Foreign Relations of the United States, 1951, National Security Affairs; Foreign Economic Policy, Volume I

S/S–NSC Files, Lot 63 D 351, NSC 104–Memoranda

Memorandum by the Assistant Secretary of State for Economic Affairs (Thorp) to the Secretary of State ¹

secret

[Washington,] February 20, 1951.

Subject: National Security Council Agenda for February 21, 1951 Item No. 4: NSC 102 and Recommendation 2 of NSC 104²

Discussion:

In NSC 102, dated January 19, 1951, the Department of Commerce proposed that all exports to the Soviet Bloc should be subject to licensing, under criteria which would be so restrictive as to be tantamount to an embargo. In our view the Commerce Department proposal would have required the Economic Cooperation Administration to withhold financing under Section 117 (d)^* of the ECA Act and would have had a serious effect on our parallel action negotiations with Western European countries.

In NSC 104 the Department of State also proposed that all exports to the Soviet Bloc should be subject to licensing, but that all licenses covering commodities not already on the Positive List should be referred to the interdepartmental committee to determine what action would be appropriate in each case. This recommendation was intended to keep the licensing procedure flexible and to minimize possible undesirable effects upon our negotiations with Western European countries.

We have now reached a compromise with the Department of Commerce which retains the concept of selective control, but which gives the Commerce Department considerable licensing freedom, subject to continuing policy checks by the interagency committee. This compromise is attached as Annex A. Briefly, it involves the establishment of a 1–C list of some 200 commodities, about 50 of which are already under licensing for Western European countries as well as Soviet Bloc destinations. These 50 would be reviewed by the Advisory Committee on Export Policy to see whether they should continue to be under license for Western Europe or whether licensing should be confined to the Soviet Bloc. Commerce would be authorized to deny licenses for the Soviet Bloc, on any of the 200 items, in excess of minimum quantities, but would report regularly to the Advisory Committee which could recommend more stringent or more lenient treatment in the future. Transfers of items to or from the 1–C list would be made only after review by the Advisory Committee.

Recommendation 2 of NSC 104 has been revised in order to conform with this compromise on NSC 102. This revision of recommendation 2 in NSC 104 is attached as Annex B.

We understand that the Department of Commerce will submit the compromise included as Annex A to the NSC as a replacement for NSC 102, but this is still subject to confirmation.

The Defense Department may wish a policy more severe than that contained in Annex A. In particular, Defense may propose that 1–B items, now “normally denied” for the Soviet Bloc, be placed under absolute and automatic embargo. We feel that it is essential to avoid any agreement in the NSC that 1–B items should be automatically denied. This would establish an embargo of 1-B items requiring negotiation of an agreement by ECA countries to an identical embargo, and denial of ECA assistance in the absence of such agreement.

Recommendations:

1. It is recommended that the compromise revision in NSC 102 as contained in Annex A be supported.

2. It is recommended that the Department propose that the revision in recommendation 2 of NSC 104 as contained in Annex B be accepted.

Annex A

Proposed Procedure for Controlling Exports to Subgroup A Destinations Other Than Communist China and North Korea

1. All exports to Subgroup A will require a validated license.

2. Applications for export of short supply items and of Class 1–A items shall be denied.

3. Applications for export of 1-B items shall normally be denied.

4. There shall be established for internal export control purposes a 1–C list of items.

a. The 1–C list shall include initially the items in ACEP Document No. 60.1 dated December 6, 1950, except for the items which have subsequently been rated 1–A or 1–B or which have been added to the Positive List for reasons of short supply.

b. The initial area of control for 1–C items shall be Subgroup A, except for the 52 items added to the Positive List in accord with Program Determination 460 dated February 10, 1951 for which the initial area of control shall be R destinations. The area of control for 1–C items shall be examined by the ACEP structure to determine, on the basis of risk of transshipment, which of the 1–C items placed on the Positive List by Program Determination 460 should be controlled to Subgroup A alone, and which of the additional 1–C items included in ACEP Document No. 60.1, or subsequently added to the 1-C list, should be controlled to E or RO destinations and hence added to the Positive List.

5. The following licensing policies shall govern the export of 1–C commodities:

a. Exports of 1–C items to Subgroup A destinations shall be denied by OIT if the export is in excess of minimum quantities.

b. OIT shall deny applications for 1–C Positive List commodities for export to destinations outside Subgroup A if there is reasonable evidence of transshipment.

c. The OIT shall approve the export of minimum quantities of 1–C items to Subgroup A destinations other than Communist China and North Korea.

6. The OIT shall report periodically to the ACEP structure the number of licenses for 1–C items applied for during the past period, the quantities approved, and the quantities denied. Any member of the ACEP may propose in the light of these reports whether any item should be dealt with more stringently or more leniently in the future.

7. The ACEP structure will review proposals to transfer items to or from the 1–C list.

8. The following policies shall govern the export to Subgroup A destinations, other than Communist China and North Korea, of items not on the Positive List and not on the 1–C list:

a. These commodities shall normally be approved for export.

b. The OIT may in any specific case reduce or deny licenses for particular shipments.

9. The OIT shall report regularly the licenses applied for, the quantities approved, and the quantities denied for commodities which are not on the Positive List and not on the 1-C list, for export to Subgroup A destinations other than Communist China and North Korea. The ACEP will recommend the future policy to govern the licensing of these items, including the possible transfer of the items to other control categories.

Annex B

Revised Recommendation 2 of NSC 104

“2. The U.S. Government should extend its present export licensing system over trade with the Soviet Union and its Eastern European satellites by requiring an export license for all products proposed for shipment to these areas. In licensing such exports, the United States should continue to prohibit exports of all items of significance in the atomic energy field, all arms, munitions and implements of war, all items which are determined to be in short supply, and all items which if exported would contribute directly to the Soviet war potential (the so-called I and I–A lists). The United States should normally deny the issuance of licenses for all items which, if exported in significant quantities, would contribute to the Soviet war potential (the so-called I–B list). There should also be established as an internal ‘Watch List’ a 1C list of items whose export to Soviet Bloc destinations should normally be denied in excess of minimum quantities, subject to continuing review of licensing action by the Advisory Committee on Export Policy. All other items should be kept under constant surveillance through the comprehensive licensing system recommended above, but should normally be approved. Specific items should be added to the list of commodities which are restricted or prohibited on a selective basis and in accordance with established procedures and existing criteria for control, whenever such action is justified for short supply or security reasons.”

1. Drafted by Robert B. Wright, Assistant Chief of the Economic Resources and Security Staff, and cleared with John M. Leddy, Deputy Director of the Office of International Trade Policy.
2. For texts of NSC 102, of January 19, and NSC 104, of February 12, see pp. 1000 and 1023.

3. Section 117(d) of the Economic Cooperation Act of 1948 (P.L. 472) reads in part as follows:

   • “The Administrator is directed to refuse delivery insofar as practicable to participating countries of commodities which go into the production of any commodity for delivery to any non-participating European country, which commodity would be refused export licenses to those countries by the United States in the interest of national security.” [Footnote in the source text.]