Foreign Relations of the United States, 1950, Central and Eastern Europe; The Soviet Union, Volume IV

S/S–NSC Files: Lot 63 D 351: NSC 69 Series

Memorandum by the Secretary of Commerce (Sawyer) to the National Security Council ¹

top secret

Washington, June 6, 1950.

Subject: Export of Steel Mill Equipment to Austria

1. The Commerce Department, together with the Advisory Committee on Requirements,² has reviewed the application for the export of steel mill equipment to Austria. In view of the security and foreign policy questions raised, the National Security Council is asked to review the policy with respect to U.S. exports of such capital equipment to Austria which will or can produce strategic goods for movement to Eastern Europe.

2. The specific project involved was reviewed by, and received the approval of, Defense, State, Commerce, NSRB and ECA in 1948, and has been reviewed and approved by the Vienna Screening Committee.³ It is part of an extensive ECA program to modernize the steel industry of Austria. A detailed statement of this and related steel projects destined for Austria is to be found in Attachment 1. (OC Document No. 356) (Revised⁴).

3. The Defense Department, after a review by the Joint Chiefs of Staff, has recommended denial of the application on the following grounds:

(a) The subject equipment has a potential capacity considerably greater than the utilization planned in the ECA project. In consequence of the current surplus supply position of the Western European steel industry, this potential capacity would tend to increase the export of militarily important steel products to the Soviet bloc.

(b) Control of Austrian exports of strategic items to the East is and probably will remain ineffective under quadripartite occupation, with the result that control of 1B items produced by the equipment cannot be expected.

(c) The plant is located across the river from the Russian zone. In case of war the installation in all probability would fall intact to the Soviets.

The position of the Defense Department is presented in Attachment 2. (ACR Document No. 52.⁵)

4. The representatives of State and ECA remain strongly convinced that the project should be approved on the following grounds:

(a) Denial now, when equipment is ready for shipment and after top level approval for ECA financing, would be a damaging blow to Austrian morale. In recent elections the Austrians rejected Communist candidates with very heavy majorities. Denial of the subject case would be followed by a Soviet propaganda campaign to the effect that the Western countries were ready to abandon Austria, and would cause widespread discouragement.

(b) The political effects of denial would not be confined to Austria, since denial would be taken more generally in Europe as the sign of an American retreat.

(c) Denial would prevent the strengthening of the Austrian economy, which is part of the European Recovery Program, by impeding the modernization of its productive facilities and the manufacture of goods it must trade with Eastern Europe in return for food and raw materials.

(d) Austrian ECA steel projects have already been extensively revised to place the accent on civilian type products and to emphasize replacement rather than expansion of steel capacity. The main purpose of the subject equipment is to produce at lower cost goods which, for the most part, can be exported freely from the United States.

The position of the ECA, which is concurred in by the State Department, is presented in Attachment 3. (OC Document No. 356, Supplement 1.⁶)

1. This memorandum was circulated to the National Security Council under cover of a memorandum of June 7 by Council Executive Secretary Lay, not printed, which observed that in accordance with the request of the Secretary of Commerce for an early review of the problem by the Council, this memorandum had been placed on the agenda of the Council’s next regular meeting scheduled for June 15 (S/S–NSC Files, Lot 63 D 351, NSC 69 Series). This memorandum and other aspects of the East-West trade control problem were not, in fact, taken up by the National Security Council until August 24; for the record of actions at that meeting, see p. 179.
2. An interdepartmental committee, including representatives from the Departments of State, Commerce, and Defense, and the National Security Resources Board, which advised the Secretary of Commerce on the domestic and foreign policy and national security aspects of export controls.
3. The Vienna Screening Committee, composed of representatives from the Economic Cooperation Administration Mission in Austria, the Legation in Austria, and American occupation forces, reviewed exports of strategic items from Austria.
4. The paper under reference here, a report of May 10 from the R Procedure Subcommittee (an interdepartmental committee which advised the Secretary of Commerce on export license cases) to the Operating Committee (the executive committee of the Advisory Committee on Requirements), is not printed.
5. The paper under reference here, dated May 17, from the Department of Defense Representative to the Operating Committee, is not printed.
6. Not printed.