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

313. Summary Record of the 503d Meeting of the National Security Council⁰

Washington, July 17, 1962.

East-West Trade Policy

Secretary Rusk introduced a discussion of U.S. export control policy by commenting on the thankless task which the Secretary of Commerce had been given by Congress in making him responsible for the administration of the Export Control Act.

Secretary Rusk, in reviewing the existing situation, pointed out that U.S. trade with the Soviet Bloc was very small, but that the Congress continued to have an unusual interest in this subject. He cited changes in the law adopted by the Congress this session which had an effect on the implementation of the Export Control Act. He emphasized that Congressman Kitchin had been successful in adding to the definition of trade to be controlled and the concept of trade contributing to the economic potential of the Soviet Bloc.

Secretary Rusk said that everyone in the Administration agreed on the general policy to be followed in licensing exports to the Bloc, but trouble always arose when judgments had to be made on individual cases.

Trade with the Soviet Bloc is not only a problem for us domestically, but has important multilateral aspects. For example, the UK wants to expand its trade with the Soviet Bloc and reduce the number of items which cannot be traded freely to the USSR. Our allies, he continued, are heavier traders with the Bloc, and, therefore, they will not support us to the extent we wish on limiting or controlling this trade. In addition to the economic reasons, our allies differ with us in principle in that they have basic doubts as to the value of conducting what they describe as economic warfare against the Bloc.

Secretary Rusk proposed that no effort be made now to decide our long-run policy, but that we should decide to deal favorably toward the 59 pending export license applications referred to in the letter of July 16, 1962 from the Secretary of Commerce.¹ He again referred to the present situation in which we are confronting the USSR on Berlin. He said the Soviet Union is now faced with a choice of moving toward peace or toward war in the immediate future. His recommendation was that we not yield at all on Berlin, but we should convey to the Soviet Union our flexibility in other fields, for example, in an easier export license policy. In the event that the Berlin crisis is resolved, Secretary Rusk said we should immediately examine the entire question of trade with the Soviet Bloc.

The President pointed out that our export control policy is more strict than the limitations placed on our allies by the COCOM list. He also noted that the Soviets do not want to buy from us goods which are peaceful, and, therefore, not controlled, but they continue to insist on trying to buy goods which they want for their own purposes.

Secretary Dillon, in response to a question from the President, recalled that when Khrushchev was in the U.S. no increase in trade with the USSR resulted from the conversations at that time because the USSR wanted to make all its purchases on credit.²

Mr. Dillon said we could easily expand our trade with the USSR if we granted credit as is being done by our allies in Europe. He said that the Soviets would be prepared to settle their lend-lease accounts if we gave them credits. He recounted the staged irritation of Khrushchev involving our disinclination to sell the Russians a complete shoe manufacturing plant.

In response to the President’s question, Mr. Kohler said that the Russians would probably be willing to pay us $300 million in settlement of the lend-lease accounts if we provided substantial credits to them. It was pointed out that credits to the Soviet Union are controlled by the Johnson Act³ which would have to be changed if we decided to extend credit to the Russians.

Secretary Hodges, in defending his position of denying the majority of the pending export license applications, said that the U.S. was now selling very little to the USSR. He said the Russians were picking and choosing things they want, with the result that we were helping to build up their economy. He urged that we try once more to persuade our allies to join us in strict control of trade with the USSR. If this attempt failed, he urged that we negotiate bilaterally with the Russians in an effort to increase vastly our trade with them. He viewed present policy as getting us nothing and at the same time exposing us to serious Congressional criticism.

Secretary Dillon said that the new policy agreed to by State and Commerce, in effect, meant that we were throwing away the existing Economic Defense Policy even before we sought to persuade our allies to go along with implementing strict trade control measures. In his view the new proposal goes directly against Congressional wishes expressed this session. The new paper omits several parts of the old paper which he felt should be kept. He recommended that the existing paper be reaffirmed after modifying it in order to meet the legislative changes approved by Congress.

Mr. Ball said that the State Department could live with the existing paper. He urged, however, that we not attempt to persuade our allies to follow us in a policy of strict control of exports to the USSR. He doubted that our allies would be persuaded and the only result would be that our failure would hurt us with Congress and hurt us in other countries. In fact, it might produce in Congress a strong reaction against our allies. He concluded by saying that in his opinion recent legislative changes require no change in our existing export control policy.

Secretary Rusk said that general language was very difficult to draft. He added that he had agreed upon the earlier rules governing implementation of our policy, but that at the time of the Berlin crisis we had made the rules much more restrictive. He believed that we should now return the licensing rules to the level existing prior to the Berlin crisis. He agreed that if the Defense Department said in a specific case that the goods involved were of strategic importance to the USSR, then such a license should be denied. However, if the goods did not seriously affect the military potential of the USSR, he believed the license should be granted.

Secretary McNamara said that the Defense Department agreed with everyone that goods involving the military potential of the USSR should not be exported, but called attention to the differing views on whether it was in the U.S. interest to assist in building up the USSR economy. Secretary Rusk called attention to the mutual benefit of trade with the Bloc. Although our trade is very little, Europe’s trade with the USSR is of real benefit to the West in that it increases the economic health of the European countries.

The President asked whether we want anything from Russian trade other than gold, and the answer was no. He then suggested we approach our allies in order to meet Congressional pressure. Following this approach, we would talk to the Russians about trade in general, and if they were uninterested, we would continue the present unsatisfactory situation.

Mr. Ball said that if we deny the pending licenses, the Russians will conclude that we do not want to trade with them. The subject of trade has always been of great importance to them, even though the amount of trade is very little. He said that our trade this year with the USSR is about half of what it was last year. He then proposed that we talk to our allies about a “fair trade practice” agreement which we would then present to the Russians. His suggestion was that we meet the requirement to talk to our allies by attempting to take the problem of trade out of the cold war area. To do this, he would seek to draft a trade pact with rules. The purpose would be to induce the Russians to trade in a fair way in the West rather than using trade as an instrument of their foreign policy.

The President summarized the discussion by directing that the existing Economic Defense Policy paper be revised to the extent necessary to reflect recent changes in the law made by Congress. Trade for the next two months with the Soviet Union would continue about as it was prior to the Berlin conference. As soon as we knew what was going to happen in Berlin, we would then review our policy. At some point we would tell the Russians frankly that if they keep asking for the same type of goods as they have in the past, it would be very difficult for us to increase substantially peaceful trade with them.

Following the meeting and after the President left, Secretary Rusk and Secretary Hodges discussed for fifteen minutes the pending export license applications. Their agreement is reflected in the Record of Action of the meeting, i.e., most pending licenses will be approved and the export to the Soviet Bloc of automotive manufacturing machinery will be denied.

0. Source: Kennedy Library, National Security Files, Meetings and Memoranda Series, NSC Meetings, 1962, 503rd NSC Meeting. Secret. The source text, presumably drafted by Bromley Smith, Executive Secretary of the NSC, bears 16 handwritten emendations. An attached attendance list, not printed, indicates that 27 persons attended the meeting which took place beginning at 5 p.m. in the Cabinet Room of the White House.
1. Document 312.
2. Reference is to the visit to the United States by Soviet Chairman Nikita S. Khru-shchev September 15-27, 1959.
3. P.L. 73-112, approved April 13, 1934, 48 Stat. 574, as amended, 18 USC 955, prohibited financial transactions with any foreign government in default in its obligations to the United States.