146. Paper Prepared in the Department of State0
EFFECTS OF DENIAL OF MFN BENEFITS TO YUGOSLAVIA AND POLAND
Section 231 of the Trade Expansion Act of 1962,1 requiring the denial of most-favored-nation tariff treatment to Yugoslavia and Poland, strikes at the heart of United States policy maintained for over 14 years with productive results for the furtherance of United States national interests. [Page 320] United States policy during the last three Administrations has been based on the conviction that more active relations in economic, cultural, and political fields with the regimes and with the peoples of Eastern Europe can be exploited to increase the presence and influence of the United States within the communist world and, therefore, to support, stimulate and exert some directing force on courses of action more favorable to us. Section 231 repudiates this long-standing policy and leaves as the alternative a policy of isolating Eastern Europe and withdrawal by the United States from the area, abandoning the field to whatever forces may be at work there. Such a policy would be the antithesis of our current policy and the opposite of our national need. A policy of isolation and withdrawal might be appropriate if the United States were faced with a violent solution to the problems between East and West; one in which hostilities were inevitable if not imminent. In any situation where the United States stake must be protected over the long run, however, in circumstances which more closely resemble peace than war, a policy of withdrawal which attempts to isolate the communist world as a whole would be defensive, barren and destined to fail. This judgment is supported by the developments in Eastern Europe over the past decade and a half, as well as by the increasingly apparent opportunities for Western influence in the communist world.
Yugoslavia’s defection from international communism in 1948 was a landmark in post-war history. This event was a severe blow to the myth of the monolithic unity of communism and demonstrated that despite Marxist theories and Soviet repression, the Soviet Empire was highly vulnerable to nationalistic forces among the countries under its domination. The effects of Yugoslavia’s defection were immediate. From a strategic viewpoint, the Soviet salient to the Adriatic was pushed back, Soviet pressure on Italy and Greece was relieved and the threat to NATO’s Southeastern flank removed. Politically, Yugoslavia’s defection produced a profound effect within the communist world, the repercussions of which are continuing at the present time. The ability of the Soviet Union to hold together its Empire was called into question, and nationalistic forces within the Soviet bloc were given courage and strengthened.
Freed from the necessity to imitate the Soviet system, and exposed to the contagion of Western influences, Yugoslavia has substantially and significantly altered its own economic and political practices. Its unique internal system as well as its position of international independence is at the root of the unbridgeable ideological differences between Yugoslavia and the Sino-Soviet bloc. There is no evidence arising from the latest attempt at a Yugoslav-Soviet rapprochement to indicate that these basic differences can be resolved. On the contrary, the consequences of these differences continue to operate as a divisive influence in the Sino-Soviet [Page 321] bloc. The events of 1956 in Poland and Hungary, Albania’s present defiance of the USSR, and the current Sino-Soviet dispute are all directly traceable in significant measure to Yugoslavia’s independent course since 1948.
After the Yugoslav break in 1948, the United States in concert with its Western allies moved quickly to exploit the windfall to Western interests represented by Yugoslavia’s defection from the Soviet bloc. Yugoslavia was given material and psychological support which assisted it in establishing firmly its national independence. Similarly, when in 1956 Poland embarked on a more independent, albeit circumscribed, course of action, the United States and other Western countries demonstrated by their support that there was a clear alternative to complete dependence upon, and consequent domination by, the USSR.
It is the essence of our policy toward Eastern Europe that those countries which have a will and a capacity to assert and defend their independence can have normal and fruitful relations with the United States. A major instrument of our policy toward such countries has been the provision of assistance, principally in surplus agricultural commodities. Our policy looks forward to the early replacement of such assistance by normal trade and financial relations. It is clear, in any event, that aid is not an acceptable alternative to trade over the long term, either to the United States or to Yugoslavia or Poland. If the past gains of our policy are to be maintained, then we will have to build significant and lasting trade relations with these countries. This, however, will be impossible without authority to extend most-favored-nation benefits.
The denial of most-favored-nation benefits will have a serious effect on Yugoslav and Polish trade and economic relations with the United States. Analysis of trade statistics with Yugoslavia indicates that more than 90 percent of its exports to the United States would be subject to significantly higher duties. Poland has enjoyed MFN benefits since the end of 1960 and thus has only recently begun to develop a market here. The loss of trade with the United States, taken in conjunction with the likely adverse effects of the Common Market on their trade with Western Europe, will leave Yugoslavia and Poland with little confidence in the possibility of relying on fruitful economic relations with the West. We will thus have narrowed their possible courses so that they will be driven back toward economic dependence upon or close association with the Soviet bloc. We will thus have contributed to a goal neither Stalin nor Khrushchev has been able to achieve, the unity of the communist world.
Additionally, by denying Yugoslavia and Poland the ability to earn dollar currency, we will make it impossible for them to service their substantial financial obligations to this country. Yugoslavia’s dollar obligations will increase to $13 million annually beginning in 1964. Poland’s [Page 322] obligations over the next several years are in excess of $10 million annually, including $2 million to be paid to American nationals for claims compensation. In this latter connection, it should be noted that MFN benefits were restored to Poland late in 1960 following its agreement to pay $40 million over a twenty-year period to American nationals whose property was nationalized in Poland. Termination of MFN benefits should call into question the continuation of these payments.
We have every reason to be greatly encouraged by events in Eastern Europe which are unquestionably running in our favor. There are innumerable evidences that in each of the countries of the European Soviet bloc there are mounting pressures for liberalization, for more nationalistic courses, and for better relations with the West. International communism is being subjected to major centrifugal forces which invite our efforts to increase our presence and influence in Eastern Europe. This is not the time for us to write off our extensive investment in Eastern Europe and to ignore thereby our vital national security interests there. Only Moscow could profit from such action.
- Source: Department of State, S/S–NSC Files: Lot 72 D 316, NSAM 212. Official Use Only. Drafted by Katz. Attached to a memorandum from Brubeck to Bundy, January 3.↩
- For text of the Trade Expansion Act of 1962, P.L. 87–794, approved October 11, 1962, see 76 Stat. 872. See Document 130.↩