Foreign Relations of the United States, 1964–1968, Volume XXXII, Dominican Republic; Cuba; Haiti; Guyana

227. Memorandum From the Under Secretary of State (Ball) to President Johnson¹

Washington, February 06, 1964.

SUBJECT

• Free-World Economic Ties with Cuba

In response to NSAM 274 of December 20, 1963 (attached) which was issued as a result of the meeting on Cuba which you conducted on December 19,² the Department of State, with the collaboration of the Department of Commerce and the Central Intelligence Agency, has prepared the attached study on free-world economic ties with Cuba.

Discussion

1. Organization of Study.

The study is presented in two parts. Part One contains a summary view of current free-world economic relations with Cuba, a brief statement of our efforts to date to restrict and reduce those relations and the results of those efforts, a discussion of the prospects of success of additional efforts, and recommendations for further measures. Part Two contains individual papers setting out, in essentially the same format as Part One, the details of the economic relations between Cuba and the twelve free-world countries having the most important trade and transportation ties with the island.

2. Principal Findings

(a) Current level of economic ties: Fragmentary data for 1963 indicate that free-world trade with Cuba increased perhaps as much as $50–75 million over 1962, to a total of $250–$320 million. The increase reflects larger free-world purchases of sugar at higher prices because of the world sugar shortage. There appears to have been little or no increase in free-world exports to Cuba. Calls by free-world vessels in Cuba fell 60 percent in 1963, with British and Lebanese ships now predominating. Aviation ties with Cuba were sharply reduced in 1963, with Spanish activity running counter to the general trend.

(b) Mixed results of efforts to prevent Cuban acquisition of US-origin and critical commodities: Very small amounts of US-origin goods have slipped through. Some significant critical commodities of non-US origin have been denied, but substantial amounts of such items have in spite of our efforts been supplied.

(c) Prospects in aviation and shipping: There is a reasonable chance for a modest decrease in free-world shipping in 1964. Aviation ties will probably be cut back, but the conclusion of a US–USSR aviation agreement will reduce our leverage.

(d) Basic consideration affecting trade: On the Cuban earnings aspect of the problem, the world-wide shortage of sugar and increased sugar prices make it impracticable at the present time to do much in the way of shutting off Cuban sales of sugar to free-world buyers.

With these increased earnings, Cuba is now embarked on a major effort to acquire free-world goods, not only to meet present shortages but to provide the means for an upturn in its economy.

Our problem is thus not just reducing the present level but preventing such an upturn. However, this is going to be increasingly difficult as, with the increased foreign exchange reserves at its disposal, Cuba will be an increasingly attractive customer and, even where blocked from direct purchases from the free world, may be able indirectly to procure some goods through the Soviet Union. Also, of course, the Soviet Union can itself make up additional shortages in the Cuban economy, albeit at some additional cost to itself and with delays in delivery.

Thus, even if our efforts are fully successful the cutting off of free world sources of supply cannot be expected to have a decisive effect on the Cuban economy. As a whole, however, well-executed denial programs can seriously impair specific segments of the economy and should be able to prevent Cuba utilizing its increased sugar earnings to bring about any significant upturn. It is clear that, unless we make a major effort in this field, Cuba will increasingly be able to “normalize” its economic relations with other free-world countries and probably bring about an upturn in its economy.

(e) Key importance of British: The problems we have with the United Kingdom are representative of those we have with other free-world countries in that it is dependent on trade; needs Cuban sugar; does not share our assessment of the Cuban threat; and justifies its position by citing our own economic relations with the USSR. Because of their attitude, economic importance and special relationship with us, we need the cooperation of the British. The recent sale of buses has had and will have grave consequences for our denial program by undercutting our efforts with other countries.

(f) The basic issue of political costs: The effectiveness of our efforts to get the cooperation of any country depends on (1) the relative importance to the national interest of the objective of cutting off Cuban access to critical commodities and other objectives in the country; (2) the balance of negotiating advantage between the country and us; and (3) the degree of risk to other objectives we are prepared to accept in obtaining cooperation on Cuban trade. In short, how much political capital are we willing to expend?

(g) Cooperation of American firms: American firms have been cooperative and effective in putting pressure on associated foreign firms. While this technique might be expanded, it would involve problems of “extraterritoriality” with our Allies.

(h) Improved intelligence reporting and investigation: We have severe problems in obtaining timely intelligence in depth and in pursuing investigations because of the very nature of the trade in critical commodities and US-origin goods. Improvement in these sectors requires additional personnel, particularly if our present controls on American know-how are extended to all commodities produced with such knowhow and destined for Cuba.

(i) The fundamental question: Our prospects for success in the economic conflict with Cuba ultimately depend on the priority to be assigned this effort—the results of which are at best uncertain—in the entire range of our relations with the free world.

Recommendation:

The recommendations on pages 20–22 of the study are feasible but will create frictions in our international relations. Failure to move on them will also pose problems.

Since carrying them out will involve several NSC agencies, I suggest that, before you move on them, you may wish to convene an NSC session to explore all the issues with the participating agencies, and particularly the political costs indicated in subparagraph (h) above.

George W. Ball

Attachment³

FREE WORLD ECONOMIC TIES WITH CUBA

V. Recommendations

(Note: Specific recommendations affecting individual countries are contained in the country tabs of Part Two of this study.)

1. That the President make known to all agencies of government that the restriction and reduction of free-world economic ties with Cuba is a basic national policy objective, and that conflicts between that objective and other policy objectives are to be decided in favor of the former whenever the national interest is not demonstrably jeopardized thereby, due regard being given to the need for judicious application of this principle.

2. That the President or the Secretary of State take an early opportunity to make a public declaration on Cuban policy, with special attention to the rationale of our policy on free-world economic ties with Cuba.

3. That the President and the Secretaries of the interested Departments make known privately to the leadership of the American business community our interest in their cooperation with their foreign associates in discouraging and preventing trade with Cuba, particularly in critical commodities, and that all levels of government make full use of this means of pressure on foreign firms.⁴

4. That diplomatic pressure at all levels be intensified on free-world countries maintaining economic ties with Cuba, with resort to Presidential intervention in the case of governments which present major problems.

5. That this pressure be based on a careful country-by-country evaluation of our bargaining position and be directed particularly against (a) trade in commodities we consider critical to the Cuban economy, and (b) long-term commitments for the purchase of Cuban sugar.

6. That a vigorous attempt, centered in Washington, be made to promote a multilateral agreement among countries trading with Cuba on restrictions acceptable to us on the sale of critical commodities to Cuba.

7. That the rationale of our economic policy toward Cuba be made known clearly in NATO forums and to Japan.

8. That the resolutions restricting or breaking Latin American economic ties which may result from OAS action on the Venezuelan complaint against Cuba include an appeal suggesting similar action by other free-world governments.

9. That Latin American governments which are well disposed and which represent major markets for free-world countries trading with Cuba be used to discourage such trade.

10. That, in administering existing legislation affecting free-world economic ties with Cuba, we make clear to countries concerned that they must take the action required by the law and that Presidential waivers cannot be relied upon to exempt them from the requirement.

11. That the desirability and feasibility of additional legislation or Executive regulations aimed at countries and firms trading with Cuba be kept under continuous review, the spirit of Recommendation 1 being borne in mind.

12. That existing controls on United States know-how be extended to cover all commodities produced with such know-how and destined for Cuba.

13. That the question of the extension of the Cuban Assets Control Regulations to subsidiaries of American firms be carefully reviewed, within the spirit of Recommendation 1.

14. That covert activities directed against critical commodities destined for Cuba be intensified, with resort, if necessary, to carefully considered and controlled preclusive buying.

15. That it be made known discreetly through the press that we maintain careful records of the companies dealing with Cuba, suggesting without saying so that these records constitute a potential “blacklist.”

16. That a group of responsible and qualified Cuban exile businessmen be formed to maintain pressure on firms trading with Cuba by indicating that such firms will have no future in a post-Castro Cuba.

17. That the Coordinator of Cuban Affairs, as chairman of the Interdepartmental Coordinating Committee on Cuba, establish a working group to recommend measures that might be taken to reduce Cuban foreign exchange earnings from sugar when the current world shortage eases.

18. That steps be taken immediately to intensify intelligence collection, Foreign Service reporting, and Commerce investigative and enforcement actions with respect to free-world trade with Cuba.

19. That exceptions to existing personnel limitations be granted in connection with Recommendations 12 and 18.

1. Source: Johnson Library, National Security File, Country File, Cuba, Free World Economic Ties with Cuba. Secret.
2. NSAM No. 274 was attached but is not printed. For text, see Foreign Relations, 1961–1963, vol. XI, Document 389. For an account of the December 19 meeting, see ibid., Document 388.
3. According to a January 14 memorandum from Mann to Ball, the study was prepared by the Coordinator of Cuban Affairs in collaboration with INR and the Bureau of Economic Affairs. (National Archives and Records Administration, RG 59, ARA/LA Files: Lot 66 D 65, Cuba File) Printed here are pages 20–22 of the study.
4. A handwritten note in the margin next to this paragraph reads: “EUR objects.”