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

312. Memorandum From Secretary of Commerce Hodges to the National Security Council⁰

Washington, July 16, 1962.

SUBJECT

• Export Control Policy

As stated in the memorandum from the Secretary of State,¹ the Departments of State and Commerce have had recurring differences over licensing of exports to the USSR and other Eastern European countries. Pending resolution of this difference in policy view, I have withheld final action on some 59 export license applications. These applications have a total value in excess of $4.8 million. Of this total, approximately $4.4 million involve commodities and $.4 million technical data. (Attachment 1 gives further summary detail on the commodities and technical data in question.)²

I agree completely with the Secretary of State that these pending applications, and indeed our total trade with the Soviet bloc, are “quantitatively” unimportant. Precisely because the amount involved cannot be regarded as significant to the U.S. economy the Administration has, in a sense, an extra burden to show that the United States is not making a “qualitative” contribution to the buildup of the Soviet bloc economy—at the ultimate expense of this country and our allies. In fact, one of the real difficulties confronting us in administering the Export Control Act is the consistent pattern which Soviet bloc countries follow in their trading efforts with the United States. There is little or no indication that I am aware of that the Soviet bloc is genuinely interested in trying to establish a continuing and significant trade with the United States in consumer-type goods produced in the United States in exchange for goods produced in those countries. Rather, the whole pattern is the opposite. The evidence available to me is overwhelming that the Soviet bloc is interested primarily in obtaining machinery, technical data and technically advanced commodities for the purpose of enabling the Soviet bloc to develop its own capacity to produce what it wants rather than expand the scope of a continuing, peaceful trade with the United States.

I am completely in accord with the often expressed premise that trade is one of the few means for influencing the Soviet Union toward a more responsible and peaceful attitude in the international community. I believe the United States should, therefore, endeavor to expand trade with the Soviet Union and other bloc countries. However, where items under control are involved which are, at best, in the gray area, I believe their export to the Soviet bloc should be authorized on the basis of a reasonable possibility the Soviet Union will indeed be influenced to a more responsible and peaceful attitude—not on the basis of a mere expression of hope on our part.

Perhaps the most serious problem in our control of exports to the Soviet bloc is the disparity of controls between the United States and our allies. On practically every one of the applications on which there is strong interagency disagreement the primary reason usually cited for authorizing the export is the fact similar items are available to the bloc from other Western nations. Thus, more often than not, the apparent availability of a similar item from a European source becomes the main reason for authorizing the export from the United States. If there is no possibility of persuading our allies to increase their trade controls, as has been indicated by the Secretary of State, then we are left with the problem of administering whatever level of unilateral controls is deemed appropriate, notwithstanding the position of our allies. In my opinion, we should not set our export controls at the lowest level represented by our allies, and we should not reach the same result indirectly by a process of attrition, that is by approving export applications simply because our allies have not joined us in effective multilateral control of those items in question. At least we should not deliberately follow such a course without establishing a clear record that we have done everything reasonably possible since January 1961 to persuade our allies to much closer agreement with us on the extent of export controls.

I therefore suggest that the level of controls on which we should seek to achieve agreement is that described in Attachment 2.³

The above comments relate to what I would term the “substance” of the issue, apart from the factor of Congressional or public opinion. The latter, of course, deserves careful consideration in view of the recent amendments to the Export Control Act and the investigations of export control during the preceding months by both House and Senate Committees.

Relevant to the issue of multilateral controls, Section 1 of the Export Control Act now has the following language:

"The Congress further declares that it is the policy of the United States to formulate, reformulate, and apply such controls to the maximum extent possible in cooperation with all nations with which the United States has defense treaty commitments, and to formulate a unified commercial and trading policy to be observed by the non-Communist-dominated nations or areas in their dealings with the Communist-dominated nations.

The Congress further declares that it is the policy of the United States to use its economic resources and advantages in trade with Communist-dominated nations to further the national security and foreign policy objectives of the United States.”

Both the House and Senate Committees investigating export control administration expressed strong concern over the lack of effective multilateral control of exports to the Soviet bloc. The floor debate preceding enactment of this amendment gave further emphasis to this same concern. I think the Administration should, as a part of a desirable and necessary defense of whatever is done in administering the Export Control Act, establish a record of doing something additional during the coming months to get agreement with our allies on more effective multilateral controls.

From the standpoint of relevance to deciding individual export license applications, the recent amendment to Section 3 of the Act is the most important. The new language added is as follows:

"Such rules and regulations shall provide for denial of any request or application for authority to export articles, materials, or supplies, including technical data, from the United States, its territories and possessions, to any nation or combination of nations threatening the national security of the United States if the President shall determine that such export makes a significant contribution to the military or economic potential of such nation or nations which would prove detrimental to the national security and welfare of the United States.”

As a statement of Congressional intent and policy, the important factor written into the Act by the above quoted language is the economic criterion. Here again, both House and Senate investigating committees expressed strong concern that the Administration should give proper regard to the economic factor in administering export controls. (No one had any particular question about export control of military items.)

Under the above quoted language, the President has, in a legal sense, very broad administrative discretion in determining what shall be authorized for export and what shall be denied. It is a matter of executive discretion as to what nation or nations are threatening the national security. It is a matter of administrative discretion to determine whether an export makes a contribution to the military or economic potential of another nation and whether that contribution is “significant.” And, finally, it is a matter of administrative discretion as to whether in any event the export, if authorized, would prove detrimental to the national security and welfare of the United States.

Notwithstanding the broad legal authority of executive officials under the above quoted language, the Export Control Act should be administered in such a way as to obtain the support of a majority of the Congress. If this is not done, the reaction is likely to be quick and decisive in further restricting executive discretion by changing the Export Control law or in prejudicing other legislative programs of the Administration.

(In writing to the House Committee my comments on the proposed amendment to Section 3, I stated in effect that the Administration was following the standard implicit in the amendment, that is, we were not authorizing for export any items which make a significant contribution to the military or economic potential which would prove detrimental to the national security of the United States.⁴ In making this statement, I had in mind those applications which have not been approved as well as those which have been approved.)

I cannot agree with the distinguished Secretary of State that the recent Congressional discussion on the Export Control Act was helpful to the Administration. Nor do I agree with the interpretation implicit in the Secretary’s memorandum that the recent changes in the Act reflect a Congressional intent that export controls should be administered in a less restrictive manner than has been the case for the last few months. I gather the very opposite impression from a reading of the floor debate on these amendments and from the action in Congress during the past several months. (Attachment 3 consists of pages from the Congressional Record giving the floor debate on extension of the Export Control Act, including the proceedings in the Senate when the first Conference Committee Report was rejected, and the discussion in both the Senate and House when the final Conference Report was approved.)⁵

To carry out the requirement now contained in Section 3 of the Export Control Act, the Departments of State, Commerce and Defense have agreed that paragraph 11 of NSC 5704/3 should be revised as shown in Enclosure 1 of Secretary Rusk’s memorandum of July 16.⁶

In our appearances before the Senate and House Committees investigating the administration of the Export Control Act, as well as our appearance before the Senate and House Banking and Currency Committees in connection with the extension of the Act we did not convince the Committee members that we should have less export control. I believe it would be unfortunate, and unwise, to adopt a policy of export control which will almost assuredly subject the Administration in the coming months to time-consuming and harassing investigations which the Senate Committee has not yet concluded and for which purpose the House Select Committee is seeking additional funds. In addition, I think there would be a definite possibility that further direct legislative action regarding export controls would be taken at this session of Congress if there is any discernible lessening at this time of restrictions on exports to the Soviet bloc.

I would like further to suggest a course of action which, if successful, would achieve a positive gain for the United States and which, if not productive of concrete results, would nevertheless put the Administration in a position of having a record of doing all that could reasonably be expected in administering the Export Control Act. I suggest that:

(a) The United States endeavor to negotiate a commercial agreement with the Soviet Union and other European Soviet bloc countries. On our part we would offer to guarantee to permit exports of listed items. In return, we would seek to obtain, for example, settlement of outstanding debts, agreement on patents, agreement on measures to eliminate the threat of Soviet dumping of commodities such as oil, as well as agreement to export to us items in which we might have an interest.

(b) That with respect to the area of trade not subject to export control, we undertake in Soviet bloc countries, where arrangements can be worked out, an export expansion program, including trade missions, trade centers, and the like.

(c) That pending efforts as above described, and under present conditions, the United States continue its present level of export controls as administered during recent months by the Department of Commerce, as modified to include the field of technical data.

L.H.H.

Attachment 2⁷

SUGGESTED LEVEL OF MULTILATERAL EXPORT CONTROLS

Maintain toward the non-Communist countries export controls over materials, equipment, supplies and technical data (including plants, processes, designs, components, parts, production equipment and production materials) in specific areas, as is required to prevent such items from making a significant contribution to the military or economic potential of the Communist countries such as their ability to initiate aggressive actions or engage in economic activities inimical to the national security and welfare of the Free World.

The following are examples:

1. Electronics

2. Chemical—including petrochemical

3. Transportation

4. New materials

5. Advanced Research and Development

6. Aircraft

7. Electrical—advanced types

8. Metal working machinery

9. Pipeline and pipeline equipment

10. Steel industry

It should be noted that such controls and actions would not necessarily be imposed on all segments or elements within a specific category. For example, in the metal working machinery category it would be intended to cover only those types embodying recent technological advances, fully automated precision quality production machines.

0. Source: Johnson Library, Vice President’s Security File, NSC, East-West Trade, July 10, 1962. Secret. Transmitted to President Kennedy along with Rusk’s memoranda to the National Security Council (Documents 309 and 311) and Hodges’ letter to the President (Document 310), with an explanatory memorandum by Kaysen, July 17. (Kennedy Library, National Security Files, Meetings and Memoranda Series, NSC Meetings, 1962, 503rd NSC Meeting)
1. Document 309.
2. Not printed.
3. Attachment 2 was not with the source text, but is printed below.
4. Hodges’ letter has not been found.
5. Attachment 3, excerpts from the Congressional Record, was not with the source text. The first conference report (H. Rept. 1949, 87th Cong.), extending the Export Control Act of 1949 for 1 year without amendment, was rejected by the Senate on June 28. The second conference report (H. Rept. 1955, 87th Cong.), which was approved by the Senate on June 29 and the House of Representatives on June 30, contained the bill enacted with the President’s approval on July 1.
6. Document 311.
7. Source: Kennedy Library, National Security Files, Trade Policy, East-West Trade, 6/2-3/63. Secret.