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which have their own logistics systems, and
directly by the AID Mission. Each of these
systems is described in the sections that fol-
low. The current estimated percentage of loss
is noted for each. As graphically illustrated
in chart 1 ^ in the appendix to this report,
all project commodities account for only 15
percent of the total expenditures on commod-
ities, and each of these individual systems
represents only a portion of the total project
commodity program. Therefore, while the
loss rate in some areas is relatively high, it
is applied to only a small portion of the total

(a) Public Safety. The national police
logistics system is well conceived and run. It
is monitored closely at all levels by 10 AID
public safety logistics advisers, an increase
of 2 since May 1966. These logistics advisers
have their office with their Vietnamese coun-
terparts in the national police logistics sys-
tem headquarters, where they are able to
monitor all supply movements. AID public
safety field advisers working with the na-
tional police in their assigned areas actually
check on the location of weapons by serial
number. Movement between Saigon and the
field is normally handled by air using the
facilities of Air America, an airline under
contract to AID.

These controls restrict loss or illegal diver-
sion to an amount now estimated at less than
1 percent by AID advisers.

(b) Public Health. The public health logis-
tics system was established under American
military procedures and is closely supervised
by 14 AID logistical advisers to the Ministry
of Health, an increase of 8 since May 1966.
These advisers maintain control over the
records system of the Health Ministry's cen-
tral warehouse at Phu Tho near Saigon and
supervise the inspection of project medical
supplies from the time of their delivery by
the 4th Terminal Command until they are
shipped to the provincial hospitals. Com-
modities are normally transported to prov-

' Not printed here.

ince hospitals and health services by Air
America or by a military airlift. Controls
are good in most hospitals, but petty theft

Some project medical supplies are sent to
district and local health clinics which are
under the direction of the Vietnamese prov-
ince chief of medicine. Members of U.S. and
free-world medical teams as well as AID
public health logistical advisers stationed in
the area are able to perform only occasional
spot checks on such supplies.

AID advisers estimate that about 10-15
percent of public health project commodities
are lost. By far the greater part of this loss
occurs among the medical supplies which are
distributed from the provincial level to dis-
trict and local health clinics. Further im-
provements in supply handling are expected
to result from a program of regional ware-
houses scheduled for construction in 1967.

(c) Public Works. The Ministry of Public
Works logistics system is reasonably efficient.
Moreover, 90 percent of the dollar value of
AID public works project assistance comes
in the form of bulky heavy equipment and
vehicles which AID logisticians are able to
monitor by serial number. Very little theft of
this equipment is reported. Losses of goods
such as construction materials and spare
parts, which comprise the remaining 10 per-
cent of dollar value, are relatively high be-
cause they are transported in small con-
tainers to the provinces by truck, coastal
vessel or other relatively insecure means and
pass through many hands.

The AID Mission is adding two public
works warehouse advisers to its staff and is
working with the Ministry of Public Works
to improve and modernize its procedures.

The Mission estimates that well under 5
percent of all public works project commod-
ities are lost.

(d) The Central Purchasing Agency. The
Vietnamese Government's Central Purchas-
ing Agency (CPA) logistics system services
the programs of the Commissariat for Refu-
gees and the Commissariat General for Revo-
lutionary Development. The latter agency is
responsible for supporting the village-level

FEBRUARY 6, 1967


self-help, hamlet schools, dispensary and
other construction programs, as well as a
variety of security and development projects.
Commodities required in these programs in-
clude cement and other building materials,
clothing, blankets, and food products such as
bulgar wheat, cooking oil, and dehydrated
milk imported under the Food for Peace
program (Public Law 480, Titles II and III).

AID logistical advisers to the CPA system
report that the warehouse operation is rea-
sonably well conceived and administered; the
major area of loss is in the transportation
and field distribution systems. Goods brought
to the central CPA warehouse in Saigon by
the 4th Terminal Command are called for-
ward to replenish each provincial ware-
house's stocks as the quantities on hand fall
below certain predetermined stocking levels.
The provincial warehouses are under direct
control of the Vietnamese province chiefs, but
requisitions against the Saigon warehouse
must be authorized by the U.S. provincial
representative as well as the province chief.

The requisition form sent to Saigon from
the provinces designates a specific local use
for the goods ordered and becomes the basic
control document for the shipment. The des-
ignated recipient and the hauler inspect the
goods on arrival, note any discrepancies on
the requisition form, and return the form to
CPA in Saigon.

Goods are issued out of the provincial
warehouse by the province chief. However,
should the U.S. provincial representative fail
to concur in an issuance order he is re-
quired to report the disagreement directly
to the Commissioner General for Revolu-
tionary Development, who then requires the
province chief to explain his decision.

While some of the CPA goods are trans-
ported from Saigon to the provinces by Air
America or U.S. military aircraft, most are
moved by truck or coastal vessel and there-
fore are more susceptible to Viet Cong
seizure or other diversion. As a result, the
AID Mission estimates a total loss rate of up
to 20 percent of CPA project commodities.
Welfare and relief supplies provided to the

needy under AID or Food for Peace pro-
grams are sometimes exchanged for rice or
other traditional foods they prefer. Such
transactions are technically diversions and
are included in these estimates even though
the needy person has received assistance — the
basic intention of the welfare program. The
following innovations are now being or will
shortly be instituted which are expected to
reduce these losses of CPA commodities sub-

— A standard warehouse inventory and ac-
counting procedure has been established for
all province warehouses. Training sessions
have been held to instruct all Vietnamese
warehouse supervisors in the new system,
and English translation overlays have been
prepared for all warehouse records to enable
U.S. personnel in the field to review them as

— In recent months 17 new logistics ad-
visers have been added to the 26 directly
concerned with the movement and storage of
CPA goods; 14 more are scheduled to arrive
in the near future.

— Additional U.S. personnel will shortly be
assigned to each provincial warehouse. They
are to provide Vietnamese warehouse oper-
ators with on-the-job training in the new
systems being installed and observe opera-

— CPA regional warehouses, under the
control of an AID logistics adviser and a
CPA official, have been set up in Regions I
and II, the northern and central regions, and
will shortly be established in the country's
delta region. Resultant consolidation of ship-
ments from Saigon will, in turn, improve
security and control. Convoys will be used
wherever possible.

(e) Agriculture. The greater part of proj-
ect imports for the Ministry of Agriculture
consists of fertilizer which is sold to farmers
at lower than market price. It is consigned to
the National Agriculture Credit Organiza-
tion (NACO) for distribution through 39
warehouses maintained by agricultural co-
operatives or farmers' associations through-
out the country. NACO deducts its operating



costs and sales agents' fees from the gross
proceeds of fertilizer sales, and deposits the
net in a special trust fund for agricultural
projects which is jointly administered by the
Vietnamese and United States Governments.

There are no U.S. logistics advisers in-
volved in this system now, but three will be
assigned within the next few months. The
only data now available on the effectiveness
of the NACO distribution system comes from
its own accounting records. These records for
the period March 1-October 31, 1966, in-
dicate that cash has been received for almost
70 percent of the total fertilizer available
for sale, about 25 percent of the fertilizer
was in warehouses or in transit, and the
remainder was used in demonstration proj-
ects or lost. These records have not yet been
audited by U.S. advisers and are therefore
not conclusive. Unlike all other project im-
ports, fertilizers are not received at the Port
of Saigon by the 4th Terminal Command, but
are handled exclusively by NACO.

The Mission has surveyed its agricultural
advisers and provincial representatives who
estimate that losses or illegal sales of agri-
cultural project commodities range from 5
to 20 percent. Most diverted fertilizer, com-
prising the bulk of these estimated agricul-
tural commodity losses, is illegally sold, at
prices above the approved government rate,
to South Vietnamese farmers who use it to
increase crop production. The three AID
logistics advisers soon to be assigned will play
a major role in determining the actual situa-
tion and recommending improvements.

(f) Other Fields. Of the remaining proj-
ect commodities brought into the country,
heavy materials handling equipment for port
operations and portable warehouses repre-
sent the largest single group. These items are
not easily lost or stolen; materially no losses
have been reported.

Technical support commodities brought in-
to Vietnam to support AID employees in
their assignments are consigned to the AID
Mission and are handled directly by Ameri-
cans. Less than 5 percent of the goods are

The remaining project commodities (for
education, public administration, labor, and
other miscellaneous programs) are handled
in much the same manner as the refugee
and revolutionary development items in the
CPA system and are subject to about the
same rates of loss and diversion. Two logis-
tics and warehouse advisers are scheduled
to arrive in early 1967 to work with the
Ministry of Education, and one is expected
to be assigned to supply problems in the
public administration area.

C. The Overall Project Commodity Situa-

After resurvey and reanalysis, the U.S.
AID Mission estimates that the total loss rate
for all types of project commodities in recent
months was 10 to 15 percent. This estimate
will be further refined as reporting and con-
trol procedures improve.

Within the past few months, the AID Mis-
sion has assigned controllers to each of the
four regions of South Vietnam. They are re-
sponsible for maintaining financial account-
ing records on project activities carried out
in the field. In addition, auditors are being
assigned for the first time to make systematic
end-use checks in the provinces on project
commodities. This effort will be expanded in
the next few months to cover an increasingly
large part of the project program. Cargo air-
lift capacity of Air America has increased
from 1,300 metric tons per month in January
1966 to a current level of 3,500 metric tons.
This is supplemented by U.S. military air-
lifts. 121 new and more secure warehouses
have been constructed throughout the country
during the past year.

A task force formed by the Director of the
AID Mission in Saigon in November 1966 is
currently studying all of the Vietnamese
project commodity logistics systems in depth.
A preliminary report submitted to the Direc-
tor on December 1st is now under study. The
report made several recommendations, some
of which have been mentioned above. Others
include the development of a single Vietnam-
ese national logistics system and the consoli-

FEBRUAKY 6, 1967


dation of trucking and coastal vessel
contracts and improved communications
networks for notifying a province official in
advance of the arrival of shipments of com-

IV. Economic Warfare and General Inspection

Economic warfare, simply stated, means
denying the enemy access to goods which he
needs to sustain his war effort. However,
since the enemy in Vietnam is not limited to
definable territories behind a fixed front and
is not readily distinguishable from other
Vietnamese, the struggle to deny him sup-
plies is as complicated and difficult as the
struggle to eliminate the guerrillas them-
selves. The Viet Cong have so infiltrated the
country that it is not possible to deny com-
pletely their access to AID-financed goods
except by stopping the supply of these goods
to the economy. But we can selectively limit
their access to strategic supplies. Our tech-
niques of selective denial include: (A) detect-
ing and halting the activities of importers
and merchants who act as procurement chan-
nels for the enemy; (B) applying strict con-
trols to selected strategic commodities; (C)
interdicting VC supply lines and restricting
the movement of commodities in selected
areas where VC control predominates.

A. Monitoring the Import Community

Both the U.S. AID Mission and the Viet-
namese Ministry of Commerce have devel-
oped procedures to attempt to identify and
suspend importers engaged in illicit trans-
actions. In serious cases the Ministry may
also try a person so charged for a criminal
offense. U.S. personnel reviewing license ap-
plications, studying market conditions and
selectively auditing the records of wholesalers
and retailers include 8 commodity analysts,
all newly arrived since the spring of 1966;
34 auditors, an increase of 17 since early
1966; and 14 other specialists, an increase of
11 since March 1966.

In Washington, the Office of the Special
Assistant for Commodity Analysis, which
backstops the Office of Special Projects in

Vietnam, is now staffed with five experienced
specialists who review CIP transactions on
a selective basis in an attempt to identify ir-
regular importer-supplier relationships and
suspicious trade patterns.

A separate office, which is to be staffed
with commodity analysts and international
trade advisers, is presently being established
in AID/Washington. These technicians will
backstop the Commercial Import Division in
Saigon. They will be supplier-oriented, so
as not to duplicate the work of technicians
in Saigon who are importer-oriented. Com-
modity analysts in Washington will assure
that quality standards are maintained, will
engage in special intensive studies relative
to type and quantity of commodity imports
in Vietnam, and will supplement the prior re-
view activities of the AID Controller in

The AID Controller now concentrates much
of the efforts of his office on the Vietnam
program. The Controller conducts an inten-
sive review of CIP documents after the trans-
action has been completed; this review re-
mains one of aid's most effective tools for
assuring that unauthorized use of AID funds
is kept to a minimum. Detailed post audits
sometimes lead to criminal or civil proceed-
ings against suppliers who have violated re-
quirements contrary to the certifications of
compliance which are prerequisites to pay-
ment by AID. Post audits also lead to refund
claims against the GVN, which can in turn
lead to criminal action against importers in

The Agency's independent investigative
arm, i.e., the Management Inspection Staff
(MIS), has increased its onboard strength
in Saigon from two to six during the calen-
dar year. This staff is supplemented from
time to time by additional, Washington-
based inspectors. These inspectors have all
had extensive experience in the FBI, other
Government investigative agencies or in the
fields of law or accounting. Their major re-
sponsibility in Vietnam is to receive, analyze
and investigate all allegations of criminal



fraud or other irregularities involving AID
financing-. They maintain close liaison with
the Office of Special Projects, the Office of
the Controller and the U.S. AID contractor,
Societe de Surveillance (Geneve) S.A., men-
tioned above. The MIS staff in Saigon also
maintains a continuing relationship with the
business community, including American,
throughout the Far East. These contacts
greatly assist in insuring that all available
infonnation regarding irregularities in the
AID program are properly received and
acted upon.

Those cases which reveal prima facie evi-
dence of criminality are referred to the U.S.
Department of Justice or foreign courts for
appropriate civil or criminal action. As a
result of information developed by these in-
vestigations, consideration is also given by
AID to such actions as suspension, debar-
ment or prosecution by local Government
agencies of importers involved in irregulari-

In addition to the U.S. AID Mission and
GVN procedures for suspending importers,
AID/Washington has procedures for tempo-
rarily suspending suppliers pending further
investigation which may lead to formal hear-
ings and possible debarment or criminal ac-
tion. These procedures for suspending and
for debarring commodity suppliers preclude
such suppliers from participating in AID-
financed transactions. Several suppliers have
been suspended and are no longer eligible to
participate in commodity transactions fi-
nanced by AID. There is, in addition, a
"prior review" system in which a supplier is
notified that his transactions are subject to
prior review by AID/Washington before
they are eligible for AID financing.

B. Controlling Strategic Commodities

The Economic Warfare Committee of the
U.S. Mission in Saigon has developed a list
of goods critical to the enemy's war effort.
Particular efforts are made to monitor im-
port license applications and the movement
of these commodities through the com-
mercial community.

C. Cutting Enemy Su^pply Lines

The principal force interdicting enemy
supply lines is the U.S. military. As free-
world forces strike deeper into VC strong-
holds, bombing, shelling and overrunning VC
staging areas and main supply depots, the
volume of enemy goods captured and de-
stroyed continues to mount.

The resources control program of the na-
tional police is the most effective civilian
effort to frustrate the Viet Cong procurement
system. About 7,000 policemen at ahnost 700
checkpoints on land and water monitor the
flow of goods in and between cities. They
seize contraband items and shipments lack-
ing proper documentation, but without clog-
ging the vital lines of communication. Prog-
ress during the last year can be measured
by a 20 percent increase in the number of
arrests made and an 80 percent increase in
confiscations. The national police have added
about 1,000 men to this activity during 1966
and plan to double the number in 1967.

A new river police force, now 400 strong,
was created in 1966. Using 12 36-foot boats
and 255 16-foot assault craft supplied
through AID, they patrol the major water-
ways of South Vietnam, particularly in the
Mekong Delta. Planned increase in strength
to 2,000 men and the delivery of 70 more
40-foot boats and 707 16-foot craft will make
the river police a much more effective force
in economic warfare during 1967. Members
of the Vietnamese national police also have
been detailed to U.S. Navy patrol boats op-
erating in three major rivers in order to
augment the strength of the river police dur-
ing its organizational period. Since water
traffic is a major means of transportation
in South Vietnam's delta area, control of the
waterways by an effective inspection and en-
forcement organization will be especially im-
portant in safeguarding and marketing rice
grown in that area.

In addition to the measures outlined above,
Vietnamese Navy and customs officers main-
tain surveillance of the country's land and
sea boundaries in an attempt to control the

FEBRUARY 6, 1967


illegal flow of goods to the enemy from out-
side sources. They are assisted in this effort
by the U.S. Navy and free-world forces.

V. Conclusion

The vast majority of U.S. aid commodities
provided to bolster South Vietnam's economy
and improve its social structure are being
put to their intended use. Losses which have
occurred must be viewed in the perspective
of a wartime situation. Civilian and military
supply losses were heavy during wartime op-
erations in Korea and in Europe. To a much
greater degree than in these earlier, con-
ventional wars, we are attempting to meet
civil needs throughout Vietnam in a war
which infects every province. Even so, sub-
stantial losses cannot be tolerated. The U.S.
AID Mission and the U.S. military command
are working with the Government of Viet-
nam on a very intensive program to cut these
losses to an absolute minimum. We expect to
be able to report further significant progress
in this effort during 1967.

U.S. and U.S.S.R. Hold Talks
on Fishery Problems

Press release 6 dated January 16

Representatives of the United States and
the Soviet Union began discussions on Jan-
uary 16 on various fishery problems between
the two countries. These include the question
of future arrangements for Soviet fishing
for king crab on the U.S. continental shelf
in the eastern Bering Sea, which has been
governed for the past 2 years by an agree-
ment between the two countries.

Also to be discussed are various matters
related to Soviet fishing off the Pacific and
Atlantic coasts of the United States. These
will include consideration of the economic
interests of both countries in the fisheries,
the conservation of fishery resources, and
problems arising out of fishing operations
by vessels of the two countries in close prox-

The United States delegation is led by
Ambassador Donald L. McKeman, Special
Assistant for Fisheries and Wildlife to the
Secretary of State. M. N. Sukhoruchenko,
Deputy Minister of Fisheries of the U.S.S.R.,
heads the Soviet delegation.

Letters of Credence


The newly appointed Ambassador of the
Republic of Viet-Nam, Bui Diem, presented
his credentials to President Johnson on Jan-
uary 19. For texts of the Ambassador's re-
marks and the President's reply, see Depart-
ment of State press release dated January

President Modifies Escape-Clause
Duty Rates on Sheet Glass

The White House announced on January
11 that President Johnson had that day
issued a proclamation modifying the escape-
clause action on sheet glass which has been
in effect since 1962.i

As a result of the President's action,
escape-clause increases in duties on specified
types of sheet glass, principally window
glass, will be rolled back part of the way to
the pre-1962 trade agreement levels and on
the remaining types will be rolled back
fully to those trade agreement levels. Im-
ports in 1965 of items on which there will
be full removal of the escape-clause duty
increases were $14 million out of total
sheet glass imports of $26 million.

The President's decision for this action
was taken following the receipt of a report
by the Tariff Commission on the probable
effect on the industry of terminating or
modifjdng the escape-clause rates and rec-

' Proclamation 3762 ; for text, see 32 Fed. Reg.



ommendations of the late Christian A.
Herter, the President's Special Representa-
tive for Trade Negotiations. The recommen-
dations were formulated after studies
carried out by interested Government agen-

The tariffs on sheet glass were increased
as of June 17, 1962, by the President under
section 7 of the Trade Agreements Extension
Act of 1951, as amended, and following
findings initially made by the Tariff Com-
mission under the "peril point" procedures
that applied to U.S. Government prepara-
tions for trade negotiations which opened
at Geneva in 1960. The increases were
deemed necessary to prevent serious injury
to the domestic industry from increased
imports due to tariff concessions.

Online LibraryUnited States. Dept. of State. Office of Public CoDepartment of State bulletin (Volume v. 56, Jan- Mar 1967) → online text (page 41 of 90)