Mr. LANTAFF. In connection with the mission of the subcommittee, Mr. Kennedy, I was just glancing quickly through this memorandum to see if there was any reference to our interest in the MDAP program from the standpoint of return of equipment in the form of scrap iron, when it had served its usefulness. I did not see any reference to it. Mr. WARD. That is not specifically in there, Congressman. Mr. LANTAFF. Do you think it should be?

Mr. WARD. Yes; I think it should be.

Mr. LANTAFF. The reason I brought that up, Mr. McFall, is that such a problem is within the jurisdiction of this subcommittee. Mr. McFALL. Yes, sir.

Mr. LANTAFF. And it is a problem that is taking us into two or three countries. That is the interest of this subcommittee in the MDAP program from the standpoint of an amendment which we put in that bill providing that, when equipment had served its economic usefulness, rather than the country disposing of it, it would be returned to the United States for scrap metal.

Mr. McFALL. Yes, sir.

Mr. LANTAFF. That is our interest in some of these countries where we intend to confer with our military missions. I thought you might like to have that in mind during these briefings.

Mr. McFALL. Fine.

Mr. LANTAFF. Suppose you proceed as you wish.

Mr. McFALL. All right, Mr. Chairman.

I understand you have made arrangements for the ECA to come up themselves individually; so, I will not be concerned with that this morning.

If it would be agreeable to the subcommittee, I am sure that these gentlemen who are here want to give everything without reserve, and if they might have the liberty, when they feel that there are matters of security and confidence involved, might they ask that they be permitted to speak off the record.

Mr. LANTAFF. That is very good. If you will let us know, we will caution the reporter.

Mr. McFALL. First, I would like to present Mr. Leonard S. Tyson, the officer in charge of economic affairs in the Philippines and Southeast Asian Affairs.

I can give them individually, or I can give you the list now.
Mr. LANTAFF. Proceed as you wish.

Mr. McFALL. I am advised that he is acting officer in charge.

STATEMENT OF LEONARD S. TYSON, ACTING OFFICER IN CHARGE OF ECONOMIC AFFAIRS IN THE OFFICE OF PHILIPPINES AND SOUTHEAST ASIAN AFFAIRS

Mr. TYSON. With your permission, perhaps I should irst address myself to the Philippines.

THE PHILIPPINES

By and large, the situation in the Philippines is infinitely improved over what it had been about a year and a half ago. At that time, as you gentlemen may be aware, there had been a very serious economic

crisis in the Philippines which had threatened not only the economic well-being of the Philippines but even its political stability.

The United States moved forward on two lines to support the political economic stability of the Philippines. The United States addresses itself to both the military and economic problems. So far as the military problem was concerned, which, of course, was the most immediate threat, it was that of the Hukbalahap, a Communist-led movement, which originally arose in central Luzon.

The United States, as a result of the authority provided in the Independence Act and in the Military Bases Agreement of 1947, undertook to both supply and train the Philippine Army in order to maintain domestic political tranquillity. Ramon Magsaysay, who came in as Secretary of Defense about a year ago, reshuffled the military high command and has done an admirable job.

HUK MOVEMENT BROKEN

As a result of the reshuffling in the high command and as a result of the United States aid under the base agreement and the MDAP, we believe that the military backbone of the Huk movement has been broken. It has been almost a spectacular achievement. New blood was injected into the Philippine military. They have done an admirable job.

It will, of course, take several years, probably, to completely mop up the various Huk fragments that still exist. You will find there are fairly large fragments, by the way. I do not want to overstate the case. However, I believe you will find, if any of you have been in the Philippines in the last several years, a new feeling of hope and well-being stemming in large measure from the success of the Philippine military against the Huk movement. That is good news to report.

ECONOMIC CRISIS OF 1950

The

On the economic side, the crisis-and it was a very severe crisis indeed-of 1950, has been successfully weathered. At that time the Philippine Government budget was seriously overdrawn. drawings upon their Central Bank had gone up to the point of peril. They found that they did not have sufficient funds to pay their teachers, and the teachers went unpaid. It seemed quite likely that there would not be sufficient funds to pay the military. All of you, I am sure, can appreciate the possible implications of that.

All of this was despite the fact that the United States had given a rather considerable amount of economic assistance to the Philippines in the past. If you wish I can elaborate on that. But, nonetheless, this time, rather than to simply make another grant to the Philippines a new approach, was taken. I think it is an economic landmark, insofar as our relations with the Philippines and perhaps with other countries are concerned. The new approach was established as a result of the Bell mission.

BELL MISSION TO PHILIPPINES

The President sent the Honorable Daniel Bell out there as head of the United States Economic Survey Mission. They performed an

admirable job in diagnosing what was wrong with the Philippines and in prescribing the remedies.

The Bell report was a very tough one, which called a spade a spade. Then Mr. Foster went to the Philippines and signed an agreement with the Philippines President Quirino, which in effect sanctified the broad recommendations of the Bell mission, but pulled out of the Bell Mission recommendations three steps which the Philippine Government must first take before the United States would consider offering any additional help. In other words, "You must put your own house in order first."

The first of these steps was rather extremely significant. I am sure you gentlemen will fully appreciate it. That was that the Philippine Government should increase its tax revenues by almost 75 percent. That is an extremely heavy charge for any government to undertake.

The next step was a Minimum Wage Act. That was designed to try to undercut some of the legitimate bases for agrarian discontent and industrial discontent. No underdeveloped country in the Far East, such as the Philippines, had ever had an effective minimumwage law before.

IMPROVEMENTS IN PHILIPPINE ECONOMY

The third step was a joint resolution by the Philippine Congress to agree to implement through congressional legislation the broad recommendations for economic development and social well-being as laid down by the Bell mission. The response of the Philippine Government could not have been better. Within, I believe, 4 or 5 months each one of these requirements has been met. As a result, at the present time it looks as though the Philippine tax revenues will be almost twice the level that they had been in 1949-50. The results of this have indeed surpassed the fondest expectations of almost everyone. They rapidly passed a minimum-wage law which covers 4,000,000 wage earners. That is a pretty good start, when you consider that the total population of the Philippines, including all the men, women, and children, is only around 19 million. They also passed the joint resolution that was called for.

As a result of the improvement in the economic situation, as I have mentioned, and the tax revenues, which have gone up markedly, conditions have vastly improved. By July of this year their foreignexchange reserve had risen by almost 40 percent above the level that it had reached at the end of 1949. I can check that for you for the record.

There has been a marked improvement in the Philippines which I believe any and all of you will be able to sense, compared to the general feeling of despair that existed there perhaps a year and a half ago.

There will be a congressional election in the Philippines during November. If you are there I think it would be an experience for you

to watch.

(Discussion off the record.)

Mr. LANTAFF. What is the nature of their Government now?

GOVERNMENT SET-UP IN PHILIPPINES

Mr. TYSON. It directly parallels that of the United States, but provinces do not have the authority of States, but it is a bicameral legislature with a President, Vice President, and a Cabinet.

Mr. LANTAFF. What governments exist in the provinces?

Mr. TYSON. There are provincial governments and provincial governors as well. They have a fair amount of autonomy, but they do not have all the perogaties of our States.

Mr. LANTAFF. How may members are there in the House and Senate?

Mr. TYSON. I am not sure. I am not a political officer. If I may I will supply that.

[Note: One hundred in the House and 24 in the Senate.]

Mr. LANTAFF. You mentioned a moment ago that the Philippine Army was somewhat rehabilitated because of the training we had given those forces and because of the supplies and equipment we had sent to the Philippine Army. I think that phase of your briefing is of especial interest to this particular subcommittee.

Do you know whether or not any of the military equipment that we left in the Philipines and gave to the Philippine Government was utilized by the Philippine Government in connection with rebuilding this army, or did we ship new supplies out there?

$100 MILLION VALUE OF SURPLUS TRANSFERRED

Mr. TYSON. Thanks to congressional foresight, the provision was included in the Philippine Rehabilitation Act of 1946 transferring in effect almost all the surplus to the Philippines as a grant. It was estimated at $100 million of fair value.

The settlement on that was on the generous side. Do not take this as a fact, but only as an indication of the magnitude: I think it was around 12 cents on the dollar on the basis of original cost.

Mr. LANTAFF. The point I am making is this: In connection with the surplus property which we gave the Philippine Government, evidence developed by this committee indicates that the Philippine Government has sold that equipment to American surplus-property dealers who in turn have brought that equipment back to this country and have sold some of it back to our own military departments, to the United States Government.

The thing I desired to determine was whether or not in connection with resupplying this new Philippine Army, the Philippine Government was required to utilize that equipment, or whether or not they are still selling on the surplus market supplies and equipment that we are giving to them, and getting new equipment in from us all the time. Is there a bottomless pit there where we are supplying military goods and they are channeling some of it out to the surplus-property markets?

Mr. TYSON. Let me be quite frank with you, sir. If I were to answer your question it would be simple speculation. Mr. John Melby handles the military aspects of the program for southeast Asia.

Mr. LANTAFF. Is Mr. Melby here this morning, Mr. McFall?
Mr. McFALL. No, he is not. We will certainly see that he comes.

Mr. BROWNSON. Mr. Chairman?

Mr. TYSON. I could elaborate on that a little bit, but Mr. Melby certainly is the expert. The $100,000,000 surplus property transfer was authorized by the Philippine Rehabilitation Act of 1946. Subsequent shipments of military supplies have been under MDAP. Our agreement with them provides that none of this can be disposed of without our consent.

Mr. LANTAFF. Good. Did you have a question, Mr. Brownson? Mr. BROWNSON. Yes. I would like to ask this: On whom do the Philippines depend for the manufacture of metal products? Do they have any steel mills in the Philippines at all?

Mr. TYSON. No, sir.

Mr. BROWNSON. Where do they get their steel products customarily? Mr. TYSON. Primarily from the United States and Japan.

Mr. BROWNSON. Do you know anything about where the scrap that develops in the Philippines has been flowing? Has it been flowing into Japan?

PHILIPPINE EMBARGO ON SCRAP

Mr. TYSON. For the most part the scrap has not been flowing anywhere. The Philippines through an executive order have placed in effect an embargo on all scrap. It cannot flow anywhere.

The first exemption to this scrap order was just obtained. We have been asking the Philippine Government to lift this embargo on scrap. Now there have been, it appears, two exemptions.

Well, I think the two exemptions taken together would probably amount to something like 30,000 tons of scrap.

Now, the only one of these two exemptions which has been really firmed up is the Abelow case. The name may ring the bell for some of you.

Mr. LANTAFF. It does not with me.

Mr. TYSON. The Philippine Government has now granted an export license for 20,000 tons of scrap for export either to the United States or to Japan.

Mr. LANTAFF. What do you mean by "either"?

Mr. TYSON. The Philippine Government has authorized the exporter to export this scrap to either the United States or Japan, so far as they are concerned. Presumably, then, the scrap will flow to the higher market. At the present time it appears that the price for steel scrap is higher in Japan than in the United States.

However, it is also true that Japan needs scrap, too.

Mr. LANTAFF. Do you know what the Philippines plan to do insofar as the balance of their scrap is concerned?

Mr. TYSON. Well, there is a great deal of domestic political prestige attaching to keeping so much of the scrap in the Philippines, in the hopes eventually of having sufficient scrap to develop their own iron and steel industry. We hope that the embargo will be lifted rather soon. As I say, we now have the first major exception to this general rule.

Mr. LANTAFF. It will take them several years to build up their own steel industry.

Mr. TYSON. Yes, indeed. As a matter of fact, there is nothing in the immediate future so far as a steel mill is concerned.