7. Report by the Chairman of the Council on Foreign Economic Policy (Randall)1

[Here follows a table of contents.]

FOREWORD

Shortly after assuming my duties as Special Assistant to the President and Chairman of the Council on Foreign Economic Policy, I concluded that an essential step for broadening and deepening my understanding of foreign economic policy problems would be to discuss the subject with experienced top level United States officials at their posts abroad. These officials constitute a rich reservoir of knowledge and ideas drawn from field experience, which can best be tapped through on-the-spot discussions. I proposed at least two field trips, the first to selected European countries, and a second to countries in the Far East and Southeast Asia.

This proposal was discussed with the Secretary and Under Secretary of State and received their endorsement. They offered to provide the services of an experienced foreign service officer to assist with arrangements.

I chose as my associates, Mr. Forest D. Siefkin, Vice-President and General Counsel, International Harvester Company, who had been serving as my consultant; Lt. Colonel Paul H. Cullen, Secretary of the Council on Foreign Economic Policy; and Dr. C. Edward Galbreath, White House economist. Mr. Robert Barnes, Special Assistant to the Under Secretary of State, was selected by the Department [Page 23]of State to assist with arrangements and was asked to serve as a participating member of the team.

Clarence B. Randall2

[Here follow a description of the procedure which Randall and his associates followed on the trip, September 9–17, a list of possible topics which they wished to discuss, and a list of the posts and officials consulted. Randall and his group visited Ambassador to the Soviet Union Charles E. Bohlen, who was in Milan; NATO Headquarters; and the Paris, Bonn, London, and Geneva Embassies. In most cases, Randall and his associates met with the Ambassador and the top economic officers at the Embassy.]

SUMMARY OF VIEWS ON PRINCIPAL SUBJECTS

The purpose of this section is to summarize the principal points made by United States officials in Paris, Bonn, London, and Geneva in the papers they submitted and in the discussions we had with them. No attempt will be made here to draw conclusions about the merits of these ideas. The papers which were submitted are embodied in the next section of the report.3 It is suggested that these papers be read in their entirety in order to obtain full appreciation of the views of the authors.

The principal subjects to which officials addressed themselves are summarized under the following broad headings: (1) Objectives of Foreign Economic Policy; (2) Economic Integration of Europe; (3) Foreign Economic Assistance; (4) The Organization for Trade Cooperation (OTC); (5) East-West Trade. Other subjects covered in the discussions will be found in the attached paper.4

Objectives of Foreign Economic Policy

Those who addressed themselves to this question generally emphasized that foreign economic policy is a part of our overall foreign policy and, therefore, must be consistent with, and contribute to the attainment of, the objectives of the latter. All were in close agreement on the broad objective of the foreign economic policy of the United States within the overall foreign policy context. This may be stated as the creation and maintenance of conditions in which the American economy can function at a high and expanding level and thereby promote the prosperity and well-being of the [Page 24]American people. In achieving this objective, it was pointed out that the United States would contribute in an effective way to two other objectives, namely the prosperity of the free world and the strengthening of ties among the free world nations. It was further agreed that United States policy should assist and encourage the orderly economic evolution of the developing countries, not only as markets and sources of raw materials but for the desired effect on their attitudes and orientation toward the free world.

Economic Integration of Europe

The subject uppermost in the minds of many United States officials in Europe concerned the proposals which would link Western European countries closely together in an economic unit. Representatives of the six countries of the European Coal and Steel Community (ECSC)5 for many months have been considering the establishment of a customs union (or common market), and a committee is now drawing up a treaty for the customs union. (The customs union would have free trade among members and a common tariff against non-members.) Meanwhile, the United Kingdom has proposed the formation of a wider European free trade area which would include the proposed customs union of the six countries of the ECSC. Under this proposal, the participating countries would gradually remove all tariffs on their mutual trade but each country which was not a member of the customs union would maintain its own tariff against the outside world. It is expected that a concrete program along this line will be submitted to the OEEC about January 1957 for consideration and formal action.

Most United States officials with whom this subject was discussed believe the advantages to the United States of European integration through a customs union plus a free trade area (the United Kingdom proposal) far outweigh any possible disadvantages both on economic and political grounds. Only three officials expressed skepticism.

On the political side, it was the general view that ties among the Western European countries would be greatly strengthened through close integration of their economies. This could contribute significantly to NATO and to other United States objectives.

On the economic side, it is their conclusion that economic integration would lead to the development of strong, modern economies [Page 25]with higher productivity and consumption levels, and that this in turn would result in Europe’s becoming a better market for United States exports.

It was recognized that economic integration would result in tariff discrimination against United States exports, since reducing tariffs among the countries comprising the integrated area would take place without extending the same concessions to others. This discrimination, it was generally thought, would not have net adverse effects upon United States trade, especially since it would take place only gradually over a period of at least ten years as internal trade barriers are removed. It was argued that the United States would be far more likely to obtain a liberal trade policy (including a dismantling of dollar restrictions) from a strong, unified European economy than from the smaller, less efficient economies as they now exist. It was believed that the low-tariff countries—and these are the leading advocates of integration—and the United Kingdom would participate in economic integration only on condition that liberal trade policies toward non-participants were adopted. Furthermore, it was generally agreed that if the purpose of economic integration was achieved—higher productivity and rising standards of living—Europe would become a better market for United States products.

The consensus was that the United States should continue to support European economic integration but use our influence to guide the development along lines that seem desirable to us.

Foreign Economic Assistance

There was considerable agreement that continuance of economic aid to the developing countries would further the economic and political interests of the United States. Of importance, it was believed, is the need to raise the hopes of the peoples of the developing countries for a rising standard of living. The achievement of this objective would promote stable governments and check the trend to statism.

It was generally agreed that economic assistance should take the form of technical aid plus financial assistance for the development of basic facilities such as roads and transportation, ports, and possibly power—facilities that are basic to the development of an economy but which are not likely to be provided through private investment. While it was agreed that efforts should be continued to develop climates attractive to private investment, many were of the opinion that government-to-government aid was also needed to meet immediately urgent problems.

Many United States officials interviewed now lean to the belief that the United States should use to a greater extent multilateral [Page 26]channels or mechanisms for the rendering of economic assistance. Two reasons seem to lie behind this opinion: first, the political reason that unilateral aid is often regarded as “aid with strings attached,” and therefore is resented; and the second, that the multilateral mechanism would facilitate contributions from other industrialized countries and therefore reduce the requirements for aid from the United States. There was no agreement on the extent to which the multilateral mechanism should be used, but all believed that unilateral assistance programs must be continued.

On the matter of loans versus grants, there was an expressed preference for loans. It was pointed out, however, that the problem should be examined on case-by-case basis as it would be undesirable to create indebtedness beyond the capability of countries to repay. The conclusion was that our foreign assistance policy should promote moral responsibility for meeting international financial obligations.

The Organization for Trade Cooperation (OTC)

Two principal questions on this subject were put to our officials: (1) What has been the reaction in Europe to the failure of Congress to approve membership in the OTC? and (2) Do you believe the OTC should be recommended by the President as “must legislation” to the next Congress?

Most officials reported that they had heard little or nothing in Europe about the OTC during the last several months. They were quick to say this does not necessarily mean that European countries, except France, were any less interested in the OTC than previously. Several expressed the opinion that other problems for the time being were overshadowing OTC in Europe particularly the problem of economic integration. Furthermore, it was pointed out that as yet the United States had not rejected the OTC.

Opinion was generally in favor of continued efforts for United States membership in the OTC. There were differences, however, in the degree of importance which these officials attach to the OTC.

Three arguments lay behind the opinions of those who feel that the OTC is urgent. First, they say OTC is needed to obtain for United States trade the full benefit of the General Agreement on Tariffs and Trade (GATT). Second, they believe that the OTC and GATT together are necessary to strengthen the position of the International Monetary Fund, which is regarded generally by Europeans as a “do nothing” institution. Third, they point out that the OTC, an organization outside the political arena, would offer an excellent opportunity to develop cohesiveness among a large group [Page 27]of free world countries, representing various cultures and all stages of economic development.

There was considerable discussion of the means by which multilateral channels might usefully be employed. On the institutional side, it was the consensus that NATO was not an appropriate international mechanism because of the military character of that organization, which would taint aid with military objectives. As to OEEC, it was pointed out that this organization was generally regarded as the “white man’s club” and would not be looked upon with enthusiasm by the developing countries. The UN mechanism was not generally favored, although there was some support for a small UN fund for economic development, provided this could be used for the political objective of putting the Soviets on the spot.

New regional groupings of countries, possibly along the lines of the Colombo Plan,6 seemed to be the preferred method. Such groupings would contain both aid-rendering and aid-recipient countries. On the aid-rendering side, it was recommended that when the issue of colonialism is important there be included countries which have no history of colonialism.

There also was some leaning to a multilateral mechanism which would be limited to a review of needs for economic assistance but would have no aid funds or control over assistance allocations. It was generally agreed that economic assistance programs ought to be based on a long-range view. More stress would be placed on education and technical training and the provision of basic economic facilities.

On the question of the extent to which Western Europe could contribute economic assistance to the developing countries, the opinion was generally expressed that a number of countries were in a position to contribute significantly with both technical personnel and funds. It was particularly emphasized that European countries had a reservoir of highly trained technical personnel who could be recruited to go to the developing countries, thereby relieving the United States of this difficult recruitment problem at home. Western Germany is anxious to assist with the economic development of the new and developing countries and can supply both personnel and funds. France has been supporting a significant development program in Northern Africa during recent years. One reason given for support of multilateral aid programs was the belief that use of such programs would maximize contributions of these and other countries.

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East-West Trade

It was generally agreed that one of the most important foreign economic policy problems facing the United States at this time concerns the so-called “China differential.” This differential consists of some 450 items (or parts of items) which are subject to international embargo to Communist China but are not embargoed to the European Soviet Bloc.

The United Kingdom and other members of the Paris Consultative Group (CG)7 have been pressing for over a year for a CG meeting to consider reduction or elimination of the China differential. They contend that the China differential serves no significant strategic purpose because Communist China can obtain all the differential list items through transshipment by the USSR and satellites. The United States has forestalled multilateral action on the China differential by not consenting to calling a CG meeting. In the meantime, other member governments of the CG have been increasing their use of the exceptions procedures for licensing exports.

The officials with whom this matter was discussed were unanimous in their opinion that the United States should agree to a CG meeting by the end of the year to consider the China differential. They believe that the U.S. will have to approve a sizable reduction in the differential if multilateral controls are to be preserved. They also believe that if the U.S. will go along with a reduction of most of the differential, it will be possible to get a few important strategic items, such as boron, added to the COCOM control list. They also think it is unlikely that any member of the China Committee (CHINCOM) will agree to continuing any item on the China differential on which exceptions have been made.

The greatest friction between the U.S. and CG members concerns the strategic evaluation of the items on the lists. A prime example is tractors which the United States claims are strategic because they can be used to build airfields, while other CG members contend they are not strategic because they are intended for agricultural use.

It was the opinion of the United States negotiators in Geneva that the China differential could not be used to bargain with the Chinese Communists to obtain our objectives in the current negotiations, because the Chinese Communists must know that present controls are largely ineffective.

  1. Source: Eisenhower Library, Harlow Records. Secret. The actual title is “Report on Foreign Economic Policy Discussions Between United States Officials in Europe and Clarence B. Randall and Associates, September 1956.”
  2. Printed from a copy which bears this typed signature.
  3. Not printed. Papers submitted by each respondent are in Eisenhower Library, Harlow Records.
  4. No attached paper was found.
  5. The European Coal and Steel Community was established by representatives of Germany, France, Italy, Holland, Belgium, and Luxembourg in April 1951 and became operative August 10, 1952. Participating members removed all trade barriers on coal and steel exports to each other and placed their coal and steel industries under Community control.
  6. The Colombo Plan for Cooperative Economic Development in Southeast Asia, established by the United Kingdom in 1950, included Ceylon, India, Pakistan, and the British territories of Malaya and Borneo. The program envisaged an investment of approximately $5.2 billion in the public sectors of the participating nations and territories for the period from July 1, 1951 to June 30, 1957.
  7. The CG consists of 16 countries participating in a multilateral agreement to control exports to the Soviet Bloc and Communist China. The CG has two committees known as the Coordinating Committee (COCOM) and the China Committee (CHINCOM). COCOM deals with the controls against the Soviet Bloc, and CHINCOM the controls against Communist China. [Footnote in the source text.]