIA of the last yor had its deficiencies arid it is not proposed that
an e2act replica, be recreated now. Rovever, the ?zinnias or combining the major
foreign economic operotiono in a single agency has advontages which voleld Loot:or
to be decisive, not only In global wor but also in a period of localized war and
largeosoale mobilization? requiring ooreful husbanding of nationol reocurces ond
the coordinated use of all inatrumente of notional power. Amon, the advontoges
of centrelizotion are tho folTowinge
1. Assurance that tho major foreign progroms will not only be mutuolly
consistent but will be used as integral parte of one comprehensive foreign
economic strategy, pointed to the some objectives, geored to a oommon timetable,
and eapeble of concerted adjuntment if chonges in over-all etrotegy so dictate.
2* A moons for weighing the relative vrIue of each of oeverol possible
economic instruments in achieving a particular objective, end of selecting and
applying thot one or that combinetion which appeors moat promioing. tibia mokes
it possible to reinforce one economic instrument with another -- e.,7?0 to
strengthen a friendly nation both by furniehing needed sappliea nd by U?S? pro-
curement resulting in dollar orrnings, to uoe econfoodc aid both to moirtoin
stability and as an incentive to greater production of needed o,t:teriale, or to
apply pressure to o non0000perotive country both 1O-,rouot rostoiction of exports
to it and through refusol to import fr. it.
3. A single rewnnel for conducting U.L:. foreion economic tronsoctione
with and operations within a given foroim country, avoidino the dongere in-
herent in the diverging nethodo and cime of severol U.C. agencies indepondently
pressing their own objectives with respect to that country.
4. A single foreign cloimant agency to which Use. reouirementa and alio
esti= bodies con look for a complete one, balanced estloote of aggregote foreign
reouireatents.
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5. A single point of decision end a common et of eriteriu es to hoe our
limited export evAiilabilities can bet be distributed among competing foreign
claimants anc! uses to best further defense ains.
6. A compreheneive evelultion of foreign reoureeAin "abilities for U.E.
and allied defens. needs.
7. A focal point for U.S. partici ation in mutual useietence progrres end
in other interallied undertekings to achieve the most effective use of the r
sources of the free nations for common defenees
It is urgent to aohieve? a tightly knit, flexible forei economic/
strateek md to pat all its component element e into balanced operetiens. As
major step in thet direction, eccortence of the principle of one foreign oper-
ating agency with globi jurisdiction in strengly recommended. The details
of the agencyto organization end powers, the decision as to exectly which func-
tions and progrems should be tr,nsferred to it or initiated by it, end the
ing of such nation, will of course reeuire intensive anelyeis end will have
vorked out by the agencies moet directly 0,ncerned. Coneideretion vill
to be givem to the creation of Appropriate interegenv mechinery. ECAts
own views will be of primary veins? in these reepecte. The folleving specific
actions are suggested here an en indieetion of the nature end ecope of the con-
selieetion cont,elated in the recomendetion.
Sitraul
The Ecouomtc Cooperation Administration should be redesignated the
Defense roreign Economic Administration. It should be instructed and should be
given the neceesary legal and edministretive nuthority to reenjuot all its
present programs to conform to the current requirements of economic etretegy.
It should start imeedietely to organize end prepare for the addition of other
opersting programa ae au.z.sted below, ervi to acquire such speciplieed nerrennel
as it will need to initiete functions not now performed eleewhere.
-11t1.1 *' ECA iv already administering economic
assistance grant progrrs to the Mirshll Plan countritin, rm.! their dependent
oversees territories, to Yugoslvta, Fornoses the Philippine, Indo-Chines
Indonesia, Theiland, Duren end the remnente of e program for eouth Koree. The
principal non-ECA vent proven for eeonomic eid is the ireer GArIOA progrem
in Japan end the teeleyns. If this progrem is to continue beyone the present
fiscal ;over-, it might well be transferred to MIA. Similerly the progrem of
development grents recommended in the Cry 'Report Ohoul.d, to the extent ruch
grants ea n serve the emeegenoy economic etrete, be initiated end edminietered
by DIPSA. U.S. opereting pertieipetion in specialised 'United retionst relief
activities, rmah as the International Pefugee ergeniettion, the International
Childrent:F Emergency Fund., and the Palestine refugee reeettlement program,
should be delegated to DYE bY the Etete Depertment, though Siete should retain
its coord4nating responsibility for 'U.S. 7-nrt5elpetice in all UN bodies.
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1? The distInction hereto-
fore maintained between economicaid aimed at strengthening the basic economies
in vital foreign areas and the supply of materials end equipment in direct support
of foreign military production will no longer have practical significance, since
the primary purpose of virtually all Rid will be to assist each country to make
its best contribution to the common defense, whether directly through production
of military supplies or raw materials or indirectly through mu ntaining its own
stability and strength. DF FA should have operating respon& h 1ity for all supply
assistance to foreign nations except military end-items.
3. Foreign ling*. MCA has made loans as well as grants to FRP countries
and administers the loan to Spain enacted by the last session of the 81st Congress.
The Export-Import Bank acts as the agent of ECA for these loans, and also for the
program of investment guarantees to private capital called for by the Yconamic
Cooperation Act. In addition, the Export-Import Bank has extensive lending au-
thority under its own charter and power to borrow from the Treasury. The U.S.
has a strong influence on the lending program of the International Bank for
Reconstruction and Development. Finally, authority for foreign leans and loan
guarantees is contained in Title III of the Defense Production Act, the adminis-
trative arrangements for which are specified in Executive Order 10161.
Since loans are an alternative to grants and can serve a similar purpose
in the over-all economic strategy, DFA should be Oven general control over U.S.
foreign lending programs. For this purpose the Sxporte-Import Tlank stiould be made
a subordinate corporation of DFEA. Again, DFEA should have a strong voice in de-
term'ning the U.S. position toward the policies and programs of the International
Bank, and ME* should administer the foreign loan and loan guarantee provisions
of the Defense Production Act in accordance with appropriate directives.
itimts nek nnimaei: toy U.S k gd. Administration ar,d sub-allocation of
export quotas to countries receiving U.S. assistance is a necessary adjunct to
operation of the assistance programs, and Should therefore be vested in DITA.
Moreover, practical channeling of foreign supply to conform with U.S. and allied
objectives in the mobilization period requires centralized control over U.S. ex-
ports whether or not financed by U.S. aid programs. As a general rule, therefore,
DFEA should exercise control over export quotas for all countries, shouldreceive
and screen all foreign requirements for U.S. goods, and should be the sole export
claimant before U.S. requirements and allocation bodies. Whet4er DM should also
perform the actual export licensing function, in addition to determining quotas,
is or secondary importance.
5. Tectpical amaistance. The Point 'IV machinery which has been set up
under State Department direction should be transferred to DFEA to provide close
integration with the fairly large-scale rCA technical arsistance program already
in operation both in Europe and its dependencies and in the Far Fast.
ZniaMfgat-AOSUild2=1
Responsibility for control of hese
dispersed throughout the Government. 4orld gr
t present, widely
demonstrated (1) that
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sotual procurement and development for procurement are inextricably related and
(2) that there is need for maximum consolidation of foreign procurement into one
agency,
reover,foreign procurement and developmenth one hand and
onomic assistance on the other are so conplesentery as to constitute
and, at points, almost indistinguishable parts of the total operation.
e, the problem of what resources the U.K. produces has as its counter-
the TV. reeds from other sources. Again, foreign procurement in a
try may have the dual purpose of getting the goods (procurement) and
of stabilizing the economy (economic assistance). Conceivably, the foreign pro-
curement and development agency could operate through procurement end loan agencies
outside its administrative jurisdiction. Yet the need for a single foreign oper-
ator appears to outweigh any gains which might come from grouping all domestic
and foreign operations on a functional basis such as all procurement or all loans.
The foreign operating agency in handling procurement and development should, of
course, Obtain the maximum advice and assistance from parallel domestic agencies
such as the Defense Minerals Administration. It should also correlate its efforts
with domestic procurement agencies but in the final analysis the views of these
agencies should be advisoryw
Integrated control of foreign. procurement and development would involve
the followinz specific actions:
1. Establishment of a central point within the Government for the determin-
ation of total U.S. requirements and available supply e of any given com-
modity. Such a point should be in a WPB-type or WFA type agency, at the present
time most nearly represented by NPA and Agriculture. This type of agency should
assume responsibility not only for determining requirements but for issuing the
broad supply directives for meeting those requirements. In the foreign field
these supply directives would be issued to the foreign operating agency.
2. The Munitions Board's responsibility for issuing procurement directives
to GSA for stockpile requirements should be transferred to the WPB-type agency.
Stockpile procurement abroad would then be considered by the central programming
agency simply as one segment of total U.S. demand.
3 The foreign procurement and development organization &ould be created
in the foreign operating agency by: (a) transferring foreign procurement now
handled by GSA and the Department of Agriculture; (b) centralizing foreign devel-
opment activities now being carried out in a number of places in the Government
in the foreign operating agency.
4. To effectively implement the foreign procurement and development lob,
an over-all buying and development corporation comparable to the 7.S. Commercial
Corporation should be ostiblished within the foreign operating ag ncy. The cor-
porate form is needed because of the urgency of the job to be done and the need
for the widest legal Latitude and flexibility in the conduct of operations.
Effective control of the corporation should be exercised by the foreign operating
agency, but the interests of other Federal agencies should be recognised. One
alternative for doing this would be to give them a place on the Board of Directors
of the corporation.
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Foreign procurement and development as well ns the U.S. assistance
programa are important links in an interallied supply and production program.
Therefore, the foreign operating agency ought to play an important role in the
uork of interallied supply and allocation boards including the provisi,n of
some staff.
It is recognized, however, that the leading role on the tT.S. side
should be played by the agency or agencies dealing with the entire U.S. supply
and production program including the allocation of supply to foreign use and
the over-all production and development arrangements among t)-e, allies.
g99n0X1-1 )48119It9ne
In view of the prevailing uncertainty regarding the exact meaning of
the term Economic Warfare, the label "'Economic Sanctions" is used here to in-
dicate the various measures employed (a) to injure the economy of the enemy,
or (b) where necessary, to induce neutrals to fashion t'Aoir economic relations
with the enemy in accordance with U.S. and allied wishes.
The traditional rconomic Sanctions developed in the two Vapid Wars
are: Embargo, flhipping Controls ("Paper Blockade"), Blacklisting, Preclusive
Buying, Foreign Assets Control and War Trade Agreements. In addition, 'xport
and Import Controls and Foreign Economic Aid, though aimed primarily at
strengthening the war economy of the U.S her allies and friendly neutrals,
may also be used offensively ("sanctions to damage the enemy economy or to
put pressure on neutrals.
Should responsibility for the handling of these many weapons in the
arsenal of sanctions be vested in a number of different departments, boards,
committees and similar bodies, it mould be difficult, if not impossible, to
obtain that degree of coordination and integration in planning and action
which ought to be obtained in the interest of maximum effectiveness. It would
seem advisable, therefore, to concentrate in DFFA the responsibility for con-
erste planning and, to a large extent, also for operations, in the entire area
of Economia Sanctions.
While some sane ns, Preclusive Buying for instance, could be admin-
istered
directly by MA, there will be other sanctions in regard to which
actual technical operations might be conducted by those long established
Government departments which in view of their traditional functions, experien e
and trained personnel seem best fitted for the task, e.g., Treasury in the
field of Foreign Assets Control. DM would still serve, however, as the gen-
eral directing body for the whole arsenal of possible sanctions, subject
always to high-level economic strategy decisions muoh as the working out of
over-all national policies on sanctions, the outlining of basic strategic aims,
and the final decision on the psychological an0.9914tical advisability of apply,-
ing certain sanctions at a given t and with respect to a specific country.
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It follows from the foregoing that within the framework of over-all
policies laid down by top-level authorities, the DA would plan, guide, and
generally direct our efforts in the field or Economic -44nctions. In regard to
certain categories of aanctions? the agency would not only plan and direct, but
actually conduct operations. This complex task will miuire a systematic,
imaginative and ceaseless exploration of old and new ways in which all the
various types of sanctions might be used. To probe coottinuously for concrete
possibilities of applying the economic weapon moot effectively and to prepare,
and revise, careful plans for the intearate4 use of these various weapons will
constitute, therefore, one of the agency's primary functions.
Wlysis and Research
Quito a number of agencies are concerned at present with analysis and
research in the field of foreign economics. While the data collected and pre-
sorted by these various agencies are most valuable and useful, it ts neverthe-
less true that each agency is bound to concentrate on those foreign economic
issues which are akin to its own primary sphere of interest. The reports pre-
pared by CIA and other organizations on the economies of foreign countries are
the result of plans and work schedraes drawn up by these organizations with an
eye on their own specific needs and requirements, which are not neceesarily the
SUMO as those of the proposed DFEA. Certain gaps existing today in the coverage
and analysis of foreign 000120Mies may even be due, at least in part, to the very
fact that heretofore there has not existed within the framework of the U.S.
Government a strong and insistent claimant for pertinent material.
It would seem advisable, therefore, to establish within DF! A an Analysis
and Research Division which could pool and systematize the data collected by
other agencies; m'Ach would be authorized to make specific demands on the
collecting agencies for additional data, and which, finally, could be relied
upon to produce by its own efforts comprehensive over-all surveys and special
reports attuned to the specific needs and problems of the DFEA.
?
National Security Resources Board
Foreign Activitiqs Staff
December 21,1950
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