U.S. Department of State
FRUS, 1961-63, Vol. IX: Foreign Economic Policy
Office of the Historian

[Section 15 of 18]

Economic Defense Policy

296. Editorial Note

In his Annual Message to the Congress on the State of the Union of January 30, 1961, President Kennedy said that "we must never forget our hopes for the ultimate freedom and welfare of the Eastern European peoples." He asked Congress to amend the Mutual Defense Assistance Control Act of 1951, commonly known as the Battle Act (P.L. 82 - 213, approved October 26, 1951; 65 Stat. 644), to allow him more discretion in using economic tools "to help reestablish historic ties of friendship" with Eastern Europe. He also said he hoped "to explore with the Polish Government the possibility of using our frozen Polish funds on projects of peace that will demonstrate abiding friendship for and interest in the people of Poland." (Public Papers of the Presidents of the United States: John F. Kennedy, 1961, page 26)

President Kennedy submitted the proposed bill with letters to President of the Senate Lyndon B. Johnson and Speaker of the House of Representatives Sam Rayburn on February 21. (Department of State Bulletin, March 27, 1961, pages 444 - 445) The bill permitted grant aid to any nation, excluding the Soviet Union and the Communist-held areas of the Far East (Communist China, North Korea, and North Vietnam). In his statement before the Senate Foreign Relations Committee in support of the bill on April 25, Under Secretary of State for Economic Affairs Ball referred to the possible use of accumulated Polish currency as an example of such aid. (Ibid., May 22, 1961, pages 775 - 776) The Senate amended and passed the bill on May 11 (S.1215, 82d Cong.). It was referred to the House Foreign Affairs Committee on May 15, but the House of Representatives failed to act on it.

297. Memorandum of Conversation

//Source: Department of State, Central Files, 460.509/3 - 1461. Confidential. Drafted by Dozier and approved by Edwin M. Martin and Wilson T.M. Beale, Jr.

Washington, March 14, 1961.

SUBJECT

COCOM List Review

PARTICIPANTS

UK--Sir Patrick Reilly, Deputy Under Secretary of State, Foreign Office

Mr. John Mason, Foreign Office

Mr. J.O. Rennie, Commercial Minister, British Embassy

US--Assistant Secretary Martin

Mr. W.T.M. Beale, Economic Minister, American Embassy, London

Mr. William B. Dozier, BNA

Sir Patrick said that the US Aide-Memoire of March 3 on the current COCOM list review had caused him much concern./1/ He thought that there clearly should have been more coordination between our two governments, and noted that the US was mainly concerned with UK attitudes, while the UK was troubled by the number and nature of the US proposals.

/1/The 15-nation Coordinating Committee on Export Controls (COCOM) reviewed International Lists defining strategic items over which participating governments exercised control of exports to the Communist bloc in Paris October 1, 1960 - April 15, 1961. The aide-memoire of March 3, 1961, was handed by Assistant Secretary of State for Economic Affairs Martin to Denis A. Greenhill, Counselor of the British Embassy in Washington. (Ibid., 460.509/3 - 361) It stated U.S. concerns aroused by the statement of the British COCOM delegate in Paris on January 30 on control proposals under discussion in COCOM arising from advances in Western technology and by British resistance to adding items to the embargo list and expanding current definitions. (Memorandum of conversation; ibid., 460.509/2 - 161)

Mr. Martin said that while subsequent agreement had been reached on some points, our delegations were still at odds with respect to twenty-three items. He was disturbed that there had been no UK discussion related to the COCOM criteria and wondered if we were in disagreement on the criteria. Sir Patrick said that there was real disagreement but only with respect to the interpretation of the criteria. He said that UK views differ somewhat from those of the US with regard to the whole question of the state of the Soviet technology--particularly in light of advances in Soviet rocketry, whether an item should properly be on the munitions list or not, and also what to do about items still on the drawing board and not yet in production. The UK looks at the last mentioned as a national security matter and not one for COCOM. An added problem for the UK was that HMG was under very great internal political pressure to increase trade with the Soviets.

Sir Patrick said that they deplored the difference of opinion not so much in terms of magnitude of trade but rather in terms of friction in US/UK relations, and they would very much like to see a solution found. He suggested that the two countries plan to get together bilaterally and at an appropriate level well in advance of the next annual review. He added that he was not yet ready to suggest a date for such a meeting.

Mr. Martin agreed that it was desirable to have bilateral talks before the next annual review. He thought that May or June might be an appropriate time. By that time we would have completed our review of US/Soviet bloc economic relations, and would be in a better position to sit down with the UK and discuss COCOM policy.

Sir Patrick said, with respect to the current list review, that he hoped both delegations could be instructed to make a big effort to find common ground in order to avoid a US/UK clash. For their part, the UK delegation was being instructed to meet the US point of view wherever possible, even where in the delegation's view the matter at hand was contrary to the criteria. He concluded by saying that in the future he personally would keep a close eye on COCOM developments.

Mr. Martin said that he was encouraged by Sir Patrick's statements, and that we too would provide further instructions to our COCOM delegation./2/ He agreed that we should keep in close touch on this matter.

/2/Topol 1296 to Paris, March 15, instructed the U.S. COCOM delegate to discuss the unresolved area with the British COCOM delegate and recommend possible modification of the U.S. position that might provide a basis for settlement. (Ibid., 460.509/3 - 15671) [text not declassified] The Department of State amended the lists of the Mutual Defense Assist-ance Control Act of 1951 (Battle Act), removing certain items and adding new ones, to reflect the changes resulting from the COCOM review. For some indication of these changes, see Department of State, The Battle Act in New Times, Mutual Defense Assistance Control Act of 1951--Fifteenth Report to Congress (Washington, March 1962), pp. 1 - 2.

298. Memorandum From the Secretary of State's Special Assistant (Bohlen) to the Under Secretary of State (Bowles)

//Source: Department of State, Central Files, 460.119/5 - 161. Secret. Drafted by James L. Colbert on April 7. Attached to the source text is a covering memorandum from Edwin M. Martin to U. Alexis Johnson, May 8, stating Martin's dismay that the Department of Defense was holding up licenses for certain exports to the Soviet Union, allegedly, in part, because of the Laotian situation. Martin suggested that Johnson, as the new coordinator of relations with the Department of Defense, "may wish to inquire into these hold ups."

Washington, April 7, 1961.

SUBJECT

Report on Meeting with Secretary Hodges, April 7, 1961/1/

/1/In a March 31 letter to Acting Secretary of State Bowles, Secretary of Commerce Hodges proposed that the Secretaries of Commerce, Defense, and State, and the Special Assistant to the President for National Security Affairs meet to discuss outstanding cases of licenses for exports to the Soviet Union and Poland on April 7 at 10 a.m. (Ibid., 461.119/3 - 3161)

As you requested, I attended the meeting this morning which had been arranged by Secretary Hodges to discuss the question of export licenses to the USSR and to the bloc. Mr. McGeorge Bundy attended, and Mr. Gilpatric and Mr. William Bundy were there from Defense. Various Commerce, Defense and State staff members also participated.

Basically, the discussion covered two points:

(1) The pending export license cases which the Department has appealed./2/

/2/Acting Secretary Bowles appealed a Department of Commerce recommendation to deny export licenses in three cases pending Hodges' review: a Van de Graaf accelerator for Poland and nylon 66 and carbon bisulphide technical data for the Soviet Union. In urging the granting of these licenses, Bowles referred to "our basic interest at this time in establishing more normal relations with the Soviet Union" and "our wish to expand United States economic relations with Poland." (Letter from Bowles to Hodges, March 27; copy attached to Hodges' reply of March 31, cited in footnote 1 above)

(2) The future procedure for handling agency disagreements on licensing cases.

As to the pending cases, I argued for approval along the lines of your letter and Ed Martin's briefing memorandum. I urged that the basic NSC policy guidance should be followed, and emphasized in particular that we felt that cases such as these should be looked at in terms of whether they would have a substantial impact on the war-making potential of the USSR and the Soviet bloc. The question of whether the same items were available elsewhere should be given considerable weight. I said that I thought that if we embarked on a policy with respect to trade which widened the gap in this area between ourselves and our allies, there would be no compensating national security interest which would be served. I also mentioned that a negative position on these cases would conflict with the Administration's general position of favoring the expansion of peaceful trade. Finally, I said that it was very important to rectify the present situation where there was considerable uncertainty on the part of American businessmen and Soviet bloc purchasers, as to what could be licensed.

Mr. Hodges referred to Ambassador Thompson's telegram, and advised that he would be prepared to approve the applications for transfermatic machines for automotive production, on the understanding that (a) Defense's position was changed to one of approval and (b) Defense advised Congressman Lipscomb of their change in position. It appeared that Defense was ready to revise its position on these machines.

Regarding the two cases for the USSR about which you wrote to Mr. Hodges on March 27, 1961 (technical data re. nylon 66 and carbon bisulphide), Mr. Hodges said that he would approve the license for the latter, but that Commerce had a question on the former, and would want to check further on Dupont's willingness to permit use of the process.

On the case of the research equipment for Poland, Mac Bundy and I argued at length for approval, on the grounds that this equipment would be for research basically in non-military fields. The matter was left that the Defense Department would take another look at its position, and if it withdrew its objection to issuance of the license, Mr. Hodges indicated he would approve.

As to the future procedure, Mr. Hodges said that he was sending forward a proposal to the President for an Executive Order, setting up a Board of Export Review (to be chaired by the Secretary of Commerce with participation at the Secretary level) to deal with all export license cases in which there was disagreement among agencies in the present interagency staff committees. His main concern was that the U.S. Government act and speak as one on these matters. He emphasized that, once a license was granted, it should not be revoked. He was also anxious to set up a procedure which would ensure that agency's reservations and dissents were thoroughly thrashed out, and agreement reached on a case. He wanted to end the practice where an agency's non- concurrence with a decision was noted for the record, but not pursued (except perhaps at a later date, as in the ball bearing case). He also said that he thought we should have no more instances where agency's views on cases under review were ventilated to the Congress or the press. There was no disagreement with these objectives.

There was considerable discussion as to whether the proposed Board of Export Review would operate by unanimous or majority vote, and it was the consensus that agreement would have to be unanimous (in view of the right of access of Cabinet officers to the President), with all split cases going to the President. It was Mr. Hodges' thought that there would only be about four cases a year which would have to be reviewed by the Board, but I rather think that, on the basis of the Department's past experience with Defense and Commerce, we would have more cases than that. There seems, however, some promise of a new viewpoint on these matters in Defense, which should make the Board's and the President's task easier. In any event, I told Mr. Hodges that the Department would want to be given an early opportunity to review the proposed Executive Order to set up such a Board. We are arranging to obtain copies of the draft Order.

Copies of this memorandum are being sent to Mr. Ball, EUR, E and L.

299. Memorandum of Conversation

//Source: Department of State, Central Files, 100.4/5 - 1861. Confidential. Drafted by Martin on May 22.

Washington, May 18, 1961.

SUBJECT

Commerce Advisory Export Board

PARTICIPANTS

Mr. Myer Feldman, The White House, Chairman

Secretary Hodges, Secretary of Commerce

Dr. Jack Behrman, Deputy Assistant Secretary of Commerce

Under Secretary Fowler, Treasury

Assistant Secretary Duncan, Agriculture

Deputy Assistant Secretary William Bundy, Defense

Assistant Director Turner, Budget

Assistant Secretary Edwin M. Martin, State

After thirty minutes of relatively amicable discussion of the Executive Order proposed by Commerce/1/ the following was agreed:

/1/The draft executive order, "Administration of the Export Control Act of 1949," April 17, was prepared in the Bureau of the Budget at the request of the White House. Arthur B. Focke, General Counsel of the Bureau of the Budget, sent it by letter to Secretary of State Rusk for his consideration on April 17. Brooks Hays (for the Acting Secretary of State) replied to David E. Bell, Director of the Bureau of the Budget, on April 27. Hays recommended revision of the draft executive order to provide for submission of disputes to the President by the Board or a disagreeing member and for composition of the Board's membership to include Agriculture and Treasury only when a particular problem involved their interests directly. (Both ibid., 400.119/4 - 1761) Regarding Executive Order 10945, see Document 300.

1. The Board would consist of only Commerce, State and Defense, but other agencies, and in particular Agriculture and Treasury, would be called upon to participate when matters of direct interest to them were up for discussion.

2. When the Cabinet Member or Acting Cabinet Member could not attend his representative could attend but his Department's views must be conveyed in a document signed by the Cabinet Member or Acting Cabinet Member.

3. There would be no change in the Executive Order making the Cabinet group advisory to the Secretary of Commerce since it was not desired to suggest in the Executive Order that the President would deal with things like individual license cases. Secretary Hodges agreed, however, that there should be a minute of record that he would take no action to grant or deny a license without unanimity among the interested Cabinet Members.

4. It was agreed to amend Section 3 to make clear that any interested Cabinet Member could propose a matter for discussion by the group to the Chairman and not just the Secretary of Commerce.

Mr. Feldman said a revised order would be distributed and he hoped it could be issued early next week.

At the conclusion of this discussion Secretary Hodges said he wanted White House views on the question of publicity for licenses. He was under heavy pressure from Congressman Moss to provide routine publicity on the name of the company, product and country of destination for all of the 12,000 licenses issued each month. After sampling business opinion and securing views from State and Treasury, Commerce had agreed that such a routine publication should not be made. There was a serious problem of releasing competitively valuable information. There was also the problem that many companies feared local public opinion if it became known they were selling to bloc countries. Trade might dry up materially. It was pointed out that such license information is highly misleading since in the case of bloc countries it is usually a "fishing license" and 70% of the licenses are not followed by shipments. Commerce has no information on actual shipments so could not publish these only. The consensus of the group was to support Commerce but Mr. Feldman had reservations, feeling substantially that the competitive argument was not important and you should release anything which there were no strong reasons for concealing. It was understood, of course, that such information would always be made available to Committees of Congress on a confidential basis and the companies were always free to release information if they chose. It was agreed that Secretary Hodges would prepare a document on the subject and discuss it with Mr. Salinger.

At a subsequent rump session Behrman, Bundy and I discussed some current cases with the following results:

1. Bundy apologized profusely when told that the letter to Lipscomb on automobile machine tool cases had not been dispatched in spite of the fact that there had been a Laos cease fire since May 11. He stated he recognized, in response to my comment, that this was rather a peculiarly political condition for Defense to have established but said it was proposed to his Secretary on a day when the Laotian situation was quite critical and his Secretary had accepted it.

2. Bundy said he had instructed a letter be prepared removing Defense objections to the licensing of the accelerators to Poland.

3. Behrman said they still had very conflicting views on nylon 66 and had not made up their minds.

4. Behrman took up a letter from Bundy on synthetic rubber2 and stated that Secretary Hodges was not willing to approve on the basis of such a letter with its very grudging approval from a Defense standpoint. We persuaded Bundy that the letter did contain phrases which could be taken out of context and used to seriously embarrass politically the Secretary of Commerce. Bundy agreed to withdraw the letter and redraft it confining his comment to saying that any larger quantities would raise difficulties. On this basis Behrman agreed to see that the license was issued.

5. Behrman discussed a Defense letter on a boiler for the Soviet Union to be shipped by the Canadian subsidiary of a US company in which Defense had argued against the shipment but then agreed to approve it in view of the Canadian angle./2/ I concurred in feeling this was a very unfortunate letter to have in the files. Bundy agreed that he would not have recommended denial on the basis of the technical arguments contained in the letter and, therefore, the Canadian angle was irrelevant. Behrman agreed to see that the license was issued.

/2/Not found.

There was also some general discussion of Defense comments on the proposed Commerce instructions to examining officers and the way the burden of proof problem should be handled. This was somewhat inconclusive but it was generally agreed that the US strategic list should be reexamined and that presumption of denial should only mean that the burden of proof is on the applicant or agency who seek approval, not that such cases would normally or usually be denied. A particularly valid reason for granting such licenses would be availability from other sources. There was also a brief discussion of the COCOM situation and of the review State was making at the request of Rostow of Soviet economic relations. Bundy firmly reaffirmed his belief that the basic COCOM criteria was right and the problem was of relating items to that criteria.

300. Editorial Note

Executive Order 10945, "Administration of the Export Control Act of 1949," was signed by the President on May 24, 1961, establishing the Export Control Review Board, a Cabinet committee consisting of the Secretaries of Commerce (Chairman), State, and Defense. (Department of State Bulletin, June 12, 1961, pages 934 - 935; 26 Federal Register 4487) Its purpose was to assure high-level consideration of trade control policies and actions and to obtain agreed action among Departments chiefly concerned with advising the Secretary of Commerce, in accordance with the Export Control Act of 1949, as amended. (50 USC App. 2021, 2024)

301. Telegram From the Department of State to the Mission to the North Atlantic Treaty Organization and European Regional Organizations

//Source: Department of State, Central Files, 460.509/6 - 2171. Official Use Only; Priority. Drafted by M.S. Young (OR/ECD); cleared by McLaughlin (RA), Colbert (SOV), Katz (EE), Turpin (B/CEA), Cash (GER), Volin (paragraph 4) (Agriculture), and Sweeney (paragraph 5) (Commerce); and approved by Clarence T. Breaux.

Washington, June 28, 1961, 7:31 p.m.

Topol 1850. Ref: Polto 1744,/1/ Polto 1758 (Item 3)./2/ Wireless file EUR 104 and SEF 2 of June 22 carried text Commerce press release on same date re change in US export licensing policy to permit cash sales of subsidized surplus agricultural commodities to EUR Sov bloc./3/

/1/In Polto 1744 from Paris, June 22, Finletter recommended informing the NATO Economic Advisers' Committee of the change in export licensing policy reported in Topol 1850. (Ibid., 460.509/6 - 2261)

/2/Dated June 26. (Ibid., 375/6 - 2661)

/3/Not found.

May inform EconAd revision has no special significance other than tidying up of various administrative limitations affecting exports non- strategic goods to EUR Sov bloc and permitting commercial sales on competitive basis with other exporting countries. Possible sales in free world by US exporters in past have been affected by efforts to deny these commodities to Sov bloc, including transshipment controls, etc., which have affected markets for the commodities in free world as well as bloc countries.

Executive Branch policy denying cash sales subsidized agricultural commodities to EUR Sov bloc at world market prices based on Cabinet decision 1954 as result public and Congressional outcry over proposed butter sales to USSR which at subsidized prices would have been lower than prices to American consumers. This decision modified by CFEP in 1956 and only required administrative action to alter export licensing policy. Such action has been under consideration for some time.

It is difficult to anticipate quantitative effect of liberalization since number of factors would influence bloc purchases from US. In general, market prospects would appear to be better in other East EUR countries than in USSR. However, significant purchases by the former could not be expected without extension long-term credits, which precluded to most by law. EE countries import cotton, feed grains, fats and oils. USSR is net importer of edible fats and oils, and imports some rice. While it imports relatively small quantities of wheat from Canada and considerable cotton from Middle East, USSR is net exporter of both commodities.

In exercising licensing authority Commerce will observe reasonable safeguards to assure that these commodities are not transshipped to Communist China, North Korea, North Viet Nam and Cuba. Where evidence indicates strong likelihood of transshipment to such destinations, will not approve licenses. Exporters will be required to supply commitments from importers in the bloc countries that the commodities will not be reexported to another destination. However, it is recognized that maintenance of effective destination control with respect to these countries poses certain practical difficulties. In any event, in considering licenses Commerce will take into account quantities involved in relation to requirements of country concerned, insofar as can be determined. Any possible applications for East Germany would of course be disposed of in accordance with established US policy toward East Germany.

Rusk

302. Memorandum From Secretary of Commerce Hodges to Secretary of State Rusk and Secretary of Defense McNamara

//Source: Department of State, Central Files, 460.509/9 - 2061. Confidential. Attached to the source text is a 2-page cover memorandum from Harold C. Vedeler (EE) to Thompson (U), September 20, recommending peaceful trade with the Soviet bloc and resumption of trade licenses for Poland and Yugoslavia.

Washington, September 18, 1961.

The recent 90 - 1 vote in the House, approving Resolution 403 for investigation of export control administration (copy of Resolution attached), the recently announced hearings by the Senate Internal Security Subcommittee,/1/ and the favorable report by the House Commerce Committee on H.R. 8465 providing for embargo of trade with Cuba/2/ all reflect the very strong sentiment in Congress--and the country--against trade with Soviet bloc countries. The comments of House members on H. Res. 403 are recorded on pages 17433 through 17444 of the Congressional Record.

/1/H. Res. 403, 87th Cong., introduced by Representative A. Paul Kitchin (D. - N.C.) on August 3 and approved on September 7, created a select committee to investigate administration of the Export Control Act of 1949. It is not attached to the source text, but a copy is attached to a letter from Acting Assistant Secretary of State for Congressional Relations John S. Hoghland 2d to Kitchin, Chairman of the House Select Committee on Export Control, October 9. (Ibid., 460.119/9 - 2861)

/2/H.R. 8465, 87th Cong., introduced by Representative Paul G. Rogers (D. - Fla.) on August 2. In hearings before the House Interstate and Foreign Commerce Committee, August 29 and September 1, the cigar manufacturers of Tampa and the Department of State opposed the bill. The Committee reported the bill to the House of Representatives on September 14 (H. Rept. 1182, 87th Cong.) where it passed by voice vote on September 15, but the Senate did not act on it.

The precise tactics utilized in bringing about adoption of the Kitchin Resolution can, perhaps, be correctly interpreted as motivated in some measure by "political antagonisms" or "recrimination" against the Administration--perhaps influenced by the Rules Committee battle early in this session of Congress; and perhaps influenced by other factors such as the redistricting of a Congressional District in North Carolina to the disadvantage of the present incumbent who introduced Resolution No. 403.

Having acknowledged the probable influence of these political factors, I would now set them to one side. It would be a very serious mistake for us to attribute this development in the Congress to purely "political factors." We should now dwell on what I consider to be the crux of the case so far as the Administration is concerned; that is, the facts and merits regarding the administration of the Export Control Act during the past several months.

So far as announced formal policy on exports to Soviet bloc countries, the Administration has pretty much continued to "do business as usual," notwithstanding the Berlin developments. We have continued to author-ize exports of non-strategic goods to the Soviet Union and her satellites with the only announced policy change in recent months having to do with subsidized agricultural products, a decision which was made prior to the present Berlin crisis.

Our unannounced policy has been stricter than we have told the Congress and the public. Congressman Bloomfield (page 17444 of the Record) makes the categorical statement we are actually shipping subsidized agricultural products. Even though we are not, Secretary Rusk and I in conference with various Congressmen refused to say we would not ship. As Secretary Rusk will recall, I felt weeks ago we should announce publicly that we would not ship subsidized agricultural products to the Soviet bloc. However, we have withheld such an announcement in view of our negotiating problems with NATO allies as well as with the Russians. We must recognize that our decision not to announce that we would definitely not ship subsidized agricultural commodities to the Soviet bloc countries has contributed to the Congressional sentiment with regard to trade with these countries./3/

/3/At an unofficial session of the Export Control Review Board on August 15, with the President's Special Assistant for National Security Affairs McGeorge Bundy, and Secretary of Agriculture Freeman present, Secretary of Commerce Hodges, Secretary of State Rusk, and Secretary of Defense McNamara decided not to license the export of subsidized agricultural commodities to the Soviet bloc and not to announce this decision. They also decided to exercise extreme care in granting licenses for exports to the Soviet bloc in order to be certain that exports would be clearly non-strategic. (Memorandum from Behrman to Borton and Hockersmith, August 16; Washington National Records Center, RG 40, Department of Commerce, Executive Secretariat Files: FRC 69 A 6828, Office of the Secretary, Commerce, International Affairs, Export Controls)

Unfortunately, our continued "announced" policy on exports has not made sense to the average citizen who hears about it and reacts to what he hears--comparing our export policy with the Berlin developments and the action taken in recent weeks to strengthen our military forces.

As you know, we have been more critical recently in our review of license applications. We have cut down on our specific approvals, with the knowledge and approval of the President. We have authorized shipment of subsidized agricultural commodities to Poland, but this has been under express statutory authority of Congress (Public Law 480)./4/ We have in the last few days held up all licenses for Poland and Yugoslavia, also at present on an unannounced basis.

/4/Reference is to the Agricultural Trade and Development Assistance Act, approved July 10, 1954, as amended, commonly known as P.L. 480; 7 USC 1691 et seq.

We expect in the Department of Commerce to keep on being very critical of approval of export licenses unless and until the international situation greatly improves, or the Review Board and the President decide otherwise.

Assuming the continuance of the present international crisis with no appreciable worsening or improvement, I think we should consider whether we should advise the President to decide and announce within the next two or three weeks, that no licenses for export of goods to Soviet bloc countries will be approved "for the time being."/5/ If there is an appreciable worsening in the international situation, then such a decision and announcement should not be delayed for two or three weeks. I am aware of the understanding recently reached by the four-power working group on a series of countermeasures to be taken individually by any of the countries as a response to any one of a series of harassments by the Soviets./6/ Under this understanding, the countermeasure is supposed to match the harassment in degree of impact. To me, this approach leaves us in the position of merely "reacting" to whatever strings the Soviets wish to pull at a given time. I recognize that we must give careful regard to our relations with the NATO allies, to their own trade policies, and to the great desirability of trying to obtain unity of action among the Western allies. It may be that resolute and determined action on the part of the United States (at the highest level) against continued trade with Soviet bloc countries would have a compelling influence with our NATO allies beyond what is now assumed, but on this point I must, of course, defer to the State Department.

/5/In a memorandum of September 22 to Secretary of State Rusk, via George W. Ball, Under Secretary of State for Economic Affairs, and to Secretary of Defense McNamara, via George Roberts Vance, General Counsel, Secretary of Commerce Hodges stated his "understanding of the President's statement to us in the White House 9/22/61 that we should hold up until further notice on granting export licenses for possible shipments to Poland, Yugoslavia." (Kennedy Library, National Security Files, Kaysen Series, Trade Policy, East-West Trade)

/6/Reference is to countermeasures for meeting the threat to West Berlin; documentation on the Berlin crisis is in volumes XIV and XV.

In any event, we come back to our own responsibilities in administering the Export Control Act. We, of course, want to (1) make decisions on specific license applications which are not now and will not later prove to be against the national interest; and (2) apart from the actual merits of individual decisions, we must try to administer the law in such a way as not to lose necessary confidence and support of the Congress and the public.

If we lose necessary Congressional and public support of the manner in which the Export Control Act is administered, it will do us little practical good later to believe that "we nevertheless were right!" The Export Control Act expires June 30, 1962. It has regularly been enacted and extended for two-year periods. There is already definite danger that some drastic and undesirable changes will be made in the law at the next session which could have the effect of greatly restricting desirable flexibility now permitted under this statute.

With respect to hearings on export control administration before either the House Committee or a Senate Committee, it is important that our three Departments coordinate our testimony, and I assume each of us is designating an individual as liaison for our Department on this matter.

Copy of this memorandum is being sent to the President for his information.

Luther H. Hodges

303. Letter From Secretary of Commerce Hodges to Secretary of State Rusk

//Source: Department of State, Central Files, 400.119/10 - 2061. Confidential. Attached to the source text is a February 20, 1962, covering memorandum with a handwritten note by Robert B. Wright (E/MDC), stating that no reply was necessary.

Washington, October 20, 1961.

Dear Dean: In response to your letter of October 9, 1961 /1/ on my proposal to institute improved export controls regarding the use abroad of United States exports in goods intended for the Soviet bloc, I have issued instructions to place before the Advisory Committee on Export Policy at an early date a policy statement and the specific lists, or appropriate summaries thereof, required to implement that policy. Following such discussion, if then desired, I shall schedule the matter for consideration by the Export Control Review Board. I hope that these two actions will provide adequate opportunity for examination of relevant foreign policy considerations but will not unduly delay moving ahead with the program.

/1/Secretary of State Rusk's letter of October 9 replied to one from Secretary of Commerce Hodges of October 3, which proposed export controls for U.S. components of items produced abroad for export to the Soviet bloc countries and Poland. Rusk stated that extension of U.S. controls ran "the risk that the adverse effect upon our relations with our friends and allies would outweigh the advantages to be gained." He suggested that the Advisory Committee on Export Policy discuss Hodges' proposals and then he would like to consider them again from the standpoint of foreign policy. (Ibid., 400.119/10 - 361)

You will recall that on October 3, 1961, I also sent to Secretary McNamara an identical letter on this problem. On October 11, a response was received from Deputy Secretary Roswell Gilpatric concurring in the proposal and offering assistance in the technical sphere. Enclosed are copies of his letter and a reply./2/

/2/Not printed.

At this time, however, I do wish to clarify several apparent misunderstandings which are reflected in your letter.

You appear to have been advised that present United States controls already "afford us a large measure of protection" in this problem area. To the contrary, I have found that controls governing such misuse of United States exports have been so tightly drawn in the past as to have little real application and to have been so inadequately disseminated as to be unknown to broad areas of the United States and international trading community. These are additional underlying reasons why I consider the present situation to be untenable and to require prompt action to improve and extend such controls.

Your letter also implies that the purpose of this effort is "to impose the United States level of controls, beyond Coordinating Committee (CoCom) controls, on non-U.S. origin goods." This was certainly not my intent, and I do not know on what basis such a statement is made. Had such been my intent, I would have clearly so indicated in setting forth in my initial letter the reasons which led me to initiate a further control effort. As you know, the Export Control Act of 1949 (as amended) is not dependent upon the activities of CoCom although, in many instances, particular United States controls are to varying degrees made ineffective by the absence of supporting controls by CoCom. The present control problem is one which has been examined within the Department of Commerce at various times over many years. A principal reason for the inadequacy of past controls in this area appears to have been the inability to absorb a significant increase in license application workload under past staffing conditions. I feel that I must undertake such additional controls as are needed to carry out the basic objectives of the Act and must somehow find the means to handle such additional workload as may be involved in fulfilling that responsibility. I take this stand not only in matters involving the national security but equally in implementing important foreign policy objectives and in protecting the domestic economy in short supply situations. My first priority in the present effort is to ensure that our exports are not used abroad to frustrate the intent of that Act and our policies thereunder. I hope these statements will dispel the faulty understanding of my intent reflected in your letter.

Lastly, you have noted, I have already recognized that my proposal has foreign policy implications. The basic adverse impact, of course, falls on United States firms, United States subsidiaries and licensees abroad and certain other Free World firms. Some of the adverse reaction of these groups may well spill over into the foreign policy field. If there are truly serious disadvantages to the proposal from a foreign policy standpoint, let us examine them fully in the course of the ACEP and ECRB discussions of the proposal. Since the proposal basically concerns the promotion of our national security, I hope that there will be no request to modify the proposed program to any serious extent except on the basis of quite clear evidence of significant adverse impact on truly important United States foreign policies.

Sincerely yours,

Luther H. Hodges

304. Summary Minutes of Meeting of the Interdepartmental Committee of Under Secretaries on Foreign Economic Policy

//Source: Washington National Records Center, RG 59, E Files: FRC 71 A 6682, Item 53, ICFEP, January 10, 1962, Problems of Trade with Communist Bloc. Secret. Presumably drafted by Ruth S. Gold, who is listed as the Recording Secretary on the list of participants.

Washington, January 10, 1962.

[Here follows a list of participants.]

PROBLEMS OF TRADE WITH COMMUNIST BLOC

Under Secretary of Commerce Gudeman opened the presentation by calling attention to the tables in the secret report submitted by Commerce entitled US Economic Relations with the Soviet Bloc./1/ He noted that in 1960 US total exports amounted to $18,834 million of which only $193.4 million were to Eastern Europe. The largest portion--$143.1 million--was to Poland and this was due to the PL - 480 arrangement. Russia itself accounted for $38.4 million. On the import side, total US imports amounted to $14,654 million of which $80.9 million or six-tenths of one per cent, were from Eastern Europe. The tables show that the bulk of the imports from the bloc come from Czechoslovakia, Poland and the USSR and that they consisted chiefly of meat and meat products, furs, glass and glass products, platinum and benzine. Leading US exports to the bloc were wheat, barley, cotton, iron and steel mill products, and textile, sewing, and shoe machinery. Another table shows the various countries and what they get from and ship to the bloc, indicating dependence on the bloc by some of these nations.

/1/Dated January 2; a copy is filed with the source text.

Assistant Secretary of Commerce Behrman then made the major presentation. He thought discussion should focus on three major things: a) the assumptions on which we base our activities with the bloc; b) the policy objectives we hope to achieve; and c) specific techniques we might employ to achieve these objectives.

Basic Assumptions. Mr. Behrman listed some of the basic assumptions which underlie our approach to the problem.

1. Russia apparently wants a type of coexistence but on her own terms.

2. Russia will continue using trade to exert economic pressures.

3. A relaxation of the US position toward the bloc would be followed by an even greater relaxation of Western Europe and the less developed countries.

4. Russia is not interested in contracts with the usual commercial advantages but wants to get technological advances from the West and to avoid dependence on the West.

5. If we gain what we want in the way of trade with the bloc, it may be at the expense of other trade.

6. Russia will continue to pose problems for us by penetrating the LDC's, and Russia's capacity to do this will increase. We thus face a different sort of problem in interesting these countries in trading with the West.

7. Trading patterns are changing rapidly and we face a new kind of competition.

8. We cannot stop Russian efforts to expand its trade with other countries and it would be undesirable to try to stop them.

Objectives. Mr. Behrman called attention to the objectives as listed on page 4 of the above-mentioned report. He noted particularly the following:

To support the growth of free international trade and to maintain such trade on a fair and competitive basis.

To accelerate the economic growth and maintain the economic preeminence of the US and its Allies.

To promote sound and progressive economic and political growth of the newly emergent free nations and of friendly less-developed countries.

To maintain the preeminence of the US and its Allies in technological and scientific research, development and production.

These and the other objectives can be narrowed down to specific objectives which may point the way on techniques.

To try to force the Soviet bloc to trade on our terms (i.e. on an open market basis). We can do this better by waiting for them to come to us than by our seeking them out.

To provide an alternative to the LDC's to trading with the bloc. This might involve commodity stabilization agreements.

To achieve a maximum agreement on controls by NATO countries on trade with the bloc.

To establish a means of relieving the burden on the LDC's and others caused by any interdiction of trade coming out of situations such as that in Berlin. (This would apply to countries other than LDC's such as Italy, Greece, Iceland, Turkey, and Yugoslavia.)

Techniques. Mr. Behrman then outlined a number of techniques which might be employed to obtain these objectives.

1. We should try again in NATO to get agreement on trading rules with the Soviet bloc. We should decide whether there is any hope of the Russians trading according to rules not incompatible with Western practices.

2. Commerce feels it is necessary to continue very strong pressure on COCOM to maximize the area of agreement or we will have to relax our unilateral controls. We must also consider whether there should be revision of Treasury controls of subsidiaries in Western Europe and whether we want to exercise control over them. These things must be examined, keeping in mind what the effect of such pressure and controls on subsidiaries would be on our relations with our Allies.

3. We should consider whether we are directing our control efforts in the wrong area. What Russia wants is capital equipment and technology, and we may have been putting too much emphasis on specific commodity imports rather than on technological data, including transfer of the latter from Western Europe. We may not have paid enough attention to component parts. We have perhaps not been sufficiently attuned to the matter of prototypes and samples. In considering this, Commerce thinks we need studies of the technological aspects of some industries and the uses made of technology in bloc countries. For example, Commerce found that a substantial part of the licenses for Yugoslavia are for electronic materials. We do not know what Yugoslavia is doing in electronics. Commerce has begun a study.

4. We should consider relaxing our unilateral controls of items not controlled multilaterally.

5. Tightening of enforcement. This has begun to be more important in terms of Cuba and Latin American countries. We are studying integrating all countries into one system instead of having classes of countries. We haven't had the same ability to check on shipments to Cuba as on those to the bloc.

6. A program to induce trade of LDC's to the West. This might be through a trading corporation or through preclusive buying. We should consider this even on a discriminatory basis if necessary.

Discussion

Should We Tighten or Relax Controls? Mr. Martin commented that there seemed to be some ambiguity in the presentation. On the one hand, it was implied we should extend controls across the board and on the other, that we should trade more with the bloc.

Mr. Behrman explained that he did not mean across the board but that controls should be extended to some industrial items that are not so directly related to strategic uses. He was thinking of a broader base of controls on such things as plant prototypes which the bloc could later send to the LDC's. Mr. Behrman said that it seemed to him that we should get the maximum multilateral agreement we can on controls and then minimize the negative aspect of our controls, putting as much positive emphasis as we can on peaceful trade, such as consumer goods, and try to push through trade rules that open the way to this trade for us. In other words, we should tighten up on the technological data but loosen up in the other area.

Trade Terms. With respect to Mr Behrman's remark about forcing the bloc to trade on free market terms, the question was asked whether we had not tried that. It was stated that this had been pushed at the end of World War II and discussed in 1956, but it did not get anywhere.

Mr. Martin said that the State Department did a very thorough study on this last spring for the White House./2/ Our stumbling block has been how to persuade the Soviets to desert their dogmas to do this.

/2/Reference presumably is to the paper entitled "US Economic Relations with the Soviet Bloc;" for text, see vol. V, Document 71.

Motivation for Soviet Trade. Mr. Fowler stressed on several occasions that trade with the bloc is not trading in the commercial sense, that we are dealing with a political system, and that the trade will have political consequences for the West. When we sell Russia packaged know- how in a non-military area, Russia can pull its people off this research and put them to work on missiles. Moreover, our trade enables the bloc to penetrate the LDC's more successfully. They use our prototypes to manufacture plants which they can then offer to the LDC's.

Mr. Martin noted that while a great deal of Soviet interest in trade is political, there seems to be some interest in trade for economic benefits. Soviet economists seem to be leaning now to the view that they can benefit from foreign trade and see some future in it for their country.

Mr. Ball said that so far as we can tell there is mixed motivation on the part of the USSR. The commercial is one component (particularly with Western Europe). Another component is economic warfare objectives; another, building up their war machine; and still another, improving their relations with the LDC's. In shaping up a policy we, in concert with our Western Allies, should try to see what we can do to counter the components which are not commercial in character but not counter those which are commercial.

Attitude of our Allies. Mr. Ball observed that there are obvious limits to what we can obtain from the Western trading nations in the way of agreement on controls of trade with the bloc. It will be the least common denominator of their appreciation of the problem. If we talk about departing from the strategic concept and getting into a concept that has to be redefined as the mobilization base or something more than that, we have to consider the realities of getting agreement on it. Unilateral action by the US is hopeless.

Mr. Martin said that when he was in London he talked with the bankers and they could not understand our viewpoint. They have been trading with Russia for years and think they are getting the best of the deal. They see nothing but a commercial proposition. British officials are coming here next month to talk with us about trade controls and they will take the attitude that since this is a missile age, the controls we are asking are no longer relevant. This City of London view is typical of the view all over Western Europe.

Mr. Ball noted that the conditions on each side of the Atlantic are quite different. Our dependence on our exports is very low. We are concerned about our balance of payments, but we are not in as desperate straits as the UK where everything depends on trade. We must recognize that there is a difference in approach. To the UK, trade with the bloc is important to its ability to live. To the US, it is a drop in the bucket. To them, it is asking a lot to give up trade with the bloc; to us, it is nothing.

Asked if the British did not realize that they would be building up the bloc so that it would compete with them in some instances, Mr. Martin said this did not trouble them. The UK has been doing business that way for centuries. It sold textile machinery until now it has to get out of textile manufacturing itself. The British just regard that as progress.

Mr. Fowler asked whether the British recognize, apart from the military consequences of strategic items, that they enable the Soviets to beat us in the less-developed countries and the consequences of this from the free world standpoint. Mr. Martin replied that the British think that the Soviets can squeeze out what they need for this purpose in any case.

Elements Which US Must Consider. Getting back to the basic issue of whether we should try to trade with the bloc or cut off trade, Mr. Martin said that we should weigh the value of what we get from the bloc and what the value of trade is to the bloc.

Mr. Ball said two things should be considered: First, what does the Soviet Union get out of trade in terms of technical knowhow and goods? Second, what advantage does it get out of trade as pure economic warfare--the ability to disrupt markets and to penetrate the economies of other countries? There is some advantage to keeping these two things separate as they are really quite different.

Mr. Martin cited Secretary Rusk's thinking (as stated to Kitchin Committee)/3/ that it is important to keep the channels of trade open as a possible means of reorienting the attitudes of the Russian people. If our consumer goods go to Russia, they will create a greater demand in the USSR for better products.

/3/Reference is to Secretary of State Rusk's testimony before the House Select Committee on Export Control in executive session on October 25, 1961. Portions of his testimony relating to possible economic countermeasures in the Berlin crisis are quoted in telegram 3230 to Paris, December 6, 1961. (Department of State, Central Files, 460.009/12 - 661) A copy of his statement is Tab 1 to the memorandum from Kohler (EUR) and Martin (E) to McGhee (M), January 25. (Ibid., S/S - NSC Files: Lot 70 D 265, NSC Standing Group--January 26, 1962)

Mr. Fowler said that if there were a central strategy board representing the West and acting in concert and taking these and other things into consideration, he would feel more secure about developing more trade with the bloc. We need a coordinated free world approach to the problem of trade and economic relations with the Sino-Soviet bloc or with any of its individual components.

Significance of the Sino-Soviet Situation. Mr. Martin called attention to the fact that there may be a very great significance in the present Sino-Soviet relations. The split looks deep and it may be long-term. We have not drawn conclusions as to what this means for economic policy as yet, but it probably opens up some trade possibilities of political significance. We should be sufficiently flexible to influence this situation in the US interest.

Mr. Ball said that we will probably want to take a look soon at policy on trade with China.

Joseph D. Coppock®MD-DN¯/4/

/4/Printed from a copy that bears this typed signature.

Executive Secretary

305. Record of Actions Taken at the National Security Council Standing Group Meeting

//Source: Department of State, S/S - NSC Files: Lot 70 D 265, NSC Standing Group--January 26, 1962. Secret. No record of the NSC Standing Group meeting has been found.

Washington, January 26, 1962.

[Here follows Item 1 on Iran.]

Item 2--Status of NSC 5704/3, "U.S. Economic Defense Policy," approved September 16, 1957,/1/ and NSC Action No. 2304 - b, approved October 5, 1960/2/

/1/Text in Foreign Relations, 1955 - 1957, vol. X, pp. 495 - 498.

/2/Text ibid., 1958 - 1960, vol. IV, pp. 213 - 214.

(Mr. Foy D. Kohler, Assistant Secretary of State for European Affairs, was present for this Item.)

(a) Noted that the Secretary of State will initiate a review of the subject policy paper with a view to its possible recision and replacement by a new policy document.

(b) Noted that the Secretary of State will circulate the Presidential decisions taken following a recent meeting on export trade policy with respect to licensing exports to the Soviet Bloc./3/

/3/See footnote 1, Document 306.

[Here follow Item 3 on Proposal of Communist China to Buy U.S. Wheat, Item 4 on Albania, and Item 5 on Laos.]

306. Letter From Secretary of Commerce Hodges to the Under Secretary of State (Ball)

//Source: Kennedy Library, National Security Files, Kaysen Series, Trade Policy, East-West Trade. Secret. Copies were sent to the President and the Secretary of Defense.

Washington, February 14, 1962.

Dear George: This refers to your letter of February 6 about our policy in connection with export control of licenses to the Soviet Bloc./1/

/1/In his February 8 letter to Hodges, Ball stated that the NSC Standing Group had agreed on January 26 "that it would be helpful if I were to set forth and circulate the decision taken by the President in the meeting which I arranged with him and which you attended January 24, 1962 following a meeting of the Export Control Review Board on January 23. In the meeting with the President it was agreed that the decision of August 25 to tighten up in the application of the strategic criteria had been carried farther than the President wished at this time. He felt that the type of proposed denials under review by the Export Control Board indicated a trend toward the application of export control criteria which went farther than he thought desirable." Ball suggested that "we should return to the testing of license applications against the agreed strategic criteria, i.e. criteria related to the bloc's war- making potential only, as was done prior to August 25." (Ibid.) No other record of the January 23 meeting has been found.

Regarding the meeting with President Kennedy on January 24, Hodges stated that "the President has instructed us to ease up on the rather tight controls we have had on the items going to the Soviet Bloc, leaving the judgment and decision as to what is to be approved up to us, of course. He intimated that the situation was somewhat improved, and that we might safely, until further notice, pursue this policy." (Memorandum from Hodges to Behrman, January 26; Washington National Records Center, RG 40, Department of Commerce, Executive Secretariat Files: FRC 70 A 6114, Office of the Secretary, Alphabetical Folder U - V)

I think your letter goes much too far in indicating that there was an agreement which would return us to judging license applications under criteria related only to the Bloc's war-making potential.

You refer to a meeting with the President on January 24. George, you know this meeting, which was not over one minute's duration, did not lay any facts before the President, except that you and I wanted to get his quick thinking on whether we should relax our controls in view of the apparent easing of tensions with the Soviet.

I confirmed to the President later the following paragraph:

"Our Administration's policy on export licenses to these areas is still not as clear-cut as I'd like to see it, but following your suggestion the other day (meaning January 24), we are relenting somewhat on the tight scrutiny we had been employing for the last few months."

I do not think that this gives any reason for your taking and circulating it that we had agreed with the President on any new approaches.

May I suggest that we review completely the criteria which should guide us. Meanwhile, I am still holding up certain requests for licenses on carbon black, tire cord and fabrics, and other items recently recommended for approval by the ACEP.

Since the responsibility for making the final decision on licenses rests with the Secretary of Commerce, I would like to say that I believe the Secretary or his representative should be present when any discussions are had on the policy affecting export licenses, so that we can be of one mind as to the criteria employed under our controls and, equally important, as to what is said and done publicly. We must keep in mind that we publicize these licenses daily, and remember that the two investigating committees of Congress are maintaining close scrutiny of these lists. In this connection, I would like to say that before we change radically any approval of licenses, it would be our idea to notify in writing both of the congressional committees as to what we are doing.

Sincerely yours,

Luther H. Hodges

307. Current Economic Developments

//Source: Washington National Records Center, RG 59, E/CBA/REP Files: FRC 72 A 6248, Current Economic Developments. Secret. The source text comprises pp. 1 - 4 of the issue.

Issue No. 644 Washington, February 27, 1962.

US - UK HOLD EAST-WEST TRADE TALKS

Representatives of the US and UK held bilateral talks on East-West trade controls in Washington February 19 - 23. Discussion centered around interpretation of the embargo criteria of the Coordinating Committee on Export Control (COCOM). The British put forth three principles which they would like to have accepted in the interest of uniform interpretation of the COCOM embargo criteria. Application of these principles, in the British view, would lead to a reduction of at least 50% in the coverage of International List I (embargo).

The British were very anxious to have further technical discussion on their proposed interpretive principles as they applied to particular items, despite lack of full agreement on the principles themselves. The US finally agreed to participate in more detailed talks in London the week of March 19 on the understanding that both sides would be prepared to give a preview of their probable positions for the 1962 COCOM List Review which begins in early May.

In addition to discussing COCOM issues, the US took the opportunity to make additional representations for UK support of our proposed embargo on wide-diameter pipe and related oil pipe equipment which is now before NATO.

UK Wants List Reduced

The discussions began with an exchange of views on Western objectives in economic relations with the Soviet bloc. The UK expressed agreement that certain aspects of East-West trade should be approached with caution and that certain controls are needed. These controls, however, must continue to make practical sense in light of the current assumptions of nuclear war and the latest estimates of the bloc's economic capacity.

The British representative said that his Government was prepared to accept the existing criteria and was not raising any question about the COCOM Atomic Energy List, Munitions List or the existing arrangements for military and commercial security; but the UK Government believes that International List I is out of date in important respects as it now stands and could be substantially reduced both as to number of items and their scope. The British noted the considerable differences in approach between our two governments at the last COCOM List Review and expressed a desire to avoid a repetition of such a dispute at the List Review commencing in May.

The British argued that, in light of their domestic political pressures, it was necessary for COCOM controls to be "defensible in terms of the latest strategic thinking which included general and lively insistence that a healthy economy is the cornerstone of our defenses." In this regard, the UK suggested three principles for interpretation of the strategic criteria.

First, the British believe that the common pattern of use of a product, rather than the alleged pattern of use in the Soviet bloc, should determine whether it is to be regarded as of principally military application. A particular type of equipment should not be embargoed merely because its use in the bloc is believed to be mainly military. The bloc use may be predominantly military because in these countries military needs come first and there may not be enough of the equipment to meet civilian requirements as well. The only logical way to judge a case, in the British view, is by reference to the pattern of use in industrialized countries generally. An example of this principle is the use of electronic computers.

The second principle the British advanced is that the importance of an item should be taken into account as well as its description in evaluating it against the criteria. What really matters is the current significance of the item in waging war or in producing military equipment. The type of thing the British have in mind here is jacketed containers for storage of liquefied gases.

Their final principle is that the control of equipment should be relaxed when such equipment has been in normal commercial use for so long that the "know-how" could be considered common property. The British believe there are a number of items, especially in the electronics category, which become less and less important strategically as commercial uses grow. After a certain period, say two to four years, varying with the type of equipment, any embargo loses its justification.

US Reshapes Principles

The US was able to agree to a considerable extent with the UK position on the second and third of the interpretative principles proposed but not on the first principle. We informed the British that we would be disposed to rephrase the three principles suggested along the following lines:

a) that the pattern of use of a product in the Soviet bloc should determine whether it is to be regarded as having principally military applications: where the pattern in the bloc is obscure, the pattern of use in the most nearly comparable Western experience should be the guide;

b) that COCOM should avoid the listing of items which, while meeting the criteria, are of minimal strategic importance to the bloc;

c) that the items which are controlled solely for reasons of COCOM criterion (b) should be re-examined periodically to establish whether they should continue to be embargoed and whether the use of a time period cut-off is appropriate.

Following discussion of individual points made by the US, the British representative reached the conclusion that the UK could agree with much of what we said. But there were still a number of unresolved issues. We do not believe that we can prepare for the contingency of nuclear war to the exclusion of extended large-scale conventional warfare. Later high- level discussion of this important policy issue through other channels is planned. The US could not go along with the British view that the pattern of use of an item in the Western industrialized countries rather than the possible use in the Soviet bloc should determine military use under the present COCOM criteria. Finally, we could not defend anything approaching a 50% reduction in the number of embargoed items on List I.

The US representative noted that we are approaching the 1962 COCOM List Review as an "up-dating" of the list to reflect advances in technology and changes in the Soviet bloc supply situation as it bears on military production. We assume that this is likely to result in a few additions, a few deletions, and possibly somewhat more numerous redefinitions which cannot be clearly characterized as one or the other.

This approach is not, in our thinking, different in concept from that which governed in the last two annual COCOM reviews. While we do not visualize a major extension of the COCOM list on the one hand, neither do we contemplate a major contradiction as proposed by the UK.

Pipe Embargo Discussed

Apart from the COCOM list talks, discussions were also held on the US proposal now before NATO for an embargo on oil pipe and equipment. Emphasis was placed on the potential effectiveness of such an embargo since both sides agreed that differences in the assessment of the military importance of the pipeline system rested on differing concepts of the types of possible warfare. An agreed US-UK-French military position on the significance of Soviet pipelines is expected to be reached in talks beginning March 12 to develop annual intelligence estimates for NATO planning.

The British argued that a pipe embargo would not be effective since by putting aside the construction of gas lines, which represent about half of Soviet pipe requirements, the Soviets could finish oil lines from their own resources without delay. Our representative replied that data on Soviet pipe production were too sketchy; that we should not assume the Soviets would abandon already begun gas lines; that major adjustment of planning always resulted in delays; and that the inclusion of pumps, valves, fittings, and other related equipment in the embargo would increase Soviet difficulties and the probability of delay. We informed the British that we feel strongly about a pipe embargo and thought that other NATO countries were prepared to agree to such an embargo if the UK changed its position.

The British representative promised to report our views to his Government but doubted that the British position will change. He understood that the British Ministers were not prepared to accept any additions to the COCOM embargo list unless reasons therefor are especially strong.

[Here follow articles on unrelated matters.]

308. Memorandum From the Acting Assistant Secretary of State for Economic Affairs (Trezise) to Secretary of State Rusk

//Source: Department of State, Central Files, 460.509/4 - 2062. Secret. Drafted by Robert B. Wright (E/MDC) on April 20. Transmitted through Ball. The date is handwritten on the source text.

Washington, April 20, 1962.

SUBJECT

Problems with Commerce on Export Control Policy and Operations (Meeting with Secretary Hodges April 24, 1962)

We have had continuing differences with the Department of Commerce on export control matters for close to a year. These differences are making it increasingly difficult to conduct day-to-day business on an efficient basis. Significant policy divergences are involved.

These divergences were reviewed briefly with the President on January 24 when it was agreed that the tightened application of the strategic criteria undertaken in August 1961 could be eased. The Department of Commerce has not, however, made any significant change in its pattern of export licensing actions.

Thus there appears to be frustration on all sides; Secretary Hodges would like to operate under a tighter control policy, but, since he does not have agreement on it, has done nothing but to hold cases he thinks should be denied; the Commerce staff and the interagency advisory committee, operating under the existing policy guidelines, continue to recommend approval for cases which they know Secretary Hodges will not approve; American businessmen are frequently unable to get a decision of any kind; and the State Department is left in the difficult situation of representing to other countries a policy which does not exist in fact.

These problems fall into two parts--policy issues and licensing case questions.

I. Policy Issues

The basic policy issue is that Commerce would replace the present long- standing policy of selective export controls with the policy of economic warfare against the Soviet bloc going far beyond the control of strategic exports. Commerce has made its views explicit in a proposed revision of the present economic defense policy (NSC 5704/3). The National Security Council Standing Group on January 26, 1962/1/ assigned to the Department of State rather than the Department of Commerce the responsibility for initiating a review of NSC 5704/3 (Tab A). The draft State Department report to the Standing Group is at Tab B. The Commerce revision is at Tab D and NSC 5704/3 is at Tab C./2/

/1/See Document 305.

/2/Tab A is the NSC Standing Group Record of Action; Tab C, NSC 5704/3, is printed in Foreign Relations, 1955 - 1957, vol. X, pp. 495 - 498. Tabs B and D - K are not printed.

While the Department has recognized the need to provide on a contingent basis for tightening trade controls against the Soviet bloc, in collaboration with our allies, in response to specific Soviet actions or threatened actions, this is quite a different thing from embracing a policy of continuous economic warfare. To do the latter would almost completely ignore the positive side of our East-West policy--to seek through peaceful means to develop as broad a range of contacts as possible between the Soviet bloc nations and the West, to encourage greater independence of action on the part of the Soviet-dominated countries of Eastern Europe, and to increase American influence in that area. A policy of selective trade relations has contributed and still can contribute to the attainment of this aim of penetration in the countries of the Soviet bloc. The actions that would follow from the Commerce Department's revised statement of economic defense policy would, in the unlikely event the policy were supported by Western industrialized countries, serve instead to tighten and to extend economic interdependence within the Soviet bloc by further limiting relationships between the bloc countries and the free societies of the West. The effect would be to lessen the stake of the Eastern European countries in relaxing tensions with the West. A policy of very greatly expanded trade controls would seem particularly pointless in light of repeated intelligence evaluations that even with the cooperation of the European industrial states and Japan such a policy would have only a comparatively limited immediate impact on the Soviet bloc and a marginal effect on its long-term growth.

Within the basic policy divergence, there are several specific issues: There are differences with respect to the present strategic criteria, Commerce wishing to reinterpret and amend them to bring a wider range of items, including clearly non-strategic items, under embargo. Such a change would greatly complicate our negotiating problems in COCOM. Commerce would also propose to follow a general rule of denying U.S. exports "regardless of whether it is demonstrated that the same kinds of items are available to the Soviet bloc from other countries". This policy would penalize American businessmen and the American economy without having any impact on the Soviet bloc. Along the same lines, Commerce wants to tighten U.S. controls over advanced technology, even in the non-strategic area, including controls over its use by friendly countries. Finally, Commerce proposes greatly tightening controls over trade with Poland presumably based on the assumption that Polish assurances concerning re-exports cannot be considered valid.

II. Licensing Case Questions

The particular cases which have been held by the Secretary of Commerce are illustrative of the policy differences described above. These cases fall into three broad categories--cases related to the tire industry (Tab G), cases related to the petrochemical industry (Tab H), and cases involving technical data (Tab I). They were all discussed at the Advisory Committee on Export Policy (ACEP) meeting of February 8.

In a number of cases the ACEP Chairman, with the concurrence of all members, recommended approval. In other cases the ACEP Chairman deferred recommendation pending clarification of the petrochemical policy and of the technical data policy (in actual fact pending review of basic economic defense policy). The Secretary of Commerce, however, has not yet authorized the issuance of export licenses for the cases recommended for approval; nor has further action been taken on the cases de-ferred for policy clarification. Since some of these cases date back as far as August 1961, there have been increasing complaints from American businessmen over their inability to get action of any kind.

Subsequent to the February 8 ACEP meeting a number of other cases falling into the same three categories have come up for discussion in the Operating Committee (OC). Final decision on these cases should be consistent with the action taken on the earlier cases in the respective categories, and these cases have therefore been held for ACEP or ECRB (Export Control Review Board) consideration.

State has likewise appealed denial recommendations on two other cases not falling into any of the foregoing categories. One involves interpretation by Commerce of the ECRB decision of January 23, regarding pulp and paper machinery, in a manner broader than was believed intended by the ECRB (Tab J). The other involves denial of a commodity of a non- strategic type simply because other types in the same chemical family are strategic, an action inconsistent with established licensing guidelines (Tab K). In all cases correct application of the established licensing guidelines (Tab E) would result in approval.

309. Memorandum From Secretary of State Rusk to the National Security Council

//Source: Johnson Library, Vice President's Security File, NSC, East- West Trade, July 10, 1962. Secret. Carl Kaysen, the President's Deputy Special Assistant for National Security Affairs, transmitted this paper along with Hodges' letter to the President (Document 310), a memorandum from Rusk to the National Security Council (Document 311), and a memorandum from Hodges to the National Security Council (Document 312), with an explanatory memorandum to the President, July 17, stating, among other things, that the Departments of State, Commerce, and Defense had reached agreement on policy language, but that Rusk and Hodges disagreed on policy and on the meaning of the language. (Kennedy Library, National Security Files, Meetings and Memoranda Series, NSC Meetings, 1962, 503rd NSC Meeting)

Washington, July 10, 1962.

SUBJECT

Review of Export Control Policy

The Department of State and Commerce have had recurring differences during the past year over the licensing of exports to the European Communist bloc. There are now pending and we are in disagreement with regard to a number of applications for licenses to ship commodities and equipment to the USSR and to other Eastern European countries.

Neither these applications as a group nor our total trade with the bloc are quantitatively important. The dollar value of the goods represented by the applications is approximately $2,400,000. Our total sales to the European Soviet bloc in 1961 came to $133,000,000, of which sales to the USSR amounted to $42,600,000. Nevertheless, trade is an instrument of our over-all policy toward the bloc and export licensing should be consistent with that policy.

I believe that the pending license applications should be approved. The articles and equipment covered by the applications qualify for approval under our policy and the licensing criteria developed under that policy (see Enclosures 1 and 2). That is, either they are non-strategic by our own definitions or the items themselves and the know-how involved are available to the Soviet bloc in the same or substantially the same form from Western Europe or Japan. If we were to deny the applications, it would have negligible consequences for the material strength of the Soviet bloc.

There is another and I think a decisive point involved. Denial of these applications would work at cross purposes with our attempt to establish sober communications with the USSR and the Eastern European bloc. The underlying premise for our export control policy has been, of course, that trade is one of the few means for influencing the peoples of the Soviet Union toward a national attitude that will tend to make the USSR a more responsible and peaceful member of the international community. I developed this premise at some length before Representative Kitchin's Subcommittee last October. I think that it remains the soundest basis for export control policy.

This is all the more so because the Russians appear to attach a psychological importance to our export control procedures that is quite disproportionate to the small amounts at issue. There is a tendency, unfounded as it may seem to us, for the Soviets to view our operations in the field of trade as indicators of our over-all attitudes. At a time when we are engaged in a series of diplomatic discussions with the Soviets about Berlin and other matters, nothing is to be gained by giving the Russians a misleading impression of our point of view about the kind of relationship we hope ultimately to have with them. On the contrary, so long as the Soviets are in a mood for rational conversation, it is important that we avoid actions in trade control policy or elsewhere which seem to the Soviets to belie our expressed readiness to maintain normal contacts of all kinds with the USSR as long as these are possible.

Ambassador Thompson during his recent visit expressed the opinion that Soviet policy may now be at a crossroads, that it can move either toward detente or toward increased pressure against the West, and that our export control policy may well have a bearing upon the Soviet choice. The Ambassador recognized that we cannot attempt to affect Soviet decisions at the expense of our vital interests. We may not be able to affect the outcome at all. But he feels, and I agree, that we should not risk tipping the balance by actions in matters that are not otherwise of genuine strategic significance.

Our friends and allies are entirely opposed to an increase in the severity of existing trade controls at this time. As a practical matter, domestic political forces in Western Europe and Japan leave the governments there with little ability to strengthen the control mechanism. The United States should therefore have no illusions that restrictions by us would be effective in preventing such trade between the Soviet bloc and the rest of the free world.

I believe that the recent Congressional discussion in the course of extending the Export Control Act was on the whole more helpful than otherwise. The amendments that were adopted do not require that we give up any of the flexibility we have had in operating our export control policy (Enclosure 3 analyzes the several amendments in the light of the Congressional discussion)./1/ Congressman Kitchin's amendment, which would have created a presumption of denial of export license applications, was revised and in practical effect reversed in conference. This was at the specific request of the Executive Branch which objected strongly to the change of policy that the amendment would have required.

/1/Not printed, but see footnote 1, Document 310.

In order to clarify our export control procedures for the future, and in line with the request of the National Security Council Standing Group Meeting of January 26, 1962, I have had reviewed our economic defense policy as set forth in NSC 5704/3. I believe that this policy continues to be consistent with and applicable to our objectives. I have taken the opportunity of this review, however, to propose simpler language and so far as possible to bring policy up to date with the current situation. The resulting redraft is shown as Enclosure 1. I have also attached as Enclosure 2 the Statement of "Criteria and Licensing Policy" which has been the agreed basis for day to day decisions at the staff level in the Departments of State, Commerce and Defense.

I recommend that the statement of economic defense policy, and the licensing criteria and policy that apply to it, be affirmed. At the same time, I recommend that the license applications which, under existing criteria and policy, have been recommended for approval at the staff level now be granted.

Dean Rusk

Enclosure 1/2/

/2/Secret.

UNITED STATES ECONOMIC DEFENSE POLICY

General Policy

U.S. Economic Defense Policy must be viewed as an instrument of our overall policy toward the bloc and of our total national strategy. Furthermore, it should incorporate the major governing elements of security trade control policy as it has been defined by the present Administration. These governing elements are as follows:

1. The security of the United States and the Free World countries continues to be threatened by the Sino-Soviet bloc. We thus should apply against the bloc such economic defense measures as will retard the growth of the bloc's war-making potential and reduce its unity. There can be flexibility in determining the degree of severity of the controls, but it is important to retain controls in such form that they can be available for use as an instrument of policy during a crisis situation, and provide a means of putting pressure on Soviet bloc leaders when their demands become intolerable and of forcing them, short of a resort to arms, to realize our determination and the need to reconsider their own course of action.

2. While it is necessary to maintain a system of economic defense measures, it is equally necessary to maintain or expand such contacts with the USSR and countries of the bloc as will influence them over the long-run to become more responsible and peaceful members of the community of nations. Trade relations are an important channel of communication with bloc countries. The courses we take should be based on the assumption that the maintenance of commercial contacts and trade between the Free World and the European Soviet bloc may have positive advantages during this period of tension and watchfulness, and that such trade should be encouraged except where it would directly increase the military strength of the bloc. The decision either to restrict or to promote such trade should be coordinated with decisions in other fields of our foreign relations so that foreign trade policy may serve our overall foreign policy goal.

3. There are forces making for fragmentation within the bloc. When an opportunity presents itself, as in the case of Poland, trade and economic relations can become an active instrument for the promotion of United States policy interests in relation to bloc cohesion. Economic defense measures should therefore be applied on a selective basis to support United States policy with respect to encouraging and assisting the bloc countries of Eastern Europe to achieve increased self- determination and more active pursuit of their own national interests.

4. To be of greatest effectiveness, the economic defense system should represent the cooperative efforts of the principal trading nations and should be coordinated with the larger system of military and political alliances. In order to be realistic and effective, the economic defense measures which the United States should adopt should be coordinated to the extent possible with those of Free World countries. In the trade control field our allies are interested, generally speaking, in limiting controls to commodities of reasonably clear and direct military significance and entertain a strong reluctance to enlarge the area of restrictions. This fact rules out economic warfare except at a time of high crisis.

5. The system of trade control should be selective and should concentrate on the denial of commodities or technology which would directly increase the net military strength of the bloc, narrowly defined. The Soviet economy is at an advanced stage of development with a virtually independent military capability, and we cannot hope to erect an absolute barrier to Soviet advances in military production. We can make it more difficult or more time consuming for the Soviets to make certain kinds of progress. From this standpoint, the trade control operation is closely akin to the basic objective of our national defense policies--namely, the preservation and if possible the widening of our margin of military advantage.

Based on the foregoing principles the courses of action to be followed in the export control field are outlined below.

Courses of Action

6. Seek to maintain a multilateral security trade control structure and control measures developed thereunder, making appropriate and timely adjustments in those measures to reflect changes in the military vulnerabilities within the Sino-Soviet bloc as a whole and within its members, or to improve cooperation and increase effectiveness; and continue our efforts for better understanding and support of the multilateral control objectives, criteria, and procedures essential to an effective export control program.

7. Seek to maintain and, as necessary, extend the bilateral arrangements with Free World countries (non-CG countries) to obtain support for multilaterally agreed controls.

8. Maintain toward the European Soviet bloc United States export controls over multilaterally agreed items and over such other materials, equipment, technology and services as can be so unilaterally controlled by the United States as to achieve a worthwhile adverse impact on the war potential of the European Soviet bloc; and take all appropriate meas-ures as will effectively enforce these controls and prevent their frustration.

9. Approve, as a general rule, the shipment from the United States to the European Soviet bloc of commodities not controlled under the foregoing paragraph, and, where appropriate in support of U.S. policy, remove the requirement of specific licenses for such shipments to selected countries or to the entire European Soviet bloc.

10. Make appropriate and timely unilateral adjustments and seek appropriate multilateral adjustment in the scope and severity of controls maintained toward the bloc countries of Eastern Europe on a selective basis in line with the objectives of encouraging and assisting these countries to achieve increased self-determination and greater pursuit of their own national interests.

11. Continue to seek the adoption of effective measures to enforce the agreed scope and severity of the multilateral controls. Increase the scope and effectiveness of multilateral exchanges and cooperation in the enforcement field.

12. Seek a close association with NATO and other security alliances on export controls, and where feasible, obtain their consideration and advice on appropriate economic security problems toward the end of promoting Western cohesiveness and building an instrument that can be used in a crisis situation as evidence of Western determination in the face of Communist pressure.

13. Maintain the current level of United States unilateral export, import and financial controls applied against Communist China, North Korea and North Vietnam and take all appropriate actions effectively to enforce those controls toward Communist China, North Korea and North Vietnam and to prevent their frustration. At such time as it is judged to be in the United States interest to do so, the controls toward Communist China should be revised.

Enclosure 2/3/

/3/Confidential.

CRITERIA AND LICENSING POLICY

With particular reference to the Soviet bloc, the ACEP structure was used to establish the criteria according to which items would be classified as strategic. Under presently agreed criteria, an item is considered eligible for strategic listing if it falls within one of the following classes:

(a) Materials, equipment, services and technical data which are designed especially for or which, in the judgment of the U.S., are intended or expected to be used by the Sino-Soviet bloc principally for the development, production or utilization of arms, ammunition, implements of war (including BW and CW) and atomic energy materials.

(b) Technical data and materials and equipment which incorporate advanced technology or unique technological know-how, the acquisition of which may be reasonably expected to permit a significant advance in Sino-Soviet bloc military-industrial technology over the level of development already achieved or expected to be achieved within the following two years; or

(c) Materials, equipment and services for which the Sino-Soviet bloc has a deficiency which is critical in relation to its present and future military-industrial capabilities and which it is not expected to overcome within the following two years; and technical data (incorporated or unincorporated) the acquisition of which would be significant in remedying such deficiency.

Similarly, licensing policy applicable to individual commodities or classes of commodities, including technology, has been determined along detailed lines, but these can broadly be summarized as follows:

(a) Commodities, including technology, found to meet one or more of the strategic criteria, and under international embargo, have applied to them a licensing policy of "presumption for denial".

(b) Commodities, including technology, found to meet one or more of the strategic criteria and not under international embargo but whose denial by the United States unilaterally would or might impose a worthwhile adverse impact on the war potential of the Sino-Soviet bloc likewise have applied to them a licensing policy of "presumption for denial".

(c) Commodities, including technology, found to meet one or more of the strategic criteria but whose denial by the United States alone would not impose a worthwhile adverse impact on the war potential of the Sino- Soviet bloc have applied to them a licensing policy of "presumption for approval".

(d) Commodities, including technology, found not to meet one or more of the strategic criteria have applied to them a licensing policy of "presumption for approval".

In determining final action on an application, of course other factors are taken into consideration which might lead to denial of a license for a commodity under "presumption for approval", or vice versa.

310. Letter From Secretary of Commerce Hodges to President Kennedy

//Source Jonson Library, Vice President's Security File, NSC, East-West Trade, July 10, 1962. Secret. Transmitted to the President along with Rusk's memoranda to the National Security Council (Documents 309 and 311) and Holdges' memorandum to the National Security Council (Document 312) with an explanatory memorandum by Kaysen, July 17. (Kennedy Library, National Security Files, Meetings and Memoranda Series, NSC Meetings, 1962, 503rd NSC Meeting)

Washington, July 10, 1962.

Dear Mr. President: The recent passage of the Export Control Act/1/ calls for a reassessment of the use of export controls to achieve U.S. national security and foreign policy objectives. Two major changes were written into the Act:

/1/Export Control Act of 1949, as amended by P.L. 87-515, approved on July 1, 1962; 76 Stat. 127; 50 USC App. 2021-2032. Airgram CA-298 to Belgrade, July 9, summarized the amendments as follows: 1) amendment to Section 1 of the Act broadened the scope of controls to exports of economic significance as well as those of military significance; 2) amendment to Section 2 called for U.S. cooperation with its allies to the maximum extent possible, and the formulation of a unified trading policy by the non-Communist world; 3) amendment to Section 2 called for conduct of U.S. trade with Communist-dominated countries so as to further U.S. national security annd policy objectives; 4) amendment to Section 3, a compromise amendment, required a finding to deny a license, while the original proposal required a finding to grand one; and 5) amendment to Section 5 made willful violation of the Act a felony rather than a misdemeanor, and increased penalties accordingly. In this form the Act was extended for 3 years. (Department of State, Central Files, 400.119/7-962)

That the United States should make every effort to obtain maximum agreement among its military Allies on expanded export controls;

That the control system should take into account the "economic significance" of exports to the Bloc.

The first provision could imply the use of the entire gamut of political, military and economic persuasions to achieve maximum controls. The second could lead to a virtual embargo of exports in that almost any additional goods provided to the Soviet Bloc will per se add to its economic potential.

The central questions are whether and how the export control system can contribute to U.S. national security; the answers depend on the nature of the threat:

1. If the Soviet Bloc poses a military threat to the Free World, as U.S. policy currently assumes especially in periphery countries around the Bloc, certainly the maximum agreement with our military Allies on trade controls is desirable. If the Bloc poses a threat to the Free World through either economic penetration in the less-developed countries or a more rapid economic growth within the Bloc which permits a commitment of increased resources to aggressive acts of military, political, economic, cultural, or propagandistic nature, then a control system restricting trade which will add to this potential is certainly desirable. Therefore, the use of our economic and political power to obtain maximum agreement on expanded controls by the Allies would be in order, as the new Act urges.

Obviously, maximum agreement would not mean total embargo, for many items contribute so little to economic potentials that controls would be too costly and unwieldy to impose. Rather, the objective should be the maximum delay of growth of the Soviet Bloc at the least cost to other objectives. This greater control should be imposed over advanced technical data, prototypes, on entire plants which break significant economic bottlenecks, and on capital equipment which substantially reduces the drain on research and development by the Bloc. Little control would be imposed on consumer goods, which would directly raise the standard of living of the Bloc and would continually demonstrate to their people that such amenities come from the Free World. What capital equipment or technical services are exported should be done so as to increase the people's understanding of the source of these items.

2. If, on the other hand, controls by the United States which are not concurred in by its Allies and which are over and above the current military-oriented controls have no appreciable adverse impact on the economic potential of the Bloc, balance of payments and other considerations would suggest that we abandon all controls other than those imposed under multilateral arrangements (COCOM). It would then be desirable to seek the maximum outlets for the sales of non-military goods in the Bloc in competition with other Free World suppliers. The means of increasing such sales would include an exchange of Trade Missions, the establishment of a Trade Center in Moscow, the signing of a bilateral trade agreement, and other trade promotion devices. If this approach were to be taken, it would obviously be to our advantage to negotiate our new posture with the Bloc so as to obtain concessions for the relaxation of our controls and the introduction of trade promotion arrangements.

Adoption of the first approach--that of persuading our Allies to invoke tighter controls--would pose no serious problems with Congress, but it raises most difficult problems of negotiation with our Allies. Our intelligence suggests that our Allies would take hardly any step in the direction of economic defense measures, and our current negotiations at COCOM demonstrate that they desire to relax current controls. However, the American business community is not convinced that the European business community is eager for an uncontrolled expansion of trade with the Bloc. The assertion by the European businessman that he sells to the Bloc because of government policy and that by European government officials that they cannot control trade because of pressure from the business interests simply do not jibe. We need considerably better intelligence than we have to determine the type and weight of tactics needed to persuade our Allies to become more restrictive. Once this intelligence is gathered, we could determine more accurately the cost in other economic and political relationships with our Allies of pressing for tighter controls. Also, only after a strong attempt in this direction, could we convincingly demonstrate to Congress that the failure to expand controls did not rest on the shoulders of the Administration.

If the second approach--that of relaxing controls--is adopted, our Allies will find us more compatible bedfellows but also more competitive. The Congress on the other hand, and probably the public, would be ill-satisfied with an unexplained adoption of a policy which apparently does not coincide with the intention expressed in the Export Control Act. Therefore, the best possible explanation will be needed of the proposition that controls over non-military items contribute little or nothing to national security or foreign policy objectives of the United States and/or the collateral proposition that economic cooperation with the Bloc (and economic competition in third areas) will gradually mellow the Bloc and draw her into closer association with the Free World.

The present policy of control over items contributing to the military- industrial mobilization base of the Bloc plus unilateral controls by the United States accords with neither of the above approaches and leaves both the Congress (and some of the public) and our foreign Allies (and some U.S. businessmen) dissatisfied. It also possibly gains nothing in our relations with the Bloc. It therefore seems to me that we have chosen the least potentially successful policy--that of seeking neither maximum adverse impact on the Soviet economy nor the maximum economic trading contacts with the Bloc for commercial and political advantage.

Once the decision is made on these basic approaches, a series of pending cases (including $4.5 million of technical data and equipment in production of tires and petrochemicals and other items and $43 million in automotive machine tolls) and procedural questions will be resolved.

Respectfully,

Luther H. Hodges

311. Memorandum From Secretary of State Rusk to the National Security Council

//Source: Johnson Library, Vice President's Security File, NSC, East- West Trade, July 10, 1962. Secret. Transmitted to the President along with Rusk's memorandum to the National Security Council (Document 309), Hodges' letter to President Kennedy (Document 310), and Hodges' memorandum to the National Security Council (Document 312), with an explanatory memorandum by Kaysen, July 17. (Kennedy Library, National Security Files, Meetings and Memoranda Series, NSC Meetings, 1962, 503rd NSC Meeting)

Washington, July 16, 1962.

SUBJECT

Addendum to Memorandum of July 10 on Export Control Policy

In discussions with the Departments of Commerce and Defense occasioned by my memorandum of July 10, 1962 for the National Security Council, it was agreed that the restatement of United States Economic Defense Policy should more explicitly reflect the recent changes in the language of the Export Control Act. I would therefore recommend that the paragraph in enclosure 1, which has the agreement of the Departments of Commerce and Defense, be substituted for Paragraph 8 under Courses of Action in the Statement of United States Economic Defense Policy (enclosure 1 to my memorandum of July 10). The Department of Commerce considered that it was necessary to retain the clause in the present NSC 5704/3 providing for unilateral U.S. control to "serve other U.S. policy objectives." It is understood that this clause is intended to cover those few special cases (such as scrap iron) on which we have a "moral" position of not participating in exports to the Soviet bloc, irrespective of what other countries do, although the item is not otherwise covered by the language of the enclosed paragraph.

It also seems desirable to carry through with the "economic potential" concept set forth in the revised paragraph in enclosure 1 by adding a fourth criterion to the "Criteria and Licensing Policy" (enclosure 2 to my memorandum of July 10). Such a new criterion is included as enclosure 2. The criterion covers actions such as that undertaken to deny pipe and pipeline equipment in an attempt to limit the Soviet potential for disrupting the pattern of free world oil supply. Thus this new criterion is intended to carry out the intent of Congress to assure that U.S. exports do not contribute to Soviet economic potentialities which could be damaging to the national security and welfare. This new criterion has likewise been agreed by Commerce and Defense.

Finally, while no change seems necessary in criterion (b) of the "Criteria and Licensing Policy" relating to technical data, there is agreement that special effort should be used to assure that controls over technical data adequately protect the national security and welfare.

Dean Rusk/1/

/1/Printed from a copy that indicates Rusk signed the original.

Enclosure 1

8. Maintain toward the European Soviet bloc U.S. export controls over multilaterally agreed items and over such other materials, equipment, supplies, technical data and services--including plants, proc-esses, designs, production equipment and production materials--as will make a significant contribution to the military or economic potential of the Soviet bloc, or can effectively serve other United States policy objectives judged by the U.S. control authorities to warrant the use of unilateral controls; provide for denial of all such items the export of which would prove to be detrimental to the national security and welfare of the United States; and take all appropriate measures as will effectively enforce these controls and prevent their frustration by or through non-Communist countries.

Enclosure 2

d. Materials, equipment and particularly technical data making a significant contribution to Soviet bloc activities which disrupt essential free world economic arrangements in such a way as to prove detrimental to the national security and welfare of the United States.

312. Memorandum From Secretary of Commerce Hodges to the National Security Council

//Source: Johnson Library, Vice President's Security File, NSC, East- West Trade, July 10, 1962. Secret. Transmitted to President Kennedy along with Rusk's memoranda to the National Security Council (Documents 309 and 311) and Hodges' letter to the President (Document 310), with an explanatory memorandum by Kaysen, July 17. (Kennedy Library, National Security Files, Meetings and Memoranda Series, NSC Meetings, 1962, 503rd NSC Meeting)

Washington, July 16, 1962.

SUBJECT

Export Control Policy

As stated in the memorandum from the Secretary of State,/1/ the Departments of State and Commerce have had recurring differences over licensing of exports to the USSR and other Eastern European countries. Pending resolution of this difference in policy view, I have withheld final action on some 59 export license applications. These applications have a total value in excess of $4.8 million. Of this total, approximately $4.4 million involve commodities and $.4 million technical data. (Attachment 1 gives further summary detail on the commodities and technical data in question.)/2/

/1/Document 309.

/2/Not printed.

I agree completely with the Secretary of State that these pending applications, and indeed our total trade with the Soviet bloc, are "quantitatively" unimportant. Precisely because the amount involved cannot be regarded as significant to the U.S. economy the Administration has, in a sense, an extra burden to show that the United States is not making a "qualitative" contribution to the buildup of the Soviet bloc economy--at the ultimate expense of this country and our allies. In fact, one of the real difficulties confronting us in administering the Export Control Act is the consistent pattern which Soviet bloc countries follow in their trading efforts with the United States. There is little or no indication that I am aware of that the Soviet bloc is genuinely interested in trying to establish a continuing and significant trade with the United States in consumer-type goods produced in the United States in exchange for goods produced in those countries. Rather, the whole pattern is the opposite. The evidence available to me is overwhelming that the Soviet bloc is interested primarily in obtaining machinery, technical data and technically advanced commodities for the purpose of enabling the Soviet bloc to develop its own capacity to produce what it wants rather than expand the scope of a continuing, peaceful trade with the United States.

I am completely in accord with the often expressed premise that trade is one of the few means for influencing the Soviet Union toward a more responsible and peaceful attitude in the international community. I believe the United States should, therefore, endeavor to expand trade with the Soviet Union and other bloc countries. However, where items under control are involved which are, at best, in the gray area, I believe their export to the Soviet bloc should be authorized on the basis of a reasonable possibility the Soviet Union will indeed be influenced to a more responsible and peaceful attitude--not on the basis of a mere expression of hope on our part.

Perhaps the most serious problem in our control of exports to the Soviet bloc is the disparity of controls between the United States and our allies. On practically every one of the applications on which there is strong interagency disagreement the primary reason usually cited for authorizing the export is the fact similar items are available to the bloc from other Western nations. Thus, more often than not, the apparent availability of a similar item from a European source becomes the main reason for authorizing the export from the United States. If there is no possibility of persuading our allies to increase their trade controls, as has been indicated by the Secretary of State, then we are left with the problem of administering whatever level of unilateral controls is deemed appropriate, notwithstanding the position of our allies. In my opinion, we should not set our export controls at the lowest level represented by our allies, and we should not reach the same result indirectly by a process of attrition, that is by approving export applications simply because our allies have not joined us in effective multilateral control of those items in question. At least we should not deliberately follow such a course without establishing a clear record that we have done everything reasonably possible since January 1961 to persuade our allies to much closer agreement with us on the extent of export controls.

I therefore suggest that the level of controls on which we should seek to achieve agreement is that described in Attachment 2./3/

/3/Attachment 2 was not with the source text, but is printed below.

The above comments relate to what I would term the "substance" of the issue, apart from the factor of Congressional or public opinion. The latter, of course, deserves careful consideration in view of the recent amendments to the Export Control Act and the investigations of export control during the preceding months by both House and Senate Committees.

Relevant to the issue of multilateral controls, Section 1 of the Export Control Act now has the following language:

"The Congress further declares that it is the policy of the United States to formulate, reformulate, and apply such controls to the maximum extent possible in cooperation with all nations with which the United States has defense treaty commitments, and to formulate a unified commercial and trading policy to be observed by the non-Communist- dominated nations or areas in their dealings with the Communist- dominated nations.

The Congress further declares that it is the policy of the United States to use its economic resources and advantages in trade with Communist- dominated nations to further the national security and foreign policy objectives of the United States."

Both the House and Senate Committees investigating export control administration expressed strong concern over the lack of effective multilateral control of exports to the Soviet bloc. The floor debate preceding enactment of this amendment gave further emphasis to this same concern. I think the Administration should, as a part of a desirable and necessary defense of whatever is done in administering the Export Control Act, establish a record of doing something additional during the coming months to get agreement with our allies on more effective multilateral controls.

From the standpoint of relevance to deciding individual export license applications, the recent amendment to Section 3 of the Act is the most important. The new language added is as follows:

"Such rules and regulations shall provide for denial of any request or application for authority to export articles, materials, or supplies, including technical data, from the United States, its territories and possessions, to any nation or combination of nations threatening the national security of the United States if the President shall determine that such export makes a significant contribution to the military or economic potential of such nation or nations which would prove detrimental to the national security and welfare of the United States."

As a statement of Congressional intent and policy, the important factor written into the Act by the above quoted language is the economic criterion. Here again, both House and Senate investigating committees expressed strong concern that the Administration should give proper regard to the economic factor in administering export controls. (No one had any particular question about export control of military items.)

Under the above quoted language, the President has, in a legal sense, very broad administrative discretion in determining what shall be authorized for export and what shall be denied. It is a matter of executive discretion as to what nation or nations are threatening the national security. It is a matter of administrative discretion to determine whether an export makes a contribution to the military or economic potential of another nation and whether that contribution is "significant." And, finally, it is a matter of administrative discretion as to whether in any event the export, if authorized, would prove detrimental to the national security and welfare of the United States.

Notwithstanding the broad legal authority of executive officials under the above quoted language, the Export Control Act should be administered in such a way as to obtain the support of a majority of the Congress. If this is not done, the reaction is likely to be quick and decisive in further restricting executive discretion by changing the Export Control law or in prejudicing other legislative programs of the Administration.

(In writing to the House Committee my comments on the proposed amendment to Section 3, I stated in effect that the Administration was following the standard implicit in the amendment, that is, we were not authorizing for export any items which make a significant contribution to the military or economic potential which would prove detrimental to the national security of the United States./4/ In making this statement, I had in mind those applications which have not been approved as well as those which have been approved.)

/4/Hodges' letter has not been found.

I cannot agree with the distinguished Secretary of State that the recent Congressional discussion on the Export Control Act was helpful to the Administration. Nor do I agree with the interpretation implicit in the Secretary's memorandum that the recent changes in the Act reflect a Congressional intent that export controls should be administered in a less restrictive manner than has been the case for the last few months. I gather the very opposite impression from a reading of the floor debate on these amendments and from the action in Congress during the past several months. (Attachment 3 consists of pages from the Congressional Record giving the floor debate on extension of the Export Control Act, including the proceedings in the Senate when the first Conference Committee Report was rejected, and the discussion in both the Senate and House when the final Conference Report was approved.)/5/

/5/Attachment 3, excerpts from the Congressional Record, was not with the source text. The first conference report (H. Rept. 1949, 87th Cong.), extending the Export Control Act of 1949 for 1 year without amendment, was rejected by the Senate on June 28. The second conference report (H. Rept. 1955, 87th Cong.), which was approved by the Senate on June 29 and the House of Representatives on June 30, contained the bill enacted with the President's approval on July 1.

To carry out the requirement now contained in Section 3 of the Export Control Act, the Departments of State, Commerce and Defense have agreed that paragraph 11 of NSC 5704/3 should be revised as shown in Enclosure 1 of Secretary Rusk's memorandum of July 16./6/

/6/Document 311.

In our appearances before the Senate and House Committees investigating the administration of the Export Control Act, as well as our appearance before the Senate and House Banking and Currency Committees in connection with the extension of the Act we did not convince the Committee members that we should have less export control. I believe it would be unfortunate, and unwise, to adopt a policy of export control which will almost assuredly subject the Administration in the coming months to time-consuming and harassing investigations which the Senate Committee has not yet concluded and for which purpose the House Select Committee is seeking additional funds. In addition, I think there would be a definite possibility that further direct legislative action regarding export controls would be taken at this session of Congress if there is any discernible lessening at this time of restrictions on exports to the Soviet bloc.

I would like further to suggest a course of action which, if successful, would achieve a positive gain for the United States and which, if not productive of concrete results, would nevertheless put the Administration in a position of having a record of doing all that could reasonably be expected in administering the Export Control Act. I suggest that:

(a) The United States endeavor to negotiate a commercial agreement with the Soviet Union and other European Soviet bloc countries. On our part we would offer to guarantee to permit exports of listed items. In return, we would seek to obtain, for example, settlement of outstanding debts, agreement on patents, agreement on measures to eliminate the threat of Soviet dumping of commodities such as oil, as well as agreement to export to us items in which we might have an interest.

(b) That with respect to the area of trade not subject to export control, we undertake in Soviet bloc countries, where arrangements can be worked out, an export expansion program, including trade missions, trade centers, and the like.

(c) That pending efforts as above described, and under present conditions, the United States continue its present level of export controls as administered during recent months by the Department of Commerce, as modified to include the field of technical data.

L.H.H.

Attachment 2/7/

/7/Source: Kennedy Library, National Security Files, Trade Policy, East- West Trade, 6/2 - 3/63. Secret.

SUGGESTED LEVEL OF MULTILATERAL EXPORT CONTROLS

Maintain toward the non-Communist countries export controls over materials, equipment, supplies and technical data (including plants, processes, designs, components, parts, production equipment and production materials) in specific areas, as is required to prevent such items from making a significant contribution to the military or economic potential of the Communist countries such as their ability to initiate aggressive actions or engage in economic activities inimical to the national security and welfare of the Free World.

The following are examples:

1. Electronics

2. Chemical--including petrochemical

3. Transportation

4. New materials

5. Advanced Research and Development

6. Aircraft

7. Electrical--advanced types

8. Metal working machinery

9. Pipeline and pipeline equipment

10. Steel industry

It should be noted that such controls and actions would not necessarily be imposed on all segments or elements within a specific category. For example, in the metal working machinery category it would be intended to cover only those types embodying recent technological advances, fully automated precision quality production machines.

313. Summary Record of the 503d Meeting of the National Security Council

//Source: Kennedy Library, National Security Files, Meetings and Memoranda Series, NSC Meetings, 1962, 503rd NSC Meeting. Secret. The source text, presumably drafted by Bromley Smith, Executive Secretary of the NSC, bears 16 handwritten emendations. An attached attendance list, not printed, indicates that 27 persons attended the meeting which took place beginning at 5 p.m. in the Cabinet Room of the White House.

Washington, July 17, 1962.

East-West Trade Policy

Secretary Rusk introduced a discussion of U.S. export control policy by commenting on the thankless task which the Secretary of Commerce had been given by Congress in making him responsible for the administration of the Export Control Act.

Secretary Rusk, in reviewing the existing situation, pointed out that U.S. trade with the Soviet Bloc was very small, but that the Congress continued to have an unusual interest in this subject. He cited changes in the law adopted by the Congress this session which had an effect on the implementation of the Export Control Act. He emphasized that Congressman Kitchin had been successful in adding to the definition of trade to be controlled and the concept of trade contributing to the economic potential of the Soviet Bloc.

Secretary Rusk said that everyone in the Administration agreed on the general policy to be followed in licensing exports to the Bloc, but trouble always arose when judgments had to be made on individual cases.

Trade with the Soviet Bloc is not only a problem for us domestically, but has important multilateral aspects. For example, the UK wants to expand its trade with the Soviet Bloc and reduce the number of items which cannot be traded freely to the USSR. Our allies, he continued, are heavier traders with the Bloc, and, therefore, they will not support us to the extent we wish on limiting or controlling this trade. In addition to the economic reasons, our allies differ with us in principle in that they have basic doubts as to the value of conducting what they describe as economic warfare against the Bloc.

Secretary Rusk proposed that no effort be made now to decide our long- run policy, but that we should decide to deal favorably toward the 59 pending export license applications referred to in the letter of July 16, 1962 from the Secretary of Commerce./1/ He again referred to the present situation in which we are confronting the USSR on Berlin. He said the Soviet Union is now faced with a choice of moving toward peace or toward war in the immediate future. His recommendation was that we not yield at all on Berlin, but we should convey to the Soviet Union our flexibility in other fields, for example, in an easier export license policy. In the event that the Berlin crisis is resolved, Secretary Rusk said we should immediately examine the entire question of trade with the Soviet Bloc.

/1/Document 312.

The President pointed out that our export control policy is more strict than the limitations placed on our allies by the COCOM list. He also noted that the Soviets do not want to buy from us goods which are peaceful, and, therefore, not controlled, but they continue to insist on trying to buy goods which they want for their own purposes.

Secretary Dillon, in response to a question from the President, recalled that when Khrushchev was in the U.S. no increase in trade with the USSR resulted from the conversations at that time because the USSR wanted to make all its purchases on credit./2/

/2/Reference is to the visit to the United States by Soviet Chairman Nikita S. Khru-shchev September 15 - 27, 1959.

Mr. Dillon said we could easily expand our trade with the USSR if we granted credit as is being done by our allies in Europe. He said that the Soviets would be prepared to settle their lend-lease accounts if we gave them credits. He recounted the staged irritation of Khrushchev involving our disinclination to sell the Russians a complete shoe manufacturing plant.

In response to the President's question, Mr. Kohler said that the Russians would probably be willing to pay us $300 million in settlement of the lend-lease accounts if we provided substantial credits to them. It was pointed out that credits to the Soviet Union are controlled by the Johnson Act/3/ which would have to be changed if we decided to extend credit to the Russians.

/3/P.L. 73 - 112, approved April 13, 1934, 48 Stat. 574, as amended, 18 USC 955, prohibited financial transactions with any foreign government in default in its obligations to the United States.

Secretary Hodges, in defending his position of denying the majority of the pending export license applications, said that the U.S. was now selling very little to the USSR. He said the Russians were picking and choosing things they want, with the result that we were helping to build up their economy. He urged that we try once more to persuade our allies to join us in strict control of trade with the USSR. If this attempt failed, he urged that we negotiate bilaterally with the Russians in an effort to increase vastly our trade with them. He viewed present policy as getting us nothing and at the same time exposing us to serious Congressional criticism.

Secretary Dillon said that the new policy agreed to by State and Commerce, in effect, meant that we were throwing away the existing Economic Defense Policy even before we sought to persuade our allies to go along with implementing strict trade control measures. In his view the new proposal goes directly against Congressional wishes expressed this session. The new paper omits several parts of the old paper which he felt should be kept. He recommended that the existing paper be reaffirmed after modifying it in order to meet the legislative changes approved by Congress.

Mr. Ball said that the State Department could live with the existing paper. He urged, however, that we not attempt to persuade our allies to follow us in a policy of strict control of exports to the USSR. He doubted that our allies would be persuaded and the only result would be that our failure would hurt us with Congress and hurt us in other countries. In fact, it might produce in Congress a strong reaction against our allies. He concluded by saying that in his opinion recent legislative changes require no change in our existing export control policy.

Secretary Rusk said that general language was very difficult to draft. He added that he had agreed upon the earlier rules governing implementation of our policy, but that at the time of the Berlin crisis we had made the rules much more restrictive. He believed that we should now return the licensing rules to the level existing prior to the Berlin crisis. He agreed that if the Defense Department said in a specific case that the goods involved were of strategic importance to the USSR, then such a license should be denied. However, if the goods did not seriously affect the military potential of the USSR, he believed the license should be granted.

Secretary McNamara said that the Defense Department agreed with everyone that goods involving the military potential of the USSR should not be exported, but called attention to the differing views on whether it was in the U.S. interest to assist in building up the USSR economy. Secretary Rusk called attention to the mutual benefit of trade with the Bloc. Although our trade is very little, Europe's trade with the USSR is of real benefit to the West in that it increases the economic health of the European countries.

The President asked whether we want anything from Russian trade other than gold, and the answer was no. He then suggested we approach our allies in order to meet Congressional pressure. Following this approach, we would talk to the Russians about trade in general, and if they were uninterested, we would continue the present unsatisfactory situation.

Mr. Ball said that if we deny the pending licenses, the Russians will conclude that we do not want to trade with them. The subject of trade has always been of great importance to them, even though the amount of trade is very little. He said that our trade this year with the USSR is about half of what it was last year. He then proposed that we talk to our allies about a "fair trade practice" agreement which we would then present to the Russians. His suggestion was that we meet the requirement to talk to our allies by attempting to take the problem of trade out of the cold war area. To do this, he would seek to draft a trade pact with rules. The purpose would be to induce the Russians to trade in a fair way in the West rather than using trade as an instrument of their foreign policy.

The President summarized the discussion by directing that the existing Economic Defense Policy paper be revised to the extent necessary to reflect recent changes in the law made by Congress. Trade for the next two months with the Soviet Union would continue about as it was prior to the Berlin conference. As soon as we knew what was going to happen in Berlin, we would then review our policy. At some point we would tell the Russians frankly that if they keep asking for the same type of goods as they have in the past, it would be very difficult for us to increase substantially peaceful trade with them.

Following the meeting and after the President left, Secretary Rusk and Secretary Hodges discussed for fifteen minutes the pending export license applications. Their agreement is reflected in the Record of Action of the meeting, i.e., most pending licenses will be approved and the export to the Soviet Bloc of automotive manufacturing machinery will be denied.

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[End of Section 15]

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