Foreign Relations of the United States, 1948, Eastern Europe; The Soviet Union, Volume IV

660.119/5–648

Memorandum by the Assistant Secretary of State for Economic Affairs (Thorp) to the Secretary of State ¹

secret

[Washington,] May 6, 1948.

I understand that Mr. Sawyer² will seek Cabinet discussion May 7th of a “Report on Trade Relations with Eastern Europe”, representing a proposed interim policy to guide the issuance of licenses for export to Eastern Europe in May, prepared under the supervision of the Advisory Committee to the Secretary of Commerce under the Second Decontrol Act.³ (Attached as Appendix A.) While the language at a number of points is not entirely satisfactory, the main principles are acceptable and it is recommended that you approve it on behalf of the State Department.

In expressing approval I would urge that you make several comments on the interpretation and administration of the policy. The problems which make these comments necessary arise, in large part, because of the pressure exerted by a number of members of Congress who are desirous of a complete embargo on trade with Eastern Europe, without fully realizing the results which would flow from such a step.

1. Licenses issued for Eastern European destinations in April were $1,435,200, of which $1,323,000 was for shipments by relief agencies. Licenses for commercial exports amounted to $116,574. Average monthly exports to these countries in the last half of 1947 were $27,115,000, nearly all commercial in character. (See Appendix B for detailed table.⁴) This is a reduction in volume which closely approaches the embargo which, for generally agreed reasons, we have sought to avoid.

2. It is a matter of immediate concern that licenses for export to Finland of items not considered of high strategic importance, to be shipped prior to July 1st, be freely and promptly granted. Finland still retains substantial freedom of action. It is to our interest that she retain that freedom. Elections will be held there early in July. In these elections the USSR will attempt to extend the scope of its control. We will help the Soviet cause if we give the Finnish people the impression that the U.S. considers Finland already lost to the West and is cutting off exports accordingly. Some risks are justified to preserve a politically independent Finland.

3. It also is important that licenses be approved for export to Poland of equipment to increase coal producing and transporting capacity, contracted for under an Ex-Im Bank loan. Increased supplies of coal from Poland for ERP countries are called for by trade agreements between those countries and Poland, and counted upon in ERP planning.

4. The Class 1 and Class 1A lists of items seem unduly long. What we want is a list of key items whose denial to the Soviet economy would be most effective in retarding the development of her war potential. It is hoped that the review now being undertaken by the Technical Committee will permit a more discriminating selection.

5. Our interference with trade should be on this selective basis. It is important to avoid action which might provoke retaliation on the part of the Soviet world, not only against the U.S. but also against Western Europe. Levels of trade between the U.S. and the Soviet sphere have been low and we should be concerned not with the volume but with the nature of exports. It is of course important that this trade be a really two-way proposition and that we receive goods we want and need in payment for our exports. This applies also to trade between Eastern Europe and the ERP countries. When exports to this country or to Western Europe of things needed and normally received from the Soviet sphere, are purposely reduced, we should use our power to withhold licenses for exports of important items not on the prohibited list (particularly Class 2 and 3 items) as a bargaining weapon, but only in these circumstances.

It is not known whether the question of exports to Austria will be taken up by Mr. Sawyer. We feel that Austria should receive treatment similar to that accorded other ERP countries. The extent of the present special screening of licenses for Austria is seriously delaying exports to that country. (A proposed policy statement on the treatment of Austrian license applications is attached as Appendix C.⁵ It has substantial interdepartmental approval at working levels.)

1. There is no indication that this memorandum was ever actually sent to the Secretary of State.
2. Charles Sawyer was sworn into office as Secretary of Commerce on May 6, 1948. W. Averell Harriman had resigned as Secretary of Commerce on April 22, 1948 to become United States Special Representative in Europe under the Foreign Assistance Act of 1948, with the rank of Ambassador.
3. The Report under reference here is printed supra. No Department of State record of the Cabinet meeting of May 7 has been found.
4. Not printed.
5. Not printed.