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    "label": "Memorandum from James S. Lay, Jr. to the National Security Council with Attachment",
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    "title": "Memorandum from James S. Lay, Jr. to the National Security Council with Attachment",
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    "ocrText": "MI/PSF/NSC) 662\nHe President\nEXECUTIVE OFFICE OF THE PRESIDENT\nNATIONAL SECURITY COUNCIL\nTOP SECRET\nWASHINGTON\n66\nCOPY NO. /\nJune 7, 1950\nMEMORANDUM FOR THE NATIONAL SECURITY COUNCIL\nSUBJECT: Export of Steel Mill Equipment to Austria\nThe enclosed memorandum by the Secretary of Commerce\non the subject is submitted herewith for consideration by the\nNational Security Council, the Secretaries of the Treasury and\nCommerce, and the Economic Cooperation Administrator. In accord-\nance with the request of the Secretary of Commerce for an early\nreview of the problem by the National Security Council, the\nenclosure will be scheduled as Item 1 on the agenda of the next\nregular meeting of the Council, to be held Thursday, June 15,\n1950, at 2:30 p.m.\nJAMES S. LAY, Jr.\nExecutive Secretary\nCC: The Secretary of the Treasury\nThe Secretary of Commerce\nThe Economic Cooperation Administrator\nDECLASSIFIED\nE.O. 13526\nAuthority LP-HST 2016-009 #12\nNARA so Date 7/17/2019\nTOP SECR\nNLT(P5F/NSC) 663\nCOPY\nTOP SECRET\nTHE SECRETARY OF COMMERCE\nWASHINGTON 25\nJune 6, 1950\nMEMORANDUM\nTO:\nNational Security Council\nFROM:\nSecretary of Commerce\nSUBJECT: Export of Steel Mill Equipment to Austria\n1. The Commerce Department, together with the Advisory\nCommittee on Requirements, has reviewed the application for the\nexport of steel mill equipment to Austria. In view of the security\nand foreign policy questions raised, the National Security Council\nis asked to review the policy with respect to U. S. exports of\nsuch capital equipment to Austria which will or can produce stra-\ntegic goods for movement to Eastern Europe.\n2. The specific project involved was reviewed by, and\nreceived the approval of, Defense, State, Commerce, NSRB and ECA\nin 1948, and has been reviewed and approved by the Vienna\nScreening Committee. It is part of an extensive ECA program to\nmodernize the steel industry of Austria. A detailed statement\nof this and related steel projects destined for Austria is to\nbe found in Attachment 1. (oc Document No. 356) (Revised).\n3. The Defense Department, after a review by the Joint\nChiefs of Staff, has recommended denial of the application on the\nfollowing grounds:\n(a) The subject equipment has a potential capacity\nconsiderably greater than the utilization planned in the\nECA project. In consequence of the current surplus\nsupply position of the Western European steel industry,\nthis potential capacity would tend to increase the export\nof militarily important steel products to the Soviet bloc.\n(b) Control of Austrian exports of strategic items\nto the East is and probably will remain ineffective under\nquadripartite occupation, with the result that control of\n1B items produced by the equipment cannot be expected.\nDECLASSIFIED\nE.O. 13526\nAuthority LP-HST 2016-009 12\nNARA so Date 7/17/2019\nTOP SECRET\nTOP SECRET\n(c) The plant is located across the river from the\nRussian zone. In case of war the installation in all\nprobability would fall intact to the Soviets.\nThe position of the Defense Department is presented in\nAttachment 2. (ACR Document No. 52).\n4. The representatives of State and ECA remain strongly\nconvinced that the project should be approved on the following\ngrounds:\n(a) Denial now, when equipment is ready for shipment\nand after top level approval for ECA financing, would be\na damaging blow to Austrian morale. In recent elections\nthe Austrians rejected Communist candidates with very heavy\nmajorities. Denial of the subject case would be followed\nby a Soviet propaganda campaign to the effect that the\nWestern countries were ready to abandon Austria, and would\ncause widespread discouragement.\n(b) The political effects of denial would not be\nconfined to Austria, since denial would be taken more\ngenerally in Europe as the sign of an American retreat.\n(c) Denial would prevent the strengthening of the\nAustrian economy, which is part of the European Recovery\nProgram, by impeding the modernization of its productive\nfacilities and the manufacture of goods it must trade with\nEastern Europe in return for food and raw materials.\n(d) Austrian ECA steel projects have already been\nextensively revised to place the accent on civilian type\nproducts and to emphasize replacement rather than expansion\nof steel capacity. The main purpose of the subject equip-\nment is to produce at lower cost goods which, for the most\npart, can be exported freely from the United States.\nThe position of the ECA, which is concurred in by the\nState Department, is presented in Attachment 3. (oc Document\nNo. 356, Supplement 1).\nTOP SECRET\n- 2 -\nSECRET\nDECLASSIFIED\nSECRET\nE.O. 13526\nAuthority HST 2016-009 #12\nOC DOCUMENT NO. 356 Revised\nNARA so Date 7/17/2019\nMay 10, 1950\nTO:\nThe Chairman, Operating Committee\nFROM:\nThe Chairman, R Procedure Subcommittee\nSUBJECT:\nECA Austrian Steel Projects Nós. 2 and 3 for VOEST\n(RProc/Document No. .3785)\nI. PROBLEM\nThe R Procedure Subcommittee has referred to the Operating Committee the\nproblem of determining what action should be taken on the following pending\nexport license application:\nCase No.\n1975613 (3/6/50)\nApplicant\nAlltransport Incorporated\nConsignee\nVOEST (United Austrian Iron & Steel Works),\nLinz, American Zone, Austria\nCommodity\nEquipment comprising: (a) Reversing blooming\nand slabbing mill; and (b) Hot strip finish-\ning mill.\nValue\n$12,000,000 FAS New York\nStrategic Rating\nClass IA\nFinancing\nECA-financed under ECA Austrian Projects 2 and 3.\nThe above case was submitted to the R Procedure Subcomnittee at its meeting\non March 28, 1950. The Subcommittee members stated positions as follows:\nFor approval\nECA\nNot opposed to approval- - - State\nFor denial\n-\nDefense, Agriculture\nNo position\n-\nODC, Interior, AEC\nReserve position\n-\nOIT\nThe Operating Committee reaffirmed the export policy vis-a-vis Austria at its\nmeeting, No. 91, on December 5, 1949 when it considered OC DOCUMENT NO. 250\ninvolving steel mill equipment for Alpine Montangesellschaft in Austria.\nIn view of the security and foreign policy questions raised in the Subcommittee,\nthe Chairman of the R Procedure Subcommittee believes that the Operating Com-\nmittee should again review the policy situation with respect to U. S. exports\nof capital equipment to Austria which will or can produce security goods for\nmovement to Eastern Europe.\nWhen this matter was preliminarily discussed by the Operating Committee, at\nmeeting No. 128 on April 5, 1950, it was agreed to defer further discussion\nfor three weeks in order to provide opportunity for the Department of Defense\nto review the policy question, and to report the recommendations of the Joint\nChiefs \"of Staff.\n08685\nSECRET\nSECRET\nSECRET\n- 2 -\nOC DOCUMENT NO. 356 Revised\nII. DISCUSSION\nIt is natural that ECA has been the source of most of the information on this\nsubject. Among the points of information\ndeveloped are:\n1. Involved herein are two mills; A roughing mill for blooms\nand billets (rated Class IA), and a finishing mill for plates\nand sheets recommended for Class IA. These represent the\nbest American technology and quality. They are basic capital\nequipment of prime importance to economic and war potentials.\n2. The products of the roughing mill are blooms and billets, and\nof the finishing mill plates and sheets. Carbon steel prod-\nucts are decontrolled in the U. S. at present; alloy types\nare in Class IB.\n3. Mesta Machine Company, the manufacturers of this equipment,\nhave advised that these roughing and finishing mills when\ninstalled and operated with existing facilities will have a\ncapacity to produce the following per annum on a two-shift\nbasis:\n59,000 In. tons heavy plate\n31,000 m. tons medium plate\n40,000 m. tons light plate\n57,000 m. tons hot-rolled sheet\n110,000 m. tons - hot-rolled coils\nTotal\n297,000 m. tons\nDuring 1949 production of VOEST was 132,259 metric tons of plate.\nAustria is now almost wholly dependent upon imports for sheet.\nObviously, the rated capacity is dependent on the product mix\nas well as availability of crude steel, supplies of manpower,\npower, etc.\n4. One of the objectives of these projects is to enable Austria\nto compete for markets in Eastern European countries in return\nfor essential requirements of food and raw materials; and thus\naid Austria's internal economy and trade recovery.\n5. Austria is an historic source of supply for these steel prod-\nucts to the Danube Basin area, including these Eastern European\ncountries.\n6. These facilities will be installed in the U. S. Zone of Austria,\non the west side of the Danube River. The Soviet Zone lies\nacross this river.\n7. Part of the finished steel to be made available under these\nprojects may be further processed if an additional steel\nproject for a reversing cold mill, approved by ECA for Austria,\nis approved for shipment.\nSECRET\nSECRET\nSECRET\n- 3 - OC DOCUMENT NO. 356 Revised\n8. It is contemplated that three out of six blast furnaces at\nVOEST will be shut down, dismantled, and sold. This would\nreduce production of pig iron to 1800 metric tons per day,\nfrom 3000 per day.\n9. While the installation of subject facilities will enable\nAustria to meet its 1952-53 target production requirements,\ndue consideration has been given, also, to the utilization\nthereof in Austria's long-range program. Austria's original\nproposal in 1948 covered facilities designed to meet market\ndemands some ten years in the future.\nThe ECA member of the Subcommittee has provided documentation which is appended\nto this document as Supplement 1. During the Subcommittee meeting, he advised\nthat the realization of these projects does not entail any enlargement or\nexpansion of Austria's crude steel industry. These projects are absolutely\nnecessary in order to ensure for Austria a future economical production of\nfinished steel items which would be able to exist within a larger European\neconomic set-up without protective tariffs and without Government subsidies.\nThis would minimize the Austrian foreign exchange problem. It was pointed\nout by him that the new facilities would reduce the high cost per unit, and\nwould enable utilization of indigenous raw materials, power and manpower in\nAustria. The increased production and exports will dovetail with the broad\neconomic programs for Western Europe. Austria is an ERP country and should\nbe treated like other ERP countries. These facilities will promote the\nstrength of the Austrian Government, increase democratic feeling amongst\nthe people, and establish greater independence. The projects were reviewed\nin 1948 and received approval from various U. S. Government agencies. The\nAustrian Government attaches considerable importance to these projects. In\nthe absence of any statement of reasons for modifying the current U. S. export\npolicy, and in view of the reaffirmation of policy by the Operating Committee\nin December 1949, these should be approved.\nThe Defense member of the Subcommittee felt that approval of these projects\nwould be contrary to the national security. He felt that an up-to-date review\nof the policy considerations would indicate that modifications of the current\npolicy should be made. He pointed out that developments require a re-evalu-\nation of the calculated risk involved in installing such facilities in Austria.\nThe VOEST plant was originally designed to produce alloy steel for the German-\nNazi war machine, and these facilities might be utilized for such purpose.\nIn view of the differing estimates as to capacity, there is need to study\ncarefully the finished steel potentialities. Even though carbon steel products\nof plate and sheet are decontrolled in the United States, it may be necessary\nto review the strategic importance of these in view of recent developments\nand their importance to construction of tanks, ships, and other military\nequipment. He stated that the net result of installation of these facilities\nin Austria would mean an increase in the volume of these finished steel prod-\nucts moving to the East.\nAttachments: Appendix\nSupplement 1\nSECRET\nSECRET\nSECRET\n- 1 -\nSECRET\nOC DOCUMENT NO. 356 Revised\n- 5 -\nAPPENDIX\nMay 10, 1950\nECA Projects for Austria Nos. 2 and 3.\nECA Austrian project #2 covers the erection of a 46\" reversing\nslabbing blooming mill for the production of slabs of a thickness of 75 mm\nto 150 mm, a maximum width of 1500 mm and a length of 1 to 6 meters. It\nconsists of a two high reversing mill with high speed screw downs approxi-\nmately with a maximum height of 1600 mm. The diameter of rolls is 46\",\nlength approximately 120 inches with the necessary approach and working\nroller tables, buggy, hydraulic clab shears, runout tables and pilers.\nMajor items included are: Mill approach table; scale; main mill entry\ntable and one main mill discharge table; one 46\" blooming and slabbing\nmill; runout table; bloom shear and approach table; drop pusher and chute;\nback shear table; slab pushers, pilers, tables, cooling beds; and other\nauxiliary equipment, including all electrical drives, generators and\ncontrols. The value is 3,875,000 FOB plants. Price of electrical equip-\nment is 1,313,270.\nECA Austrian Project 3\nECA Austrian project #3 covers the erection of a hot sheet finish-\ning mill for the production of hot rolled sheets of 1, 2mm up to 12 mm\nthickness and a maximum width of 1500 mm. It consists of a 6 stand 66\" hot\nstrip finishing mill, one rotary crop shear, one scale breaker, one 1H 2\nrotary flying shear; two hot strip down coilers up to 4, 5 mm, one 28\"\nrollgrinder, one 3/16\" X 60\" flying shear line for coils, etc. Other major\nitems included are: Mill approach table; runout table; coil conveyor system;\nsheet piler and approach table; descaler system; spare rolls and parts;\nauxiliary equipment including all electrical drives, generators, and con-\ntrollers. The value is $7,900,000 FOB plants. Price of electrical equip-\nment is $2,566,036.\nAustrian Consignee - VOEST\nThe project applicant is VOEST (United Austrian Iron and Steel\nWorks Company) known as Vereinigté Osterreichische Eisen-Und Stahlwerke\nAktiengesellschaft. It is Austrian-state controlled by Federal Statute\nNo. 168 since July 27, 1946. It is located at Linz/Danube, U. S. Zone of\nAustria, being on the western shore of the Danube River which is the common\nboundary of the American and Russian zones of Austria.\nVOEST is a completely integrated steel mill with processing equip-\nment for the production of all items from coke and iron ore to finished\nsteel. In addition, the firm has its own foundry, forge shop, machine shop,\nmetal forming shop, and welding and fabricating shop.\nThe plant was built in the years 1939 and 1940, and was known as\nReichwerke Herman Goering. During the war it was engaged in the production\nof plates for military purposes. It was the first property turned over to\nthe Austrian Government in 1946 by U. S. Military Authorities in Austria.\nC\nDECLASSIFIED\nSECRET\nE.O. 13526\nAuthority LP-HST 2016-009 #12\nNARA so Date 7/17/2019\nSECRET\nSECRET\nOC DOCUMENT NO. 356 Revised\n-2-\nAPPENDIX\nMay 10, 1950\nIt is today considered the most modern and complete enterprise of its kind\nin Central Europe. One feature of the plant is its great size, which\nreflects the influence of Nazi-German prewar engineering.\nPurpose of Equipment\nA principal reason for providing this equipment is that the\nròlling mills at Drems ( a prime producer of sheets) in the Soviet Zone\nwere confiscated and shipped to Russia in 1945. This leaves in Austria\nonly one other major producer of sheets and plates - the firm of Alpine\nMontängesellschaft at Donawitz in the British Zone. It is contemplated\nthat with the installation of the equipment covered by these two projects,\nthe Alpine plant will close its dilapidated 40-year old plate. mill (40,000\ntons per annum), and will leave VOEST as the only producer of plates.\nThe blooming and slabbing mill will. provide slabs for. the existing\n4 high plate mill which at present is rolling plates directly. from ingots\nof small sizes. These require a great number of passes and result in\nexcessive scrap. With the proposed blooming and slabbing mill, ingot sizes\ncan be increased from an average of 4½ to 17 tons, the number of passes\nreduced greatly, and the amount of scrap decreased appreciably.\nThe hot strip mill will finish material which is rough rolled\non the existing 4 high plate mill. It is understood that at present there\nis in operation a small hot sheet mill of limited capacity at VOEST which\nwill be replaced by the new hot mill. The purpose of the replacement is\nto increase production, improve the quality of the hot rolled sheets, and\ndecrease operating costs.\nBackground of Projects\nThe projects were reviewed and approved by ECA in 1948. At that\ntime, the Austrian Government proposed a 10-year steel industry rehabili-\ntation and modernization program which would involve the expenditure of an\nestimated $74,000,000 of foreign exchange. Objectives of the proposal were:\n(a) Replace installations removed from Austria in the course of postwar\ndevelopments; (b) Modernize present installations; (c) Expand present\ninstallations to increase low carbon steel production to approximately\n1,000,000 tons of crude steel production per annum. This compares with\n1937 production of approximately 650,000 tons; and (d) within the ECA plan,\nAustria will apply for approximately $24,000,000 of ECA funds.\nThe orders for the equipment covered by the pending export appli-\ncation were placed with the Mesta Machine Company in 1948. Most of the\nmachinery is now complete and ready for shipment. Shipment would take place\nin late summer and fall of 1950. Mills are expected to be installed and\nin operation by late 1950 or early 1951. It is noteworthy, however, that\nthe export application by Alltransport Incorporated was not filed until\nMarch 6, 1950. No satisfactory reason for the delay in the submission of\nthis application has been received.\nSECRET\nSECRET\nSECRET\nOC DOCUMENT NO. 356 Revised\nAPPENDIX\n- 3 -\nMay 10, 1950\nSources of Power and Materials\nBasic factors pointing up the economic itability of the projects\nand their location are: (a) Power is available from Enns River hydro-\nelectric plant which is supplemented by firm's own power station; (b) coal\nwill be obtained as usual from Germany and transported by barge to Linz;\n(c) scrap is available; (d) iron ore is available in quantity only 50 miles\ndistant from mill; (e) plant has its own sintering plant; and (f) furnace\ncapacity is more than adequate.\nIn connection with the latter, it has been concluded that Austria\nhas a steel production potential in excess of its consumption demands,\nrequiring immediate action as to the disposel of three open hearth blast\nfurnaces at Linz. It is intended to retain three of the existing six blast\nfurnaces.\nAustrian Steel Situation\nGenerally speaking, Austria's steel industry at the present time\ndoes not enjoy a properly proportioned set-up, due to many plants which are\neither in an unfinished condition or in a partly dismantled state. Very\nlittle sheets and no tubes can be produced in Austria now, according to ECA\nreports.\nLong-range plan for organizing the Austrian steel industry is\nbased on the following considerations: (a) No shifting of manpower is\nenvisaged; (b) for the final stage of the plan no scrap imports are scheduled;\n(c) no import of ore would be necessary aside from insignificant quantities\nfor the special types of products, like foundry pig iron.\nIt will be recalled that the ACR committees have already considered\nthree related ECA projects for Austria, namely, blooming mill, billet mill,\nand iron ore mines all for Alpine Montan at Donawitz, British Zone, Austria.\n(SEE OC DOC. 250). The principal objective of these was to rehabilitate\nthe Alpine plant to provide needed facilities for production of railway\nrails and heavy structural shapes, principally for the Austrian railways\nand building industries.\nPrior to the dissolution of the Austro-Hungarian Empire, there had\nbeen an annual production capacity of 2,500,000 tons of pig iron and\n3,500,000 tons of steel. After 1919, Austria was left with a yearly pro-\nduction capacity of 500,000 tons of pig iron and 700,000 tons of steel.\nFrom 1930 to and including 1935, the average annual production was 150,000-\ntons of pig iron and 300,000 tons of steel. The following table shows that\n1948 and 1949 production compares favorably with the prewar production:\nSECRET\nSECRET\nSECRET\nOC DOCUMENT NO. 356 Revised\n- 4 -\nAPPENDIX\nMay 10, 1950\n1936\n1937\n1946\n1947\n1948\n1949\nPig Iron\n248,116\n389,100\n57,864\n278,505\n613,209\nNA\nCrude\nSteel\n418,398\n649,608\n187,008\n356,609\n648,181\n810,498\nAustria had a net consumption within the Austrian industry in\ncrude steel as follows:\nProduced\nExport\nImport\nConsumed\n1936\n418,398\n30,762\n106,652\n352,508\n1937\n649,718\n206,675\n39,209\n482,252\n1948\n648,181\n13,871\n1,056\n635,366\nVOEST Production\nIngot production of VOEST for 1949-50 is estimated at about 200,000\ntons, of which only 118,000 tons can be handled by existing rolling mill\nequipment. Of the total, about 5,000 tons are required by the forge shop,\nleaving à total production of 77,000 tons in excess of rolling facilities,\nAt present VOEST'is selling ingots in South America at little or no profit.\nFor the year 1950-51, after installation of the blooming and slabbing mill\nand the hot strip mill, estimated production of ingots should run about\n300,000 tons. Based on a 21.5% loss by weight in processing, this should\nprovide a total of about 235,000 tons of finished plates and sheets for\nnext year.\nWith respect to sheets, according to ECA figures the firm intends\nto operate the strip mill at a production rate of 100,000 tons annually.\nThis would increase total Austrian production of sheets to 135,000 tons.\nWith respect to plates, it is estimated that plate production\nat VOEST would run at about 125,000 tons annually. Austrian production\nwould total about 165,000 tons, considering the possibility of Alpine's\ncontinuing in production during a period of active demand.\nNoteworthy, however, is that both sheet and plate production at\nVOEST could be increased substantially since furnace capacity is large and\nthe above production figures are based on a one-shift operation.\nVOEST-Markets\nThe total Austrian domestic demand for plates is estimated at\n102;000 tons annually, while Austrian export demands are estimated by ECA\nto run at the rate of about 60,000 tons. Principal buyers appear to be\nTrieste, Switzerland, and the Danube countries (Bavaria, Hungary, Yugo-\nslavia, Rumania and Bulgaria).\nSECRET\nSECRET\nSECRET\nOC DOCUMENT NO. 356 Revised\n- 5 -\nAPPENDIX\nMay 10, 1950\nThe total Austrian domestic demand for sheets is estimated by\nECA to be around 90,000 tons. Total demands in the Central European area\nwhere Austria would compete is estimated at 710,000 tons, while production\nin this area is estimated at about 415,000 tons, which leaves a net demand\nfor which Austria could compete of about 300,000 tons. The Central\nEuropean market includes Switzerland, Bavaria, Hungary, Yugoslavia, Rumania,\nand Bulgaria.\nIt should be noticed that in 1948 when these orders for equipment\nwere placed, there was a great scarcity of steel sheets throughout the\nentire world. The short supply situation is no longer prevalent. Expansion\nof rolling facilities throughout Western Europe, particularly in Belgium,\nFrance, Luxembourg, and Italy, has eased this condition greatly.\nSECRET\nSECRET\nOC DOCUMENT NO. 356 Revised\nSTATEMENT by ECA MEMBER\nSupplement 1\nTHE AUSTRIAN IRON AND STEEL INDUSTRY\n5/10/50\nWhen the Allied Forces entered Austria, Austria was in very bad shape.\nPractically all of the industrial activities had been stopped. The Russians\nhad moved through Austria to the est and had gone back to the East; they,\nplus Allied bombing, had caused considerable damage and, in going back, the\nRussians removed considerable equipment, etc. from Austria, leaving it quite\nparalyzed. Austria--having been a portion of the German Reich-was in some\nrespects considered a part of Germany by the Russians. There was consider-\nable investment of German funds in Austria and wherever the Russians could\nfind a plant or equipment that was controlled by the original German owners\nthey attempted to take it out.\nThe currency situation in Austria was such that the Austrian schilling had\nno purchasing power in foreign areas. Austrian schillings could not be\nused to buy in any of the surrounding countries or foreign areas; the only\nmethod of trade remaining was barter. The Austrians had no dollars or\ncurrencies in the western Hemisphere with which to buy, and they were there-\nfore dependent on the aid given them in the military occupational period by\nthe French, British, and primarily by the American military occupational\ntroops. The funds that were available to Austria through these three sources\nwere used and were available only for the prevention of disease and unrest\nthat would be prejudicial to the military occupation. Purchases of machinery,\nequipment, or items such as iron and steel etc.-except for other than very\nspecialized users--were not possible with these funds. Austria was unable\nto buy these industrial items that she could not manufacture herself.\nThis condition left the consumer industries in Austria dependent on the\nAustrian iron and steel industry for all of the iron and steel that they\nrequired. In recognition of this fact, in the fall of 1946, the Department\nof the Army em loyed some specialists to go to Austria to review the iron\nand steel industry, to determine what, if anything, should and could be\ndone to reactivate the industry. A very lengthy report was written and\npublished, in September 1946, which was accepted as the Army's recommendation.\nThere was one difficulty with those recommendations. They involved the\npurchase in dollar areas of certain equipment, etc., which the Army could\nnot buy because they were not privileged to use their dollars for that\npurpose.\nThis study was kicked around for a considerable time and was finally pré-\nsented to the Export-Import Bank with the endorsement of the Army. At about\nthat time, the State Department took over responsibility for administration\nin Austria. That was in the fall of 1947. The considerations of the Export-\nImport Bank were not completed by the time that ECA was created and in\ncompliance with that portion of the law which stated that ECA should coordi-\nnate the ECA activities with activities of the Export-Import Bank, etc.,\nSECRET\nDECLASSIFIED\nE.O. 13526\nSECRET\nAuthority LRHST 2016-009 #12\nNARA so Date 7/17/2019\nSECRET\n- 2 -\nOC DOCUMENT NO. 356 Revised\nSupplement 1\nMr. Taylor of the ECA discussed this particular problem with representatives\nof the Bank. It was agreed that the problem be taken over by the ECA in\nApril of 1948.\nOn the 16th of June, there was a meeting held in ECA to determine what action\nECA should take in connection with this particular presentation. The total\nprogram presented represented a dollar expenditure of some #74 million for\nplant and equipment to be purchased outside of Austria. The meeting was\nattended by representatives from the Department of Commerce, the National\nResources Board, the Department of State, ECA, and the Department of the\nArmy, and was designed to meet projected demands some 10 years in the future.\nAt the series of meetings that occurred subsequent to the first one, it was\ndetermined that ECA could justifiably and should take on approximately 24\nmillion of the (74 million proposal which had been put up by Austria. The\nbasis of the decision was that at the time that the consideration was made\nthere was considerable capacity to produce pig iron, and crude steel, in\nAustria which was not subject to proper utilization because of certain\nmissing pieces of equipment. There was in the over-all proposal of $74\nmillion a certain amount of expansion of industry involved. The decision\nwas that no expansion should be approved and that production facilities\nshould be the minimum requirements through 1953. This minimum included\napproximately 140,000 tons for export partially to the eastern areas: It\nwas agreed that Austria should continue to export steel products to the\nDanube basin, on which Austria under normal conditions depends for a large\nproportion of her imported food and a considerable amount of the industrial\nraw material whe required.\nIt must be realized that any figures on amounts or destination of exports\nfrom Austria subsequent to the installation of this equipment, which, if\napproved expeditiously, will not be in effective operation until around the\nsummer of the calendar year 1952, are merely estimates. However, the best\nestimates available indicate that Austrian production in the 12 month\nperiod beginning 1 July 1952, and ending 30 June 1953, will be 720,000 tons\nof pig iron, 900,000 tons of crude steel, 576,000 tons of finished products\nand 125,000 tons of end products. Her imports will amount to 9,000 tons\nhot finished products, 1,000 tons end products, and her exports will be\n140,000 tons of end and hot finished products. These figures indicate the\npercentage of export as quite small. Further, this figure only includes\n20,000 tons of sheet and 20,000 tons of plate as the Austrian requirements\nare such that this will represent their total export surplus after taking\ninto account consumption demands. It is estimated that 15% of this 40,000\ntons of flat products will be exported to the Eastern Bloc.\nWe have in hand an economic analysis dated 2 November 1949, which was\nprepared by one of the steel consultants of the Department of the Army. This\nreport shows that the operations of the Linz Plant are profitable, that the\nPlant is capable of producing and selling steel thin Austria and the\nsurrounding areas at competitive prices and that there is a savings to be\nrealized in Austrian schillings from the operation of this Plant. The report\nSECRET\nSECRET\nSECRET\n- 3 -\nSECRET\nOC DOCUMENT NO. 356 Revised\nSupplement 1\ndoes not go into the amount of foreign exchange savings which might be repre-\nsented by the operation. A later report, dated March 17, 1950, subject\n\"Cost and Market Study of the Austrian Iron and Steel Industry,\" contains\na statement on this subject.\nConcerning Austrian production and export of critical items, Austria, pre-\nwar, was noted for production of high quality and alloy steel products.\nAustria at the end of the war had the facilities to produce a considerable\nquantity of critical items such as ball bearings, tool steel, and alloy\nsteels, provided the ferro alloys or non-ferrous metals required for their\nmanufacture could be secured from outside sources. In considering this\nphase of the problem, it was decided that no ECA funds would be used in con-\nnection with replacement or installation of equipment required in this phase\nof Austria's iron and steel activities. It was further decided that every\neffort would be made to restrict Austria's imports of ferro alloys to those\nnecessary to the production of commodities for internal consumption and\nexport to the west. This problem has been closely followed both by ECA\nWashington and the ECA in Austria. There is a continual follow up and check\non the manufacture and disposition of strategic items. As late as February\n1950, ECA Washington sent a man to Austria to investigate this phase of\nactivities. His report concludes that the controls are most satisfactory\nand that an excellent job is being done.\nAustria now has considerable capacity at Linz for making steel plates. In\n1948, some 88,500 tons of plates were manufactured and 34,700 tons were\nexported. In 1949, 132,259 tons were produced and 49,580 tons were exported.\nPlates do carry a strategic rating. The present plan is that the available\nsteel at Linz should, to the extent feasible, be converted into sheet, a\nnon-strategic item, and that plate production should be held to the amount\nrequired for internal consumption in Austria plus the amount required for\nexport to the Western Countries.\nAt the time of the initial consideration the ECA planned to channel Austrian\nproduction from strategic type items to non-strategic, namely, sheet and\nstructural products, had the full concurrence of the various concerned\nGovernment agencies. ECA gave tentative approval to the revamping of\nAustria's steel industry to cover installation of a 44\" blooming mill, 46\"\nblooming mill, hot strip mill, 24\" billet mill, and cold mill and structural\nmill, reserving the right to approve or disapprove expenditure of funds\nfor any individual portion of the program at the time of presentation.\nSECRET\nSECRET\nSECRET\n- 4\nOC DOCUMENT NO. 356 Revised\nSupplement 1\nAPPROVED EUROPEAN IRON & STEEL PROJECTS (INCLUDING MINING)\n(Thousands of Dollars)\nTotal ECA\nNon Project\nCountry\nProject Designation\nDescription\nTotal Value\nApproval\nTotal Counterpart\nECA Financed\nRemarks\nAustria I\nOesterreichische Alpine\nMontan Gesellschaft\n44\" Blooming Mill\n6,000\n3,937\n2,063\nII\nUnited Austrian Iron and\n46\" Blooming Mill\n8,823\n2,858\n5,965\nIII\nSteel Works\n66\" Hot Strip Mill\n15,727\n8,025\n7,702\nV\nOesterreichische Alpine\nMontan Gesellschaft\nOre Mine\n5,200\n1,937\n3,263\nVI\nOesterreichische Alpine\nMontan Gesellschaft\n24\" Billet Mill\n7,230\n3,151\n4,079\nKindberg\nFinishing Equipment\n669\nSub-Total Austria\n42,980\n19,908\n23,269\n669\nBelgium VIII\nS. A. Metal Esperance Longdoz\nHot & Cold Mills\n17,023\n2,585\nGovernment Finance\nIX\nPhenix Works\nCold Rolling Mill\n5,700\n3,182\n2,518\nXI\nOugree-Marihaye\n66\" Semi Continuous Hot Mill\n16,800\n7,650\n11,150\nSub-Total Belgium\n39,523\n13,417\nFrance I\nJ.J. Carnaud et Furges de Basse-\nIndre\n44\" Reversing Cold Mill\n10,000\n2,200\n7,800\nXV\nFabrique de Fer Mauheuge\n48\" Skin Pass Mill\n252\nNon Project\nXVI\nUSINOR\n80\" Hot & Cold Rolling Mill\n59,574\n12,074\n29,500\nWorld Bank $18,000\nXVII SOLLAC\n80\" Hot Rolling Mill\nXVIII SOLLAC\n80\" Cold Rolling Mill\n133,060\n49,360\n83,700\nXX\nLorraine Mines\nOre Handling Equipment\n4,000\n4,000\nXLI\nRombas\n48\" Blooming Mill\n8,709\n1,300\n4,700\n$2,709 U. S. by\nGovernment\nSub-Total\n215,343\n68,934\n125,700\nSECRET\nSECRET\nSECRET\n- 5 -\nOC DOCUMENT NO. 356 Revised,\nSupplement 1\nAPPROVED EUROPEAN IRON & STEEL PROJECTS (INCLUDING MINING)\n(Thousands of Dollars)\nTotal ECA\nNon Project\nCountry\nProject Designation\nDescription\nTotal Value\nApproval\nTotal Counterpart\nECA Financed\nRemarks\nItaly\nIX\nILVA (Finsider)\nHot & Cold Rolling Mill\n57,000\n12,007\n(Additional\nXI\nFIAT\nBillet Mill & Rod Mill\n15,000\n4,159\n($12,051,000\nXXIV\nAcciarerie e Ferriere\n(ECA,54,293,000\nLombarde Falck\nFurnaces, Tube Mill, etc.\n4,200\n2,200\n('dollar equiv-\nXXIX COGNE\nSlab & Billet Mill\n1,500\n1,034\n(alent')\nXXX SISMA\nRod Mill, Bolt & Nut equipment\n5,230\n2,450\nXXXI ILSSA-VIOLA\nSlab & Billet Mill\n2,900\n1,465\nXXXIII FIT\nYODER Rod Mill\n480\n220\nXXXVIII CASTELLAMARE\nCold Rolling Mill for Tin Plate\n2,500\n1,962\nXXXIV BROGGI\n280\nTerni\nHot & Cold Rolling Mill for\nelectric sheets\n4,895\n1,407\n3,488\nSub-Total Italy\n93,705\n26,904\nNetherlands III\nRoyal Dutch Blast Furnace\nHot & Cold Rolling Mills\n47,010\n23,500\n23,510\nSub-Total Netherlands\n47,010\n23,500\n23,510\nNorway\nVI\nSydveranger\nOre Mine Development\n29,000\n5,014\nSub-Total Norway\n29,000\n5,014\nTurkey\nXIII\nDivrik Ore\nOre Mines\n5,000\n1,000\nSub-Total Turkey\n5,000\n1,000\nU.K.\nI\nSteel Company of Wales\nHot & Cold Rolling Mills\n240,000\n27,000\n213,000\nII\nStewart & Lloyds\nTube Finishing Equipment\n63,200\n2,730\n60,470\nSub-Total United Kingdom\n303,200\n29,730\n273,470\nSECRET\nSECRET\nSECRET\n- 6 -\nOC DOCUMENT NO. 356 Revised\nSupplement 1\nEUROPEAN IRON AND STEEL PROJECTS (UNDER CONSIDERATION)\n(Thousands of Dollars)\nTotal\nEstimated\nCountry\nProject Designation\nDescription\nValue\nECA Funds\nAustria\nOesterreichische Alpine\n32\" Structural Mill\n$ 7,659\n$4,120\nMontan Gesellschaft\nAustria\nUnited Austrian Iron and\n66\" Cold Mill\n8,000\n5,000\nSteel Works\nNorway\nMo i Rana Steel\nSteel Mill Equipment\n36,800\n156\nBelgium\nOugree-Marihaye\n66\" Cold Rolling Mill\n9,000\n4,420\nTurkey\nKarabuk\nCoking Plant -\n6,730\n5,230\nDesulphurization Plant\nSteel Mill Equipment\nTotal Under Consideration\n$68,189\n$18,926\nSECRET\nSECRET\nSECRET\nSECRET\nACR DOGUMENT NO. 52\nMay 17, 1950\nTo:\nChairman, Operating Committee\nFrom:\nDepartment of Defense Member\nSubject: Export of Steel Mill Equipment to Austria\n(Case 1975613, 3/6/50)\n1. The Department of Defense recommends that license applica-\ntions for export of the subject equipment be denied. This recommendation\nis supported without qualification by the opinion of the Joint Chiefs of\nStaff given in response to a specific request for guidance as to the\nDepartment of Defense position in this matter.\n2. The Department of Defense bases its recommendations on the\nfollowing factors:\na. Total Austrian production of rolled steel products in\n1949 amounted to 540,000 metric tons, or 139% of prewar (1937) levels.\nECA states that its steel program for Austria contemplates further increas-\ning total Austrian production of rolled steel products to 675,000 metric\ntons in 1952-53, The relative small increase in production resulting from\nthe large capital expenditure noted above is attributed by ECA to the\nfact that the new facilities are to a considerable extent replacing obsolete\nequipment now in use and a wider variety and higher quality of product is\ncontemplated. The potential capacity of the equipment projected, however,\nis considerably greater than that to be attained by the planned utiliza-\ntion. For example, the hot strip mill equipment is to be limited to the\nproduction of 135,000 metric tons annually. Similar installations in the\nUS are producing in the neighborhood of one million metric tons annually. It\nis conceivable that Austria could make use of the potential capacity of\nexisting equipment, and that to be supplied, by further increases in ingot\nproduction. Austrian iron ore reserves of 250,000,000 tons and idle steel-\nmaking capacity are factors supporting this possibility.\nb, When the ECA project involving installation of the subject\nequipment in Austria was approved in 1948 and agreed to by the Departments\nof Commerce and State, with the Department of Defense not objecting, the\nsteel rolling capacity of Western Europe (including Austria) was inadequate\nfor the domestic needs of this area. At the 1952-53 planned production\nlevel of 675,000 metric tons, it is estimated that Austria will have\n140,000 tons of rolled steel products available for export, in addition to\nthe substantial quantities of highly strategic steel manufactures other\nthan rolled products (ball bearings, alloy steel shapes, etc.) currently\nbeing exported Eastward. The majority of the other Western European\ncountries are rapidly achieving a net export position with respect to\nrolled steel products. The subject steel mill equipment and additional\ninstallations projected by ECA would, therefore, tend to increase the flow\nof militarily important steel products to the Soviet Bloc.\nDECLASSIFIED\nE.O. 13526\nAuthority LR HST 2016-009 #12\nSECRET\n08685\nNARA so Date 7/17/2019\nACR DOC. NO. 52\n- 2 -\nSECRET\nC. The projected cold rolling and structural mills, backed\nup by the installation of the subject equipment, are capable of producing\nsteel products presently rated strategically as 1B and, in the instance\nof railroad rails, under consideration by the Department of Commerce for\nuprating to LA.\nd. Control of Austrian exports of strategic items to the East\nis and will in all probability remain ineffective under quadripartite\noccupation. Current Austrian trade agreements involve exports of 1B\ncommodities to Eastern Europe at levels substantially above pre-war and\nthere is evidence of significant leakage of LA commodities from and through\nAustria to the Soviet Bloc.\ne. The JCS are of the opinion that these projected installa-\ntions would constitute a desirable and easily attainable Soviet objective\nin the event of war, and as such involve a security risk which overrides\neconomic considerations.\n3. In view of the considerations and developments discussed in\npara. 2 above, the Department of Defense further recommends that all steel\nmill equipment, in addition to that discussed herein, projected for installa-\ntion in Austria by ECA be made the subject of review by the Department of\nCommerce Advisory Committee on Requirements as soon as practicable.\nAttachment:\na\nAppendix A\nSECRET\nSECRET\nSECRET\nACR DOCUMENT NO. 52 Appendix A\nMay 4, 1950\nMemorandum\nTo:\nChairman, Munitions Board\nFrom:\nThe Joint Chiefs of Staff\nSubject: Military Considerations in the Granting of Export Licenses\n(Austria).\n1. This memorandum is in response to your memorandum of 13 April 1950\nin which you requested:\na. Guidance as to the Department of Defense position on pending\nEconomic Cooperation Administration (ECA) license applications\nfor export of steel mill equipment to Austria; and\nb. Review of the policy and criteria set forth in a study of\nthe military considerations involved in export licenses which was\nforwarded by the Joint Chiefs of Staff to the Secretary of Defense\non 20 April 1949, in the light of the circumstances connected with\npending ECA license applications for export of steel mill equipment\nto Austria.\n2. With respect to the guidance requested in subparagraph 1 a above,\nthe Joint Chiefs of Staff are of the opinion that, from the military\npoint of view, ECA license applications for the export of steel mill\nequipment to Austria should be denied. This view is based on the follow-\ning considerations:\na. The export of steel mill equipment to Austria would give\nthat country a greater potential steel capacity than it would\nrequire for its own economy. Further, its potential excess\nsteel capacity would be, more, than it could expect to export to\nnations of Western Europe, When this project was originally\napproved in 1948 and agreed to by the Departments of Commerce\nand State, with the Department of Defense not ebjecting, the\nsteel rolling capacity of Western Europe, including Austria,\nwas inadequate for the industrial needs of the area. The steel-\nmaking capacity of Western Europe, however, has been expanded\nsince that dat'e to a point where additional capacity is not\nrequired. The installation of the proposed steel mill in Austria\nwould, therefore, in all probability, cause the Austrians to\nincrease their sales of militarily important steel and its\nproducts to the USSR and its satellites;\nSECRET\nDECLASSIFIED\nE.O. 13526\nAuthority LPHST 2016-009 #12\nNARA so Date 7/17/2019\nACR-52 Appendix A\nSECRET\nSECRET\n-2-\nb. The Joint Chiefs of Staff understand that the new\nsteel mill with a planned production of 235,000 metric\ntons annually would be located at Linz, just across the\nDanube River from the Soviet Zone. They also understand\nthat an additional steel mill is projected by ECA for\ninstallation at Donauwitz located in the British Zone\napproximately. 50 miles southwest of the Soviet Zone border.\nThis new Donauwitz mill, if approved, with a planned produc-\ntion of 120,000 metric tons of structural steel products\nwould replace the existing installation at Donauwitz which\nhas a capacity of 46,000 metric tons. The potential capacity\nof the installation planned at Linz, as estimated by United\nStates practice, will approach one million tons annually,\nwhile the potential of the proposed plant at Donauwitz\nwould similarly be substantially above its presently planned\nproduction. In case of war, the installation at Linz would,\nin all probability, fall intact into the hands of the Soviets;\nC., With Austria under quadripartite control it is obviously\nimpossible to secure any formal agreement from Austria that\nwould result in the denial of 1 a items and the restriction\nof the export of 1 b items to the USSR. Informal understanda\nings have not proved effective and, as a result, many. shipments\nof strategic items have moved from Austria to the USSR and the\nsatellites. Although the steel which would be manufactured\n(if the plant how proposed were used as intended) would not be\na strategic type of steel, it is understood that ECA plans to\nprovide a cold rolling mill plant in addition to the steel\nmill equipment discussed herein. This cold rolling plant is\nexpected to be utilized to manufacture steels which would be\ndefinitely strategio. Accordingly, the Joint Chiefs of Staff\nare of the opinion that the steel mill in question might and,\nwith the addition of the cold rolling mill, would produce highly\nstrategic steel end products, a great proportion of which would,\nin all probability, be exported to the USSR and its satellites;\nand\nd. Control by the United States over Austrian exports to the\nUSSR and its satellites is and will, in all probability, remain\nineffective as long as the Soviets maintain occupation forces\nin Austria.\nSECRET\nSECRET\n- 3 -\nSECRET\nACR Doc. 52 Appendix A\n3. With respect to the request by the Munitions Board for a\nreview of the current policy and criteria, set forth in the\nstudy of the military considerations involved in export licenses,\nthe Joint Chiefs of Staff understand that the main difficulty\nexperienced by that Board lies in interpreting paragraph 22 cl\nthereof which reads as follows:\n\"c. Exports under export control licenses should\nso strengthen the military potential of the recipient\nnation as to insure a determined effort by that nation\nto resist Soviet-Communist aggression while offering,\nat the same time, a reasonable assurance that items\nexported will not be diverted to the USSR or her\nsatellites.\"\nThe Joint Chiefs of Staff, when they formulated the present export\nguidance, considered \"a reasonable assurance that items exported\nwill not be diverted to the USSR or her satellites,\" to include\nnot only exported items themselves but also the end products pro-\nduced by any exported item. The Joint Chiefs of Staff, therefore,\nare of the opinion that their guidance is adequate to provide for\nprohibiting the export to Austria of such items as steel mill\nequipment, and that its revision is therefore not necessary at\nthis time.\nSECRET\n7368\nSECRET\nSECRET\nOC DOCUMENT NO. 356, SUPPLEMENT 1\nApril 13, 1950\nTO:\nChairman, Operating Committee\nFROM:\nECA Member\nSUBJECT: Austrian Steel Projects 2 and 3 for VOEST, AUSTRIA\nIn compliance with your request at the Operating Committee\nMeeting on April 5, 1950, attached is a statement on the Austrian iron\nand steel industry.\nConcerning OC Document No. 356, there appears to be a difference\nof opinion concerning the facts which were developed in the R Proc Sub-\nCommittee discussions. It is true that the statements contained under\nthe heading of \"the following facts have been developed in Sub-Committee\ndiscussions\" were statements made in the meeting but ECA was represented\nat this meeting and corrected these statements as statements of fact at\nthat time. Further, statements present were not cleared with ECA before\nthey were presented to the Operating Committee. The following are the\npoints with which ECA takes issue:\n1. The Chairman of the R Procedure Sub-Committee states that\n\"on the basis of the discussions of the Sub-Committee, as well as preli-\nminary examination of the problem, there now appears reason to believe\nthat the total approval of this pending case may be contrary to the\nnational security\". The Operating Committee in December 1949, while\nconsidering a pending license application for export of stecl mill equip-\nment to Austria, dotermined that supply of steel mill equipment to Austria\nwould be a calculated risk but that the strategic situation which had been\npassed on by The Security Council was such that approval would be given.\nIt was further decided that, pending a significant change in the strategic\nsituation, other items of a comparable naturë would also be approved. No\nevidence was given and no statements were made it the R Proc Sub-Committee\nMeeting which would indicate that there has been any change in the strategic\nsituation in Austria since December 1949. It was, however, stated that no\nrecent review of the strategic situation had been made as no event of\nspecial importance had occurred.\n2. The State Department Representative and the ECA Representa-\ntive at the meeting of the Sub-Committee were of the opinion that the\npolitical and economic situation were such that the license application\nwarranted approval unless there were overriding security considerations\nto the contrary. These facts are not reflected in the statement of the\nChairman of the Sub-Committee. It is not customary for ECA and/or the\nState Department to present detailed economic and political justification\nfor the export of any item to the R Proc Subcommittee. In the past a\nstatement of opinion has sufficed. Further, it is our unders anding that\nthe Operating Committee has instructed the R Proc Committee to avoid\ndeveloping their discussions along these lines.\nDECLASSIFIED\nE.O. 13526\n08685\nSECRET\nAuthority LP-HST 2016-009 #12\nNARA So Date 7/17/2019\nSECRET\n- 2 -\nSECRET\nOC DOCUMENT NO. SUPPLEMENT 1\n3. The statement is made that the mills have a rated capacity\nof approximately 1,000,000 tons. This point was discussed at the meeting\nand the ECA pointed out that the total capacity in äll of Austria in 1953,\nif all proposed plans are realized, will only be 900,000 tons of crudo steel.\nShould 100% operations be achieved, total finished stecl production for all\nof Austria could not exceed 680,000 tons. This question has been discussed\nwith the producer of the equipment and with the purchaser and the cir-\ncumstances under which the equipment is to operate, and we are unable to\nagree that the installation has a rated capacity of 1,000,000 tons. Under\nconditions as they are to exist at the time of installation of this equip-\nment, the capacity of the equipment will not exceed 300,000 tons per year.\nFurther, when the product mix to be produced at the plant is taken into\nconsideration as well as the availability of raw materials, the actual\nproduction from this installation will be reduced to somewhere between\n200,000 and 250,000 tons per year. This statement is based on the fact\nthat the breakdown mill, which is 2 single stand reversing and not a 4-stand\ncontinuous mill, will be used to roll plates as well as to roll slabs for\nthe hot strip mill. The output of this breakdown mill is the control factor\nin the amount of production which may be obtained on the hot strip mill.\nFurther, there is only 200,000 tons of crude steel productive capacity\npresently available at the Plant.\n4. The statement is made that Austria is not an historic source\nof supply for steel products to Eastern European countries. To the best of\nour knowledge this statement is completely erroneous. Austria is one of\nthe oldest steel producers in Europe and, according to such statistics as\nare available to ECA, Austria has been supplying stecl products to the\nEastern European countries for a 100 years or more. For example, in 1938,\n31% of Austria's exports of iron and steel were to Czechoslovakia, Hungary,\nRoumania, and Yugoslavia.\n5. It is recognized that the statement to the effect that the\nU. S. Zone of Austria borders the Danube River and that the Soviet Zone\nlies across the River is a true statement. However, there is some question\nas to what inference is to be drawn from this statement unless the implica-\ntion is that this area is more subject to seizure by the Russians than are\ncertain areas of France, Belgium, and Luxembcurg, or other strategic\ncountries on the European Continent. There is doubt in the minds at least\nof the people here, as well as certain people with whom we have discussed\nthis problem in military establishments, as to whether such an inference\nis justified.\n6. The statement is made that, in order to reduce production of\ncrude steel, it is contemplated that 3 out of 6 open hearth furnaces will be\ndisposed of; however, Austria is able to construct open hearths without aid\nfrom the United States. It is assumed that this statement refers to the\nfact that the ECA Representative at the R Proc Committee mentioned that 3 of\nthe 6 blast furnaces at Linz were being disposed of because of the unbalanced\nSECRET\nSECRET\nSECRET\n= 3\nOC DOCUMENT NO. 356, SUPPLEMENT 1\nproductive facilitios at this installation, It is true that Austria could\nconstruct open hearth furnaces without aid from the United States. In an\neffort to rationalize the steel production at Linz, as well as to roduce\nthe likelihood of further expansion through the installation of open hearths,\nit was decided that it was stratogically advantageous to tako out these\npig iron producing facilitics. There are now 2 open hearth furnacos at\nLinz, There have never been more than 2 open hearth furnaces at this\ninstallation and it is not contemplated that cither of the open hearth\nfurnaces will be removed.\n7. It is stated in the Document that \"the mills are a part of\na 10-year economic program for Austria.\" The source of this information\nis not known. The Austrian Covernment has been attempting to work out an\neconomic program for the 12-month period beginning 1 July 1950. The\nlatest available information indicatos that the survey by the Austrian\nGovernment will not be completed before the end of April. As the economic\nprogram for this period has not yet been worked out, it is difficult to\nimagine a 10-year economic program for Austria, particularly at a time\nwhen Austria is still, to a largo extont, under the domination of the\nmilitary authoritics and does not in fact have a government which is able\nto work out a long rango program of this type until such time as the\nprovisions of the future peace troaty are decided on.\n8. Under the hoading of \"tho following questions have given\nrisc to socurity concern about those projects\". The question is asked\n\"what steps can and will be takon to assure that the old facilities are\nbeing replaced or rendered inoporative so that they will not find their\nway behind the iron curtain\". Taking the situation as it exists today,\nthe equipment in question is not roplacing installed equipment or\nrondering any installed equipmont inoporative. Therefore, thore are no\nold or inoporative facilities to find their way behind the iron curtain.\nThe present plato mill is to be used as a broakdown mill.\nIn paragraph 4 it is stated that, in view of the progress\nobtained in Western Europe in developing stool production, there is more\nthan a calculated risk in installing these facilities in Austria at this\ntime. As proviously stated, the decision was mado by the Operating\nCommittee in December 1949, that thore+was a calculated risk in installing\niron and stool facilitics in Austria. However, it should be pointed out\nthat over a year and a half ago plans by the ECA and the ONEC steel\ncountries, in connection with steol production through 1952, were made\navailable to the United States Government Agencies and through the press\nto any who cared to read them. Further, at.a special moeting hold to agree\non the Austrian Program, the scope of the Austrian Program was made known\nto the various concerned Government Agencios. The progress mado in\nincroased production is in line with, but slightly loss than, those\nestimatos. Thorefore; this information was, or should have boon, Inown\nto members of the Operating Committee when the docision was made in\nDecember that steel mill equipment would continue to be made available to\nAustria if there was no change in the stratogic situation. This appears\nto invalidate a statemont of this type.\nSECRET\nSECRET\nSECRET\n- 4 -\nOC DOCUMENT NO. 356, SUPPLEMENT 1\n9. A very thorough review has boon made concerning the\nappropriateness of curtailing Austrian exports to the East. In brief,\nthese oxhaustive studies reveal that Austria looks to the West for her\nculture, but must look to the East for her food and raw matorials. Due\nto its size and density of population, Austria mayin some respects be\ncompared to a largo city. It is not sclf-sustaining in food and in raw\nmatorials. Unless Austria is industrialized to such an extent that they\nare able to manufacture the finished products required to exchange for\nthe food and raw materials that they themsolves are unable to produce\nthen Austria must cither starvo or continue to be subsidized from some\noutside source. The United States appears to be the only country in the\nworld cither capable or willing to finance this subsidy and still let the\nAustrian poople be a free and independent poople. The ECA is, however,\nattompting to rostrict this trado to the maximum extont possible to non-\ncritical itoms. For example, the installation now under discussion is\nin line with this purpose. Prosent finishing facilities at Linz were\ninstalled by the Gormans for the purpose of making armour plato. The\npresent plan is to convert the existing plato mill into a roughing stand\nfor the hot shoot mill thoroby roducing its capacity to make a critical\nmaterial. The hot strip product to be manufactured, provided the appli-\ncation is approved, is a Class 2 itom and is not considered stratogic\nand no export control is exercised on this itom by the United States\nGovernment. The question is asked \"do not those Projects ostablish steel\nproduction facilitios' capacities aimod at a 10-year targot thus going\nbeyond usual objectives in restoring the economy to pre-war status?\" As\nproviously statod, we have no knowlodge and are of the firm opinion that\nthe Austrian Government and the Austrian industry has not yet established\na 10-year industrial target. Further, the ECA is not familiar with any\nobjective of the United State Government, of ECA, or of the European\ncountries, to restore the economy of any ECA countries to its pre-war status,\nChanging conditions and any other factors would make such a goal not only\nimpossible, but probably very undesirable. This apparont mis-conception\nin connection with a 10-year program is perhaps clarifiod by the discussion\non page of OC Document No. 356. By way of further clarification of this\nstatement, it should be pointed out that where equipment of long productive\nlife such as steel mill equipment is being installed, it is normally in-\nstalled to take care of market conditions as they will exist some time in\nthe future rather than on the basis of the demands against the equipment\nat the time of installation. It is stated in this discussion that an\nexpenditure of from $74 million of foreign exchange would, in the opinion\nof the Austrian Government, be required to supply these projected demands.\nIt appears portinent to mention the fact that the Austrian Program as indi-\ncated was reduced on the basis of the present concept at the Inter-Agency\nMooting that adopted the Program from $74 million to $24 million, a reduc-\ntion of more than 66%\nthe Members of the Operating Committee.\nIt would be appreciated if you will pass these corrections on to\nSECRET"
}