No. 492

S/SNSC files, lot 63D351, NSC 111

Report by the National Security Council1

NSC Determination No. 2

Trade Between Austria and the Soviet Bloc in the Light of Section 1302 of the Third Supplemental Appropriation Act, 1951

i. background

1. Section 1302 of the Third Supplemental Appropriation Act, 1951 (Public Law 45, approved June 2, 1951), directs that no economic or financial assistance shall be provided to any foreign country which, after 15 days following the enactment of the Act, exports or knowingly permits the export of certain named categories of commodities to the Soviet Bloc during any period in which the Armed Forces of the United States are actively engaged in hostilities in carrying out a decision of the Security Council of the United Nations. In order to be eligible for economic or financial assistance each country must certify that after the prescribed period it has not exported or knowingly permitted the export of the prohibited items to the Soviet Bloc.

2. The Act requires that the Secretary of Defense certify to the Economic Cooperation Administrator a list of specified articles or commodities. The list in question was certified on June 5, 1951.

3. The Act authorizes the National Security Council to make exceptions to the several provisions of Section 1302. Such exceptions are to be made only upon an official determination by the National Security Council that they are in the security interest of the United States.

4. Austria has been a substantial recipient of United States aid. Under the ECA program it will have received approximately $800 million through the fiscal year 1951. The foreign aid program for [Page 1042] fiscal year 1952, currently before the Congress, contemplates the continuance of substantial aid to Austria.

5. Austrian economic ties with European Soviet Bloc countries were particularly close before the war, especially with those countries which earlier formed part of the Austro-Hungarian Empire. After World War II there was a distinct reorientation toward the West, but shipments to Soviet Bloc countries remain substantial, total recorded exports to these areas reaching about $47 million in 1950, or about 15% of the total. Iron and steel and their manufactures accounted for about ⅓ of this total and machinery, apparatus, instruments and vehicles and parts accounted for roughly 11%. During the first quarter, 1951, the total value of recorded exports to the Bloc was $11.7 million, or somewhat below the quarterly rate prevailing in 1950. There appears to have been a substantial increase in the rate of shipment of iron and steel and of machinery, accounting for about 50% of the total.

6. In addition, the Soviet occupation forces in Austria initiate or sponsor other shipments designated as Soviet property. These shipments necessarily move out of Austria without examination or recording by the Austrian customs or licensing by the Austrian trade control authorities. It has been estimated that during 1950 these “involuntary” unrecorded exports amounted to about $48 million, of which crude and refined petroleum all originating in oil fields and refineries held and operated by the Soviets accounted for $30 million. Nearly all of the other shipments appear also to have been the products of the more than 300 controlled factories in Austria which had been taken over by the Soviets shortly after the occupation as German assets. These shipments consisting of a wide variety of goods include such important products as iron and steel, machinery and equipment and scrap iron as well as such items as paving stone, windowglass, paints and varnishes.

7. Recorded imports from the Soviet Bloc in 1950 amounted to $50 million or about 13% of total imports. The imports from the Bloc in the first quarter of 1951 were valued at $18 million or 12% of the total imports. During 1950, coal, coke and briquettes accounted for about half of the value, the balance consisting of such items as livestock, sugar, machinery, vehicles, apparatus and metal products, and specialty foods and other soft goods. During 1951, there has been a tendency for hard coal deliveries from Poland to decline while shipments of brown coal from Eastern Germany increased. There is a substantial volume of goods brought into Austria by the Soviet forces amounting to perhaps $4 million in 1950 which like the “involuntary” exports, are unrecorded. These goods include consumer goods for Soviet-operated retail stores in Vienna and the Soviet Zone and industrial materials such as oil pipe and drilling [Page 1043] equipment, chemicals and pyrites, primarily for use in Soviet-controlled enterprises.

8. Austria is exporting to the Soviet Bloc materials certified by the Secretary of Defense as falling within the categories set forth in Section 1302.

ii. problem

9. In the circumstances therefore the National Security Council has been faced with the choice of deciding that all economic and financial assistance to Austria should be discontinued or of deciding that aid to Austria should be continued, in the security interest of the United States, by granting an exception to the provisions of Section 1302.

iii. discussion

10. The United States has important security interests in Austria. It is in the interest of the United States that Austria be a free independent and unified country with the maximum orientation possible to the Western world.

11. Austria is a liberated country jointly occupied by the United States, the United Kingdom, France and the U.S.S.R. While there are separate zones of occupation, it is politically and economically a single unit and there are no customs boundaries between the several occupation zones. The occupying powers have reserved to themselves the power to intervene and object to actions taken by the Austrian Government.

12. As a result of its status as an occupying power, the United States shares in international obligations to maintain peace and order and a reasonable standard of economic activity in Austria.

13. The nature of the Austrian economy is such that it cannot earn enough dollars to support its essential imports from the dollar area in the absence of United States aid. Until a greater measure of convertibility of currencies is achieved, it cannot measurably increase its indirect earning of dollars. The Austrian economy would hence be highly vulnerable to the discontinuance of United States economic and financial assistance. The deterioration in economic activity with reduced standards of living and mass unemployment which would result would make Austria, given the presence of the Soviet occupation force, a victim of increased external pressure and increased attempts at internal subversion. These consequences would be directly at variance with all that the United States has been seeking to accomplish in Austria since the war and would be contrary to the security interests of the United States.

14. The Austrian economy is heavily dependent upon foreign trade. It cannot produce key industrial raw materials and foodstuffs [Page 1044] in sufficient volume to support its population at an acceptable standard of living. It must sell abroad in order to pay for its essential imports. A complete embargo of exports of the character referred to in Section 1302 would undoubtedly result in retaliatory measures on the part of the Soviet Bloc probably involving a decrease of imports from that Bloc into Austria. The most serious loss from the point of view of the Austrian economy would be the loss of fuel from Poland, Czechoslovakia and Eastern Germany. Presumably the United States could in time ship increased quantities of coal and its products, but this would involve dollar expenditures which Austria cannot afford without a major increase in United States aid, and strains on the shipping resources of the Western world. Declines in other imports would in most cases cause disturbances in the Austrian economy and further declines in consumption levels. The loss of export markets in the East could perhaps in time be compensated for by gaining markets in the West. During a transitional period there would no doubt be some difficulties of adjustment including additional unemployment.

15. Inasmuch as the U.S.S.R. is one of the occupying powers it is not possible for the Austrian Government to exercise effective control of its trade with the U.S.S.R. and its satellites.

16. It would be manifestly impossible for Austria to provide the certificate called for by Section 1302.

iv. determination

17. The National Security Council, in view of the considerations in Section III, determines that it would be to the security interest of the United States to make an exception from the provisions of Section 1302 for Austria.

v. instructions

18. The National Security Council directs its Special Committee on East-West Trade to:

Continue its examination of trade between Austria and the Soviet Bloc;
Continue to seek additional measures, consistent with over-all U.S. security interests, for diminishing the flow of strategic commodities from Austria to the Soviet Bloc with a view to making appropriate recommendations to the National Security Council.

19. The National Security Council directs its Executive Secretary to declassify this Council document. This declassified document will be submitted as a National Security Council report to the Committees of Congress named in Section 1302, together with the trade analysis called for by that Section.

  1. This report was originally Annex 1 to NSC 111, “NSC Determinations Under Section 1302, Third Supplemental Appropriation Act, 1951, June 8, 1951.”