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

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

McGB

Washington, September 7, 1963.

SUBJECT

• NSC Standing Group Meeting—Discussions of East-West Trade Policy

The planners—the Export Control Review Board—have now come up with a set of propositions on East-West trade to be approved by the President (Tab A).¹ Their recommendations are in response to a Presidential request of May 16, 1963 (Tab B).²

Their recommendations generally provide license for expanded East-West trade and more flexibility for managing this trade. The next step is to transfer the further responsibility in this exercise to the operators to put these recommendations into a meaningful political context. As I see it, this should result in giving Averell Harriman the mandate to come up with proposals for using trade as a lever for developing our relations with the Soviet Union and the Soviet satellites.

As far as the Export Control Review Board’s specific recommendations are concerned, the key passages are nos. 2 and 3. They call upon Commerce to tidy up its licensing practices to insure that these do not weaken the future negotiating posture of the U.S., and also recognize possible advantages in liberalizing existing practices to permit better exploitation of the changing situation in the Communist world.

Recommendation #1 calls for a special study by the Export Control Review Board of the problem of “adequate compensation for U.S. technology.” This could be useful and I see no reason for discouraging it.

Recommendation #5 proposes that the Review Board study the advisability of establishing a U.S. commercial corporation to provide a stronger institutional base for conducting East-West trade under the conditions of expanding trade. This, too, might produce something constructive and the Board should be instructed to go ahead.

However, I am reluctant about recommendations 4, 6 and 7. Recommendation 4 suggests that the Review Board prepare “on an urgent basis a contingency plan for negotiating a bilateral trade agreement with the USSR.” I appreciate the possible advantages of such an enterprise, but I do not think we are quite ready for this step yet and I do not think it would be useful to have the departments become energetically engaged in such enterprise. It could not be kept under wraps long and would not only get in the way of domestic politics; it would get in the way of negotiations with the Soviets. For the same general reasons, I have even greater qualms about seeking Congressional action to eliminate present legislative restrictions on East-West trade (Recommendation 6) and going to our Allies to review COCOM (Recommendation 7). The experts in the field believe we already have sufficient leeway and authority to deal with the problem (via licensing) and even credit arrangements, limited as they are, are adequate to cope with the first anticipated increases in trade. If there is progress in East-West trade, these things will have to be dealt with in a more comprehensive fashion. But at this point our emphasis should be on utilizing the discretionary authority the Executive branch already has and the credit arrangements which already exist and which, in fact, have been liberalized by Justice Department’s rulings. (Tab C)³

In summary, recommendations 1, 2, 3 and 5 should go on to the President for approval and recommendations 4, 6 and 7 should be shelved for the present. With this action out of the way, it should be possible to go ahead with the more important part of the exercise—determining how trade leverage might be usefully exploited with the Communist Bloc.

As I mentioned in two previous memoranda (Tab C and D),⁴ trade with the satellites is a problem of different order and magnitude than trade with the Soviet Union. The two are not tied together; nor should one wait upon the other.

In the case of the satellites, our purpose is to establish broader Western ties with them, giving them an alternative to the Soviets for their economic development and political relations. Go ahead signals have already been given in the case of Rumania because of developments there. But there are interesting opportunities in other Bloc states as well—including Bulgaria, Hungary, Czechoslovakia and even Albania.

As far as the Soviet side of the picture is concerned, there is an important place for the trade item in moving along the dialogue—which already includes such items as security (non-aggression pacts, observation posts, etc.), Germany and Berlin.

All this requires a hard look at the political problems at a high level, by someone with sufficient authority and prestige to direct the exercise, not only through the Department of State, but also through the other interested Government agencies—e.g., Harriman.

The end product of Tuesday’s meeting,⁵ therefore, should be to give a mandate to Harriman to move ahead on both the Soviet and Satellite fronts and to produce recommendations for final consideration and decision by the President.

DK

0. Source: Kennedy Library, National Security Files, Subject Series, Trade, East/West. Secret.
1. Document 327.
2. Document 322.
3. Document 325.
4. Tab D is a memorandum from Klein to Bundy, August 12, on relations with Hungary, Romania, and Bulgaria; it is not printed.
5. Reference presumably is to the meeting of the NSC Standing Group on September 10, which discussed the Export Control Board’s recommendations on East-West trade and “suggested that prompt action on the Board’s recommendations be taken as soon as the Senate voted on the Test Ban Treaty.” (Kennedy Library, Meetings and Memoranda Series, Standing Group Meetings, 1963, September 10, 1963, East-West Trade, Record of Actions)