STATEMENT OF WESLEY C. HARALDSON, DIRECTOR, FINANCE AND ECONOMICS, ALLIED MILITARY GROUP

ECA PROGRAM COMMENTS

Mr. HARALDSON. As General Whitelaw stated, we have an ECA mission to the Free Territory of Trieste, just as you have an ECA mission to the Government of France or the Government of Italy, and our relationship with the ECA mission is the same as it would be in another country. We are the government of the area, and we work with the mission just as if it were the Italian Government working with the Italian mission in Rome.

Mr. BROWNSON. In other words, you are running a finance and economic section of the civil affairs government here, and you are utilizing the services of the ECA?

Mr. HARALDSON. Yes; we have been allocated ECA aid in the past 3 years in relatively small amounts in comparison with other countries, but we are participating in OEEC and ERP, just as France is and the other members.

Mr. BROWNSON. You have this governing council here with the British representative as the Governor of the Territory. Are you on the Governor's staff, in your position as finance director?

Mr. HARALDSON. Oh, yes. I am directly responsible to General Whitelaw and through him to the zone commander or military Governor of the area.

Mr. BROWNSON. And you have a British opposite number?
Mr. HARALDSON. Yes, my deputy is British.

Mr. BROWNSON. In other words, the finance-whatever you call him-the finance minister of the government here is British?

Mr. HARALDSON. No. We have two organizations, or two main branches of Allied Military Government. There is the department of the interior, which handles more or less your civil local affairs. There is the department of finance and economics, under which comes everything financial and economic-production, transportation, railroads, and everything. I am the director of the finance and economics, so the finance minister, or whatever you want to call him, is directly responsible to me, and I am directly responsible to General Whitelaw.

Mr. BROWNSON. That's right, but where do the British come into the same thing? They have a director of finance, too?

Mr. HARALDSON. It is a completely integrated staff. My deputy is a Britisher, and then in the division of finance and economics there is a finance section. That happens to be headed up by a Britisher. There is a comptroller section, headed up by an American colonel. There is a trade and commerce section. That is headed up by an American Army Department civilian. Usually where you have the head of a division an American, you have his deputy a Britisher, or

vice versa.

Mr. BROWNSON. What has been the total ECA aid that has been appropriated for Trieste since the end of World War II?

Mr. HARALDSON. In the 3 years of ECA aid to date, we have received $371⁄2 million.

Mr. BROWNSON. Has there been any type of aid in kind or in money come down from the British for the same area?

Mr. HARALDSON. Not to my knowledge. There may have been some in the very early days when they liquidated the joint command in Italy, but since that time I have no knowledge of any.

Mr. BROWNSON. Was there any surplus or captured property in this area that was turned over to the local government at the cessation of hostilities?

Mr. HARALDSON. I am afraid that I wouldn't be the qualified one to answer that. The quartermaster would be able to.

STATEMENT OF LT. COL. WALTER T. BELLAND, ASSISTANT CHIEF OF STAFF, G-4

Lieutenant Colonel BELLAND. The only surplus property that I know of which was turned over by the United States Army at the cessation of World War II were a number of horses which were captured.

Mr. BROWNSON. There was nothing else given to the civilian economy by way of artillery tractors or anything of that sort that could be adapted to civilian use?

Lieutenant Colonel BELLAND. No, sir. In fact, the horses were not given to the local economy either.

Mr. BROWNSON. Let's see if I have this right. We have a unified military staff.

Major General SEBREE. Yes, sir. The head of one staff section will be British; the head in the other will be American, and where the head is British he has an American under him.

Brigadier General WHITELAW. Only in the G-2/GS-1 section. That is the Intelligence Section.

Mr. BROWNSON. I am talking about Allied Military Government. Brigadier General WHITELAW. Yes; it is integrated. The zone commander is General Winterton. I am his executive with the title "Director General of Civil Affairs." I am an American. I have these two major departments, department of the interior, headed by an Englishman, and Mr. Haraldson's department of finance and economics; he is an American. The deputies of those two people are of the other nationality. It is that way throughout, in general.

Mr. BROWNSON. You have these two main departments. What two main departments do the British have, corresponding to the two that are under you?

Brigadier General WHITELAW. In the military government there are only two major departments: The interior, finance and economics. That is the Allied Military Government.

Major General SEBREE. It is completely integrated in the Allied. Military Government phase. In the military phase the only staff section that is integrated is the G-2 section.

Mr. BROWNSON. You are completely integrated in your Intelligence?

Major General SEBREE. In our Intelligence; that is correct.
Mr. BONNER. Mr. Lantaff?

ECA AND COUNTERPART ACTIVITIES

Mr. LANTAFF. This $372 million that has been expended through ECA here in the past 311⁄2 years, what has that $372 million been. used for?

Mr. HARALDSON. In the first years, it was spent for a wide variety of foodstuffs, plus petroleum products, and some fats and oils. In general, it was petroleum and a wide range of foodstuffs.

In the last year it has been used exclusively for importation of crude oil for our refinery and bread grains for the local population. The economy of the area and the neighborhood, Italy, has revived sufficiently so that we have no longer had the necessity of importing the wide range of foodstuffs that we did in the early years. Last year, as a matter of fact, we imported a small amount of cotton, crude oil for our refinery, and bread grains and wheat for the local require

ments.

Mr. LANTAFF. Are some of those funds used to encourage rehabilitation or development of local industry?

Mr. HARALDSON. Very much so. As a matter of fact, all of the counterpart deriving from our ECA aid has been put out in the form of commercial and industrial loans. None of our counterpart has been spent on roads or buildings, or the wide variety of public works that has happened in other countries. It has all been for industrial and commercial loans, with the result that we have rehabilitated our shipyards, many of our larger factories, have financed the building of new industrial enterprises here and the reconstruction of a large part of the merchant marine that was destroyed during the war. Because we have extended this counterpart money as a loan rather than spent it for public works, we have repayments coming back every month, which serve as a revoling fund to finance additional industrial improvement and expansion.

Mr. LANTAFF. How much money is available in the counterpart fund today?

Mr. HARALDSON. All of the counterpart funds deriving from the $372 million has already been committed. It has all not been spent, but it has been committed in these various types of loans that I mentioned.

Mr. LANTAFF. Can the counterpart funds be used to defray the costs of the logistical support of our units here?

Mr. HARALDSON. Well, according to the bilateral agreement that has been signed between Trieste and the ECA, 5 percent of the counterpart goes to the United States Government for any purpose that they want to use it for, and the other 95 percent reverts to this joint use; ECA and we, as the Allied Military Government, agree as to what it can be used for, but that part of the counterpart fund is intended for reconstruction and local expenditure.

Mr. LANTAFF. How much money, total, would you say has been, loaned to private business here in Trieste through the counterpart funds?

Mr. HARALDSON. Somewhere in the neighborhood of 20 billion lire. Mr. LANTAFF. Translated into terms of dollars

Mr. HARALDSON. That is equivalent of $371⁄2 million.

Mr. LANTAFF. You mean the whole $3712 million has been generated into counterpart funds?

Mr. HARALDSON. That is right. It has been spent for food imports, crude-oil imports, American machinery to a degree, and has generated the 27-billion-lire counterpart, which in turn has been used to support industrial, commercial expansion through loans.

Mr. LANTAFF. What is your estimate as to the need for additional funds here?

Mr. HARALDSON. I would say that they would be very minimum. One of the political factors is the political situation, and you might have to nurse a delicate political situation more generously than you might otherwise do on strictly economic grounds. Much of the aid that has been coming to Trieste has been predicated upon the political situation.

Mr. LANTAFF. Would it not be possible, in view of the fact that the counterpart funds are now used almost exclusively for loans to private business here, just to curtail any further economic aid on the theory that those funds which have been generated can be used for emergency purposes or other needs within Trieste?

Mr. HARALDSON. As a matter of fact, we have not received any aid since the 1st of July of this year, as you perhaps know. No aid has been allocated for this fiscal year, and our request was extremely modest. I think we asked for 2 or 3 million dollars for this as a political gesture than as a serious economic need.

year, more There's one thing-I hate to consume so much time-there is one thing that has some bearing on the matter, and that is that, according to our agreement with the Italian Government, Italy has to support our deficit here.

Mr. LANTAFF. What do you mean by "our deficit"?

Mr. HARALDSON. Our financial deficit of the area has to be supported by Italy.

Mr. LANTAFF. You mean over and above the income received from taxation?

Mr. HARALDSON. That's right, so that if you give some ECA aid to Trieste, you would have to give less to Italy, because we would draw less on Italy.

Mr. LANTAFF. Does Italy use any of our ECA funds there to make up the deficit here?

Mr. HARALDSON. Not directly, but ECA funds going to Italy obviously support Italy.

Mr. LANTAFF. In other words, in all probability we are still paying the deficit here but just using another channel?

Mr. HARALDSON. I am convinced that Italy could not have supported the deficit here if she had not received aid from the United States. Mr. LANTAFF. You say that this 2 or 3 million dollars has been requested just as a sort of political expedient. From the standpoint of the American taxpayer, there is a terrific drain on our economy as a result of these foreign aid programs and all the other commitments that we have made. It has got to the point where we in Congress, as the chairman has expressed it so often, have scraped the bottom of the barrel taxwise, and we must weigh the needs of these areas in order to preserve peace in the world and try to stop communistic expansion against the ability of the American taxpayer to continue to foot the bill. It seems to me, from what your testimony has indicated this morning, even 2 or 3 million dollars, compared with over-all expenditures, that Congress would be justified in overlooking the political expediency and turning down any further economic need for Trieste in view of the counterpart fund situation here today..

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Mr. HARALDSON. As I started to say, Italy has to meet our deficit. We are going to need to import $3 million of bread grains-21⁄2 or 3 million dollars' worth of wheat and flour from the United States next year. Now, we can get the money from ECA, or we can go to the Italian Government and say, "You have to give us the $3 million." If ECA is, in fact, supporting the deficit of the Italian Government, our getting $3 million from Italy just increases her balance of payments difficulties by $3 million, so what we say is that we are not asking for any more aid. We are asking that 2 or 3 million dollars which otherwise would be allocated to Italy be given to us.

Mr. LANTAFF. Why can't the $371⁄2 million counterpart fund be used to pay for that deficit?

Mr. HARALDSON. I'm sorry; the $371⁄2 million has been spent.
Mr. LANTAFF. The counterpart fund.

Mr. HARALDSON. You can't use lire to pay for the wheat. We have to have dollars.

Mr. LANTAFF. The operating deficit is in lire?

Mr. HARALDSON. That's right.

Mr. LANTAFF. Why can't the counterpart fund, which is a lire fund, be used to pay the deficit, rather than calling on the United States for more dollars to generate more counterpart funds?

Mr. HARALDSON. It wouldn't be calling on the United States to give us more dollars to generate more lire. It would be calling on the ECA to give us 2 or 3 million dollars which she might otherwise give to Italy, so that we can buy our wheat directly rather than asking the Italian Government to give us $3 million to buy our wheat. It is probably a distinction without a difference.

Mr. BONNER. What effort is being made to widen the tax structure so as to balance the budget of Trieste? You mentioned the fact that you get sales taxes and indirect taxes. Now, what effort is being made to get direct taxes from those that are able to pay taxes?

TRIESTE TAX STRUCTURE

Mr. HARALDSON. Because of our agreement with the Italian Government, we have the same tax institutions that they have in Italy. Every tax law that Italy has on its books is automatically applied here, so that we as Allied military government have no freedom of action on tax measures. We can't adopt the tax measures that we would like to see or that might be called for. We apply Italian tax legislation. However, recently the Italian Government did pass a new tax reform law, the so-called Vanolli law, which is a progressive income tax, patterned on the American system, and it is hoped that, as a result of that, we'll get more money through income taxes, and that there will not be the tax evasion that you find throughout Italy and France. Mr. BONNER. When will that become effective?

Mr. HARALDSON. That will become effective in Trieste January 31. The law has been published and will become effective at the end of January of this next year.

Mr. BONNER. And is it anticipated that the area will be self-supporting financially?

Mr. HARALDSON. I don't know that we could anticipate that much improvement in our tax revenues