Foreign Relations of the United States, 1952–1954, China and Japan, Volume XIV, Part 1

S/S–NSC files, lot 63 D 351, NSC 152 Series

No. 175
Report to the National Security Council Prepared by the NSC Planning Board¹

secret

[Washington, March 3, 1954.]

United States and Free World Controls Over Transactions with Communist China

the problem

1. The problem is to review current policy in NSC 152/3² with respect to U.S. controls on transactions with Communist China,^* in the light of the discussion in the Council in conjunction with the adoption of NSC 166/1.³ More specifically, in this context the problem is:

To what extent and with what degree of intensity should the United States apply, and seek to have other countries apply, controls on trade with Communist China in the absence of further Chinese Communist aggression and during the period prior to achieving settlements satisfactory to the United States in the areas around Communist China.

issues

2. The principal issues in consideration of this problem are:

a. Should the United States depart from its current embargo on transactions with Communist China and, if so, what should be the timing and degree of such modifications?

b. Should the United States agree to relaxations from the levels of controls on trade with Communist China presently maintained by other free world countries:

(1) under bilateral agreement with the United States,

(2) under multilateral agreement in the “Paris Group”,^† or

(3) under multilateral arrangements pursuant to United Nations Resolution,⁴

and, if so, what should be the timing and degree of such relaxl ations?

elements of the problem

3. The period of time to which the problem statement is addressed is an indeterminate one. It is likely to be long. A “satisfactory settlement” of our issues with Communist China probably will require a political conference. Considering the difficulties and delays which may be anticipated in convening a political conference, and thereafter the problems and delays which may beset such a conference, it must be considered probable that many months—and perhaps years—will pass before the truce in Korea is technically converted into a peace and before a settlement satisfactory to the United States can be achieved relating to Korea alone. At the same time, it must be recognized that this interim period could be quite short. The Chinese Communists hold it within their power to make possible at any time the achievement of satisfactory settlements within a matter of weeks.

general considerations

Proposed by State, Defense and FOA	Proposed by Commerce
4. In terms of direct economic impact, there are no compelling arguments either for or against a substantive relaxation of U.S. export, import and financial controls. However, these controls are essential at this time for their international political impact, which helps maintain indirectly the degree of free world economic pressure represented by CHINCOM and UN controls.	4. On balance—though recognizing the problem of public and Congressional reaction, and the fact that some risk is involved in terms of the psychological reaction by Communist China and other Asians—the soundest course of action would be the lifting of the embargo to the limited extent involved in placing U.S. controls at the internationally agreed CHINCOM level. This limited change in U.S. controls would be consistent with the objective of avoiding a U.S. contribution to Chinese Communist industrialization. It would at the same time remove a presently unnecessary discrimination against American business and support the thesis that government controls are being applied only where a vital and constructive purpose is served by them. Such a limited relaxation rather than adversely affecting the course of negotiations when negotiations are desirable might, on the contrary, be used effectively as a concrete demonstration of American good faith and thereby set a better framework for negotiation.
5. Relaxation of U.S. controls to the CHINCOM level would fail to serve the two primary policy objectives toward which our economic defense program in relation to Communist China should now be aimed. a. Such relaxation of U.S. controls would not produce, but rather would diminish, the pressures needed to achieve our immediate negotiating goals, and would make such negotiations more, rather than less, difficult. b. Because CHINCOM controls cover, in the main, the materials and capital goods needed for large scale industrial development, it might seem on superficial examination that relaxation of U.S. controls to the CHINCOM level would be consistent with the objective of hampering the industrialization of Communist China. This consistency is not real, however. We must now anticipate that other free world countries will be exerting pressures toward further reduction in existing controls. In such a climate U.S. relaxation to the CHINCOM level would inevitably stimulate a deterioration in the CHINCOM and UN control levels below the level necessary to impede Communist China’s industrial development, and possibly below that essential to inhibit the growth of more direct war potential.	5. It is argued that a modification of the U.S. embargo will cause a deterioration of controls of free world nations. There is ample evidence to suggest that regardless of U.S. policy there will be a major drive by other free world nations for increased and more extensive trade with China, as well as with other Communist countries. U.S. action to place its controls at the internationally agreed level may provide a better atmosphere for carrying the U.S. point of view. It would point up the flexibility of U.S. policy and the willingness to act on a concerted multilateral basis; it would be conducive to furthering the unity of the free world. As such it would implement the general line of our economic defense policy established by NSC 152/3. If, on the other hand, we are unable or elect not to stop the anticipated drive of other nations for more trade with Communist China, the continued imposition of maximum controls on American business becomes increasingly irrational.
Therefore, substantive relaxation of U.S. controls, prior to a satisfactory settlement in the areas around Communist China, is inappropriate under the circumstances now prevailing.

recommendations

6. The “General Objectives” set forth in NSC 152/3 should be amended by deleting paragraph 20⁵ thereof and substituting a new paragraph 20 as follows:

“20. With respect to Communist China, in the absence of further Chinese Communist aggression or a basic change in the situation, to seek, by means short of war, to reduce the relative power position of Communist China in Asia:

a. Primarily by developing the political, economic and military strength of non-Communist Asian countries.

b. At the same time by weakening or at least retarding the growth of Chinese Communist power in China, particularly by imposing, through economic restrictions, difficulties and delays upon Chinese Communist efforts to achieve rapid or large scale industrialization.

c. By impairing Sino-Soviet relations.

d. By attempting to convince the other members of the free world of the soundness of U.S. policies toward Communist China and of the advisability of their adopting similar policies, without, however, imposing such pressures as would be seriously divisive.”

7. The “Courses of Action” set forth in 152/3 should be amended by adding, at page 7, a new paragraph as follows:

Toward Communist China and North Korea

“39. In the absence of further Chinese Communist aggression and during the period prior to achieving settlements satisfactory to the United States in the areas around Communist China, the United States should:

Proposed by State, Defense and FOA

Proposed by Commerce

a. Continue to embargo exports and imports and maintain present financial controls. Exceptional treatment may be accorded certain exports (e.g., propaganda, humanitarian, diplomatic) or imports (e.g., strategic materials) on a case-by-case basis after necessary interagency coordination. b. With respect to the controls of other free world countries over trade with Communist China: (1) Release Japan gradually, as appropriate, from its obligations under the U.S.-Japanese bilateral agreement‡ to maintain export controls higher than the CHINCOM levels. (2) Seek to have other nations continue existing export controls at the CHINCOM levels. (3) Employ all feasible means to maintain the UN General Assembly Resolution§ of May 18, 1951.

a. Reduce U.S. export controls to the CHINCOM levels (International List I, II, and III, plus the China Special List covering additional machine tools, iron and steel products and power equipment.) b. With respect to the controls of other free world countries over trade with Communist China: (1) Permit Japan forthwith to relax its export controls from the levels of the U.S.-Japanese bilateral agreement to the CHINCOM levels. (2) Resist any reduction in export controls below the CHINCOM levels, except for minor changes which are specifically justified. c. Modify foreign assets controls to permit imports into the U.S. of Chinese-origin goods. d. Determine what other changes are desirable in foreign assets controls which now block Chinese Communist assets in the U.S. e. Modify shipping-bunkering and transaction controls in accordance with the foregoing courses of action.

1. A covering memorandum of Mar. 3 from Lay to the NSC stated that the report was prepared pursuant to NSC Action No. 952–b (see footnote 12, Document 147) by the NSC Planning Board, including representatives of the Department of Commerce, on the basis of a draft prepared by representatives of the Economic Defense Advisory Committee and the Advisory Committee on Export Policy. An NSC staff study on the subject and three annexes were also enclosed. The first two annexes are cited below; the third consisted of a progress report, dated Feb. 9, by the two committees mentioned above on their revision of the U.S. list of strategic items.
2. Dated Nov. 6, 1958; see footnote 10, Document 147, and the editorial note on NSC 152/2, Document 131.
3. Unless otherwise indicated, the phrase Communist China refers to Communist China and North Korea. [Footnote in the source text.]
3. Document 149. For the Council’s discussion of NSC 166/1, see Document 147.
4. See paragraph 4 of the attached staff study. [Footnote in the source text. The staff study is not printed; the paragraph under reference describes the controls on exports to Communist China applied by the members of the Consultative Group.]
4. UN Resolution 500(V) of May 18, 1951.
5. Paragraph 20 of NSC 152/3 is identical to paragraph 19 of NSC 152/2; see Document 131.
6. See text in Annex A. [Footnote in the source text. Annex A, not printed, consists of a copy of an “Understanding Between Japan and the United States Concerning the Control of Exports to Communist China,” initialed at Washington on Sept. 5, 1952; see footnote 2, Document 586.]
7. See text in Annex B. [Footnote in the source text. Annex B is not printed.]