Foreign Relations of the United States, 1969–1976, Volume XXIX, Eastern Europe; Eastern Mediterranean, 1969–1972

26. Response to NSSM 163 Prepared by the Ad Hoc Group on Economic Policies Toward Eastern Europe¹

Washington, February 1, 1973.

[Omitted here is the table of contents.]

I. SUMMARY AND CONCLUSIONS

A. Introduction

In National Security Study Memorandum 163 and Council on International Economic Policy Study Memorandum 24, the President requested from the Secretary of State, Treasury, Defense, Agriculture and Commerce, the Special Representative for Trade Negotiations, and the Director of Central Intelligence “a comprehensive review of the issues involved in further normalizing our economic relations with the countries of Eastern Europe,” defined as including all Eastern European Warsaw Pact members plus Yugoslavia and Albania. The German Democratic Republic (GDR) is included in the terms of this study.

As requested, an Ad Hoc Group of representatives of these organizations and of the Assistant to the President for National Security Affairs and the Assistant to the President for International Economic Affairs, chaired by a representative of the Secretary of State, has prepared the attached study.

The principal recommendations of the study are as follows:

1. Negotiations should begin without delay with Romania and Hungary to reach agreements on commercial practices and facilities so that agreements embodying MFN can be implemented quickly after Congress has granted the President authority to negotiate MFN. Both nations should be informed that reaching satisfactory settlements of defaulted pre-war bonds will be prerequisite to receiving MFN and, in Hungaryʼs case, ExIm facilities. State and Defense favor telling the Hungarians that successful parallel negotiation of a cultural and scientific exchanges agreement will facilitate action on MFN and telling the Romanians that freer issuance of emigration visas to divided families and a reasonable price for a chancery site will facilitate MFN action.

2. Assuming the initiation of promising consular negotiations with Bulgaria and Czechoslovakia, linked negotiations of commercial and financial issues should begin without delay with these two countries. State and Defense would prefer to have the financial negotiations begin first and reach a promising stage before initiating negotiation of commercial issues. They would also prefer that negotiations of appropriate agreements on cultural and scientific exchanges reach a promising stage before beginning either commercial or financial negotiations.

3. With regard to the GDR, efforts to improve trade should be continued and increased as circumstances permit, but there can be no formal negotiation of claims or comprehensive commercial agreements until diplomatic relations have been established.

4. No major negotiations on economic/commercial issues with Yugoslavia are now needed, while those with Poland have already been programmed by the Polish-American Commercial Commission. With Albania, no negotiations are recommended until after diplomatic recognition which is not anticipated prior to the achievement of Presidential authority to negotiate MFN.

5. It is recommended that economic negotiations include the following issues: MFN (including where appropriate, market disruption), business facilitation, arbitration, individual property rights and copyrights, industrial cooperation, maritime issues, participation in East European trade fairs, export credits, and double taxation.

6. Recommendations emerging from consideration of NSDM 159² with regard to continuing review and reduction of the COCOM Export Control list and strengthening of the COCOM system should be promptly carried out. Except for Defense,³ it is also recommended that there be continued movement away from the present US export control level and towards the COCOM level.

7. Repeal of the Johnson Debt Default Act should be sought.

B. US Interests

Primary US interests in the area covered by this study include:

• —a political and strategic interest in reducing the Soviet potential for action against US interests in Western Europe and, in some cases, other areas, (a) by sustaining a conviction on the part of the peoples and governments of Eastern Europe that the US, together with its Western European allies, sees them as a part of Europe and has not consigned them to a sphere of influence subject exclusively to Soviet definitions of sovereignty; (b) by favoring the gradual evolution of more independent external policies by states in this area to a degree which does not risk serious instability; (c) by nurturing the strong historical and cultural links the US has with many of the peoples of the area.
• —an economic interest in developing normal commercial relationships with states in the area both through joint ventures and the expansion of trade in order to (a) contribute trade and financial benefits; (b) support the closer contact of economies of these states with the West; and (c) encourage gradual trends toward less monolithic economic and consequently political systems which are less subject to Soviet control.
• —a military-strategic interest in maintaining the effectiveness of our deterrent strategy; providing the USSR with a continuing incentive for mutual balanced force reductions, and reducing US defense expenditures by restricting through the export control mechanism the export to close allies of the USSR in the area of certain types of strategic goods, services and advanced technology unobtainable elsewhere.
• —special interests distinct from our interests elsewhere in the area, which affect our posture towards the GDR: e.g. quadripartite rights in Germany, our position in Berlin, and the special FRG–GDR relationship. (These interests are elaborated in Section V, p. 64.) We would not, for example, favor emphasizing GDR sovereignty vis-à-vis Soviet responsibilities as one of the four powers responsible for Germany.

C. Present Situation with Respect to the USSR

The Soviet Government like preceding Russian regimes has, in light of a series of invasions coming from the West, always regarded as particularly sensitive the zone lying between its major population and industrial concentrations in the Western regions of the USSR and the major centers of industrial and military power in Western Europe, Germany in particular. Since World War II it has been a primary Soviet interest to retain close control of this zone, particularly that part of it lying between the German-speaking Western states (FRG and Austria) and the USSR, i.e. Poland, Czechoslovakia, Hungary, and the GDR.

In 1968 in Czechoslovakia, the Soviets reiterated the lesson of Budapest 1956—when the USSR sees its security threatened by developments in Eastern Europe, it is prepared to use military power to restore what it regards as an adequate degree of control. The Soviets, however, continue to struggle with the problem of defining their relations with Eastern European countries. The pressures within the area, the highly negative consequences of the invasion of Czechoslovakia in the international Communist movement, and the acceleration of Moscowʼs efforts toward détente in Europe has led the Soviets reluctantly to accept the markedly independent foreign policy of Romania (as well as that of Yugoslavia). They have also acquiesced in Hungaryʼs considerable departure from the Soviet economic model and adopted hands-off policy when Poland faced a serious workersʼ strike in 1970. This range of tolerance apparently is deemed acceptable so long as the central authority of the national party apparatus in the country involved is not threatened.

The recent improvement in US–USSR relations leading to the US–USSR Commercial Agreement of October 18, 1972⁴ has important implications for the countries of Eastern Europe. These countries have the same basic interests in improved economic relations with the US that the USSR has—concern over the technological gap, respect for US technology and capital, fear of reduced markets in Western Europe as a result of the expansion of the European Economic Community, pressure from consumers, and a commitment to maintain high economic growth rates. The countries of Eastern Europe are distinct from the Soviet Union in that trade is more important to them, consumer expectations are higher, they have stronger traditional links with Western Europe, and they are concerned about the maintenance of their assured market in the Soviet Union for products which are difficult to market in the West or in developing countries. As illustrated by the forward movement in economic relations with Poland in 1972 and the productive November 1972 meeting of the Joint Polish-American Commercial Commission,⁵ the US has an interest in improved relations with Eastern Europe similar to that which it has in the case of the Soviet Union. The main difference is that the broad, world-wide interests of the US are not affected in the same degree in the case of Eastern Europe and the possibility of securing new sources of energy which exists in the case of the Soviet Union does not exist in the case of Eastern Europe. One result of the improved US–USSR relations is that US economic policies are now more liberal toward the USSR than they are toward Eastern Europe. The countries of Eastern Europe are conscious of this fact and are currently attempting to achieve the same status now accorded to the Soviet Union. Since the Soviet Union has led the way, it is now easier for the countries of Eastern Europe to take a more forthcoming stance toward improved economic relations with the US.

It is likely that the Soviets, having signed their commercial agreement with us in 1972, expect that these Eastern European moves toward normalization of economic relations with the US will progress. It may be assumed that the Soviet Union has even stimulated or approved these overtures given the fact that the three most closely controlled Eastern European regimes, Czechoslovakia, Bulgaria, and the GDR, have all explicitly bid during the last quarter of 1972 for such normalization. By the same token it may be assumed that the Soviets, as illustrated by their negative reaction to the “human contacts” or “freedom of movement” element in the CSCE agenda and their renewed efforts to revive ideological defenses in Eastern Europe, will monitor closely the degree to which economic normalization is accompanied by cultural or even political normalization or a pace of internal reform which might threaten their very authoritarian view of the leading role of the Communist party in each country.

D. Eastern Europe and the US: Background

Although US interests in the area covered by this study have remained constant since World War II in view of the potential Soviet threat to Western Europe, the degree of emphasis on them has altered over time. In a period of essentially military confrontation dating from the Berlin blockade until Stalinʼs death, denial of economic or technological potential to the Soviet military was dominant. In the period of essentially political confrontation and maneuver since that time, encouragement to other Eastern European states to follow the example of Yugoslaviaʼs independent posture has been a dominant interest, as illustrated most recently in the development of useful high-level contacts between the US and Romania. In the period ahead, while political confrontation and maneuver will continue, there is an opportunity to increase US influence throughout the area to some degree and to gain some modest trade and financial benefits by responding to what are apparently Soviet-authorized bids from the countries of the area for negotiation of normal economic relations. The normalization process can provide an opportunity to clear up long-standing claims and financial problems. The process can also facilitate negotiation where needed of an appropriate framework for consular and cultural relations which we have already with the USSR, Poland, Romania, and with the exception of certain consular problems, Yugoslavia.

There follows a chart⁶ showing how the countries of the area covered by this study rank with regard to certain key indices relevant to their present and potential significance to the US. The chart also lists the factors affecting bilateral economic relations with each country and the existence or non-existence of non-economic issues. These latter may be subject to resolution if, in the course of economic normalization, use is made of the increased economic leverage stemming from the interest in normalization of economic relations with the US recently expressed by all the countries not having MFN (Bulgaria, Czechoslovakia, Hungary, Romania, GDR) except for Albania.

The following chart also illustrates graphically the state of development of US relations with the countries covered by this study. Further descriptive background explaining the substantial differences among the countries suggested by the chart is present at the end of this summary chapter just after I H—Recommendations on page 27.⁷

E. Trade Patterns and Opportunities

1. Overall Trade

East European trade with the industrial West expanded rapidly from $4 billion in 1960 to $12.7 billion in 1971 and should grow to $17 billion in 1975. This growth has been led by East European purchase of billions of dollars of West European machinery and equipment, much of it on credit.

The states covered by the study are heavily dependent on trade—with each other and the USSR (60–70% of their total except for Romania, Yugoslavia, Albania) for imports of raw materials and for export outlets for their manufactures. Trade (20–30% except for Romania and Yugoslavia) with the West provides for advanced technology and agricultural supplies, particularly in below par crop years. The vanguard industries such as petro-chemicals, synthetic fibers, electronics, and even automobiles are being fed not only by Western machinery and spare parts, but by intermediate goods as well, such as chemicals and high quality steels.

2. US Trade

The United States has not been a major participant in trade with East European countries and currently accounts for only 5% of their trade with the industrialized West or a little more than 1% of their overall trade. Turnover in 1971 was only $660 million, and will approximate $800 million in 1972. With exports at approximately $440 million in 1972 and imports at about $370 million, the United States is running a trade surplus with the area.

3. US Trade Projection

The United States market share and trade volume is low relative to other Western industrial states primarily because the United States has not taken the steps others have to normalize economic relations with the area. If the US Government were to undertake a policy of East-West trade promotion comparative to other countries, thus offering competitive credit facilities while liberalizing US export controls to the COCOM level and opening markets by commercial negotiations including Most-Favored-Nation treatment, in the short run (by 1975) we could anticipate at least a doubling in exports and a trade turnover of $1.2 to $1.4 billion. By 1977 US trade turnover with the area could hit the $2 billion mark with a trade balance in our favor.

4. Composition of US Trade

The commodity structure of trade between the US and Eastern Europe deviates from the overall East-West trade pattern, and the US trade pattern with other industrial countries. About half of US sales to Eastern Europe are of agricultural products and raw materials while only 10–15% of sales are machinery and equipment. US sales of chemicals are also small. A balanced approach under conditions of normalization would produce a shift in favor of industrial products. There is good potential, however, to expand the volume of agricultural exports as well.

5. Creditworthiness

The major limitation to overall East-West trade expansion is the limited capacity of East European countries to pay for their imports. They lack the Soviet Unionʼs raw material endowments, and are in no position to sell off energy supplies and raw materials to finance trade. Payment for an increasing excess of imports over exports will instead require increased exports of manufactures, processed goods, and services, foreign borrowings, or large scale foreign investment.

The area already has borrowed heavily from Western Europe to finance the trade deficit. Only Romania, Bulgaria, and Yugoslavia, however, at the moment are facing serious debt repayment pressures. The Romanians and the Yugoslavs have recently rolled over part of their large commercial debt to the West. They will probably be running into another pinch some time in the 1970ʼs and might have to resort to more rescheduling or sharp cutbacks in imports, or both. The Bulgarians, however, are only marginally dependent on the West. At the other end, Poland, having had trade surpluses with the West in 1970–71, and Hungary, with good exports and shrewd financial managers, have a good deal of room to raise imports and indebtedness in the 1970ʼs. Czechoslovakia and East Germany also have good credit prospects and can absorb more debt, particularly if some lengthening of average terms can be achieved.

There is a need to widen and refine the data available, and, subject to the requirement of constant revision, to project ahead expected debt service burdens, demands for credit, and the credit-worthiness of individual countries.

6. Investment⁸

The credit constraint, the inefficiencies of domestic capital formation in certain sectors, and the need for Western technology are the primary causes of Eastern European interest in foreign investment in their countries. United States firms can take advantage of this by forming joint ventures in the area.

7. Trade Promotion Resource Allocation

Politically, the United States has been closest to Yugoslavia, Romania, and Poland, and bilateral economic relations are most developed with these countries. About 80% of our area wide trade turnover in 1971 was with this group.

When Eastern Europe is viewed from a trade potential rather than a historical basis, a different pattern emerges. The Northern Tier industrial countries (Poland, Czechoslovakia, and the GDR) provide larger markets and are better credit risks than the Southern Tier countries (Albania, Bulgaria, Romania, and Yugoslavia). Hungary is a borderline case, with excellent creditworthiness but a relatively small market for US goods. From a purely commercial standpoint the Northern Tier countries would be more important to the United States than the Southern Tier countries, just as the overall market potential of the USSR makes it more important to us than Eastern Europe.

The trade potential of the North over the South will affect the allocation of trade promotion resources by the United States should a decision be reached to normalize economic relations with the entire area. At present, we are spending far more resources on trade development relative to trade potential in Yugoslavia and Romania, for example, than we are in Czechoslovakia and the GDR.

8. Economic Issues to be Resolved Bilaterally

The following are issues which, because of the absence of fully normalized economic relationships with most countries covered in this study, require resolution or negotiation:

a. MFN

Under present legislation, MFN treatment cannot be extended to any communist countries except Poland and Yugoslavia. The lack of MFN treatment is generally considered by the individual Eastern European countries to be the outstanding economic/commercial issue. It has considerable political significance as well.

b. Market Disruption

Two types of arrangements have been agreed to for safeguarding treatment of imports from communist countries in Europe—the Polish agreement refers to the special consultation obligations Poland assumed upon accession to the GATT, whereas the Soviet agreement authorizes each signatory to deal with actual or threatened market disruption as it sees fit. With Communist countries whose instruments of accession to the GATT include special consultation obligations, we prefer to rely on those provisions for a remedy.

c. Business Facilitation

Business facilitation includes the establishment of US private and government facilities in Eastern Europe as well as the terms and conditions under which they would operate. Permission for Eastern European countriesʼ foreign trade organizations to open or expand facilities in the US should be treated as a quid-pro-quo for permission for US firms to establish offices in Eastern Europe.

d. Arbitration

Agreements now exist with the USSR and Poland whereby each government would urge on its nationals third-party arbitration. Agreement by other countries covered by the study to third-country arbitration is important to commercial confidence and to US trade promotion efforts.

e. Industrial Property Rights and Copyrights

The US adheres to the Universal Copyright Convention. Efforts should be made to encourage Bulgaria, Poland and Romania which are non-members, to adhere to the UCC.

f. Industrial Cooperation

Cooperative or joint equity industrial ventures have an appropriate place in our economic relations with Eastern European countries. Eastern European countries should be encouraged to make sufficiently attractive offers or provisions of law to interest American firms and to negotiate directly with those firms in such ventures.

g. Maritime Issues

Recent agreements negotiated with the USSR and Romania and the proposed agreement with Poland reflect an effort over the past three years to amend the port security program to provide equal treatment for all US ports and to facilitate commerce, commensurate with US national security requirements and consistent with reciprocity for US shipping. Similar changes in the program may be negotiated in the near future with other Warsaw Pact countries.

h. Financial Claims and Debts to USG

Claims agreements on behalf of US nationals or corporations with approved claims against Eastern European Governments have not been negotiated with Czechoslovakia, Albania or Eastern Germany. All of the countries except Albania have defaulted pre-war dollar bond obligations to the US citizens and only Yugoslavia and Poland have negotiated interim settlements. Aside from World War I debts, the only major delinquent debt to the USG is Czechoslovakiaʼs arrearage.

i. Export-Import Bank

The President has authority under the Export Expansion Finance Act of 1971⁹ to extend the facilities of the Export-Import Bank to communist countries if it is in the national interest. National interest determinations have been made under this authority for Romania, the USSR, and Poland.

j. Double Taxation

In addition, we should discuss double taxation questions with the Eastern Europeans. This problem will become increasingly important as US firms conclude more sophisticated arrangements with Eastern European enterprises.

9. Relevant Issues within the US Government

a. Export Controls

The issue of export controls is related to any study of normalization of economic relations. Nevertheless, it is clear that substantial increases in the levels of trade and investment can occur even if some export controls continue. The US commercial presence in the Eastern European countries can be strengthened without the need to abandon the US strategic control system or the cooperative control system of COCOM. With the exception of Defense, it is felt that further efforts to reduce the US export control list towards the COCOM level are desirable.¹⁰ The screening currently under way of the US control list, in line with the Congressional mandate of last August, will assist in the achievement of this objective. The question of possible modification to the COCOM system is being dealt with in detail in response to NSDM–159.

b. Johnson Act

The Johnson Act constitutes a disadvantage for American firms and if it were repealed the President would still retain authority necessary to control US-communist country economic and financial relations under existing legislation.

c. USG-financed Agricultural Sales Programs

The repeal or relaxation of legislative restrictions, including the Findley–Belcher Amendment, would give the President authority to use PL–480 programs in support of policy objectives in East Europe. Given, however, the availability of CCC sales on commercial terms, USG budgetary stringencies, and the priority of “national security” LDCʼs in dividing up low commodity availabilities, the question is raised whether, even if the President had the necessary authority, he would use it in East Europe.

d. Generalized Tariff Preferences

NSDM 86 of October 14, 1971,¹¹ provides that communist countries except Yugoslavia would be excluded from the generalized preference system. Preliminary draft legislation authorizing generalized preferences gives the President the power to grant generalized preferences to those nations receiving MFN treatment and this flexibility should be sought in the final legislation.

e. US Government Participation in Eastern European Trade Fairs

There should be continued US Government participation in these trade fairs as well as in specialized industry fairs and that this participation should be commercially oriented.

10. Narcotics Controls

Treasury believes that among the non economic issues which the United States should raise with Eastern European governments where appropriate is the institution of stricter enforcement measures to curtail narcotics smuggling and terrorism. The US should endeavor to assure the continued exchange of intelligence on narcotics and terrorism with the countries of this area.

F. Conclusions and Alternatives

In order to advance the US interests defined at the beginning of the summary in the present day context of US-Soviet relations, it is important to maintain communication with both peoples and governments in the area and to treat the states of the area not as an undifferentiated bloc, but to the degree possible as sovereign states having historical roots and present interests distinct from each other and from those of the Soviet Union. Responding to any inclination to reduce their dependency on the Soviet Union and increasing their economic and political ties with the West are at the heart of our East European policy.

The demonstrated need of the Eastern European states for Western technology has increased the Westʼs ability to advance its interests by economic means in an atmosphere of reduced tension provided it remains alert to the Soviet desire to obtain sensitive military-related technology. The US has not moved as far across the policy spectrum from economic confrontation to cooperation and engagement with Eastern Europe as have other Western countries largely because of the US-Soviet global adversary relationship. During the Korean and Vietnam Wars, US economic policy toward Eastern Europe was subordinated to other national priorities. Economic policy was in large part a function of US dissatisfaction with the state of its relations with the USSR as well as with other communist countries and their policies toward North Vietnam, North Korea, or Cuba.

The conditions which called for this policy have substantially altered in the last year (defused Vietnam War, US-Soviet agreements, Inner German treaty, broad public support for Nixonʼs and Brandtʼs eastern policies, developments in US–PRC relations, CSCE, etc.). This recent coalescing of events has opened new policy options for the US in Eastern Europe. Consequently the US should plan a more active participation in the steadily growing economic relations between the countries of the area and the West both for political reasons and for the purpose of getting a larger share of the market. In doing so, it should maintain a modest profile in the area, working towards non-economic objectives of normalized consular and cultural relations and broader links to the West without undue fanfare. This requires seeking from Congress at an early date Presidential authority to negotiate MFN with all the countries covered by the study which do not have it.

There are at least three concepts within which this process can occur, given the fact that we exclude any thought of trying to deal with the area through its rather ineffective, Soviet-dominated, multilateral economic institution—Comecon. These three approaches give varying degrees of emphasis to the pursuit of our political and strategic as opposed to our economic interests.

1. Selective Economic Normalization as a Political Reward

The concept of rewarding by means of trade and economic benefits those countries of Eastern Europe which demonstrate independence of Soviet guidance in ways useful to US objectives originated in a context of a restrictive US and Western attitude aimed at denial not only of strategic and military assets to Soviet dominated areas, but of economic potential as well in a period (Berlin blockade, Korean War) of military and political confrontation. This concept which originated in 1951 aid to Yugoslavia three years after the Tito–Stalin break also underlay the granting of MFN and the substantial PL–480 sales to a post-1956 Polish Government which in church and agricultural affairs had taken clear steps away from the Soviet model. It has underlain decisions to extend flood relief aid, ExIm Bank facilities, and OPIC facilities to the Romanians as they developed their independence of numerous Soviet foreign policies. Its impact, however, in this more recent period has been diminished by the change during the 1960s in Western attitudes toward trade with Eastern Europe. Most Western European countries have rapidly increased trade with Eastern Europe while the US has been alone in refraining from normalization, largely because of Congressional action inspired by the Vietnam situation.

In light of the changed East-West trade attitudes in Europe, the question arises whether this concept may no longer be particularly useful in dealing with the more closely controlled Eastern European countries. These states can hope to mitigate Soviet controls only very gradually. It is basically not in our interest nor in the interest of stability in Europe, to stimulate them to any other course. These countries: Czechoslovakia, Hungary, Poland, Bulgaria, and the GDR are the ones which now will benefit most from the improved East-West trade climate, and with which the potential annual percentage trade growth is greatest in conditions of economic normalization. Given the fact that we are continuing our economic normalization with Poland, which at present hews closely to the Soviet foreign policy line, a policy of using economic normalization to reward the others for increased foreign policy independence of the USSR appears anomalous in a period of US–USSR economic normalization. There are still ways, over and above economic normalization—i.e. emergency relief, etc.—of giving particular encouragement to nations showing independence of the USSR. Furthermore, the President has stated (1970 Report to Congress):¹²

“We are prepared to enter into negotiations with the nations of Eastern Europe, looking to a gradual normalization of relations. We will adjust ourselves to whatever pace and extent of normalization these countries are willing to sustain.”

2. Economic Normalization Primarily for Economic Interests

This concept is based on the assumption that the best way to exert U.S. influence in the area is economic and that progress in negotiating economic issues will ease the problems of negotiating non-economic issues. Economic normalization should be broadly construed to include bond settlements and nationalization claims, as well as consular conventions. It should not include cultural and scientific exchange agreements, which should ordinarily be negotiated separately and should stand on their own merits. The concept of economic normalization for its own sake suggests that whatever economic leverage we have—and it should not be exaggerated—should be used to obtain reciprocal economic advantages and not normally for bargaining on unrelated issues. It is assumed that the trade of the countries of the area with the West can increase sharply during the 1970s—perhaps to $17 billion by 1975—and that the US has a chance to get a sufficient share of this trade to warrant emphasis on our economic interests.

The concept is responsive to the expressions of interest in economic normalization recently made by the countries covered by the study (except for Albania) and therefore in line both with the Presidentʼs stated policy (see end of F.1 above) and with the general Western pattern of economic normalization with the East. It is consistent with the greater weight now being accorded the economic aspects of our relations with the USSR. The estimated doubling of US exports which could occur by 1975 ($400 to $800 million) under a vigorously pursued economic normalization policy would further amplify a continuing surplus in such trade and would reduce our overall trade deficit.

3. Economic Normalization as a Pursuit of the Full Range of US Interests

This concept, like Concept 2, also accepts the utility and timeliness of responding to East European bids for economic normalization. It aims to use the leverage provided by these bids to obtain not only the financial settlements, commercial agreements, and consular pacts envisaged in the second approach, but also, where lacking, other non-economic desiderata such as cultural and scientific exchanges agreements, better Embassy conditions, improved access to the host government, and an overall improvement in the climate of relations and movement of persons. This concept accepts some delay in reaching economic normalization agreements in the cases where non-economic issues are more numerous (i.e. Czechoslovakia, Bulgaria, Albania, and the GDR) and is perhaps closer, in these cases, to the “gradual normalization” cited in the Presidentʼs 1970 report, as an objective. It is based on the assumption that final normalization can occur only when MFN can be granted, that Presidential authority to negotiate MFN is probably at least seven or eight months away, and that during this seven or eight month period countries sincerely desirous of reaching economic normalization will meet us at least halfway on outstanding non-economic issues. Several of these are issues which, in the case of US–USSR relations, are already governed by agreements.

(Commerce and Treasury are doubtful that our economic leverage is great enough to achieve all these objectives and believe that such an approach might jeopardize the reciprocal economic advantages we hope to achieve. They believe that many of our non-economic objectives can be pursued separately with mutual benefit to both parties.)

G. Negotiating Options

Four options for such negotiations with each country under any of the above concepts were examined with a clear awareness that some options were more appropriate to one policy concept or to one or more countries than to others:

1. Comprehensive Package for Early 1973

Immediate offer to negotiate a package settlement of all outstanding issues.

Pros	Cons
EE eagerness for normalization.	Legislative authority for MFN and thus comprehensive package in doubt.
More to show Congress.	One part can stall whole package.
Reach agreements roughly in order of political priority.	Loss of political advantages of less obvious approaches than comprehensive package.
Non-economic benefits.	Possibly unfavorable EE reaction to linkage of economic and noneconomic issues.
Takes maximum advantage of present opportunity.

2. Separate Economic Package for Early 1973

This approach would give tactical priority to commercial negotiations, with negotiations on non-economic issues, such as cultural or scientific exchange agreements, to proceed in parallel or follow. Bond settlements and a consular convention would have to be concluded before Eximbank credits would be authorized or MFN extended.

Pros	Cons
Earlier completion & achievement of economic benefits.	Discarding economic leverage may jeopardize achievement of non-economic benefits.
Favorable EE reaction to US pursuit of economic relations for their own sake rather than with political strings attached.	Congressional scrutiny of economic package may delay MFN legislation.
Clear signal to American business that USG favors trade with country concerned.	Less to show Congress.
Any economic benefits achieved might help expedite MFN legislation.

3. Two-Phase (Pre-MFN Authority) Strategy

Arrive at a promising stage in negotiations of agreements on financial claims and non-economic issues, in advance of negotiation of commercial arrangements including MFN.

Pros	Cons
Quick start using leverage of heightened EE interest in better commercial relations with US.	Not taking on whole range of commercial issues at once shows reserve toward new EE trading partners.
Resolution of earlier issues increases bargaining leverage on later commercial negotiations.	Delay in start of economic/commercial negotiations.
Minimize effect of Congressional delay in authorizing MFN.	With some countries, claims issues may not be subject to resolution except in broader economic package.
Non-economic accords will strengthen Congressional support for MFN authority.	Possibly unfavorable EE reaction to linkage of economic and non-economic issues.

4. Two-Phase Strategy with Second Phase after MFN Authority Granted

Settle financial issues and non-economic issues as soon as possible, but agree to negotiation of commercial issues, including MFN only after Congress grants MFN authority.

Pros	Cons
Quick start on financial claims and non-economic matters.	Unnecessary delay of settlement of commercial issues at time when EEs are eager.
Illustrate for Congress that these negotiations can be facilitated by MFN authority.	Delay of commercial negotiations makes less favorable climate for pursuit of our non-economic objectives.
Commercial negotiations will conform to legislation.	Makes our relations with EE appear of lower priority than our relations with USSR.
	Not taking on whole range of commercial issues at once shows reserve toward new EE trading partners.
	Delay in start of economic/commercial negotiations.

H. Recommendations

It is recommended that we begin negotiations at an early date to remove existing financial obstacles (defaulted bonds, claims) and reach agreement on commercial practices and facilities so that understandings embodying MFN could be implemented quickly after Congress has granted the President authority to negotiate MFN. Commerce, Treasury, and Agriculture recommend the application of the Option 2 economic package approach for countries with which we do not have normal economic relations. The negotiation of non-economic issues would proceed in parallel or subsequently.

Is is of course recognized that the authority to extend MFN will be a crucial determinant in achieving eventual full scale normalization with Eastern Europe. State and Defense, however, would prefer the initiation of negotiations promising satisfactory cultural and scientific agreements, as well as bond and claim settlements (in the cases where these are lacking), in advance of commercial negotiations (Option 3).

1. Yugoslavia and Poland. We have already made considerable progress in our economic relations with these countries. The pattern for conduct of our economic relations with them is well established and not at issue in this paper.

2. Romania. There are few remaining irritants in our relations with Romania. We are already committed to seek authority to negotiate MFN for that country. It is recommended that commercial negotiations involving such matters as arbitration and market disruption procedures and business facilitation as well as MFN be initiated early in 1973, in parallel with negotiations for settlement of defaulted pre-war bonds ($15.5 million). Reaching a settlement should be a prior condition for extending MFN. It would also be useful to stress to the Romanians who are anxious to be the next country to gain MFN status that freer issuances of emigration permits would enhance the prospects.

3. Hungary. The procedure for Hungary should be similar to that for Romania. Settlement of certain outstanding financial issues now under negotiation (bonds, claims) and of the commercial issues Hungary has offered to negotiate in March 1973 should be a condition to the extension of MFN and ExIm Bank credit facilities. USIA favors making a satisfactory cultural and scientific exchanges agreement a prerequisite to granting MFN. The Department of State believes that there could be successful parallel negotiation of exchanges at the time commercial issues are under negotiation without making a specific linkage, and that we could use the pending visit to the US as early as February 1973 of Hungarian Deputy Premier Peter Valyi to initiate parallel negotiations. Commerce, Treasury, and Agriculture favor no linkage to an exchange agreement.

4. Czechoslovakia. Overall relations with Czechoslovakia are not as good as those with most other EE countries. Trade, although rising, is at a relatively low level. Economic and other irritants requiring negotiation are many. Czech leaders, however, have recently expressed a desire to improve relations, and Czechoslovakia is potentially the third largest market for US goods in the area.

Treasury, Commerce and Agriculture recommend the separate economic package (Option 2) approach under which linked trade and claims negotiations would begin immediately. State and Defense would prefer the initiation in sequence in early 1973 of negotiations promising a conclusion of a cultural and scientific exchange agreement and a gold/claims and bond settlement, to be followed by commercial negotiations.

5. Bulgaria. The Bulgarian leadership is anxious to normalize commercial relations with the US, but reluctant to move in other areas. Commerce, Treasury, and Agriculture note the revival of consular negotiations and recommend the immediate initiation of linked commercial and financial negotiations under Option 2. State and Defense wish to arrive at a promising stage in negotiating a consular convention, cultural exchanges, and an agreement on defaulted bonds ($6.5 million), and stimulate or create a more normal atmosphere before opening commercial negotiations along the lines of Option Three. Either approach could be initiated in anticipation of or during Deputy Premier Ivan Popovʼs tentative visit to Washington in the summer.¹³

6. The German Democratic Republic. We are faced with an interesting market of unexplored potential, but there are numerous existing limitations on trade, some of which will require negotiation. Efforts to improve trade should be continued and increased as circumstances permit, but there can be no formal negotiation or claims or comprehensive commercial agreements or cultural and scientific exchanges before establishment of diplomatic relations.

7. Albania. Albaniaʼs limited market potential gives it the lowest commercial priority of the countries under consideration. In addition Presidential authority to negotiate MFN might well be achieved before diplomatic recognition is accorded. A package approach to the whole range of issues could be undertaken shortly after establishment of diplomatic relations (Option 4).

8. Multilateral Organizations. The USG favors participation by these countries in the world monetary and financial community. Nevertheless, the Group concluded that overt encouragement was neither necessary, given the self-evident advantages of membership in the IMF–IBRD group and GATT, nor desirable, given Eastern European problems with Soviet resistance. In the case of GATT, the terms of accession of any Eastern European state are significant as precedents for eventual Soviet accession. Until Congress has granted authority for MFN, GATT provisions preclude the US from participating fully in the negotiation of further East European accessions. The group favored expansion of relevant activities of the Economic Commission for Europe (ECE), including business and trade facilitation and exchange of technology. Moreover, the EC would appear to offer a suitable framework for further work on appropriate economic cooperation projects. Such institutions can play an important role in bringing the Eastern European states into the international trade and payments system. Other organizations—principally UNCTAD and ECOSOC—are less significant.

I. Country-by-Country Background

1. Yugoslavia. The original Communist maverick since 1948, Yugoslvia has since 1950 developed good relations with the US while at the same time maintaining a non-aligned foreign policy. Having enjoyed fully normalized economic relations plus substantial PL–480 and other US assistance during the past two decades, Yugoslavia at the present time is not a candidate for “normalization.” Its current problems are of a different order, involving centrifugal tendencies of its ethnically based federalized republics whose growing authority in Yugoslaviaʼs decentralized economy has tended to revive ethnic rivalries and threaten disunity after Titoʼs departure from the scene. US exports to Yugoslavia approximate $170 million (1972) and consist of agricultural products and some machinery. Imports of about $150 million in 1972 were primarily furniture, agricultural products and copper. In light of Yugoslav balance of payment problems and efforts to limit imports, the potential for US export is limited to perhaps 5% annually over the next few years.

The US remains interested in a continuation of the current Yugoslav trade orientation (75% West, 25% Comecon) particularly in light of evident Soviet economic courtship through long-term low interest credits to development projects.

Enactment of a system of generalized tariff preferences by the US that would include Yugoslavia among LDC beneficiaries, and efforts with the EC and others to tide the Yugoslavs over their balance-of-payments problems are the important bilateral and economic concerns.

The Yugoslavia drive against émigré-organized terrorism aimed at disruption of the Yugoslav state, is another important issue. To judge by Yugoslav focus on this issue and recent efforts to revive the Communist partyʼs role, concern for independence, unity, and economic viability in Yugoslavia is rising as the 80 year old Tito phases out.

2. Romania. From a tightly-controlled, exploited, and underdeveloped Soviet satellite in the 1950s, Romania emerged in the 1960s as the most independent member of the Warsaw Pact. Although its traditional ties to the US are substantially less than those of Yugoslavia, its vigorous assertion of its sovereignty vis-à-vis the Soviet Union has stimulated its interest in better relations with the US. Anxiety for its sovereignty produced by the Soviet invasion of Czechoslovakia underlay the warm reception given President Nixon by President Ceausescu and the Romanian people in 1969.¹⁴ The same anxiety plus a desire to force the pace of economic development has motivated the 54 year old Ceausescu to maintain an authoritarian Communist regime under his increasingly personalized leadership. The economic problems of an underdeveloped country reorienting its trade away from the Soviet (50% West, 50% Comecon in 1971) have caused the Romanians to seek from the U.S. economic normalization and at various times since 1965, aid or soft credits. At present, however trade consists of US exports of about $70 million in 1972 primarily of agricultural products and machinery, and imports of $432 million primarily of petroleum, clothing and furniture. The potential for trade growth, even when MFN is granted, is limited (30 to 35% of hard currency earnings used for debt service) by Romaniaʼs debt load and its poor export prospects. With extension of MFN in 1973 US exports could increase about 30% by 1975, although such projections cannot be made with a high degree of reliability.

The major current issue with the Romanians is MFN which they have sought for seven years and for which the Administration has committed itself to seek authority from Congress. Although we have in 1972 extended the facilities of the ExIm Bank, the facilities of OPIC, and supported their successful application to IMF and IBRD, the achievement of MFN status prior to the USSR or other Eastern European countries not now having it remains for the Romanians the symbol of US interest in their independent posture vis-à-vis the USSR. Other issues include settlement of defaulted dollar bonds and business facilitation.

In a broader sense the US remains interested in encouraging Romanian trade and investment ties with the West in order to permit Romania to continue its development and service its hard currency debt.

3. Poland. The largest Soviet ally in Eastern Europe and the one with the longest contiguous border with the USSR, Poland is also a country with long-standing ties to the West. These links are reinforced through its strong Catholic Church (about 95% of the 33 million inhabitants), its large and politically active Polish community in the US, and a traditional and spirited popular hostility to Russian domination matched only by painful experiences with German invasions. The blossoming of US-Polish relations in the wake of the 1956 de-Stalinization under Gomulka gave way in the 1960s to the chills of an increasing Gomulka accommodation to the Soviets and the stagnation of Polish reform in the tails of the self-serving Polish Communist Party bureaucracy. Poland, nevertheless, retained the MFN status granted in 1960 in spite of the impact on Congress of Vietnam and of a 1968 spate of official Polish anti-Semitism.¹⁵ In addition $538 million of gradually convertible zlotys were generated from 1956–64 PL–480 sales and is being utilized to finance US programs in Poland.

With the increasing interest in technological modernization on the part of the new Polish leadership brought to power by the December, 1970 workersʼ riots in Polandʼs Baltic seaports,¹⁶ Poland was the first of the five Warsaw Pact invaders of Czechoslovakia to bid for full economic normalization with the US. In the wake of the Presidentʼs visit to Warsaw in May 31–June 1, 1972,¹⁷ the Poles were the first to achieve it when the extension of ExIm Bank facilities in November, 1972 during a session of the US-Polish Trade Commission supplemented their existing MFN status.¹⁸ US 1972 exports of about $111 million were primarily in agricultural products, machinery, and technology. Imports from Poland totalled approximately $140 million, primarily in agricultural products, chemicals and some manufactured goods. The potential for expansion of US exports is at present the best in the area. Factors enhancing this potential include Polandʼs good credit position, its desire to buy US industrial goods on long-term credit and agricultural goods on three-year credits, and its existing MFN status. The recently concluded trade agreement expresses the expectation that trade will triple during the next five years; most of the increase is likely to accrue to US exports.

The current Polish leadership, which claims to have a good standing with the Soviet leadership and some influence on Soviet European policy, clearly hopes to achieve internal stability and satisfaction of popular pressures by a combination of technological improvement and such elements of administrative reform as its own party bureaucracy and its sensitive Soviet neighbor permit. Active US efforts in this favorable climate can promote exports, facilitate joint ventures, and encourage US-zloty financed scientific and cultural cooperation. These programs marginally enhance Polish independence and simultaneously support the US political interest in better Polish relations with the West as well as gradual reform which further distinguishes the Polish model from the Soviet.

4. Hungary. Since the crushing of the Czechsʼ euphoric rush toward reform in 1968, Hungryʼs more cautious New Economic Mechanism¹⁹ also initiated in 1968 has become the most interesting, most successful, and most obvious example within the Warsaw Pact countries of internal modification of the basic Soviet politico-economic model. A combination in 1971 of over-investment, over-importing, resentment of a new class of entrepreneurial wealth, and desire to avoid Soviet anxiety have caused the Hungarians to pause in 1972 to readjust their re-form, not so much to destroy it as to preserve it in the face of internal and external pressures. The business minded and trade-oriented Hungarians (trade is 35% of GNP) have given a high priority to achieving more market oriented production through greater enterprise latitude and flexibility. In order to defend this policy they have appeared willing to accept a small nation (10 million pop.) role foregoing any pretensions to an independent policy on foreign political issues.

In spite of a limited historic connection with the US, Hungary has since 1967 showed a steadily increasing interest in normalization of relations with the US, particularly in the economic area. At present it is the most active among the states not having MFN status in preparing the way to obtain it. US exports to Hungary have risen sharply in recent years but leveled in 1972 at about $23 million primarily agricultural products and machinery. Imports, mainly of foodstuffs and clothing, were at the $13 million level. Although it is not possible to project with much reliability, it is possible that with the extention of MFN and ExIm facilities in 1973, US exports could triple by 1975.

Hungary quickly agreed to a consular convention in time for the Secretaryʼs July 1972 visit,²⁰ initialled a satisfactory claims agreement in October, and began talks with US holders of defaulted pre-war bonds. It is currently considering the draft cultural and scientific exchanges agreements handed over by the US in July, preparing the visit of its economic Deputy Prime Minister to the US in February, and seeking talks in March on the substantive issues relevant to a Commercial Agreement.

The return of the Hungarian Crown, in US custody since 1945, would be seen by the Hungarians as the culmination of the normalization process. US pursuit of improved relations with Hungary in all areas with an emphasis on a greater US presence through joint ventures will serve to give modest encouragement to pluralistic trends in Hungaryʼs increasingly market oriented economy and to its growing links to Western markets with results which could encourage the Poles and Czechs to try a similar path. Outstanding economic issues with Hungary include MFN, the extension of Export-Import Bank facilities, a market disruption agreement, business facilitation as well as the settlement of prewar bonds.

5. Czechoslovakia. Next to the East Germans, the most economically and technologically advanced of the Eastern Europeans are the 9 million Czechs who see their post World War I return to statehood as a direct result of Wilsonian ideals carried by the American-oriented humanist Thomas Masaryk. The 5 million Slovaks, less committed as the perennial less developed junior partner in the 55-year old union, are linked to the US mainly through a substantial early 20th century wave of economically inspired emigration. The Nazi dismemberment in 1938, the Communist minority takeover in 1948, and the Soviet repression of 1968 are the main mileposts in the past 35 years of severe authoritarian rule of a people with remarkable democratic instincts and traditions.

Brief 1945–1948 and 1968–69 intervals were the only respite permitting meaningful connections with the West in the post World War II era. In spite of uninspired leadership throughout this period, Czech skills have maintained a good living standard by Eastern European standards, but have not been organized to keep pace with Western European markets as they once did. A strong Czech identification with the West has been restricted by an unconvinced and uninspired party bureaucracy, but substantial skills remain present which could quickly respond to stimulus, as 1968 events illustrated.

US exports to Czechoslovakia in 1972 reached $50 million primarily in corn, fodder, and hides. Imports have not differed much from the 1972 level of about $27 million featuring shoes, iron and steel bars, and glassware. Although projections can only be considered broadly indicative of possible increases, extension of MFN and ExIm facilities in 1973 and Czechoslovakiaʼs good credit position could produce a doubling of US exports by 1975 if Czechoslovakia gave her enterprises more latitude on foreign markets and permitted joint ventures.

US-Czechoslovak relations stagnated from 1968 until 1972 as the post-invasion Czechoslovak regime devoted its efforts to internal consolidation and felt constrained to establish complete identity with the Soviet Union in foreign policy. In the fall of 1972, however, in the wake of the final phases of the consolidation campaign, the Czechoslovak Foreign Minister took the initiative of expressing to the Secretary of State the desire of his government to improve relations with the US.²¹ Since that conversation the Czechoslovak Government has reiterated this desire in exchanging draft texts with us for a consular agreement, expressing a willingness to reopen claims negotiations, demonstrating great interest in normalization of economic relations, receiving a US Senatorial delegation at the highest level, and in accepting the idea of a cultural and scientific exchanges agreement.

Other economic issues to be negotiated with Czechoslovakia are business facilitation and a bond settlement.

6. The German Democratic Republic

US interests in the German Democratic Republic are quite distinct from US interests in the countries of Eastern Europe. The domination and overwhelming importance of US interests in and relations with the Federal Republic of Germany, the existence of Quadripartite (US, UK, France, USSR) rights and responsibilities in Germany as a whole and Berlin, and the position of Berlin as an enclave within the GDR underscore this distinction. The role of the US as one of the quadripartite governments in Germany, and the role of the Soviet Union in the GDR have been the determining factors in US policy toward the GDR. These factors will continue to shape our emerging bilateral relationship with the GDR as we proceed to establish formal diplomatic ties. Once US–GDR relations have been established, subject to the above considerations, it will be possible to support more effectively than before such normal objectives as expanded trade, consular protection and a cultural-informational program.

In economic affairs the inter-German relation is important because of the role of inter-German trade, the political importance attached to it by the Federal Republic, and the access it grants the GDR to the Common Market. Direct US interest in the GDR market is on the order of magnitude of US interest in the markets of Czechoslovakia and Hungary. There is perhaps greater long-term potential, but less magnitude in the short-term due to the need to resolve difficult financial issues stemming from World War II including GDR nationalization of private assets before MFN can be extended. US exports to the GDR totalled approximately $14.9 million in 1972 with the chief products corn, other agricultural products, and coal. In the same year GDR exports to the US were about $10.0 million, chiefly photograph equipment, glassware, radios and non-electric machinery. Although it is not possible to project with much reliability, it is conceivable that improvement this year in political relations accompanied by relaxation of restrictions on both sides could lead to a three-fold increase in US–GDR direct trade by 1975.

United States interests—always within the context of our relations with the FRG and our role as a quadripartite power—are in establishing the basis of normal diplomatic relations. The US must approach basic problems in the economic relations at the outset of this process—problems such as settlement of claims of US nationals for nationalized property. Once basic problems have been resolved, US policy will increasingly emphasize those issues which characterize economic relations with the countries of Eastern Europe such as Most-Favored Nation Treatment, and Export-Import Bank facilities. It is likely that the resolution of many of these issues will take place within the context of resolution of issues in the political, consular and cultural areas, but the first issues which must be approached are the administrative ones connected with the establishment of diplomatic relations.

7. Bulgaria. Bulgaria, the most loyal ally of the Soviet Union in Eastern Europe, has over the years displayed little interest in improving its relations with the US. This situation is quite natural given the geographical location of the country, its cultural affinity with the Soviet Union, its history of reliance on the Soviet Union for preservation of its separate national identity, and the unifying factor of communist rule. The limited importance to other larger nations which cause these nations to adopt a policy of benign neglect towards their limited interests in Bulgaria is also a consideration. This last factor is particularly strong with regard to the US—geographically removed with minimal political, economic and cultural interests in Bulgaria.

The US has an interest in seeing that consular problems of US nationals are settled as humanely and expeditiously as possible and that the interests of US citizens are served through the conclusion of a consular convention. There is an interest in having Bulgaria perform as a responsible member of the international community on problems which affect all nations, such as suppression of narcotics traffic, where Bulgaria occupies an important strategic geographic location.

The US economic interest in Bulgaria is limited. US exports to Bulgaria in 1972 were about $3.0 million with the principal items being pesticides, other chemicals, and hides. The US imported $3.0 from Bulgaria in 1972, chiefly canned meats, and rose oil. Although it is not possible to project with much reliability, with normalization this year of commercial relations, including the granting of Most Favored Nation treatment and Export-Import Bank credits, US exports to Bulgaria could triple by 1975.

Bulgaria has recently expressed an interest in improving its relations with the US and has proposed sending a Deputy Prime Minister to the US to carry out talks on outstanding problems in the economic field. It has also expressed willingness to resume negotiations of a consular convention and to consider taking steps in other fields to accomplish the desired improvement. United States policy toward Bulgaria in the coming year is likely to be focused on how to meet this initiative and on the degree to which improved economic relations can be used to secure offsetting concessions from Bulgaria in non-economic fields, including amelioration of the disadvantageous operating conditions imposed on the US Embassy at Sofia.

8. Albania. Albania has assumed increased importance on the international scene because it is a leading example of resistance to Soviet hegemony in Eastern Europe, an important pawn in the Sino-Soviet ideological struggle, and a potential Mediterranean naval base for the Soviet fleet. Although the US interest in Albania is primarily a negative one of assuring its continued reserve posture toward the USSR, it is larger than the absence of diplomatic relations would imply. This condition is clearly a relic of the past and does not fit into the new, evolving Europe in which increased communication and cooperation among regimes of all types will be one of the dominant features. Although the US should not play the role of an ardent suitor, it should be willing to establish diplomatic relations with Albania at a time acceptable to Albania, and to work toward normalization of relations at a pace which Albania can accept.

The US economic interest in Albania is small, as can be seen from the 1972 export figures: about $300 thousand, chiefly scientific materials and machinery. Albanian exports to the US were also limited: approximately $450,000 in 1972, chiefly agricultural products and works of art.

[Omitted here are the remaining five parts of Section I, comprising 86 pages, and Section II, dated February 1, 1973.]

1. Source: National Archives, Nixon Presidential Materials, NSC Files, NSC Institutional Files (H-Files), Box H–194, National Security Study Memoranda, NSSM 163. Confidential. This response was submitted to Kissinger and Flanigan under a covering memorandum from Stoessel, the Acting Chairman of the Ad Hoc Group on Economic Policies Toward Eastern Europe. NSSM 163 is Document 25.
2. For text of NSDM 159 on integrated circuit technology exports to Poland and Romania, see Foreign Relations, 1969–1976, volume IV, Foreign Assistance, International Development, Trade Policies, 1969–1972, Document 380.
3. The DOD reservation is set forth in a footnote to export controls on page 17 in this summary. [Footnote in the original. Reference is to footnote 10 below.]
4. An agreement allowing the Soviet Union to purchase U.S. equipment for the Kama River truck complex, 25 UST 6.
5. Regarding the meeting of the Joint American-Polish Trade Commission November 4–8, 1972, see Document 175.
6. Not printed.
7. Page 69, below.

8. Defense Comment:

   The emphasis in this paragraph and in the annexed Chapter VIII, Financial and Investment is on creditworthiness; an estimate of potential credit needs, either by country, or for the area as a whole, is not included. Without a better disscussion of the potential total volume of US credits that may be needed in the next five to ten years, it is difficult to assess the value of this component of the overall bargaining package. Further study is needed before and during negotiations.

   State and Commerce believe that the data available have been thoroughly presented and analyzed in Chapter VII Trade Issues, and Chapter VIII Finance and Investment annexed to this study. [Footnote in the original.]

9. For text of the Export Expansion Finance Act of 1971, P.L.–92–126, see 85 Stat. 345.
10. Defense believes that we should bring the US and COCOM control lists into closer alignment but that we do not have enough confidence in where the COCOM level will be in the future to key our policy without qualifications to the COCOM standard. While every effort should be made to bring US and COCOM control lists into closer alignment, the degree to which this should be sought through a reduction of US controls has not yet been established. [Footnote in the original.]
11. For text of NSDM 86 from October 14, 1970, on trade and tariff preferences for developing countries, see Foreign Relations, 1969–1976, volume IV, Foreign Assistance, International Development, Trade Policies, 1969–1972, Document 245.
12. For a fuller account of the Presidentʼs statement, see Document 7.
13. See Document 75.
14. See Documents 183 and 184.
15. Regarding the U.S. response to official anti-semitism in Poland in 1968, see Foreign Relations, 1964–1968, volume XVII, Eastern Europe, Documents 132, 134, and 135.
16. See Document 142.
17. Regarding Nixonʼs visit to Poland, see Documents 163–166.
18. See Document 175.
19. On January 1, 1968, Hungary adopted the New Economic Mechanism, a program of economic reform authored by Finance Minister Rezso Nyers. It limited the power of central planning agencies; granted state enterprises greater power to find their own labor, supplies and markets; and encouraged private enterprise in agriculture and in the service industries.
20. See Document 128. For the text of the consular convention, signed on July 7, 1972, see 24 UST 1141.
21. See Document 90.