Foreign Relations of the United States, 1952–1954, Africa and South Asia, Volume XI, Part 1

611.75/6–3054

Memorandum of Conversation, by the Officer in Charge, North African Affairs (Wellons)

confidential

[Washington,] June 30, 1954.¹

Subject:

• Ethiopian Proposals for Further Discussions with the United States Government

Participants:

• Ato Aklilou, Ethiopian Foreign Minister
• Yilma Deressa, Ethiopian Ambassador
• John Spencer, Senior Adviser to Ethiopian Foreign Minister
• Ato Menassie Lemma, Ethiopian Vice Minister of Finance
• AF—Messrs. Utter, Cyr, Wellons and Longanecker
• ED—Mr. Ross
• S/MSA—Mr. Frechtling
• Treasury—Mr. Bean
• FOA—Mr. Moran
• Army—Colonel Thomas Hannah

Mr. Utter was Chairman of this meeting.

Mr. Utter opened the meeting by expressing the hope that the Foreign Minister understands that if the United States position seems negative that it is not the end of the story; that our Government works slowly and is complicated. He explained that this is not a “brush-off”, as we are giving the Ethiopian requests serious consideration.

The Foreign Minister commented that the discussions of yesterday created the impression in his mind that projects, or even further talks, were to be held up pending investigations by Marc Gordon in Addis. His Government had talked with Gordon and knows his position. He had hoped, therefore, to receive an agreement in principle at this time. Mr. Utter pointed out that our understanding of the total problem has been aided by the Ethiopian presentation but that the projects have to be worked out and implemented by Mr. Gordon. Mr. Moran expressed agreement with Mr. Utter’s remarks but also stated that we should try to agree in principle now on what could be done.

1. Port Development. With regard to the development of the ports, Mr. Utter inquired why so much emphasis was being placed on Assab, noting that perhaps Massawa might prove better and he also noted the existence of Djibouti as a good, available port. Mr. Utter mentioned that generally port development loans are handled by the IBRD, and inquired why the Ethiopians had not taken this up with the Bank. He also asked for the Foreign Minister’s views on getting the French to reduce the rates on the Franco-Ethiopian Railway.

Ato Aklilou replied that Mr. Lemma would discuss the first matter, i.e., Massawa vs. Assab. As to why they did not go to the IBRD, he said that question was answered yesterday—namely, that they feared the British and French would block the loan application. As to why greater reliance was not placed on Djibouti, the Foreign Minister reviewed some 50 years of history and pointed out the fact that Ethiopia had just obtained Eritrea and its ports. He expressed astonishment at the suggestion that Ethiopia rely on Djibouti because Ethiopia had been subjected to French control of its commerce for 50 years. He feared that this suggestion indicates that the Ethiopians expected too much from the Emperor’s talks with the President.

In 1945 Ethiopia considered taking over the railroad and operating it with Americans—the J. G. White Company (this idea had been suggested by President Roosevelt). The State Department, however, opposed the idea and said that the United States and the French should not be played off against each other. Aklilou stated that he objected strongly to the Secretary of State on this matter at the time. He felt that Ethiopia was forced to give the Railroad back to the French, but he said they did so on interim conditions only.

The Foreign Minister continued that actually all three ports are needed to serve different areas of Ethiopia and that he could speak for hours on the difficulties that have been experienced with the French. The present use of Assab has been the only factor which has forced the French to reduce the Railroad rates. The Railroad has the highest rates of any in the world. He cited the fact that it cost $35 more to transport an airplane engine from Djibouti to Addis than from San Francisco to Djibouti by sea.

Mr. Utter suggested that perhaps the United States could speak to the French about reducing the rates. Aklilou said that he has discussed this problem with the French at the highest levels but to no avail. He inquired if the French listened to us on other matters. Mr. Utter thanked the Foreign Minister for his explanation.

The matter of developing Assab was then taken up in considerable detail by the Vice Minister of Finance. He cited the fact that the number of ships visiting Assab has increased 30%—tonnage-wise there has been an increase of some 80,000 tons. Ships do not like to visit Massawa for various reasons: (1) because of the difficult channel it takes about one full day to put in at Massawa (dredging the harbor would provide sufficient improvement for the next five years); and (2) it is farther from the regular shipping lanes than Assab or Djibouti necessitating additional time losses. Assab, however, is closer to the shipping lanes. Ships are willing to put in there for cargoes of only £200 whereas they refuse to stop at Massawa for less than £1000 items. Likewise, it is closer to the producing areas of Ethiopia. Since the Federation, traffic at Assab has increased 125%, in spite of the very poor port facilities. By contrast, Lemma said use of Djibouti presents many complications. The port dues are excessive. The service is poor. The currency is based on the United States dollar, perhaps to drain off US dollars earned by the Ethiopians. Mr. Lemma also stated that there are double customs duties (presumably port fees and handling charges) and said that on the last shipment of United States arms the Djibouti authorities asked port dues amounting to 12,000,000 Djibouti francs and it was only after considerable argument on the part of the Ethiopians that this was reduced to 2,000,000 francs. With regard to the railroad serving Addis to the port, the Vice Minister said that although the rates have been reduced it is still much cheaper to ship goods by railway. On the last shipment of 800 tons of United States arms the Railroad offered to transport it at $70 per ton while the trucking establishments offered $45 per ton. In general, the Ethiopian Government has to argue with the French for months in order to obtain special treatment. Small merchants, however, are unable to do this and consequently must pay the exhorbitant charges. In addition, the Railroad is obsolete. For these and other reasons the existence of the Railroad is not a good argument to direct trade through Ethiopia.

Ambassador Deressa injected that the Railroad’s charges vary with the value of the goods. Thus if the price of coffee goes up in New York the Railroad’s transportation rates likewise increase. Therefore, the profit to Ethiopia is drained away by French taxes. Terming Djibouti a “free port” is mendacious because of the high handling charges.

In response to Mr. Wellons’ question regarding the possible extension of the Railroad, Deressa said that if this is done it will be built and owned by the Ethiopian Government and would be primarily to serve agricultural and timber producing regions.

Mr. Lemma added that one pier was wanted for Assab. The Treasury representative then asked if this was all that was included in the $12,000,000 they were asking for. Lemma replied that this amount covered the main pier, an additional pier and a breakwater.

Mr. Ross stated that since the development of Assab by either the United States or the IBRD runs into political difficulties with the French, could the Ethiopians finance its development and find other projects for United States or international financing. Aklilou replied that he did not see how this could cause political embarrassment since the United States had supported the Federation and the return of the ports to Ethiopia. How and why can France oppose another country’s developing its ports and resources? He said that on this point he wanted to talk to Byroade or other higher officials.

Mr. Utter stated that this discussion shows the importance and the complications of this subject and the need for additional study before we can give a final answer. Aklilou said that he wants to reach an agreement in principle. The Ethiopians presented their case for their needs in connection with Assab and the approximate cost. The actual cost could be determined later but the Ethiopians need to know now “in principle”. He said that there is no need for a “study” which might take years. He added that yesterday he had telephoned him and told him that Byroade had said we would try to get answers “in principle” this week. Now he is concerned by the emphasis on “study”.

In reply to the Foreign Minister, Mr. Utter made the point that the matter of principle involves money. The discussions have shown that many new salient factors have to be considered by the United States Government. These discussions have been useful but it takes time to work things out. In our democratic government it takes time; perhaps in other forms of government decisions can be made sooner.

Aklilou repeated that he wanted an answer in principle now. Perhaps he should submit it to higher officers for an answer. He asked, what is the advantage if the United States say go to the French or go to the IBRD.

In response Mr. Utter inquired just what he wanted, a commitment? Does the Foreign Minister want a statement that the United States would loan so much if the requirements of United States enabling legislation were met? This would not mean much until the facts of the case were developed.

Mr. Cyr then summed up the situation: (1) Can the United States give Ethiopia an agreement in principle; (2) The facts supporting the case should be developed including Ethiopia’s ability to pay off a loan, etc. over the years. Because of the difficulties involved, further discussion of this item was postponed.

2. Coast Guard Vessels. Mr. Utter reported that the United States Navy does not have any coast guard vessels either for grant or for transfer. Certain types of vessels are available for purchase. A list of these vessels has already been made available to the Ethiopian Government.

In this connection the Foreign Minister mentioned that when the Emperor was in San Francisco he saw anchored in San Francisco Bay a large number of ships which were not being used. Mr. Utter explained that these ships were in the United States “mothball fleet” and that they were largely old World War II ships which are being retained in this status as an emergency measure. They are not available for sale or transfer and even if they were they would require considerable costly rehabilitation. Mr. Utter mentioned that he had discussed this with the Emperor at the time the party visited San Francisco.

3. Development of Ethiopian Highways. Mr. Utter pointed out that the present highway program in Ethiopia is based on a loan obtained from the International Bank. Therefore, it was the view of our economic experts that the normal thing for the Ethiopian Government to do would be to approach the International Bank for another loan. Mr. Utter indicated that in recent months and weeks we have been in touch with the International Bank and the Bureau of Public Roads on their program in Ethiopia. From these contacts it seemed to us that the IBRD would consider such a loan application favorably.

Aklilou referred to previous discussions on this matter and explained that a large percentage of the cost of the highway program would be for local currency requirements. In the past the International Bank had not been willing to make loans for their local currency requirements. Since their total development program required such large expenditures Aklilou was hopeful the United States Government could assist on this matter. In reply, Mr. Ross of ED explained after some length that on such matters the International Bank was in a position to be more flexible than the Export-Import Bank. In fact, the Export-Import Bank is prohibited from making loans for local currency purposes. He indicated, however, that under certain circumstances the IBRD might be able to do this. Therefore the entire project should be taken up in further discussions with the IBRD.

Mr. Lemma presented a memorandum giving the Ethiopian answers to questions which had been raised with him in a discussion on June 22.² He explained some of these answers and in particular made it clear that the total highway program contemplated by the Ethiopian Government was for much more than the $45 million requested in their memorandum. In response to questions by Mr. Moran and Mr. Wellons, Mr. Lemma said the Ethiopian Government plans to spend at least 8 million Ethiopian dollars a year in addition to the foreign loan they hope to obtain. Mr. Moran pointed out that on this basis over a period of 20 years the Ethiopians would be contributing some 60 million United States dollars which would be significantly more than the amount they are requesting in a foreign loan. On this basis he thought the IBRD might be willing to give their application sympathetic consideration. Although Mr. Lemma and Ambassador Deressa questioned whether the Bank would in fact consider a loan of this magnitude, Mr. Utter reminded them that the United States position is that the Ethiopian Government should approach the IBRD directly.

In discussing this further it became evident that Aklilou was worried about the conditions which the Bank might impose on such a loan. He went on to emphasize that their desire is to continue the Imperial Highway Authority. In response to questions about the large sums devoted to maintenance, the Ethiopians emphasized the high cost of maintenance in Ethiopia where even the best highways are often washed out during the rainy season.

In further explanation of the United States position, Mr. Moran emphasized that if the Ethiopians think the IBRD terms are onerous then they would find the Export-Import Bank’s conditions even more onerous. Furthermore, FOA has no money for such purposes and in any event could not consider giving a loan for a program of such magnitude or duration. He also pointed out as a policy matter that the United States tried to avoid conflict or competition between the IBRD, the Export-Import Bank and agencies of the United States Government. Therefore Mr. Utter concluded the Ethiopian Government should approach the IBRD.

4. Commercial Aviation Equipment. Mr. Utter began the discussion by indicating that Ethiopia’s desire to have new planes for the Ethiopian Airlines was considered reasonable by our aviation experts. In order to obtain a loan for the purchase of such aircraft the Ethiopian Government should approach the Export-Import Bank. Mr. Utter mentioned that this had been done previously when Convair aircraft had been purchased by the Ethiopian Airlines. Since most of that loan had been paid he thought the chances were very good that the Export-Import Bank would consider a new loan. Mr. Ross explained the procedure further by pointing out that the Export-Import Bank grants a loan of up to 75 or 80 percent of the value of the plane and that the manufacturer usually meets a large part of the remainder of the cost. Ambassador Deressa asked if the Export-Import Bank would grant a large loan for a long period of time. Mr. Ross indicated that the length of the loan usually covered the expected life of the airplane which is about five years.

Aklilou acknowledged that the Ethiopian Government could talk to the Export-Import Bank but he wanted to know whether, in principle, the United States Government is in favor of the project. Mr. Utter replied that the State Department could say yes to this question provided, of course, that the Ethiopian Government would meet the requirements of the Export-Import Bank (Mr. Spencer and the Ethiopians seemed to take this as virtually a commitment on the part of the Department). Mr. Ross said that officials of the Department had discussed the matter with the Export-Import Bank and that it is ready to consider a loan application. However, he emphasized, that it is a separate United States agency which operates as a bank and that its officials think and act like bankers. Therefore the requirements of the Bank would have to be met in order to obtain a loan. Mr. Cyr and Mr. Ross felt it necessary in the light of the discussion to emphasize that the length of such a loan would in no case be longer than the life of the aircraft purchased.

In conclusion Aklilou asked once again if the State Department supported the idea and Mr. Utter replied yes if the conditions demanded by the Bank are met by the Ethiopian Government.

Thereupon the meeting was concluded.

1. This conversation took place at 10 a.m.
2. Not printed.