S/P–NSC files, lot 61 D 167, NSC 144 series
Paper Prepared in the Department of Defense1
Defense Comments on U.S. Military Standardization in Latin America (NSC 144/1)
general considerations
1. One of the objectives of the United States with respect to Latin America, set forth in NSC 144/1, is as follows:
“g. The ultimate standardization of Latin American military organization, training, doctrine and equipment along U.S. lines.”
2. A trend away from this objective is taking place and is highlighted by the increasing number of purchases of European military equipment by Latin American countries. This is caused, in large measure, by the inability of these countries to purchase military equipment from the U.S. on the terms and delivery schedules desired. Although there are no European military training missions in Latin America at the present time, there are European technical advisers in the area, and this in addition to the trend towards use of European military equipment may lead to the introduction of such missions. Such a development would adversely affect the U.S. objective quoted above.
3. U.S. military aid to Latin America is of two types, grant aid and “reimbursable aid.” Under the latter category Latin American countries may purchase equipment from the U.S. Government under Section 408(e) of the Mutual Defense Assistance Act of 1949, as amended. The [Page 172] flexibility of U.S. Government action in making sales under Section 408(e), however, is considerably restricted at the present. European countries, on the contrary, are offering low prices, rapid delivery, and easy payment terms, including long-term credits, purchase by soft currency, and barter deals. To achieve fully U.S. military standardization objectives, the U.S. should be in a position to offer competitive terms and deliveries.
4. The purchase of European military equipment is most pronounced with regard to Latin American air forces. The major Latin American countries now appear anxious to augment U.S. World War II types which they have obtained in the past. Within the past two years Venezuela has purchased 25 British jet aircraft, and Brazil has bartered 15,000 tons of cotton for 70 British jet trainers and fighters. Chile has recently acquired 5 British jets, reportedly under a barter arrangement for Chilean nitrates. In the last few weeks it has been reported that Ecuador, after failing to make satisfactory terms with the U.S. for the purchase of F–86 jet fighters, is about to sign a contract with the U.K. for an unspecified number of jet bombers and fighters. Over 60% of Argentina’s aircraft are of non-U.S. origin. (See Annex2 for further details regarding European aircraft in Latin America.)
5. U.S. Navy objectives in Latin America with respect to standardization of equipment have, likewise, not been fully successful. Colombia, Brazil, Chile, and Venezuela have recently entered into contracts for the purchase of significant quantities of naval vessels and equipment of non-U.S. origin. (See Annex)
6. Standardization of U.S. Army equipment is proceeding in a generally satisfactory way, except for Guatemala. Most of the heavy army equipment in all the Latin American countries is of U.S. manufacture, although the greater percentage of small arms is of European origin. (See Annex)
7. The legislative provision under which the U.S. can sell military equipment to its allies is Section 408(e) of the Mutual Defense Assistance Act of 1949, as amended. Under this Section, new equipment must be paid for in dollars prior to delivery. In the case of used equipment or of equipment already in stock, payment must be made before delivery, or, exceptionally, within 60 days thereafter if the President makes a determination that it is in the best interests of the U.S. to extend such credit.
8. Section 107 of the draft of the Mutual Security Act of 1954, now before the Congress, would liberalize Section 408(e) to some extent by authorizing the President to extend credit terms of up to three years on equipment or materials sold from stocks, provided that this is determined to be in the best interests of the U.S. There would be, however, no [Page 173] available Department of Defense funds for the financing of such three-year credit sales even if this moderate liberalization of 408(e) is enacted. The need for a source of funds would be considerably greater if the credit provisions of Section 107 were further liberalized to the extent necessary to permit full implementation of our policy objective.
9. One avenue through which funds for carrying such credit might be obtained is the Export–Import Bank. Although the Bank has not traditionally financed the sale of military equipment, this function would appear to be within the terms of its very broad charter. An important factor to be considered before helping to finance Latin American purchases is the general economic capacity of the country concerned to support the military forces being equipped.
10. The acceptance by the U.S. of local currency or barter arrangements for military equipment is contrary to the general foreign economic policies of the U.S. Nevertheless, it is believed that there may be cases where such arrangements are both feasible and desirable. For example, it may be possible for the U.S. to accept local currency in exchange for military equipment in cases in which the U.S. itself plans expenditures in a particular Latin American country. Also, it may be possible to arrange barter deals for materials which could be utilized in our strategic stockpiles. To achieve our objectives, it should be possible to carry out such transactions whenever they will not upset the normal flow of trade and investment. Rather than soft currency or barter deals, the better long-run solution to the problem of financing the sale of U.S. military equipment to Latin American countries would involve an expansion of trade and investments in Latin America on the part of the United States.
11. The problem of speeding up delivery of reimbursable aid to the Latin American countries is difficult because of their low position on the priority list for the delivery of U.S. military equipment. However, existing criteria permit exceptions to be made, and these might be used to meet particular Latin American requests where this can be done without a seriously adverse effect on higher priority claimants, especially where quantities desired are not great. Generally, speed of delivery can be regarded as merely another factor of U.S. competition with other suppliers, and desired progress toward the U.S. standardization objective in Latin America can be weighed against requirements of other areas.
recommendation
12. It is recommended that paragraph 18(e) of NSC 144/1 be amended3 along the following lines: [Page 174]
“Seek the ultimate standardization along U.S. lines of the organization, training, doctrine, and equipment of Latin American armed forces, facilitating the purchase of U.S. equipment by offering the countries of this area credit terms, including long-term payments, use of soft currency, barter arrangements, and more rapid delivery.”