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

460.509/11–1053

The Chief of the Operations Mission in the United Kingdom (Gordon) to the Department of State¹

secret
No. 1714

London, November 10, 1953.

• Ref: Embassy Telegram 1996, November 7, rptd Paris Topol 48, pouched other addressee missions as shown and other communications cited.²

• Subject:
• U.S.–U.K. Pre-CG Bilaterals—1st Session (November 3–6, 1953³)

Excon. This despatch contains an overall review of the above-noted bilateral talks and supplements the following previous reports (the subject of trawlers will be dealt with in connection with the separate U.S.–U.K. shipping discussions which began November 9).⁴

A. Embtel 1964, Nov. 5, rptd Paris Topol 45—Preliminary report.

B. Emb desp 1678, Nov. 5, copies pouched missions below—Texts of papers used.

C. Embtel 1963, Nov. 5, rptd Paris Topol 44—China Controls (UK)

D. Embtel 1972, Nov. 6, rptd Paris Topol 46—CHINCOM Chairman.

E. Embdesp 1683, Nov. 6, copy Paris (USRO)—Transactions controls.

F. Embtel 1996, Nov. 7, rptd Paris Topol 48—Summary Nov. 6 meeting.

G. Embtel 2001, Nov. 7, rptd Paris Topol unn—TV transmitter case.

H. Embdesp 1696, Nov. 9, copy Paris (USRO)—China Controls (US)

I. Embtel 2007, Nov. 9, rptd Paris Topol unn—Anti-biotics

J. Embtel 2006, Nov. 9, rptd Paris Topol unn—“Impact” information

A. U.S. Presentation (see ref. B)

1. The U.S. presented its position to the U.K. in the form of an opening statement by the head of the U.S. delegation (ref. A—enclosure 1). This statement began by reviewing developments which led to a re-appraisal by the U.S. of economic defense policies in the light of other new policy developments, new Soviet trading tactics, the generally improved economic situation in Western Europe and certain changes in the relative economic conditions and problems of Western Europe and the Soviet Bloc—particularly the shift from a sellers’ market to a buyers’ market resulting in more internal pressure for sales to the Soviet Bloc.

2. The U.S. statement recognized that the U.S. approach to East-West trade and the approach of other countries in COCOM have appeared to be increasingly divergent in the appraisal of the kind or intensity of action called for by the current situation.

3. The U.S. then reviewed in general terms the results of its reassessment of the situation as it is now reflected in U.S. policy. The major points were:

(a) The West is faced with a long period of tension short of war but always with a serious risk of war, and regardless of conciliatory gestures made by the East, the motives of the East must be viewed with suspicion and skepticism.

(b) During this long period of tension, trade between the free world and the Soviet Bloc should not be discouraged but must continue to be subject to selective strategic controls designed to create a clear advantage to the West. We recognize the potential political advantage of the maintenance of contacts between East and West, particularly in the satellites. Our attitudes and programs must be such as to keep open paths leading to a sounder basis for peace and not increase the possibility of war.

(c) Although the Western European economic situation has improved, there continue to be economic, financial and political problems bearing on the economic defense program and these must be taken into account.

(d) It appears that the USSR is changing its tactics in its economic relations to the West and trade is playing an increasing role in Soviet strategy.

(e) The economic defense program is an integral part of the total mutual security effort of the free world.

(f) We must be aware of a danger of excessive dependence of the West on Soviet markets and sources of supply since this dependence enables the Soviets to demand the inclusion of strategic commodities as a consideration to the continuance of purchases of non-strategic commodities or the supply of essential goods. This dependence might also permit the Soviets to influence the political policies or disrupt the economies of the free world countries.

4. In specific terms of the security export control program our broad conclusion is that while the basic concept and general objectives of the program have not changed, modifications in emphasis and direction are called for as follows:

(a) The main shift in emphasis should be away from pre-occupation with commodity listings to the development and enforcement of more effective controls.

(b) The second principal shift in emphasis should be the consideration of all aspects (political, economic, etc.) of the problem involved in the shipment of strategic goods rather than the concentration, as heretofore, on the strategic importance of the shipments, and the evaluation of the quid pro quo.

(c) Full multilateral consideration should be given to problems such as shifts in Soviet trade tactics which affect the movement of strategic goods to the Soviet Bloc.

5. As far as the unilateral policies of the United States are concerned, the review is likely to result in the following:

(a) The principal change will probably be a tightening in the criteria used by the United States in determining commodities for control.

(b) It is probable that the United States will introduce few new items for international control, will bring less pressure on other countries to bring the international listings to the level of current U.S. lists, and will display a greater willingness to consider proposals for reclassification of items when such proposals are adequately supported. However, the U.S. does not envisage at this time a wholesale down-grading program. Although we are engaged in a review of list items we do not intend to undertake an immediate review of the entire list in order to delete therefrom as many items as possible. The U.S. does intend, however, to review some essential categories for the purpose of bringing these listings up to date.

6. The following specific proposals concerning COCOM terms of reference were made by the U.S. for submission to the CG. (“Basic Considerations” paper and amplifications—ref. B, enclosures 2, 3, 4):

(a) The Consultative Group should reaffirm its basic objectives and general policy.

(b) In considering proposals for the shipment of strategic goods to the Soviet Bloc by any country, COCOM should discuss more fully than has been the practice in the past the social, economic and political reasons underlying the proposals. COCOM should also explore possible alternatives to the proposed export.

(c) The above broadening of discussions would be expected to make COCOM discussions more realistic and would enable the identification of the basic problem in such a way as possibly to point toward solutions other than shipment of strategic goods.

(d) The CG/COCOM should also encourage exchanges of views concerning trends and shifts in Soviet Bloc trade tactics which affect the movement of strategic goods or lead to a dangerous reliance on Soviet sources and markets. In this connection, the U.S. does not suggest a duplication of the NATO Working Group on Soviet Trends but believes that NATO—as well as the CG—should expand its discussions and that the problem posed by differences of membership should not be a bar to fruitful discussions in both forums.

7. The U.S. made the following proposals in the enforcement field:

(a) The immediate establishment of transaction controls (ref. E) and the adoption of the TAC scheme.

(b) More effective dealing with diversions and other leakages. This enforcement matter is an operating problem of how best to identify, intercept and prevent diversionary shipments and to agree on specific ground rules to deal with complex cases. The basic principles in the development of such a system should be as follows: (See points A–I, attach. 4 to ref. B)

1. The responsibility for preventing diversions of shipments is a cooperative one shared by all PCs.

2. Primary responsibility for the control of the final destination of strategic goods rests with the exporting country, irrespective of the residence of the owner of these goods. Participating countries should see that, as far as possible, these controls are not frustrated by diversions in their countries.

3. There should be a full use of information and enforcement services and other means for the detection and subsequent investigation of the illegal shipments.

4. Whenever a diverted shipment is identified, each participating country has the responsibility of notifying the country of origin immediately and of taking prompt action to gain effective control of the shipment.

5. If the participating country stopping the shipment does not have the proper facilities for maintaining effective control, the shipment should be returned to the country of origin immediately.

6. Failure to agree on the responsibility for the diversion or for costs arising out of the demurrage or shipping charges or other administrative details are not sufficient reasons for delaying return of the shipment promptly to the control of the country of origin or failing to maintain effective control by the country of transit as long as necessary.

7. In case of disagreements as to the responsibility for the diversion or for costs arising from it, COCOM should be empowered to offer advisory opinions to participating countries as to where the responsibility would seem to lie and how demurrage and shipping charges should be shared in individual cases.

8. The Secretariat of the Coordinating Committee should be enlarged and should be empowered to assist the efforts of individual countries by coordinating action in diversion cases either upon the request of the participating countries involved or,—when the diversion is uncovered in a non-PC (e.g. Austria)—at the suggestion of the PC which first becomes aware of the diversion provided that the participating countries concerned concur.

9. Exchanges between PCs of technical experts responsible for enforcement activities should be encouraged.

B. U.K. Preliminary Views

1. The U.K. response to the initial U.S. presentation made the following points (ref. A):

(a) The U.K. saw a continued need for a strategic export control program and felt that periodic exchanges of views on the matter of controls were desirable. However, from the U.K. point of view, this exchange was somewhat premature since the U.K. was engaged in its own overall review of economic defense policies. Until such review was complete, the U.K. would be unprepared to give positive and immediate support to any specific proposals of the United States. However, the U.S. proposals would be considered in conjunction with the determination of U.K. policies, which would be hastened as much as feasible.

(b) The preliminary views of the U.K. are that the present control system, which was basically devised in 1949 through 1951 at a time when war was considered more imminent than it is today, is too cumbersome for the period which both the U.S. and the U.K. consider will be one of “tension short of war” for an indefinite time. The long listings and rigid procedures result in international and domestic friction and the U.K. feels that a substantially curtailed list which would be very tightly controlled, perhaps with no exceptions whatever, would be better suited for the future. Such control would be politically defensible, easier to maintain, and would permit a real expansion in legitimate trade. Political and commercial considerations make it necessary to attempt a rather marked departure from present programs rather than a gradual transition. For such purposes it would obviously be necessary to undertake a large scale review of present commodity listings. The U.K. recognized that this was not the present intention of the United States, and that the U.S. approach was more gradual.

(c) The U.K. feels that, despite general statements to the contrary, the actual approach of the U.S. on non-strategic East-West trade is different from that of its partners in COCOM—the one being negative, the other positive. While the U.K. recognizes that some countries might face a danger of too much reliance on the Soviets and might be susceptible to Soviet pressures, they do not feel that these dangers are very real at the present time.

(d) The U.K. does not feel that the recent changes in trading patterns and tactics by the Russians are to be viewed primarily as a tactic in the Cold War, but are rather inclined to view them as primarily reflecting a Soviet desire for trade motivated by internal economic and political factors.

(e) With respect to the U.S. views on the more flexible attitude toward exceptions, the U.K. requested the U.S. views on this matter be developed in more detail and stressed the importance they attach to the U.S. understanding the U.K.’s inability to provide in every case a specific quid pro quo justification in the absence of trade agreements or other strict trade-barter deals. The U.K. also stressed the importance of speedy and effective action on exceptions cases and pointed out that the case of the television transmitter is still unsettled after almost a year of discussions (see ref. G).

(f) On the general problem of the expanded scope of discussions, the U.K. felt that consideration of all essential reasons for a shipment was desirable but considered this was already permitted. The U.K. felt that there was a danger that broadening discussion too far beyond present limits would tend to get COCOM into subjects well beyond its competence.

(g) Regarding the U.S. desire to expand enforcement activities, the U.K. recognized enforcement was a serious problem and needed considerable attention. Their tentative view was that the establishment of new COCOM Secretariat machinery was probably undesirable.

C. Enforcement

Considerable time on Nov. 5 and 6 was devoted to a review of a) the magnitude of the diversion problem, b) types of diversions (specific cases), c) evidence of lack of coordinating among PCs, and d) examples of action by the U.S. unilaterally to prevent or halt diversions.

There was no disagreement by the U.K. representatives that the problem was of serious magnitude and that effective action should be taken. They stressed that as far as U.K. controls were concerned, transshipment controls were adequate, and they felt our study should be addressed principally to the question of the controls of other countries.

The U.K. representatives exhibited a keen interest in U.S. organization for collection, dissemination and coordination of diversion information and action both in the U.S. and abroad. This was described in general terms. On the working level they recognized the complexity of diversion cases and the necessity for exchange of information on a continuing basis in order that each PC might have all the necessary data on which to take action.

In the working party points 1, 2 and 3 of the 9-point outline (see para. A5[7]b, 1–9⁵) were fully agreed and supported by the U.K.

With regard to point 4 it was suggested that the word “prompt” be changed to “the best possible action”. The U.S. representatives agreed to this change.

Points 5, 6 and 7 caused the most difficulty in the opinion of the U.K. representatives. They pointed out that 5, 6 and 7 did not properly apply in a case of a country such as the U.K. where physical transshipment control was operative nor would they apply under the TAC scheme. For goods which enter the customs zone of the U.K. in any manner which requires a license for re-export or transshipment, no problems of demurrage, or the necessity to return the shipment to the country of original jurisdiction arises. The goods are simply not allowed to move for lack of a license, and U.K. authorities have no responsibility or interest in the disposal of the items as long as they do not leave the country in an unauthorized manner. Thus, no requirement would exist for any special arrangement as proposed in 5, 6 or 7.

On the other hand, on the basis of the U.S. exposition of the situation in other PCs where physical transshipment controls were not in operation, the U.K. representatives agreed that the problem required some special procedure. They seriously questioned whether other PCs would agree to point 5 in its present form—but even more important, felt that adoption of the procedure in 5, 6 and 7 might be seized upon by other countries as a substitute for TAC which is in their view indispensable to adequate control of transit trade.

Accordingly, the technical representatives suggested that, in effect, 5 be revised to cover the TAC scheme by some such statement as: “PCs should use transit control powers to stop unauthorized diversions”. They realized this was an obvious and over simplified statement, but actually covered the major area.

There was some discussion of the best manner of providing an interim procedure to deal with diversion problems pending adoption of the TAC scheme in order to meet the problem of inadequate legal basis of action on diversion cases.…

The U.K. representatives undertook to examine this problem further and to develop proposals to deal with these problems.

The U.K. working party representatives showed an acute awareness of the irony of the situation in which it was generally agreed that TAC was a considerable part of the answer to the diversion problem but the U.K. at the moment was almost solely responsible for the lack of general adoption of that scheme. It is expected that additional internal pressure to get transaction controls adopted in the U.K. will result from these discussions.

With regard to point 9 there is little question that the U.K. officials on the working level strongly support this proposal and will endeavor to achieve agreement on this point: U.K. officials pointed out that wherever contacts of a formal or informal nature are established there is a marked increase of coordination and easing of difficulties in operating the system.

D. Soviet Tactics and COCOM Terms of Reference

1. In a small working level session on November 5, the U.K. representatives outlined their appraisal of recent Soviet trade trends and tactics, and responded to U.S. questions. The U.K. made the following comments:

(a) The U.K. agrees with the U.S. that potentially the Soviets can readily use trade for political purposes. However, although the danger clearly is there, the U.K. feels the Russians have made surprisingly little use of this power. As an example, they cited the Russian failure, after the Moscow Economic Conference, to make good on promises of large textile orders at a time when the British textile industry was seriously depressed. (The U.S. representatives pointed out that the Russians did place such orders in France and Italy, where, unlike the U.K., elections were imminent.)

(b) The Russians are now shopping for a wider range of goods, but, at least so far as the U.K. is concerned, the Russians are pressing for no greater proportion of strategic goods than before, and it is roughly the same strategic goods which they are seeking (there is an obvious Russian interest in List II items, particularly ships, lead and electrical machinery). However, they are now much better acquainted with strategic trade controls and are definitely doing more linking—that is, they are relating more directly the receipt of strategic goods along with the non-strategic.

(c) There are two new developments which the U.K. believes noteworthy in this trade situation. The first is that although the Soviets are still asking for the same strategic goods, the Western European (including British) exporters are now, because of market conditions, far more interested in acceding to such requests, and the U.K. Government is feeling greatly increased pressure from its own exporters. The second development is the increase in visits by trade delegations. The U.K. concedes that these visits are frequently inspired from Moscow, but feels that a considerable impetus from Western Europe also lies behind them. (Further note was taken of the establishment in Western Europe of organizations such as Cofraci, for the promotion in handling of Soviet trade.)

(d) The U.K. representatives posed the following questions: Are the Soviets presently motivated by internal pressures? Are the Soviets still working toward an autarchic economy? The U.K. felt that the answers to both questions is “Yes”. In relation to the first question, the Soviets have to make good to some extent on the promises recently made to the peoples in the satellites and in the USSR. But rather than importing large amounts of consumer goods, the U.K. expects the Soviets to import machinery and raw materials to make consumer goods, and to give more emphasis to agriculture in the satellites.

(e) In relation to the second question; the U.K. agreed that East-West trade would never solve any of the West’s major economic problems and that there was not really a large potential for trade with the Soviet Bloc. The U.K. spokesman pointed out, however, that certain raw materials from Soviet sources are still vital to the U.K. and Western Europe.

(f) The U.K. emphasized its intention of keeping a firm control over imports from the Bloc in order to maintain U.K. bargaining power. However, as a general matter, in the field of raw materials which the U.K. must continue to import, U.K. policy is to let the Soviets compete in world markets.

(g) In response to specific questions, the U.K. spokesman said the only difference in trade tactics between the USSR and the satellites is one of strength, the USSR being in a much stronger position. Regarding Soviet oil, the U.K. thinks the Bloc’s long-term needs will sop up its supply, but in the short run they will continue to have surpluses to dispose of.

There was some discussion of the desirability of exchanging information among the Western countries on Soviet trade trends and tactics and of the manner of accomplishing this objective, with the U.S. putting forward its suggestions for some secretariat functions in this connection. The U.K. was less certain than the U.S. on the advantages to be gained from the exchange of information but approved to concede the desirability of at least limited discussion of such matters in COCOM. The U.K. was inclined to oppose any COCOM secretariat assignment in this connection, but agreed to consider the U.S. suggestions and to make a further response when the plenary talks are resumed on or about November 19.

E. Other Matters

During the course of general discussions both the U.K. and the U.S. had occasion to refer to important subjects which, although they were outside the scope of the pre-CG talks, had some relation to the general discussion. Although these matters have been reported separately by reference cables, brief summaries are provided below:

1. Anti-biotics (see ref. I). Several weeks ago the U.K. approached the U.S. in Washington stating that for political reasons it would be necessary for them to decontrol anti-biotics in the immediate future. After extended inter-agency discussions the U.S. decided not to oppose the eventual decontrol at the end of the year at which time current quotas would run out. It was felt necessary not to agree to decontrol prior to that date. Such views were repeated during the bilateral talks in London. The U.K. reiterated its view for immediate decontrol. After hearing further U.S. argument, the U.K. took the matter under consideration. It is anticipated that the U.K. will notify the U.S. before it takes further definitive action.

2. China List Review (see ref. C). The U.K. indicated that they desired an early review of the Special China List. The purpose of such a review would be to determine, in advance of a Far East settlement, what controls should be retained after such settlement to fit the special case of China so as to prevent a sudden and wholesale scrapping of the present controls. The U.S. took a strong line against review at this time arguing that the nature of future controls might depend on the nature of the settlement achieved, if any, and an estimate of future Chinese intentions. A premature review of controls might set a pattern for the future which would be inappropriate in the actual circumstances. Further, the fact of such review might become known to the Chinese. It was agreed to discuss this matter further at the Trilateral Pre-CG talks.

3. Chairmanship of CHINCOM (see ref. D). The U.S. and the U.K. agreed that Mr. Charpentier should ask the Belgium Government for an extension of Mr. Vaes’ assignment for a further period. The preference was for an indefinite extension, but it was concluded that a three month interim extension would be more feasible in order to avoid complicating this matter with consideration as to the Committee’s future.

4. The Impact of Controls (see ref. J). As a result of a statement by the U.S. that the control program had affected the Soviet Bloc war potential in certain areas, the U.K. requested elaboration of U.S. views on the effect of past control measures on the Soviet Bloc and particular areas which we now felt were susceptible to further pressure of the control program.

5. Trivial Exceptions. The U.K. stressed the significance which it attached to prompt resolution of the existing differences on trivial exceptions (minimum shipments). The U.S. indicated its willingness to have further technical discussions on this subject which, accordingly, was scheduled for November 10.

F. U.K. Views at Final Meeting (see ref. F)

At the final meeting on November 6, the U.K. suggested that the bilateral discussions be resumed on November 19 at which time they hoped to have more definite positions.⁶ With respect to the specific points raised in the discussions, the following U.K. preliminary views were expressed:

1. Lists—The U.K. noted that the U.S. was engaged in a program involving the tightening of criteria through the determination of new attributes and standards, but that the U.S. did not envisage a wholesale review at this time. The U.K. still felt tentatively that there was a real need for a curtailed embargo list with a possible elimination of the List II concept.

2. Soviet Trade Tactics—The U.K. again expressed its initial opposition to giving COCOM too broad a mandate for such discussions. They felt ordinary exceptions cases would develop the necessary information on this subject without periodic debates by COCOM. However, they would consider whether further exchange of information is possible and desirable and would also consider the best method of doing this.

3. Exceptions—The U.K. would attempt to draft a statement on considerations to be weighed in exceptions cases. This statement might form the basis for a joint proposal to the CG.

4. Diversions—The U.K. agreed that this is a problem which cannot be ignored, but felt rather strongly that the solution to the problem did not lie in the establishment of a new section in the COCOM Secretariat. They would consider this problem and try to come up with a solution which would permit more prompt and more effective exchange of information.

5. Transactions Controls (see ref. E)—The U.K. noted the U.S. statement calling for U.K. adoption of transactions controls. They indicated that the matter would be considered by ministers and that the ministers would be made aware of the U.S. views.

6. China Controls (see ref. H)—The U.K. noted the strong U.S. objections to their suggestion that an early review of the China List be undertaken.

7. Other Subjects—The disposition of other problems raised in the course of discussions is shown in the immediately preceding section.

Lincoln Gordon

1. Gordon was Minister for Economic Affairs of the Embassy in London.
2. Not printed; it reported that the British positions at the bilateral meetings were not final, and summarized the tentative views of the British negotiators on several of the questions discussed below. (461.419/11–753)
3. The U.S. Delegation consisted of Lincoln Gordon and Frank D. Taylor of the Embassy in London, Goodkind and Camp of the Department of State, J. M. George of the Department of Commerce, Kenneth R. Hansen of the Foreign Operations Administration, Col. C. M. Moffatt of the Department of Defense, and Sidney B. Jacques, the U.S. Delegate to COCOM.
4. For reference C, see volume xiv; regarding reference F, see footnote 1 above; the remainder, none printed, all deal with various aspects of East-West trade controls, as described in the despatch.
5. Presumably a reference to Part A, paragraph 7b of this despatch.
6. For an account of the second session of the U.S.-British talks, which actually opened on Nov. 20, see telegram 2206 from London, Nov. 21, p. 1061.