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

310. Letter From Secretary of Commerce Hodges to President Kennedy⁰

Washington, July 10, 1962.

Dear Mr. President: The recent passage of the Export Control Act¹ calls for a reassessment of the use of export controls to achieve U.S. national security and foreign policy objectives. Two major changes were written into the Act:

That the United States should make every effort to obtain maximum agreement among its military Allies on expanded export controls;

That the control system should take into account the “economic significance” of exports to the Bloc.

The first provision could imply the use of the entire gamut of political, military and economic persuasions to achieve maximum controls. The second could lead to a virtual embargo of exports in that almost any additional goods provided to the Soviet Bloc will per se add to its economic potential.

The central questions are whether and how the export control system can contribute to U.S. national security; the answers depend on the nature of the threat:

1. If the Soviet Bloc poses a military threat to the Free World, as U.S. policy currently assumes especially in periphery countries around the Bloc, certainly the maximum agreement with our military Allies on trade controls is desirable. If the Bloc poses a threat to the Free World through either economic penetration in the less-developed countries or a more rapid economic growth within the Bloc which permits a commitment of increased resources to aggressive acts of military, political, economic, cultural, or propagandistic nature, then a control system restricting trade which will add to this potential is certainly desirable. Therefore, the use of our economic and political power to obtain maximum agreement on expanded controls by the Allies would be in order, as the new Act urges.

Obviously, maximum agreement would not mean total embargo, for many items contribute so little to economic potentials that controls would be too costly and unwieldy to impose. Rather, the objective should be the maximum delay of growth of the Soviet Bloc at the least cost to other objectives. This greater control should be imposed over advanced technical data, prototypes, on entire plants which break significant economic bottlenecks, and on capital equipment which substantially reduces the drain on research and development by the Bloc. Little control would be imposed on consumer goods, which would directly raise the standard of living of the Bloc and would continually demonstrate to their people that such amenities come from the Free World. What capital equipment or technical services are exported should be done so as to increase the people’s understanding of the source of these items.

2. If, on the other hand, controls by the United States which are not concurred in by its Allies and which are over and above the current military-oriented controls have no appreciable adverse impact on the economic potential of the Bloc, balance of payments and other considerations would suggest that we abandon all controls other than those imposed under multilateral arrangements (COCOM). It would then be desirable to seek the maximum outlets for the sales of non-military goods in the Bloc in competition with other Free World suppliers. The means of increasing such sales would include an exchange of Trade Missions, the establishment of a Trade Center in Moscow, the signing of a bilateral trade agreement, and other trade promotion devices. If this approach were to be taken, it would obviously be to our advantage to negotiate our new posture with the Bloc so as to obtain concessions for the relaxation of our controls and the introduction of trade promotion arrangements.

Adoption of the first approach—that of persuading our Allies to invoke tighter controls—would pose no serious problems with Congress, but it raises most difficult problems of negotiation with our Allies. Our intelligence suggests that our Allies would take hardly any step in the direction of economic defense measures, and our current negotiations at COCOM demonstrate that they desire to relax current controls. However, the American business community is not convinced that the European business community is eager for an uncontrolled expansion of trade with the Bloc. The assertion by the European businessman that he sells to the Bloc because of government policy and that by European government officials that they cannot control trade because of pressure from the business interests simply do not jibe. We need considerably better intelligence than we have to determine the type and weight of tactics needed to persuade our Allies to become more restrictive. Once this intelligence is gathered, we could determine more accurately the cost in other economic and political relationships with our Allies of pressing for tighter controls. Also, only after a strong attempt in this direction, could we convincingly demonstrate to Congress that the failure to expand controls did not rest on the shoulders of the Administration.

If the second approach—that of relaxing controls—is adopted, our Allies will find us more compatible bedfellows but also more competitive. The Congress on the other hand, and probably the public, would be ill-satisfied with an unexplained adoption of a policy which apparently does not coincide with the intention expressed in the Export Control Act. Therefore, the best possible explanation will be needed of the proposition that controls over non-military items contribute little or nothing to national security or foreign policy objectives of the United States and/or the collateral proposition that economic cooperation with the Bloc (and economic competition in third areas) will gradually mellow the Bloc and draw her into closer association with the Free World.

The present policy of control over items contributing to the military-industrial mobilization base of the Bloc plus unilateral controls by the United States accords with neither of the above approaches and leaves both the Congress (and some of the public) and our foreign Allies (and some U.S. businessmen) dissatisfied. It also possibly gains nothing in our relations with the Bloc. It therefore seems to me that we have chosen the least potentially successful policy—that of seeking neither maximum adverse impact on the Soviet economy nor the maximum economic trading contacts with the Bloc for commercial and political advantage.

Once the decision is made on these basic approaches, a series of pending cases (including $4.5 million of technical data and equipment in production of tires and petrochemicals and other items and $43 million in automotive machine tolls) and procedural questions will be resolved.

Respectfully,

Luther H. Hodges

0. Source: Johnson Library, Vice President’s Security File, NSC, East-West Trade, July 10, 1962. Secret. Transmitted to the President along with Rusk’s memoranda to the National Security Council (Documents 309 and 311) and Holdges’ memorandum to the National Security Council (Document 312) with an explanatory memorandum by Kaysen, July 17. (Kennedy Library, National Security Files, Meetings and Memoranda Series, NSC Meetings, 1962, 503rd NSC Meeting)
1. Export Control Act of 1949, as amended by P.L. 87-515, approved on July 1, 1962; 76 Stat. 127; 50 USC App. 2021-2032. Airgram CA-298 to Belgrade, July 9, summarized the amendments as follows: 1) amendment to Section 1 of the Act broadened the scope of controls to exports of economic significance as well as those of military significance; 2) amendment to Section 2 called for U.S. cooperation with its allies to the maximum extent possible, and the formulation of a unified trading policy by the non-Communist world; 3) amendment to Section 2 called for conduct of U.S. trade with Communist-dominated countries so as to further U.S. national security and policy objectives; 4) amendment to Section 3, a compromise amendment, required a finding to deny a license, while the original proposal required a finding to grand one; and 5) amendment to Section 5 made willful violation of the Act a felony rather than a misdemeanor, and increased penalties accordingly. In this form the Act was extended for 3 years. (Department of State, Central Files, 400.119/7-962)