Foreign Relations of the United States, 1964–1968, Volume IX, International Development and Economic Defense Policy; Commodities

169. Telegram From the Embassy in the Soviet Union to the Department of State¹

Moscow, March 11, 1965.

Unnumbered. I welcome establishment Presidential Committee on East-West trade and venture following observations on how our policy on trade with Soviet Union might contribute modestly to President’s Balance of Payments program.

Dominant Soviet economic purpose in seeking expansion trade with US continues to be procurement technologically advanced equipment and know-how to accelerate industrial development. Their dominant political objective is obtain removal of US discrimination which galls them and which hamstrings attainment their economic objectives.

Our political purpose should also be measure of “normalization” of framework of trade if and as other tensions in our relations with Soviet Union ease. Such “normalization” would have salutary, mainly “atmos-pheric”, political effect by removing one contentious issue and establishing another area of agreement between us. We should not harbor illusions however either as to importance trade questions in overall political relations or extent to which trade will facilitate effective contact with Soviet society. Unlike some countries in Eastern Europe Soviet foreign trade monopoly thus far shows no significant signs of changes, and Western European businessmen and technicians have been fairly effectively isolated from Soviet society even in construction projects in the provinces.

Our major economic purpose should be to maximize possible payments surplus with Soviet Union and not the overall level of two-way trade.

I believe a surplus would be the natural tendency of our trade relations with Soviets given our technological superiority over other sources of supply and apparent dearth Soviet products of interest to US and difficulty of Soviet foreign trade monopoly to operate effectively in our market. A policy of “normalization” of framework of trade would serve to foster this tendency and encourage Soviets spend hard currency earned in Western Europe in United States as they did in case of grain crisis.

Some elements such a policy are:

1. A licensing strategy, which while adhering to COCOM rules would offer Soviets level of technology above what is available in Europe, at same time reinforcing natural tendency American businessmen not give latest technology. Hornig group’s observation this connection particularly pertinent.² Seen against background continuing US and Western European economic development and prosperity and relatively decelerating growth rates USSR, such strategy would (a) not make “significant contribution” to Soviet economic potential; (b) appear be in harmony with current legislation; and (c) constitute prime factor for development export surplus our trade with USSR.

2. Examination possibilities under our legislation and international obligations for tying licensing of know-how to export of American-built plant. We disturbed by number of sizeable deals involving export American know-how in European plant motivated by availability credits, tax considerations, cheaper labor, and desire avoid publicity.

3. Strict avoidance implication in possible economic agreement or official statements that our objective is bilateral balance of trade or that USG concerned that Soviets do not have enough of interest to sell us.³ “Normalization” of trade framework would require granting MFN treatment, when political situation permits to remove basic element of discrimination despite fact no meaning reciprocity possible under Soviet system. But we see little or nothing to be gained by selective MFN approach or system of tariff quotas to shape volume or composition Soviet exports to US. After giving Soviets equal tariff opportunity in our market, sales should be clearly their responsibility although they should be warned price slashing tactics likely cause invocation legislative provisions to prevent injury either US or friendly suppliers.

4. Willingness extend maximum guaranteed 5-year credits for equipment sales, after lend-lease settled.

Soviets will probably shape their position on lend-lease settlement in light anticipated volume and length US credits. They may be expected seek assurance latter would be greater than annual L–L payments. However, to extent Soviets believe L–L settlement would involve opportunity acquire unique advanced American technology, our bargaining position with respect to credits likely improve.

New Soviet leadership shows signs husbanding scarce foreign exchange resources even more carefully than in past and Soviet procurements in West will be even more selective technologically. We cannot estimate with assurance extent to which Soviets likely run deficit with US but believe they might see their interest to develop partial triangular pattern for relatively modest amounts at expense Western Europe provided we offer them unique technology high on their planner’s preference scale.

Kohler

1. Source: Johnson Library, National Security File, Committee File, Miller Committee, Meetings, Box 16. Confidential. Sent via pouch and received on March 22 at 5:27 p.m. Repeated to Paris for USRO.
2. Donald Hornig, the President’s Science Adviser, headed a delegation of U.S. industrial research leaders that visited factories, laboratories, and engineering design institutes from Moscow to Novosibirsk in Siberia during a 2-week study tour in mid-November 1964.
3. Inserted by hand in the margin next to this sentence are the words, “Important? Not sure.”