Foreign Relations of the United States, 1955–1957, Western European Security and Integration, Volume IV

190. Memorandum From the Director of the Office of European Regional Affairs (Timmons) to the Acting Assistant Secretary of State for European Affairs (Elbrick)¹

Washington, October 4, 1956.

SUBJECT

• Commerce Proposals for Export Controls on Ferrous Scrap

At the request of the Department of Commerce the CFEP will, at 4 p.m. today, consider a proposal introduced yesterday for export controls on ferrous scrap for the remainder of 1956 as a preliminary step to export controls on scrap in 1957.² Commerce’s proposals for export controls on scrap have been rejected three times in the past year or so by the CFEP.

For the remainder of 1956 Commerce proposes immediately to grant export licenses generally up to the stated or estimated requirements. It contends this action is necessary to prevent excessive exports in anticipation of controls. No information has been submitted by Commerce on the nature and extent of the proposed 1957 export controls. The main reason given by Commerce for this proposal is that increasing exports, together with a record level of domestic consumption, would seriously jeopardize U.S. industry in a national emergency.

Congress requested Commerce to make a study of U.S. scrap resources with a view to determining their adequacy for U.S. industry. This study will not be completed until early 1957. Until the results of that study are known, there is no basis for emergency action to restrict exports. The E area considers the Commerce proposal to be without merit for several reasons.

Insofar as Western Europe is concerned, these countries have taken measures to reduce their dependency on U.S. scrap and there is reason to believe that their imports from the U.S. next year will decline. This is in direct contradiction to the statement in the Commerce submission to the effect that the trend in friendly foreign countries is to increase their dependency on the U.S. for scrap. Supporting material on this has been made available to Mr. Bray in Mr. Prochnow’s office.

There is one new aspect to the Commerce proposal. As submitted this time, the proposal does not exclude Canada and Mexico from the proposed export controls. In the past, these two countries have been treated as if they were part of the U.S. insofar as scrap is concerned. If this policy were to be changed, this might have serious repercussions on our relations with Canada. Attached is a copy of our last memorandum on scrap export controls as these would affect Western Europe.

It is suggested that you call Mr. Prochnow, who will represent the Department at today’s meeting, to tell him of EUR’s concern at the Commerce proposal and to offer EUR support in opposing it.³

[Enclosure]

IMPACT OF PROPOSED FERROUS STEEL SCRAP LIMITATION ON WESTERN EUROPE⁴

Imports of scrap from the U.S. have been essential in permitting steel production in the United Kingdom and the European Coal and Steel Community to reach their present high level. They have also been an important factor in limiting price inflation in Europe and in building up essential stocks which were very low prior to the summer of 1954. High level steel production in these countries in the coming year will continue to depend heavily on the ability of these countries to import a large quantity of their total scrap needs from the U.S. The proposed Commerce Department limitation on scrap exports might seriously affect the economic viability of the Western European economy, in turn, adversely influencing the defense capabilities of these NATO countries. It could threaten, or reverse, economic trends in Western Europe towards greater productivity and strength. It has been estimated, for example, that Britain’s steel production for 1955 would have been reduced by about the volume of scrap imports from the U.S., (about 900,000 tons), if U.S. supplies had not been freely available.

In the case of the CSC countries, U.S. export controls on scrap would strengthen the hand of nationalistic groups in the Community and of those elements pressing for internal controls and restrictive arrangements on scrap. The High Authority is on record as hoping that the U.S. will not apply export controls. If, however, the U.S. for significant cause considers it is compelled to adopt export controls, the High Authority has asked that it be given at least three months advance notice to make plans for alleviating the adverse impact on the Community and Western Europe as a whole. Scrap export controls by the U.S. might constitute a setback for European integration and the development of a free competitive market.

In response to representations by the U.S., the United Kingdom and the European Coal and Steel Community have undertaken current and long range programs to reduce their dependence on U.S. scrap. Scrap imported from the U.S. is expensive for the Europeans and has significantly increased the cost burden for the European steel industry. It is expected that high prices on U.S. scrap will set [act?] as a strong deterrent on European imports from the U.S., somewhat reducing European imports for 1956, particularly in the second half of that year. The European steel industry is also expected to make less scrap as a result of current programs to reduce the proportion of scrap to pig iron in steel making. In the CSC, which took action substituting pig iron for scrap in 1955, it is estimated that 500,000 tons of scrap were saved last year as a result of this program. Western European countries are also attempting to increase domestic scrap availabilities. These measures to reduce dependence on imported scrap are, for the most part, long-term in nature. If, however, it is possible in the interim to continue the open end scrap policy in the U.S., the European countries now heavily dependent on U.S. imports will be enabled to keep up their production and productivity momentum, tiding them over until their long range domestic programs will have taken hold.⁵

1. Source: Department of State, RA Files: Lot 58 D 374, CSC—Scrap. Confidential. Drafted by Phillips.
2. The Commerce proposals, circulated to the Council on October 3 as CFEP 532/6, are in Eisenhower Library, CFEP Records.
3. A handwritten note on the source text indicates that Elbrick called Prochnow’s office and, in his absence, informed William H. Bray of EUR’s position on the scrap question.
4. Confidential. Drafted by Phillips.
5. At the CFEP meeting, held at 4 p.m. October 4, the Council concluded, with the Secretaries of Commerce and the Treasury dissenting, that the proposal of the Department of Commerce should not be approved. (Minutes of the 48th meeting of the CFEP; Eisenhower Library, CFEP Records)