122. Memorandum From the Deputy Assistant Secretary of State for Economic
Affairs (Kalijarvi) to
the Secretary of State1
Washington, June 6,
1956.
SUBJECT
- China Trade Controls Problem
The attached paper (Tab A), cleared by EUR,
FE, and S/P, has been prepared as a report by you to the NSC regarding (a) the status of talks with the
UK and Japan on the China trade control
problem
[Page 367]
and (b) alternative
courses of action for resumption of discussions with these countries and
other Participating Countries (PC’s). Mr.
Hoover, in your absence, asked
that the paper be coordinated with the CFEP
prior to submission to the NSC.
The alternative courses of action are set forth in paragraphs 7 and 8 of the
paper (Tab A).
Recommendation
It is recommended that you approve the attached paper for submission to the
NSC after coordination with the CFEP.2
[Tab A]
CHINA TRADE CONTROLS PROBLEM3
Problem
The problem is
- a)
- to report to the NSC on the
status of discussions with the United Kingdom and Japan;
and
- b)
- to request, in view of discussions recently held with the
United Kingdom and Japan, additional guidance from the NSC for an early resumption of
discussions with those and other Participating Countries (PC’s).
Discussion
- 1.
- At its meeting on April 26 the NSC
reviewed the CFEP recommendations
on the China trade control problem and agreed that, rather than
undertaking at this time formal negotiations through the
Consultative Group (CG) for a
revision of the China list, the Secretary of State should be
authorized to consult bilaterally with the United Kingdom and other
PC’s:
- a)
- To seek, as a matter of high priority, agreement to the
embargo of copper wire and the largest practical measure of
support for other United States Negotiating Objectives set
forth in paragraph 3(b) of the CFEP report.
- b)
- To the extent required to achieve (a) above, to indicate
that the United States would not interpose objections if,
subject to possible formal consultations later on, the
United Kingdom and other PC’s
made exception—where such a course seems to them clearly
indicated and important—for items on lists A and B of
[Page 368]
Annex D to the
CFEP report and natural
rubber and, in the case of Japan, wooden fishing
vessels.
- 2.
On May 3, the Secretary of State raised this matter with Mr.
Lloyd in Paris,
advancing the most important and concrete of the Negotiating
Objectives, i.e., (a) the necessity for maintaining a
substantial differential of control over trade with Communist
China; (b) the need to embargo copper wire; (c) the US desire to
avoid a CG meeting and the
deletion of items from the China embargo list; and (d) the
importance of maintaining strict exceptions procedures over the
China list items other than those on lists A and B. (The
Negotiating Objectives not discussed with Mr. Lloyd are listed in Tab A. These
Objectives are generally of the long-run type and regarding
which the United States has no immediate specific proposals to
make to the other PC’s but may
wish to raise in the next few months.)
Mr. Lloyd responded on May
12 stating that the US proposals were not adequate to meet the
British point of view; that, while having regard for the US
List, they intended to rely upon an extended use of the
exceptions procedure to permit reasonable exports of items on
the China differential; and that they could not agree to an
embargo on copper wire and would explain their views in a
further statement. The UK has
since informed us that while they will not press for a CG meeting, they would not oppose
one if requested by another PC;
further, they do not intend proposing to the United States that
additional items be added to the US List.
- 3.
- Simultaneously with the UK talks,
discussions were begun with the Japanese Embassy wherein the whole
range of Negotiating Objectives was discussed. While the Japanese
have not replied to all of our proposals, in particular the embargo
on copper wire, they have stated that our exceptions list is not
sufficient and have suggested the addition of nine items and parts
of ten others.
- 4.
- We know that most other CHINCOM
PC’s favor ultimate abandonment of
the China differential list though not necessarily in a single step.
The French have recently initiated conversations with other PC’s concerning their own list of items.
Both Germany and Italy have requested our comments on lists for
deletion containing items not on the US list. Some of the PC’s resent the fact that we have
consulted the British but not them and believe that the United
States is deliberately attempting to conceal the results of our
review from them or to confront them with a US/UK fait accompli. Unless substantive
talks are conducted with the other PC’s as soon as possible, one of them might precipitously
call a CG meeting which, under agreed
procedures, the United States could hardly boycott. Even if a CG meeting is not called, increased and
indiscriminate use
[Page 369]
of the
exceptions procedures seems likely unless the United States takes
some initiative in urging restraint.
- 5.
- The UK Parliamentary announcement
on May 14 regarding their liberalized exceptions policy4 has evoked
adverse Congressional reaction, including a public statement by
Senator McClellan and an
attempt in the House Foreign Affairs Committee to amend
restrictively the Mutual Security Act.
- 6.
- The United States has not been successful in limiting
significantly shipments of goods which other PC’s have been making in increasing amounts to
Communist China under established exceptions procedures. Although
certain PC’s have expressed an
appreciation for the US position on China controls and a willingness
to show some measure of restraint, nevertheless the fact remains
that the United States has little bargaining power in the economic
defense field which would prevent PC’s from making a broader scale use of existing exceptions
procedures than the United States would like to see. However, the
promise by the United States that it will participate eventually in
a CG meeting which they would hope
might lead to a definitive settlement of the China trade control
differences between the US and other PC’s might lead them to exercise some restraint in
respect to China trade exceptions in the intervening period.
- 7.
- It is imperative that there be early inter-agency agreement on the
nature of our approaches to the other PC’s. The following courses of action might be
considered:
- (a)
- The United States might take no further initiative at this
time in discussions with other PC’s on this problem. The other PC’s might tacitly assume that
the United States would not wish a CG meeting until after the November elections,
but we would have no assurance that one would not be called.
Further, each would probably approve shipments as required
by commercial pressures. Since there would be no agreed list
of items subject to a liberalized exceptions procedure,
exceptions might result over the whole range of the China
list leading eventually to a complete frustration of the
differential.
- (b)
The United States might seek to identify through
consultation with other PC’s as limited a list of items as possible
which after final review and authorization by the NSC would serve as the list
of items which could be exported under exceptions
procedures without US objection.
Such a list, to have any chance of acceptance by other
PC’s, would need to
include many items not on the list of 81 previously
approved by the NSC. It
seems questionable that it would be possible to reach
inter-departmental agreement on such a list within a
short period. If, in addition, the various Negotiating
Objectives
[Page 370]
were to be sought it is doubtful that negotiations could
be successfully concluded given the UK rejection and the fact
that PC’s now have
virtual freedom to export under exceptions procedures
without agreement on a list of items and without
acceptance of our Negotiating Objectives.
United States agreement on any list of items for
simplified exceptions procedures might prejudice US
freedom in a consideration of the China trade problem
later in the year.
- (c)
The United States might seek an interim agreement that
the PC’s
- i)
- will be discriminating in their use of the
exceptions procedures so as to avoid vitiating the
central purpose of the multilateral China controls
pending definitive discussion of the
problem;
- ii)
- will permit only limited quantities of items
to be shipped and these to be judged on a
case-by-case basis; and
- iii)
- will have regard to the contribution which the
item may make to the military strength of
Communist China in accordance with a strict
interpretation of the CHINCOM exceptions procedures.
In return, the United States would agree
not to object to exceptions cases which met these
standards and would agree to participate in a CG meeting in late November
or early December to seek a definitive settlement of
differences between the United States and other PC’s on the China trade
control problem.
(In fulfilling this commitment the United States as a
general rule would refrain from raising objections to
Document 782 cases unless there is clear evidence that
the above-listed standards are not being met.)
This course may not materially affect the volume of trade
which could result in any case under any solution short
of a definitive one. It would leave the United States
freer to seek an eventual solution than would agreement
on a clearly defined list. It would provide a period of
experience under which any “copper wire” type of case
could be identified before we have agreed to decontrol.
This course maintains the framework of multilateral
consultation and has the merit of simplicity of
negotiation.
- 8.
- Whichever alternative in paragraph 7 is selected, the
Negotiating Objectives set forth in paragraph 3(b) of the
CFEP report of April 6,
1956 would be sought on their merits as detailed proposals
for their fulfillment are formulated in EDAC. With specific
reference to copper wire, the objective should be to seek as
restrictive a quantitative control as possible since it is
now apparent that a copper wire embargo cannot be negotiated
successfully in the face of the British position. It is
possible that some or all of these Objectives may not be
attainable prior to a meeting of the Consultative
Group.
[Page 371]
Tab A
U.S. NEGOTIATING OBJECTIVES NOT DISCUSSED WITH MR.
LLOYD
- 1)
- With respect to the China differential controls:
- b)
- To continue to apply effective bunkering and voyage
licensing controls to the differential area;
- d)
- To achieve a clearer and firmer undertaking through COCOM to deny or strictly
control to Eastern Europe items which are being obtained by
Eastern Europe from the Free World and then diverted to
Communist China.
- 2)
- With respect to COCOM controls:
- c)
- To obtain acceptance of improved controls over the sale,
transfer and repair of merchant vessels;
- d)
- To achieve improved quantitative control (specific
proposals would be prepared in advance of the CG meeting);
- e)
- To seek improvement of reporting procedures and possible
establishment of “peril points” or other similar techniques
for IL–III items.
- 3)
With respect to general CG/COCOM/CHINCOM considerations:
a) To work toward a closer coordination of CG and NATO on
information related to and on objectives towards the Soviet
Bloc.5
