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

146. Memorandum of Discussion at the 315th Meeting of the National Security Council, Washington, March 6, 1957¹

Washington, March 6, 1957

[Here follow a paragraph listing the participants at the meeting and item 1.]

2. U.S. Economic Defense Policy (NSC 152/3; NSC 5429/5, paragraph 7–c; NSC Actions Nos. 1292, 1487, 1511 and 1540; Memos for NSC from Executive Secretary, subject: “Multilateral Export Controls on Trade with Communist China”, dated April 27 and August 17, 1956; Progress Report, dated September 27, 1956, by the Department of State on “Multilateral Export Controls on Trade with Communist China”; NSC 5704; Memo for NSC from Executive Secretary, subject: “U.S. Economic Defense Policy”, dated February 15, 1957²)

Mr. Cutler briefly described NSC 5704, the report on U.S. economic defense policy prepared for the National Security Council by the Council on Foreign Economic Policy. As Mr. Randall, the Chairman of the CFEP, was taking his place at the table, Mr. Cutler briefly summarized the views of the NSC Planning Board on NSC 5704, as well as the views of the Joint Chiefs of Staff on the same report. Meanwhile, Mr. Lay had distributed to the members of the Council a tabulation of the situation with respect to multilateral controls which prevailed under present policy (NSC 152/3 and paragraph 7–c of NSC 5429/5) and under the proposed new policy (NSC 5704). (A copy of this tabulation is filed in the minutes of the meeting.³) Mr. Cutler then called on Mr. Randall to present NSC 5704.

Mr. Randall briefly summarized the past history of the Council’s efforts to evolve a U.S. economic defense policy. He alluded to the extreme difficulty of the problem, and indicated that the Council had assigned it to the CFEP two years ago to complete as a matter of urgency. After a real struggle, NSC 5704 had finally been agreed by all the responsible departments and agencies. The main problem, said Mr. Randall, in developing the new policy was the so-called “China differential”. He expressed the hope that everyone would clearly understand that the policy set forth in NSC 5704, if adopted, would constitute a substantial liberalization of existing controls on the trade of the Free World with Communist China. It was essential that the National Security Council be entirely clear on this point. Three main reasons had induced the CFEP to recommend this liberalization of controls on Free World trade with Communist China: The first of these reasons was the current extreme tension between the United States and its European allies with respect to this issue and the advanced deterioration in the existing multilateral control structure. Unless the United States were prepared to move in the direction of liberalizing controls on trade with Communist China, Mr. Randall predicted that the whole multilateral control structure might collapse.

The second reason related to the situation of Japan. It was a prime objective of the U.S. Government to see Japan’s economic strength and stability increased. Japan bitterly resented the extra controls which were imposed on Japanese trade with Communist China.

The third reason for the move toward liberalizing controls on trade with Communist China was the general policy of the Eisenhower Administration to reduce barriers all around the world.

Following upon these general remarks, Mr. Randall said he wished to invite the Council’s attention to certain specific statements in NSC 5704. The first of these, he pointed out, was in paragraph 1 on page 3. The second sentence of this paragraph read as follows: “During this period, the courses we take should be based upon the assumption that interference in the trade between the Free World and the Sino-Soviet bloc should take place only where a clear advantage to the Free World would accrue from such interference.” Mr. Randall pointed out that suggestions had been made which would have reversed the assumption set forth in this sentence. However, the sentence was practically identical in content with what had been said in the previous policy (NSC 152/3) except for the introduction of the term “Sino”, and accordingly he opposed suggestions for any reversal.

There being no comment, Mr. Randall turned to paragraph 13, on page 6, and recommended to the Council the insertion of the term “European” between the terms “selected” and “satellites”.

The Council accepted this suggestion, and Mr. Randall turned to paragraph 15, on page 6, reading as follows: “Seek the adoption of effective measures to enforce the agreed scope and severity of the multilateral controls and increase the scope and effectiveness of multilateral exchanges and cooperation in the enforcement field.” Mr. Randall said he had understood that the Planning Board had raised the question as to whether we really “meant business” with regard to this statement—that is, if controls on certain items were relaxed, a real effort would be made to enforce strict controls on whatever agreed items for control remained. Mr. Randall pointed out that in this case, as in the previous one, the old policy (NSC 152/3) had said the same thing in substance. He emphasized that we did mean business with respect to strengthening the remaining controls. He then ended his remarks with a statement to the President that this was substantially the picture. He warned once again that if the NSC agreed to recommend NSC 5704, its action amounted to a liberalization of the controls on Free World trade with Communist China.

Mr. Cutler invited Mr. Randall to speak briefly on the matter of U.S. unilateral controls on trade with the Soviet bloc. Mr. Randall replied that NSC 5704 contemplated no change in the existing U.S. unilateral controls on trade with Communist China. He pointed out that the big problem which had been faced in NSC 5704 was the problem of obtaining a new and firm position by the United States with respect to the subject of multilateral controls, which controls would presently have to be the subject of negotiations with our allies. Mr. Cutler pointed out that, notwithstanding Mr. Randall’s remarks concerning no change in U.S. unilateral controls, paragraph 13 of NSC 5704 called for us to “make appropriate and timely unilateral adjustments …⁴ in the scope and severity of controls maintained toward selected satellites of the USSR, etc., etc.”

Secretary Humphrey expressed the view that U.S. unilateral controls over U.S. trade with Communist bloc countries should be relaxed in phase with the relaxation of the multilateral controls on Free World trade with the Communist bloc. Mr. Randall replied that this was not the subject of NSC 5704. The President expressed the opinion, in agreement with Secretary Humphrey, that U.S. unilateral controls should likewise be relaxed.

Secretary Dulles inquired whether it was the intention of NSC 5704 to continue our present level of controls over Free World trade with North Vietnam. Mr. Lay and others assured the Secretary of State that this was essentially the case, and that our policy in this respect was set forth in the policy paper on Southeast Asia (NSC 5612/1).⁵ Mr. Cutler said he would make sure that the point raised by Secretary Dulles was taken care of in the Council’s record of action on NSC 5704.

Returning to his point, Secretary Humphrey said he presumed, then, that NSC 5704 was a policy statement having nothing to do with what course of action the United States followed with regard to controls on its own trade with the Communist bloc countries, and dealt only with the position of the United States regarding multilateral controls on trade with the Sino-Soviet bloc.

The President pointed out that one important point did not seem to be covered in NSC 5704. Our own position with respect to trade with the Communist countries was much influenced by domestic politics. While, of course, we want our allies to remain strong, which was why we favored the policy set forth in NSC 5704, was it not a fact that if Congress comes to feel that we are offering no serious objection to our allies trading with Communist China, we could get into a lot of trouble with the Congress? Mr. Randall replied with an emphatic affirmative, and Secretary Wilson added that our troubles with Congress would be particularly severe if we did not let them know in advance of our plans for permitting the liberalization of Free World trade with Communist China. The President said that he wanted it clearly understood that he agreed with the policy on Communist Chinese trade set forth in NSC 5704, but he wanted the Council to be aware of the difficulties involved. Furthermore, the President pointed out that if we do not propose to put severe obstacles in the way of our allies trading with Communist China, it seemed to him rather foolish to put such obstacles in the way of our own U.S. trade with Communist China.

The President then stated that there was another factor to be considered, the factor that Admiral Radford was continually emphasizing—namely, that if there is a relaxation of the controls on trade with Communist China, then all our friends and allies in the Far East will conclude that we are abandoning them. Mr. Randall agreed that this, too, presented a real difficulty. It would be essential to reassure our friends and allies in the Far East that this move toward a liberalization of the controls on trade with Communist China certainly did not signify any intention on the part of the United States to recognize Communist China. The President confessed that he was much puzzled as to what we were going to say about this remarkable change in our policy on trade controls, both to our own Congress and to our Far Eastern allies.

Secretary Dulles said that it must be explained in terms of the necessity that the United States was under to make some concessions on less essential items in order to retain the controls on the more essential items of trade between the Free World and Communist China.

Secretary Wilson warned that if any of the allied countries who trade with Communist China should decide to make use of money and credits from the United States to finance their trade with Communist China or the Soviet Union, such a course of action would be considered inexcusable here at home, and would get the Administration into terrible trouble. Secretary Humphrey said this might well be the case, but how could we possibly prevent our allies from using funds of U.S. origin to help finance their trade with the Sino-Soviet bloc? We could never separate out such funds.

Mr. Cutler then asked Secretary Weeks to comment. Secretary Weeks pointed out that when all was said and done, the trade of the Free World with Communist China was, even in its totals, not very extensive. Ten years ago this total trade had amounted to $700 million. Last year it had amounted to only $400 million. Secretary Weeks stated that he agreed with the policy set forth in NSC 5704, but he strongly recommended that we talk this policy over with John McClellan (Senator McClellan) before we proceeded to carry it out, in order to ascertain what kind of storm will be raised in Congress by the adoption of a more liberal system of controls on Free World trade with Communist China. As a second point, Secretary Weeks recommended that the United States try to determine what kind of a quid pro quo the United States could get from its acquiescence in this liberalization. Thirdly, Secretary Weeks pointed out that a recent cable from our Embassy in London made it quite clear to him that the British wanted to go much further in liberalizing trade with Communist China than we in the United States had ever dreamed they wanted to go.⁶ In point of fact, the current British position amounted to the virtual abandonment of Free World controls on trade with Communist China. At the President’s request, Secretary Weeks read the pertinent paragraphs of the cable from London.

Mr. Cutler commented that he had supposed that we were well aware that neither the United Kingdom nor Japan would feel that the concessions made in NSC 5704 to their views went far enough.

Secretary Wilson commented that it seemed absolutely true to him, even apart from obvious military considerations, that the United States was altogether justified in maintaining a list of items which the Free World would refuse to ship to the Communist world, for, after all, trade in Communist countries was a state monopoly. Beyond this, Secretary Wilson thought there was a strong justification for the eventual formulation of a single list of controlled items covering both the Soviet [Union] and its satellites on the one hand and Communist China on the other. After all, having the two separate lists, one for Russia and one for others, tended to drive Russia and China closer together. He repeated, however, his view that we were certainly justified in having one agreed International List of controls for really significant items.

Secretary Weeks once again warned the Council of the need for consultation and collaboration with Congressional leaders in order to prevent an explosion when the contents of the new policy became known.

Secretary Wilson asked about the fate of controls on the sale of copper wire to the Sino-Soviet bloc. In view of the vital importance of this item, Secretary Wilson said that if we sold copper wire to the Sino-Soviet bloc we might just as well sell them everything else on the control list.

After Mr. Randall and others had commented on the status of negotiations on the sale of copper wire, Mr. Cutler called attention to his proposal for coordinating the implementation of NSC 5704—namely, that it be referred to the Secretaries of State and Commerce for coordination through existing interdepartmental mechanisms, which Mr. Cutler described. He then posed the question as to whether the Council wanted the policy in NSC 5704 taken up with members of Congress prior to its actual implementation. The President thought this should be done. Mr. Cutler said he presumed that the object of consultation with Congress was to explain the policy in NSC 5704 rather than to condition the action of the Executive Branch on any assent by the Congress. The President said that Mr. Cutler’s interpretation of consultation with the Congress was right.

The Director of the Bureau of the Budget expressed the hope that in giving approval to NSC 5704, the National Security Council would not give up further exploration of Secretary Wilson’s recommendation that we seek a single list of items to be controlled in Free World trade both with the Soviet Union and Communist China. Mr. Cutler pointed out to Mr. Brundage that this was precisely the intent of NSC 5704, which would eventuate in a single list of items to be multilaterally controlled.

Secretary Dulles inquired whether it would be Mr. Randall’s responsibility to undertake these discussions with Senator McClellan. He pointed out that the reaction of Senator McClellan and his Congressional colleagues might well be such as to cause a reconsideration of NSC 5704. Secretary Humphrey thought that perhaps we ought not to approve NSC 5704 prior to a discussion with Senator McClellan. Mr. Cutler promised that the record of action would reflect the concern expressed about Congressional reaction to NSC 5704.

The National Security Council:⁷

a. Noted and discussed the draft statement of policy on the subject contained in the reference report (NSC 5704), prepared by the Council on Foreign Economic Policy in response to NSC Action No. 1292–e, in the light of the views of the Joint Chiefs of Staff and the NSC Planning Board as presented orally at the meeting.

b. Adopted the statement of policy in NSC 5704, subject to the following amendments:

(1) Page 6, paragraph 13, line 3: Insert “European” between “selected” and “satellites”.

(2) Page 7, paragraph 20: Insert an asterisk at the end of the paragraph, and add the following footnote:

“* U.S. economic defense policy with respect to North Vietnam is contained in paragraph 71 of NSC 5612/1, which reads as follows:

‘71. Apply, as necessary to achieve U.S. objectives, restrictions on U.S. exports and shipping and on foreign assets similar to those already in effect for Communist China and North Korea.’”

c. Noted the President’s directive that the policy in NSC 5704, as amended and approved, should not be implemented prior to discussion with appropriate members of Congress and a report to the President on the results thereof.

Note:NSC 5704, as amended and approved by the President subject to c above, subsequently circulated as NSC 5704/1 for implementation by all appropriate Executive departments and agencies of the U.S. Government, and referred to the Secretaries of State and Commerce for coordination through existing interdepartmental mechanisms, with progress reports to be submitted to the National Security Council, through the Council on Foreign Economic Policy, at least every six months.

[Here follow items 3 and 4.]

S. Everett Gleason

1. Source: Eisenhower Library, Whitman File, NSC Records. Top Secret. Drafted by Gleason on March 7.
2. In this memorandum, Lay informed the NSC that the Department of State approved paragraph 21 as transmitted to the National Security Council in NSC 5704. (Department of State, S/S–NSC Files: Lot 63 D 351, NSC 5704 Series)
3. Not found in the Eisenhower Library or Department of State files.
4. Ellipsis in the source text.
5. NSC 5612/1, “U.S. Policy in Mainland Southeast Asia,” was approved by the President on September 5.
6. Apparent reference to telegram 4595 from London, Document 144.
7. Paragraphs a–c that follow constitute NSC Action No. 1677, approved by the President on March 8. (Department of State, S/S–NSC (Miscellaneous) Files: Lot 66 D 95, Records of Action by the National Security Council, 1957)