Foreign Relations of the United States, 1955–1957, Foreign Aid and Economic Defense Policy, Volume X

126. Memorandum From the Steering Committee of the Council on Foreign Economic Policy to the Chairman of the Council (Randall)¹

CFEP 501/11

Washington, July 13, 1956.

SUBJECT

• Review of Economic Defense Policy

In response to the request of the Chairman of the CFEP for a report on the proposed policy revision of NSC 152/3 submitted to the CFEP on July 8, 1955 (CFEP 501), the Steering Committee has reviewed the problem and submits the following report.

1. The proposed policy revision of July 8, 1955 was not finalized because of the possible bearing of the then forthcoming Geneva Four Power Foreign Ministers’ meeting upon the policy paper. The Steering Group was, however, continued on a standby basis and was utilized for the purpose of developing position papers for the East-West trade aspect of the Geneva meeting and for developing recommendations with respect to the China trade control question. The proposed policy revision of July 8, 1955 contained two unresolved points, one relating to the method of applying the United States anti-frustration policy to shipments to friendly countries and the other relating to the timing and procedure of altering United States controls after a finding that Communist China should no longer be regarded as an actual, rather than potential, aggressor. In a memorandum of March 30 to the CFEP, the Commerce Department proposed a revision in certain paragraphs in NSC 152/3 to resolve differences on one of the two unresolved questions—the one relating to the United States anti-frustration policy.

2. Subsequent to July 8, 1955 there have been substantial changes in the world situation in general and with respect to East-West trade controls in particular. Prominent among these changes are the following:

a. increasing evidence of Soviet bloc progress in important military and industrial fields as exemplified by new operational military aircraft and by production and research advances in the atomic energy field;

b. a stepped-up Soviet program of political-economic activity in certain underdeveloped countries, particularly in Asia and the Near East, with evidence of some success;

c. marked unwillingness by many participating and other cooperating countries to continue the present multilateral control program without substantial curtailment of the CHINCOM controls, and even in some cases of COCOM controls; examples of this attitude are the following:

(1) numerous official public statements by participating governments which attack the basic underlying concepts of current multilateral trade controls and which are followed by increasing unilateral activity by such governments with the effect of decreasing the effectiveness and cohesion of the multilateral controls; the United Kingdom has been most active in this regard, with several other important PC’s readily following the United Kingdom lead;

(2) rapid increases in the use of exceptions procedures in making shipments of embargo items to Communist China and the improper construal of these procedures to facilitate making exceptions which, if continued, will circumvent the entire differential control;

(3) marked lack of success in recent United States diplomatic approaches to the participating and other countries on the trade control program;

(4) an increase in the volume of East-West trade, including strategic trade, and in the view by most Free World countries that such trade should be both normalized and facilitated as a matter of policy.

3. Contrasted with the foregoing pressures for reducing existing controls are the pressures on the United States Government for their retention and improvement, as evidenced by critical attention to this subject by Congress, notably as a result of the McClellan Committee hearings, to the 1954 revision of the COCOM controls. Furthermore, the United States has attached positive importance on political and psychological grounds to the maintenance of the maximum possible multilateral and unilateral controls towards Communist China.

The dilemma the United States now faces is therefore as follows:

(1) If we do not acquiesce in some substantial relaxation of the control system, we may jeopardize the entire multilateral control system;

(2) If we do acquiesce in any substantial relaxation, such action may give rise to opposition in this country, particularly in Congress, which could affect the trade control program and jeopardize other programs contributing to the mutual defense effort.

The United States, although willing to consider some modification of CHINCOM controls in return for strengthening of the remaining controls, has thus far refused to consider a more general revision of either the CHINCOM or COCOM controls. It has at the same time been largely powerless to prevent increasing unilateral resort to exceptions for shipments to Communist China without prior consultation in CHINCOM.

4. Although there has been no basic change in Chinese Communist policies against which the United States unilateral and the multilateral trade controls were initially directed, the foregoing circumstances clearly suggest that the attitude of our CHINCOM allies favoring relaxation of CHINCOM controls has materially hardened since July of 1955. A further review of our economic defense policy in the light of the present situation is therefore necessary. This review should take into account all relevant aspects of the problem, including political and military as well as economic defense considerations.

Recommendation

5. Since events have overtaken the Steering Committee recommendations of July 8, 1955, the Steering Committee recommends as follows:

(a) That the existing controls and policies (notably NSC 152/3 and NSC 5429/5) be continued unchanged for the present, subject to such interim policy directions as may be necessitated by circumstances. (The National Security Council decision on April 26, 1956 proposed a list of some 81 items to be subject to a liberal exceptions policy, as a part of a negotiating package together with certain compensating concessions to be obtained from other countries. This package has subsequently been judged to be generally unacceptable to two key countries, and in accordance with another part of the same Council decision, should therefore be returned to the Council for review. This new review is all the more imperative as the list of items has been construed by certain agencies to be a limitation on the flexibility in granting exceptions provided by NSC 152/3 and NSC 5429/5.)

(b) That the proposed policy revision in CFEP 501/6 Enclosure 4 is not an adequate framework for economic defense policy under present circumstances and that it is not sufficiently more responsive than NSC 152/3 and NSC 5429/5 to merit its finalization as a substitute.

(c) That the unresolved issues in CFEP 501 and the specific Commerce proposals of March 30 should be set aside pending a more comprehensive review of policy.²

(d) That the CFEP request the EDAC to prepare promptly, as an initial step, an evaluation of the issues presently confronting the economic defense program and suggested courses of action for developing a revised policy for transmittal to the NSC at the earliest possible date. (It appears doubtful whether a CG meeting on the CHINCOM problem can be delayed beyond early December. It is equally doubtful whether a major policy review can be completed for NSC action much earlier than the end of October. These timing pressures should be reflected in any deadline given to the EDAC on the assignment suggested above.)

1. Source: Eisenhower Library, CFEP Records. Secret. Clarence B. Randall replaced Joseph Dodge as Chairman of the CFEP on July 10. On July 18, Thorsten Kalijarvi, Chairman of the Steering Committee, forwarded this report to Randall under cover of a brief memorandum. On July 23, Cullen transmitted the report to the Council under cover of a brief memorandum that noted that the report had been scheduled for CFEP consideration at its meeting of July 31.

2. In a memorandum to Dodge, dated March 30, Harold McClellan explained that the Department of Commerce wished to add the following paragraph to the EDAC paper, “Summary Report and Recommendations”:

   “To achieve agreement by the CG that any agreed relaxation beyond the items covered by List A of Annex D would not become effective until such time as there is a successful conclusion of the current U.S.-Communist Chinese talks in Geneva relative to (a) release of U.S. prisoners and (b) renunciation by the Communist Chinese of the use of force as an instrument of National policy, particularly in the Taiwan area.” (Eisenhower Library, CFEP Records) The EDAC paper was discussed by the CFEP on April 3; see Document 105.