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

840.50 Recovery/8–2748: Telegram

The Secretary of State to the Embassy in France

secret

Washington, August 27, 1948.

3352. Torep 816. For Harriman from Hoffman¹ ECA and State.

Subject is East-West Trade. In order to implement objective of decision by National Security Council of Dec. 18 [17], 1947,² cabinet decision of March 26, 1948,³ and of section 117 (D) of the Economic Cooperation Act of 1948,⁴ you should initiate negotiations with ERP countries as agreed between you ECA administrator and secretaries of State, Defense, Commerce prior to your departure. Following policies for your guidance in these negotiations have been developed by ECA and State on basis of general approach which has approval of above-named officials.

1. Basic principles.

a. Effect of Soviet war potential of denial of supplies to Soviet bloc would derive principally from denial of particular critical items.

b. Security is best served by maintaining and increasing strength of west relative to that of east. Effort to hold down war potential of east should be weighed against necessity of building up defense strength of west.

c. Political and military strength of ERP countries depends upon their economic recovery which in turn depends upon success of ERP.

d. Success of ERP as presently conceived depends upon substantial volume of trade between western and eastern Europe. Furthermore, measures involving substantial reduction of this trade would raise political as well as economic difficulties in several ERP countries.

e. Security restrictions upon exports from ERP countries to Eastern bloc must take account of dependence of ERP on maintenance and expansion of trade between eastern and western Europe.

f. East-west trade policy should be designed to assure continuance of eastern bloc exports critical to western economic recovery and defense potential, including strategic materials needed by US to greatest extent compatible with objective of increasing strength of west relative to that of east.

g. Primary object of these negotiations must be export control program for which voluntary agreement of ERP countries based on recognition of a common purpose may be secured.

h. So far as possible, list of critical items, export of which to eastern bloc is totally prohibited for security reasons, should be same for US and ERP countries. Please see section 2 (b) below. Security considerations also call for limiting exports of additional items which singly or cumulatively contribute to Soviet bloc war potential. (See section 2 (c) below.) With respect to the latter category, US might well adopt substantially more restrictive policy than requested of ERP countries since east-west trade is much less important to US than to the ERP countries. Both categories to be considered tentative at this time and subject to reconsideration by Washington in light of new evidence provided by negotiations.

2. Agreements with ERP countries.

a. Essential feature is agreement on lists of commodities, export of which to eastern bloc will be prohibited or restricted by ERP countries. Two lists designated class 1A and class 1B have been air-pouched.

b. Class 1A consists of munitions, including aircraft, covered in presidential proclamation—plus a list of equipment and material items designed primarily for or primarily used in production of munitions or very importantly contributing to the war potential of Soviet and satellite countries. Objective is agreement by all ERP countries to prohibit all exports of these items to eastern Europe. Where important objections to embargo of any particular item on this list, document all relevant data and submit to Washington for final determination of class 1A or 1B status.

c. Class 1B lists additional items of great importance to war potential of Soviet orbit important for national security aggregate exports of these items be limited in quantity but items this list not subject to complete embargo. ECA will undertake with support of State to obtain agreement of participating countries, as far as practicable: (I) to identify and prohibit export of any particular item (or group of items) on this list that involves important western scientific and technological advances that could be used as prototypes by eastern countries; (II) to provide US with periodic information of actual exports or commitments to export (each item from participating country to each eastern country of destination); (III) to reduce continuing exports of these items to east to smallest quantities consistent with existing agreements and necessity to obtain essential imports from eastern countries. US recognizes possible need to supply info on US exports of same items to allay fears of US competition. Availability these data now under study. Repeat US will probably restrict export these items more drastically than ECA countries.

d. Suggest you keep in mind it will be most helpful in Washington situation if you can find some items which can be shifted from 1B to 1A because not important in exports from participating countries or for other reasons.

e. ERP countries should not be asked in these negotiations to terminate existing commercial commitments to eastern Europe if such action will seriously jeopardize their political or economic relations with eastern European countries, but every effort should be made to terminate all class 1A shipments at once. Newly negotiated trade agreements should, of course, conform to the policies set forth above.

f. This policy should apply to exports to the USSR, Poland, Czechoslovakia, Hungary, Rumania, Bulgaria, and Albania.

In general, policy toward Yugoslavia should be the same, but there may be flexibility in favor of less restrictive policy as to class 1B items. Developments in Yugoslavia will require day-to-day watching and it may be desirable for ERP countries to avoid in so far as possible making extensive future commitments for shipments of class 1B items to this area.

Policy on exports to Finland should be same as to class 1A but as to class 1B items should be less restrictive in case of other eastern countries and considerable latitude desirable in allowing normal civilian trade. If particular items are to be included in reparations deliveries to Soviet Union, same policy should be applied to these items as in case of direct shipment to USSR.

g. Agreement should be reached on regular consultation with ECA countries to take account of possible changes in items of concern to participating country involved, changes in policy toward different non-ERP countries, and other special developments, such as the negotiation of newstrade agreements between ERP and non-ERP European countries.

h. Obviously important agreements be such as not to require registration with UN and consequent publication. Must be satisfied, however, that agreement will be carried out. Suggest this possible without written agreement, as has been done in the case of US-Oanadian defense arrangements. If written evidence necessary, might take form of agreed minutes of conversation.

3. Approach to negotiations.

a. Difficult nature of these negotiations, variations in problems anticipated with different countries, and past experience suggest bilateral approach rather than multilateral through OEEC. Suggested that very informal discussions be undertaken with British and US/UK officials in bizonal Germany prior to approaching others. If Brit reaction is reasonably satisfactory, talks with France, Benelux, Denmark, Austria and Norway might follow. Italy, Greece and Turkey should present little problem of principle. Ireland, Iceland and Portugal are not important in this connection. Sweden and Switzerland, of course, will be most difficult and agreements with them may have to take account of special circumstances.

b. Assumed you will get close cooperation diplomatic [missions] in separate country negotiations. Important that they be kept fully informed in each country as well as ECA and State.

c. It is suggested that you discuss class 1A and class 1B lists with missions in each country before negotiations with that country, with purpose of screening out those items which have no importance as exports from that particular country to eastern Europe. This should facilitate negotiations and make it more feasible to avoid revealing full list which not considered desirable except perhaps in case of UK. Appreciate necessity of relying upon your discretion as to extent to which this will be possible.

d. It is assumed that negotiations will be of preliminary character and that, based on them, you may have recommendations to us of changes required in lists in order to secure substantial voluntary agreement by European countries and avoid placing undue restrictions on east-west trade.

e. After agreement is reached with countries on principles of export control policy and export program on items of particular concern in their trade and information on exports of 1B items is available, we contemplate that discussions to limit volume of class 1B exports would be initiated with particular countries on particular commodities based on consultation with State and ECA, and joint appraisal with you and responsible US govt agencies of security situation. This approach will permit flexibility with respect to both country and commodity. It will thus be possible to take account of differences in dependence on trade with eastern Europe (Sweden vs. Portugal), differences in internal political importance of relations with Soviet (Austria vs. Ireland), special industrial situations (Italian shipbuilding) and other factors.

4. Negotiations on items related to atomic energy are being handled separately by State and AEC by agreement with ECA administrator. (See circular airgram dated Aug. 16, 1948, 12:50 p. m.⁵) Close coordination between negotiations is essential and experience in one field may be useful in another. State will keep you fully informed.

5. While Spain falls within definition section 117(D) EC Act, security considerations are quite different from Soviet bloc and agreement with ERP countries re exports to Spain not necessary at this time.

6. Although not subject these negotiations US interested in problems of leakage of strategic items through third countries, transshipment or diversion at free ports, listing of false destinations and similar devices. Cooperation in enforcement of accepted export controls will be important. As first step Depts of Commerce and State will shortly approach several European countries at technical level for cooperation in enforcing US export controls. Our interest in expanding these activities on a reciprocal basis should be kept in mind. [Hoffman.]

Marshall

1. Paul G. Hoffman, Administrator for Economic Cooperation.
2. Ante, p. 511.
3. See the paper dated March 26, presented to the Cabinet by Secretary of State Marshall and approved, p. 527.
4. Title I of the Foreign Assistance Act of 1948, Public Law 472, April 3, 1948, 80th Congress, 2nd Session (62 Stat. 137).
5. See editorial note, p. 563.