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

Memorandum by the Deputy Assistant Secretary of State for Economic Affairs (Linder)1 to the Secretary of State 2

secret

Subject: NSC 104/2: “United States Policies and Programs in the Economic Field Which May Affect the War Potential of the Soviet Bloc”3

NSC 104/2 contains a revised version of the substantive recommendations which were originally included in the Department’s recommendations to the President on “United States Policies and Programs in the Economic Field Which May Affect the War Potential of the Soviet Bloc” (NSC 104). You will recall that the National Security Council at the time NSC 104 first came before it approved the recommendation that all United States exports to the Soviet Union be brought under export licensing control and referred the remainder of the recommendation to the Special Committee on East-West Trade. As a result of the discussions in the East-West Trade Committee and in the Senior Staff, a number of recommendations have been spelled out in considerably greater detail. The recommendations as they now stand in NSC 104/2 represent full agreement of the departments and agencies represented on the Committee. Although in revising the recommendations certain modifications were made to meet the views of other agencies, it is believed that all essential points in the Department’s original recommendation have been retained.

The one issue on which there has been disagreement (the treatment of United States exports to Hong Kong) has been omitted from NSC 104/2 and will be the subject of a separate report to the National Security Council. This problem is currently under discussion with the Department of Commerce pursuant to Mr. Sawyer’s letter of March 30, attached as Tab A.4 It appears likely that a satisfactory solution to the Hong Kong problem will be possible in the near future.

NSC 104/2 does not deal with the Department’s “Recommendation as to Organization” included as Part II–B of NSC 104. This aspect of NSC 104 is still under review by the Bureau of the Budget, and none of the other departments or agencies has taken a position on the proposal for a strategy board under the direction of the Department of State. [Page 1066]Mr. Lay’s recommendation in NSC 104/2 is, however, consistent with the Department’s recommendation for such a board. Mr. Lay recommends that, if NSC 104/2 is adopted, the President direct its implementation by all appropriate departments and agencies “under the coordination of the Secretary of State”, pending action on the “Recommendations as to Organization”.

While there is no disagreed issue on any of the recommendations in NSC 104/2, the following comments summarize the important aspects of those recommendations which have been the principal subject of discussion within the Special Committee on East-West Trade.

I. Export Control Recommendations (Recommendations 1 through 6)

These recommendations have been carefully revised to cover all aspects of the security export control problem, including clarification of the policy to be applied to United States exports to Western European countries as set forth in NSC 91/1. The revised recommendations are a synthesis of all aspects of this problem and should serve as a satisfactory framework within which the three separate parts of our policy discussed below can be intelligently related to each other. This framework will be satisfactory only if a rule of reason is applied at all points in the procedure. It will function properly if there is real willingness on the part of all agencies to administer the policy in our own best national interest with full realization that the United States cannot expect by its controls to force the creation in other countries of export control policies identical with our own. If it develops that the policy, particularly that aspect included in Recommendation 6, is not working out reasonably and is on balance harming our cooperative defense effort, the policy may have to be reopened.

Three separate aspects of export control policy have been differentiated: first, the treatment by the United States of our exports to the Soviet Bloc; second, the policy which should guide our discussions with Western European countries with respect to their export controls; third, the treatment by the United States of our exports to Western Europe.

A. United States Policy towards the Soviet Bloc (Recommendations 1 through 4)

These recommendations provide for a policy which is formally more severe than that previously in effect but which actually does not go far beyond the practice which has been followed for some time. Recommendations 1 and 3 reaffirm existing policy. Recommendation 2 has already been put into effect. Recommendation 4 provides that all Positive List items (including strategic and short supply items) shall as a general rule be denied, subject to an exception which permits the possibility of approvals in order to provide the Economic Cooperation Administration with flexibility concerning its Section 117 (d) [Page 1067]problem.* Other items which are not on the Positive List, but for which export licenses to the Soviet Bloc are now required, would be generally approved, but with the possibility of more restrictive policy for particular classes of commodities.

The Department feels that the rigid control provided for Positive List items adequately protects our security interests and that the more liberal policy recommended for non-Positive List items is important if our action is not to be misinterpreted by the rest of the world as an embargo and if our ability to obtain cooperation in security controls is not to be jeopardized.

B. Western European Export Controls (Recommendation 5)

The intent of this recommendation is to make it clear that the policy governing our negotiations with Western Europe for multilateral export controls is not merely an automatic extension of the United States policy towards the Soviet Bloc. It should rather be determined 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 country concerned”. Strategic items would be negotiated for multilateral control in future only if there is new information as to the strategic value of the item to the Soviet Bloc and if the item is comparable in importance and in kind to those already on the agreed International Lists.

C. United States Export Policy Towards Western Europe (Recommendation 6)

This recommendation clarifies and in effect amends NSC 91/1. It makes clear that the general policy of the United States should be to approve exports to Western Europe except under defined circumstances. Denial of an export to Western Europe would take place only after (1) an attempt had been made to obtain from the Western European country concerned, an assurance against its export of like items, or information as to why such assurances would be impossible, and (2) an evaluation of this information had been made in order to permit a judgment as to whether approval or denial would under the particular circumstances be more in our national interest. In determining the national interest, full account would be taken of 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”. We believe this flexibility in interpretation of NSC 91/1 is highly desirable. NSC 91/1 as originally drafted would, if strictly interpreted, require us [Page 1068]to cut off shipments to Western Europe in cases where the connection between United States exports and Western European shipments to the Soviet Bloc was extremely tenuous and where it was clearly detrimental to the economy of the Western European country for us to take action.

With respect to the treatment to be accorded Sweden and Switzerland, NSC 91/1 prescribed a more stringent policy than that to be applied to other Western European countries. The present recommendation provides the same treatment for Sweden and Switzerland as that provided for other Western European countries, except that there would be automatic denial to Sweden and Switzerland of items on International List I (the embargo list to which the Consultative Group countries have agreed) in the absence of assurance against shipment of the same items to the Soviet Bloc. Allowance is made for negotiating flexibility in carrying out this policy with respect to Sweden since security export control discussions are currently in progress.

II. Approach to American Republics (Recommendation 8)

This recommendation that we seek the cooperation of the American Republics in applying export controls to the Soviet Bloc has already been taken care of by action at the recent Foreign Ministers’ meeting at which the subject of security export controls was discussed.

III. Economic Sanctions Against China (Recommendation 9)

This recommendation has been revised since it originally was placed in NSC 104. It now expresses a general goal for action to be sought in obtaining international control measures to diminish the Chinese Communist military potential. While the recommendation specifies steps that should be taken through the United Nations, the action is not intended to be limited to the United Nations channels. Since our objective is to obtain as wide an agreement as possible over controls affecting China, it seems more effective to limit our approach to controlling a selective group of strategic commodities which would enable a large number of countries to join in a common security effort, rather than to propose a complete embargo which would be so severe a measure that it would probably not command wide support by a large number of other countries.

IV. Financial Measures (Recommendation 13)

No agency regarded it as desirable to impose financial controls immediately. This recommendation, therefore, is designed to keep the question of financial measures under review.

V. Shipping (Recommendations 19 and 20)

The Defense Department has been particularly interested in these recommendations. The subject was mentioned at the recent Foreign [Page 1069]Ministers’ meeting, and is under consideration for discussion within the North Atlantic Treaty Organization. However, the Departments concerned feel that additional study is required, particularly with respect to Recommendation 20 before further action is taken.

VI. Decreasing Reliance on Trade with the Soviet Bloc (Recommendations 21, 22 and 23)

There was considerable discussion in the Special Committee on East-West Trade as to the extent to which financial assistance should be committed to re-orient trade movements from the East. The principles set forth in these recommendations have been agreed to but further study is required before a more specific program can be outlined.

VII. Imports (Recommendation 24)

This is a new recommendation which was not originally included in NSC 104. It was added in accordance with a recommendation made by Mr. Harriman in a memorandum dated March 6, 1951,5 and because it appeared that a comprehensive series of recommendations such as that contained in this Report should properly propose some course of action on import controls.

  1. Harold Linder replaced Thorp as the Department of State representative on the Special Committee on East-West Trade in February and was designated as the officer “primarily responsible for our activities in the economic defense field.” (Memorandum by Thorp, February 26, 460.509/2–2651)
  2. Drafted jointly by Robert B. Wright of the Office of Economic Defense and Trade Policy (EDT) and by Miriam Camp.
  3. Supra.
  4. Not printed.
  5. Section 117 (d) of the Economic Cooperation Act provides that the ECA must refuse the delivery to a participating country of a commodity which would go into the production of an end product for export to the Soviet Bloc if the end product were the same kind of product denied export licenses to the Soviet Bloc by the United States. [Footnote in the source text.]
  6. Not printed. The memorandum by W. Averell Harriman, dated March 1, was circulated to members of the National Security Council under cover of a memorandum by Lay of March 6. Harriman’s memorandum recommended that an investigation of the subject of import controls be undertaken and completed as soon as possible. (S/S–NSC Files, Lot 63 D 351, NSC 104–Memoranda)