493.419/3–2450

The Secretary of State to the Secretary of Defense (Johnson)

top secret

My Dear Mr. Secretary: I have examined carefully the suggestions which you have made in your letter of March 24, 1950, with respect to licensing action on steel rails, the strategic classification of railway transportation equipment, the negotiation of parallel action, and our export control policy toward China. I have considered your suggestions in the light of the recent developments in the Far East to which you have referred, the world-wide responsibilities we bear and objectives we must seek because of the fact of the cold war, and the opportunity I will have of discussing with the Foreign Ministers of our major western European allies some of the underlying problems which give rise to your suggestions on China trade policy.1

If I may deal with the last of your suggestions first, I should like to say that I am in full agreement with you that in the light of the effect upon United States national interest of the situation in Asia, some clarification should be achieved amongst the interested government agencies regarding the practical implementation of export policy to China as it is now embodied in NSC 48/2. It is my view that Communist China should be treated as a satellite of the USSR and controls over exports to that area should be identical in scope and governed by the security principles now applied to the USSR and its eastern European satellites. However, the accomplishment of this objective clearly must, as a practical matter, be modified in those cases where the unilateral denial by the United States would merely surrender the Chinese market to the British or other suppliers.

[Page 633]

I am also in full agreement with you that this Government should make every reasonable effort to obtain the concurrence of the United Kingdom and other of our western European allies in export controls paralleling our own, applicable uniformly to the USSR, eastern Europe, and, now, Communist areas in the Far East.

As you are well aware, we have for some time been negotiating with Canada and the western European countries to obtain their agreement to prohibit exports to the Soviet Union and Soviet eastern European satellites of items the denial of which would affect key sectors of the Soviet war potential economy. These negotiations have resulted in the acceptance by eight countries of substantially all of our 1A items, as well as items defined as arms, for embargo treatment. We have good reason to believe that similar treatment is extended to arms, and to a number of other items, by Sweden and Switzerland as well.

Our negotiating efforts, in which representatives of the Department of Defense have participated, have led to the formation of the so-called “Paris Consultative Group.” The agenda of the current and forthcoming meetings of this Group includes such matters as proposed additions to the embargo list (i.e., all items the United States desires to classify 1A), and suggestions made for limitative controls to parallel those now in effect for 1B shipments from the United States. The intergovernmental group is proceeding to consider our proposals as expeditiously as could be expected. I am sure you are familiar with our instructions to our people in Paris, on the 1B control problem; they are contained in telegram No. 1365 of March 29, 1950, to Paris, a copy of which is enclosed (Tab A).2

It is my view that these negotiations should go forward as planned. The problem of Communist China should not, at this stage, be introduced into these proceedings. We have, as you know, been discussing bilaterally with the British for some time the question of an embargo on 1A goods for Communist China and we have their agreement to such an embargo, on condition that France, Belgium, and the Netherlands establish similar controls. These three governments have now been approached and there is every prospect of success in this venture. Once this initial agreement is achieved we are confident that this government, in concert with these four western European countries with important trading interests in the Far East, can put China trade controls on the multilateral basis which will have been decided upon for trade with eastern Europe. We will then have a common western security control policy applicable to all countries of the Soviet orbit. While I do not consider it appropriate that the Foreign Ministers, who will be meeting in early May, should concern themselves at this time with the negotiating details, I do intend to find an occasion to [Page 634]place before them some of the considerations which lead us to attach very great importance to the successful outcome of the negotiations now proceeding.

This leads me to the question of controls established by Germany and Japan over exports to countries in the Soviet orbit. As you know, we have tended to hold German controls at a level which is more restrictive, in the 1B category, than that maintained by countries which are Germany’s principal competitors, because our objective is to bring the controls of other European countries up to the level now maintained by Germany. In War #98471 of January 13, 1950, we informed SCAP that his controls on 1B should be at least as restrictive as “may hereafter be imposed by the United Kingdom or Western Europe.” In practice SCAP’s 1B controls have paralleled our own and have been substantially more restrictive than those of the United Kingdom.

I feel certain that you will agree with me that it would be politically and economically unwise, from the standpoint of long-term United States interests, to require Germany and Japan to pursue a course of commercial self-denial which their principal competitors are unwilling to accept as being in their individual and collective interests. Pending the outcome of the negotiations described above, Japan and Germany should, of course, continue to be governed by the guidance contained in War 98471 of January 13, 1950, to SCAP and in the comparable directive from the High Commission to the German Government. It is my opinion, however, that when these negotiations are concluded, the control of exports from Germany and Japan should be conformed to the terms of such agreement as has been reached multilaterally.

When we can see and judge the results of the discussions of the Paris Consultative Group it may be that the importance of common security control policies with our Western Allies will lead us to the conclusion that some modifications should be made in our own security controls. This, however, is not a question which need be prejudged at this juncture. Meanwhile, our negotiators will press firmly towards the successful development of multilateral limitative controls over items for which, in the United States view they are appropriate.

The particular problem of railway transportation equipment for Communist China should, it seems to me, be considered in the context of the foregoing factors in our trade control problem as a whole. The question of the strategic rating which this Government should assign to any commodity must be considered in the light of its possible importance for the Soviet Union, the eastern European Soviet satellites, and the Communist-controlled areas of the Far East, taken together. On this basis we have examined the proposal to reclassify railway equipment to 1A, and have concluded that it does not meet the agreed [Page 635]criteria for this classification, but does warrant the 1B rating now assigned to it, because large shipments to the Soviet bloc might represent a security threat. I am attaching herewith as Tab B3 a statement prepared by the Department of State and the Economic Cooperation Administration, for circulation in the interdepartmental committees now considering the rating problem, in which our reasons for favoring a 1B rating are set forth.

We have examined carefully your suggestion for rescinding the authorization for export of 15,000 tons of steel rails from western Germany to China as recently approved by the State and Defense Departments and the Economic Cooperation Administration. In view of the fact that steel rails are classified 1B, and in view of the status of our multilateral negotiations on 1B items, it is our judgment that the best security interests of the United States would not be served by requiring the High Commissioner for Germany to reverse his position on this matter. The repercussions which such a reversal would produce in Germany might exacerbate the difficulty of enforcing other and more important aspects of our security program over the longer period ahead.

There is a question of immediate and possibly of critical importance which is posed by the general line of the argument which I have developed. That is the question of the attitude of the United States Government towards shipments of petroleum to Communist China. We have obtained agreement, in principle, from the British with respect to Shell, the principal competitor of the American companies in China, to impose an embargo on shipments to Communist areas in the Far East of aviation gasoline and certain high grade lubricants. Most other petroleum products are rated 1B. Within the framework of our NSC 48/2 policy, we have for some time had an understanding with the major American oil companies, and are now in the process of arranging with the British, for limitation by the companies of all 1B petroleum shipments from off-shore sources to China to amounts consistent with current levels of civilian economic activity in China.4 It is, I believe, a matter of fact that petroleum products are rarely if ever licensed for shipment from the United States to the USSR and its eastern European satellites. Notwithstanding that fact, I believe that we should continue our efforts to secure cooperation of American and British firms within the framework we have established. As you [Page 636]know, American oil companies have a considerable investment in China and have personnel who, under present circumstances, are at the mercy of the Chinese Communist authorities. Unilateral United States self-denial would turn the market over to the British and expose American personnel and properties to extreme jeopardy. When either of these same considerations exists with reference to other 1B commodities hitherto involved in the China trade, our 1B controls should be applied in accord with the principles now embodied in NSC 48/2 pending the outcome of the negotiations indicated above.

I am sending a copy of this letter to Secretary Sawyer for his information.5

Sincerely yours,

Dean Acheson
  1. Documentation of the Foreign Ministers meetings is scheduled for publication in volume iii.
  2. The text and related documentation are scheduled for publication in volume iv.
  3. Not printed.
  4. On May 10, 1950, the Department of State sent to the British Embassy a memorandum outlining its position on the subject of an informal system of control for petroleum supplies to China, in connection with proposed exchanges of views between the United States and the United Kingdom on appropriate measures for effecting such a system of controls (493.569/5–1050). The United States memorandum replied to a British memorandum of December 19, 1949. For the text, see Foreign Relations, 1949, vol. ix, p. 1035. No real progress was made on further discussions prior to the outbreak of hostilities in Korea on June 25, 1950.
  5. A copy of Mr. Acheson’s letter to Mr. Johnson was sent to Secretary of Commerce Charles Sawyer under cover of a brief note of transmittal (not printed) on April 28.