the group of countries, rose in '51 to about 130 billion. This fiscal year it is estimated it will be about 148 billion and next year at this year's prices we estimate that it will get up to about 153.5, about a $5.5 billion increase at constant prices. If you build the price inflation that there will be this year and next year in the world into that, you would have several billion dollars' more.

Senator GREEN. When you say "imports" do you mean simply imports from the United States, or do you mean all imports into the country?

Mr. CLEVELAND. I was talking at that point about all imports. This group of countries imports this year from the world about $25 billion worth of commodities in all currencies from all areas, of which only about 5.5 have to be paid for in dollars. The 5.5, of course, is mostly from the United States and Canada, and they also pay dollars for certain kinds of settlements in some other countries, mostly in Latin America.

This picture here shows the dollar imports that we believe the Europeans are going to have to have, based on detailed discussions with them but based also on independent judgments by each of our MSA missions in each capital working in considerable detail over the import program and going into great detail in the production, the consumption, the exports, and the imports of each major kind of material.

For example, on copper, which is a piece of this industrial rawmaterials segment, our people in Belgium know down pretty close to the last pound, as much as the Belgians themselves do, about how much copper is likely to be produced in the Congo. Adding up what the missions in every European country know, you can arrive at the minimum amount of copper that is required by a European economy that is operating at about $153 billion worth of total production, and the information that we get from our missions in the field is supplemented in the case of copper and a number of other commodities by some very detailed work that has been done by the OEEC, the Organization for European Economic Cooperation, in Paris, which has a number of commodity committees that try to work out common standards of commodity controls inside each country.

For example, in the copper case they published a report recommending to each government, and I believe all governments have accepted the report, that copper should not be used for a variety of nonessential uses which are specified in the report-brass doorknobs as an example. No European country is now supposed to use copper to make brass doorknobs.

Very detailed work of that kind, always by the missions with the governments and sometimes also in the cooperative committee work in Paris through the OEEC works out the requirements for these dollar materials. So this $5.5 billion represents the total dollar imports that these countries will require in order to make their economy grow enough to make these defense expenditures in time.

EUROPE'S EXPORTS NOT SUFFICIENT TO PAY FOR ESSENTIAL IMPORTS

Now, what is their problem on paying for these essential dollar imports? They can export, they are exporting now, to the dollar area at the rate of about $2 billion, this group of countries. We

think they can push that up to nearly 3 billion, or 2.9 billion. If they get to that mark, or if they were by any change to get to the 3-billion mark, that would be the most dollar exports which that group of countries has ever been able to achieve. They are only able to achieve a target this large as a result of the significant increases in production and getting costs down that is one of the main results of the Marshall plan.

In addition to these exports they can count on net earnings of all other sorts, including tourism and shipping earnings, but offset by services they have to pay for, such as freight from the dollar area in dollar ships, and including quite largely United States Government expenditures in Europe which are also included in this net figure of $800 million. They can count on a net surplus beyond their physical exports, that gets them about $800 million more.

Actually, what that represents is a slight deficit on all of these service and capital transactions, but offset by something over $800 million worth of United States military expenditure in Europe next year, payment to troops that winds up in central banks, payments to Denmark for butter for the German forces, and payments for construction of various kinds, and so forth.

OFFSHORE PROCUREMENT PROJECTED AUTHORIZATIONS AND

EXPENDITURES

Also in that figure is the offshore procurement, the payments which will actually go to governments during this period, which it is estimated will be about $217 million for this group of countries. So the benefit they get out of United States military operations in Europe is considerable and is taken into account here, and represents an added strength on the dollar side before you have to talk about defense support or assistance of any kind.

Mr. WOOD. May I break in there?

There is one point I want to make there, Senator, that unless it is made clear might be a little confusing. Mr. Cleveland just mentioned the estimate of actual dollar expenditures for this offshore procurement item. In the fiscal year we are talking about it would be around somewhat over $200 million. There has also been testimony before this committee, I believe, that the contracts to be let for that purpose in the same period are presently expected to be about $1 billion. There is no contradiction between those two. You let contracts for a billion dollars. The estimate is that actual payments, progress payments and payments for delivery, in this period will be only somewhat over $200 million worth of the contracts let, because of course some of these things won't be delivered until later, and it is only the payments on these contracts that actually are turned over in dollars to these countries, and therefore it is only the payments that can be calculated in this particular aspect of it.

Senator SMITH of New Jersey. Does that mean you are asking us to authorize a billion and we are going to use only $200 million of it?

Mr. WOOD. No. The billion dollars of offshore procurement will come out of the total request for authorization of end items of approximately 3.8. Contracts will have to be let and therefore the funds will have to be available for obligation. They will not be expended in this current fiscal year we are talking about, except to the extent of that

$200 million, and it is the expenditure of the funds, not their obligation, that provides the European central banks with actual dollars which can be counted as part of their earnings from this source of dollars.

Senator SMITH. of New Jersey. But in the meantime we are piling up this enormous amount of authorizations, although the expenditures won't come for 1 or 2 years.

Mr. WOOD. That, as Senator George brought out yesterday, is inherent in the fact that you don't buy goods off the shelf, that there is this lead-time aspect, and you have to have the money in hand when you let the contracts even though you may not spend all of it in the fiscal year in which you let the contracts.

Senator GREEN. Do you have any other question you want to ask, Senator Smith?

$1.4 BILLION "DEFENSE SUPPORT" NEEDED TO PROVIDE EUROPE WITH

ESSENTIAL IMPORTS

Senator SMITH of New Jersey. I wanted to ask Mr. Cleveland if he would explain some of those blue things, that 0.4, 2.9, 0.8, and 1.4. Are the sum of those the $5.5 billion?

Mr. CLEVELAND. Yes; the sum of those is the $5.5 billion. That is how the Europeans get in a position so they can buy the essential dollar imports which are in the top line here. The $0.4 billion is a small use of their own dollar reserves and some drawing down on the pipeline on the unexpended part of previous economic assistance. But the residual item here, the item which needs to be covered if this list of materials is going to be able to be bought by the Europeans, is the $1.4 billion of defense support. Without this 1.4 billion they would have to cut down somewhere on this list of imports. The place they would have to cut down mostly would be in the industrial raw materials, the machinery, equipment and fuels, and to some extent on cotton. Food tends to be a fixed charge in any government's import program. So that the marginal item here, which is the United States defense support, is particularly important in relation to those industrial materials that make it possible for total production to go up in Europe, and therefore for defense expenditures as a part of that production to go up along with it.

Senator GREEN. Your demonstration seems to imply that it is the policy of our country to increase, help increase, the amount of exports from these countries that we are helping; is that right?

INCREASE IN EUROPEAN EXPORTS TO PAY FOR IMPORTS

Mr. CLEVELAND. Well, it has been before, and it still is, our aim to get the Europeans to a position where they can pay their bills themselves. The way they are going to get to be able to pay their bills themselves without assistance from us is to get their exports to the dollar area up. They are doing that, as I indicated yesterday, under grievous difficulties, because they are doing that in a situation where the mechanical and engineering industries are being put to work on defense orders. They are the industries that account for a great part of Europe's total exports. Europe exports manufactured goods, by and large. It is those same industries that are cut into when the total defense production goes up as rapidly as is indicated

on the previous chart for next year. In order to be able to get a total defense effort, including a big component of defense production, and in order to increase their exports somewhat so as to reduce this deficit at the right-hand side of the chart, they have to expand their total production, so I really think that the important thing to keep our eye on is always the increase in total production, the achievement of a balanced economy in Europe, and an expanding economy in Europe, so that they can do an increasing portion of this job themselves. Senator SMITH of New Jersey. That chart is not in here, is it? Mr. WOOD. No. We did not put that chart in.

(The chart will be found on p. 347.)

Mr. CLEVELAND. These can be submitted for the record.

Senator SMITH of New Jersey. I think it ought to be, because that helps to explain it. As I understand it, that white line on top there is what you need in those items, and the blue is where you get it, and it shows the deficit of 1.4 which we have to make up.

Senator GREEN. Then it follows that to the extent this Government interferes with the import here or export there of the products of these countries we are inconsistent with the efforts of those countries.

Mr. CLEVELAND. That is exactly right, Senator, and there have been, of course, some examples of that.

IMPACT OF FOREIGN AID ON UNITED STATES MARKETS AND TARIFFS

Senator WILEY. Of course, Mr. Chairman, you are now on an angle of a very, very vital matter that concerns American production at home. You have got, for instance, Wisconsin cheese. Last night I was at a Wisconsin manufacturers' meeting, and I only hoped that Mr. Batt could have been there to talk to them. Tomorrow we are going to have the chamber of commerce representatives testify here, and I am hoping that Mr. Wood and Mr. Batt can be here to talk to them.

But as I said, last night at the Wisconsin Chamber of Commerce, man after man in the manufacturing line, was complaining about what was happening to his business because of the tariff situation. Here I have an article, Issue Arises Over Microscopes; Whether To Buy Instruments in Italy for the Army Becomes Magnified Problem, because we have our own microscope-producing concerns in this country. Well, you are up against a matter that requires a lot of sane thinking. My philosophy has always been that the best market in the world belongs to the American producer if we have that market— that is America. As I said in Europe this year, if these Europeans, with 300,000,000 consumers, would get to the point of paying the wages, and thus create the buyers, they could create a market in Europe for themselves that was better than the American market. But we cannot analyze this situation simply from one side of the street. Now I have in my hands also Big Foreign Aid Cut Urged By Chamber. Charge Funds Are Being Used to Build French Waterway System. That is denied in the Capital. This is a New York Times article, and they say here that the French waterways system is being built by the counterpart funds which result from American money, of course.

Now, the only thing I have to say is that I am concerned more and more with this philosophy that says that we have got to take from