We believe that the Export-Import Bank could further serve to implement the point 4 program in two ways:

(a) By direct loans to developments in underdeveloped countries where it would be difficult or impossible to obtain the loans from private sources and where American engineering firms can prove to the satisfactoin of the bank's officials that such loans are of a productive nature and are a good business risk. (b) By the encouragement of private American capital in overseas investments by means of the "guaranty principle." That is, by freeing American foreign investments from the risks other than the ordinary every-day risks involved in domestic investments. By this we mean (a) freedom from the unusual risk of inconvertible currencies; (b) freedom from the unusual risk of loss of investment in whole or in part on account of political contingencies such as confiscation, seizure, destruction, or forced abandonment due to the act of ary government which prevents the further transaction of business.

5. We further believe that a special committee consisting of American businessmen, industrialists and engineers, should be organized to assist the ExportImport Bank in its work of implementing the point 4 program. The ExportImport Bank should not approve any specific projects under this program until a report on that project had been filed by this committee.

6. We are definitely opposed to any scheme for vast global spending on a government level. We do not believe that the objectives of this program can be achieved merely by pump priming the world economy with additional billions of taxpayers money. While this was necessary during the immediate postwar years for the providing of funds for emergency relief for the war-torn nations of the world, such expenditures now would accomplish little in the way of permanent development or progress and could have a most serious adverse effect upon the economy of this country which is already heavily burdened by taxation.

7. We believe the term backward and underdeveloped is wrong for it connotes lack of progress. In many of these regions, to the contrary, there is great progress. It is only that this progress has but recently begun and the potentialities are so great. A hundred years ago the United States in comparison to other nations was likewise an underdeveloped area. There are, in fact, some areas in the United States today that could yet be classified as underdeveloped.

We would like to point out that many areas will never develop, both for economic, political, and geographical reasons. To attempt to force development would be a costly mistake and would inevitably result in failure.

8. We believe that this new program must be operated on a business level and not on a governmental level. Businessmen and industrialists in these countries generally have a more intimate knowledge of what is needed with regards to business and industry to bring about lasting improvement than do the governments.

We especially stress the need for help other than money. By this we mean the voluntary aid which could be given by American management in the way of technical help and "know-how." It will be impossible for the United States Government to act as other than a clearing house for industrial projects. Such projects must be handled on an industry to industry basis, the details to be worked out by industry itself.

Since industrial skills and modern technology are largely the possession and property of private enterprise, it is submitted that the only way these talents can be put to work effectively is to bring the American entrepreneur into direct contact with his counterparts in foreign countries.

9. We believe that the obstacle of double taxation which faces private United States capital when it ventures out of the United States must be ended. Every dollar of private capital that goes abroad decreases by an equivalent amount the need for Government loans and grants. This flow of private capital should be encouraged rather than discouraged as is the case at the present time.

10. We believe that some tax inducements might well be given to firms and individuals investing their capital abroad. For example, an arrangement might be worked out and authorized by Congress whereby, through appropriate treaties, both the United States and any country which is host to any United States foreign investment would consent to accelerated amortization, for domestic income tax purposes, of the actual investment required. We have in mind the 5-year writeoff of war plants, privately constructed, which was provided for in tax laws during World War II.

In addition to a 100 percent write-off for tax purposes, of any approved foreign investment, within a maximum 5 years, we would also recommend the instantaneous write-off of any remaining balance in the event that, due to the outbreak of

hostilities, in the host country, or in case of riot, revolution, administrative decree or otherwise, the transaction of business becomes impractical.

11. We believe that there must be changes in the United States customs and tariff laws. If United States firms are to invest abroad, they must import a vast amount of extraneous business material that always flows between the home office and subsidiary or branch plants. At the present time, outmoded United States customs regulations and laws restrict this flow of vital business material. The law must be changed so that this material may be imported freely into the United States.

Customs laws and tariffs in the United States must be made more conducive to the importation of goods from abroad. If we are to encourage production in the world, we are assuming a moral obligation to likewise open our doors to the purchase of this increased production. If we refuse to do this, then the entire program will falter and the world will again find itself involved in another major depression.

12. We believe that, prior to taking any tangible steps for the implementation of the point 4 program, Congress should pass the Meader bill which provides for the establishment of a bipartisan commission to investigate and report on ways and means that unreasonable barriers to overseas private investments may be removed.

If these barriers are discovered and removed, much of the need for Government assistance may be dissipated. We would like to stress that business and industry in many of the areas in question would welcome private United States cooperation and investment. These same groups in many cases would object to any industrial or business program worked out on a government-to-government level.

13. We believe that during the present emergency we can make a significant contribution to the less developed areas by not overlooking their needs. Many of these regions are in the midst of great development programs. Their continued progress depends upon obtaining from this country the machinery and other requisites to expansion. We must make certain that these goods are available to sustain their economies and development by the granting of export priorities.

CONCLUSION

In conclusion, we support the Mutual Security Program. We respectfully urge all Americans to see that as much of this program as possible is worked out on a business rather than on a Government level. Only by so doing can the aspirations and hopes held for this program all over the world be realized without placing an undue and dangerous additional burden of taxation upon the American economy and the American taxpayer.

Mr. FROST. I will, in the limited time allowed, attempt to highlight some of the more essential points in our statement of policy.

We are in sympathy with the basic objectives of the American foreign aid program. We believe, however, that due to poor planning and bad administration both in the past and present the cost of the program has been far higher than it should have been and most of the objectives have not been achieved.

The stated objective of our foreign aid program of contributing to the unification and economic integration of Europe is an excellent example of how we have failed. The European tariff walls today are 33% percent higher than they were when the Economic Cooperation Administration began its activities. It is true that some quota barriers have been removed in European trade. However, what can be gained by trading one barrier for another? As a matter of fact, recent dispatches from Europe would indicate that many of the old quota barriers that have been removed during the course of the European Economic Cooperation Administration's history are now being restored.

ALLEGED SOCIALISTIC AND NATIONALISTIC ASPECTS OF ECA

In many ways the administration and operation of our foreign aid program has contributed immensely to this situation. Our foreign aid program was conceived and sold to the American people as a European program. In its operations, however, it has not been worked out on a European basis but rather upon a government to government and nation to nation level. It is all too obvious that the politicians in the various countries of Europe are each more interested in obtaining specific advantages for their own country than they are in working out a program of benefit to all of Europe.

The socialistic scheme of planning all European trade a year in advance is not only the most ambitious program of international state planning ever attempted by any nation on earth but it, too, has seriously contributed to the high cost of the program and to defeating the purpose of unification and economic integration in Europe.

A famed Swiss economist once stated that never in the history of the world had any nation undertaken a task of international state planning such as that undertaken by this country in Europe.

USE OF COUNTERPART FUNDS

The mistake we made in giving up control of the counterpart funds in Europe has particularly contributed toward defeating the purposes of the program and has probably increased the cost to the American taxpayer somewhere between two to three times.

We do not believe that it was the intent of Congress that complete control over these funds be relinquished by the Administrator of the foreign aid program. However, this is actually what has taken place. The only control that we have over the use of these funds is a dubious veto power. This is of little importance due to the fact that should we veto a project the government concerned need only wait until the end of the MSA and then proceed to use the funds as they see fit. Furthermore, the funds can be used to retire public debt while local funds that would otherwise be used for the retirement of debt can be put to work in the vetoed project. We cannot initiate programs with the counterpart funds.

Furthermore, arrargements for utilizing these funds are again worked out on a nationalistic basis. The Mutual Security Organization in Washington has little information with regard to what is being done with these funds in Europe.

FRENCH WATERWAY AND POWER PROJECTS

We recently published a story which received widespread publicity throughout the United States on a waterway and power project in France, currently being financed to the extent of 90 percent by American counterpart funds. The project involves a tremendous power development which is anticipated to produce some 13 billion to 14 billion kilowatt hours of electric energy and a seaway consisting of eight systems of canals and locks over a 354-mile stretch between Lake Geneva and the Mediterranean Sea. No one knows what the total cost of this project will be, although it is known that 3 of the

22 dams to be constructed and 3 of the 46 power plants will cost some $685 million.

At the time we heard of the project we contacted the Mutual Security Office in Washington and they were unable to supply any concrete information. They first had to contact their offices in France and, after considerable delay, information was forwarded to us from the Paris office. In the meantime we had contacted French authorities and obtained complete information from them. Much of the information given by the Paris office, when compared with the information received from the French authorities, proved to be inaccurate.

When the article was published and widespread publicity was given to it the MSA office in Washington denied the story with the following statements, which were published in the March 16 edition of the New York Times:

WASHINGTON, March 15.—The Chamber of Commerce of the United States charged today that "billions of United States tax dollars" were being spent for the construction of a “gigantic waterways system in France."

The protest was made as the chamber pressed its demand for a cut of $5,800,000,000 from the $10,800,000,000 President Truman has outlined as essential foreign-aid expenditures in the fiscal year beginning July 1. He is asking $7,900,000,000 in new appropriations.

The chamber's protest against United States' help for the French waterways project was based, it was said, on an article written by Richard B. Frost, manager of the foreign trade department of the Detroit Board of Commerce.

The national organization quoted Mr. Frost as saying that "while United States tax money was being lavished on French waterways 'our own St. Lawrence waterway and power project goes begging.'

Spokesmen for the Mutual Security Agency disputed both the facts and the conclusions in the chamber's attack against United States aid to France.

They said, first, that most of the money financing the French Rhone and Rhine River projects-described as hydroelectric and irrigation projects, not as "waterways"- was French counterpart funds. Counterpart funds, they said, are francs taken from the French budget in the amount of United States dollar aid and used for purposes agreed to jointly by French and United States aid officials. The power development project in France has long been one of the major programs of the French Government, it was said. The object, officials explained, is to harness some of the water power that comes down from the Alps and put it to work in the development of power for French industry.

Officials denied that "a 354-mile seaway from the Mediterranean to Lake Geneva" was involved in the project. One canal 15 miles long is planned, they said, and the rest of the project is for power production and irrigation, not navigation.

The statement "We were amazed at the statement by MSA officials that 'counterpart funds' are francs taken from the French budget in the amount of United States dollar aid and used for purposes agreed to jointly by French and United States aid officials" is absolutely untrue. Counterpart funds are derived from payments made to their banks by private purchases in France of American equipment financed under the Mutual Security Program. Counterpart funds are exactly the same as the French francs you receive in France whenever you visit that nation and exchange your American dollars for French currency. To say that these funds come out of the French budget and are of no concern to the United States is utterly fantastic.

The statement by ECA officials that only a canal 15 miles long is planned in the Rhone River Valley project proves without a trace of doubt what little knowledge there is in Washington with regard to the usages of counterpart funds. Should this committee so desire, we will be most happy to submit maps and other documentary proof of

the size and scope of the Rhone River Valley project. As a matter of fact, there are, as we stated, eight systems of canals and locks covering a distance of 354 miles. One of these locks, incidentally, will be the largest lock in the world, some 80 feet in height.

STRICTER CONTROLS OVER COUNTERPART FUNDS ADVOCATED

We would like to strongly urge this committee to place into the legislation now pending before you measures that will assure the control of counterpart funds by the United States. If these funds were intelligently put to work much as a student loan fund operates, the cost, we believe, of the foreign-aid program could be cut by at least 50 percent to two-thirds.

We would like, in closing, to particularly call to the attention of this committee the fact that over 90 percent of the counterpart funds that have accrued in the United Kingdom have been utilized for the retirement of public debt. Actually, this means that they have gone into the British budget exactly the same as the taxes paid by British citizens. It would not be difficult to prove that the American taxpayer is likewise paying taxes to the United Kingdom. It is also true, we have been told by many prominent Englishmen, that it is highly dubious that most of the socialistic programs carried out by the labor government could have been financed without the aid of these American funds. This, we firmly believe, is not in keeping with the objectives of the American foreign-aid program.

Thank you.

Senator GEORGE. Mr. Warburg is the next witness. Mr. Warburg, you may be seated. Please identify yourself for the record.

STATEMENT OF JAMES P. WARBURG, GREENWICH, CONN.

Mr. WARBURG. My name is James P. Warburg, of Greenwich, Conn. I am a writer on foreign affairs.

I appreciate your courtesy in hearing me and in order to shorten the record I ask to give a full insert of my statement, without alterations. Senator GEORGE. All right, sir.

Mr. WARBURG. Mr. Chairman and Members of the Senate Foreign Relations Committee: A crucially important decision is before you with regard to the administration's Mutual Security Program. Since you have been good enough, in the past, to permit me to testify on various important issues of foreign policy, I venture to submit a statement with regard to this matter. I do so with some hesitancy, knowing that no mere private citizen is competent to form a conclusive judgment and in full awareness of the fact that your committee, itself expert in these matters, will have the benefit of many competent authorities. I shall deal primarily with that aspect of the problemWestern Europe and Germany-with which I can say that I have at least tried to become familiar through close study over a long period of

years.

In concentrating on this part of the problem, I do not wish, however, to convey the impression that I think economic assistance to Asia, Africa, the Near East, and Latin America any less important. Indeed, such assistance to countries like India seems to me of paramount urgency.