Foreign Relations of the United States, 1952–1954, General: Economic and Political Matters, Volume I, Part 2

S/S–NSC files, lot 63 D 351, NSC 152 Series

Report by the Executive Secretary of the National Security Council (Lay) to the National Security Council¹

secret
NSC 152/3

Washington, June 18, 1954.

Statement of Policy by the National Security Council on Economic Defense

general considerations

1. Broadly stated, the problem is the extent and degree of intensity with which the U.S. should apply, and seek to have other countries apply, controls on trade with the Soviet bloc and with Communist China,^* in order to reduce their relative economic potential for war.

2. The assumption underlying the problem is that we are faced with a long period of tension short of war and that, regardless of gestures made by the Soviet bloc, the motives of the Communist countries are properly to be viewed with suspicion and skepticism. Our attitude and program, however, must be one which will not increase the possibility of war, but rather one which will keep open paths which might lead to a sounder basis for peace.

3. During this period the courses we take should be based upon the assumption that interference in the trade between the free world and the Soviet bloc should take place only where a clear advantage to the free world would accrue from such interference. They should also be based upon the assumption that the maintenance of some personal and commercial contacts between the free world and the Soviet bloc, particularly the satellites, may have positive advantages during this period of tension and watchfulness.

4. Over the long term, trade controls, though withholding a contribution to the over-all Soviet bloc economy, cannot seriously impair that economy. Over the short term and in selected areas, however, there probably is a retardation of the growth of Soviet war potential.

5. Controls on trade still pose economic, financial and political problems for many of our allies. These problems should be given appropriate weight and taken into account in determining the nature of the control which the free world must exercise in its economic relations with the Soviet bloc.

6. The system of controls already agreed among the United States and cooperating nations of the free world substantially satisfies our economic defense objectives of retarding the buildup of the Soviet bloc war potential and of strengthening the free world relative to the Soviet bloc. Extensions of the control lists should not be necessary except where clearly justified by new technology, intelligence or strategic evaluation. The principal future emphasis in improvement of the control system should be in the field of implementation and enforcement. U.S. efforts should be devoted to establishing the control system on a narrower and more flexible basis by tightening the criteria so as to concentrate on commodities and services which contribute significantly to the war potential of the Soviet bloc.

7. There are indications that the USSR is changing its tactics with respect to its economic relations with the free world countries and is giving increased emphasis to trade with the West. There are signs, too, that economic interests within the free world, including the United States, are becoming more interested in increasing trade with the USSR and its satellites.

8. The pressures to trade with the East may also be expected to become stronger now that an armistice has been negotiated in Korea. Furthermore, the fact that U.S. assistance to Western European countries is diminishing, lessens our influence and also may make them more dependent on non-dollar sources.

9. Our economic defense program must be framed and administered with full recognition of the fact that the economic defense system of the free world is part of the larger system of military and political alliances and, like them, depends upon the cooperative efforts of the free nations. Accordingly, in determining the measures which the United States should adopt and those to be urged on other nations, the impact upon the existing international system of economic defense as a whole, and upon the free world military and political alliances, must be taken into account. Similarly, in multilateral military and political discussions consideration should be given to the impact of courses of action on the economic defense program.

10. There is a continuing necessity for U.S. controls over exports to the Soviet bloc. However, a gradual and moderate relaxation in the present practice of virtual embargo of shipments to the European Soviet bloc would be appropriate, provided that in the pace and timing of such relaxation due consideration is given to the effects on the total economic defense effort.

11. The United States should exercise export controls with respect to destinations other than Soviet bloc countries, to the extent necessary to avoid the circumvention and frustration of U.S. security controls. Such controls should not be applied, however, as a substitute device for negotiation in persuading friendly foreign countries to adopt adequate controls. It is important to avoid measures which reduce the willingness on the part of free world countries to cooperate in the international system of controls, or measures which do not significantly affect the supply of strategic commodities to the Soviet bloc.

12. The effectiveness of international controls over given commodities or services normally depends in part upon the controls imposed not only by the United States but also by other nations of the free world. In determining a particular course of action, the United States should take into account the economic and military vulnerability of the Bloc countries and the views and intentions of the other principal nations of the free world.

13. Two types of risks attend excessive dependence of free world countries on Soviet markets for non-strategic commodities and on Soviet sources of supply for essential commodities. Such excessive dependence places the Soviets in a better position:

a. To insist on the inclusion of strategic commodities or services as a condition for continuing or enlarging a profitable trade in non-strategic commodities; or

b. To influence the political policies or disrupt the economies of free world countries.

An essential element in reducing such excessive dependence is the development within the free world of alternative markets for commodities presently sold to the Soviet bloc and of alternative sources of supply for commodities presently acquired from the Soviet bloc.

14. Control over commodities should also be supplemented by ancillary controls, such as shipping, transit trade and transshipment, bunkering and chartering and repairs of ships, where these will contribute to the effectiveness of the control system.

15. Trade is a vital element in the economy of the free world countries. Restrictive features of U.S. import policy limit the entry into the United States of the commodities of friendly foreign countries. This has the over-all effect of making such countries look to the Soviet bloc as the alternative outlet for their commodities and of making them less receptive to trade control efforts.

16. Economic defense policies toward Communist China differ from those toward the rest of the Soviet bloc since Communist China is a military aggressor.

17. Hong Kong and Macao are colonies of friendly countries and their economic needs should be viewed in that light. However, the relationship of the economies of Hong Kong and Macao with that of Communist China is so close that the risk of the circumvention and frustration of economic defense controls toward Communist China is greater through transactions with these western colonies than through similar transactions with other free world countries. This danger is greater in the case of Macao because of its history of uncontrolled trade and the unreliability of its export controls. It is therefore necessary to take special care in the control of transactions with Hong Kong and Macao.

18. The implementation of the policy set forth herein does not require a change at this time in the Mutual Defense Assistance Control Act (Battle Act), the Export Control Act, or related legislation.

general objectives

19. With respect to the Soviet bloc excluding Communist China:

a. To control selectively exports of commodities and supply of services from the free world which contribute significantly to the war potential of the Soviet bloc.

b. To obtain the maximum net security advantage for the free world from economic intercourse which takes place between the free world and the Soviet bloc.

c. To decrease the reliance of free world countries on trade with the Soviet bloc.

d. To increase the political and economic unity of the free world.

e. To decrease, through skillful flexibility in applying controls, the political and economic unity of the Soviet bloc.

20. With respect to Communist China, in the light of the Korean armistice, and pending a political settlement in Korea and a review of basic policies toward Communist China and Korea, maintain the present U.S. level of controls on transactions with Communist China and continue intensified efforts to persuade our allies to refrain from relaxing their controls on trade with Communist China.

courses of action

Toward the Soviet Bloc Excluding Communist China

21. Control the export from the United States of commodities and technical data to the Soviet bloc with a view to avoiding a significant contribution to the Soviet bloc war potential, by limiting or denying commodities and data which have strategic significance, but without imposing undue restraints on the shipment of non-strategic commodities to the Soviet bloc. Accordingly, present U.S. controls should be gradually readjusted with due regard to pace and timing and to effect on the total economic defense effort.

a. Deny or limit, as appropriate, export from the United States to the European Soviet bloc of the following categories of commodities only:

(1) All strategic commodities included on the COCOM international security lists.

(2) Such additional strategic commodities as would contribute significantly to the war potential of the European Soviet bloc, the U.S. unilateral control of which can reasonably be expected, because of U.S. production, supply or technology, to be effective in depriving the European Soviet bloc of a significant contribution to the latter’s war potential.

(3) Other commodities, whether strategic or not, which raise such special political problems as to warrant U.S. export control to the European Soviet bloc despite the absence of international controls.

b. As a general rule, approve for shipment from the United States to the European Soviet bloc commodities not included in subparagraph a, and, where appropriate, remove the requirement of specific licenses for such shipments.

22. Continue the prohibition of all exports of the following destined for the Soviet bloc, either directly or indirectly: arms, ammunition, implements of war and atomic energy materials.

23. a. Maintain U.S. controls on shipments to destinations other than the Soviet bloc (requirement for prior specific license), both as to commodities and particular destinations, only to the extent necessary to:

(1) Minimize the risks of unauthorized transshipments.

(2) Avoid the frustration or circumvention of U.S. controls towards the European Soviet bloc and Far Eastern Communist destinations.

b. In implementing a (2) above:

(1) Limit or deny shipments of strategic commodities to destinations other than the Soviet bloc when such shipments would contribute significantly to the ability of those countries to maintain or increase shipments of identical or similar commodities to the Soviet bloc, and when the limitation or denial will, in fact, significantly affect the supply of strategic commodities to the Soviet bloc.

(2) Do not take this action as a substitute for negotiations or in such a way that it is inconsistent with a cooperative international system of security controls.

24. Improve the availability and enhance the utilization of current intelligence in matters relating to enforcement of controls.

25. Tighten the criteria for the inclusion of commodities on our lists to provide for the selection of commodities which contribute significantly to Soviet war potential.

26. Concentrate on effective implementation and enforcement of the security control systems which have been agreed by the free world.

27. Improve implementation and enforcement of agreed control systems through the development of ancillary measures including, where appropriate, control over transit trade and transshipment, free port activities, use of transportation facilities, financial control, blacklisting, and greater coordination among national control authorities.

28. Avoid proposals for extensions of controls which involve disproportionate expenditure of good will and bargaining power.

29. Maintain flexibility with respect to the modification of presently agreed controls.

30. Give greater weight in determining U.S. actions to the impact of the control system on the economic, political and financial situation of our allies and to their views and intentions.

31. Consult with other principal free world nations before entering into new major economic defense programs.

32. Seek to demonstrate to free world nations, on appropriate occasions, the risks of excessive reliance on the Soviet bloc as a trade partner for the free world.

33. Encourage and facilitate the flow of trade within the free world, including the entry of commodities into the United States by reduction of trade barriers, particularly when the effect of such action would be to decrease the reliance of the free world on the Soviet bloc.

34. Encourage and support, by all reasonable means, the development of alternative markets and sources of supply within the free world, so as to reduce dependence of free world countries on Soviet bloc markets and sources of supply.

35. Seek to provide safeguards designed to minimize the immediate effects of a sudden reduction or cessation of trade initiated by the Bloc.

36. Administer current U.S. programs such as economic development, military procurement, defense support, stockpiling and similar activities, in such a way as to take into account the impact on the economic defense program, and, particularly, the objective of decreasing the free world’s reliance on Soviet bloc trade.

Toward Special Areas

37. In applying controls, accord to Hong Kong treatment consistent with that generally accorded cooperating countries while employing such special care as may be necessary to prevent frustration of economic defense controls on transactions with Communist China.

38. To the same end apply more stringent controls on trade with Macao as may be appropriate.

39. In the absence of further Chinese Communist aggression and during the period prior to achieving settlements satisfactory to the United States in the areas around Communist China, the United States should release Japan gradually, as appropriate, from its obligations under the U.S.-Japanese bilateral agreement to maintain export controls higher than the CHINCOM levels.

1. For a description of the origins of this paper, see the editorial note, p. 1038, and item 2 of the NSC memorandum of discussion, June 17, p. 1201.
2. Communist China as used throughout this paper includes North Korea. [Footnote in the source text.]