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 104 Series

Study Prepared in the Economic Defense Advisory Committee¹

secret

Washington, [June 12, 1952.]

Report on Organized and Coordinated Program of Covert Preclusive Buying

Feasibility of Preclusive Buying

1. Preclusive buying may be a useful instrument to further economic defense objectives in connection with a few commodities of which the supply is not readily susceptible of increase in response to price rises and in situations where the acquisition of limited quantities could be counted on to have real effect on the Soviet productive machine. There may also be spot cases of various sorts, difficult to define in advance, which may provide opportunities for effective preclusive buying.

2. On the other hand, if there are a number of sources of supply, if production of a given commodity is readily susceptible of increase in response to price rises, or if the cost of acquisition of the supply is very high, any of these factors can operate effectively to prevent a workable preclusive buying program. Indeed, in such circumstances the initiation of a preclusive buying program may do harm to the objective of denying strategic materials to the bloc by expanding the available supply or by prematurely sensitizing the bloc to the fact that its supply situation in the particular commodity is vulnerable.

3. It must also be recognized that the wisdom of undertaking a preclusive buying program depends in part on whether an adequate pool of intelligence exists on which to base the program, the extent to which covert tactics and particular war measures can be used in support of the program, and the alternative uses to which available funds could be put in building Western defenses. Despite the major intelligence effort which is being made at present, we do not know as much about the import dependence and the requirements of the Soviet bloc as we knew about Germany and Japan during the last war. Except in the Korean area we are not employing such measures as naval blockade and ship warrant systems which serve to narrow the channels in which goods move and make the penalties for illegal movements evident and effective. Finally, funds for prosecution of the cold war and possibly for preclusive buying are limited to a much greater degree than during the war when costs were not as limiting on action as they are now. The latter fact necessitates decisions between alternative uses of available funds, with the resultant measurement of suggested programs against stiffer standards at present than when funds are relatively free. In all these respects, it would appear that the basis on which to justify a large-scale preclusive buying program is not as solid under present circumstances as was the case in World War II.

4. A major additional point concerns the need to assure the coordination of procurement programs and preclusive buying programs. There are often found conflicts which are inherent in such programs. Preclusive operations may raise prices to a degree which makes the procurement of a particular commodity for defense needs more difficult with the limited funds available. Likewise, procurement programs may positively stimulate production to such an extent that preclusive purchase of additional supplies becomes a greater problem. Thus particular care must be taken in analyzing situations which appear to call for preclusive purchase activity.

5. A further limitation on the use of preclusive purchasing under present conditions is the limited degree of dependence by the Soviet bloc upon the free world for essential commodities. Frequently deliveries of such commodities to the Soviet bloc are tied in as an essential counterpart in an East-West trade agreement. Under these circumstances, it is especially difficult to employ preclusive buying operations as a means of preventing deliveries.

Applicability of Suggested Studies

6. The prospective opportunities for general use of preclusive buying techniques do not seem to be such as to warrant separate commodity studies of the scope suggested in the Annex to the NSRB study. However, commodity studies of general usefulness in economic defense work, such as the studies being done in connection with decreasing the economic reliance of the West on the Soviet bloc, may lead to the location of commodities which might warrant a specific program of preclusive purchase. The particular fields which seem promising, once identified, could thereafter be studied intensively to determine finally whether a preclusive purchase program should be instituted.

7. The Preclusive Buying Working Group of the Economic Defense Advisory Committee prepared the attached inventory² indicating the status of numerous studies and intelligence reports relating to the topics listed by the NSRB. These topics primarily concern economic defense in the broad sense rather than preclusive buying exclusively. The Department of State will review those studies which have been completed to see whether they suggest profitable lines of action in terms of preclusive purchasing programs related to particular commodities. This point will also be borne in mind in the preparation of reports not yet completed. In connection with the studies referred to above relating to decreasing the reliance of the West on the Soviet bloc, a positive approach has been developed and an Economic Defense Advisory Committee working group has been established to coordinate this activity which will cover the various subjects listed which appear to warrant further consideration.

Special Cases

8. The spot cases which may warrant handling on a preclusive purchase basis cannot be identified in general studies of the kind discussed in previous paragraphs. They will generally appear in day to day intelligence reports or other information channels. They may be noted by any one of several agencies. The proposed Intelligence Working Group would serve as a useful forum for identifying such cases. It is suggested that these special cases also be placed in the Economic Defense Advisory Committee for consideration as they arise.

9. Decisions on whether to engage in preclusive purchasing operations, either in a general field or in a specific case, should be reached in the Economic Defense Advisory Committee. The agency to undertake the actual purchase should be designated at that time. The agencies which might make the purchases and the funds to finance them have both been considered by the Working Group on Preclusive Buying, but additional study of both points seems warranted if future preclusive buying is to be undertaken without undue delay when the occasion for action arises.

Recommendations

10. It is recommended that the foregoing conclusions be approved and the Economic Defense Advisory Committee be directed to:

a. ensure the continuous review of current intelligence in order to identify spot cases which may warrant preclusive treatment;

b. review the operational aspects and administrative arrangements which would have to be made to expedite such individual preclusive purchases as the Committee might recommend; and

c. reach agreement as soon as possible on the question of available funds and the establishment of procedures to facilitate access to such funds, in order to permit the U.S. to be in a position to move quickly in specific cases.

1. According to a memorandum by Lay, dated June 12, transmitting this study to the National Security Council, the NSC Senior Staff had requested the EDAC on Feb. 11, 1952, to prepare a study of the desirability and feasibility of the initiation of a preclusive buying program. A memorandum by Counselor Bohlen to Assistant Secretary Thorp of June 10 indicated that the original draft had been submitted to the Department of State and had been forwarded with revisions to the NSC Senior Staff on June 5. (S/S–NSC files, lot 63 D 351, NSC 104 Series) The Senior Staff further revised the study and recommended its implementation through the EDAC. According to the memorandum of discussion at the 119th NSC meeting on June 18, 1952, Jack Gorrie, Chairman of the National Security Resources Board, concurred in the recommendations of the report, but no further action was indicated. (Truman Library, Truman papers)
2. Not printed.