Foreign Relations of the United States, 1969–1976, Volume IV, Foreign Assistance, International Development, Trade Policies, 1969–1972

354. Memorandum From the Chairman of the National Security Council Under Secretaries Committee (Irwin) to President Nixon¹

Washington, January 13, 1972.

SUBJECT

• Results of Initial Steps Toward Augmentation of Travel and Trade Between the People’s Republic of China and the United States, and Recommendations for Further Steps to be Taken

The memorandum and study appended at Tab A respond to your request of June 9, 1971.² They were delayed in preparation, with the agreement of the NSC Staff, to allow further time for assessment of U.S. initiatives vis-à-vis the People’s Republic of China, and in part because of the difficulties encountered in the reconciliation of widely divergent viewpoints.

The most important problem dealt with is the question of a) whether the PRC should be afforded equality with the USSR in respect to commodities and products of technology available for export to them under general license and b) if so, when these actions should be accomplished. On point a) the majority, including State and Commerce, believes that full equality should be afforded as part of a general process of bringing our trade policies with the PRC and the USSR into alignment. Defense objects on the grounds that different levels of military, industrial and technological development of the PRC require different criteria for decontrolling items for general license export to the PRC until such time as experience provides a basis for bringing our trade policies in closer alignment. On point b) the majority, including Defense and Commerce, believes that the principles of gradualness and reciprocity should be given full weight. The Department of State believes that the earlier and more thoroughly our policies on trade with the PRC are brought into line with those toward the USSR, the greater the likelihood of favorable impact upon US-PRC relations. State therefore favors early implementation of the recommendations in this paper.

The recommendations of the Committee are summarized in my report which is attached. They are more fully described with their relative advantages and disadvantages in Annex A to my report.

Where different viewpoints occurred, the agency dissenting from the majority viewpoint has in each case presented its position in a footnote. Such footnotes express the view of the author agency only. Because of the desire to allow full expression of dissent, and the inability of the drafting committee to accede unanimously to dissenting viewpoints, I believe that the current format of the memorandum is more responsive to your desire to see all the options than any other practical alternative. Accordingly, the suggestion of Secretary Laird to redraft the memorandum (Tab B)³ was partly but not wholly accommodated.

The concurrence of the Department of Commerce which explains its position more fully is appended at Tab C.⁴

John N. Irwin II

Tab A

Washington, January 13, 1972.

Memorandum From the Chairman of the National Security Council Under Secretaries Committee (Irwin) to President Nixon ⁵

SUBJECT

• Results of Initial Steps Toward Augmentation of Travel and Trade Between the People’s Republic of China and the United States, and Recommendations for Further Steps to be Taken

PART I

Results of Initial Steps

1. The political climate of US-PRC relations has improved substantially since you announced relaxation of trade and travel restrictions. While this improvement is not necessarily to be attributed directly to US initiatives in the area of trade and travel, they may have made a contribution.

2. There has, however, been no direct positive response from the PRC to US reduction of restrictions upon trade. Specifically, there has been no reciprocal relaxation of the PRC refusal to conduct direct trade with the US. The GRC has unofficially expressed concern about these reductions but its reaction has been very mild.

3. About 180 non-official Americans traveled to the PRC in 1971 after the removal of restrictions upon use of US passports for travel to the PRC.⁶

4. The PRC has refused to trade directly, although it has tacitly permitted exporters in third countries to reexport PRC products to the US. It may have purchased negligible amounts of US manufactured goods through third countries.

5. Indirect imports in 1971 may have approached $2 million by October 10, four months after the President announced imports from the PRC would be permitted.

6. Several foreign subsidiaries of American firms were permitted to send non-American representatives to the Canton Fair, but we know of only one American businessman, as such, who was quietly permitted to attend the Canton Fair.⁷

7. We have no information on, nor reason to believe that, changes in regulations on bunkering, remittances, carriage of PRC cargoes, and US-owned foreign-flag ships have had any results.

Results of Review for Expansion of the General License List

We have been unable to reach interagency agreement on expansion of the already substantial general license list for exports to the PRC. The Department of Defense maintains that it is not possible at this time to determine whether the remaining items considered non-strategic for the USSR are also non-strategic for the PRC, and therefore holds that such additional items should be considered only for export under validated license procedures. Departments of Commerce and State feel that it is possible to determine from available information whether such items create an unacceptable security risk and have favored their inclusion in the general license list.

PART II

Over-all Options

There are three general courses of actions under which the specific further steps recommended below can usefully be grouped. The specific steps recommended are based on our assessment of past results and our estimate of the probable results of further steps. They are:

1. To take no further steps at the present time.

2. To adopt now all or most of the further steps listed below.

3. To adopt some but not all of the steps listed below and to implement them gradually over a period of time.

Recommendations for Further Steps

The Under Secretaries Committee recommends the following steps for adoption at the appropriate time (dissenting Department’s views are noted):⁸

The assessment of the results of initial steps in Part I indicates that the PRC has been less than forthcoming in its response to our initial steps. Thus, it would appear tactically prudent for the US to maintain its bargaining position by exercising an equivalent degree of restraint on further relaxation of controls on trade.

Bringing our trade policies with the PRC and the USSR into closer alignment should be our ultimate goal but only after a year or two of experience enables us to determine whether the US national interests would be served by taking further steps to liberalize our export policy toward the PRC. At the present time a differential in levels of control should remain over strategic items for the PRC and the USSR because of their different levels of industrial and technological development.

There should be more evidence of PRC willingness to increase travel and trade and to improve US-PRC relations before implementing the additional steps recommended below. One form this should take would be release by the PRC of the remaining US prisoners now held in Communist China. [Footnote in the source text.]

1. With respect to the general license list of non-strategic exports to the PRC:

Option A⁹

Afford the PRC complete equality with the USSR both in commodities under general license and technical data regulations by placing the PRC in Country Group Y of the Commodity Control List. (Recommended)

Option B

Afford the PRC complete equality with the USSR with respect to all commodities available under general license but separately consider relaxing restrictions on foreign-made products of technical data. (Under this Option the PRC would not be included under Country Group Y.) (Not Pertinent If Option A Approved)

Option C

Set the general license list for the PRC at 90% (or some other arbitrary figure) of the present and subsequent general license lists for the USSR. (Not Pertinent If Options A or B approved)

Option D¹⁰

In conjunction with Options B or C (above) place controls governing export to the PRC of foreign-made products of US technical data on the same level as those governing such exports to the USSR. (Not Pertinent If Option A Approved)

Option E¹¹

Continue controls on exports to the PRC at current levels, and consider further relaxation only after reciprocal actions by the PRC are in evidence. (Not Pertinent If Options A, B, C or D are approved)

2. Enhance the possibility of sales of US new and used aircraft to the PRC:

Option A

Issue favorable advisory opinions in writing when requested by exporters, concerning sale of US aircraft for PRC civil use. (Recommended)

Option B

Continue to inform applicants for advisory opinions that we will only consider requests based on indications of serious interest by the PRC accompanied by necessary data, but that such requests are likely to be approved if the end use is peaceful and the equipment is appropriate.

3. Permit US-flag ships and aircraft to visit the PRC, as well as entry of PRC ships and aircraft into the US. (Recommended)¹²

4. Modify Foreign Assets Control regulations applying only to the PRC, but not the USSR:

Action A

Abolish Foreign Assets Control regulation requiring US firms in COCOM countries to obtain Treasury License in addition to host country license for the export of strategic goods. (Recommended)¹³

Action B

Abolish additional Foreign Assets Control regulation prohibiting subsidiaries of US firms abroad from exporting foreign technology to the PRC without Treasury License. (Also Recommended)13

5. Inform the PRC of our Long Term Arrangement regarding International Trade in Cotton Textiles (LTA) obligations and possibility of restraint action in the event of actual or threatened market disruption. (Recommended)

There are three options as to the timing of informing the PRC, as follows:¹⁴

The Department of State believes that it would be undesirable to contact the PRC on this subject until direct trade relations are established or unless necessitated by substantial shipments which disrupt or threaten market disruption. An earlier approach would simply confuse PRC officials who would probably answer that the PRC does not permit direct shipment of any Chinese goods to the US and cannot therefore bear any responsibility for entry of Chinese textiles into the US. If initiated prematurely, this action might prejudice development of trade in other more desirable fields.

The PRC in any case is very well aware of the existence of US restrictions upon the import of textiles from other countries. The trade knows of the possibility that these regulations may be invoked against PRC, since they have been making inquiries. Pending the decision of the President to notify the PRC directly of the LTA restrictions, the Department of State sees no objection to reminding informally the principal trading companies through which trade in cotton textiles is conducted that the restrictions of the LTA will apply to PRC-origin cotton textiles as well. [Footnote in the source text.]

Option A¹⁵

Notify the PRC after direct trade relations are established, or if substantial quantities of PRC textiles arrive in the US.

Option B¹⁶

Notify the PRC now.

Option C¹⁷

Notify the PRC shortly after you return from your trip to the PRC.

6. Promote trade.

Action A

Quietly extend USG invitations to the PRC to participate in trade fairs. (Recommended)

Action B

Encourage exchange of non-governmental/industry trade missions. (Also Recommended)

Action C

Encourage private groups to invite the PRC to technical seminars and colloquia. (Also Recommended)

Action D

Propose exchange of governmental trade study groups. (Also Recommended)

Action E

Propose establishment of reciprocal unofficial commercial offices. (Also Recommended)

7. Propose the settlement of US and PRC private claims through negotiations. (Recommended)

8. Propose reciprocal visits of eminent PRC individuals to the US. (Recommended)

These recommendations, which are discussed in detail in Annex A,¹⁸ are aimed at bringing our trade policy with the PRC and the USSR into alignment.¹⁹ All options are administrative actions which are within the power of the Executive to approve in accordance with existing law.

Annex B lists without recommendation three areas of possible actions to improve trade relations with the PRC, all of which would require legislative action.²⁰

Timing. A further question arises as to how and when the approved proposals should be implemented. Each proposed action could be undertaken separately. However, in addition to viewing implementation in the context of the President’s visit, we believe that the principles of gradualness and reciprocity should be given full weight.²¹ In fact, complete implementation of some proposals is dependent upon PRC willingness to respond.

John N. Irwin II

1. Source: National Archives, RG 59, S/S Files: Lot 83 D 276, NSC-U/DM 60D. Secret. A January 13 transmittal memorandum from Hartman to the Deputy Secretary of Defense; the President’s Assistant for National Security Affairs; the President’s Assistant for International Economic Affairs; the Director of Central Intelligence; the Chairman of the Joint Chiefs of Staff; the Under Secretaries of the Treasury, Commerce, Labor, Transportation, and Agriculture; the Deputy Attorney General; the Director of the U.S. Information Agency; and the Special Trade Representative, is ibid. Regarding the preparation and clearance of Irwin’s memorandum, see Document 353.
2. Document 333.
3. See footnote 3, Document 353.
4. See footnote 4, Document 353. See also footnote 14 below.
5. Confidential.
6. Department of Defense notes that only a very small number of the thousands of applications for visas to the PRC have been approved. Those receiving visas were persons in a position to influence US public opinion: journalists, prominent doctors, people sympathetic to the PRC, representatives of radical minority groups, or relatives of residents or prisoners. Since most of those who have traveled since March 15, 1971 to the PRC would have received validated passports before that date, very little of this travel can be attributed to US relaxation of passport controls. [Footnote in the source text.]
7. Department of Defense notes that the unique place of the Canton Fair and the lack of permission for Americans to attend shows that the meager response to our trade and travel overtures is a matter of deliberate policy and that the PRC for a considerable period of time to come may continue to respond to the US removal of travel and trade restrictions very slowly, if at all. In short, the PRC will attempt to use the US interest in trade and our desire to improve US-PRC relations as a lever with which to extract maximum political and economic concessions. [Footnote in the source text.]
8. Department of Defense believes that two considerations appear primary to the question of what further steps should be recommended at this time to augment travel and trade with the PRC. These are: (1) how to indicate to the PRC our intention that relaxation of controls on travel and trade proceed on a mutual and reciprocal basis, and (2) how to continue the policy of removal of discriminatory restrictions without affording to the PRC the opportunity to acquire from the US items of strategic value to them which cannot be acquired elsewhere and which their level of technology does not permit them to produce domestically.
9. Department of Defense objects because it believes the different levels of military, industrial and technological development of the PRC and USSR require that decontrol of items to the PRC be based on a specific determination of their strategic significance to the PRC. The DOD would place on general license all commodities found not to be strategically significant to the PRC. Items not placed on general license can still be exported to the PRC if on the basis of a case-by-case review they are found to be non-strategic. [Footnote in the source text. This footnote setting forth Department of Defense objections was appended to Options A, B, and C. None of the Approve/Disapprove decision options in the paper is checked.]
10. Department of Defense opposes addition of this option on the grounds that it is premature. [Footnote in the source text.]
11. Recommended by the Department of Defense. [Footnote in the source text.]
12. Department of Defense opposes exercise of this option until such time as we can be assured of some measure of customary protection of US flag ships, aircraft and their personnel. [Footnote in the source text.]
13. Department of Defense opposes addition of this option on the grounds that it is premature. [Footnote in the source text.]
14. The Commerce Department believes that it is imperative that the United States inform the PRC as soon as possible of our LTA obligations and the possibility of restraint action in the event of actual or threatened market disruption. Sufficient information is available to indicate that importers are encouraging the PRC, the world’s first or second largest exporter of cotton textiles, to export substantial quantities to the U.S. To wait until after this trade has built up would be academic. Restraint action without prior notice would then be needed if the Administration is to avoid grave problems with our domestic industry and with our bilateral partners to whom we have an equity obligation not to allow unrestrained exports to build up while they are restricted in what they can export to us. Commerce also believes that it would be wrong to wait until direct trade relations are established since it is possible for PRC cotton textiles to be shipped to us through Hong Kong and Canada as the PRC is presently doing.
15. Recommended by the Department of State. [Footnote in the source text.]
16. Recommended by the Department of Commerce. [Footnote in the source text.]
17. Recommended by Commerce if Option B not adopted. [Footnote in the source text.]
18. Annex A is not printed. It contains eight sections that correspond to the eight “Recommendations for Further Steps” above.
19. Department of Defense opposes bringing our trade policy with the PRC and the USSR into alignment now, but believes closer alignment should be considered after a year or two of experience provides a basis on which to judge the potential benefits of such an action. [Footnote in the source text.]
20. Not found.
21. Department of State believes that the earlier and more thoroughly our policies on trade with the PRC are brought into line with those toward the USSR, the greater likelihood of favorable impact upon US-PRC relations. State therefore favors early implementation of the recommendations in this paper. [Footnote in the source text.]