- Richard Helms
- Meeting with President Johnson.
Here we reproduce the transcripts of the hearing about Iran. The source document can be found here.
After reading this, it becomes obvious that in this Johnson era, Iran was mostly regarded by M. Holmes as a threat than a friend. His future support of the Islamic revolution which has still the favour of Democrats can be understood from this point of view.
Arms Sales to Iran ---------- Tuesday, March 14, 1967 U.S. Senate, Subcommittee on Near Eastern and South Asian Affairs, of the Committee on Foreign Relations, Washington, DC. The subcommittee met, pursuant to notice, at 2:30 p.m., in room S-116, the Capitol, Senator Stuart Symington (chairman of the subcommittee) presiding. Present: Senators Symington, Fulbright, Gore, Clark, McCarthy and Hickenlooper. Also present: Peter Knauer, Assistant for Congressional and Special Projects, Office of the Director of Military Assistance, Department of Defense; and Lt. Col. Albertus B. Outlaw, Office of the Assistant to the Secretary of Defense (Legislative Affairs). Also present: Mr. Marcy and Mr. Bader of the committee staff. [This hearing was published in 1967 with deletions made for reasons of national security. The most significant deletions are printed below, with some material reprinted to place the remarks in context. Page references, in brackets, are to the published hearings.] STATEMENT OF MR. HENRY J. KUSS, DEPUTY ASSISTANT SECRETARY OF DEFENSE FOR INTERNATIONAL LOGISTICS NEGOTIATIONS; ACCOMPANIED BY MR. W.B. LIGON, DIRECTOR, NEAR EAST NEGOTIATING DIRECTORATE AND ECONOMIC PLANNING-COORDINATION OASD (ISI) FOR ILN * * * * * * * EXECUTIVE BRANCH DECISION IN IRANIAN CASE [P. 4] Mr. Kuss. First of all, this machinery included intensive and detailed discussions with the country itself. For several years, we have agreed with the Government of Iran that military supplies will not be sold or bought by them, by any country, without clear analysis of their need and the economic capability to support the impact of such purchases. Secondly, a U.S. military team bringing in our unified command and joint staff machinery, worked with the Imperial Iranian forces in analyzing the threat and recommending the types of equipment which would be desirable. Simultaneously, our State Department and AID machinery, at the embassy level, worked with the Central Bank, not just with their defense ministry, but with the Central Bank of Iran, to determine financial resources which would be available to meet total Iranian development and consumption requirements as well as the effects of contemplated military procurement on such resources. Both these military and economic analyses were reviewed by the Shah, and his prime minister and other governmental agencies of Iran, and discussed with our ambassador. All of this information was then made available in Washington to the State Department, AID, and Defense machinery for further consideration. There were many adjustments made in the application of this machinery. Needless to say, they didn't all adopt my recommendations. There were many changes. On the basis of these views, a decision was made at the highest level in the United States Government concerning the program which we would be willing to undertake. From the time that the Shah gave indication of his first need for additional equipment, to the time that my office was informed of the program to be specifically negotiated, over nine months elapsed with consultative machinery operating in Iran and the United States. In the final analysis, the most surprising thing to me is that the Shah waited nine months since he was financially independent; certainly he is politically independent and had achieved the approval of the Majlis in November 1965 for the purchase of $200 million outright from any source. This waiting period only proves to me to some extent that he really preferred the United States to continue as principal military supplier even though he had to wait through all of the time for the machinery to be processed, and even though he did not get all that he was capable of purchasing in the process, in the first analysis. I should like to conclude my opening remarks with a highlight summary of the situation taken from reports by people in our AID, Defense and political machinery, who are a lot closer to the situation than I personally can confess to be. These statements from our AID, political, Defense people on the scene are as follows: 1. While Iran's economic situation is basically sound, the United States would greatly prefer that it limit the expenditure of further resources on military equipment. This is an important element of what was the basis for our final decision. The impression is that we wished to limit the amount of military supply that we provide. However, there is no prospect of convincing the Shah that Iran need not develop what he considers an adequate defense establishment to protect his fully exposed vital oil installations in the south. Moreover, it is in the United States interest to maintain a close military relationship with Iran in order to protect our interests and to enable us to maintain a dialogue with the Shah on the broader issues of Iranian economic development and their relationship to military expenditures. The United States has made significant progress in the last two years in stimulating the Government of Iran to examine this relationship. ECONOMIC GROWTH IN IRAN For its own part, the Government of Iran has made great strides in promoting economic growth in Iran, whose GNP increased nearly 10 percent last year. Iran is credit-worthy and, given its inability to rapidly absorb large amounts of foreign financing for its development program, there is room for additional military credits on reasonable terms. Senator Hickenlooper. Given its inability? Mr. Kuss. Yes. In other words, it can't grow up overnight. All revenues are coming in faster than it can really spend them on development projects. Senator Hickenlooper. Therefore, they have some extra money left over to buy arms? Mr. Kuss. Yes, sir. That is the point I am making here. The United States government has constantly tried to apply brakes to Iranian military spending. Last year, although the Shah planned $200 million in just one year from us in purchases, in accordance with the requirements as confirmed by the special U.S. military survey team, the U.S. government limited the Shah to $50 million a year, with the possibility of similar tranches over the next three-year period. Limitations upon limitations have been placed on what he can do with military programs. 2. Recent months have seen the steady--and I am quoting now--continuation of a clearly visible trend toward a more independent Iranian posture on the world scene. Developments affecting Pakistan, one of Iran's closest allies, have reinforced the Shah in his conviction that Iran must be prepared to stand on its own feet. In setting his twin goals of economic development and national defense, the Shah has linked military security to economic and social progress, and believes that he cannot have the latter without the former. Partly also because of a deep-seated Iranian Nasserist antagonism and partly because of the USSR's new policy of friendliness toward Iran, Iran has shifted the focus of its major concern from the threat of communism in the USSR in the north to Nasser and Arab nationalism in the south. The Shah is acutely aware of the vulnerability of his oil lifeline in the south to surprise attack and the susceptibility to subversion of the Arab minority, in Khuzestan. The Shah feels compelled to maintain an adequate defense establishment in face of a large-scale Soviet arms supply to UAR, Iraq and Syria. He believes strongly that it is in the interest of the United States, as well as Iran, that Iran be in a position to deter or cope with regional threats rather than calling on us a la Vietnam. Egypt has several times Iran's arsenal. The reason for the Shah's insistence on aircraft of the type of F-4, and he did insist, was that even neighboring Iraq already has delivered 18 of the all-weather Mach 2.3 MIG-21's, whereas Iran has nothing better than day-flying Mach 1.3 F-5's. SHAH'S MILITARY REQUIREMENTS He has expressed his desire to meet his military requirements from the United States, but he has made it abundantly clear also that if the United States is unwilling or unable to meet his major military requirements, he is determined to go elsewhere to acquire what he needs. 3. The Shah's arms purchases from the Soviets are in relatively non-sensitive areas such as trucks, armored personnel carriers and ack-ack guns; his payments are primarily in natural gas which for 60 years have been flared off. The Shah's purchasing from the Soviets seems to him, and I am reporting, seems to him, to be not without some value. He is convinced that it will undercut Soviet propaganda about the United States being solely arms merchants to Iran, and about Iran's being an American puppet. He also believes it will cause difficulties in the Soviet relationship with Nasser and other radical Arabs. Gentlemen, I deliberately didn't try to answer all the questions in my opening statement but that poses a lot of questions, I am sure. * * * * * * * END-USE AGREEMENT WITH WEST GERMANY [P. 7] Mr. Bader. While you are getting that--let me ask you a question. As I understand it, we include in our military sales or grant agreement with West Germany a so-called end-use agreement. Is that correct? That is, we have total veto, as Mr. McNaughton said, over the final disposition of American military equipment. Mr. Kuss. That is right. Mr. Bader. Is that correct? Mr. Kuss. I negotiated them; yes, that is correct. Mr. Bader. Fine. So in the case of the these F-86, if they are not in Iran-- if they actually belong to Pakistan--then the West German government and perhaps the Iranian government, if they were the middleman in this case, have turned aside what was American desire and policy with regard to Pakistan. Would that be correct? Mr. Kuss. I believe that would be correct. May I continue my answer? Mr. Bader. Certainly. Mr. Kuss. To supplement what you said, let me put it in the record that the United States was supplying military equipment through grant and sales to Iran at the time that this circumstance arose. The United States approval of the German sale to Iran was influenced by the fact that there appeared to be legitimate requirements and the experience of the purchase would not unduly upset the Iranian defense budget. * * * * * * * Senator McCarthy. I just want to know, what is the game? Why do the Canadians do it for Germany under our license? The Canadians don't have a serious balance of payments problem with Germany. We do. What are the politics of it? Mr. Kuss. The Canadians have--I am not sure the balance of payments is the consideration at all. Senator McCarthy. Why? That is the question. Mr. Kuss. The Canadians have as serious a balance of payments problem as ourselves, if one is to talk balance of payments, and the Canadians having financed a production line for F-86's for themselves were in a position to provide F-86's for Germany during the build-up period. Senator McCarthy. Is that because we couldn't do it? Mr. Kuss. We could have done it. Senator McCarthy. Why didn't we? I want to know why the Canadians with our license produced and sold it to Germany. Who arranged this? Did this involve cooperation on the part of the Defense Department and our manufacturers of F-86's? What I want to get at is the process by which these complicated decisions are made, like the one involving the sale of Lightning fighters to Saudi Arabia, for example. We sell F-111's to England and they in turn sell Lightning fighters to Saudi Arabia. Northrop Aviation, however, says really what the Saudis should have are F-5's, but, in the end, the Saudis are told: ``You really can't go out and do the kind of thing you are urging them to do, compete in the open market really for arms sales because somebody just said you have got to take Lightning fighters and we are in turn going to supply F-111's to England.'' Mr. Kuss. My answer to the first question, to start with, first of all, the North American Aircraft Corporation has the right to license foreign manufacturers to produce F-86 aircraft in this case. Senator Symington. F-86 is a North American; not Northrop? Mr. Kuss. North American, right. I understood the question to be F-86--has the right to-- this was some years ago, of course, with the F-86--they have the right to license other countries to produce the F-86 aircraft with the approval of the United States Government. They obtained that right through their contractual arrangements with the Defense Department. They then obtained the approval of the Office of Munitions Control, who would also check it out with Defense, to license Canada to produce, not only for themselves, but for other countries as they were able to work out mutually-agreeable sales arrangements. TOTAL U.S. MILITARY ASSISTANCE TO IRAN [P. 8] The United States Government, in reviewing that license, approved it but insisted that the license itself contain a clause that if the Canadians were to sell those airplanes to any other country that they must get the approval of the United States Government, specifically for that other country, number one. And, further, in that particular agreement, that if the other country were to ever sell it to any other country, they must also get the approval in succession of the United States government. Senator Symington. If you will yield to me a minute, Senator--as I understand it, then, some 90 F-86's were sold by Canada to West Germany, correct? Mr. Kuss. That is correct. Senator Symington. And those were sold by West Germany-- Mr. Kuss. Maybe more, sir. Senator Symington. All right, we are talking about these 90. * * * * * * * MOVEMENT OF F-86'S FROM IRAN TO PAKISTAN [P. 8] Senator Symington. I understand about the initiation; I am just talking about these planes. They moved from West Germany into Iran, then from Iran to Pakistan. Did we know that they had moved from Iran to Pakistan when they did, or did we find out later? Mr. Kuss. When we knew, and we consulted with the Government of Canada, both the---- Senator Symington. Let me ask the question again to be sure you understand my point. Did we know at the time the planes moved from Iran to Pakistan that they were going from Iran to Pakistan, after they were sold to Iran by West Germany? Did we know it at the time? Mr. Kuss. No. As a deliberate plan of our own. No, we did not know. Senator Symington. We did not know. Senator McCarthy. I think he is saying that we didn't know it was going to be through these three stages when we first licensed them in Canada. Senator Symington. Just bear with me. Mr. Kuss. We expressed no objection to a sale to Iran, not Pakistan. Senator Symington. We licensed the sale to Iran. Senator McCarthy. You approved that one, not the next one? Senator Symington. When did we discover Iran had moved them into Pakistan by sale, barter or gift? Mr. Kuss. I don't have a date here. I will be glad to supply it for you. Senator Symington. Roughly how many weeks or months was it--was it some months after they went into Pakistan that we found out that they had gone to Pakistan? Mr. Kuss. It was some months, and after consultation with Germany and Canada, both countries protested. Iran stated that the aircraft were in Pakistan only for repair. Action was taken to try to influence the return of the aircraft to Iran. The Federal Republic of Germany held up further sales which they had pending at that time to Iran as a result. At the moment on this transaction we have two points of information which I believe that you have seen, sir. The Washington Daily News had indicated that the aircraft had been returned as a result of strong U.S. pressures. This return of the aircraft is generally confirmed by DIA but we are still waiting for specific confirmation. * * * * * * * BRITISH SALE OF AIRCRAFT [P. 10] Mr. Kuss. The Lightning is a British air defense aircraft and solely usable for that purpose and no other purpose. Senator Symington. Right. And that plane went from Britain---- Mr. Kuss. To Saudi Arabia. * * * * * * * SALE OF F-86 AIRCRAFT BY WEST GERMANY TO IRAN [P. 11] Mr. Bader. Is this also the case, as I have heard reported, of some 200 to 400 M-47 tanks that have gone through Merex to Pakistan via Iran. Mr. Kuss. There have been no M-47 tanks that have gone from Iran to Pakistan, to my knowledge. Mr. Bader. Fine. The West German Government has---- Mr. Kuss. As a matter of fact we have had that under discussion with the West German Government, and we both have held up any sale to Iran for the very purpose that we thought they might---- Mr. Bader. They might go there. Mr. Kuss. That they might go there. Mr. Bader. Thank you. F-4 SALE TO IRAN I would like to go to the F-4 sale, Mr. Chairman, with your permission. Senator Symington. Very well. Mr. Bader. Mr. Kuss, as I understand it, there are two basic agreements between the United States Government and the Iran Government with regard to military assistance, that is agreements to talk about what you call in the Defense Department hardware. First is the September 1962 memorandum of understanding, and the second is the July 1964 memorandum of understanding, is that correct? Mr. Kuss. That is correct. Mr. Bader. Now, in the memorandum of understanding of 1962, we--in the major grant items there were 52 F-5's, is that correct? Mr. Kuss. Yes, that is correct. Mr. Bader. That is roughly correct. Now, would you explain to the subcommittee the terms of this July 1964 memorandum of understanding? As I understand it--and I must say I am quite confused about it--it has been amended in August of 1966, is that correct, to allow for the F- 4 sale? Am I correct in the information that the July 1964 memorandum of understanding, as amended in August of 1966, permits the sale to Iran of roughly $400 million of military equipment, including the supplemental $200 million that covers the F-4 sale? Mr. Kuss. That is right. Mr. Bader. That is right. Mr. Kuss. May I say, there is one basic sales agreement and that is the 1964 agreement. In that agreement we acquired promises from the government of Iran that they would not proceed at any independent pace on the purchase of this military equipment, but that it would be subject to an annual review of the economic availabilities of foreign exchange to their development program as well as for other purposes. And we did not wish to destroy that arrangement that we had achieved from them in 1964. Thus, when we came to the conclusion that it would be necessary to add $200 million of credit to the 1964 agreement, we thought it best to add it to an agreement under which we had far more links, controls, reviews, analyses, if you will, agreed to by the Government of Iran than if we were to establish an entirely new agreement. Mr. Bader. When did the Shah of Iran first approach the United States about his requirement for an aircraft with the capability beyond that of the F-5? Mr. Kuss. From my personal knowledge, he was talking about aircraft well beyond the F-5 before the 1964 agreement was established. Mr. Bader. With direct reference to the F-4's, was this in the beginning of 1966? Mr. Kuss. F-4s, and other aircraft, well beyond the F-5. Senator Symington. Let me ask what counsel is interested in, and what we are interested in: Was there mention in any of these agreements of the F-4, the ones that they eventually got? Mr. Kuss. No, sir. Senator Symington. When was the decision made to ship F- 4's? When was the decision made and why was it made? Mr. Kuss. May I review that---- Senator Symington. Yes. Mr. Kuss--For the record? As we have pointed out on numerous occasions, there is a tremendous amount of machinery in existence. Senator Symington. We understand that. Mr. Kuss. In the executive branch. One part of this machinery was the military machinery, the joint staff machinery, that we sent to Iran to review with the Iranian armed forces what they stated as their requirements. Mr. Bader. This is the so-called Peterson mission. Mr. Kuss. This is the so-called Peterson report. Mr. Bader. When was that issued? Mr. Kuss. The Peterson report was issued in approximately early '65. Mr. Bader. The Peterson report was the basis of the military justification for F-4's. Mr. Kuss. Excuse me, early '66. Mr. Bader. That was the basis for the military justification. Mr. Kuss. March 1966. Mr. Bader. March 1966. Mr. Kuss. March 1966, and in the Peterson report they recommended that it would be necessary for F-4D aircraft, D aircraft, be provided to combat the Mig 21's that were available in the southern regions that the Shah was--to meet the threat that was established. Mr. Bader. And this was in March of 1966. Mr. Kuss. This was in March of 1966, right. Mr. Bader. Did the Peterson report recommend two squadrons of F-4s which we have now sold to Iran? Mr. Kuss. I do not recall; I would have to check. Mr. Bader. According to the Peterson report, as I read it, they recommended six squadrons of F-5 aircraft and one squadron of F-4C aircraft during the fiscal year '67-'71 time frame. Mr. Kuss. You have got to read the Peterson report in two ways. First of all, we were anxious to keep things as restricted as possible. The Peterson report not only gave a report on what was within, shall we say, a constricted level, but it also indicated that many hundreds of millions of dollars more worth of equipment could have been justified if one were dealing with the kind of threat that the Shah was talking about in Iraq, Syria, and the U.A.R. Mr. Bader. When was the decision made to go from one squadron of F-4's, which the Peterson report recommended, to two squadrons of F-4's which was the final agreement? Mr. Kuss. This decision was communicated to the Shah on the 10th of August. Mr. Bader. On the 10th of August. Mr. Kuss. The decision was made, of course, within our own executive branch shortly before that at the highest levels of government. Mr. Bader. Will we also deliver to Iran the original---- Senator Symington. Excuse me just a second. You say the highest levels of government. By that, do you mean the President? Mr. Bader. Yes, sir. I do. Senator Symington. Is it true that Secretary McNamara opposed this sale? Mr. Kuss. Proposed? Senator Symington. Opposed it. Mr. Kuss. Opposed the sale? Senator Symington. Yes. Mr. Kuss. No, not to my knowledge, sir. Senator Symington. Not to your knowledge. Thank you. Mr. Bader. Will we also deliver to Iran the 13 squadrons of F-5's that were called for under the 1964 agreement? Mr. Kuss. I would have to check that. May I put that in the record? There is a substitution of F- 4 squadrons for F-5 squadrons, and I just want to be sure about the numbers, and I would like to insert them. F-5 AIRCRAFT PROVIDED BY THE UNITED STATES TO IRAN Mr. Bader. It was the decision of the highest levels, that is the President, that this would be F-4D's rather than F-4C's, as well, that would be the latest and most sophisticated---- Mr. Kuss. F-4D's Mr. Bader (continuing). Models coming off the line and later models coming off the line. Senator Symington. Who is the one who knows about these sales? Mr. Kuss. It all depends on which question you ask, sir. Senator Symington. I see. Mr. Kuss. If you want to ask the question about the model of the F-4, I can answer that. Senator Symington. What was the day the decision was made to ship the F-4's? Mr. Kuss. I believe I said it was communicated on the 10th of August. Senator Symington. Fine. CONGRESSIONAL CONSULTATION ABOUT SALE TO IRAN Now, when was the Congress notified that F-4's were going to be shipped to Iran? Mr. Kuss. I do not believe the Congress was notified, Senator, until Mr. McNaughton spoke on the subject. Senator Symington. That was after it was in the press. Mr. Kuss. Correct, sir. Senator Symington. And we talked about governmental machinery. Is it the policy of the Defense Department to tell the press before it tells the Congress about these sales? Mr. Kuss. As a matter of fact, I do not believe we told the press. I believe the British leaked it because of competition. It was not our doing. Senator Symington. So the British leaked it to the American press. Mr. Kuss. Yes, sir. Senator Symington. Do you know who first published it in the United States? Mr. Kuss. No, I do not. Senator Symington. Do you not think that, if we sell the most sophisticated fighter to a foreign country, that information should be supplied to the Congress? Mr. Kuss. I would like to answer that question this way: The F-4D, as we sold it to the Iranian Government, was not the most sophisticated fighter that we were dealing with in terms of sales to other countries. For example, it is not the same airplane we sold to the British. Senator Symington. Well then, let us say the second or the third or the fourth most sophisticated airplane. Mr. Kuss. I would like to answer that question by saying that in addition to considering the problem, there were many security meetings held at which we reviewed the switches, the panels, black boxes of the F-4D, which related to nuclear capability. They were taken out. We reviewed the missile which was related to the F-4D and substituted SIDEWINDER missiles which had been released already. We eliminated the SHRIKE which is used on the F-4D. We eliminated the WALLEYE missile which is used there. We retrofitted some of our F-4D's with CORDS and DCM and eliminated that. So on balance we took a decision that we felt that this would not be a security lapse here or any sensitivity, if things went wrong. Senator Symington. Let me repeat my question, please. Mr. Kuss. All right. Senator Symington. Do you not think, if you make a sale of a sophisticated, modern airplane to a foreign government, the Congress should be informed of that? Mr. Kuss. I think I can best answer that question by saying it is not my function to determine that answer, sir. Senator Symington. Well, then you could say this also, could you not; that you did not inform the Congress? Mr. Kuss. Yes, sir. Senator Symington. And you do not know anybody who did inform the Congress. Mr. Kuss. Yes, sir. Senator Symington. And to the best of your knowledge it would have remained a secret unless a foreign country had not leaked it to the press. * * * * * * * FOREIGN AND MILITARY POSITION CHANGED BY SALES [P. 14] Senator Symington. So you knew that the sale was going to be made before you agreed to sell them the F-4's. Mr. Kuss. Yes, sir, and we protested against it considerably. We made a major point of it in our negotiation, and made sure that the Shah was clear that our willingness to sell sophisticated and sensitive equipment was conditional pending clarification of Iran's position with respect to the purchases from the Soviet bloc. Now, the Shah responded to us on that and noted that he wanted to reaffirm that if it came to Soviet equipment, he would limit it to nonsensitive equipment. He went on further in our discussions with him on the subject to note that he had declined to send Iranians to the U.S.S.R. for training---- Senator Symington. I understand those points. Mr. Kuss. I think these are important. Senator Symington. We have had that information given to us in great detail. Mr. Kuss. I do not think the last group were. He has limited the Soviet technicians, only a few, to go to Iran to instruct Iranians on maintenance. The Soviets wanted the team to remain two years. He gave them six months. And, as a consequence, it was on balance when you consider the tremendous position we have there, the number of technicians we have there, the large predominance of $1.4 billion, I think, that it will add up to, of the military equipment that we have provided, that we still maintained our position in a changing world, a world in which he was growing more independent, and in a world in which he had gas to sell that he could not sell anywhere else. * * * * * * * STEEL MILL SALE BY U.S.S.R. TO IRAN [P. 15] Senator Symington. If they are building a $280 million steel mill and a $400 million pipeline plant, and they are purchasing over $100 million in military equipment, would you not say, inasmuch as all this has happened in recent months, that the position of the Russians from an economic standpoint was rapidly moving at least into an equilibrium with our own in Iran? Mr. Kuss. No, sir, I do not believe so. I have certainly pointed out very clearly on the military side that it is not anything like an equilibrium. It is a man trying to dart in through the armor with a little pin. On the economic side, I can only say that when in 1962 we decided, the Congress, along with the Executive Branch, to eliminate development aid for Iran, it was inevitable that Iran was going to turn to business means in the area to find its way. And that in 1964, the 1964 military agreement was essentially an agreement to phase out military assistance as well, and when you move into a situation where you no longer are giving it away, you find that you have got to find different ways and means of handling your problem, and you no longer have the absolute control that we had when we were in the position of largesse to everybody giving it away. Senator Symington. At any time did we suggest to the Iranians that they purchase what they needed in the way of additional military equipment somewhere else? Mr. Kuss. Absolutely not. We, number one, opposed the Russian program, made a major point of this. Senator Symington. Yes, you answered the question, if it is no, and you explained to us that you did oppose the Russian plan. * * * * * * * EVENTUAL AIRCRAFT SALES TO IRAN AND PAKISTAN [P. 16] Mr. Kuss. We expressed no objection to a Canadian-German arrangement which would get them to Iran for the use of the Iranian armed forces. Senator Symington. Right. How did they get to Pakistan? Mr. Kuss. We found out through intelligence channels that some of the airplanes were in Pakistan. Senator Symington. You are going to let us know how many. Mr. Kuss. And we are going to let you know how many, and we also have found out that upon remonstration on our part, the Canadian part, the German part, the newspapers have reported that they have been returned. DIA has reported they have been generally returned, but they are not sure about the number. Senator Symington. Returned from where to where? Mr. Kuss. From Pakistan to Iran. Senator Symington. To Iran. Did we ask the Iranians for an explanation of how they got from Iran to Pakistan? Mr. Kuss. We dealt, since our arrangements were with the Canadians and the Germans, through the Canadians and the Germans. Senator Symington. Did we ask the Canadians and/or Germans how they explained how the planes got from Iran to Pakistan? Mr. Kuss. Yes, that is where the Germans stopped selling any more equipment to Iran. Senator Symington. What did the Germans say as to how they got from Iran to Pakistan? Mr. Kuss. The Germans indicated that the first Iranian explanation was that they were in Pakistan for overhaul. As you know, Pakistan does a great deal of overhaul for most countries in that area. This was not satisfactory to anyone, and that is why we have been pursuing this further. * * * * * * * RESPONSIBILITY FOR ARMS SALES [P. 17] Senator Fulbright. But who makes the decision to sell arms? Who determines the country's capacity to purchase without endangering their economy? Do you as an official of the Defense Department? Mr. Kuss. It is my responsibility since the management for funds must be put somewhere to see to it that that is managed in a viable way. But we have a government that has many elements to it and in almost every case, and particularly in the Iranian case, the machinery operated from the Teheran Embassy, economic aid people, with the Central Bank people, to the AID people in Washington, and it was as a result of their actions that the program was reduced, the Shah requested, to a much, much smaller program. * * * * * * * RATIONALE BEHIND SALE TO IRAN QUESTIONED [P. 18] Mr. Kuss. Well, as you say, I probably wouldn't agree with you. Senator Fulbright. I don't think you would. Mr. Kuss. But only because it is the machinery, the very machinery that you propose to exercise which came to the conclusion to provide the kind of arms and to eliminate economic aid in 1962, to eliminate military assistance in 1964 on a phased basis, to provide arms on a very stringent basis, and to not supply everything that the Shah wanted. It is this very machinery that you speak of that came to that conclusion. Senator Fulbright. I am sure Iran wants it. I was there with Mr. Douglas Dillon in 1959. I suggested to the Shah that if he spent money on the improvement of the ordinary citizens, he would be more secure than trying to protect himself with arms. But there is nothing I can do about it, and I don't know that it does any good to bedevil you about it. I realize you are an official in the Department of Defense. I only hope you do not go too far in loading everybody down with arms that can't afford it. Mr. Kuss. Let me repeat again, Senator, that as far as the underdeveloped country, arms sales are fairly meaningless to us. They amount to 10 percent of our total program. My office is occupied with doing things with people with whom we used to be giving billions in foreign aid in our alliances. When it comes to the application to these non-developed countries, my responsibility is to see to it that if we do extend credit they have got the money to repay it, that we manage it on an appropriate basis. Senator Fulbright. I am not arguing about their having the money for purchases. I expect you will get it. What they are doing is taking it out of the hides of poor peasants. That is what is creating a politically explosive situation. The Shah will get the money from the Majlis. You don't dispute that? Mr. Kuss. Let me make that clear. The Majlis has, as you pointed out, voted $200 million that he could spend in one year. We didn't agree with that. We didn't agree with that at all. We dealt with the Central Bank, Mr. Sami, whom you probably know is a very capable man there. Next we dealt with our economic mission in Teheran; next with the AID group. What we dealt with was a situation which compared what each tranche of military equipment would involve in the way of debt pre-payment against any balance of foreign exchange that was left over after all of the feasible projects could be administered for the economic development program. We dealt with that as a given factor by our AID people who did not take the Shah's estimates of all revenues, reduced them and who did not take all of the Shah's estimates on what his economic programs were feasible, and the programs that we are dealing with here, all through it have a ceiling something like this, and this curve here is the debt pre-payment capability which our economic advisers told us was possible after covering the other programs. Senator Symington. If the chairman will yield. Senator Fulbright. I will. Senator Symington. It would seem clear from your testimony that you felt the Shah had a right because of danger to his country to make arrangements to obtain these airplanes. Is that correct? Mr. Kuss. Yes, sir. Senator Symington. All right. Now, in the Peterson report-- -- Senator Fulbright. Danger from whom? Senator Symington. I was going to get to that. In the Peterson report it says, and I quote: ``The combined forces of these latter three countries represent a overwhelming military capability vis-a-vis Iran. But for the foreseeable future the possibility of their making such a combined assault on Iranian forces seems quite remote. A unilateral attack of Iran by UAR forces is unlikely. But if it should come, it would be limited to naval action unless the Israeli issue were first resolved or unless the UAR achieved hegemony over the minor states of the area, a circumstance not readily foreseen.'' Now, as I understand it, therefore, you believe that the threat comes from Syria, the UAR, and Iraq primarily, is that correct? The Pentagon feels that way? Mr. Kuss. That is a result of the Peterson report, yes. Senator Symington. All right. How many Mig 21's has Iraq got roughly? I think this is very important. Mr. Kuss. They have 18 on hand, and I believe another 18 coming. Senator Symington. That is 36. How many has Syria got? Mr. Kuss. Actual order of battle on hand, 18 for Iraq, Syria 26, 102 for UAR. Senator Symington. Wait a minute, you are ahead of me. How many has Iraq got? Mr. Kuss. Eighteen. Senator Symington. And how many do you say they are going to have? Mr. Kuss. My records indicate they will have 18 more. Senator Symington. That is 36. Mr. Kuss. Yes, sir. Senator Symington. How many has Syria got? Mr. Kuss. The order of battle indicates 26 here. Senator Symington. Twenty-six. That is a total of 62, correct? Mr. Kuss. Right. Senator Symington. Now how many did you say Egypt has? Mr. Kuss. 102. Those are just Mig-21's. Senator Symington. But the SU-7 is an improved Mig-21, is it not? Mr. Kuss. Yes, sir. That is 38 additional SU-7's in the UAR. Senator Symington. Well, I mean do you not want to include the best they have got? The figure I got in Cairo last month was 60 SU-7's. But you have got 38; you have 102 and 38. Mr. Kuss. Yes, sir. I would like to check. Senator Symington. That is 140 and 62. That is over 200 of the latest model fighters that those three countries have. Why do you not sell more F-4's to Iran if you want to put them in a balance of power position against these three countries? In other words, what do you really do for the Shah by giving him one or two squadrons of F-4's if your premise is correct that these three countries are enemies and they have over a hundred of the most modern Russian fighters. I am following Senator Fulbright's thinking on this. OUR MILITARY POSITION IN IRAN You have been to Iran and so have I. It is a country where there are very rich people and very poor people. What good does it do to let them take their resources, and buy these airplanes from us, if they get them at all, as against what they could do with that money for the betterment of their economy because the number of planes that you have agreed on does not make them safe against these countries. Incidentally, all these latter countries are really satellites of the Soviet Union, are they not? Mr. Kuss. They certainly are. Senator Symington. Therefore, if the Soviet Union wanted to move against Iran, the military imbalance is still stronger, is it not? Mr. Kuss. It certainly is. May I answer the question? Senator Symington. I am just asking a few as we go along. As I understand it, we are selling military equipment to them, sophisticated military equipment; and the Soviet Union is selling them unsophisticated military equipment, plus a tremendous steel mill, for which they are going to be paid in natural gas, and in oil. Is that correct? Mr. Kuss. That is correct. Senator Symington. Would you say that in our effort to preserve a military position which is at best theoretical, we are passing over the economic control of the country to the Soviet Union? Mr. Kuss. I do not see it that way. With a few projects, I do not see it at all. I would believe that the relationship of our western influence in both the economic area and the military area is probably about on the order of the $1.4 billion military to $100 million Soviet. SOVIET INFLUENCE IN IRAN Senator Symington. But we are putting the Soviet Union in about equilibrium when it comes to economic control. Mr. Kuss. I do not believe so. Senator Symington. You do not think so? Mr. Kuss. No, sir. Senator Symington. You think we still control the economy of Iran? Mr. Kuss. First of all, I do not believe that the word ``control'' is one that the Soviets use. Senator Symington. What do you think the word should be? Mr. Kuss. I believe that the good influence, if you will, that we have in Iran is sufficiently great, in a preponderance, in a majority, to warrant the course of action that we took, and that was the on balance decision of both our economists, our political people, and our military people. Senator Symington. You told the subcommittee this afternoon that we did our best to prevent the sale of the Russian military equipment to Iran, but we were unsuccessful. Is that correct? Mr. Kuss. Yes, sir. Senator Symington. And at the same time you also told the committee that the Iranians are working out with the Russians a big steel mill, and that they are going to have, with the help of the British and the Russians, a $400 million gas pipeline with which they are going to pay for this military equipment, along with gas. Is that correct? Mr. Kuss. That is right. Senator Symington. So there is a major recent economic influx of the Soviet Union into Iran, and also a major and unprecedented movement of military equipment into Iran from the Soviet Union, correct? Mr. Kuss. Not in proportion to our influence. Senator Symington. But there is a major influx. Mr. Kuss. Yes, sir; there has been a change. Senator Symington. And all told, the operations of the Soviets, economic and military together, for say the last 18 months, is greater than our own; so in effect we are moving more out of the picture with our grant-in-aid and our military sales, and our economic sales; and the Soviets are moving more into the picture. Mr. Kuss. We are---- Senator Symington. Is that correct? Mr. Kuss. No, sir. We are hardly moving out of the picture militarily. We have found other monies have been given away to substitute for the military side of the equation. * * * * * * * ARMS SALES TO WEST GERMANY [P. 21] Senator Fulbright. You said the decision to sell in Teheran was made at the highest level after considering all aspects. I assume you mean the relative need of their domestic economy, and you finally came up with a decision that they needed these arms, is that correct? Mr. Kuss. As well as the politics of whether we can stand the Russian situation. Senator Fulbright. Politics. * * * * * * * [P. 22] Mr. Kuss. All of these have to be considered. It has to be required, must be more economically purchaseable in the United States. Then they will endeavor to do it. Now, the problem today is not in meeting the basic part of that agreement. The problem today is essentially the basic internal German economic problem, a budget that cannot be changed materially because of a revenue system that is dependent upon revenues from the States, a requirement for a complete tax reform system. Today the German armed forces have one-half the procurement budget in 1967 that they had in 1963. So you can imagine just that kind of a change. Why? Because they have not been able to go along with the increases that would have been necessary to keep up their total establishment because of the revenue limitations in the total federal program. Now, this is something we cannot control It is something that they must control, and I want to make clear that our agreement with them is that yes, they will balance, they will endeavor to procure equipment, if it is required, and if it is economical to do so, and for five years they have done so. * * * * * * * [Whereupon, at 4:20 p.m., the subcommittee was recessed, to reconvene subject to the call of the chair.]