id financial impact of civil war is felt throughout the entire y in the disruptive consequences of inflation resulting from uance of paper currency in order to finance mounting Government deficits caused mainly by military expenditures. Inflation impedes the production and movement of goods for domestic consumption and export, and stimulates speculation and hoarding. It thus intensifies existing scarcities, and requires ever-larger Government appropriations.

China needs economic assistance if she is to be able to purchase essential imports and to undertake urgent reconstruction projects.

Her essential commodity needs, for the 15-month period ending June 30, 1949, as set forth by the Department of State, amount to $510,000,000. The items, and their estimated cost, including insurance and freight, are as follows:

The cost of essential reconstruction projects in China has been estimated at $60,000,000.

Although the authorization for economic assistance to China in the current bill falls short of the requested $570,000,000, it adds $150,000,000 for military assistance, thereby bringing the total authorization for China for both economic and military-type assistance back to the $570,000,000 figure.

V. ANALYSIS OF TITLE I OF THE BILL: EUROPEAN RECOVERY Program

A. BASIC OBLIGATIONS ASSUMED AS CONDITIONS OF PARTICIPATION IN THE EUROPEAN PROGRAM

The nations within the scope of this program will qualify for assistance through the steps, first, of joining with the other nations concerned in the program of cooperation for restoration of the European economy and, second, of signing a bilateral agreement with the United States.

The basic agreements will be specific and intricate. They must be predicated on and derived from the details applicable to each respective participating country. The work of negotiating them necessarily will be postponed until the Congress has finally determined the basic conditions. To afford the time necessary for the making of proper agreements and yet to avoid a hiatus in getting the program under way, provision is made for limited interim assistance.

The bill as originated by the President specifies that for 3 months any country signifying by definite action its intention of going along with the program may be extended any appropriate aid authorized by the program. The bill as it comes from the Senate, in addition to the above, specifies that any CEEC nation may be extended relieftype aid through June 30, 1948.

The substance of the cooperative pledge is of such importance as to merit specific review. It is stated as follows in the CEEC report:

In order to insure that the recovery program is carried out, the 16 participating countries pledge themselves to join together, and invite other European countries to join with them, in working to this end. This pledge is undertaken by each country with respect to its own national program, but it also takes into account similar pledges made by the other participating countries. In particular, each country undertakes to use all its efforts:

(i) to develop its production to reach the targets, especially for food and coal;

(ii) to make the fullest and most effective use of its existing productive capacity and all available manpower;

(iii) to modernize its equipment and transport, so that labor becomes more productive, conditions of work are improved, and standards of living of all peoples of Europe are raised;

(iv) to apply all necessary measures leading to the rapid achievement of internal financial monetary and economic stability while maintaining in each country a high level of employment;

(v) to cooperate with one another and with like-minded countries in all possible steps to reduce the tariffs and other barriers to the expansion of trade both between themselves and with the rest of the world, in accordance with the principles of the draft charter for an International Trade Organization;

(vi) to remove progressively the obstacles to the free movement of persons within Europe;

(vii) to organize together the means by which common resources can be developed in partnership.

As provided in the requirements for the bilateral pledges to be undertaken by the recipient countries with the United States, the substance of virtually all the above undertakings are made integral parts of the structure of the program envisaged by this proposed act. The basic objectives considered immediately below are those which will involve virtually every participating nation. Others will apply in specific instances and are considered in relevant parts of the report. The bill in its present form, and as it comes from the Senate, makes the undertaking of cooperation with the other nations of Europe a more specific condition precedent than does the draft proposed by the President or does the Herter bill.

The pledges to be required in the bilateral agreements include the undertaking of steps necessary to eliminate abnormal outside aid. This is the basic requirement in regard to production. The committee found that the bill as it comes from the Senate, the bill as proposed by the President, and the Herter bill were alike in principle on this basic requirement.

The pledges to be required in regard to money and finance were likewise similar in the three bills. As proposed by the President, the undertakings would be in the direction of stable currency, proper exchange rates, and restored confidence in the national currencies.

The bill as it comes from the Senate and as now reported adopts approximately the same language, changing the word "proper" to "valid" and specifying balanced budgets as a goal. The Herter bill specifies the arrest of inflation as an objective, but in general conforms to the language of the other bills. In the committee's judgment, the language of any of the bills would suffice as a directive for the bilateral agreements.

During the hearings the committee's attention was drawn to the idea of stipulating the methods by which the fiscal objectives should be reached. A formula more explicit than the words of the bill as

reported and yet cut to a pattern to fit all participating nations appeared impracticable. In this respect, as in many others, the quality of the result to be produced must be left to the judgment and the energy with which the program is administered. It cannot be predetermined by nice definition.

Regarding international trade, the basic terms of the bilateral agreements will require cooperation to increase the interchange of goods and services and to reduce trade barriers. The language is like that originally proposed by the President. It differs from that of the Herter bill principally in applying such cooperation in commerce to trade with all nations rather than to commerce with other participants. One of the significant basic obligations is that which refers to the proper use of the resources of the participating country, including those made available under the program. The bill as proposed by the administration emphasizes this aim. The bill as it comes from the Senate adds language obligating the participating nations to take measures to locate and control assets in the United States owned by their nations.

The committee gave mature consideration to varied proposals for forcing the participating nations to take explicit measures to pledge the assets of their nations as security or otherwise to bring them actively to the support of the program. In the last analysis the committee was restrained by the consideration that more specific requirements might force the wholesale liquidation of such assets and thus unwittingly conduce to the destruction of a seedbed of private initiative. Here again, in the committee's judgment, the results must depend on the force and wisdom of the administration and the good faith of the participants rather than upon rigid prescriptions.

Also related to the proper use of resources is the aspect of possible reexport of goods made available under this program to nations that are hostile to its objectives, thus contributing to the frustration of the program's objectives and impairing the interests of the United States. Specific language adopted by the committee and herewith recommended to the consideration of the House charges the Administrator to interdict the shipment to participating countries of commodities or products to be used in the production of commodities or products which are intended for export from the participating countries to nations which have declared their hostility to the European recovery program and which are of the type which the United States, under its export-control policies, would not ship to such nations. It would be a paradox if the resources of the program were to be employed to strengthen the hands of its enemies. It is this paradox, of such serious implication not only to the integrity of the program but also to the security of this nation, that the committee seeks to avoid. The committee, in the course of hearings, heard many other suggestions for inclusion of special terms in the basic agreements.

The idea of imposing special conditions to protect private initiative against the threats of collectivism was brought up by several witnesses. Some of them urged stipulations that the participating countries must pledge not to nationalize industry or take any measures to impair free, private, competitive enterprise. In view of the delicacy of attempting to interfere with internal constitutional provisions, others urged that the committee avoid conditions which, because of their repugnance to the recipient countries as interference in their domestic

concerns, might defeat the very ends the program is intended to promote.

The committee has elected to depend upon the spirit of administration rather than upon rigid initial bargains. It has added a provision, however, intended to protect the interests of American business operating in the participating countries. It would require the recipient countries to pledge to submit to arbitration questions involving compensation of American nationals in event of governmental measures affecting property rights and concessions-subject to espousal of the claim by this Government.

The special place of Germany in any plans for restoration of Europe is apparent in any objective consideration of the problems. The point need not be labored here that German recovery is a great factor in western European revival. The crux is the issue on dismantling of German industrial plants. The committee is not of a unified view as to the merits of what has been done and as to the merits of what should be done. The evidence on dismantling was mixed. None can deny, however, that the dismantling program was undertaken as a reparations measure before a joint program for European recovery had been brought into reality. Few would dispute that the new circumstances of the recovery program would justify a reexamination of the merits of dismantling. Nevertheless, the reparations program is based upon international agreements to which this Nation has adhered. A national statute is of limited effect in upsetting an international agreement. The committee, in recognition of the relevance of German plants to German recovery, and of German recovery to European recovery, has directed the seeking of agreements wherein the participating countries will undertake to subordinate their property rights in reparations equipment to the principle of locating plants in the areas where they will contribute most effectively to the restoration of European productivity.

The inclusion of the zones of western Germany in the CEEC program is itself a significant step in the direction of improving western German conditions. A second matter in solving the problems of peculiar importance to Germany and of general importance to Europe as a whole is that of distribution of manpower. The committee has not proposed to write conditions in this respect into the basic agreements. It does propose, however, to direct the Administrator to seek agreements for the most effective use of manpower. The objective includes the integration into the recovery programs of the various participating countries of a fair share of the displaced persons who, because of the conditions of the postwar world, are kept from becoming effective participants in economic life. The authority of the International Refugee Organization as the agency whose mandate it is to see to the protection of these homeless people is recognized in the provision. It is anticipated that if brought into effective use, this provision will assist in contributing to the solution of the displaced persons problem. It is the hope that arrangements will be worked. out whereunder resettlement in family groups will be undertaken rather than emphasizing the resettlement only of the strongest and ablest of the displaced persons.

Finally, as it comes from the Senate and as recommended to the House, the bill includes a statement of the understanding that the nations still holding German prisoners of war are undertaking to

repatriate them by the end of this year. This is the case. It is not intended to intervene in a repatriation schedule based upon international agreement. It is intended only to indicate the watchfulness of the United States over the performance under such agreement.

Finally, there is the matter of special publicity. The Herter bill includes the idea of making full publicity of American assistance a condition for the basic agreements. A number of witnesses supported this view. Others pointed out that the United States can, with better effectiveness, undertake to see to the adequacy of publicity through its own devices. The bill as originated and as now recommended includes an obligation to make available full information regarding assistance. It does not name specific publicity undertakings. The committee has added a provision that would extend the guarantee of convertibility of the return on approved American investments to information media already operating.

A suggestion made recurringly to the committee was the idea of including in the basic agreements an undertaking of a defensive alliance. In the committee's view, notwithstanding the arguments that can be brought to support the idea of an alliance, it would be inadvisable to attempt to provide it here. The Administrator should confine his negotiations to economic interests; he should not be charged with undertaking military security.

Another recurring idea suggested for inclusion in the basic agreements was that of bringing about definite steps toward political amalgamation. The Union of Europe is a consummation devoutly to be wished. But the impulse must come from the participants. It is inherent in the entire European recovery program that it is a gesture of encouragement to such an end. This is stated at several points in the bill.

B. THE MECHANICS OF THE PROGRAM

The bills considered by the committee were alike in the scope and variety of aid to be permissible under the contemplated programs. Commodities of all kinds, transportation, storage, repairs, all kinds of service, the expenses of persons hired as technicians in the economies concerned-such were the things which the United States was to make available to impoverished Europe. No restriction as to source was to be provided other than a directive, explicit in all but the President's bill in its original form, to avoid a drain on United States resources. (This provision is particularly emphatic with respect to the procurement of petroleum.)

Flexibility in purchasing is provided. In the administration bill the participating countries, private importers in the participating countries, agencies of this Government, international agencies, and private investors may do the purchasing with funds and credits to be made available.

Withdrawals from the funds available for the administration of the program may be made by advances or reimbursements to the recipient countries, by reimbursements to United States Government agencies, or reimbursements or advances to international agencies, and by making guaranties to private investors spending money on projects approved as conducing to the purposes of the bill up to the amount of money they put up-these guaranties being limited only to con