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

90. Special National Intelligence Estimate¹

SNIE 100–56

Washington, January 17, 1956.

POLITICAL EFFECTS OF A RELAXATION OF CONTROLS ON TRADE WITH COMMUNIST CHINA²

The Problem

To estimate the political effects if the non-Communist nations now adhering to CHINCOM should reduce their controls on trade with Communist China to the level maintained on trade with the European Bloc, but with the US maintaining its present controls.

The Estimate

I. Introduction

1. International agreement to apply unified trade controls against the European Soviet Bloc became effective in January 1950 with the formation by the major Western allies of a Consultative Group to establish policies for controls over trade with the Communist Bloc, and a permanent working group (COCOM) to coordinate the application of these policies. The members of this group were the US, UK, France, Italy, Netherlands, Belgium, Norway, and Denmark; later West Germany, Canada, Portugal, Greece, Turkey, and Japan joined. Cooperation with Austria, Sweden, and Switzerland was developed, and to a lesser degree with nonparticipating nations receiving US aid.

2. In June 1950, mainland China and North Korea were brought within the scope of the export controls exercised by the COCOM countries, and in December 1950 the US applied a complete embargo against shipments to Communist China. Following the UN resolution of 18 May 1951 calling for restrictions on trade with Communist China,³ the COCOM countries in January 1952 raised their controls on Communist China trade above the level of those applied to the European Bloc, thus establishing the so-called CHINCOM differential, and later formed a China Committee (CHINCOM). Thirty other countries also imposed some degree of control on their exports to Communist China in response to the UN resolution. Under the Battle Act⁴ passed by the US Congress in October 1951, US assistance may be extended only to nations which adhere to embargoes and export controls approved by the US government. CHINCOM controls were applied to North Vietnam as of 1 March 1955.

3. So long as hostilities in Korea continued, the above countries agreed to maintain controls, though with varying degrees of enthusiasm. However, after the end of these hostilities, and particularly after the Indochina armistice of mid-1954, there was a growing belief among the allies of the US that there were substantial prospects for a relaxation of tensions. In this situation, differences of opinion concerning the appropriate level of controls on Bloc trade became an increasing irritant in US relations with many of its allies. In part to meet the objections of its allies, and in part to devise a system of controls which could be implemented over the “long haul,” the US in August 1954 consented to a reduction and revision of COCOM controls. But a decision concerning a reduction of CHINCOM controls was deferred. However, sentiment continued to grow in many states for a reduction of controls, and in December 1955 the British formally notified the US that the UK would reduce CHINCOM controls to the COCOM level, unilaterally if necessary. Subsequently, in January 1956 the British proposed to the US that this relaxation be made through a gradual process extending over a year. In October 1955 the Japanese government informally approached the US government with the suggestion that export controls on 111 items on the CHINCOM list be modified substantially. On 15 December 1955, the Japanese submitted to the US their detailed arguments for exceptions on 11 of these items.

II. Attitudes Toward Trade Controls

Free World

4. The attitudes of those Free World countries proposing a lowering of trade controls are, although sincerely held, motivated generally by political and economic considerations not necessarily in consonance with US views regarding the security of the Free World. The Sino-Soviet Bloc tailors its propaganda to exploit individual national sensitivities, economic problems, and aspirations. It ties the issue of trade controls to propaganda stressing world peace, Sino-Soviet desire to avoid war, and alleged US belligerence. To the extent that this propaganda is accepted, various Free World countries find their arguments against trade controls buttressed. In addition, a particular nation, even though feeling no strong pressure for the reduction of trade controls, is almost certain to oppose such controls when it learns that another nation is about to abandon them and thus gain a possible preferred status. In the paragraphs which follow, the attitudes of Free World nations toward trade controls are set forth.

5. The United Kingdom. Dissatisfaction with the present system of trade controls is of long standing in the UK and has steadily increased. Pressure has been exerted on the government to sponsor liberalization of the whole range of strategic controls, but it has been particularly insistent that the existing differential restrictions on trade with Communist China be rescinded. The predominant British view, both within and outside the government, toward trade controls is that they should not be allowed to harden into a rigidly prohibitive system and should be confined to items which are of demonstrable importance to the military capabilities of the Soviet Bloc. The government, while generally accepting the view that changes in present controls should be the subject of international negotiation rather than unilateral action, now contends that the CHINCOM controls are both anomalous and ineffective. Moreover, the British now regard it as unlikely that the Communists would offer any concession in return for the relaxation of controls.

6. The British government’s opposition to present CHINCOM controls rests on the belief that the controls have failed in their basic purpose of limiting the growth of Communist strength, and at the same time have become counterproductive because of their divisive effects on the Free World. The British have pointed out that the commodities embargoed to the Chinese Communists can be, and are in fact, purchased via the European Bloc countries. While the circumvention of controls in this manner entails increased transshipment, transport, and in some cases, purchase costs, the British contend that these are not of significant magnitude. The British believe, on the other hand, that maintenance of these controls is no longer in keeping with the developing political situation in an era of “competitive coexistence,” and that it tends unnecessarily to place the Western Powers in opposition to the policies of India and other neutral states. They feel that a reduction of controls would improve the Western position by offsetting Communist claims to be the sole promoters of peace and of reduced tensions.

7. Besides its assessment of the international political situation, the position of the British government is influenced by the pressures of commercial interests in the UK, Hong Kong, Singapore, and Malaya and by the growing concern for the Labor Party’s opposition on this issue. The UK also contends that it may be possible to weaken Chinese dependence on the Soviet Union. Certain UK trade circles may also feel that a relaxation of restrictions on Japanese trade with Communist China may serve to reduce the pressure of Japanese competition with the British in other markets. Although there is by no means general agreement that the UK would gain significant immediate economic benefits from a reduction of the controls, the British would like to test the potential of the Chinese Communist market.

8. Because of all these factors there is a dominant belief in the UK that the CHINCOM differential should be eliminated, and the UK will almost certainly push vigorously for agreement to reduce controls to existing COCOM levels. In any negotiations with the US, the UK position would be conditioned both by its own need to retain the Anglo-American alliance and by its estimate that the US has a similar, if less pronounced, need. In an effort to maintain unity, the UK might be willing to accept some sort of compromise in which it would agree to make a limited tightening of COCOM controls in return for the elimination or substantial reduction of the CHINCOM differential. However, if the US refused to consider the elimination or major reductions of the CHINCOM differential, the UK would probably gradually relax its own differential controls on trade with Communist China unless it came to believe that such action would have seriously harmful effects on allied cooperation in general.

9. Other Western European Countries. In general, these countries also favor a relaxation of CHINCOM controls. France in particular has supported the UK position. The pressure for relaxation stems in large part from industrial and business interests which are increasingly concerned that competitors will exclude them from markets or obtain preferred treatment by gaining the initiative. In addition there is widespread hope, despite Soviet behavior since the Summit Conference, for a broader understanding between the East and West. In the event the UK went ahead with the elimination of differential trade controls without US concurrence, most of these countries would be disposed to follow the British lead, as would Sweden, Switzerland, and Austria, which are non-CHINCOM countries.

10. Japan. In Japan, pressures within and without the government for relaxation of controls remain strong, although there is apparent recognition that such action would not lead to immediate large economic gains. The Japanese position is based in part on a belief that Japan cannot afford permanently to sacrifice its access to raw material sources and its natural market in Communist China, and in part on the Japanese desire for a greater independence of action in the conduct of its foreign policy. Japan considers the CHINCOM differential particularly disadvantageous to it since, unlike the trading countries of Western Europe, Japan cannot as a practical matter transship goods to Communist China through European Bloc ports. Given Japan’s over-all dependence on the US, it would not directly oppose US efforts to maintain differential controls but will continue to press for exceptions in its favor to permit an increase in its trade with Communist China. Japan has indicated that it would be willing to accept a partial modification of the existing differential between COCOM and CHINCOM controls. In the event of US refusal to agree to any modification, however, it is unlikely that the Japanese government would consider it to be either politically feasible or in the national interest to follow US leadership in maintaining a higher level of controls than that adopted by other COCOM members.

11. Other Asian Allies. The ROK, Nationalist China, the Philippines, Laos, Cambodia, South Vietnam, and Thailand continue to support the US on retaining controls on Communist China’s trade, in part because of their own convictions and their anti-Communist foreign policy, in part because US assistance is critical to their economy and security, and in part because they see no great economic advantage to themselves in freer trade with the Communist Bloc.

12. Neutral Countries in the Middle East and Asia. In general these countries believe that controls on the Bloc as a whole should be reduced, and thus would favor the elimination of the CHINCOM differential.

Sino-Soviet Bloc

13. The Bloc has waged a consistent campaign against controls, most recently in the 1955 negotiations of the Foreign Ministers at Geneva, with the stated objective of securing the abolition of the entire strategic control system. A significant part of this campaign reflects the deliberate exploitation by the Bloc of the issue of controls to develop rifts among non-Communist countries and to weaken the larger unity of purpose which makes possible, among other things, the multilateral enforcement of the control system. Controls appear to be associated in the minds of Bloc leaders with the complex of Western defenses aligned against them. From their point of view, the abolition of all controls, apart from the resulting economic benefits, would also remove a psychological barrier to the fuller acceptance of Bloc countries as members of the family of nations. They would also interpret the abolition of controls as evidence of progress in their campaign to weaken Western defenses.

14. While the abolition of controls is a continuing objective of Bloc foreign policy, the Bloc is not likely to make any significant concession for their removal. Any action short of the abolition of the entire strategic control system would probably have little or no effect on the Bloc attitude toward controls. While Bloc leaders might regard the elimination of the CHINCOM differentials as a harbinger of better things to come, they would probably not reduce the intensity of their campaign against controls. Indeed, their efforts in this direction might be increased. In the European Satellites, knowledgeable persons would interpret any net concession to any Sino-Soviet Bloc country, even in the field of trade, as a further Western acceptance of the status quo.

15. To the extent that Communist China’s economic dependence on the Soviet Bloc was accelerated by Western trade controls, a potential source of friction within the Sino-Soviet Bloc was created. However, there is no evidence that any serious disharmony in intra-Bloc relationships has yet been produced as a result of trade controls. Moreover, it is unlikely that any increase in economic relations with non-Bloc countries, following any relaxation of controls, would be of sufficient magnitude to alter Peiping’s orientation to Moscow or weaken the solidarity of the Sino-Soviet alliance.

III. Probable Political Effects of Elimination of the CHINCOM Differential Assuming the US Consents While Maintaining Its Own Controls

16. Except in the ROK, Taiwan, South Vietnam, the Philippines, and Thailand, the reaction to US acceptance of a reduction in controls would vary from indifference to the issue by some nations, through general approval by others, to outright welcome by those with large trading interests. It would be interpreted as an indication of US willingness, despite serious misgivings, to accommodate its policies in some degree to those of its allies. The reduction of controls with US consent would tend to submerge temporarily a broad issue between the US and other non-Communist nations which has been an irritant to our relations with our European allies.⁵

17. At the same time, US prestige would suffer in the ROK, Taiwan, South Vietnam, the Philippines, and to a lesser extent in Thailand. These governments, and even some elements in Japan, would feel that the US had proved unable to maintain a firm anti-Communist position in the face of pressure from weaker allies and that it had accommodated indirectly to Communist demands. They would probably be more apprehensive over future trends in US policy.

18. The Chinese Nationalists would be extremely bitter and their willingness to accept US military and economic advice would probably be further reduced. They might intensify military operations along the China coast and against shipping. Although Nationalist morale would suffer and the Nationalists would anticipate a further decline in their international position, it is unlikely that US consent to elimination of the CHINCOM differential would provide a sufficient shock to affect seriously the stability of the Nationalist government. However, the action would contribute to the present growth of Communist China’s prestige which is making the maintenance of morale and loyalty on Taiwan increasingly difficult.

19. The ROK would strongly condemn any failure of the US to oppose vigorously the elimination of CHINCOM controls. It would view such failure as a further indication that US support for a militantly anti-Communist stand in Korea is unlikely. In spite of this opposition, however, the ROK probably would not take actions which would disrupt its basic ties with the US. Such a policy might further exacerbate ROK-Japanese relations. The ROK would charge the US with acceding to the “pro-Communist influence” of Japan and would fear the development of a pro-Japanese bias in US policy.

20. The action would probably be regarded in Thailand as another indication of relaxation in the US position on Communist China and would probably lead to a corresponding relaxation in Thailand’s own anti-Communist posture.

21. While Chinese Communist trade with non-Communist countries would probably increase after the relaxation of controls, at least within the next couple of years such trade would be unlikely to develop in such a way as to permit the Communists to exert a significant influence on internal political developments or on the orientation of the governments. However, the freedom of action and enhanced respectability and prestige conferred upon Communist China by a lowering of controls would increase its potential for politico-economic penetration to a greater degree than probably would be indicated by the actual increase in the level of trade.

22. The largest expansion of Communist China’s trade would probably be with Japan, and while not approaching prewar levels, this trade might in time become an appreciable fraction of Japan’s total trade. Although Japanese prospects for maintaining an expanding economy would continue to depend more on trade with the non-Communist world than on its trade with China, this latter trade, in which capital goods would be the predominant export, might in time render some sectors of Japanese industry dependent on China as a market.

23. We believe that Sino-Japanese trade during the next few years will not in itself cause Japan to alter significantly its present orientation to the West, barring a drastic curtailment of Japanese trade opportunities in the Western world. Moreover, a relaxation of controls would to some degree undercut one of the major points of attack of those Japanese who seek a normalization of relations with the mainland, and would reduce an important irritant in Japanese-US relations. At the same time, however, the relaxation of controls would be interpreted in Japan as evidence that the US was moving closer to an accommodation with Communist China and would probably stimulate efforts both within and without the Japanese government for expanding political relations with Peiping. The increase in trade would also provide greater opportunities for various forms of Chinese Communist covert and overt activities within Japan.

24. Elimination of the CHINCOM differential with US consent and with no corresponding concessions by the Chinese Communists would tend to increase Peiping’s prestige especially in Asia, would add weight to Bloc arguments that all “discrimination” in trade should cease, and would tend to strengthen the present trend to seat the Communist regime in the UN. It would also make it more difficult for the West to oppose a move to repeal the UN embargo resolution. The increase in Communist China’s prestige would probably be reflected in some increase of active support among the overseas Chinese.

25. Elimination of the CHINCOM differential would not affect Peiping’s foreign policy in any significant manner. It would remove a bargaining counter of the West in dealings with Communist China. Elimination of the CHINCOM differential would not, of itself, materially affect Communist China’s courses of action with respect to securing control of Hong Kong or Macau, although it may make foreign occupation of these ports somewhat less advantageous from the Chinese Communist point of view.

26. Elimination of the CHINCOM differential would tend in the short run to reduce pressures for further reductions in COCOM controls. Other non-Communist governments would probably feel that the US had moved as far as presently possible. Before long, however, pressures would again develop for further reduction in Bloc controls, on the grounds that the controls do not accomplish their intended purpose, are a bar to improved relations with the Bloc, and work to the economic disadvantage of non-Communist states. The trend toward the reduction of controls would almost certainly continue in the absence of a serious crisis caused by Communist action in an area of major importance to the Western Powers.

IV. Probable Political Effects in the Event the US Had Consented to Elimination of the CHINCOM Differential But Had At the Same Time Secured Agreement to Maintain, or Tighten, COCOM Controls

27. We believe that the effects described in paragraphs 16–26 would not be affected materially if elimination of the CHINCOM differential were accompanied by an agreement to maintain COCOM controls at present levels for a limited period.

28. If the US secured a tightening of COCOM controls, however, there would be a number of differing effects which would depend in part on the degree of tightening. In those areas where the US would lose prestige in the situation discussed above, the adverse effects might be somewhat mitigated. However, the issue of trade controls would soon re-emerge as an important irritant, particularly in US–UK and US-Japanese relations. Within the space of a year strong pressures would probably develop within the participating countries to reduce the level of COCOM controls.

V. Probable Political Effects If CHINCOM Controls Were Reduced to COCOM Levels Despite the Refusal of the US to Consent to Such Reduction

29. If controls on trade with Communist China were lowered despite the refusal of the US to consent to such a reduction, there would be mixed reactions among the non-Communist states. There would be considerable disappointment in the UK, Western Europe, and Japan that the US had failed to consent, because they would feel it detracted from allied cooperation. US prestige would suffer somewhat among the strongly anti-Communist states of Asia because of the failure of the US to influence the COCOM states. There would be increased fears that the US would be unable to rally allied support in other projects to resist Communist pressures in Asia. At the same time, these governments would probably derive some satisfaction and assurance from the demonstrated determination of the US to maintain a strong position despite pressure from other nations. India, Burma, and possibly other neutral nations of Asia would probably openly condemn the US position.

1. Source: Department of State, INR–NIE Files. Secret. Special National Intelligence Estimates (SNIEs) were high-level interdepartmental reports presenting authoritative appraisals of vital foreign policy problems on an immediate or crisis basis.
2. According to a note on the cover sheet, the following intelligence organizations participated in the preparation of this estimate: The CIA and the intelligence organizations of the Departments of State, the Army, the Navy, the Air Force, and the Joint Staff. All members of the LAC concurred with the estimate on January 17 with the exception of the representatives of the AEC and the FBI, who abstained on the grounds that the subject was outside their jurisdiction.
3. See Annex A for the text of this resolution. [Footnote in the source text. Annex A is not printed.]
4. The Mutual Defense Assistance Control Act of 1951, commonly known as the Battle Act after its sponsor, Representative Laurie C. Battle, entered into force on January 24, 1952. For text, see 65 Stat. 644.
5. The Deputy Director for Intelligence, the Joint Staff, and the Director of Intelligence, USAF, would add the following sentence to this paragraph: “On the other hand, it would be an indication to these same allies that they could in the future likewise sway US policy by their pressures and counsels.” [Footnote in the source text.]