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

325. Memorandum From David Klein of the National Security Council Staff to the President’s Special Assistant for National Security Affairs (Bundy)⁰

McGB—

Washington, August 14, 1963.

SUBJECT

• East-West Trade

The Rostow paper on “U.S. Policy on Trade with the European Soviet Bloc”¹ is in the process of revision as a result of a series of talks last Thursday and a new and more forthcoming version is supposed to be in the offing.²

The first draft talked in common-sensible terms about the character of our present trade policy toward the Soviets—emphasizing that its primary considerations were largely political rather than strategic or economic and recognizing that trade provided useful political leverage in dealing with the Soviets. But its recommendations, in effect, denied the use of trade as an instrument for political bargaining. It set as a pre-condition for a modification of our present policy “concrete evidence of Soviet interest in generating improved relations with the U.S. and of Soviet willingness to take, on the basis of mutual concessions, specific steps necessary to effect this improvement.”

This perhaps is unchallengeable as a statement of abstract principle, but as an operating guideline its value is questionable because it leaves little or no maneuvering ground for useful political bargaining.

It is not enough to say the trade question should be reconsidered after the Soviets have taken specific steps to bring about an improvement in the existing situation. Improvement will only be possible by some give and take on both sides, and it is unrealistic to suggest that the other side must first demonstrate its good intentions before we can consider meeting them part way. For it is in the give and take process that the intention of the other side can be ascertained.

No one can seriously assert that our present relationship with Moscow can properly be characterized as “detente” or “rapprochement.” Whether either of these is in the cards remains to be seen. But the indisputable fact is that there is movement—the first in a long time—and there is an obligation on our part to attempt to ascertain its course and assess its significance.

In this context, it makes little sense to assert that insofar as the possible use of trade in this bargaining exercise is concerned, the only real alternative is to wait and see what the other side does. Some waiting and seeing is called for. But carried on over a prolonged period, it will not produce much. If there is to be progress, there must be movement on both sides, and there is no convincing argument for excluding trade from the dialogue if it provides useful leverage.

In this context, it is important to define the kinds of trade and trade restrictions we are talking about.

There were the restrictions on crabmeat which were lifted early in this Administration. The impact of this action was largely psychological. Politically and economically it did little either for us or the Soviets except to clear away something which had only nuisance value.

At the other end of the spectrum there are broad legal restrictions in the form of multilateral agreements (COCOM) and legislation—the Battle and Johnson Acts. And there is little that can be done about these limitations since this clearly is not the time to seek modification either of the multilateral agreements or legislation.

But in between the crabmeat exercise and the treaty and legislative barriers, there is also a considerable area of potential activity that is controlled by administrative action—export licensing. Its character depends on the way the Secretary of Commerce’s discretionary licensing authority is used. Historically, the restrictions have been severe and rigid because the political decision was taken to keep trade with the Communists at an absolute minimum. As a consequence, the United States has less trade today with the Soviet Union than any of its major Western European Allies.

The Soviets, of course, are not interested in trade in general; they are interested in specific kinds of trade—selected heavy industrial goods and industrial plants. Khrushchev, in his conversations with the Secretary and Governor Harriman, talked about the possibilities of buying American chemical plant equipment. In other contexts, the Soviets have talked about buying tire plants and transportation equipment. All of these commodities, the experts have assured me, can actually be sold to the Soviets now, if a political decision were taken to do so. They are not COCOM items; nor do they appear on any other trade ban list. They merely require an export license which is within the Secretary of Commerce’s discretion to issue.

One “expert” has said that if the political climate is right and the political decision is taken to lift—to whatever degree is deemed desirable—East-West trade barriers, what needs to be done is “to liberalize export licensing, and let them (the Soviets) come and shop up to their ability to pay, by normal marketing of their commodities, gold sales, or settlement in foreign exchange earned elsewhere.”

But the exercise is somewhat more complicated, for as pariahs in our market place, the Soviets have several additional problems to contend with:

(1) The Soviets and their satellites are not entitled to MFN privileges (and are unlikely to get them) and therefore must face unequal competition.

(2) In the sale of their goods here, the Soviets and their satellites have to contend with importer and consumer resistance, and, in some cases, boycott.

(3) Moreover, the Soviets and their satellites do not have easy access to credits. The Battle and Johnson Acts cut off the most important sources, although by recent rulings on the Johnson Act, the Justice Department has in fact made it possible for the Communist states to apply for short-term commercial credits.

And over and above these, there are several political factors which must also be taken into account. Assuming that the licensing and payment problems can be dealt with, the fact is if trade with the Bloc should reach substantial proportions before the necessary political groundwork is laid on Capitol Hill—even though legislative requirements are not directly involved—the entire operation could boomerang and complicate rather than help the situation. Moreover, at some point in any large-scale trade exercise with the Soviets, lend-lease is almost certain to rear its head and create political, if not legal, complications.

Having said all this, the essential points are:

(1) Even within the present restrictive parameters this government has substantial authority already at its disposal to expand trade with the Soviet Bloc, provided such trade makes political sense.

(2) In our dialogue with the Soviets, the trade question is certain to arise again and at the very least we should be prepared to let the Soviet leadership know that we would consider liberalizing existing trade arrangements if the political developments were right—that we would be prepared to meet them part way if they met us in equal measure on significant ground.

(3) Above all, timing is a factor of major importance. While we clearly should not move ahead precipitously (and there will be no end of advice to this effect), it is equally important that we remain alert to political developments and aware of the importance of not holding back so long that an opportunity for significant East-West movement might be missed.

As I mentioned above, a revised Rostow paper is in the making which should be here later this week. This, I would hope, would provide the basis for further discussion and instructions.

DK

0. Source: Kennedy Library, National Security Files, Subject Series, Trade, East/West. Secret.
1. Document 324.
2. The revised version of the Policy Planning Council paper has not been found.