Memorandum by Mr. Max W. Bishop of Me Office of the Deputy Under Secretary of State (Matthews) to the Ambassador at Large (Jessup)1

top secret

Subject: U.S. Policy Regarding Trade with China

The history of the NSC review of the above subject is briefly:

The President last fall spoke to Secretary Acheson regarding NSC 41 and said that he felt that the policy of NSC 41 was out of date and should be revised. On November 4, 1949, the Secretary requested Mr. Souers (NSC 41/1, November 7, 1949, file attached)2 to “arrange for appropriate NSC Staff studies of the attached report, as a matter of urgent priority, with a view to ironing out any difference of view that may appear”. In the Department’s report, it was concluded that because “NSC 41 provides a sufficiently broad scope for a flexible policy, it not be revised at this time”. The NSC Staff immediately took up this project and has had considerable number of meetings all without making any substantial progress. In spite of our Secretary’s request last November that this be treated as a matter of “urgent priority”, I am afraid we have ourselves been somewhat derelict in pushing for the completion of a paper or the submission of differences to the highest level. The differences which are primary among State, Defense, and Commerce, are, I believe, differences of implementation and of interpretation rather than differences-of our policies or objectives. [Page 637]In February of this year, I prepared the following brief summary of the State and Defense positions for Mr. Rusk:

“As I see it, Defense position is essentially that the security position of the United States in Asia in particular and in the world in general requires that every effort be made to deny to Communist-China any economic assistance from “non-Soviet sources”, that accordingly all trade between the United States and Communist-China in strategic items (new 1A and 1B lists to be prepared specifically for China) should be presumptively denied and should be allowed only in those instances where it can be shown on a case-by-case basis that no benefit would accrue to Communist-China. On the other hand, the Department of State position would seem to be to allow trade covering “normal civilian requirements” in non-strategic items (as presently defined under the 1A and 1B lists drawn up for “East-West trade”) and to allow certain other trade, on a case-by-case basis where it would be in our interest to do so or where the trade would not contribute to the military strength of the communist bloc.”

As you are undoubtedly aware, this problem is inextricably bound up with the broader problems of United States export controls policies and “East-West trade” policies. I have never been able to understand why FE felt so strongly that we should refuse to revise NSC 41, particularly when the points at issue were those of implementation and interpretation of policy rather than of the policy itself. I would recommend that when this item comes up for discussion at the Consultants’ Meeting, you point out that this particular paper has had a long and difficult history, that it is obviously related to other similar but broader problems, that we are making good headway with our efforts to obtain a greater measure of cooperation from our allies in the application of export controls and that we hope for similar success in obtaining more cooperation in controlling exports to China and that in the light of these developments you are considering recommending to your Department that NSC 41/1 be withdrawn and the project dropped for the time being. This, of course, would put us in a rather embarrassing light so far as the formal record goes because of the President’s request last fall. You might point out to the Consultants that while the NSC Staff has been unable to make progress on revising the policy, its failure to do so may to a considerable degree stem from the fact that questions of policy are not at issue but merely questions of implementation and interpretation of agreed policies and objectives. While the Staff has been considering this problem, there has been, of course, a continuous exchange of information, views, and suggestions among the Departments of State, Defense, and Commerce, and others interested in the export control program. It has been the hope of some of the officers in the Department of State that the exchange of correspondence between the Secretaries of State and Defense regarding this question would be helpful in clarifying some of [Page 638]the issues. Notice to the NSC that NSC 41/1 was no longer considered by this Department as a proposed paper would remove the requirement that it be treated as a matter of “urgent priority” and would give us a chance to start with a clean slate, either to prepare a new policy paper on trade with Communist-China or to recommend that NSC 41 be considered as out of date and no longer applicable and that economic policy should be governed by the appropriate programs of NSC 48/2—the overall policy paper on Asia.

M[ax] W. B[ishop]
  1. Mr. Bishop was State Department representative on the National Security Council Staff, while Ambassador Jessup was the Department’s representative on the National Security Council Consultants.
  2. For the text of NSC 41/1, see Foreign Relations, 1949, vol. ix, p. 889.