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

309. Memorandum From Secretary of State Rusk to the National Security Council⁰

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.

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 1²

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 2³

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.

0. 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)
1. Not printed, but see footnote 1, Document 310.
2. Secret.
3. Confidential.