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

Memorandum Prepared in the Economic Defense Advisory Committee for the NSC Planning Board¹

secret

Washington, March 9, 1954.

The Problem

1. The problem is to determine what position and tactics the United States should adopt in response to the United Kingdom’s proposal that the scope of multilateral East-West trade controls be drastically reduced. The British proposal would, in a single step, cut the international embargo list in half and abolish controls over virtually all items now subject to quantitative controls or to surveillance. This proposal (which embodies, to a large extent, Prime Minister Churchill’s own thinking) is in conflict with our economic defense policy in NSC 152/3.²

Principal Points at Issue

2. The U.S. and U.K. East-West trade policies are in agreement on a number of points. These include the concept that the controls must be tailored to a long period of tension short of war; that there is a need to expand international trade; that controls should be kept to a necessary minimum; that the support and cooperation of the trading community is essential for effective controls.

3. There are perhaps three critical points of difference which are creating the problem with which this paper deals.

a. Trade in relation to security: The UK. position is based upon the assumption, which as stated above we share, of a long period of tension short of war. On this assumption, the British place strongest emphasis upon the usefulness of international trade generally, and trade with the Soviet bloc in particular, as a means of providing for economic development and strengthening the economic base for the defense effort of the West. Accordingly the British position is that there must be overriding considerations of security speaking against the export of any specific item to the Soviet bloc to overcome the general presumption in its favor. This position appears to involve a considerably higher estimate of the quantity and the usefulness of the goods likely to be available for export to the West from the Soviet bloc than the U.S. would be prepared to accept. It involves also a belief that industrial materials and equipment, which in the British view should be allowed to move freely to the Soviet bloc, would make a smaller contribution to the Soviet bloc war potential than the U.S. would consider probable, and hence have a less important effect upon the balance of military strength between the Soviet bloc and the West than the U.S. would believe. While it is not possible to tell just how far the British position is one to which the Government felt forced by the pressure of private industrial and trading interests, it is clear that this position does in fact take full cognizance of such interests and is intended to accommodate them to the maximum possible extent. It is largely because of such differences as these, and particularly because of the great weight which the British attach to the usefulness of trade, that they make use of criteria for selecting commodities for trade control which are much narrower than ours.

b. Criteria for selecting items to be controlled: (This is the crucial point of sharpest difference.) As a result the U.K. would include only items of direct military and atomic energy importance and those industrial goods which incorporate advanced technology of military significance. The U.K. would exclude industrial equipment admittedly contributing to Soviet war potential if such equipment were not primarily designed for military production, presumably on the grounds that the Soviets can squeeze such goods out of the civilian economy. The U.K. would also exclude basic raw materials normally or predominantly used for civilian purposes.

The U.S. selection of commodities for control is governed by paragraph 19a of NSC 152/3 which reads, “to control selectively exports of commodities …³ which contribute significantly to the war potential of the Soviet Bloc.” The U.S., in addition to the type of items the British would control, includes, on a selective basis, industrial equipment and raw materials of war potential significance (whether or not applied also to civilian use) in which the Soviet bloc has a serious deficiency that it cannot overcome through its own resources within a period of short duration. In brief, the U.S. would control those items which (1) can be readily converted to production of military end-items, and (2) are essential to development or maintenance of military production.

The current comprehensive review of the strategic lists by the U.S. constitutes a careful review of each of the presently controlled commodities under the above principles. It attempts to examine the available facts and intelligence on the items, and this type of review is necessarily a more time-consuming process than would be a list revision by arbitrary deletion. The results of our review will be significantly reduced lists but not lists reduced to the magnitude of reductions proposed by the U.K. It is not yet possible to make an accurate prediction of the results of the U.S. review. However, it may not be unreasonable to assume from current work that the embargo list (International List I of 265 items) will be reduced 10–20 percent; the quantitative control list (List II of 91 items) will be reduced 20–30 percent, and the surveillance list (List III of 97 items) will be reduced by more than 50 percent. It may be anticipated that the U.S. would agree to further modification of the lists in the course of the item by item review to which the U.S. results would be subjected by COCOM.

c. The concept of a “Short List”: The U.S. London Embassy reports that the concept of “a short list for a long haul” operated as the most important criterion in U.K. review of items for control. The U.S. also believes in a short list of carefully selected items. But mere numbers are not a proper standard because the important thing is the area of actual or potential trade covered by a listing. Thus on the present embargo list of 265 items it would be possible to reduce the number of item listings by means of a consolidation. For example, we have 13 separate listings of highly specialized grinders carefully selected because of their high importance to military production which could be consolidated into one listing called “metal grinding machines”. A single listing covering all metal grinding machines, however, would cover a far greater area of trade than the 13 separate listings, and therefore would be non-selective.

Possible Courses of Action

4. First Alternative: We could accept the British proposal, negotiating only for the minor modifications still apparently possible within the narrow leeway which the Prime Minister has left to his subordinates. These minor modifications might comprise the restoration to the proposed embargo list of perhaps 15 to 25 of the most strategic items deleted by the British, the maintenance of quantitative controls over a very small number (perhaps half a dozen of “special case” items), and the preservation of a surveillance procedure over most of the other items now on the three International Lists.

5. Second Alternative: We could reject the British proposal and fight out the issues (appropriate criteria, quantitative control concept and list of items) bilaterally with the British and on a multilateral basis in CG/COCOM.

6. Third Alternative: We could, by negotiation, seek such substantial modification of the British proposal as would permit its acceptance within the terms of U.S. economic defense policy. Because of the personal role played by the Prime Minister in determining the present British position, the personal intervention of the President will probably be required to establish a basis for a useful resumption of negotiations within the framework of NSC 152/3. Our minimum requirement for modification of the British position would involve their agreement to criteria permitting inclusion within controls of certain basic industrial equipment and raw materials which have important war potential significance and in which the bloc is deficient.

Recommendations

7. The First Alternative should not be adopted because:

a. Even if modified to the full extent of the negotiating leeway believed to be possessed by the subordinate U.K. officials, the British proposal would leave uncontrolled many items which, on the basis of the U.S. list review so far, we believe would contribute significantly to Soviet war potential and should therefore be embargoed. We do not believe the offsetting advantages to the West in terms of increased trade are sufficient to justify the relaxation of controls over such items. Such trade in addition to many types of equipment capable of direct use by military forces would include many items of capital equipment and basic raw materials which are directly required for expansion of output and mass production of armanents and for specialized production of strategic types of machine tools, often bottleneck items, in military production.

b. It is believed likely that, rather than a significant increase in trade, decontrol of these items would result in a change in composition of Western exports, in many cases at the expense of other non-strategic goods now traded. There is a serious question also that the Soviets would step up exports of those categories of goods of greatest value to the Western countries. Over a period of time the resulting strengthening of the Soviet war potential relative to the free world might well require Western Europe to increase its level of defense expenditures and might ultimately require more U.S. military and financial aid to again restore a relative balance.

c. The British proposal, even if slightly modified, would still lead COCOM into a process of list revision either without reference to criteria for strategic listing or on the basis of criteria not acceptable to the U.S. Without agreed criteria, the formulation of the security lists would degenerate into a trading exercise dominated by the respective commercial interests of the individual nations. On the other hand, if COCOM employed the same criteria which the British say they used, there would remain uncontrolled wide commodity areas of serious security concern to us, particularly with respect to those items which have both important military and civilian use.

d. With decontrol of many items of evident importance in producing military equipment, there would arise serious Congressional and public dissatisfaction within the U.S. over the trade carried on by our allies. At the same time the U.S. would face major pressure from the business community to revise its own export controls to permit U.S. businessmen to trade in the same commodities with the bloc. These divergent reactions would make exceedingly difficult for the U.S. the pursuit of a sound program of economic defense.

e. Relaxation of controls of the nature and extent proposed by the U.K. with respect to Eastern Europe would stimulate a deterioration of current restrictions on trade with Communist China. In addition, the flow of capital goods and strategic materials to the European Soviet bloc will increase Soviet capabilities to contribute to Communist China’s economy and military establishment. The obvious danger of increased transshipment to Communist China aggravates U.S. concern over undue relaxation of strategic controls over trade with the rest of the bloc.

8. The Second Alternative should not be adopted because:

a. It would fail to preserve a satisfactory or workable export control program. The pressures on European governments for increased East-West trade and for curtailment of restrictions would lead the majority, and perhaps all, COCOM members to support the U.K. proposal and reject the U.S. position. The U.S. would then be faced with the choice of capitulating and participating in an emasculated control program or of attempting to maintain a unilateral and hence ineffective program.

b. An unsuccessful struggle against the British proposal, as well as its aftermath, would cost the U.S.—and Western security—dearly in terms of international goodwill and cooperation. Reaction to U.S. pressures in COCOM and to U.S. unilateral measures after the curtailment of multilateral controls would have a seriously divisive effect in our international relationships and programs beyond the field of economic defense, which divisions would surely be exploited by the Soviets. Substantial disparity between U.S. and international controls would embroil the U.S. in continuous problems under the sanctions provisions of the Battle Act. In addition, frustrating and explosive problems will arise as to whether to deny U.S. exports to friendly countries unwilling to give assurance against export of similar or related items to the Soviet bloc.

9. The Third Alternative—seeking substantial modification of the British proposal—should be adopted because:

a. A material modification of the British proposal is necessary to preserve a framework in which a reasonable adjustment of the control program can be achieved on a multilateral basis. Only such a modification will avoid a major and open clash with our leading ally in the Consultative Group. Permitting such a clash to develop over the revision of the lists in COCOM would prejudice satisfactory resolution of the other pending major issues in the multilateral control program.

b. In the light of the negotiating history of this problem, as well as the imminence of the CG meeting, only an immediate personal communication from the President to the Prime Minister appears likely to open the way to the desired result. In addition, our knowledge that certain Ministries in the U.K. Government are favorable to the U.S. position gives rise to some hope that this course of action will be successful.

10. The President should be requested to transmit a personal communication to Prime Minister Churchill along the lines suggested in the Outline of Principal Points to be Made in a Personal Communication from the President to the Prime Minister Concerning the U.K. Proposed Revision of East-West Trade Controls.⁴

1. The source text was attached to a copy of a memorandum by Lay to the NSC Planning Board indicating that the Planning Board would consider it at its meeting of Mar. 10.
2. For text as revised, see p. 1207.
3. Ellipsis in the source text.
4. A copy of the outline under reference was attached to the source text; the first of the two pages was crossed out and the word “superseded” written in the margin.