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

93. Memorandum of a Conversation, Department of State, Washington, January 31, 1956, 10:30 a.m.–12:30 p.m.¹

Washington, January 31, 1956, 10:30 a.m.–12:30 p.m.

PARTICIPANTS

• US
  • The Secretary
  • Under Secretary Hoover
  • Ambassador Aldrich
  • Mr. Prochnow
  • Mr. MacArthur
  • Mr. Merchant
  • Mr. Robertson
  • Mr. McCardle
  • Mr. Bowie
  • Mr. Young
  • Mr. McConaughey
  • Mr. Goodkind
  • Mr. Cottman
• UK
  • Foreign Secretary Lloyd
  • Ambassador Makins
  • Sir Harold Caccia
  • Sir Leslie Rowan
  • Sir Hubert Graves
  • Mr. Coulson

[Here follow a list of subjects discussed and the first part of the discussion on Southeast Asia and the Far East.]

[The Secretary:] The necessity for curbing Communist China has a bearing on the UN membership question and also on the trade control question, although as to the latter, the psychological factors were perhaps more important than the commercial ones. The commercial considerations were of course not without importance. As he saw it, the problem was, “How are we going to hold these detached insular positions at least until the evolution of Chinese Communist internal policy makes the regime no longer hostile and no longer to be feared?” Only by holding the strongest possible moral barriers against the Chinese Communists would it be possible to maintain a defensive position against them.

In response to a question from the Secretary, Mr. Hoover remarked that in connection with the trade control question, the significance of the planned Chinese Communist economic buildup should not be overlooked.

Foreign Secretary Lloyd said he wanted Sir Leslie Rowan to speak on the economic consequences of the higher level of trade controls against Communist China.

Sir Leslie said that in the British view the trade controls must relate to military objectives. Are the controls effective from this standpoint? Was it justifiable to have different control lists for two great areas which were contiguous? Do the China controls prevent Communist China from getting rubber, for example, from the Soviet Union? From a straight foreign trade standpoint, normal exports to China were important to the UK. The UK had a long record of trade with China. It was difficult to justify to British commercial interests a different embargo list for Communist China from that for the Soviet Union. He did not put primary emphasis on these points. His Government recognized the importance of holding the rim in the Western Pacific. Possibly this could be done through SEATO. From an economic standpoint the British position in Malaya and Singapore was of fundamental importance. The Malayan economy, and to a large extent the British economy, depended heavily on exports of rubber. When the Malayans saw other countries exporting rubber to Communist China, including a Commonwealth country—namely Ceylon—and doing it notwithstanding the Battle Act, it was difficult to justify a refusal to permit Malayan rubber to be exported to Communist China. It is important to keep Malaya in the Western world, to keep Malaya in the Commonwealth, and for the UK, it is important to keep Malaya in the Sterling area. If the Malayans as a result of the trade controls against Communist China should say that they will “look after themselves”—it would be a very serious matter for Britain. It is especially difficult when it is necessary to require Malaya to prohibit direct exports to Communist China.

Sir Leslie asked if in following such a policy we were not working directly contrary to the established political policy? The Malayans with a low standard of living are required to make a contribution to the effort against the Chinese Communists which is contrary to their own inclination and economic interest, and out of proportion to their resources. Sir Leslie said he should also mention Hong Kong, which was greatly dependent on trade with China. It was difficult when there was a common border between Hong Kong and Communist China. He felt that the differential controls were also placing Japan in a difficult position. He said he did not see how Japan could have any economic future unless it traded with China. He thought we would have to authorize such trade unless we were willing to continue to subsidize Japan. He knew that Japan was buying coal from the U.S. while it could not obtain coal from North China, but this high-cost U.S. coal would not enable Japan’s industries to compete successfully in the world market. He said he felt that by standing pat on a high level of controls for Communist China we were working contrary to political and military objectives.

Foreign Secretary Lloyd said that the danger of disintegration of the system of multilateral controls should also be pointed out. He thought that if you do not follow a trade control policy which would keep all the member countries with you, the system of multilateral cooperation would break up and you would be worse off than if you had modified your control levels. He felt that this was not just a UK problem. The UK economic interest, while important to it, was unimportant compared to the wider aspect.

The Secretary asked about the rubber market situation in Malaya.

Sir Leslie said that the price was fairly good and considerable replanting was taking place.

The Secretary asked if the economy of Malaya seemed to be suffering.

Sir Leslie said that the economy was bound to suffer some if you closed off a possible rubber market. He said that the people of Malaya are subject to a restrictive control which is not of their own making. They are required by outside authority to conform to the CHINCOM control. He pointed out that British policy was to keep ahead of the autonomy aspirations of colonies. Imposition of export curbs on Malaya from London ran counter to this policy.

Foreign Secretary Lloyd said that contacts between Malaya and Indonesia were of interest. He had recently talked with an ex-Foreign Minister of Indonesia. Mr. Marshall² of the Singapore Government had also talked with him. The practical point that Indonesia was free to trade with Communist China as it wished had been made by the Indonesian and had impressed Marshall.

In response to a question from the Secretary as to whether Indonesia exported rubber to Communist China, Mr. Robertson said there had been no declared shipments. A clandestine movement of two shiploads were suspected, but the Indonesians denied it. Mr. Robertson remarked that we had information indicating that Communist China was reexporting some of the rubber it had obtained from Ceylon to Czechoslovakia. Since Czechoslovakia could obtain rubber directly from Southeast Asia, this might indicate some barter arrangement.

The Secretary said there would be no conclusions regarding the question until the President and the Prime Minister talked about it. He suggested that the question be passed over until the afternoon.

Under Secretary Hoover asked Sir Leslie how much net increase he thought there would be in the trade of Communist China if the controls were reduced to the COCOM level?

Sir Leslie said he did not know. He did not feel that anyone could make a sound estimate of the increase. The issue was wider in his opinion. The effect on general relations with Malaya would be good. If people felt they were unreasonably held back in their trade relations, there would be resentment. A time might come when the UK would be unable to hold the export control line in Malaya. It would be very unfortunate if the UK should be called on to use its reserve powers in Malaya.

Mr. Hoover asked if Sir Leslie felt that the trade increase which would result from abolishing the differential would be consequential or not?

Sir Leslie felt that the trade increase would be of some consequence. He recalled that the U.K. had a long tradition of trade with China. If there was any advance in the standard of living in Mainland China—even a small increase—there would be a great increase in economic demand.

Mr. Hoover pointed out that at present there is a considerable transshipment of goods of western origin to Communist China from the Soviet bloc in Europe. He asked if a lowering of controls would result in an actual increase in the volume of trade or would there merely be a rerouting of the same goods?

Sir Leslie thought there would be some actual increase in other goods. More merchandise would come in. There would be new lines of commodities and new routes.

Mr. Hoover remarked that a change in the source would not necessarily increase the overall intake. He thought the total intake might be about the same.

Foreign Minister Lloyd pointed out, as an example of the domestic difficulty encountered by the UK, a recent layoff of workers at a truck plant in England. The factory could have sold trucks to Communist China, which would have kept the employees working full time. The men were naturally asking why export orders could not be accepted which would give them full employment. The discussion of Far Eastern matters terminated at this point.

1. Source: Department of State, Conference Files: Lot 62 D 181, CF 648. Secret. Drafted on February 7; no other drafting information is given on the source text. The British officials accompanied Prime Minister Eden on his 3-day visit to the United States, January 30–February 2.
2. David Marshall, Chief Minister of Singapore.