Foreign Relations of the United States, 1955–1957, Foreign Economic Policy; Foreign Information Program, Volume IX

29. Memorandum From the Deputy Assistant Secretary of State for Economic Affairs (Kalijarvi) to the Under Secretary of State (Hoover)¹

Washington, April 13, 1955.

SUBJECT

• Export of Agricultural Products to the Soviet Union

Problem

Your memorandum dated March 16² to Mr. Murphy requests a statement and recommendation respecting the Department’s policy with regard to the export of U.S. agricultural products to the Soviet bloc.

Discussion

This request presumably grows out of the Secretary’s query as to whether or not this is the time to deny U.S. agricultural commodities to the Soviet bloc since there is evidence of food and agricultural difficulties in those countries.

Present U.S. policies have been evolved over several years and have given consideration to the following elements: (a) security considerations inherent in our East-West trade policies; (b) the disposal of U.S. surplus commodities abroad under PL 480; (c) possible subsidized sales for cash or in barter transactions to unfriendly countries; (d) the immediate agricultural situation in the Soviet bloc and its prospective condition over a longer period of time; and (e) the advancement of U.S. foreign policy objectives through courses of action related to the agricultural situation in the Soviet bloc.

1. U.S. economic defense policies are set forth in NSC 152/3³ and in general permit commercial exports of nonstrategic goods, subject to appropriate licensing, to the Soviet bloc. Basically, there are no prohibitions against the export of U.S. agricultural commodities to the Soviet bloc under the NSC paper. Nevertheless, there are certain special provisions of law and policy covering and inhibiting the export of agricultural commodities to the bloc. These special provisions are set forth in Tab A.

Of course, trade with Communist China and North Korea is totally embargoed, and this prohibits among other things any trade in agricultural commodities with these two areas.

2. The CFEP is making an intensive survey and review of U.S. economic defense policies and programs for the NSC. This review is scheduled for completion on June 30. Meanwhile, existing policy as set forth in NSC 152/3 is being followed. It would be premature to anticipate any modifications in that policy at this time.

3. The review referred to in paragraph 2 above will cover trade in agricultural commodities between the free world and the Soviet bloc, and OIR is in the process of an assessment of the basic considerations involved. This assessment will be the basis of a determination of what our immediate and longer range policies should be with respect to trade in agricultural commodities with the Soviet bloc. Presumably this will go to the heart of the question of whether the U.S. should either further restrict or encourage the export of its agricultural commodities to the bloc.

Conclusion

The intensive review not being conducted by the CFEP is directly pertinent and responsive to the Secretary’s question, and is being conducted as expeditiously as possible. (The Intelligence study alone on which considerations must be based has been given high priority and will be ready about the middle of May.) Therefore, barring crisis situations and overriding developments, it would seem desirable to permit the study to move ahead as expeditiously as possible and meanwhile to withhold judgment on the desirability of a complete embargo on agricultural exports to the European Soviet bloc. The modest character of U.S. agricultural trade with the Soviet bloc as indicated by the figures in Tab A would seem to demonstrate that no serious damage could result from such course of action.

[Enclosure]

⁴

SPECIAL PROVISIONS RELATING TO THE EXPORT OF AGRICULTURAL COMMODITIES TO THE SOVIET BLOC

Total U.S. exports to the entire bloc in 1953 were valued at only $2 million, three-quarters of which consisted of tobacco products and wool rags. In 1954 total exports were valued at $6 million. Over $3 million of this comprised flood relief shipments of agricultural surpluses to East Germany, Hungary and Czechoslovakia, $0.5 million was in tobacco products, another $0.5 million in inedible tallow, and over $1 million in wool rags.

Exchanges of government-owned agricultural surpluses for strategic materials with the bloc in barter deals appear, at least for the present, to be ruled out by a Justice Department legal opinion of February 21, 1955.⁵ Sales for local currency under PL 480 cannot be made because of the provisions of that law.

Direct dollar sales of surpluses acquired from government-owned stocks by private traders, where the sales price is less than the government’s investment, have been disapproved on policy, not legal, grounds. This policy was fixed in January 1954 when the Cabinet decided not to permit licensing of butter exports to the Soviet bloc on the grounds (1) that the U.S. should not sell this commodity at a loss, and (2) that adverse public reaction would follow the sale of butter to the USSR at a price below that paid by American housewives.

In February 1954 the Cabinet further decided “as a matter of policy to deny commercial export license applications for the export for cash of U.S. Government-owned surplus agricultural or vegetable fibre products to Russia or her satellites.” At that time the Cabinet agreed that there would be no objection to bartering perishable agricultural surpluses to the bloc in exchange for strategic minerals. At the present time, however, barter exchanges appear to be precluded, in view of the Justice Department opinion of February 21, 1955.

This would leave only two theoretical possibilities for the export of agricultural products to the bloc. The first possibility is in the area of private transactions involving products acquired from commercial stocks. Such transactions have not been of interest to the bloc, as may be noted from the figures cited above.

The remaining possibility would be direct government-to-government sales for dollars. Such sales are legally permissible, but they have not been affirmatively declared to be desirable on policy grounds; and the NSC decided in April 1954 that, in the event of such transactions, there must be a clear advantage to the U.S. and no material injury to the trade of friendly countries.

1. Source: Department of State, E–CFEP Files: Lot 61 D 282A, Surplus Agricultural Commodities—CFEP 502. Secret. Drafted by John E. Mellor of the Economic Defense Division and sent through Deputy Under Secretary Murphy. Concurred in by the Bureau of European Affairs, the Offices of Eastern European Affairs and European Regional Affairs, and the Assistant Legal Advisor for Economic Affairs.
2. Not found in Department of State files.
3. “Economic Defense,” November 6, 1953, adopted at the 169th NSC meeting, November 5, 1953, in NSC Action No. 951, and approved by President Eisenhower, November 6, 1953. (Department of State, S/S–NSC Files: Lot 63 D 351)
4. Secret.
5. Memorandum from Rankin to Morgan, not printed. (Ibid., Central Files, 460.509/3–855)