Memorandum of Conversation, by the Assistant Secretary of State for Economic Affairs (Linder)1
- Discussion of Current East-West Trade Problem with British Ambassador.
- British Ambassador Sir Oliver Franks
- Secretary of State Acheson
- Ambassador Philip C. Jessup
- Harold F. Linder—E
The Secretary opened the discussion requesting that Sir Oliver communicate strongly to Mr. Eden our concern with the situation we are facing in respect of East-West trade. Our law unfortunately did not distinguish between contracts made prior to the enactment of the Battle Act on which shipments were still to take place and arrangements entered into after the enactment of our legislation. It was pointed out that the total volume of prohibited items shipped last year was approximately $7 million and if nothing were done to arrest them shipments over the next 12 months (of List 1 items) might aggregate as much as $21.5 million. If the U.S. Congress and public should find that in fact the trend of shipments [Page 852] was rising, our position would be most difficult and he thought it almost certain that we would be faced with a legislative mandate which would make it impossible for us to continue aid.
Of the $21.5 million, some $6 million is accounted for by Danish tankers, which matter we are taking up bilaterally with the Danes, and of the remaining $15 million, approximately $5.5 million comprising steel making or fabricating (machine tools) machinery was regarded by us as particularly dangerous. This latter group we regarded as a hard core, although all of the items were on the prohibited list. The U.K. had prior commitments aggregating approximately $5 million of which $700,000 constituted their share of the hard core. It was emphasized that the shipment of these items would constitute a direct addition to the war-making potential of the Soviet Bloc.
The Secretary then remarked that the Ambassador was no doubt familiar with the proposed Kem Amendment and pointed out strongly that the vote in the Senate of 59 to 11 should not be misconstrued. For this he thought we all had to thank the Vice President who had adroitly ruled in such a way as to cause the Senate to choose between the adoption of the conference report or the rejection of the Mutual Security Bill. It was important, he said, that our friends abroad should not be lulled into a sense of security as a result of this action and he stated that he was competently advised that had the issue of the Kem Amendment alone come before the Senate at that time, it was highly probable that the Administration would have been defeated and the amendment adopted. In conclusion the Secretary stated that there was to be a meeting of the CG (COCOM) in Paris on June 24 for which Mr. Linder was going over.
In reply, Sir Oliver stated that he would like to make some purely personal observations, one of which was that in his opinion there was likely to be pressure in the course of the next year for a substantial increase of peaceful trade between the East and West. He thought if the U.S. could indicate its sympathy for the necessity and desirability of such business that we would be in a much better position to accomplish our objective of reducing the flow of prior commitments of List 1 items since then we would have something to offer. He added that while the Prime Minister would probably be shocked at the thought of shipment by the U.K. of items of primary strategic importance to the East, he would probably meet a very strong sentiment in Parliament that trade with the Bloc should be encouraged and expanded.
In reply, Mr. Linder stated that one of the items on the agenda of the forthcoming meeting was a discussion of the Moscow Economic Conference and that we suspected that there might be some move made to call a meeting on trade under the auspices possibly [Page 853] of the ECE. While we did not believe much would result from such a meeting, if the European countries were desirous of having it, the U.S. would not object. One of our difficulties in the matter of fostering so-called non-strategic trade related to differences of opinion as to the relative strategic importance of a particular item. While the British position in respect of rubber was understood by the Administration, it was nevertheless true that, as the Ambassador knew from the remarks of Senator Kem, a great many people in this country regarded rubber as an item of great strategic importance.
Sir Oliver said that the other point he had in mind was his concern about the crude rubber situation. The price had declined drastically and there was a general belief that it was affected adversely because it was assumed that the price of synthetic rubber produced by U.S. Government owned plants did not take into account all of the factors which would go into the fixing of a price by a private owner—specifically profit and taxes. He would hope, therefore, that the price could be adjusted upward so that it would reflect normal commercial practice. He conjectured that with the curtailment of synthetic production, high-cost items would be abandoned and production concentrated on the lower cost types. If that proved to be the case, as he feared the rubber people assumed, then on a “no profit” policy the price of synthetic would be reduced further, and that had been reflected in the price of crude.
Mr. Linder replied that active consideration was being given in the Government to the points which the Ambassador had made. We were not optimistic as to an increase in the price of synthetic but thought it highly improbable that the price would be reduced even though the Ambassador’s surmise was correct in respect of concentration of synthetic production on low-cost types. The Ambassador then asked why this could not be announced, to which we responded that we thought an announcement of no probable reduction in price might well have the result of precluding the possibility of having the price adjusted upward. Nevertheless, we agreed to see what might be done.
The Ambassador, of course, agreed to transmit our views fully and at this point we indicated that while the amounts involved in the very hard core for the British were not large, U.K. action would influence greatly the other participating countries.2