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

170. Memorandum From the Under Secretary of State of Economic Affairs (Mann) to the Under Secretary of State (Ball)¹

Washington, March 24, 1965.

SUBJECT

• Briefing Memorandum Prepared by Mr. Trezise for East-West Trade Meeting

I am in agreement with the general trust of Mr. Trezise’s recommendations concerning East-West trade. I think the central point we should make is that the Administration needs flexibility in dealing with particular situations as they arise and that the present laws tend to put us into a straightjacket.

While we need a general rationale for the general direction of our policy, it seems to me important that we not commit ourselves to details. Rather we should react on an ad hoc basis to opportunities which present themselves, after weighing carefully the advantages and disadvantages of a particular transaction in a particular country. I am not convinced, for example, that we need to talk in terms of “most favored nation treatment” at this time. Another example, where we ultimately come down on the export credit problem should be influenced not only by the terms that other exporting nations give, but also by estimates on what effect such credits will have on military potential, the borrowing capacity of the Soviet Bloc countries, the extent to which Soviet Bloc countries would insist on bilateral trade balances, etc. In short, I think our goal should be flexible both as regards substance and timing of all the various issues that arise under the title of “East-West trade.”

Attachment

Washington, March 23, 1965.

Memorandum From the Assistant Secretary of State for Economic Affairs (Trezise) to the Under Secretary of State (Ball)²

SUBJECT

Your meeting with the President’s Committee on East-West Trade, March 25, 9:30 a.m.³

You are scheduled to meet with the President’s Committee on East-West Trade at 9:30 a.m. on Thursday, March 25.

The Committee has now had two intensive sessions with officials of the agencies most concerned: State, Commerce, Defense, Agriculture, and CIA.

I believe that most of the members now feel that our present control policy on East-West trade has little to commend it. The AFL-CIO member of the Committee probably would not share this judgment, at least publicly. The business members are divided, I suspect, as between those who would be ready to report to the President and to the public that radical changes should be made in our policies and those who are reluctant to accept the possible public relations consequences of signing a report that had come out positively for a policy of expanded East-West trade.

The more doubting members of the Committee, leaving aside Mr. Goldfinger of the AFL-CIO, still wish to be persuaded that the foreign policy case for more East-West trade is strong enough to overcome the domestic political case against the proposition. For this reason, the meetings on Thursday with you and the Secretary are likely to have a good deal to do with determining the character of the final report.

I would suggest that your presentation set out a series of broad policy considerations, somewhat as follows:

1. Our policy of trade control vis-a-vis the Soviet Union and Eastern European Communist states began at a time when it was both a political and a military imperative. The Berlin blockade and the Korean War gave us no reasonable alternative. Moreover, at a time when we commanded a large part of the world’s industrial output and when the USSR was still recovering from World War II, an embargo policy made a certain amount of economic and strategic sense.

2. Like many public undertakings, however, the trade embargo policy has lived, in a modified form to be sure, well beyond its appointed time. The Soviet Union is the world’s second biggest economy, with a gross output of more than $280 billion per year. Our industrial allies in Western Europe and Japan are almost completely unwilling to prohibit trade except in those goods most closely related to military capabilities. In these circumstances, it is quite naive to believe that any limits that we may put on exports to the USSR can have other than the most marginal impact on Soviet capabilities. In almost every case, our denial of an export license merely means that the Soviets will purchase a similar item, in slightly less desirable form or at slightly higher cost, from a supplier in Western Europe or Japan. We forfeit our chief commercial advantages, that is, more advanced technology or higher quality, but we do not prevent the Soviets from accomplishing substantially what they wish.

3. Moreover, since the Russians must pay for what they buy in the West, their gains from trade obviously cannot be more than a fractional part of the value of any transaction. When we measure these possible gains against the capacity of an enormous and generally modern industrial economy, we clearly are talking about very small peanuts indeed.

4. We have been in this situation for a number of years. For reasons related both to domestic politics and to the ups and downs of our relations with the USSR, we have not made a major drive for public and Congressional approval of a new policy. At the same time, we did respond promptly and effectively in 1948, under President Truman, when Yugoslavia elected itself out of the Soviet Bloc. We did the same in 1956–57 with Poland, when President Eisenhower and Secretary Dulles decided that we should give a positive response to the obvious indications of Poland’s move toward a more independent position in Eastern Europe. And, last summer, we made a reasonable start toward a more normal and promising relationship with Rumania by way of a modest and limited trade agreement.

5. These actions were taken in the belief that our interests would be advanced if we could help the Eastern European states to get into a more normal and civilized relationship with the Western world. We did not ask Yugoslavia to give up its ideological attachment to communism. We did not ask Poland and Rumania to defy the Red Army. We did look for (a) some easing of the internal control system, (b) a shift away from a posture of slavish adherence to the USSR, and (c) a more sensible attitude toward the US and the West generally.

6. The results of trade and related policies have been generally good. Although Yugoslavia and Poland are still under Communist rule, Yugoslavia has not only maintained its independent status but it also has undergone a fairly notable process of liberalization. If it is not now a parliamentary democracy, its regime at least has moved in a desirable political and economic direction. Poland has come some distance from total dependence on the Soviet Union and from the most rigorous and hateful forms of the police state.

7. We have long since abandoned any idea that we should attempt to liberate Eastern Europe by force of arms, or that we could successfully change Eastern European regimes by subversion. We must deal with them through a general policy of military deterrence, through the stand-ard devices and procedures of diplomacy, through our informational effort and our cultural and scientific exchanges, and through trade. At present, we are least able to use trade as the political vehicle that it could and should be.

8. By law, we are required to treat the Soviet Union and most of the other Eastern Europe Communist states as beyond the range of normal commercial intercourse. We cannot accord to any of the Eastern European countries except Poland and Yugoslavia non-discriminatory tariff treatment. We operate the Export Control Act so as to embargo a wide range of industrial commodities to many Eastern European destinations. Even when we engage in trade in so ordinary and peaceable a commodity as wheat, we find it necessary to make special and unusual justifications to the Congress. We have an outstanding lend-lease account with the USSR that we cannot negotiate because we cannot admit Soviet exports to our market on a non-discriminatory basis.

9. It is time that we put ourselves in a position to seize the political opportunities that already exist or may arise in Eastern Europe. Hungary and Czechoslovakia have given us numerous indications of being ready to improve relations with us. Serious trade talks with them would provide a means—one of the best available means—to test their intentions and to determine how far we should go in normalizing our relationships.

10. A return to more satisfactory relations between the US and Hungary and Czechoslovakia would make clear that Bulgaria and East Germany remain the last of the old-line satellites. Whether we and some of our West European allies might then be able to exploit the East German situation is obviously speculative. But it would be a new and changed and perhaps promising context in which to pursue a German policy.

11. Finally, we have the question of the Soviet Union. There is no doubt that our trade policy long has grated on Soviet sensibilities. We have continued to treat the USSR as a pariah state long after everybody else in the West had decided to call off the Cold War in the commercial field. The Soviets seem to give special weight to US industrial accomplishments. More fundamentally, however, they must see our trade relationship as a symbol of our more general relations.

12. We cannot be certain that a trade negotiation with the USSR would succeed. The lend-lease problem could be an insuperable obstacle. Or the Soviets might ask for too much—long-term credits, perhaps—in the belief that we were the anxious side. It would be useful, in any case, to explore the possibilities for widening the Soviet dialogue. If a trade arrangement came off, we would expect to have periodic discussions with the USSR in which trade issues inevitably would be mingled with other questions. We would hope for an accelerated movement of our businessmen to the USSR and of senior Soviet officials here. There are no hazards for us in this. Rather, we expect to have a modest additional civilizing influence on our great antagonist, to the benefit of our mutual prospects for national survival.

13. What capabilities do we need? Paramount is discretionary authority to grant MFN to East European states, as a part of any new trade agreement. Without this power, it is difficult to see how we can move at all.

14. We need to create greater public and Congressional awareness that our export controls serve little security purpose. The language of the Export Control Act is permissive enough. We probably should not try to amend it if we decide to seek MFN authority from the Congress, since that would require two legislative efforts on the same front. But we will need to build a legislative record that the Act is to be viewed as a trade-permissive statute, subject to the President’s judgment about our national security objectives.

15. Our existing credit capabilities are not equal to those of the West Europeans, so far as East Europe is concerned. But we need not push into the area of longer term credits in order to expand trade to levels more politically useful to us. And all the objections to long term credits still hold. Above all, we ought not to participate in a race to ease the Soviet balance of payments problem. Rather, we should try to promote the need for transferring Soviet resources into export industries and for directing Soviet energies into learning more about the wide world outside.

1. Source: Department of State, Central Files, STR 1. Limited Official Use. Sent through S/S. A handwritten note on the source text reads: “U saw.”
2. Limited Official Use. Sent through Mann.
3. A transcript of Ball’s presentation to the Miller Committee on the morning of March 25 along with the following question-and-answer session is in the Johnson Library, National Security File, Committee File, Miller Committee, Minutes of Meeting—Notes, Box 24.