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

145. Memorandum From the Deputy Assistant Secretary of State for Economic Affairs (Kalijarvi) to the Secretary of State¹

Washington, March 5, 1957.

SUBJECT

• CFEP Review of Economic Defense Policy—NSC 5704

Problem

The problem is to determine the State position in the NSC on a proposed revised statement of economic defense policy (NSC 5704) which, if approved, will replace NSC 152/3 and paragraph 7(c) of NSC 5429/5.

Discussion

1. The current economic defense policy statement (NSC 152/3) was approved in November, 1953; the implementation of the provisions relating to multilateral controls was effected by the 1954 COCOM list review which resulted in a large increase in the China trade control differential through reduction of the COCOM lists. A new review of US policy was undertaken in 1955, but the proposed revision of the policy statement was not finalized by the NSC because of the possible impact on policy of the then forthcoming Geneva Foreign Ministers’ Meeting. In July, 1956, the CFEP again reviewed the economic defense program in the light of the international developments which had overtaken the 1955 review. Their study, delayed by the Hungarian and Suez crises, has led to the revised policy statement—NSC 5704.

2. The proposed policy statement provides generally for a continuation of the US and multilateral trade controls as at present except for

(a) provision for adjustments in controls maintained toward selected Soviet satellites to encourage their national self-determination (paragraph 13);

(b) provision for some reduction in the multilateral China trade controls to be accompanied by some increase in multilateral controls on trade with the Soviet bloc (paragraph 21).

3. During the past two years, and especially since the Eden-Eisenhower talks in early 1956, the most serious single problem in the economic defense program has been that of the multilateral China trade controls. Until now the US has forestalled all attempts to revise these controls, although they have been seriously weakened by the increased volume of CHINCOM exceptions cases. (Exceptions presented for shipment of embargoed items amounted to more than $79 million in 1956 as compared with $10 million in 1955 and $3 million in 1954.) In recent bilateral discussions with the participating countries (PC’s) in January, 1957, we urged an overall tightening of COCOM/CHINCOM controls in view of the changed international situation; however, from reactions received thus far it appears clear that the US will face continued pressure from a majority of the PC’s for a relaxation of China trade controls. Since this issue threatens to become divisive with respect to US relations with leading European countries (e.g., the UK and France) and, to a lesser extent, with Japan, an effort should be made to reach an accommodation of the views of the other PC’s with those of the US in order to preserve the effectiveness of the controls.

4. The authority provided in paragraph 21 should enable the US to enter into negotiations offering some likelihood of success. However, should the US position outlined in paragraph 21 be unacceptable to the other PC’s it will be necessary to have an urgent interagency review of our position to assure final settlement of the China trade controls problem once negotiations are begun.

5. Other agencies are not expected to raise issue with the proposed policy statement.

Recommendation

That you recommend approval by the NSC of the proposed Policy Statement.

1. Source: Department of State, Central Files, 460–509/3–557. Secret. Drafted by Knoll on February 28; concurred in by Elbrick, Timmons, Moline, Lubert O. Sanderhoff of RA, Robertson, Howard Jones, Tucker, Bowie (in draft), and William Leonhart of S/P (in draft).