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

Report by the Executive Secretary of the National Security Council (Lay) to the National Security Council ¹

top secret
NSC 69/1

Washington, August 21, 1950.

Export Controls and Security Policy

The following paragraphs contain a statement of the principal issues concerning export controls in relation to the security policy of the United States, together with a summary of the position, at the staff level, of interested departments and agencies on each issue. Full statements of departmental and agency positions on the issues are attached as appendices.²

Issue No. 1

Recognizing that no department or agency is now recommending all-out economic warfare or an embargo, what relative weight should be assigned to the following factors in determining U.S. security export control policy to achieve U.S. national security and foreign policy objectives?

• a. Military security: to retard the development of the war potential of the USSR and its satellites.
• b. Recovery: to assist in the economic recovery of the friendly nations of Western Europe.

State Position. The issue should be stated thus: what relative contribution to U.S. national security can be made by (a) retarding the war potential development of the Soviet bloc through export control; (b) strengthening the economic and political health of the West? We should strike the balance that gives the greatest advantage to the West. The best way to do this is by free negotiation in which the Western countries weigh the contribution that uniform export controls can make to their own safety against the economic and political costs of such controls.^*

Defense Position. Military security should be the deciding factor, overriding recovery considerations in determining the controls imposed on the export of 1A and 1B items to communist-dominated areas.

NSRB Position. Military security should outweigh economic considerations in the application of export controls.

Commerce Position. Military security should outweigh East-West trade expansion (which is no longer essential to economic recovery) both in determining U.S. export control policy and in negotiating for comparable controls by Western Europe.

ECA Position. The importance of military security vs. recovery varies with the time and situation. The problem, which is primarily operational, could be solved by full inter-agency exchanges of views to assure adequate consideration of these two factors and of political objectives before decisions are made.

Issue No. 2

How wide a range of commodities should the United States control and how restrictive should controls be on the commodities selected?

State Position. The United States should extend its controls to cover new items, even though other countries do not follow suit, if in the light of the Korean war control of such items would significantly affect Soviet war potential or military activity. If these new items are strategically more important than items already proposed for the international lists, the United States should adjust its proposals accordingly, but during the Paris negotiations the presumption should be against major additions to the U.S. proposals.

Defense Position. The United States should at the very least maintain severely restrictive export controls, applied on a presumptive denial basis, on all commodities having significant war potential, including all capital goods. The possibility of an increasing trade blockade of the Soviet bloc should be explored in the NAT organization.

NSRB Position. The coverage of the present controls should not be altered, except for individual changes for technological and similar reasons.

Commerce Position. As to commodities, the United States should extend its controls to cover new items, even though other countries do not follow suit, if in the light of the Korean war control of such items would significantly affect Soviet war potential or military activity. Geographically, only the most strategic items and those for which there is definite evidence of transshipment should be controlled to all destinations. The present licensing policy of virtual embargo over shipment of 1B items to Eastern Europe should be reaffirmed.

ECA Position. The present technical criteria for determining whether an item is to be controlled should remain unchanged, but decisions as to whether and to what extent to control a particular commodity should be made only after inter-agency consideration of all the facts through the Commerce committee system.

Issue No. 3

Should the United States follow licensing policies toward Austria and Sweden different from those applied to the other countries of Western Europe?

State Position. Austria should not be treated differently from other ECA countries, though the special screening in Vienna to prevent release of strategic items to dangerous consignees should be continued. The policy toward Sweden should not be basically different from that toward other Western Europe countries.

Defense Position. The United States should apply export controls over strategic items (including 1A and 1B lists) to Austria and Sweden calculated to prevent those countries from obtaining strategic items of capital equipment or raw materials that may be used to produce strategic items for export to the Soviet bloc.

NSRB Position. Informal pressure, including special administrative screening, is preferable to placing Austria and Sweden in a special category as a matter of formal policy.

Commerce Position. Very highly strategic goods destined for Austria should be presumptively denied, this presumption being overcome only in special cases by overriding political considerations. License applications for highly strategic items destined to Sweden should be allowed to accumulate for discussion with Sweden in an effort to obtain greater Swedish cooperation.

ECA Position. Austria should continue to be treated as a participating nation in the recovery program, though subject to the special screening in Vienna. Treatment of Sweden should be similar to that accorded other Western European countries.

Issue No. 4

How far should the United States go in insisting that the Western European Governments impose export controls comparable to the U.S. controls?

State Position. The United States should not use the threat of withholding ECA aid, export licenses to Western Europe or MDAP aid, or other economic sanctions, to compel agreement with our proposals. The U.S. negotiators should be given greater freedom by authorizing them to agree to the withdrawal of items heretofore proposed for the international lists when a net security advantage can be achieved by agreement to control other items of greater strategic significance.

Defense Position. The amount, nature and timing of economic aid to the Western European nations should be conditional on their enforcing export controls comparable to those of the United States. Negotiations should proceed in the Council of the North Atlantic Treaty.

NSRB Position. Comparable security export controls should be negotiated with all possible strength through all available channels, but the United States should not use sanctions. The prime necessity is agreement with our allies on consistent, if not identical policies.

Commerce Position. The United States should use every means at its disposal to secure effective agreement on comparable security export controls. Negotiations to this end should give paramount importance to military security considerations. More effective coordination is required between our policy objectives and our programs to achieve national security.

ECA Position. The United States should not use the threat of withholding export licenses to compel agreement on comparable controls. As an alternative, the United States should accept agreement for quantitative controls on fewer items, instead of insisting on Western European acceptance of our 1B list.

Appendix “A”

State Department Position With Respect to Issues Relating to Export Controls and Security Policy

Note: Any export control policy must necessarily be based upon an assumption as to the prospects for war. If a general armed conflict in the early future were regarded as certain the economic and political effects of our export control policies on our Western European allies might be safely ignored. If this were the situation we should also have reached the point where a complete embargo would be indicated. To enter upon a complete embargo, in turn, would be to declare that the United States has no confidence that a general war can be avoided. The following conclusions are based on the assumption that that point has not been and may not be reached.

Issue No. 1. What relative weight should be assigned each of the following factors in determining U.S. security export control policy to achieve U.S. national security and foreign policy objectives?

• a. Military security: To retard the development of the war potential of the USSR and its satellites.
• b. Recovery: To assist in the economic recovery of the friendly nations of Western Europe.

Comments: We believe the actual issue posed is the following:

“What are the relative contributions to U.S. national security that can be made by:

(a) retarding the development of war potential to the Soviet Bloc by export controls, and

(b) strengthening or maintaining the economic and political health of the West?”

The objective of the West should be to strike the balance that gives the greatest advantage to the West. We are convinced that the contribution of East-West trade to the economic strength of the West is still important and that the political repercussions in Europe if that trade were lost are perhaps even more important. Furthermore, U.S. pressures for curtailment of that trade, depending on their nature, could impair the growing sense of political solidarity among NAT countries.

In the case of highly strategic items (most U.S. 1–A items) export embargo is likely to weight the scales favorably for the West. But where the principal effect of controls is to damage the basic economic structure of the Soviet Bloc, that damage must be carefully weighed against the effect on the economic structure of Western Europe and Japan. Before the war Japan was highly dependent on trade with China. In the long run, a revival of that trade is essential for Japan’s economic self support.

The best way to approximate the optimum balance of advantage for Western countries as a whole is by a free negotiation among them in which the participating countries weigh the contribution that uniform controls can make to their own safety against the economic and political costs involved.

Issue No. 2. How wide a range of commodities should the United States control and how restrictive should controls be on the commodities selected?

Comments: The question can refer to U.S. policy as it affects the policy of Western European countries, or U.S. export controls maintained independently of Western Europe. Since both questions are actually at issue, our position is:

a. during the Paris negotiations there should be a presumption against major additions to the United States proposals for the International Lists,

b. the U.S. should reexamine its own controls in the light of experience in the Korean war and should not hesitate to add any item if it is found that control by the United States would have a significant effect on Soviet war potential or military activity even though not reinforced by parallel action on the part of Western Europe,

c. if it is determined that a new item is more important strategically than items already proposed for the International Lists the United States may propose addition of the new items to the International List, adjusting its other proposals as necessary to prevent an increase in the existing divergence between the United States position and that of other countries in the Paris negotiations.

The above policies could result in an increase in the present disparity between United States export controls and those of Western Europe. They recognize that the amount of sacrifice entailed in controlling a given item may be much less for the U.S. than for the Western European countries.

Issue No. 3. Should the United States follow licensing policies toward Austria and Sweden different from those applied to the other countries of Western Europe?

Comments: A. Austria. As an area, Austria should not be treated differently from other ECA countries. Any fundamental difference in policy would be interpreted as a United States retreat in Austria—as a decision by us that it cannot be considered within the Western orbit. Under such a policy, Austria would be rendered economically and psychologically less able to resist Soviet aggression. Of still greater importance is the extremely undesirable effect that such a policy would have on the confidence of other friendly countries, especially those contiguous to the Soviet Bloc, such as Iran, Greece, or Turkey.

The Austrian Government has given the United States excellent cooperation in its own controls of exports beyond the borders of Austria. At the same time, we recognize the special difficulties which result from Soviet occupation of part of Austria. We should continue the special screening in Vienna by the ECA, the Legation, and the military to avoid release of strategic items to Soviet dominated companies or other dangerous consignees.

B. Sweden. The policy towards Sweden should not be basically different from that toward other Western European countries. The effort to align Sweden with the West in event of War in Europe should not be abandoned.

We recognize that there is danger of relatively larger shipments of strategic goods from Sweden to the Soviet than from other Western countries, but Sweden’s exports make a more important contribution to Western strength than to that of the Soviet Bloc.

In view of the non-participation of Sweden in the Paris Consultative Group there may be more cases in Sweden than elsewhere where it is necessary to hold a license while ascertaining whether its approval would result in increased exports to the Soviet Bloc of highly strategic items.

Issue No. 4. How far should the United States go in insisting that the Western European Governments impose export controls comparable to the United States controls?

Comments: A. The principal issue here seems to be whether the United States should use the threat of withholding ECA aid, or export licenses to Western Europe, or MDAP aid, or other economic sanctions, to force agreement with our proposals.

The United States should not use this kind of pressure because:

(a) an agreement not based on collective Judgement and mutual desire for maximum security is less likely to arrive at the optimum balance of strength in favor of the West over the East. It is in our interest to take into account the information received from European countries, and not always available to us, concerning the effect of specific control measures on their economic recovery and political stability,

(b) serious resentment would be created where solidarity is most needed,

(c) security controls are not likely to be effectively enforced by a government which does not believe they are necessary.

Without violation of this principle there may be cases where this Government will wish to ascertain, prior to approval of a specific 1–A or 1–B shipment to Western Europe, whether such a shipment is likely to result in a substantially increased export of a highly strategic item.

B. The Korean war reemphasizes the need for avoiding any coercive action against countries which are now active allies of the United States. To recognize this fact is not to advocate weakness by the American negotiators, who should continue to press by negotiation for more thorough going controls. Present indications are that the Korean war is narrowing the divergence of views between participating countries as to the security importance of limiting the Soviet war potential through export controls. We are convinced, however, that continued insistence on our part that other participating countries accept all items on our 1–B list reduces the negotiating power of the United States Delegation. Accordingly, the Department proposes to permit greater powers to negotiate by authorizing the United States Delegation to agree to the withdrawal of items heretofore proposed for the International Lists when a net security advantage can be achieved in the form of mutual agreement to control other items of greater strategic significance.

C. The special problem of controls by Germany and Japan is important in this connection. There are both economic and political reasons why Germany and Japan cannot be expected indefinitely to maintain controls more exacting than those maintained by Western Europe. At an appropriate time, in the light of the Paris negotiations and of the general international situation, German and Japanese controls should be brought into line with those of the Western European participating countries.

Appendix “B”

Defense Position With Respect to Issues Relating to Export Controls and Security Policy

Issue No. 1. What relative weight should be assigned each of the following factors in determining U.S. security export control policy to achieve U.S. national security and foreign policy objectives?

a. Military security: to retard the development of the war potential of the USSR and its satellites.

b. Recovery: to assist in the economic recovery of the friendly nations of Western Europe.

Comments: Military security should be the deciding factor overriding recovery considerations in the export of 1A and 1B items to Communist dominated areas. These 1A and 1B items are acknowledged to be essential to the increase of war potential of Communist areas. The strategic importance of these items far outweighs their contribution through East-West trade to the economies of either Western Europe or the U.S. The U.S. economy can easily withstand the loss of the relatively small volume of trade involved as has been the case for the past two years. Economic recovery in Western Europe has progressed to the point where East-West trade, involving strategic items, is no longer of great importance to the West. Western Europe trade in strategic items with the Soviet Bloc is on the order of 1% of their total export trade to all destinations. East-West trade in these items is inimical to the security of the West, because (1) the increase in war potential of the Communist areas exceeds the economic benefits to the West; (2) such trade directly conflicts with the objectives of the Mutual Defense Assistance Program in that it increases the war potential of Communist areas, and thereby increases the military aid requirements of Western Europe for defense; and (3) the Soviet Bloc will permit East-West trade only in items that further Soviet political and military objectives as the Soviet Bloc is hostile to the aims of the European Recovery Program, and the Soviet Bloc is striving for self-sufficiency. Comparable export controls by Western European nations are necessary for maximum effectiveness of the controls in the interest of mutual security. NSC 68³ emphasizes the importance of retarding the development of Soviet Bloc war potential in order to facilitate correcting the disparity between Western and Eastern war readiness.

Issue No. 2. How wide a range of commodities should the United States control and how restrictive should controls be on the commodities selected?

Comments: The United States should maintain severely restrictive export controls at the very least on all commodities having significant war potential including all capital goods. These controls should be applied on a presumptive denial basis. The current 1A and 1B lists comprise, by and large, a wide range of commodities of major strategic significance. International and technological changes will necessitate additions and deletions to these lists. Under present export control policy, we attempt to restrict trade in items of only the highest significance with respect to direct contribution to war potential, while at the same time we assist the Soviet Bloc to maintain their civilian economy and substantially build up their industrial machine essential in preparation for the conduct of a shooting war. The only reasonable alternative to the present policy, which may result in a decline of strength of the West relative to the East, is an intelligent increasing trade blockade on the part of the West. It is believed that Soviet dependency on the West is such that the West has a powerful tool for obtaining major concessions from the Soviet. These possibilities should be explored in the North Atlantic Treaty Organization in order to arrive at a common policy to best serve mutual security.

Issue No. 3. Should the United States follow licensing policies toward Austria and Sweden different from those applied to the other countries of Western Europe?

Comments: The U.S. should apply export controls over strategic items (including 1A and 1B lists) to Austria and Sweden calculated to prevent those countries from obtaining strategic items of capital equipment or raw materials that may be used to produce strategic items for export to the Soviet Bloc. This policy is necessary so long as export controls in Austria remain ineffective and so long as Sweden continues to be a source of supply of strategic items for the Soviet Bloc. To do otherwise would vitiate the effectiveness of a restrictive export control policy.

Issue No. 4. How far should the United States go in insisting that the Western European Governments impose export controls comparable to the U.S. controls?

Comments: Communist dominated areas form a monolithic bloc in their trade policy toward the West. Unless the U.S. and Western European nations are guided by the same export control objectives, the effectiveness of restrictive export controls toward the Soviet Bloc will be greatly lessened. It is imperative for mutual security that the U.S. and Western European nations employ comparable export controls. To this end, the U.S. should make the amount, nature and timing of economic aid, to Western European nations conditional on their enforcing export controls comparable to ours. To do otherwise is to lessen the effectiveness of these aid programs. The U.S. should exhaust every means in persuading friendly governments to improve export controls comparable to our own. Negotiations to this end should proceed in the councils of the North Atlantic Treaty. Negotiations within this framework to obtain comparable export controls would accord full weight to security factors. Concerted action to date by Western European nations to minimize the transfer of war potential to the Soviet Bloc is dangerously inadequate to frustrate the Communist intention to increase its war making capacity relative to the West. For example, the Paris Consultative Group has not yet agreed to embargo many important items of the U.S. 1A list, such as many precision instruments, alloy steels, ball bearings, tankers, and industrial diamonds from Western Europe. The U.S. is stockpiling industrial diamonds, yet at the same time, the Soviet Bloc is obtaining industrial diamonds for use in making fine mesh nickel screens used in producing atomic bombs.

1. A covering note of August 21 by Executive Secretary Lay, not printed, explained that the report had been prepared at the direction of President Truman by the National Security Council Staff with the participation of representatives from the Department of Commerce and the Economic Cooperation Administration. The report was to serve as the basis for discussion of export controls and security policy scheduled for the National Security Council meeting on August 24. The Secretary of Commerce, the Economic Cooperation Administrator, and the Secretary of the Treasury were invited to participate with the Council in the consideration of the report. For the record of action of the Council meeting of August 24, see p. 179.
2. Only Appendices “A” and “B”, the detailed statements of the Departments of State and Defense, are included here. Appendices “C”, “D”, and “E”, the detailed statements of the positions of the National Security Resources Board, the Department of Commerce, and the Economic Cooperation Administration, respectively, comprising 17 pages in the source text, have been omitted.
3. The State position on all issues is based on the assumption that general armed conflict in the early future is not certain. [Footnote in the source text.]
3. NSC 68, April 14, 1950, entitled “United States Objectives and Programs for National Security,” is printed in vol. i, p. 234.