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Report of the Administration
of the British - United States
Zone of the Free Territory of Trieste

1 October to 31 December 1949

by
Major General T. S. Airey CB. CBE.
Commander British - United States Zone
Free Territory of Trieste

Report Number 9

General Review

This report of my administration of the British - United States Zone of the Free Territory of Trieste deals with the period from 1st October to 31st December 1949 and is the ninth submitted to the Security Council [of the United Nations] since entry into force of the Treaty of Peace with Italy in September 1947. The developing economy of the zone has now reached a point where it will be more convenient to study administrative statistics at intervals longer than six months My next report will therefore deal with a more protracted period and in the present one I have reviewed substantial progress made during 1949.

Notwithstanding bitter and unscrupulous communist opposition, solid results in the field of economic recovery became apparent during 1949 through increased industrial, commercial and port activity, following the inclusion of Trieste in the European Recovery Programme in 1948. The construction of 70,000 tone of shipping in the Zone's shipyards is now well advanced, iron and steel production is increasing and mineral oil refining has reached an encouraging level and is extending its markets. Much has been done, and is being done, towards the modernisation of plant in the heavy industries. Smaller industries are also deriving benefit from the programme although its full effect will not be felt until later in 1950 when substantial sub-contracts should become available.

In 1949 imports and exports by sea through the whole of the zone, including that part of the Trieste waterfront which is outside the free port area, reached the record total of 3,482,490 tons, exceeding the 1948 figure by 718,214 tone and the previous record, reached in 1913, by 32,761 tons.

Transit traffic through the free port, through which passes the greater part of the zone's hinterland trade, increased, in the case of Austria from 1,201,021 tons in 1948 to 1,719,916 tons in 1949; in the case of Yugoslavia from 73,555 tones in 1948 to 79,340 tons in 1949; in the case of Czechoslovakia from 183,958 tons in 1948 to 212,361 tone is 1949; and in the case of Hungary from 14,524 tons in 1948 to 66,561 tones in 1949. Traffic with these countries, which promised well at the beginning of 1949, declined sharply during the year but showed an upward tendency in November and December. The main obstacle to its development lies in currency and exchange difficulties arising from the payment of port charges. I believe that the recovery of commerce with the Danubian hinterland is a most vital need of Trieste's economy and the military government is devoting the closest attention to it and is also seeking to extend it into Southern Germany.

Nearly 90 % of imports under the European Recovery Programme during the last quarter of 1949 consisted of industrial commodities as a result of reduced dependency of the zone upon sources in the dollar area for its food supplies. Whereas in the past a large variety and quantity of foodstuffs have had to be imported under E.R.P., improved conditions have now made them procurable from non-dollar sources in Europe and I anticipate in the future bread grains will be the only foodstuff which it will be necessary to import under the recovery programme.

The recovery of Trieste's fishing industry has received special attention and during 1949 a number of new fishing vessels were completed. although more fish is being consumed in the zone, the quantity of fish exported from it is now five times greater than in 1938.

For the year beginning on 1st July 1949 the zone was allotted $ 13.4 million of Marshal Aid as compared with $ 17.9 million in the previous year, a reduction which reflects increased dollar earnings resulting from commercial and industrial improvements as well as the continued spending of Allied personnel and a decreased dollar expenditure on food.

A material advance has been made toward the achievement of a balanced budget as a result of increased commercial activity, gradual rationalisation of administration and increased revenue due to improvements in the system of tax assessment and collection. An annual deficit rate in lire on 30th June 1948 of 21.4 billion has been reduced to one of 9.5 billion for the budgeting period ending on 31st December 1949, though the final figure is likely to be smaller.

Public works have included the construction of new housing, schools, clinics, hospitals, utility services and port development. During 1949 Allied Military Government built 462 new apartments, making a total of 1,461 completed up to date with government funds. By 1st July 1950 it is expected that 2,523 apartments will have been provided from government funds appropriated up to and including 1949 and grants in aid to the extent of 50% were allotted in 1949 for the building of some 480 more. It should also be noted that a total of 24,211 war damaged apartments had been repaired with partial aid from government funds up to the end of 1948. The Allied Military Government is fully aware of the importance of the invisible earnings of tourism. for this reason I have removed restrictions on travel between the Zone and other countries in the European Recovery Programme and have undertaken the construction of accommodation which will relieve the housing shortage and provide for the needs of British and american personnel temporarily living in the zone.

The economy of the Zone must develop along lines which will be compatible with changing world conditions, and Allied Military Government has therefore undertaken a thorough survey of existing industries in order to determine their needs for financial assistance toward modernisation which will improve and cheapen production and open up wider markets. Schemes submitted for the establishment of new industries are being studied and a large area of ground is being reclaimed and is being developed as an industrial estate which will offer, in addition to normal services, special fiscal concessions designed to attract new enterprise.

Improvement in the economic situation of the Zone has been due in the first place to the European Recovery Programme in which I have received the most valuable assistance from the European Cooperation Administration's Special Mission in Trieste; to the Italian Government which has made good the Zone's budgetary deficit and to the close coordination of the Zone's economy with that of Italy, upon which it indeed depends.

Since the summer of 1949 the local administration of the six communes has been in the hands of the freely elected communal councils and certain functions of the central government have devolved upon local officials where this has been possible with due regard to the special responsibilities of the Allied Command. Educational facilities have been increased; arrangements have been made to strengthen the judiciary with additional judges seconded from Italy; and steps have been taken to remove all possible restriction to movement and trade across the Zone's boundaries by taking advantage of Trieste's position within the lira currency area.

In conclusion I must again express the opinion, reiterated in my previous reports and unaltered by continued experience, that the problem of Trieste can only be solved satisfactorily and justly by the return, as soon as possible, or the Free Territory to Italy in the spirit of the three-power proposal of 20th March 1948. I believe that the restoration, already overdue, of the large Italian population of this territory to the sovereignty of its nother country will in the end be essential in the interests of peace. I am further convinced that any attempt to construct a separate economy will not be in the interests of the inhabitants of the area and will be contrary to the trend of Western Europe towards a closer economic integration and political unity.