Foreign Relations of the United States, 1951, Europe: Political and Economic Developments, Volume IV, Part 2

No. 685

249.1111–Oatis, William/7–351

Memorandum by the Acting Assistant Secretary of State for European Affairs (Bonbright) and the Assistant Secretary of State for Economic Affairs (Thorp) to the Deputy Under Secretary of State (Matthews)¹

top secret

[Washington,] July 3, 1951.

Subject: Possible Economic Pressure Against Czechoslovakia in the Oatis Case.

Problem:

To determine a Departmental position concerning the use of economic sanctions against Czechoslovakia to aid in the release of AP correspondent William Oatis.

Background:

Our repeated oral representations and notes to the Czechoslovak Government in behalf of Mr. William N. Oatis since his arrest on April 23 on charges of obtaining secret information and of related activities have not been successful either in obtaining his release or consular access to him. On July 2 Mr. Oatis was made to “confess” to “espionage” at a trumped up trial in the typical communist pattern. Charges at the trial were likewise made against all the other press representatives and members of the United States and United Kingdom Embassies now on assignment to Prague. It has now been announced by the Czechs that Oatis will be sentenced on July 4.

We have endeavored to test every possibility of assisting Oatis without resort to further counter-measures than that taken on June 2.² Then, immediately following the granting of an agŕement for the new Czechoslovak Ambassador, travel of non-official United States citizens to Czechoslovakia was prohibited by the invalidation of passports. This action was announced without any indicated connection with the Oatis case but the association of this action in point of time with the notification of an agrément was intended to convey to the Czechs the importance we attach to the Oatis case as well as our willingness to continue diplomatic relations. This measure was more monitory of futher action to come than effective in itself.

As a second step, HICOG reluctantly agreed with our proposal to expel former Czechoslovak consular personnel and other agents in Germany. In the light of a telegram from Frankfort today,³ however, it is doubtful whether any useful step can be taken in Germany on a unilateral basis.

In addition to the above two actions, we have considered putting into effect in the order listed the following two economic measures which are the subject at issue herein:

(a) An embargo on all United States exports to Czechoslovakia, and

(b) The blocking, without vesting, of Czechoslovak assets in the United States.

Discussion:

The desirability of utilizing economic pressures depends not only upon the importance of obtaining the release of Mr. Oatis but also upon the effectiveness of the measures contemplated and the repercussions of such measures upon other aspects of our foreign policy.

It is important to help Oatis not only as an individual but also as a matter of national interest to demonstrate generally that the United States and its citizens cannot be treated in this manner with impunity. Public opinion in this country obviously expects the Department to take every feasible step to pressure the Czechoslovak Government to release Oatis and there will almost certainly be the most severe criticism of the Department in the press and in Congress if it fails to act promptly and vigorously in this case. Furthermore, since this is the first time to our knowledge that a communist government has arrested an accredited correspondent enjoying a quasi-official status, the communists in Czechoslovakia might well be encouraged to proceed next against Embassy officials unless vigorous action is taken. It may be pointed out that our relations with the Czechoslovak Government are so strained at the present time and the need in this case so great that unusual measures are in order.

a. Export Embargo. Present export controls already are designed to insure that goods of strategic importance are not shipped to Czechoslovakia, and only moderate amounts of non-strategic items continue to be exported amounting to $250 thousand monthly. These presumably are of some marginal value to the Czech economy or they would not be purchased. The effect of this embargo would tend to diminish in time, as the Czechs find ways of securing the goods through transshipment but, at the outset at least, the embargo might exert a pressure in connection with this case.

The imposition of the embargo would be in conflict with our commitments on the non-discriminatory treatment of Czech trade as they appear in the General Agreement on Tariffs and Trade. We might meet this problem either by invoking our rights to take such measures on security grounds (as we have done in justifying the existing policy of discrimination), by seeking a waiver of our obligations from the other Contracting Parties to the GATT, or by seeking to have Czechoslovakia expelled from the GATT.

Any of these courses would involve some cost; each would be regarded by other friendly nations as a step which further disturbed and weakened the structure of our international trade obligations. Of the three possible courses the first would impose the least strain on our relations with other countries, while the last would be the most difficult.

If a decision were taken to impose an export embargo on Czechoslovakia, it would probably be desirable to institute the measure without any public announcement, simply by having Commerce agree to notify holders of outstanding export licenses that the licenses were cancelled and to refuse to issue any further licenses for such exports. If the action were taken in this way, without the fanfare attending an announcement of a new policy on Czechoslovak exports, the tendency abroad might well be to regard the embargo simply as an administrative tightening of the previous policy of anti-Czech discrimination which already has been thoroughly aired in the GATT.

b. Blocking of Czechoslovak Assets. Legal authority for blocking Czechoslovak assets in the United States is available under the Trading with the Enemy Act during the national emergency. The President has assigned to the Treasury Department operating responsibility for any blocking action taken by the U.S. The blocking power could be used to place under control all or any portion of the assets of the Government of Czechoslovakia or its nationals in the United States, thus making all transactions in such assets subject to Treasury license.

While the amount of liquid assets held by the Czechoslovak Government and its nationals in the United States is not large (probably not in excess of $6–8 million), the most important effect of the blocking action could be to stop all export and import transactions of the United States with Czechoslovakia, and also to stop or impede any known transactions between Czechoslovakia and third countries conducted through the dollar. The third country trade with Czechoslovakia which might be affected would probably be largely confined to trade with other dollar area countries such as Canada and certain North and South American countries, since it is believed that most of the trade of Czechoslovakia with non-dollar countries is carried on either through the sterling transferable account system or by bilateral clearing techniques.

Aside from questions of general political and economic policy, two special problems arise in connection with the use of blocking controls for this purpose. They are:

(a) The desirability of the use of the Trading with the Enemy Act for a purpose not immediately related to broad economic warfare objectives.

(b) United States obligations under the Articles of Agreement of the International Monetary Fund.

The Trading with the Enemy Act is generally regarded as the instrument for imposing economic sanctions of a rather broad character. It is the legal authority under which Axis assets were blocked and vested in World War II and under which the recent action was taken respecting Chinese Communist and North Korean assets. The position heretofore taken by the Treasury Department has been that the powers under this Act should not be used for purposes not related to such economic warfare objectives. It has been considered that the employment of this Act for other purposes would reduce its effectiveness for this primary purpose. Of course, once action against a particular country is taken under the Act, the measure is not available to attain other and possibly broader objectives in respect to that country. The Treasury has objected to the use of this power to facilitate the collection of United States nationalization claims against Czechoslovakia.

Under the Articles of Agreement of the International Monetary Fund the United States has undertaken not to impose restrictions on current international financial transactions with other Fund members without the approval of the Fund. Czechoslovakia is a member of the International Monetary Fund and the blocking of Czech assets would be such a restriction. At the time blocking action was taken against Communist China and North Korea the United States informed the Fund in advance of its intent to impose such measures; however, we took the position in the Fund that the Fund might not wish to approve or disapprove since the purpose of the measures was security rather than to safeguard the international financial position of the United States and therefore, by inference, outside the Fund’s competence. Several Fund members, including the United Kingdom, did not concur in this view and the Management of the Fund thought it inadvisable, even from the United States standpoint, to read an implicit security exception into the Fund agreement. The problem of Fund jurisdiction has not yet been resolved by the Executive Board of the Fund, but for the United States to take blocking action against another Fund member at this time, without seeking Fund approval, might be inimical to our relations with other Fund members and the attainment of general United States objectives in respect to international financial policy.

Since the action described in a above, complete export embargo, would precede the blocking of funds, the effect of blocking action would not be in the export field but would immobilize Czech assets and funds already in the United States and to a great extent preclude Czech dollar earnings from imports and other transactions in the United States. For reasons unknown, the Czechs apparently attach some significance to their exports to the United States. Some products are designed particularly for the United States market, e.g., shoes, ornaments, etc.

It is possible that, if blocking action were taken, the Czechs might decide to adopt measures of reprisal rather than release Mr. Oatis. Since Czechoslovakia has already nationalized United States private property, such reprisals, if confined to this category of action, might be applied to a surplus property claim of some $5-½ million plus some five pieces of United States Government-owned property. The former is the source of local currency for official United States expenditures in Czechoslovakia. Action by the Czechs along this line would probably seriously impede the continuance of our diplomatic activities in that country.

Conclusions:

It is recognized that measures to secure the release of Mr. Oatis are highly desirable and that the economic measures described above might be used. The disadvantages accompanying these economic measures, however, are such that if the Department wishes to proceed, the matter should be referred to the Cabinet or the National Security Council⁴ for decision, or for discussion with the appropriate Cabinet officers.

Recommendation:

It is recommended that you call in the interested officials of the Department to reach agreement on steps to be taken in this case.⁵

1. Drafted by Vedeler and Truesdell of EUR/EE, McDiarmid of OFD/MN, and Vernon of EDT/CP.
2. On June 2 the Department of State announced the prohibition of travel to Czechoslovakia by American citizens.
3. A telegram from Frankfurt, July 3, reported reluctance on the part of British and French officials in West Germany to agree to a program to deny military travel permits to Czechoslovak personnel in West Germany. (124.49/7–351)
4. In the source text, the phrase “National Security Council” is underscored in pen and is accompanied by a handwritten marginal notation “No!!”, presumably by Matthews.
5. Soon after this memorandum was prepared, Bonbright and Thorp both brought up at the Secretary’s daily meeting of July 9 the question of retaliation for Oatis’ imprisonment. At the meeting of July 9, Bonbright reported that measures were being discussed, but nothing worthwhile had yet been hit upon. “The Czechs have no consulates here to close and there are few economic measures which might be taken. The only course that might be effective would be freezing Czechoslovak assets in the United States.” At the Secretary’s daily meeting of July 10, Thorp reported that it had been concluded that there were only two actions that might bring results: 1) using transmitters in West Germany to intrude on Czechoslovak radio frequencies, and 2) some legal means, possibly an act of Congress, to prohibit Czechoslovak imports into the United States during Oatis’ imprisonment. (Secretary’s Daily Meetings, lot 58D609)