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

182. Airgram From the Embassy in Italy to the Department of State¹

A–424

Rome, November 23, 1966.

SUBJECT

• EXCON Strategic Trade Controls

REF

• State 78387²

Summary

The administration of strategic trade controls affecting the USSR and Eastern European countries has not been a source of major difficulties between the United States and Italy during the past few years, although there was one potentially serious difference involving shipments of large diameter pipe manufactured from US-origin equipment by the Italian firm of Italsider to the Soviet Union. With regard to US-controlled subsidiaries, potential legal and political difficulties in the strategic trade control area have not been realized, and the position of these firms has not caused major difficulties for US/Italian relations or, so far as we can judge, for the subsidiaries themselves. The overall tranquility that has characterized our relations in this area stems in large part both from efforts of the two Governments to keep those issues that have arisen in perspective and under control and from the broad convergence of US and Italian policies. The recent US re-emphasis on the principle that non-strategic trade is one means of building bridges to Eastern Europe has reinforced the general tendency of US and Italian policies to concur as regards that area, although American licensing policies remain more restrictive than Italian. On the other hand, there is a wider gap between US and Italian trade policies towards other Communist areas of the world, viz. the Communist Far East and Cuba, and it is this gap which bears most watching in possibly holding some potential for future difficulties.

Relations with Italian Officials

Working relations between the Embassy and Italian officials regarding strategic trade controls have been generally close and cordial. The Foreign Ministry has been kept informed of US actions in Italy, and has been cooperative with us. Incidents which might trouble this tranquil relationship have been rare; the most serious such case occurred about five years ago.

The Case of Italsider

This case, which is of course well known to the Washington agencies, involved the use of US-origin Verson presses by the Italian firm of Italsider (earlier named ILVA) to manufacture large diameter pipe for the Soviet Union. Since the export of the Verson presses to Italy had been authorized by the US Department of Commerce based on assurances by the Italian firm that the presses would be used to manufacture pipe for sale “in Italy and friendly countries,” the US Government believed that Italsider had violated the terms under which the presses had been exported. The case arose in late 1961, well before multilateral agreement had been secured in NATO to embargo the export of this type of pipe to what was then described as the Sino-Soviet bloc. Partly because the US policy on pipe was still unilateral at that stage, partly because Italsider was government-controlled, and partly (and perhaps most importantly) because of the prospect that a cancellation of the Soviet order by Italsider might (as the Italians argued) have caused unemployment in an economically depressed area, the problem had serious implications for US/Italian relations. However, since discussions on this subject between the two Governments were held strictly confidential, and since an acceptable compromise solution was reached, the dangers inherent in the situation were averted. One positive by-product was Italian support for the US pipe embargo proposal in NATO, and another was the introduction by the Italian Government of procedures to insure against pipe exports to countries controlled by the COCOM list. Except for a relatively minor slip-up, these procedures proved effective.

US-Controlled Subsidiaries

For the most part, US-controlled subsidiaries appear to be operating in Italy without feeling too keenly the restrictions imposed by the Foreign Assets Control Regulations or the Transactions Control Regulations. While the Embassy receives occasional inquiries concerning these regulations, the typical experience here has suggested a willingness on the part of the questioners to abide by these regulations.

Judging by the numerous contacts that have taken place in recent months, especially in Washington, General Electric appears to us to have been concerned to avoid difficulties with US regulations in connection with export operations of the Electronics Division of Olivetti (seventy-five per cent of which is owned by GE)

One case of an inquiry which, as far as we can determine, remains open, involves the desire of Societa Generale Semiconduttori (SGS) to export silicon planar semiconductors to Eastern European countries. SGS is one-third owned by Fairchild Camera and Instruments Corporation, and the SGS representative here was advised to have Fairchild contact the Commerce and Treasury Departments in Washington (see Embassy’s A–216, August 21, 1966).³

One recent case that might have given rise to political and legal difficulties involved the Italian company of Eaton-Livia S.p.A. of Turin, seventy per cent of whose equity shares are held by the Eaton Manufacturing Company of Cleveland, Ohio. Eaton-Livia contracted with the Berliet Company of Lyon, France for the shipment to Berliet of poppet valves which were to be incorporated in trucks destined for Communist China. The order was apparently accepted routinely and in good faith, and the parent company acted in good faith with regard to applicable US regulations. It was feared that should an FAC license have been denied, Eaton-Livia’s minority shareholder, an Italian, could have taken legal measures to secure the fulfillment of the contract with Berliet, and that an issue so joined could have exacerbated US/Italian relations regarding the applicability of American regulations abroad. In fact, however, the FAC license was granted, and the difficulty averted. Subsequently, the Embassy understands that Eaton remained in touch with the Treasury Department regarding the problem of obtaining assurances from Berliet that Eaton-Livia components would not be used in engines and trucks destined for Communist China.

In general, it appears that the status of US-controlled subsidiaries has not caused major problems in the context of strategic trade controls partly because of the judiciousness with which these controls have been administered (as in the case of Eaton-Livia cited above) and partly because the nature of US/Italian relationships has not been such as to naturally lend itself to nationalistic exploitation here of the position of US-controlled subsidiaries. It is of course true, here as elsewhere, that the issue retains a potential capacity for such exploitation, and this potentiality would increase if American assumption of control over elements of Italian industry were to become increasingly conspicuous. In the strategic trade control context, this problem would not necessarily become acute with regard to exports to the USSR and Eastern European countries, since the US could presumably make any objections to a proposed export in COCOM, as well as by denial of a Treasury Transactions Control license, and the multilateral forum might well be allowed to carry the political onus, thus shielding from strain the issue of extraterritorial application of US regulations to foreign subsidiaries. It is of course true that the same cannot be said of possible shipments of non-COCOM list items to Communist China, North Korea, and North Vietnam, and serious problems affecting subsidiaries could arise involving exports to those destinations.

Conclusions

In general, the administration of strategic trade controls towards the USSR and Eastern European countries has not been a source of major difficulties between the United States and Italy during the past few years. Most minor problems that have arisen have been handled with the full cooperation and understanding of the Foreign Ministry and other GOI officials. A major difficulty, of course, involved the Italsider shipments, but this problem was resolved through confidential inter-Governmental discussions, and the realization of its more dangerous potentialities was averted.

The overall tranquility that has existed in this area stems in part from the broad concurrence of policy objectives between the US and Italy, the cordiality of our relations within the Western Alliance, the willingness of Italy to accept the basic fact of American leadership on most East-West issues, and the efforts of both Governments to keep those problems that have arisen in perspective and under control.

The recent American re-emphasis of the principle that trade with Eastern Europe in non-strategically rated goods is one of the means by which bridges can be built has been particularly well received here, and has served to reinforce the broad general agreement on policy between the US and Italy, although US licensing policies remain more restrictive than Italian. Italian Governmental policy has favored trade with Eastern Europe (consistent with its COCOM and NATO obligations). Furthermore there exists in Italy a large and articulate body of opinion which favors the idea of working towards a detente with Eastern Europe and of using trading opportunities to serve this end as well as more narrowly commercial goals. It is also true that national pride was gratified by the fact that Fiat got a large Soviet automotive contract. In this context, US policy statements and the reduction in the Department of Commerce Positive List have been appreciatively received here.

It is of course true that American and Italian policies towards other parts of the world, such as the Communist Far East and Cuba, are much further apart. The Italian Institute for Foreign Commerce (which is affiliated with the Ministry for Foreign Commerce) maintains a trade mission in Peking, and Peking has one in Rome. This encouragement of trade of course contrasts sharply with the US embargo towards Communist China, North Korea, and North Vietnam. There is a similar contrast in policies affecting trade with Cuba. One can speculate that issues relating to these other areas of the world could prove to be weak points disturbing the overall cordiality of US/Italian relations as regards strategic trade controls.

The Department will appreciate that this report would have been more comprehensive, as well as more prompt, had the Economic Defense Officer, Mr. Frontis Wiggins, not been unavailable because of illness. However, he concurs in the broad conclusions of this message.

Reinhardt

1. Source: Department of State, Central Files, STR 13–1. Confidential. Drafted by Melvin H. Levine (ECON) on November 21, cleared by Alan W. Ford (POL) in draft and Theodore J. Hadraba (COMSEC), and contents approved by R.V. Korp (ECON). Repeated to Geneva and Paris for USRO and OECD.
2. Telegram 78387 to 18 posts, November 3, requested the posts in all 14 COCOM countries to provide information on problems with their governments arising from COCOM and U.S. restrictions on exports of strategic materials to the Soviet Union and Eastern European countries. (Ibid.)
3. Dated August 31 (not 21). (Ibid., STR 7–1 IT)