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

Bureau of Economic Affairs Files: Lot 54D361

Current Economic Developments¹

[Extract]

secret
No. 155

[Washington,] June 14, 1948.

East-West Trade Developments

The interdepartmental advisory committee to the Secretary of Commerce has recommended the immediate approval of a number of license applications for destinations in Eastern Europe pending development of definite quid pro quo policies. The Secretary of Commerce, who has responsibility for final action on the applications, last week indicated that the number of license approvals would be increased substantially. This action is in accord with the Cabinet decision of March 26² that trade with Eastern Europe must proceed under appropriate restrictions. It was recognized also that the virtual embargo on US exports to Eastern Europe which was in effect during April and May might well result in a counter-embargo on strategic materials. Licenses issued for Eastern Europe in April totalled $1,435,200, of which only $116,574 were for commercial exports, with the remainder for shipments by relief agencies. This is in marked contrast to the monthly average of $27,115,000 in the last half of 1947, nearly all of which were commercial in character.

US Export Policy Under Review. In the meantime, the National Security Resources Board and National Security Council, which have become increasingly concerned with the national security aspects of our present trade position with Eastern Europe, have requested a review of US export policy. They are, of course, particularly anxious to guard against an abrupt termination of Soviet shipments of strategic materials to the US. The other major objectives are to avoid damage to East-West trade in Europe which might jeopardize Western Europe’s continuing to receive essential imports from the East and to prevent exports to the East which would contribute to further significant increases in the war potential of the Soviet and satellite economies. In interpreting provisions in Recovery Program legislation relating to trade with Eastern Europe, ECA believes it must seek to have the participating countries prohibit the export to the Soviet sphere of the same list of commodities that the US will not export for security reasons to that sphere. Consequently, ECA is pressing vigorously for a short list of prohibited items which, if applied by the Western European countries, will not contribute to the war potential of Eastern Europe but which will not interfere with the development of East-West trade, so necessary to the success of the Recovery Program.

Department Position On Quid Pro Quo Negotiations. We have recommended to the Advisory Committee’s Ad Hoc Subcommittee that quid pro quo negotiations to secure metallurgical manganese ore and metallurgical chromite ore from the USSR should not be undertaken until there is clear evidence that, in the absence of such bargaining, US requirements will not be met. The determination as to when this condition exists should be based on the examination of import figures, ship sailings, and contracts. The course which would be followed at that time with respect to any such negotiations will have to be determined in the light of US-Soviet relations in general at that time.

Meanwhile, we recommend that items in Classes 3 and 4 be licensed freely. (Class 3 items are those which do not have any particular military significance but are of some importance in maintaining the basic economy of Eastern European countries and Class 4 commodities are those of no particular significance either from a military point of view or to the maintenance of the economies of Eastern Europe.) We recommend that items in Class 2, those of important though indirect military significance or of considerable importance to the industrial potential of Eastern European countries, should also be licensed freely so long as immediate deliveries are involved. Commitments should not be made, however, for deliveries into the future which might be needed as bargaining weapons in case USSR shipments are reduced in volume.

Export Policy Vis-à-Vis Austria. In determining the policy to be followed with respect to exports to Austria, it is essential that shipments be licensed on the same basis as to other Recovery Program countries. US foreign policy objectives require that Austria remain united and within the Western orbit. While a certain portion of US exports to Austria must go to the Soviet Zone in the interest of a balanced development of the Austrian economy, the amount has been kept to a minimum by the Austrian Government. While unauthorized exports from the Soviet Zone to the Eastern European countries are possible, and a Soviet seizure of Austria cannot be excluded from consideration, the risks involved seem appreciably less than those which would be incurred if the Austrian Government received the impression that the US is discriminating against Austria as compared with other Recovery Program countries.

In addition to the decision that Austria should be treated like other Recovery Program countries, it is thought that: 1) the security aspects of export control to all Recovery Program countries, including Austria, can be met without discrimination by specifying a very limited list of items whose export to all Recovery Program countries would be subject to review by interested Washington agencies; 2) screening of Austrian programs can be made in advance by US authorities in Austria in the light of security and foreign policy factors; and 3) a continuous survey of the distribution of imports from the US should be made in Austria by the appropriate authorities.³

Licenses Approved For Finland. Legation Helsinki has recommended, especially in view of evidence of Soviet participation in the Finnish election campaign, that favorable consideration be given outstanding Finnish export license applications. The Department has also urged that outstanding license applications for export to Finland of items not considered of high strategic importance, to be shipped prior to July 1, be freely and promptly granted. As a result, Finnish licenses for nonstrategic items valued at approximately $4 million have recently been approved. Finland apparently still retains substantial freedom of action. We feel that some risks are justified in an attempt to preserve a politically independent Finland.⁴

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1. This weekly classified publication, prepared by the Policy Information Committee of the Department of State, was designed to highlight developments in the economic divisions of the Department, and to indicate the economic problems which were currently receiving attention in the Department. It was circulated within the Department and to Missions abroad.
2. See the memorandum by the Secretary of State, March 26, p. 527.
3. Additional documentation regarding United States occupation policy in Austria is presented in volume ii .
4. For documentation regarding the concern of the United States over a possible seizure of power by Communist forces in Finland, see pp. 759 ff.