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

326. Minutes of the Meeting of the Export Control Review Board⁰

Washington, August 15, 1963.

• Secretary of State Rusk
• Secretary of Defense McNamara
• Secretary of Commerce Hodges
• Under Secretary of State Ball
• Assistant Secretary of Commerce Behrman
• Deputy Assistant Secretary of State Trezise
• Deputy Assistant Secretary of Commerce Wyman
• Mr. Mose L. Harvey, Policy Planning Staff, State Department

Secretary Hodges opened the meeting by saying that he had drafted a letter to the President¹ to cover the paper responding to the President’s memorandum addressed to the Export Control Review Board of May 16, 1963.² He asked Assistant Secretary Behrman to review the background of the proposals to the President and then asked for comment.

Secretary Rusk indicated he had no adverse comments on the report itself but offered his views about the current state of Soviet policy and US-USSR relations and about the place of trade relations in our over-all relations with the Soviets.

He cautioned, first of all, against being swept away by excessive optimism. Soviet foreign policy has appeared to change before. Each time, however, hostility toward the West has come to the surface again. Present comparatively friendly attitudes could change overnight. The break between Communist China and the Soviet Union seems to be genuine but we cannot be certain about its durability. There could be a reversal of Chinese or Soviet attitudes and a restoration of the Sino-Soviet common front against the West.

On the other hand, Secretary Rusk said, Soviet policy probably is in a state of flux. It is often said that we must wait for a change in “the atmosphere” before we take steps in trade relations or in other matters to ease our relations with the Soviets. The trouble with that axiom is that the things that we say should not be changed without a change in the atmos-phere are the very elements that make up the atmosphere. In our trade relations with the Soviets and the European Soviet Bloc, he said, we should begin actively to probe and explore. There is plenty of room for scouting the terrain, he thought, as for example, by being ready to sell fertilizer plants and other items. Our willingness to sell certain kinds of advanced plant equipment for cash, even without pushing for relaxation of the existing ban on longer term credits, would be a signal to the Soviets of our willingness to move ahead on a fair basis. We need not rush too far or too fast. There is much exploration and scouting to be done before we will be ready to negotiate a bilateral trade agreement, although such an agreement may indeed be the end product of our explorations.

Secretary Hodges pointed out that American businessmen frequently cannot understand the fact that, although Western Europe was trading with Russia in an increasing amount, we were still maintaining a very tight restriction on such trade. In reply Under Secretary Ball pointed out that differences exist between European attitudes toward trade with the Bloc in that there has been a closer historical connection and a heavier reliance on trade by the Europeans than by the United States.

Secretary Rusk mentioned that Khrushchev had said to him, on the question of trade, that both sides should get an advantage. Secretary Rusk thought that we sometimes tend to forget this truism. In loosening our trade controls, we should be watchful, not only to see that we are making satisfactory trade exchanges but also to be sure that progress is being made in other areas. At the moment, Rumania seems to be ripe for a push toward better relations. We should be forthcoming promptly on a number of trade items in which Rumania is interested. If, then, the hoped-for improvement in our relations takes place, we should liberalize further.

Returning to the question of the Soviet Union itself, Secretary Rusk expressed the view that it was almost inevitable that Ambassador Dobrynin will raise the trade issue when he begins his talks with him. Secretary Hodges agreed and referred to the invitation to Under Secretary of Commerce Roosevelt to visit the Soviet Union as indicating the USSR’s interest in expanded trade. He went on to say that he is frequently asked by American businessmen why the Europeans can sell such large amounts to the Soviet Union while Americans are restricted in their access to the Soviet market. In effect, Secretary Hodges said, they are asking whether we are right and the Europeans wrong about proper trade policy toward the Soviet Bloc. He mentioned in this context Soviet statements that a U.S. export market of $1-1/2 billion per year could be developed in the Soviet Union.

There was a general discussion of the possibilities of the Soviet market. Secretary Rusk and Under Secretary Ball both stressed the USSR’s payment problem and the limits which this sets on the Soviet purchases. The Soviets seem to be unwilling to expand imports by gold sales and for the most part resist multilateral balancing of trade in favor of fairly strict bilateral equivalence. Furthermore, Under Secretary Ball noted, the Johnson Act prevents us from extending credits of up to five years which the European suppliers do provide. The Johnson Act thus sets the limits on exports to the Soviet Union at fairly low levels.

Secretary Rusk asked about the recommendation that a U.S. Commercial Corporation be formed to conduct trade with the Soviet Union. He expressed his own misgivings about this idea. Mr. Wyman asked how otherwise we could get a quid pro quo for our sales to the Soviets. Under Secretary Ball observed that this could be achieved through a bilateral trade agreement, to the extent that private firms were not able to hold up their end in bargaining. He pointed out that the Europeans had not found it necessary to establish governmental agencies to conduct trade with the Soviets and he wondered if we needed to conform our economy to that of the Soviet Union in order to conduct trade.

Returning to the problem of credits, Secretary Rusk said that he would be willing to consider the legislative action needed to liberalize our position if we could have credit liberalization accompanied by a Lend-Lease settlement. Secretary Hodges thought a Lend-Lease settlement well worth exploring. Secretary Rusk and Under Secretary Ball agreed.

Secretary McNamara, in response to a question from Secretary Hodges, said that to him the question of trade relations with the Soviet Bloc was “purely a foreign policy matter.” He had thought for years that we have been misjudging and grossly overestimating the impact of our trade controls on Soviet military power. While the controls undoubtedly commend themselves to the body of American opinion and in political terms are probably necessary, the fact is that peaceful trade between the United States and the USSR would tend on the whole to mold the Soviet Union in the Western image. He felt that it should be U.S. policy to seek to alter Soviet attitudes and he thought that a positive attitude toward trade was an important aspect of such a policy.

Secretary Rusk agreed noting that a recent U.S. Congressional delegation to Russia had come out in favor of a greater exploration of the possibilities of trade. Secretary Hodges noted that even two members of the Kitchin investigating committee indicated that they were willing to expand trade on a quid pro quo basis.

In another brief exchange with Secretary Hodges, Secretary Rusk mentioned some of the small indicators for a change for the better in Soviet attitudes toward the West, such as the end of jamming of VOA and BBC broadcasts, and an apparent increase in Soviet receptivity to scientific exchanges. He thought that there may be basic reasons for a change in the Soviet viewpoint toward the West and in Soviet policy. One, of course, was the conflict with Communist China, but there was also, first the increasing awareness among the Soviet leaders of the awful hazards of atomic conflict and, second, a desire, at least on the part of Mr. Khru-shchev to make progress toward the solution of internal economic problems, foremost of which is a conflict between enormous expenditures on the military budget and the goal of higher living standards for the Russian people.

A number of possible actions were then discussed:

Secretary Rusk said that it was his impression that there was considerable interest in the Congress in the question of trade with the Soviets. The Senators who had accompanied him to Moscow had mentioned the matter and Senator Williams of Delaware had asked for an assurance that the test ban pact had not been accompanied by an understanding on a trade agreement. Secretary Rusk thought that he, Secretary Hodges, and Secretary McNamara should explore informally with the Hill leadership the whole area of trade with the Bloc, not in relation to any immediate legislative requests, but as a means of keeping the Congress informed of the possibilities for a changed U.S. position in trade matters. This suggestion was accepted by the other Secretaries.

Secretary Rusk then suggested that after he had begun his talks with Dobrynin, Secretary Hodges join them some Saturday afternoon for discussions in a relaxed atmosphere, perhaps on a boat on the Potomac. This proposal was also agreed.

Secretary Rusk asked that in addition to the studies proposed in the recommendations to the President, the agencies concerned take a close look at the possibilities for purchases from the Soviet Union and at the whole Soviet payments problem.

Secretary McNamara said that it appeared that we could proceed promptly to liberalize trade with the satellites, whatever the decision about the Soviet Union itself. Secretary Rusk agreed and said that Rumania was the most immediate matter to be looked at. He thought, also, that Secretary Hodges should have “something in his pocket” for his forthcoming visit to Czechoslovakia. Secretary Rusk thought that the Czechoslovakians may be ready for expanded trade with the United States, since international trade represents a very large factor in the Czechoslovakian economy.

At this point there was a brief discussion of press inquiries. It was agreed that the agencies concerned should not, at this stage, give backgrounders or otherwise talk to the press about an increased U.S. interest in Soviet trade possibilities.

The three Secretaries agreed that the report drafted in response to the President should be forwarded and each signed the letter of transmittal.

0. Source: Department of State, S/P Files: Lot 70 D 199, Economic Policy, 1963.
1. Secret.Document 327.
2. Document 322.