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–Reports

Draft Statement of Policy Proposed by the National Security Council¹

secret

[Washington, April 4, 1951.]

NSC 104/2

U.S. Policies and Programs in the Economic Field Which May Affect the War Potential of the Soviet Bloc

export controls

1. The United States should, pending further developments, continue to prohibit all exports to Communist China, Manchuria and North Korea.

2. The United States should continue its present export licensing system over trade with the Soviet Union and its Eastern European satellites (the Soviet bloc) by requiring an export license for all products proposed for shipment to these areas.

3. The United States should continue to prohibit all exports destined for the Soviet bloc, whether shipped directly or indirectly, of all items of significance in the atomic energy field, all arms, ammunition and implements of war, and all items in short supply.

4. The policy for licensing other items for shipment from the United States to the Soviet bloc should be determined by their strategic value to the Soviet bloc. Accordingly, licenses for the shipment from the United States of commodities on the Positive List which are in the primary strategic category and which are destined for such areas, whether shipped directly or indirectly, shall be denied; and licenses for the shipment of other items on the Positive List shall be denied to the extent necessary to prevent shipments of strategic significance as determined by the Secretary of Commerce with the advice of the Advisory Committee on Export Policy. There shall be a general policy of approval of licenses for the shipment of all other items destined for such areas, provided that particular shipments may at any time be reduced or denied and particular classes of commodities subjected to a more restrictive licensing policy as determined by the Secretary of Commerce with the advice of the Advisory Committee on Export Policy.

5. The United States should continue to provide leadership in the strengthening of the security controls of the Western European countries over their exports to the Soviet bloc. In seeking the strengthening of Western European security controls, the United States should be governed by the strategic significance to the Soviet bloc of the commodity concerned, and by considerations as to the political feasibility, the military risk, and the economic cost of such action to the Western European countries concerned. The COCOM countries of Western Europe^* have already agreed to prohibit the export to the Soviet bloc of a wide list of commodities of primary strategic significance (the so-called International List I). They have also agreed to certain quantitative controls to such areas for a list of commodities of secondary strategic importance together with certain items regarded by the United States as of primary strategic importance (the so-called International List II). The United States should continue to press the Western European countries:

a. To embargo shipments to the Soviet bloc of scarce materials or equipment needed for Western defense program.

b. To embargo or to continue to embargo shipments to the Soviet bloc of items on International List I.

c. To add to International List I any items of primary strategic significance which, in the light of new information, could then be urged upon the Western European countries as having comparable importance with the items already on List I.

d. To limit exports by COCOM countries to the Soviet bloc of items on International List II to a level determined to be in accord with the common security interests.

e. To add to International List II any items which, in the light of new information as to its strategic value to the Soviet bloc or as to the level of trade which is taking place, could now be urged upon the Western European countries as having comparable importance with the items already on List II.

f. To institute more effective international controls over transshipments and illegal trade.

g. To take measures to minimize past and future trade agreement commitments to supply goods of strategic importance.

h. To take measures to promote coordination in their trade agreement negotiations with the East.

i. To improve the organizational arrangements in COCOM and in the NATO to further these objectives.

6. The policy for licensing shipments from the United States of items destined for Western Europe shall be governed by the overall security interests of the United States. Accordingly, the general policy of the United States should be to approve exports to Western Europe, except that the United States should continue the policy and procedures set forth in NSC 91/1, with the following modifications:

a. Licenses should be denied, under paragraphs 1–a and 1–b of NSC 91/1, for export to COCOM countries of any item of primary or secondary strategic significance only if:

(1) The effectiveness of such action in reducing export of the item from the COCOM country to the Soviet bloc would be of greater significance to the security interests of the United States than the significance of the adverse effects of the denial upon the COCOM country concerned, and if

(2) In these cases the United States fails to receive assurances that the COCOM country will embargo items of primary strategic significance, or limit to a mutually agreed level shipments of secondary strategic significance to the Soviet bloc.

In considering the adverse effects on Western European countries of denial of U.S. licenses, the United States shall consider, among other things, the need for strengthening the Western European economy and defense program, and the need for maintaining the cooperation of Western European governments in the common defense effort.

In asking for assurances from Western European governments with respect to the export of strategic items to the Soviet bloc, an assurance shall normally be requested to cover the item as defined in U.S. security lists; but, where a listing includes commodities distinctly different from the item in question, assurances shall be asked on only that part of the definition which covers the prospective export and other commodities within the listing, if any, which could be substituted for it with reasonably equal effect.

b. Licenses will be denied for shipment of List I commodities to Switzerland in the absence of assurances that such items will be embargoed to the Soviet bloc.^† Shipments to Switzerland of other items of primary strategic significance will be treated in the same manner as shipments of such items to the COCOM countries.

c. Licenses will be denied for shipment of List I commodities to Sweden in the absence of assurances that such items will be embargoed to the Soviet bloc.^† Shipments to Sweden of other items of primary strategic significance will be treated in the same manner as shipments of such items to the COCOM countries. The policy set forth in this subparagraph should be initiated as soon as practicable without prejudicing the successful outcome of current negotiations.

7. The United States either alone or in association with the British and French Governments, should press for further action by the Federal German Republic to ensure more effective control over the illegal trade and transshipment of goods agreed for control in COCOM.

8. The United States should seek the further cooperation of the American Republics and where necessary that of other countries in applying export controls to direct shipments and transshipments to the Soviet bloc of items of strategic significance or in short supply.

9. The United States, in view of the Chinese Communist aggression in Korea, should press for the application of such international control measures as will be effective in diminishing the Chinese Communist potential for military aggression. Its effort through the United Nations and other channels should be directed to seeking, on a cooperative basis, the application by the maximum number of friendly countries of such controls for this purpose as the United States considers would be in the common security interest.

10. Multilatéral arrangements among free world countries for the equitable distribution of materials in short supply should be used by the United States to the greatest practicable extent, to deny or limit shipment to the Soviet bloc.

preclusive operations

11. Arrangements for governmental procurement of commodities in short supply, including government-to-government purchase agreements, should be designed in such a way as to deny or limit shipments, to the Soviet bloc, to the extent that this would not interfere with the primary procurement purpose of the arrangement.

12. The United States should give immediate consideration to the desirability and feasibility of denying strategic materials to the Soviet bloc through preclusive buying (in addition to preclusive arrangements arising from government-to-government agreements under paragraph 11 above) and through the preemption of productive facilities. Efforts to preempt industrial capacity should be directed primarily at capacity capable of producing critical manufactured products, particularly those requiring large amounts of skilled labor, in countries which do not voluntarily prohibit the movement of these products to the Soviet bloc. Preclusive and preemptive operations should normally be used only where export and shipping controls, allocations and normal purchase mechanisms are not effective.

financial measures

13. The United States should determine the point at which export controls have become so restrictive and other economic and political relations so curtailed that blocking of the dollars and dollar transactions of the USSR and its satellites would be appropriate.

14. Continued study should be given to the subject of gold with a view to evaluating measures of international cooperation which might prove fruitful in reducing the ability of the Soviet bloc to utilize gold.

blacklisting

15. It would be undesirable at this time to publish a “blacklist” or “proclaimed list”. However, to assist in tightening the enforcement of existing export and other controls and as a preliminary step in preparing a more formal “blacklist”, arrangements should be made to develop a central file of information on individuals, firms and corporations suspected of evading U.S. or international controls.

technology

16. The United States should sponsor measures to strengthen security controls of plants and factories employing advanced technological processes.

17. The United States should press for more effective action by COCOM countries to implement their agreement that “the object of the embargo or quantitative controls should not be defeated by the export of technical assistance, design data, manufacturing technique, and specialized tools for making any controlled items.”

18. The United States should develop further programs to prevent the export of advanced technological information to the Soviet bloc, including export achieved through the movement of persons, and should enlist the cooperation of other countries in this effort. These programs should be devised in such a way as to create the least possible impediment to the exchange of such information among the nations of the free world.

shipping

19. The United States should seek agreement with all non-Soviet bloc countries having substantial air cargo and maritime resources to control their shipping and air traffic, in so far as it relates to the movement of goods to or within the Soviet bloc with a view to prohibiting the carriage of goods which are the subject of embargo.

20. The United States should explore, and, if feasible and desirable, institute, in cooperation with other major maritime and air cargo powers, a system of ship warrants, and a similar system for air cargo control, under which port and bunkering facilities, access to insurance, etc., would be denied to operators who do not cooperate in controls on the movement of prohibited goods.

decreasing reliance on trade with the soviet bloc

21. The United States, with the aid of friendly countries should take such steps as are practicable to develop alternative sources of supply of important basic materials required by the free world and now being obtained from the Soviet bloc.

22. The bargaining position of friendly countries which now rely on the Soviet bloc for essential materials should be strengthened by making alternative sources for these materials in the free world more readily available. To this end, policies governing allocations of and export controls on short supply items and economic assistance should be so designed as not to forceclose shifts to U.S. and allied sources by friendly countries. International cooperation should be generally sought on grounds of mutual security. Supply or financial assistance should be committed as a means of obtaining such cooperation only on a highly selective basis where important security considerations warrant it.

23. A more comprehensive analysis than has so far been possible should be made to determine what specific products or services now being offered by the free world to the Soviet bloc could and should be diverted to other countries of the free world. This analysis should point out (a) how productive capacity might be reoriented to provide materials needed by the free world, (b) to what extent the diversion will require the reduction of such obstacles as high tariffs, quotas, and shipping discrimination, and (c) to what extent such reorientation is desirable. Further study should also be given to the possible need for government purchasing of goods abroad now marketed in the Soviet bloc which can only be disposed of in the free world at a loss.

imports

24. The United States should give prompt study and consideration to the need for controls on imports from the Soviet bloc for economic defense purposes, and should be prepared to institute such controls if and when they prove necessary.³

1. The source text, along with a cover sheet and a memorandum by Lay, was circulated to members of the National Security Council as NSC 104/2. It was drafted by the NSC Staff with the aid of members from the Departments of the interior, Agriculture, and Commerce, the Economic Cooperation Administration, and the Bureau of the Budget pursuant to NSC Action 443 (see editorial note, p. 1054). Paragraphs 2, 3, 4, 5, and 6 were intended to supersede the current policy on export controls contained in NSC 104/1.
2. In addition to the United States and Canada, the Consultative Group and its Coordinating Committee include the German Federal Republic and the following NATO countries: the United Kingdom, France, Italy, Belgium, Netherlands, Luxembourg, Norway and Denmark. [Footnote in the source text.]
4. Subject to the authority of the Secretary of Commerce, with the advice of ACEP, to approve exceptional cases. [Footnote in the source text.]
3. In a memorandum by the Joint Chiefs of Staff to the Secretary of Defense of April 10, which was circulated to members of the National Security Council under cover of a memorandum by Lay that same day, no objection was raised from the military point of view to those United States policies proposed in the source text. The JCS urged that the policies be applied stringently and that new methods be sought to curtail exports to Eastern Europe and the Soviet Union. (S/S–NSC Files, Lot 63 D 351, NSC 104–Memoranda)