863.00R/7–750: Telegram
The Chargé in Austria (Dowling) to the Secretary of State
22. 1. Secretary General Foreign Office presented aide-mémoire outlining objections projected cut of ECA funds for Austria from 1949/50 level approximately $166,000,000 to 88,000,000 to $93,000,000 program. In summary note states: Home production and trade cannot stand such an abrupt and severe reduction: Austria increasing exports in attempt to balance payments and must import food and raw materials from East which not available other PC’s; Eastern export potential and attempts to compensate dollar cuts hampered by East-West export restrictions1 on traditional Austrian exports to East resulting [Page 400] in far-reaching reduction export totals and ability import food and raw materials from East; result—if latest political events force continuation export controls and further reduction in Austrian exports East, Austria forced to ask increased direct aid to purchase these goods from West. Denial of additional aid would cause economic repercussions, reduced living standard with social consequences and serious internal difficulties which particularly grave because Austria’s special position. End Summary.
2. The following are joint Legation/ECA comments regarding both above note and general problem raised. Note intimates East-West trade controls cause of major trade difficulties with East. We do not believe this to be the case, particularly in view relatively small Austrian production list I goods.2 However, difficulty in trade negotiations has been encountered because of restrictions affecting general Austrian bargaining position. Believe situation may be best characterized that Austria is being forced to trade with East on Eastern terms which are generally unsatisfactory particularly re composition of goods exchange and so stated to Secretary General. Possible exceptions exchange with Poland (coal) and Czechoslovakia where general pattern more favorable does not however include grains. Specific examples difficulties are Austrian inability this year to draw established grain quotas Hungary and failure Rumania to agree supply Austria any petroleum under new trade agreement. Note misses basic point when it attempts to place blame on export controls. However our analysis agrees with fact implicit in note that Austria still overly dependent on unreliable Eastern trade partners. Commercial trade with East including Yugoslavia in first half 1950 approximately 24% (not including sizable illegal and noncompensated trade). Composition this trade highly unsatisfactory from viewpoint Austrian balance of payments. Present state Austrian production increases necessity meeting East on their terms and also causes continued imports of goods unadvantageous from balance of payments viewpoint. Recent negotiations indicate no improvement. Particularly serious from viewpoint balance of payments is failure to obtain grains from East.
3. In Austrian investment program and in striving for solution subsidy problem efforts being made to increasingly meet grain deficit from internal sources. Also although investment program emphasizes orientation to Western markets anticipated greater competitiveness and greater desirability Austrian products will considerably improve Austrian bargaining position as investment program is implemented. However prior to such improvement reduction direct aid such as planned at this time forces Austria to attempt expanding trade with [Page 401] East along unfavorable lines described above. This in turn would increase need for aid as result increased deficit with East. Such loss would affect both current account and trading position. Should Austria be forced to seek minimum grain supplies from East this dependency certain to be ruthlessly exploited by East.
4. We believe special consideration should be given immediate future to possibilities establishing conditional reserve particularly for grains—such reserve to be both financial and quantitative. Only by insuring Austria supplies from West can (a) present trend toward dangerous economic dependency on East decrease, (b) continued unwillingness East to supply essential goods to Austria be thwarted, (c) arbitrary refusal of grain deliveries by East for political and economic gains be avoided. Envisage use such reserves be based upon: (1) demonstration maximum Austrian efforts obtain such supplies from (a) own sources, (b) trading on satisfactory terms with East and (c) alternate source procurement.3
5. We have asked Foreign Office for detailed study its estimate of effect continued East-West controls on Austrian trade with East. Text aide-mémoire follows airpouch.4
Sent Department 22, repeated info Paris 2. Paris pass OSR. Pass ECA, Defense.
- For documentation on East-West trade, see pp. 65 ff.↩
- Under the terms of the United States ECA Agreement with Austria, the Austrian Government agreed to prohibit trade and transshipment of strategic goods (list I) to the Soviet Union and its satellites.↩
- In telegram 176, August 2, to Vienna, not printed, Legation Vienna was advised that “Aust’s difficulties in dealing with former satellite countries recognized Wash not major reason for change in program and aid formula must stand until reason for modification evident.” (863.00R/7–1150)↩
- Transmitted in despatch 30, July 11, from Vienna, not printed (863.00R/7–1150).↩