The Secretary of State to the Secretary of Commerce (Sawyer)

personal and confidential

Dear Mr. Secretary: I have your letter of June 191 requesting my views on quid pro quo trading arrangements between private American firms and the Soviet Union.

I recognize the importance of operating our export controls so as to maximize the benefits accruing in the United States from trade [Page 551] with the U.S.S.R. but I do not favor linking specific export licenses with specific imports from the Soviet Union for the following reasons:

If encouragement were given to granting licenses on this basis, we would necessarily favor the exporters who had or could develop contact with the Soviet Union. The Soviet Union would be put in a position to influence these U.S. Firms in a way which might prove undesirable.
I can foresee difficulties in giving guidance to prospective traders as to the goods we would permit to go to the U.S.S.R. and the types and amounts of goods we would consider adequate quid pro quos. Without such guidance, private negotiations might prove to be a discouraging process of trial and error for American exporters.
It will be difficult to decide that a promised export from the U.S.S.R. represents in fact an increase over amounts which would have been exported in the absence of a quid pro quo proposal. The result of adopting a policy of the type outlined in your letter might be that the Soviet Union would try to channel all its important exports to us through such barter deals. In this way the U.S.S.R. would probably secure a larger volume of valuable imports from the United States than under present policies.
Such a move might force us to formalize negotiations on a government to government basis in order to maintain a real quid pro quo relation in our trade. I believe it is desirable to avoid such a development. The Soviet Union is much better equipped to control its trade than is this Government, since our authority is limited by the Second Decontrol Act.
We do not want to get ourselves in the position of regularizing a barter procedure which would give a bargaining advantage to the U.S.S.R., while laying ourselves open to charges of discrimination from American exporters, weakening our ability to obtain an adequate flow of critical materials to the United States, and surrendering to the Soviet Union the initiative in determining to what extent we aid the war potential of Eastern Europe.
Under certain circumstances, the Department of State has recognized that some barter transactions might be desirable, but primarily when such transactions would foster trade which might not otherwise develop by reasons of exchange or other abnormal difficulties. This criterion clearly does not apply in this case, although there might be other circumstances which would justify approval of individual proposals without any general commitment as to principle.

I am enclosing a memorandum prepared for me which discusses several aspects of the licensing of exports from the United States to Eastern Europe.

Faithfully yours,

G. C. Marshall
[Page 552]

Memorandum Prepared by the Department of State for the Secretary of State2


Memorandum for the Secretary

The current discussion of general policies governing the granting of licenses for exports from the United States to Eastern Europe has prompted the following summary of State Department views on several aspects of this problem.

Export controls should be administered so as to maximize for the United States and for the Western European countries friendly to us the benefits, in terms of economic strength and progress, of trade between the United States and Western Europe on the one hand and the Soviet orbit on the other. As a matter of the national interest we should certainly want to feel that our efforts are securing for the United States and her friends from this trade at least as great benefits, preferably greater, than are accruing to the U.S.S.R. and her allies.

Our concern centers on three points:

The effect of the application of export controls on imports into the United States of goods from Eastern Europe which, in some cases, such as manganese and chrome from the U.S.S.R., are of high strategic importance, and in others represent a useful contribution to the functioning of the domestic economy.
The fact that export controls as currently applied may be held to violate firm treaty and executive agreement commitments into which the United States has entered with Eastern European countries. A summary of this treaty situation is attached.3 In some cases denunciation [Page 553] of the treaties or agreements would not prejudice United States interests although it might create an undesirable atmosphere of crisis in the United States and in Western Europe. In other cases the treaties contain provisions which are of substantial benefit to the United States.
The scope of the prohibitions enforced by the United States on exports to Eastern Europe on grounds of national security should be complemented by an attempt to secure similar controls on the part of countries participating in the Economic Cooperation Program. Too great interference with the exports of these participating countries to Eastern Europe would almost certainly retard their recovery and increase its cost by reducing the volume of essential goods they could secure from Eastern Europe.

Unavoidable administrative problems have been partially responsible for the relatively small volume of licenses issued during the early months of export control. It is hoped that further steps can be worked out to reduce the delays resulting from the present interdepartmental clearance procedure. Suggestions as to ways in which the Department of State can be of assistance in this regard are welcomed.

A shortening of the list of items whose export is to be prohibited would be particularly helpful in meeting the problems raised in points 1 and 3. However, it is not irrelevant to point 2, since a number of our international commitments contain explicit or implicit exceptions in cases where security interests are involved.

It is essential to recognize that the welfare and development of the United States and the countries friendly to it takes precedence over efforts to weaken potential enemies in any case in which these purposes conflict.

The Department of State recognizes the difficulties, in view of our lack of accurate economic intelligence about the Soviet sphere, in drawing up a list of commodities to be prohibited from export which will be most effective in reducing Soviet war potential. However, this effort must be made.

To the fullest extent possible the list should be designed to strike at those areas of Soviet strength which are most dependent upon imports.

It is particularly important that a list of items whose export should be prohibited for security reasons have reference solely to the effect on the Soviet economy and include no items whose export should be prohibited because of a short supply situation in the United States, or because the items are needed in Western Europe. The control of exports of short supply items and the channeling of scarce goods to “participating” countries are measures for maintaining and increasing our own strength which are vital, but should continue to be handled as entirely separate programs. Controls for this purpose create few, if any, problems of treaty violations, and they place no added burden on East-West trade.

[Page 554]

With a revised and shortened list, following the principles outlined above, it should be possible to maintain a reasonable flow of goods to Eastern Europe and thus postpone the problem of specific intergovernmental quid pro quo bargaining.

From the standpoint of the need of the Economic Cooperation Administration, a revised, shortened list of prohibited items should be prepared promptly. This is a sufficiently important task to justify the immediate attention of the Advisory Committee during the coming weeks.

  1. Supra.
  2. This memorandum incorporates the substance of a draft letter from the Secretary of State to the Secretary of Commerce, dated June 24, 1948, not printed, presumably intended to reply to Secretary Sawyer’s letter of May 20, p. 544 (661.119/6–1948).
  3. The summary under reference here is not printed. It contained the following introductory paragraph:

    “The United States, through the existence of the ‘R’ procedure of export control, is formally violating a number of commitments undertaken in treaties and executive agreements with Eastern European countries, and in particular is in effect violating such agreements by the manner in which the export control system is being operated to discriminate against these countries, on security grounds. The problem is to decide what course of action the State Department should pursue under the circumstances.”

    The summary listed the following agreements and treaties containing provisions, generally about most-favored-nation treatment, currently being violated by the United States: 1. Treaty of Friendship, Commerce and Navigation with Poland, signed 1931, 2. Treaty of Friendship, Commerce and Consular Rights with Finland of 1934, and a Reciprocal Trade Agreement with Finland of 1936, 3. Treaty of Friendship, Commerce, and Consular Rights with Hungary of 1925, 4. Treaty of Commerce with Serbia of 1881, currently in effect with Yugoslavia, 5. General Agreement on Tariffs and Trade currently in force between the United States and Czechoslovakia, 6. Provisional Commercial Agreement with Romania of 1930, reinstated in March 1948, 7. Commercial Agreement with the U.S.S.R. of 1937.