Foreign Relations of the United States, 1951, Korea and China, Volume VII, Part 2

320.2–AC/4–1251

Memorandum by the Acting Deputy Director of the Office of United Nations Political and Security Affairs (Popper)

secret

[Washington,] April 12, 1951.

Subject: Position Paper on Economic Measures Against Communist China

The attached paper is a revision of the draft dated March 26. No change has been made in the recommendations, but the discussion section has been revised to take into account observations made on the March 26 draft.

David H. Popper

[Attachment]

Position Paper Prepared in the Department of State

secret

[Washington,] March 26, 1951.

Adoption by United Nations General Assembly of a Resolution Calling for Economic Sanctions Against Communist China

problem

On February 1, 1951 the General Assembly adopted a resolution with respect to the intervention of the Central People’s Government of the People’s Republic of China in Korea. Numbered paragraph 6 reads as follows:

Requests a Committee composed of the members of the Collective Measures Committee as a matter of urgency to consider additional measures to be employed to meet this aggression and to report thereon to the General Assembly …

It is necessary to determine the position which the United States Representative on this committee should take with respect to “additional measures” in the economic field.

recommendations

1. In the United Nations the United States Representative on the special committee should seek the adoption of a resolution calling for the immediate imposition by all United Nations Members of an embargo on certain shipments to Communist China. The United States Representative should regard as the irreducible minimum an embargo on atomic energy materials, arms, ammunition and implements of war, petroleum, and items useful in the production of arms, ammunition and implements of war.

2. The United States Representative should seek inclusion in the resolution of provisions recommending that:

(a) each Member of the United Nations determine what commodities qualify for inclusion by it in the embargo under the general formula and apply appropriate controls to such commodities to effectuate the embargo; and

(b) each Member of the United Nations undertake not to negate the effectiveness of the embargo applied by other complying States.

3. With respect to machinery for reviewing the application and enforcement of the embargo, the United States Representative should propose the establishment of a committee to which all Members applying the embargo would report periodically on the commodities whose export is embargoed by such countries and the types of controls being applied. This committee would review such reports and report thereon, with appropriate recommendations, to the General Assembly. In the Committee the United States Representative should emphasize the desirability of having member countries take more stringent measures. The United States Representative, in discussing this proposal with other Delegations, should in his discretion suggest that it might be appropriate to confer these reviewing and reporting functions upon the special committee established pursuant to the February 1 resolution, quoted above.

4. The United States should make every effort to obtain as much advance agreement as possible with the other members of the Committee for proposals along the above lines and to obtain the cosponsorship of other key members of the Committee,

discussion

1. United States Policy and What the United States Has Already Done.

The United States Government, in view of the Chinese Communist aggression in Korea, should press for the application of such international control measures as will be effective in diminishing the Chinese Communist potential for military aggression and as will carry the maximum weight of moral condemnation. Its efforts through the United Nations and other channels should be directed to seeking, on a cooperative basis, the application by the maximum number of friendly countries of such controls for this purpose as the United States considers would be in the common interest in fostering collective security.

The United States has applied, within its own jurisdiction, complete economic sanctions against Communist China. The successive measures needed to bring our economic relations with Communist China under control were climaxed by the Treasury Freezing Order issued on December 16 under the authority of the Trading with the Enemy Act. This order was issued after action on the policy question in the National Security Council.

Since the autumn of 1949 when Communist control of the mainland was complete there have been present within the United States two opposed theories which it was thought could govern our trade relations with Communist China. One was that maintenance of trade relations represented “a foot in the door” to be exploited, if possible, as a means for influencing Communist China to loosen its ties with the Kremlin and to seek some reasonable modus operandi with the countries which had the most to offer and most to gain from mutually advantageous economic relations. The other theory was that Communist China should be penalized, by economic means, for its declared hostility to the West—and particularly the United States—and should be deprived of goods which contributed to the success of a regime engaged in programs of internal political repression and foreign aggression.

The policy actually adopted by the United States from the autumn of 1949 until March 1950 combined the two theories; goods of strategic value were either prohibited or limited to quantities which represented normal civilian need, and non-strategic goods were permitted to flow freely. Our China trade policy was more liberal than that for other countries in the Soviet sphere.

In March, 1950 the actions of the Chinese Communist regime had removed the reason for drawing this distinction; thereafter China was treated on the same basis as the U.S.S.R. and the Eastern European satellites. The North Korean aggression in June produced a further tightening of United States export controls; after June all United States Positive List exports to Communist China and North Korea were embargoed.

The increasingly apparent dependence of North Korea military potential upon supplies and manpower from the Manchurian hinterland demonstrated, in our view, the wisdom of this decision. The Paris Consultative Group was, under our pressure but somewhat sluggishly, following our line of thought; in July it agreed to take the action the United States had taken in March and placed China on the same basis as the U.S.S.R. so far as its prohibited list was concerned.

Notwithstanding all these developments, the United States had not abandoned completely the “foot in the door” theory. We watched for any evidence that the Chinese Communists, by their actions, could qualify for more or less normal treatment of our trade with China. Massive Chinese aggression in late November, however, removed any such possibility. Between December 2 and December 17, the United States instituted comprehensive controls over all our economic relations with Communist China; we license no goods whatever for export to Communist China, we prohibit our ships and planes from calling at its ports or carrying any goods destined for its ports, we require offloading of United States Positive List items in transit through the United States jurisdiction, and we have frozen Communist Chinese assets within the United States.

These steps obviously constituted final abandonment by this Government of the “foot in the door” theory. Several considerations have justified resort to the alternative theory, economic warfare.

In strictly economic terms the pattern of United States exports was such that to cut them off would, we felt, produce a measurable damaging effect upon the Chinese economy. Over seventy-five percent of China’s raw cotton imports were, for example, purchased from the United States. Cessation of these exports has hurt the Chinese textile industry which, as is known, is the largest productive component in the modern sector of China’s industrial economy.

Second, it was felt that exports of multiple use within China—e.g. medicines and chemicals—were certain, under present circumstances, to be fed into the Chinese Communist war machine before being made available for civilian use. To permit this to occur would, we felt, represent collusion in the operations of the Chinese Red Army.

Third, it was felt that no political advantage could be realized in Communist China by continuation of a business-as-usual attitude towards trade; on the contrary, it might well engender contempt for American lack of realism with respect to the political and military implications of China’s declared hostility and overt challenge of United States rights and interests and the purposes of the United Nations in Asia.

From our standpoint there is no question that comprehensive economic sanctions against the Chinese Communists were clearly in our national interest. We recognize, however, that other countries may reach somewhat different conclusions or may reach our conclusion more slowly than we have done.

The United States Government, in view of the Chinese Communist aggression in Korea, should press for the application of such international control measures as will be effective in diminishing the Chinese Communist potential for military aggression. Its efforts through the United Nations and other channels should be directed to seeking, on a cooperative basis, the application by the maximum number of friendly countries of such controls for this purpose as the United States considers would be in the common security interest.

2. What Other Countries are Now Doing.

Since June-July the United States, Canada and the principal Western European Trading countries^* acting through the Consultative Group have been applying an embargo on shipments to Communist China of petroleum products, munitions and an agreed list of materials of the highest strategic importance to the war potential of the Soviet Bloc. The embargo on oil shipments has had the cooperation of the other oil-producing countries such as Mexico and Venezuela. This embargo has effectively denied these materials to Communist China. Other countries are also applying certain controls. The U.S. Government will, of course, continue to use the CoCom and the diplomatic channel to increase the effectiveness of controls for the common security interest.

3. Effect of Present Measures on Communist China.

Current United States economic sanctions have produced a material effect on the Chinese economy. In the absence of cooperative action on the part of other nations they may decline somewhat in effectiveness. Except for raw cotton, the Chinese Communists may be able in time to procure most of their import requirements from non-American sources. Even with the additional embargo being imposed by cooperating countries, there would appear to have been limited current effect either in bringing pressure on Peiping or in affecting the combat capability of the Red armies in Korea. The theory that the Chinese Communists engaged in successful stockpiling of these items prior to the Korean war is ruled out by the Nationalist naval blockade, severe pre-existing allied trade restrictions, Chinese Communist foreign exchange shortages and the general dislocation of the Chinese economy which followed expulsion of the Nationalists from the China mainland.

4. Effect of a Full or Selective Embargo by UN Members Against Communist China.

Annex I gives a factual statement showing Communist China’s trade. Annex II discusses the effect of a full embargo and of a selective embargo upon the Chinese economy as a whole and upon its war potential.

The fact that China is actually engaged in military operations of major importance has a vital bearing upon the effectiveness of economic warfare (i.e. total multilateral economic sanctions in the trade, finance and shipping fields) against China. A recent interdepartmental study (NIE–22, 19 February 1951) states:

[Here follow those portions of NIE–22 which are printed on page 1919.]

5. Effectiveness of General UN Support for a Selective Embargo as Compared to Limited Support for a Full Embargo.

As a practical matter, the effectiveness of sanctions is a function of two variable factors—severity of controls and extent of cooperation by other countries. Proceeding from the present situation where the United States is applying a complete embargo and where Western European countries are applying a limited embargo, it would increase the impact if a number of countries could be persuaded to apply sanctions. The economic and particularly the political impact would also be increased if an even larger number of countries would agree to apply the same selective embargo as the Western European countries are now applying.

6. The Moral Effectiveness of Sanctions Will Depend in Large Part on the Number of Non-Communist Countries Applying Them.

The major significance of sanctions may be to give concrete emphasis to the United Nations’ disapproval and condemnation of Chinese Communist aggression rather than to accomplish important military or economic results. The full effects of disapproval and condemnation will not be felt in China so long as the United States acts unilaterally. They would not be fully felt if only those countries generally regarded as susceptible to United States pressure applied sanctions. The moral effect of sanctions upon Communist China will be produced in a maximum degree only if substantially all of the non-Communist members of the United Nations agree to announce their intention to apply them. Were this to occur, certain psychological and political effects might be produced in China, in the United States, and among all United Nations countries, which would equal and might surpass the economic or military value of sanctions. Such sanctions would reinforce the existing condemnation of Chinese Communist aggression by making it clear that the free world will not indirectly support that aggression by supplying the Chinese Red Army with material necessary for prosecuting the Korean campaign.

7. Negotiating Difficulties: General Support for a Selective Embargo Could Probably Be Obtained.

(a) A limited embargo is already in force in many countries.

An embargo limited to petroleum, munitions and industrial equipment useful in the production of implements of war (as well as other commodities of high strategic rating) is already being applied without announcement by the Western European countries of the Consultative Group. It would be difficult for these countries to refuse to support a United Nations resolution recommending such action.

The difficulty of persuading them to place substantially more comprehensive restrictions on exports to China is suggested by the position that the British have taken in recent discussions with United States officials. The British have strongly opposed a full embargo and expressed the hope that this idea would be discarded at the earliest possible stage. In the United Kingdom view, it would be unrealistic to expect the support of all countries (specifically India, Burma and Pakistan as probable dissenters), and the British felt that even if all countries did participate, it would not achieve the objective since they do not consider China to be seriously dependent on sea-borne imports. Thus, in the United Kingdom view, a full embargo would not alter the course of military operations in Korea, nor deflect the Chinese from further aggressive operations elsewhere. The British Combined Chiefs see the gravest political and military consequence in possible retaliation by the Chinese Communists to any effort to impose and enforce a full embargo.

(b) A selective embargo would not close the door on trade in nonstrategic items which can be one of the remaining avenues of contact with the Chinese.

Although the United States has considered and rejected this argument, it may be anticipated that certain countries may argue that some trade with China, symbolically or otherwise, indicates that there remains some slight area of maneuver within which a settlement of Communist China-Free World differences may be worked out. Sanctions, they say, would compel the Chinese Communists to orient all their relationships toward the Kremlin, economic, as well as military and political. Thus, sanctions would accelerate precisely what we are attempting to frustrate, the complete and exclusive collaboration of China and Russia in all aspects of China’s national life. Many countries will say that although there may be little basis for hoping that, within the limited area of maneuver which trade relations offer, constructive developments will occur, nevertheless if there is any hope, the United Nations should not be the agency for blotting it out. Otherwise there can be no hope for anything except the permanent hostility, covert or overt, of a Soviet-dominated China. This line of argument collapses, in the U.S. view, before the importance of denying an aggressor any material support in his aggression and the political impact of a condemnation of his action.

(c) A selective embargo makes a distinction between the Chinese people and the Red Army.

The argument may be made by some countries that a distinction should be drawn between the Chinese people and the leaders who have thrown the Chinese Red Army into Korea. To preserve some commercial relationships may be argued to offer incentive to China’s leaders to abandon their program of aggression, loosen ties with Moscow, and find in other parts of the world relationships which can better serve the Chinese people as a whole. We have observed, however, that Communist police authority has subordinated welfare to power objectives and used trade solely to serve the latter purpose.

Countries in the Asian-Arab bloc which did not support the General Assembly resolution of February 1, 1951, would find it far more difficult actively to oppose an embargo on items clearly required for the support of the Chinese Red Army than a more general embargo which would affect primarily the Chinese civilian population. If the embargo is limited to military-use items, it should be possible to induce the Arab-Asian states to support or at least to abstain on rather than to oppose a resolution recommending its application.

8. What Specific Commodities Should be Included and What Techniques Should be Adopted.

Annex III,¹ in discussing the types of a selective embargo which might be applied, discusses the question of what specific commodities should be included under the formula “atomic energy materials, arms, ammunition and implements of war, petroleum, and items useful in the production of arms, ammunition and implements of war”. It is likely that other delegations may seek a clarification as to what this language means.

Experience has shown that the discussion of specific commodities, particularly in a multilateral forum, frequently gives rise to protracted argument and is apt to cloud the main issues of principle upon which agreement is desired. Accordingly, it is believed that it would be inappropriate for the United Nations to attempt to enumerate the specific commodities to which the embargo would apply, but the United States Government should use every appropriate channel for indicating to friendly countries the rationale for the economic controls which it now applies and should offer its cooperation, where invited, in discussing controls more severe than those agreed on in the United Nations. At the same time this is a matter which must be clarified in some measure in order to obtain support for the limited embargo proposed. It is therefore recommended that the resolution include a provision authorizing each Member of the United Nations to determine for itself what commodities qualify for inclusion in the embargo. Such a general provision would permit each Member to interpret the general formula as narrowly or broadly as it desired. (For example, it would give a certain United Nations sanction to the comprehensive embargo now being applied with respect to Communist China by the United States.) It will certainly make the resolution more palatable to individual Members who might be reluctant to agree to the entirety of any specifically enumerated list of commodities to be embargoed. This would not preclude appropriate review of the programs of participating governments in an appropriate forum at some later time.

Annexes VI and VII² discuss the technique which might theoretically be adopted to enforce embargoes of varying degrees of severity. These point out that certain techniques, such as shipping controls, fund freezing, etc., can be effective in stopping trade, but that it would be difficult to obtain wide agreement in applying them. Therefore, in the interests of securing as wide agreement as possible to acceptance of the principle of an embargo, it has been recommended that the resolution provide that each Member should apply such of its own controls as it deems appropriate in implementation and enforcement of the embargo in respect of such commodities as it has decided fall within the general formula. Such a provision will provide the freedom of action important to Members such as the United States which desire to ensure complete control over their exports to China while permitting other Members to take steps appropriate to their own particular situation.

The experience of the United States has shown that where the United States considers application of controls in particular cases to be of vital importance such cases can be handled most effectively through private and ad hoc diplomatic discussion. The general formula approach will not preclude and might facilitate use of this technique. At the same time it will be important that some means be found to prevent action, or lack of action, by certain United Nations Members which will result in weakening the effectiveness of steps taken by states which conscientiously apply the export embargoes against China. For example, an obvious problem would arise if certain United Nations Members permitted war materials imported into their territory to be trans-shipped or re-exported to Communist China. For this reason it has been recommended that the resolution include a provision that Members should not negate the effectiveness of measures to be applied by other Member States. In short—to state the problem in terms of broad principle—one United Nations country should not subvert the controls of another United Nations country by permitting trans-shipment or re-export through its jurisdiction of particular items which that country embargoes and should not acquiesce in the enlargement of exports to Communist China through its jurisdiction of items being embargoed elsewhere. Once this provision had been adopted by the General Assembly, it would be possible through private negotiations or in the review process of the United Nations body discussed below to exert pressure upon states which failed to stop up loopholes, thus permitting the flow of commodities to China which obviously qualified for inclusion on any prohibited list.

9. United Nations Machinery to Review Enforcement of the Embargo.

As suggested in the preceding section of this discussion, the United States will, in the first instance, attempt to use regular diplomatic channels to prevent the flow of commodities of high strategic importance to China. It is likely that other delegations will raise the question of some United Nations body to carry out some review functions, and there is no reason why the use of regular diplomatic channels cannot be combined with consideration of the application and enforcement of the embargo in a United Nations forum. The United States should therefore approve conferring a review function upon some standing or ad hoc United Nations organ. Accordingly, it is recommended that the United States Representative should support or, if necessary, propose the establishment of a committee to which all Members applying the embargo would report periodically with respect to commodities being embargoed and the controls being applied. Such a committee would review the reports and report thereon, with appropriate recommendations, to the General Assembly. It is suggested that the precise area of such a committee’s authority should be worked out in the course of consultations with other delegations on this matter. At the outset perhaps its function should be only that of receiving reports from Members. It would seem appropriate to provide for the special committee established in the February 1 resolution to assume this task.

10. Other Considerations.

In addition to the considerations mentioned above, the other delegations will, of course, be concerned with the effects which the application of sanctions might have upon their own situations. Accordingly, there are attached Annexes as follows:

Annex IV.³ Showing economic effects of sanctions upon various countries which will be applying the embargoes. This Annex shows that except for Hong Kong (and Japan, dealt with separately in Annex VIII)³ the Chinese trade is not an important factor in the foreign trade of the non-Communist countries.

Annex V.³ Discusses effect of possible retaliation by the Chinese Communist authorities through trade restrictions.

1. The following countries and their colonies are applying controls of this character: U.S., Canada, U.K., France, Denmark, Italy, West Germany, Netherlands, Belgium, Luxembourg and Norway. Since these controls are being applied in a confidential manner, this fact should not be mentioned to delegations other than those of these countries. Japan is applying controls of still greater severity. [Footnote in the source text.]
1. Not printed.
2. Neither printed.
3. Not printed.
3. Not printed.
3. Not printed.