The AD HOC Group submits herewith the comprehensive review of the issues
involved in further normalizing our relations of economic which you
requested on October 27, 1972.
The Department of Defense has requested that its final comments be
attached to the study.
Attachments:
- 1.
-
NSSM 163/CIEPSM 24.
- 2.
- Defense Comments.
[Page 2]
Economic Policies for the Eastern European Countries
Section One
- I
- Summary and Conclusions
- II
-
US Interests and Objectives and
Underlying Determinants of US
Policy
- III
- Consequences for US-East
European Relations of the Improved US-Soviet Relations
- IV
- Economic Profile, Eastern Europe
- V
- General Directions and Limits to US Economic Policy
- VI
- Negotiations
[Page 3]
MAJOR EASTERN EUROPEAN TRADING RELATIONS - 1971 (Turnover in millions
of dollars)
- 1)
- Excluding Yugoslavia and Albania
- 2)
- Excluding Yugoslavia and US.
- 3)
- Including Yugoslavia
[Graphic]
[Page 4]
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
MEN and, in Hungary’s 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 159 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,* it is also recommended that
there
[Page 6]
be
continued movement away from the present US export control level and
towards the COCOM
level.
* The DOD reservation is
set forth in a footnote to export controls on page 17 in
this summary.
- 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-a-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 Moscow’s
efforts toward detente 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 Hungary’s
considerable departure from the Soviet economic model and adopted
hands-off policy when Poland faced a serious workers’ strike in
1970. This
[Page 8]
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, 1972 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 at the Joint Polish-American Commercial
Commission, 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
[Page 9]
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
Stalin’s 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 Yugoslavia’s
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.
[Page 10]
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 chart 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.
[Page 11]
DECLASSIFIED
[Graphic titled “STATUS OF BILATERAL RELATIONS”]
