Mr. McCLOY. Yes. Mr. CURTIS. That was my understanding. Mr. McCLOY. If you will excuse me, I will go to the other meeting. Are you going to be here on Friday? Mr. DONOHUE. Not in this area. Mr. McCLOY. I'll be here until about 1 o'clock this afternoon; then I'm leaving for Paris. Mr. WOLFE. May I ask that Mr. McCloy's statement be classified. The first part of his speech. Mr. DONOHUE. We will see that it is properly classified by the State Department. We'll take a recess of 5 minutes now. (Whereupon, a recess was taken.) Mr. DONOHUE. Mr. Lantaff, have you further questions? Mr. LANTAFF. Yes, I do. Mr. Wolfe, I am impressed by the fact that my original conception, the amount of property turned over to STEG was approximately a billion dollars at 21 percent of the acquisition cost. That information was given to the committee in our hearings in the United States. Obviously that is not true, and of the available surplus equipment here in Germany only about one-third of it was transferred to the German Government and two-thirds was transferred elsewhere. Now this committee would like to know where that was transferred. Our interest is prompted for two reasons: (1) Our hearings developed the fact that many purchasing commissions from other governments would acquire this property indirectly for Dawson. We also would like to know whether or not any of that equipment can now be recaptured. For example, General Ridgway is now very concerned about getting more surplus property back to Japan, because of his rehabilitation program. A rehabilitation program is going on here. If only a third of it was sold to STEG where did the other-two-thirds of this surplus property go? Mr. WOLFE. Recapitulate just a minute on this. First we are talking about the bulk-deal program. Mr. LANTAFF. That's right. Mr. WOLFE. That is the 875 million. The contract price. Yes, we think there was $875 million worth of property, and if there was, the German Government agreed to pay us $183 million for it. However, if on counting we find there isn't $875 million worth of property because of prior commitments, of course the $875 million would be reduced, so would the $183. Mr. LANTAFF. I understand. Mr. WOLFE. Now I may be derelict in my duty in not having followed this right down to the last penny when we came in here in 194849, but I take it on this basis: I accepted this contract, as Mr. McCloy's representative-he being the senior United States representative in Germany-I accepted this contract at its face value. As of today, under the bulk-deal program, you understand, there has been no disagreement of any kind come to us as the United States senior representative in Germany, by either the Army, OFLC or the Germans, saying, "No, that is not correct." Mr. LANTAFF. You have well explained your position in that matter. But who can tell this subcommittee where around two-thirds of this $875 million worth of property went? Mr. WOLFE. I would say the Army and OFLC. Mr. LANTAFF. You say Army? To what command? Mr. WOLFE. I don't know whether EUCOM here has a recori. Mr. LANTAFF. You say OFLC? That is all part of the State De partment, and as an agency of the State Department can't you get this information? Mr. WOLFE. I can, sir. DESTINATION OF SUBSEQUENT DISPOSALS NOT KNOWN Mr.LANTAFF. Mr. WOLFE. I couldn't say it wasn't. Mr. LANTAFF. According to the discussion developed here this morning, on the weight of 21 percent of the value it would come out ** if they can only * * * somebody got the great bulk of this surplus property that went somewhere else. Mr. WOLFE. I would like to say this: On that basis I probably erred in not getting into the entire details of this. I didn't feel that it came within our responsibility. However, I will, I would like to say right now that I will get a crew of auditors together and if necessary, send them to Washington or any place else, and dig out every piece of surplus property. Mr. LANTAFF. We are not concerned with crying over spilt milk, but we do want to know where this property went because it was our understanding it all went to STEG. Obviously that is not true. The big bulk of it went some place else. Mr. WOLFE. I think you are probably right. May I make a personal statement off the record? Mr. LANTAFF. Let's leave it this way; the subcommittee wants to run it down, and if you will help us run that down, we shall all appreciate it. Mr. WOLFE. I certainly will do everything in my power to run this down. (The following information was later furnished for the record after a review of files pertaining to this subject:) At the outset it must be remembered that the $183,750,000 figure contained in the bulk-sale contract, being 21 percent of the estimated original acquisition cost of $875 million, was purely an estimate. This estimate having been prepared many months in advance of the actual turn-over must be considered in light of the tremendous difficulties under which it was developed. The property was necessarily constantly being moved, transferred, used, and replaced during the time figures were being compiled, therefore, the estimate, because of these normal and usual operations, could not be considered a firm estimate and this fact was recognized in the contract. Aside from this consideration, the following significant facts offer a reasonable explanation for a difference between the estimate in the contract and the amount which was subsequently determined to be the charge against Germany: 1. The records of the office of the OFLC reveal that between the time the estimate was transmitted in September 1947 and the effective date of the contract January 31, 1948, some $280 million (original cost) of material had been disposed of to Greece, Austria, Italy, France, Norway, and others. 2. During the aforementioned period in (1) reexamination of military requirements of the United States Armed Forces in the zone of the interior was in progress and resulted in a general increase in the quantity of material scheduled for return to the United States with a corresponding reduction in amounts later available for release to Germany. 3. Presidental Proclamation 2776 issued subsequent to the compilation of the estimate broadened the definition of “combat material" and thereby automatically revented the release to Germany of certain items previously scheduled for ansfer. 4. The occupation troop strength in Germany was not reduced at the rate origially contemplated and, therefore, resulted in a portion of the materials being etained for troop use in Germany. Although specific amounts were unknown when the estimate was in preparation any of the above variants were anticipated prior to the execution of the agreeent and paragraph 3 of the agreement provided for the contingency of a shortall in deliveries. Mr. LANTAFF. Information reaching this subcommittee indicates hat EUCOM is desirous of recapturing from STEG numerous veicles to use in their rehabilitation program, and there is some policy of HICOG that has prevented that. Do you know anything about hat? COSTS OF RECAPTURING SURPLUS PROPERTY Mr. WOLFE. No. It is absolutely the reverse, sir, from every policy, every program, every plan that we had on the recapture of equipment we have assisted the Army to the maximum degree. The recapture of equipment for these two freezes has cost plenty of money, not only for us in settling claims of the United States but also in just shutting down depots, for example, for 60 or 90 days in which the Army has gone through every depot and whether or not it was a thumbtack or a tractor that was to be reacquired the expense was the same. Mr. LANTAFF. Does STEG have the authority to settle any of these third-party claims and charge the amount due to the United States? Mr. WOLFE. Where the property has not transferred, the title to the property has not transferred to the buyer. Now under German law a man must pay for the property before title passes; he must pay in full; and where that payment had not been received in full title had not passed; therefore they go to STEG with the claim. If the title has passed, they go to the Army with their claim. Now, some time when all these claims are settled or when all this inventory is made and we know the amounts we are going to have to sit down with STEG and settle the over-all problem of the cost of shutting down their depots. Mr. LANTAFF. * * Mr. WOLFE. They can, but not without our checking, and we would not accept every claim, and every claim would be gone over. Mr. LANTAFF. STEG doesn't submit anything to you before they settle? Mr. WOLFE. Oh, yes. Indeed, yes. Mr. LANTAFF. How much has been paid to third parties either by STEG or by Army? THIRD PARTY CLAIMS NOT PAID Mr. WOLFE. None, sir. I don't think the Army has paid any. STEG has paid none. Mr. LANTAFF. * * * Mr. WOLFE. It has been transferred to the Army, and we have approved no claims and would not until it has been submitted to you. Mr. LANTAFF. * * Mrs. HARDEN. Mr. Wolfe, I believe the subcommittee has information that there were about 30,000 tons of tools that have been reclaimed by Army. Is that correct? Mr. WOLFE. I can get the entire inventory that has been submitted by the Army. Mrs. HARDEN. Would you submit that for the record? I think, about 14,000 trucks. Mr. WOLFE. We can give you a complete inventory of the material that has been reclaimed by the Army in both instances. Mrs. HARDEN. Thank you. That is all. Mr. BROWNSON. I'd like to ask at this time questions that fit into three categories. Would you like to discuss, first, the category dealing with STEG and then come back on the other questions? Mr. DONOHUE. Yes. Mr. BROWNSON. I'd like to ask what further reductions in the amount of money due on this surplus material has been made? We have had some rather hazy information in some cases that some further reductions in this amount were made due to the loss of major assemblies and other types of unforeseen damage. Could you go over historically this price situation as far as you know it as to any revisions downward that have been made since the original contract? Mr. WOLFE. The revisions downward. First let me say that the contract again, all of the downward revisions or anything occurred prior to September 1949. Again we accepted the contract on its face value. Yes, the gentleman from the General Accounting Office has told us in reviewing some of the OFLC records back home-the transfer slips— that there have been some downward revisions of the figures. Mr. BROWNSON. Is there any negotiation going on at this time concerning the total amount of this contract; is a sum under discussion? Mr. WOLFE. No, sir, it is not. The Germans made a recap of what they thought would be a fair revision, but we have taken no action. and intend to take no action on the proposal at all. It was not a formal proposal. Mr. BROWNSON. What was the basis for their proposed revision? Mr. WOLFE. Well, there were three or four items. Wait a minute. That again would not pertain to bulk deals. Mr. BROWNSON. That is on the other deals? Mr. WOLFE. Yes. Mr. BROWNSON. Which, on incentive and quantitative receipts? Mr. WOLFE. Yes. I think there is one item on the bulk deal, probably, requiring heavy cost, they said, of taking, for instance, all the buttons off of uniforms and dyeing khaki material and things like that. Frankly, the Germans haven't made a formal proposal of it at all, and I might say that certainly our inclination as far as dealing with STEG alone under the surplus property debt alone as distinct from other debts of the German Government, we would not consider any revision downward of the present contract. Mr. BROWNSON. We have digressed from this present subject a little bit. I can't help but be curious as to what disposition was made of all the equipment of the German army. Was that handled under the spoils of war? DISPOSITION OF GERMAN MILITARY EQUIPMENT Mr. WOLFE. All military type of equipment was demilitarized. Mr. WOLFE. That's right. And then we had what we called the captured enemy material. Mr. BROWNSON. There was no monetary accounting, that was just turned back as good will. Mr. WOLFE. Yes. The principal thing was demilitarizing of the Germans first, and then what was left Mr. BROWNSON. Did anybody ever have any concept or estimate as to the amount of material involved in those two categories-first, that which was demilitarized and turned into scrap, and second, that which was turned over to reinforce the civil economy? Mr. WOLFE. The captured enemy material program, began with the cessation of hostilities and dealt with the disposition of all such materials captured by the American Army. There was no contract or procedure set forth in the beginning as to the method under which this material should be disposed of nor was there an agreement as to the value of these properties; however, they were estimated to be worth approximately three billion reichs-marks. This program dealt with many different types of commodities, including captured ammunition in the amount of 215 thousand tons. The so-called aluminum program which dealt with the reducing of airplane parts into pig aluminum. Fifty percent of the recovered aluminum was to be placed at the disposal of the United States Government. The remaining 50 percent was to be released to the German economy. Some 18,000 tons were recovered. Then they had the engine dismantling program. Mr. BROWNSON. Do you show whether the 50 percent was turned over to the United States Government? Mr. WOLFE. No, sir. Mr. BROWNSON. Was that an Army program? Mr. WOLFE. That was an Army program. This program was completed, I would say, in early 1946. Then we had the signal equipment dismantling program, the scrap recovery program, and the waif goods program. And in the beginning the presidents of the various laender or states were charged with expediting these operations, the demilitarization, and the distribution of the captured equipment. "QUANTITATIVE RECEIPTS" DISPOSAL PROGRAM Mr. BROWNSON. How much was the total value involved in the quantitative receipts program? Mr. WOLFE. The total value, 21 percent, was $91 million. And there-if I may expand on that just a minute, sir. Mr. BROWNSON. Please do. Mr. WOLFE. The quantitative receipts program, I think we are able to speak a lot better from the record standpoint now than we have been before, as of today, this $91 million debt does not yet appear on the books of the Treasury as a dollar debt to the United States. It appears on our books as a commitment. The Federal Republic picked it up as a commitment after the election, the formation of the Government, on a basis of 21 percent of roughly, $350 to $375 |