Foreign Relations of the United States, 1951, Korea and China, Volume VII, Part 2

S/S Files: Lot 63 D 351: NSC 102

The Acting Executive Secretary of the National Security Council (Gleason) to the National Security Council

secret

Washington, January 19, 1951.

NSC 102

Export Control Policy Toward the Soviet Bloc

References:

A. NSC 94/1¹

B. NSC 92/1²

C. NSC 91/1³

At the request of the Secretary of Commerce, his enclosed letter and attached report on the subject are submitted herewith for consideration at an early meeting of the National Security Council.

At the direction of the President, the Secretary of Agriculture,⁴ the Secretary of Commerce and the Economic Cooperation Administrator⁵ are being invited to participate with the Council, the Secretary of the Treasury⁶ and the Director of Defense Mobilization⁷ in the consideration of this report.

It is recommended that, if paragraphs 1 and 2 of the “Recommendation” in the enclosure are adopted, they be submitted to the President for consideration with the recommendation that he approve them and direct their implementation by all appropriate executive departments and agencies of the U.S. Government.⁸

S. Everett Gleason

[Enclosure]

The Secretary of Commerce (Sawyer) to the Executive Secretary of the National Security Council (Lay)

secret

Washington, January 18, 1951.

Dear Mr. Lay: I am submitting the enclosed paper relating to export policy toward the Soviet Bloc for early consideration by the National Security Council. The recommendations in this paper have been discussed by the Advisory Committee on Export Policy. At the meeting of the Advisory Committee the representatives of the Departments of State and Treasury and of the Economic Cooperation Administration requested that the problem be reviewed by the NSC before action is taken.

The Department of Agriculture has requested that it be given an opportunity to participate in the discussion of this problem because of its responsibilities in the export field under the Defense Production Act and Executive Order No. 10161. I would suggest, therefore, that the Secretary of Agriculture be invited to participate in the Council’s discussion of this paper.

Sincerely yours,

Charles Sawyer

[Attachment]

Memorandum by the Secretary of Commerce (Sawyer) to the National Security Council

secret

[Washington,] January 17, 1951.

Subject: Export Control Policy Toward the Soviet Bloc

At the request of several members of the Advisory Committee on Export Policy, I am submitting the following problem for NSC review:

The Problem

In what way should U.S. export control policy toward the Soviet Bloc be revised to ensure that, in the new situation brought about by Chinese aggression in Korea, the Department of Commerce “exercises the necessary vigilance over exports from the standpoint of their significance to the national security” as required by the Export Control Act of 1949?

Recommendation

The Department of Commerce recommends that:

1. Validated export licenses should be required for the export of all commodities to Subgroup A destinations (Soviet Bloc).

2. U.S. export policy towards Subgroup A destinations (except China and Korea), including shipments from foreign sources intransit through the United States, should be as follows:

(a) The Department of Commerce should deny all Positive List items.

(b) The Office of International Trade should develop a Negative List of commodities, of little or no strategic significance, which may generally be approved where the quantities are not excessive.

(c) There should be a presumption for denial of all items not on the Positive List or the Negative List.

Comparison of Recommended with Present Policy

1. Validated export licenses are required at present for the export of all commodities to Communist China and Communist-occupied Korea, and all applications for licenses to these areas are being denied, but licenses are not now required for the export of non-Positive List items to the U.S.S.R. and its European satellites. Recommendation 1 would permit pre-shipment screening of all exports to the Soviet Bloc.

2. The Positive List is composed of 1A items, 1B items, short supply items, and a few items which have not yet been assigned a strategic classification. Existing program determinations require the denial of only the 1A items to the Soviet Bloc in Europe. As a matter of licensing practice no applications are now being approved for the export of any Positive List items to the Soviet Bloc. Recommendation 2 (a) would confirm the de facto licensing practice on all Positive List items.

3. All non-Positive List commodities can now move freely to the Soviet Bloc, expect China and North Korea. Such items are of varied strategic significance, ranging from negligible significance to a strategic importance just below that of the items included in Class IB. Recommendation 2 (b) would select out of this field of presently uncontrolled commodities a group at the bottom of the strategic scale. It would permit these items of little or no strategic significance to continue to move to the Soviet Bloc, other than China and North Korea, except where the quantities appear excessive.

4. The above provisions leave a residual group of commodities which would be brought under control when for export to the Soviet Bloc; that is, items which are not on the Positive List but which do have more than “little or no strategic value”. Recommendation 2(c) would in practice result in the denial of almost all export license applications to the Soviet Bloc for items in this group.

5. In summary, the substantive changes in U.S. export policy reflected in the recommendations are that: (a) the export of all non-Positive List items to the U.S.S.R. and its European satellites would be brought under pre-shipment review; (b) items of little or no strategic significance would continue to move to this area, except where quantities are excessive; (c) almost all other non-Positive List items would be denied to the area; and (d) the current practice of denying all Positive List items would be confirmed.

Basis for Recommendation

1. United States security export policy was based, until June 25, 1951 [1950], on the fundamental concept of avoiding substantial contribution to the war potential of the Soviet Bloc by a selective control of exports. The active military aggression, first by North Korea and next by China, has required U.S. export policy with respect to these areas to go beyond the mere avoidance of substantial contribution to war potential. In time of active hostility against U.S. forces, whether or not these forces are part of a larger frame of reference such as the U.N., great care must be exercised to prevent any export which in any way becomes useful to the armies which are taking American lives. In accord with this principle, all exports to North Korea were prohibited on June 28, and all licenses for export of all commodities have been denied to Communist China since shortly after the Chinese aggression in Korea. It is to be noted that this new principle is applicable regardless of its effects on U.S. imports of essential commodities from aggressor countries, for we cannot, in a period of active hostilities, rely on strength obtained from the nations which are responsible for such hostilities.

2. The prohibition of U.S. exports to Communist China insures that, in the case of direct exports to that country, no U.S. commodities are augmenting the aggressive forces presently engaged against us. There is and can be, however, no assurance that commodities exported to the U.S.S.R. and its European satellities will not be transshipped to Communist China or be used to produce goods to be used against us in Korea. To avoid this danger the U.S. should bring under control all exports to the U.S.S.R. and its European satellites, and prevent the export to these countries of all commodities except those which have little or no strategic significance.

3. The military aggression by the Chinese Communists in Korea and the attitude taken toward this act by the U.S.S.R. and her European satellites indicate the possibility that military action by the European Soviet bloc countries might not be as distant as had been thought. In these circumstances the U.S. should not continue to ship to these countries commodities which would contribute even in small degree to their military potential. The prevention of such shipments can be accomplished much more promptly and effectively by extending the coverage of control to all commodities than by attempting to add commodities selectively to the list of controlled items. The process of selective addition is necessarily time consuming and fails to keep current with the development of new products.

4. The recommendation that all Positive List items should be denied results in little substantive change in present practice, but it is useful for administrative reasons. Instructions to licensing officers, and the framework of the control machinery, can be simplified and made more efficient by this proposed change.

Discussion

1. The above recommendations were discussed by the Advisory Committee on Export Policy on January 10, 1951. The original proposals by the Office of International Trade for a tighter export control policy toward the Soviet Bloc were made on December 18, 1950. The Department of Commerce recommendations were supported in the January 10 meeting by the Departments of Interior and Agriculture, and by CIA, AEC and NPA. The Department of Defense concurred in the proposal but would go further. It favored denial of all shipments to the Far Eastern U.S.S.R. Maritime Provinces; and favored the denial, rather than presumption for denial, of items not on the Negative List or the Positive List, The Departments of State and Treasury, and the ECA did not concur and requested NSC review.

2. The Department of State position was based on the following:

(a) The Department of State considers the proposal to represent in effect an embargo on U.S. exports to the Soviet Bloc; and it believes that, though the program in actual operation might allow certain commodities to move, the action would be interpreted both in the United States and abroad as an embargo.

(b) The Department of State therefore believes that the proposals raise questions of foreign policy which require detailed and careful consideration of all political effects before any action should be taken. Moreover, the matter is of such moment that a review by the National Security Council is required.

(c) In this connection the State Department believes that no action should be taken until it has had an opportunity to complete the studies of economic relations with the Soviet Bloc which were requested of the Department of State in the President’s letter of December 28.⁹

(d) The State Department considers that present U.S. trade with the Soviet Bloc is of insignificant economic importance, while the political aspects of an embargo or a near embargo are of major significance. The State Department believes that, though the matter should be studied further before a final decision is made, the political disadvantages of an embargo move by the United States appear at present to outweigh the political advantages.

(e) The political disadvantages of the recommendations, as seen by State, include the possibility of retaliation by the Soviet Bloc and injury to our relations with our Western Allies. The United States has told Western European countries, in negotiations on the export control problem, that it did not favor all-out economic warfare. An embargo would be interpreted in Western Europe to mean that the United States considers war inevitable, and that the United States will press for the adoption of Western European export control policies to the economic detriment of that area.

3. The ECA concurred in State’s position that the recommendations were of such importance as to require NSC review, and ECA also was opposed to the recommendations themselves. The substantive opposition was based on a belief that export controls are at present adequately adjusted to the requirements of U.S.S.R.–U.S. relations, and that a selective approach to export control is more effective and meaningful than the blanket control of all commodities. ECA has also stated that a widening of U.S. embargo toward the Soviet Bloc would raise difficulties in the administration of Section 117(d) of the ECA legislation. It is feared that financial assistance would have to be denied for the export of many commodities from the United States to Western Europe, where the U.S. embargoes such commodities to the Soviet Bloc and the recipient Western European country does not.

4. The Department of the Treasury expressed no substantive opposition to the proposals but felt that an NSC review was required. Treasury stated that an extension of U.S. export controls toward the Soviet Bloc might, for the sake of consistency, require the imposition of a control of financial transactions between the U.S. and the Soviet Bloc.

5. Although it is possible that adoption of these proposals may evoke retaliatory measures by the Soviet Bloc against the U.S., such retaliation would not damage the U.S. materially. Both the U.S.S.R. and China already have taken measures of retaliation against the U.S. Further retaliatory action by these or other countries of the Soviet Bloc would not impair the U.S. economy. They might bring long run benefit, in fact, by giving a further stimulus to the development of alternative sources of supply.

6. It is by no means certain that the proposed change would, as claimed, have adverse effects on our relation with Western European Allies. Since the inception of the security export control policy, the United States has exercised stricter control than Western European countries. This principle has been recognized in recent international negotiations on the problem. Further, at the time of the invasion of South Korea, the United States embargo against exports to North Korea assisted in bringing about the application of stricter control by Western European countries over their export to Communist China. These controls, as later evidence demonstrated, were vitally needed, and the example shows that leadership by the United States in this field has had results of positive value.

7. The State Department’s characterization of the proposed policy as an embargo is inaccurate. The recommendations leave the door open for continued trade with U.S.S.R. and its European satellites. Total U.S. exports to Soviet Eastern Europe in the first six months of 1950 amounted to $18, 900,000 of which $8,000,000 was raw cotton, which is now subject to control and would not be exported to that area. The remaining exports, at the rate of $21,800,000 a year were mainly in agricultural commodities (notably tobacco), miscellaneous industrial equipment, chemicals, and medicinals. Presumably the Negative List would include a number of the agricultural products, including tobacco, and medicinals, but would exclude the industrial equipment and most chemicals. To the extent that the present trade comprises items of little or no strategic significance, it would be continued. Strategic items which are included in the present trade should, however, be discontinued.

8. Our European Allies need not be disturbed by the U.S. action if the U.S. fully explains to them the reasons why the policy is considered to be sound for the U.S., that it is not a complete embargo, and that it is not based on the conclusion that war is inevitable.

9. The view that selective export control is still adequate is not tenable in light of the armed aggression of the Soviet Bloc. Selective controls alone would permit substantial assistance by U.S. industry to the forces engaged in active hostilities against us.

10. The proposals do not, as suggested by the Department of Treasury, necessarily require the institution of financial controls against the whole Soviet Bloc. No financial controls have been exercised during a period when the export of all Positive List commodities was substantially discontinued. Whether or not financial controls should be applied is a separate question.

Conclusions

The above recommendations for a stricter U.S. export control policy toward the U.S.S.R. and its European satellites should be adopted immediately. The advantages to be gained by this policy are: (a) the discontinuance of indirect assistance by the United States through U.S.S.R. and its satellites to the Chinese Communist aggressors; (b) the discontinuance of other exports to the Soviet Bloc, other than China and North Korea, which are not now controlled but which may contribute to the military potential of that area; and (c) an improved and more realistic policy framework for the administration of controls over the export of Positive List items to the Soviet Bloc.

1. NSC 94/1, a report entitled “NSC Determinations Under Public Law 843, Section 1304 (The Cannon Amendment),” December 21, 1950, is printed in Foreign Relations, 1950, vol. iv, p. 249.
2. NSC 92/1, a report entitled “The Position of the U.S. Regarding a Blockade of Trade with China,” December 21, 1950, is not printed.
3. NSC 91/1, a report entitled “East-West Trade,” November 17, 1950, is printed in Foreign Relations, 1950, vol. iv, p. 227.
4. Charles F. Brannan.
5. William C. Foster.
6. John W. Snyder.
7. Charles E. Wilson.
8. NSC Action No. 443, taken by the National Security Council at its 84th meeting, February 21, 1951, with the President presiding, recorded discussion of this report, as well as of NSC 104 (extracts from which are printed on p. 1902), NSC 91/1, and accompanying memoranda. It also referred these documents to the Special Committee on East-West Trade for further study and revision in the light of the discussion at the meeting. (S/S Files: Lot 62 D 1: NSC Actions)
9. For the text of this letter, see p. 1903.