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

77. Memorandum From the President’s Special Assistant (Rostow) to President Johnson¹

Washington, June 7, 1968, 6 p.m.

Mr. President:

One of the results of last year’s furor over arms sales to poor countries was the Reuss Amendment to the Ex-Im Bank Act.² It stipulates that Ex-Im can finance such sales only when the President has determined that each sale is “in the national interest.”

In the attached, Charlie Zwick (Tab A)³ and Nick Katzenbach (Tab B)⁴ recommend that you sign a Determination covering about $85 million in military sales to 8 countries—7 in Latin America, plus Taiwan. Messrs. Clifford, Gaud and Linder concur in this recommendation.

The Reuss Amendment says that your determination must take into account our interests in avoiding (a) arms races among countries not threatened by the communists, (b) the arming of military dictators who are denying social progress to their people, and (c) diversion of resources from economic development. State argues that these sales would not promote arms races because they are largely for replacement of worn-out equipment and they represent a means of restraining the recipients from buying costlier and more sophisticated weapons. The finding with respect to military dictatorships is not open and shut with respect to Argentina and Taiwan, but in both cases there is a powerful evidence that the military regimes are not “denying social progress.” State further argues that these expenditures would not represent “needless” diversion of resources from development and that in any event our terms (6%, 7 years on the average) are generous enough to soften the foreign exchange impact.

At Tab C⁵ is an illustrative list of the type of equipment to be provided. The exact amounts of each item would be subject to negotiation with each country within the ceiling figure established in your Determination.

This Determination does not settle the question of whether and how the Conte/Long Amendment to the Foreign Assistance Act may apply to these sales.⁶ All these countries except Taiwan are subject to the Conte/Long requirement that we deduct one dollar of economic aid for every dollar a poor country spends on a “sophisticated weapon system.” As of now, we don’t think that any of the items for Latin America contained herein will be defined as “sophisticated”, but that determination is being made through a separate procedure. If we have problems on that front, we will come back to you.

I join in the recommendation that you approve. But I would not be doing my job if I did not point out that it is a close and subjective judgment whether these sales will involve diversion of funds from development. The Argentine “need” for 15 supersonic jet fighters, for example, is a subject on which reasonable men can and do differ. What we can say, although it will never satisfy Mr. Reuss, is that our only hope of keeping these military “needs” within bounds is to keep our chair in the game by offering a minimal ante. We do much more to accomplish Reuss’ ends by making modest sales to these countries than by walking off in a huff and leaving them to the less tender mercies of other suppliers.

If you approve, we need your signature on the Determination at Tab D.⁷ The Congress would be notified of your Determination within 30 days, as required by law.

Walt

1. Source: Johnson Library, National Security File, Subject File, Presidential Determinations, Vol. IV [2 of 3], Box 40. Confidential.
2. The Export-Import Bank Act of 1945, P.L. 173, approved on July 31, 1945 (59 Stat. 526) as amended by Title III of the Foreign Assistance and Related Agencies Appropriation Act of 1968, approved on January 2, 1968, P.L. 90–249 (81 Stat. 943). The amendment was sponsored by Representative Henry S. Reuss (D.-Wisconsin).
3. Tab A, a June 6 memorandum from Zwick to the President recommending that he sign the Determination to authorize the use of Export-Import Bank funds for foreign military credit sales to certain economically less-developed countries, is not printed.
4. Tab B, a May 25 memorandum from Under Secretary of State Katzenbach to the President recommending that he sign the Determination, is not printed.
5. Not found.
6. See footnote 2, Document 73.
7. Tab D, a June 8 memorandum from President Johnson to Under Secretary of State Katzenbach, is a signed copy of Presidential Determination No. 68–10 authorizing Export-Import Bank Participation in Credit Sales to Certain Economically Less Developed Countries. It is not printed. A handwritten note on the bottom of the first page of the source text indicates that S/S was notified of the President’s signature on June 8 at 11:25 a.m.