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

Report Prepared by the Department of State and the Economic Cooperation Administration¹

secret

[Washington, August 24, 1951.]

Export of Automotive Parts Via Denmark for Poland²

statement of problem

1. Poland has made the continued delivery of coal to Denmark contingent upon the delivery of automotive spare parts by Denmark. On August 27, trade negotiations are scheduled to commence between Poland and Denmark. Denmark remains committed under the 1949–1950 and 1950–1951 trade agreements to export to Poland $1,342,000 of United States manufactured automotive and light truck spare parts, which have not been delivered. The parts are to be obtained in the United States for the Danish subsidiaries of Ford and General Motors. The Danes have requested the United States to approve a General Motors application for $210,250 currently pending in the Department of Commerce and an assurance from the United States that if and when orders can be placed for the remaining parts, licenses will be granted. Thus far it has been impossible to reach interdepartmental agreement to give the Danes the assurances they have requested.

background discussion

2. On August 28 the Danes will begin negotiations with the Poles for the 1951–1952 trade agreement. In the past, the Danes have had three “hard goods” which, in addition to fish, foodstuffs and other non-essentials, were attractive enough to the Polish Government so that it was willing to ship coal to Denmark at an annual rate of approximately 2 million tons. These three goods were cargo ships, antibiotics obtained from the United States and re-exported, and automotive parts shipped from the Danish subsidiaries of General Motors and Ford Motors. In the past, the Poles had been willing to accept some sterling, but this year the Danes have been informed that the Poles will not accept sterling for coal. Furthermore, judging by the Norwegian-Polish negotiations, it is apparent that the Poles will not accept dollars either. We have already indicated to the Danes that it is out of the question for them to obtain any antibiotics for re-export to Poland. Cargo ships are on United States List I and International List II and will be taken up in September in COCOM for List I consideration. Danish shipyards are booked far in advance for essential West European shipping, but it is possible that if the Danes had no alternative they would agree to further ship deliveries to Poland in exchange for coal. It is known that the Danes have been considering the sale of some old cargo vessels which the Poles are apparently interested in obtaining.

3. This leaves only automotive spare parts as an item with which the Danes might bargain for Polish coal. Danish subsidiaries of General Motors and Ford Motors have for many years been exporting about a million dollars’ worth of spare parts annually to Poland. However, the Danes did not fulfill their deliveries under the 1949–1950 agreement and acquired a deficit of $342,000. Furthermore, no automotive parts have been delivered under the 1950–1951 agreement of the $983,000 agreed to. As a result, the Poles have cut their monthly coal deliveries by 50 percent, and it is estimated that when this agreement comes to an end on September 30, there will be a shortfall of approximately 600,000 tous valued at approximately $14 million. Automotive parts are on U.S. II–B and on no International List. Passenger cars and trucks of 5 tons and under are not on the I–A, II–B, or any of the International Lists (or even on the United States Positive List). General Motors and the Danish Embassy have informed ECA that these parts are going into Chevrolet and Buick cars and Chevrolet and GMC trucks under 5 tons. The principle of giving security ratings to spare parts is that spare parts used in I–A or II–B items should be controlled so as not to def eat the purpose of controlling the end item. Since the end items in this case are on neither the I–A or II–B list, it is logical that these spare parts, though rated II–B as a category, should assume a lower rating.

4. After the war, through UNRRA, Poland did receive some heavyduty trucks over 5 tons but none of these were made by Chevrolet or GMC. ECA has been informed by the General Motors Washington representative that the spare parts for small Chevrolet and GMC trucks are tooled in such a way as not to be interchangeable with the spare parts for large trucks. The General Motors representative did point out that if the right kind of equipment were available, it is possible to make over spare parts for almost any make of car or truck, but this is a difficult and expensive job. It is the opinion of the General Motors and Ford Motors representatives that these parts will definitely be used for the cars and trucks that have reached Poland from their various subsidiaries in Europe.

5. Since the end items in this case are not on either of the United States lists or the International lists, it is apparent that no major security protection could be obtained by withholding these licenses. The Poles are perfectly free to go into the European market today and buy as many Fiat, Renault, or other brands of cars and trucks under 5 tons as they please. The fact that they bought a total of only $6-½ million worth of automobiles, small trucks, and parts from Western Europe last year is somewhat indicative of their relative demand for these goods which are readily available without export restriction. During 1950, trade in automobiles, trucks, engines, and spare parts between Eastern Europe and Western Europe was a two-way street. Western Europe exported approximately $14 million in these categories and imported $11-¼ million. Czechoslovakia is an important manufacturer of automotive vehicles and parts and could readily replace the Polish requirements if the Poles were forced to scrap their present Ford and Chevrolet passenger cars and small trucks.

6. The Danish Government has asked the United States to agree to the licensing of the $210,000 worth of General Motors parts currently before the Department of Commerce, and to indicate a willingness to grant licenses for the remaining parts which are in arrears, if and when orders can be placed for such parts. This is a matter of urgency, because the Danes must have their answer prior to negotiations starting late this month. The Danes state that a favorable decision on our part would greatly strengthen their bargaining position in the coming negotiations. This view is confirmed by the United States Embassy in Copenhagen. The Danes estimate as a minimum that a favorable decision relative to the licensing of these parts would enable them to press the Poles to make up the 600,000-ton shortfall and would probably enable them to get the Poles to continue coal deliveries through next year at least at present rates of something over 100,000 tons a month. The Danes have given us in writing their assurance that deliveries of any spare parts to Poland would be phased in such a way as to ensure the maximum quid pro quo of coal.

7. If we do not give favorable consideration to the licensing of automotive parts, it appears that the only Danish alternative is to make available several additional ships. If, as is possible, the Danes cannot contract for any additional ships, the only other alternative would be for the United States to divert coal currently being sent to other NATO countries badly needed for their war production, or to divert coal from Austria—which is in an even more precarious position than Denmark. At the present time the Austrians are being pressed by the Poles to ship under their trade agreement with Poland a substantial quantity of embargo-type ball bearings. If the United States were to cut back on its coal deliveries to Austria, it is almost certain that shipments of major strategic importance from Austria to Poland would have to be increased.

8. Favorable action on the case of automotive spare parts for Denmark is particularly important in the light of Denmark’s delicate relationship to the Paris Coordinating Committee and the NATO. Denmark is particularly representative of the European desire to continue to the maximum extent possible traditional commercial relationships with the Soviet Bloc and to avoid any activities which might be interpreted as engaging in open economic warfare. This is partially the result of Denmark’s exposed geographical position and proximity to neutral Sweden. Thus Denmark has participated in the security trade control program but has within recent months been particularly outspoken with respect to the limitations which the Danes feel should be imposed upon such security control activities. The same reservations have been expressed in the NATO negotiations concerning the treatment of commodities essential for Western defense which at the same time are in short supply within the free world. During the recent negotiations in Paris whereby a large number of U.S. I–A items were added to the International Embargo List, it was extremely difficult to persuade Denmark to extend the scope of the International Embargo List. It was only after a special trip to Copenhagen on the part of the head of the United States Delegation that the Danes were persuaded to join with the other countries in the Coordinating Committee in adding the new items to the International List. If after this difficult negotiation, the Danes were to be confronted by an action on the part of the United States Government preventing export to Denmark of an item not on the International Lists with possible serious repercussions upon the Danish source of coal in Poland, the Danes would be justified in questioning the usefulness of an inter-governmental forum for the discussion of trade control matters. Such an action by the United States would appear as a unilateral effort to impose its own interpretation of the form of trade controls which should be observed by the Danish Government. It would be judged by the Danes in the light of previous insistence on our part that Denmark prevent the export of ships to Poland and might lead them to question the good faith of the United States in arriving at multilateral agreements within the Coordinating Committee framework. It is not too much to predict that such an action might lead to the withdrawal of Denmark from the Paris group.

9. The illustrative ECA allotment for Denmark in the fiscal year 1952 is $50 million. Of this amount, $35,800,000 has been earmarked for coal and coal transportation and $9 million in PA’s has already been allotted. Cuts in the economic aid portion of the Mutual Security Program by the House would indicate a probability that ECA will not be able to provide Denmark with the required amount of assistance for replacing Polish coal.

projected danish coal situation, december 1951

Imports from:	1951 Metric tons
United Kingdom	800,000
Western Germany	192,000
S. Africa and India	200,000
France and Saar	150,000
Unallocated	175,000
Poland	1,517,000
	1,215,000	(Projected at the present rate through September 30, 1951)
	2,732,000
United States	800,000	(Includes total 1951 PA’s)
	3,532,000
1951 Danish Requirement	4,200,000
	670,000	tons shortfall

This seems to be the minimum threatened shortfall by the end of 1951. The tightened British supply situation, strikes on the railroads in South Africa, and the present inadequacy of unallotted coal supplies make this estimate appear optimistic.

10. The Danish coal situation, despite ECA efforts, has become critical in the past few months and, without further United States action in the near future, promises to worsen by winter. The crux of the situation is that the coal promised to the Danes from all sources has not materialized in sufficient quantities to guarantee them adequate supplies for the winter months. The shortfall is due primarily to the needs of growing Danish industry and the severe cutbacks in deliveries from a regular supplier, Poland. The prewar Danish industrial economy consumed an average of about 4,000,000 tons annually. The requirements for 1951—4,200,000 tons—have not increased appreciably over these years, although Danish industrial production has increased over 50 percent in these same years. In order to limit demands upon coal supplies Denmark has reinstituted her rationing scheme and has already undertaken, as part of her duty as a NATO country, to cut back her production of consumer goods by 5 percent. Furthermore, 200,000 tons of this amount is for the essential stock buildup necessary before December 1, 1951, when winter conditions will prohibit extensive supply and distribution.

11. Denmark must import all supplies of coal. Danish domestic production of second-grade fuels, peat, and lignite has increased 200 percent over last year, but 3 tons of these uneconomic fuels supplant only one ton of coal. The diversion of further labor to this costly production, particularly when there is full employment in Denmark, could only be undertaken at serious cost to the Danish economy. The shortage of coal in Western Europe has caused Denmark to be heavily dependent upon Polish coal. The United Kingdom and Germany have not produced coal in sufficient quantities to maintain their prewar rate of exports to Denmark, and Poland supplied 1,611,000 tons in 1950 and agreed to 2,000,000 tons for 1951. This latter amount is valued at $50,000,000 and constitutes about half of the Danish requirements.

conclusion

12. The National Security Council should urgently recommend that the President authorize the Secretary of State to give the Danish Government the assurances which they have requested and the Secretary of Commerce to grant the license application for $210,250 and further licenses in the amount of $1,132,000 when and if such applications are made by General Motors or Ford Motors.

1. According to covering memorandum attached to the source text, this report was circulated to members of the National Security Council on August 24 for “urgent consideration” by the Council at its next regular meeting on August 29.
2. At the daily staff meeting with the Secretary of State on August 27, Charles E. Bohlen, Counselor of the Department of State, reported that difficult issue on East-West trade was coming before the National Security Council when this subject was discussed because the Departments of Commerce and Defense were against allowing Denmark to export automobile parts to Poland if manufactured in the United States, while the Department of State and the Economic Cooperation Administration favored approving this re-export. (Memorandum of conversation, Secretary’s Daily Meetings, Lot 58 D 609, August 1951)