S/SNSC files, lot 63 D 351, NSC 5403 Series

No. 417
Statement of Policy Proposed by the National Security Council1

top secret
NSC 5403
[Page 774]

U.S. Policy Toward Finland

general considerations

1. Finland is a land buffer against invasion of the Scandinavian peninsula from the USSR; dominates the northern Baltic areas, and is on the direct air approaches to Northern USSR. As long as Finland remains neutral it makes an important contribution to the defense of Northern Europe by denying to the Soviets valuable positions for advanced air defense and early warning installations, and additional naval bases for operations in the Baltic. Finland’s freedom of action is drastically reduced by its proximity to Soviet power and by various post-war treaties. However, since World War II Finland has successfully maintained a delicate position between East and West. Particularly in view of Finland’s past record as an example of resistance to Soviet domination, it is important to the United States that Finland continue to maintain this position and avoid Communist subversion and further concessions to the USSR. In its policy toward Finland, the United States must avoid any steps which would threaten the delicate balance of Finnish-Soviet relations and call forth drastic Soviet measures inimical to Finnish independence.

2. Although the Communists are strong in Finland and control 22% of the Parliament seats, most Finns are intensely anti-Soviet and pro-Western. Since 1948 the Communists have had no place in the Government, and there is little likelihood of their taking over Finland by coup or through participation in the government. It is highly unlikely that the USSR would invade Finland as a cold war move, but it is possible that the USSR might use or be moved by some development such as West German rearmament to step up direct pressures on Finland for additional bases, radar sites, or other concessions. While the Finns would resist such pressures, they would probably eventually yield to such demands as did not seriously impair their independence.

3. In the event of general war it is estimated that Finland will attempt to remain neutral. She will not willingly give the USSR any military assistance, and will try to avoid giving permission for Soviet troops to move into Finland. The political temper of the Finnish people is such that a Soviet attack would almost certainly [Page 775] meet armed resistance. Such resistance could delay, though only briefly, Soviet invasion of the country. Subsequently, Soviet occupation forces would almost certainly be subjected to determined and intensive guerrilla warfare, in which the Finns excel.

4. For the present, U.S. concern centers on the extent of Finnish trade with the Soviet Bloc and Finland’s internal economic difficulties. About one-fifth of the Finnish national product goes into exports, which largely determine the level of domestic economic activity. Since 1951 the drop in world demand and particularly in the world market price for forest products, Finland’s principal export, has caused a marked decline in Finnish earnings from the West, although dollar earnings have remained fairly stable. This decline and the slight increase in Finnish-Soviet Bloc trade has increased the Soviet Bloc share of total Finnish exports from 20% in 1950 (which then included reparations deliveries) to 32% in 1953. The changes made in Finnish industry which permitted completion of reparations deliveries in 1952, account in part for this increase in Russo-Finnish trade. The Finnish-Soviet Trade Agreement signed November 25, 1953 indicates that the 1954 percentage is likely to fall slightly. Furthermore, the trade agreement signed with the British December 23, 1953 provides for an increase of Finnish exports to the UK. In general, the Finnish trade situation is a bit better than six months ago. The Finns are very alert to the dangers of increased Soviet trade and are seeking to retain their trade ties with the West. While economic pressures alone are unlikely to cause Finland to grant unacceptable concessions to the USSR over the next year, there is real cause for U.S. concern that a long-contained high proportion of Soviet bloc participation in Finland’s foreign trade might give the USSR far greater leverage on Finland.

5. Because of the decline in Finland’s exports to the West, unemployment this winter is expected to reach 70,000 which, although only 4% of the labor force, would be a post-war high for Finland. High-cost production is the primary cause for Finland’s inability to compete in Western markets. Over the past several years Finland’s major political parties have been unable to agree on any effective remedies, such as wage and cost reduction or currency devaluation, and it is uncertain whether the March 1954 elections will produce a Government able to take drastic measures.

6. Although Finland’s problems are not of crisis proportions and will probably be somewhat alleviated during the coming year, they are serious enough to warrant appropriate measures by the United States and other Western nations to assist Finland in increasing its trade with the West and in solving its underlying cost and efficiency problems. However, Finland’s fundamental economic problem, [Page 776] high costs, is not one for which dollars or foreign exchange is the cure.

7. Possible U.S. economic assistance to Finland must be considered in the light of the Battle Act. It would not be politically or economically feasible to seek cessation of Finnish deliveries of certain strategic goods to the Soviet Union, partly because of long-term trade agreement commitments running through 1955. Therefore, any economic assistance must be preceded by a finding that the Battle Act is inapplicable to the economic assistance in the particular form given or by a waiver of Battle Act requirements. Furthermore, it is unlikely that political considerations would permit the Finns to accept direct grant assistance.

objective

8. Continuance of an independent, economically healthy, and democratic Finland, basically oriented to the West (but with no attempt to incorporate Finland in a Western coalition), neither subject to undue reliance on Soviet Bloc trade nor vulnerable to Soviet economic pressures.

courses of action

9. Be prepared, at Finnish request, to make available limited economic assistance to Finland, if required to achieve the foregoing objective, including, if necessary, seeking a waiver of Battle Act requirements.

10. Continue to support Finnish requests to the International Bank for sound loans to meet investment and development requirements.

11. Support Finnish initiative, if it develops, to become a member of the European Payments Union, and if necessary, contribute towards an initial credit for Finland in the European Payments Union.

12. Seek to stimulate the import of Finnish products by the West, particularly the U.S., the United Kingdom and Western Germany.

13. In various administrative actions, including those involved in U.S. procurement programs, aid to other countries, and import regulations, take into account the desirability of facilitating Finnish exports and dollar earnings.

14. Encourage the Finnish Government to take the necessary internal measures to put the Finnish economy on a sound basis.

. . . . . . .

16. Although a careful case-by-case review should be made in order to minimize any contribution which U.S. exports to Finland [Page 777] might make to the Eastward flow of strategic items from Finland, continue to export available materials which are necessary to Finland’s economy.

. . . . . . .

18. Keep the situation with regard to Finland under careful scrutiny in an effort to anticipate any further Soviet moves which might jeopardize Finland’s independence.2

Financial Appendix

If it is determined that U.S. economic assistance to Finland is required, it is believed that the assistance involved would not exceed $20 million in the period through FY 1955. This figure is not based on any real calculation but is suggested merely to indicate the likely order of magnitude. Any such expenditure is not expected to require additional appropriations.

  1. Attached to the source text were a cover sheet and a memorandum by the Executive Secretary of the NSC, James S. Lay, Jr., which stated that the statement of policy had been prepared by the NSC Planning Board after study of proposals by the Foreign Operations Administration. The statement of policy was adopted by the NSC at its 181st meeting on Jan. 21 and approved by President Eisenhower on Jan. 25.

    Discussion of a separate NSC paper on Finland had begun in the fall of 1953 with the submission of a draft paper by the Foreign Operations Administration. (Undated paper transmitted to Secretary Dulles on Oct. 22; 860E.00/10–2253) Subsequent revisions by the Legation in Helsinki and offices in the Department of State produced a paper which was submitted to the NSC Planning Board for final drafting. Copies of the comments on the FOA draft are in file 860E.00 and EUR files, lot 59 D 233, “Subject I.”

  2. In the course of its discussion on Jan. 21 the NSC also adopted an Annex to NSC 5403 which detailed the various aspects of Finnish trade and contained five tables on economic and financial conditions in the country. A copy of this 18-page paper is in S/SNSC files, lot 63 D 351, NSC 5403 Series.