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

Intelligence Estimate Prepared by the Estimates Group of the Office of Intelligence Research in the Department of State¹

secret

[Washington,] May 25, 1951

I.E. No. 19

Estimate of the Probable Economic and Political Consequences of the Kem Amendment

i. the problem

To estimate the probable economic and political effects in foreign countries of the provisions of the Kem amendment (should it become law) as contrasted with the results of existing arrangements to control East-West trade.^*

ii. conclusions

1. Existing collective and informal arrangements for denying supplies of strategic and essential materials to the Soviet bloc do not meet United States economic security objectives as these have been specified in the Department’s report of February 9, 1951,^† although they probably go as far as the voluntary nature of these arrangements will permit in the light of the present political and economic policies of other non-Soviet countries.

2. The provisions of the Kem amendment if generally complied with would more severely curtail the movement of essential equipment and supplies to the Soviet bloc than do existing controls. Further impairment of the economic position of the Soviet bloc would consequently result in time. In view of the Soviet bloc’s limited vulnerability to economic warfare measures, it is doubtful that the rigorous application of the Kem amendment would significantly affect that area’s war potential. Against these consequences must be weighed the economic disadvantages and dislocations for the Free World in having to find new markets for exports now going to the Soviet bloc and, since Soviet bloc counter denial measures may be expected, in developing alternative sources of supply for goods presently coming from iron curtain countries. The supply and market position of the Free World for most of the commodities involved is such that these adjustments could much more easily be made than could the adjustments required of the Soviet bloc, but they would mean temporary inconveniences, require emergency measures to make a considerable tonnage of shipping available, and involve a financial burden of perhaps $400 million per year which would probably have to be borne in large part by the United States.

3. In comparison with the various economic considerations, the probable adverse political reactions which can be expected to result from the strict enforcement of the Kem amendment appear of considerably greater moment. Such enforcement undoubtedly would arouse the resentment of many countries because of the implied infringement of their sovereignty. This resentment could impair the willingness of some of our European allies to cooperate in mutual defense arrangements. Political repercussions would be adverse in most other areas, but most notably in Indonesia, Burma, India and Pakistan, Iran, and the Near Eastern States including Israel; for some countries of these areas, the Kem amendment’s reporting requirements would have to be imposed as the price for extremely small amounts of aid such as are involved under the Point Four program. In short, while the economic effects on the Soviet bloc’s war potential would be limited and slow to appear, there would be immediate and serious weakening effects on the political cohesion of the Free World. Obviously the USSR would take maximum propaganda advantage of the opportunities presented by this divisive factor.

4. The hostility aroused in some European countries which would initially attempt to comply with the Kem amendment would be exacerbated by the innumerable irritations resulting from the cumbersome and humiliating procedures of certifications, exceptions and justifications.

[Here follow section III, “Discussion,” which provides the background for the conclusions in section II, and Appendix 1 which contains the text of the Kem Amendment.]

1. On the cover sheet attached to the source text is a statement which reads as follows: “This is an intelligence report; nothing in it is to be construed as a statement of U.S. or Departmental policy or a recommendation of any given policy.”
2. A copy of the Kem amendment to the third supplemental appropriation bill as passed by both houses of Congress is attached as Appendix 1. [Footnote in the source text.]
3. Report to the President on U.S. Policies and Programa in the Economic Field which may affect the War Potential of the Soviet Bloc” (Secret). [Footnote in the source text.]