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

54. Report by the Steering Committee of the Council on Foreign Economic Policy¹

CFEP 501/5

Washington, March 24, 1955.

INTERIM REPORT ON REVIEW OF ECONOMIC DEFENSE POLICY

Summary

The attached Interim Report recommends that the CFEP (1) endorse, in principle, the appended instructions prepared by the Steering Committee for a thorough review of economic defense policy; (2) re-affirm certain existing NSC directives as the appropriate policy applicable in the interim; and (3) transmit this Interim Report to the NSC for information:

These recommendations are based on the following findings and conclusions reached by the Steering Committee:

1. The various agency papers bearing on possible changes in economic defense policy merit further study in the framework of a broader and more meticulous review;

2. There should be no substantial change in our economic defense policies and programs as of the immediate moment;

3. The U.S. can afford now to take the time necessary to accomplish a thorough job of review; and

4. For the forthcoming interim period, the existing economic defense directives should be reaffirmed.

INTERIM REPORT ON REVIEW OF ECONOMIC DEFENSE POLICY

Recommendations

1. That the Council endorse, in principle, the attached instruction (Tab B)² to a Drafting Group of the Task Force, requiring a thorough review of the economic defense policy embodied in NSC 152/3³ and paragraph 7(c) of NSC 5429/5, and requesting consideration of appropriate courses of action in relation to a series of practical alternative assumptions concerning the degree of East-West tensions;

2. That the Council re-affirm the general objectives and courses of action set forth in NSC 152/3 and paragraph 7(c) of NSC 5429/5 as constituting appropriate policy pending completion of such review, or pending notification to the National Security Council by the Secretary of State, pursuant to sub-paragraph 7(c)(3) of NSC 5429/5, that further effort to maintain the current level of multilateral controls would be seriously divisive among our allies;

3. That this Interim Report be transmitted to the National Security Council for its information as an interim response to the assignment made to this Council in sub-paragraph 7(c)(4) of NSC 5429/5.

Discussion

The Steering Committee has made a preliminary examination, from both the short and long-range points of view, of the existing economic defense policy and program and of certain recommendations for change submitted separately by several agencies. The Steering Committee finds that the various agency papers merit further study and consideration in the framework of a broader and more meticulous review. Such review will permit a more detailed development of the concepts involved, as well as a careful exploration of the circumstances and time factors suited to particular changes in current economic defense policies.

The Steering Committee has reached the following additional findings and conclusions:

I. There should be no substantial change in our economic defense policies and programs as of the immediate moment.

A. Concerning Communist China: Political factors of fundamental importance dictate that under present circumstances we should maintain free world controls on economic relations with Communist China at current levels (a summary of the reasons underlying this basic conclusion is appended hereto as Tab A). At the same time, unless there were a material worsening of present tensions, it would be unrealistic to contemplate that we could persuade our allies to expand or heighten the level of multilateral controls toward Communist China, since these countries have been chafing already over the extent to which these controls now exceed those applied to the European Soviet bloc. Accordingly, although from time to time the greatest sense of urgency has seemed to pertain to the area of the Communist China controls, and in fact this problem was the one which largely occasioned the present policy review, it appears that the United States should take no overt action at this time toward material change in these controls.

B. Concerning Eastern Europe: The multilateral controls applicable to the European Soviet bloc have only recently been substantially revised. The general revision of the lists became effective as of mid-August, but a few difficult items still remain unresolved. In addition, new enforcement measures have been established, effective a little over a month ago. Whereas these revised controls apparently now satisfy fairly well the basic objectives of our Western European allies, they do present many serious deficiencies and are, in any case, short of being what, in the U.S. mind, they could and should be. These defects in the controls structure are emphasized when an attempt is made to look at the Communist bloc as a whole. A number of factors, however, make it plain that the deficiencies in the control structure will take a substantial period of time to remedy, even in part.

In the first place, as already noted, our flexibility to adjust the control structure to a “bloc-as-a-whole” approach is limited at the present by the requirements of our general position to maintain the controls toward Communist China. This sort of adjustment must therefore await either an appropriate time for revision in the Communist China controls or the development of new concepts and a fundamentally new approach to controls toward the entire Communist bloc, on the basis of which the U.S. could reasonably expect to negotiate agreement to move toward uniformity by substantial strengthening of controls applied to Eastern Europe.

Secondly, at this stage of their preliminary analysis, the agencies within the U.S. Government harbor many and diverse views as to what is wrong with the security trade controls and how these faults should be corrected. It will take no small effort, individually and collectively, to define these views in specific detail, to compare and evaluate them, and to develop them into a homogeneous program commanding government-wide adherence.

In the third place, the need is recognized for meshing the economic defense program more intimately with other broad programs in which the United States is engaged. More time and thought should be devoted to how other efforts and actions of the United States can assist in achieving our economic defense goals, and vice versa.

Finally, and most important of all, this review must accomplish—or abandon as unattainable—a ground-up development of a new approach to, or rationale for, security trade control restrictions to the Communist bloc as a whole. While the criteria for selection of “strategic” items have been useful in the past, particularly for negotiating multilateral agreements, at this time, in the face of divergent interpretations and a growing body of precedents grounded in political compromise, the criteria have become at once confusing and less useful. We need new concepts as a guide for our own determinations. Even more, as a means to revitalize the Consultative Group and the Coordinating Committee we need a new approach toward security trade controls and a larger measure of fundamental agreement between cooperating countries as to the objectives of the program. The old criteria obviously cannot be expected to carry a major effort to modify the structure just enacted upon them. And the current divergencies in attitude and basic concepts on the part of the various Participating Countries would inevitably frustrate endeavors to achieve agreement on any substantial changes in the control program.

II. We can afford now to take the time necessary to accomplish a thorough job of review.

A. Concerning Eastern Europe, we are now relatively free of outside pressure for change in the controls. As already noted, the revisions just accomplished have relieved most of the international frictions that had been developing over control policy, and the Paris committees will be preoccupied for several months more with disposition of the residual problems of last year’s list review. The new enforcement measures are just taking hold, and are still being developed, and a period of experience will be needed before stock can be taken of their adequacy.

B. Concerning Communist China, the pressure for change on the part of our allies likewise has lessened, though presumably this respite is more temporary. Whatever their present preference or ultimate choice, our China Committee partners seem not disposed to contend with the known strong U.S. views on maintenance of China controls so long as the current circumstances of tension endure. This appears to be true even of Japan, which, for both economic and political reasons, has been recently the industrial country most likely to force a joining of issues on the relaxation of Communist China trade controls. While the new government in Japan⁴ will probably feel more disposed than its predecessor to risk United States displeasure by precipitating a controversy in the Paris Group over maintenance of the current control levels, it is noteworthy that thus far Japan has exhibited marked restraint even regarding resort to the procedures open to her for exceptions from the agreed embargo.

While we may not be able much longer to forestall discussion of the general question, we should probably be able, with appropriate bilateral preparations, to obtain agreement for temporary, but indefinite, continuance of the present level of controls. Even if we should feel it necessary to agree to some action other than mere extension of current controls, we still would have some months of time for review and decision, since at the most we should have only to agree to multilateral study toward subsequent revision of the controls. Thus, on even the most pessimistic of estimates, we should have at least until the coming summer before we should have to apply the results of our own re-thinking in order to take the lead in shaping a new and revitalized multilateral program.

III. For the forthcoming interim period, the existing economic defense directives should be reaffirmed.

A. The general objectives and courses of action for the economic defense program which are embodied in NSC 152/3 were carefully formulated under the present Administration and approved by the President in August 1953. Paragraph 7(c) of NSC 5429/5, dealing with the maintenance of Communist China trade controls, was constructed to fit the immediate situation, and was approved scarcely more than two months ago. Neither of these directives should be discarded until it can be succeeded without hiatus by a carefully devised replacement. Yet, the NSC assignment for policy review, which grew out of discussions concerning possible adjustments in the China controls, has, albeit unintentionally, cast a cloud upon the status of the existing policy directives. A team can function as a team only when the players all respond to the same signals. In the interests of forceful and effective operations at the working level, it is necessary that the policymaking bodies should clearly emphasize at this time that the existing policy directives remain in force and effect until those same bodies see fit to alter them. At the same time it should be noted that to the extent that the existing policy directives called when formulated for significant changes in the level or pattern of controls, such modifying effort has now been expended, and it should be understood that in applying the existing policy directives during the interim period prior to adoption of revised directives, no further substantial changes of this nature will be attempted.

B. This interim reaffirmation of existing policy directives is necessary also in the interests of healthy relationships between the executive and legislative branches of the government. During the present session of the Congress, it will often be necessary for the executive agencies to appear before the legislative branch and speak upon one aspect or another of the economic defense program. Unless it is clearly understood what the present governing policy is, misleading appearances of conflict between agencies will arise, and the executive may find the legislative branch responding to an unintended but implicit invitation to pronounce policy for the executive in the very field of government operations in which such rigid and insensitive formulation of policy is most to be avoided.

Tab A

MAINTENANCE OF ECONOMIC PRESSURES AGAINST COMMUNIST CHINA

It is important to keep the Chinese Communist regime under economic (and other) pressures. Such pressures add to the strains which can ultimately lead to disintegration; the Communist regime has undertaken heavy commitments, and it appears probable that it can not under present circumstances increase its resources fast enough to cover all commitments. This kind of dilemma tends to lead to a breakdown.

In a situation like the present one, where Chinese Communist intentions with regard to Formosa are clearly hostile, and their future course seriously threatens world peace, it would be highly impolitic to release the Chinese Communists from whatever harrassment and limitation the free world controls are causing. The reduction of controls would be taken by countries in Asia, in Europe, and by the American people to mean a change in policy towards Communist China which is not justified by the circumstances or by the behavior of the regime.

As long as the United States continues to maintain pressures against the Chinese Communists, the Communists are on notice that a strong and active opponent stands in the path of aggression which they would like to pursue. Continued actions in this field are more persuasive evidence of intentions than are mere statements.

1. Source: Eisenhower Library, CFEP Records. Secret. Forwarded to the CFEP on March 24 under cover of a memorandum from Cullen, in which he noted that the report was scheduled for discussion at the CFEP meeting of March 29.
2. Not printed.
3. For text of NSC 152/3, “Statement of Policy by the National Security Council on Economic Defense,” approved by the President on June 18, 1953, see Foreign Relations, 1952–1954, vol. I, Part 2, p. 1207.
4. On December 9, 1954, Ichiro Hatoyama replaced Shigeru Yoshida as Prime Minister of Japan.