Foreign Relations of the United States, 1958–1960, Berlin Crisis, 1959–1960; Germany; Austria, Volume IX

295. Paper Prepared by the Operations Coordinating Board⁰

Washington, January 29, 1958.

PROGRESS REPORT ON AUSTRIA

(NSC 5603, Approved by the President, April 7, 1956)¹

(Period Covered: From April 1, 1957 to January 29, 1958)

A. Summary of Operating Progress in Relation to Major NSC Objectives

1. Summary Evaluation. United States activities have, in the broad sense, been successfully directed toward assisting Austria to maintain its freedom, independence and internal stability, and toward encouraging Austria to interpret its policy of neutrality so that its practical application is not prejudicial to the interests of the U.S. or its allies. Continuing U.S. programs of technical exchange, surplus commodity sales, aid to refugees, and military end-item aid, as well as influence exerted through normal diplomatic relations and information activities, have contributed significantly to the progress toward the major aims of U.S. policy.

The U.S. has thus far succeeded in keeping American programs out of partisan politics and informally stressed the achievements of the Austrian coalition government and the stability it has fostered. U.S.-Austrian cooperation in the build-up of the Austrian Army to a 60, 000 man goal has continued, and on June 28, 1957 the President approved the allocation of an additional $12.5 million in end-item grant aid bringing the total to approximately $70 million since the State Treaty.²

The Austrian economy strengthened its position substantially during the period under review. Consistent with U.S. objectives, Austria is demonstrating strong interest in the European Free Trade Area. [2 lines of source text not declassified] PL 480³ and counterpart loans as well as the technical assistance programs are playing a substantial role in bringing about the rehabilitation of industry in the former Soviet occupied zone.

In view of the above, a review of policy is not recommended.

B. Major Operating Problems or Difficulties Facing the United States

2. Protection of Property Rights of American Citizens. The Austrian Government has settled all but two of the claims of American corporations under Article 25 of the State Treaty, and the two remaining claims are now under negotiation. Under the terms of the Vienna Memorandum,⁴ two subsidiaries of Socony-Mobil (one wholly owned and one jointly owned) have been denationalized and returned to Socony, and certain retail gasoline installations in Western Austria have been returned to Standard Oil of New Jersey. The Austrian Government has agreed in principle to return the Lobau refinery, the second largest in Austria, and the pipelines, but the actual turnover is not expected before early February. The Austrian Government has announced its intention to complete in the near future the negotiations with the Solon-Mobil (U.S.) and Shell (British-Dutch) Oil companies for restoration of their oil exploration rights.

The Austrian Government has submitted to the United States, British, and French Embassies proposals on categories of claims of former persecutes to be satisfied pursuant to Article 26 of the Austrian State Treaty. Although some of the proposals are acceptable, further discussions are now taking place to determine whether the Austrian Government will restore bank accounts and securities as they stood before payment of discriminatory taxes. The American Jewish organizations may be dissatisfied with the size of the Austrian payments.

3. Military Build-Up Problems. The major factor governing the nature and size of the Austrian military build-up and U.S. assistance program is the Austrian status of neutrality. Major problems in the build-up into an effective combat force are: the current shortness of the period of compulsory military service; and domestic legislation which limits enlisted service to a total of 9 years, thereby preventing the development of a corps of career non-commissioned officers.

The Department of Defense has initiated a request for a Presidential determination under Section 401(a) of the Mutual Security Act for a $30 million FY 1958 military grant aid program designed to equip 2 infantry brigades, 3 medium tank companies, 3 artillery groups, and necessary support forces.⁵ Delivery of this American equipment will leave requirements for only 3 armored regiments, 1 infantry brigade, and 2 artillery battalions plus some support units, which the FY 1959 program should be able to meet within the $30 million statutory limit.

4. Refugees. Of the 179, 939 Hungarian refugees who entered Austria after October 1956, there were 18, 985 remaining in Austria on January 9, 1958, of whom 8, 551 were still living in camps. Although the Embassy estimates that the expenditures through the Austrian budget for the care of Hungarian refugees will total $14.94 million through July 1, 1958, the Austrian Government’s contribution to the total will be less than $385, 000 and private Austrian contributions will be approximately $770, 000. The remainder of the funds has come from the United States, other governments, and welfare organizations. Funds on hand from previous official and voluntary aid programs plus the proceeds of a special PL 480 Title II sales program will, the Embassy believes, eliminate any need for U.S. aid to the Austrian Government in fiscal years 1958 and 1959, beyond the supplementary services provided by USEP.

The Embassy estimates that there are approximately 9, 000 Yugoslav refugees in Austria today. The Austrian Minister of the Interior states that they are continuing to arrive at the rate of 250 a week and has stressed that assistance in the onward movement of the refugees is more important than financial aid. Pursuant to the OCB decision of December 11, 1957, the Department of State initiated discussions with the Austrian Government on a $3 million PL 480 Title II program for the feeding of the Yugoslav refugees.⁶ The composition of this program and the possibility of proposing the sale of some of the commodities to buy other food for the refugees in Austria is still under study by U.S. agencies.

5. East-West Trade. Annual shipments of 1, 000 tons of copper, an embargo item, to the Soviet Union under the Compensation Agreement⁷ arising out of the State Treaty were valued at $1, 384,662 in 1956 and $1, 259,162 in 1957. These shipments will continue to be a problem and further Battle Act⁸ exceptions will be required if U.S. aid is to be continued. [2-1/2 lines of source text not declassified]

6. PL 480 Program. The United States has taken no action on the Austrian request of May 23, 1957 for an $11.6 million PL 480 Title I program and no consideration of this program is anticipated because of the low priority of this program until later in the fiscal year or until additional authority is obtained from the Congress.⁹ Several Austrian cabinet members, including representatives of both coalition parties, have pressed the issue during their visits to the United States. The Austrians emphasized the political desirability of the maintenance by the U.S. of its position in the Austrian market and the Austrian wish to avoid over-dependence on Soviet bloc trade.

Note: See National Intelligence Estimate Number 25-55 dated 23 August, 1955, “Outlook for an Independent Austria”.¹⁰

Annex A¹¹

ADDITIONAL MAJOR DEVELOPMENTS NOT COVERED IN THE REPORT

1. Presidential Election. The election of the former Socialist Vice Chancellor, Dr. Schaerf, as President of Austria on May 5, 1957, brought about a realignment in the top leadership of the Socialist Party. People’s Party disappointment over defeat and the need for the new Socialist leaders to establish themselves firmly combined to produce a period of public controversy between the two parties and relatively slower pace in the work of the coalition government. These difficulties do not pose a serious threat to the coalition at this time, but bickering between them can be expected to continue.

2. State Visits. During Soviet Deputy Premier Mikoyan’s state visit to Austria in April, he worked hard to create an atmosphere of good will and reasonableness, and he succeeded in leaving a generally favorable impression.¹² Mikoyan also invited Chancellor Raab to go to Moscow to negotiate a reduction in Austrian compensation shipments to the Soviet Union under the State Treaty. Although the Chancellor suffered a stroke in August, he expects to go to Moscow later this year to negotiate large-scale reductions which would help his party in domestic politics.¹³ The Chancellor intends to visit the United States this spring to receive an honorary degree.

Chancellor Adenauer, who visited Austria in June, was universally well received, and his conduct should do much to dissipate any latent hostility or suspicion on the part of Austria toward its German neighbor. During his visit, an Austro-German property agreement was signed which if ratified will settle many of the troublesome German assets questions.

3. International Atomic Energy Agency (IAEA). Sufficient governments ratified the Statute of the IAEA to bring the agency into being, and at the first general conference held in Vienna in October 1957,¹⁴ the agency selected Vienna as its permanent seat, thus fulfilling a United States objective.

4. Ex-Im Bank and IBRD Loans. The Export-Import Bank granted credits amounting to $28 million to a major Austrian steel company (Alpine Gesellschaft) for equipment to modernize its plant and expand its steel production. The IBRD approved a loan of 15 million German Deutsche Marks ($3.6 million) for a hydro-electric power project in Western Austria, bringing the Bank’s investment in the project to $13.6 million. This is the World Bank’s first loan in German marks.

5. South Tyrol. The interpretation of the 1946 Austro-Italian agreement¹⁵ which recognized Italian sovereignty over the South Tyrol continues to disturb relations between the two countries, and recent demonstrations in the disputed territory have given the issue increased prominence in Austria. However, Austria continues to press for some bilateral solution of this problem.

0. Source: Department of State, OCB Files: Lot 62 D 430, Austria. Secret. A cover sheet; a memorandum by Elmer B. Staats, Executive Officer of the OCB, indicating that the OCB had concurred in the report of January 29 and that the NSC had noted it on February 7; a Financial Annex; and a Pipeline Analysis of the Mutual Security Program for Austria are not printed.
1. For text of NSC 5603, “US. Policy Toward Austria,” March 23, 1956, see Foreign Relations, 1955–1957, vol. XXVI, pp. 34–37.
2. For text of the Austrian State Treaty, May 15, 1955, see Department of State Bulletin, June 6, 1955, pp. 916 ff.
3. The Agricultural Trade development and Assistance Act of 1954, July 10, 1954, provided for the disposal of U.S. agricultural surpluses abroad. For text, see 68 Stat. 454.
4. For text of the Vienna Memorandum, May 10, 1955, see Department of State Bulletin, December 12, 1955, pp. 967 ff.
5. The Presidential determination to allocate $30 million to Austria under Section 401(a) of the Mutual Security Act was issued in a memorandum from President Eisenhower to Secretary Dulles, May 26. (Department of State, Central Files, 763.5-MSP/5–2658)
6. Documentation on the discussion leading to the December 11, 1957, OCB decision to extend Title II P.L. 480 aid to Austria for use with Yugoslav refugees is ibid., OCB Files: Lot 62 D 480, Preliminary Notes.
7. Reference is to Article 22 of the Austrian State Treaty, which provides for return by the Soviet Union of most German assets seized after World War II in return for Austrian compensation of $150 million within a period of 6 years. Article 22 incorporates a reference to the Austro-Soviet economic accord of April 15, 1955, on which the provisions governing the return of German assets to Austria are based. The Austro-Soviet economic accord of April 15 is in Department of State Bulletin, June 20, 1955, pp. 1011-1013.
8. Reference is to the Mutual Defense Assistance Control Act of 1951 (P.L. 2131, sponsored by Congressman Laurie C. Battle of Alabama and enacted October 6, 1951. It provided for the suspension of U.S. economic aid to nations supplying strategic materials to Communist countries. For text, see 65 Stat. 644.
9. Regarding the Austrian request for aid under P.L. 480, see the memorandum from Elbrick to Secretary Dulles, September 23, 1957, Foreign Relations, 1955–1957, vol. XXVI, pp. 50–53.
10. Not printed. (Department of State, INR-NIE Files)
11. Secret.
12. Regarding Mikoyan’s visit to Austria April 23-27, 1957, see the memorandum from Tyler to Elbrick, April 17, 1957, and telegram 3787 from Vienna, April 25, 1957, Foreign Relations, 1955–1957, vol. XXVI, pp. 47 and 49.
13. Regarding the postponement of Raab’s visit to Moscow, see the editorial note, ibid., p. 54.
14. Their first IAEA conference was held at Vienna in October 1957.
15. For text of this agreement, sometimes referred to as the Gruber–de Gasperi Agreement of September 5, 1946, see annex IV to the Treaty of Peace with Italy, signed at Paris on February 10, 1947, in 4 Bevans 360–361.