Foreign Relations of the United States, 1961–1963, Volume IX, Foreign Economic Policy

308. Memorandum From the Acting Assistant Secretary of State for Economic Affairs (Trezise) to Secretary of State Rusk⁰

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, 1962¹ 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

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.

0. 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.
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.