Foreign Relations of the United States, 1958–1960, Foreign Economic Policy, Volume IV

318. Memorandum of Conversation⁰

January 15, 1958.

SUBJECT

• Discussions with the British and Canadians Concerning Trade Control Criteria

PARTICIPANTS

• Mr. G.F. Thorold, Economic Minister, the British Embassy
• Mr. Peter Garran, Commercial Minister, the British Embassy
• Mr. J. Hosie, British Ministry of Defense
• Mr. Roger N. Jackling, Counselor, the British Embassy
• Mr. E. Youde, First Secretary, the British Embassy
• Captain Brayne-Nicholls, British Joint Services Mission
• Mr. A.E. Ritchie, Minister, Embassy of Canada
• Mr. Arthur Neal, Canadian Delegate to COCOM
• Mr. R.G.C. Smith, Commercial Minister, Embassy of Canada
• Mr. Thomas C. Mann, Assistant Secretary for Economic Affairs
• Mr. John W. Jones, Deputy Assistant Secretary for European Affairs
• Admiral W.S. DeLany, Deputy Director for Mutual Defense Assistance Control
• Mr. John N. Irwin, Deputy Assistant Secretary of Defense
• Mr. Marshall Smith, Deputy Assistant Secretary of Commerce
• Captain W.B. Thorp, Department of Defense
• Mr. Clarence Nichols, Deputy Director, Office of International Resources Mr. Edwin G. Moline, Deputy Director, Office of British Commonwealth and Northern European Affairs
• Mr. L.O. Sanderhoff, Office of European Regional Affairs
• Mr. Ralph Clough, Director, Office of Chinese Affairs Mr. Robert B. Wright, Chief, Economic Defense Division

Mr. Mann opened the discussion with comments based on the attached statement¹ of the United States viewpoint with respect to the question of trade control criteria. Upon concluding his statement Mr. Mann said that Mr. Irwin of the Defense Department might wish to comment more fully with respect to the NATO concepts and assumptions since the differing viewpoint on the military aspects of the problem constituted an important element of the problem. Mr. Thorold said that he was in agreement that the question of the nature of possible future war is important, particularly with respect to the estimated duration of such war. He suggested that Mr. Hosie who had come from London for the current discussions might usefully expound the British position on this point.

Mr. Irwin said that he would like to correct one point before Mr. Hosie presented the British comments. He said that the matter of the duration of a possible war was not actually the critical point of difference. He said that the real focus of our concern is to avoid assisting the military-industrial capacity of the Soviet bloc to build up during peacetime a force in being for use in war. He said that to the degree the West contributes to the present industrial capacity of the Soviet bloc it contributes to their basic capability for war preparations.

Mr. Hosie explained that the British had come to the viewpoint outlined in their December memorandum² by a somewhat devious route. He said that their point of view originated in a re-examination of their industrial mobilization assumptions which actually began somewhat prior to 1954. He said that the earlier British viewpoint with respect to industrial mobilization had been the conventional assumption that there would have to be reliance during a period of hostilities upon an adequate industrial base which would be converted to military production gradually by stages after the commencement of actual hostilities. The new British assumption, however, was that they could not count upon defense production after “D Day” in the United Kingdom if the type of warfare involved were thermonuclear in nature. This general philosophy was applied in stages to various aspects of defense planning. It was, for example, applied with general public knowledge in 1956 when it was announced that the British strategic stockpiling arrangements should be replanned.

Mr. Hosie said that the new British assumptions were tied directly to NATO assumptions. [11/2 lines of source text not declassified] He said that the British had concluded that if it were true that the United Kingdom could not plan on military-industrial production after “D Day” in a thermonuclear war, it was likewise true that the Soviet Union could not mount a massive military production program after “D Day”. Furthermore, the British considered that it would logically follow that Soviet strategic stockpiles accumulated prior to “D Day” would no longer have importance. Their conclusion therefore with respect to the trade control program had been that the multilateral controls were wrongly directed for conditions of total war.

With respect to the conditions involved in limited warfare, Mr. Hosie said the British likewise felt the trade control program was misdirected and ineffective. [61/2 lines of source text not declassified] It was inconceivable to the British that there could be anything like a limited war of long duration. It was clear, they felt, that only in a limited war of long duration could productive capacity become a significant factor.

Mr. Irwin said that he found himself agreeing with Mr. Hosie’s statement on many points but that he disagreed on the basic premise which Mr. Hosie had stated. He said that the United States does indeed consider the mobilization base for production after the start of hostilities to be important, but that the more important aspect is the capacity of the Sino-Soviet bloc’s industrial potential currently for the creation of a force in being which might be drawn upon to launch either limited or total warfare at some point in the future. Thus the United States considers the Sino-Soviet military-industrial potential as it exists today to be the critical element. With respect to the possibility of limited war, Mr. Irwin said that the United States still recognizes the possibility of limited hostilities of varying duration both outside the NATO area and inside the NATO area in terms of hostile incursions. He said that he would emphasize the importance of the trade control program in its bearing on Sino-Soviet capacity for conducting economic warfare, as Mr. Mann had pointed out in his opening statement.

Mr. Thorold said that the British considered that what the trade control program has been able to do thus far did not seem to have affected either the Soviet ability to produce arms or their capacity to engage in economic excursions in the uncommitted areas of the world. Mr. Mann said that in making reference to the Soviet effort at economic penetration, we had in mind not trade simply in the sale of conventional arms but also trade in other commodities and the provision of financial assistance by the bloc.

Mr. Thorold said that in the British view the American suggestion that the strategic controls might be shaped to some extent by Western objectives with respect to counter measures in the face of Soviet penetration went considerably beyond the existing concept of the multilateral control system. He said that the British could not admit the propriety of attempting to mount an economic war under the control system for the purpose of crippling the Soviet general export capacity for dealing with underdeveloped areas.

Mr. Mann said that a general economic war on the Soviet Union was of course theoretically a possibility although he did not suggest that precisely. We had in mind, he said, raising the question of the extent to which the West should contribute to the Sino-Soviet capability both for military preparations and for economic activities in vulnerable areas of the world.

Mr. Ritchie said that he would raise a question as to whether it had been agreed that the Soviet economic offensive in underdeveloped countries should invariably be deplored by the West. He said that the Canadians held the view that many things which the Soviets do in terms of economic assistance to underdeveloped countries should be welcomed because the West itself does not possess the capability to meet in full the economic needs of such areas. He said the Canadians were prepared to acknowledge that it would be highly desirable if the West could in fact meet all such needs but felt that since the West is not able to do so it should not feel undue concern if underdeveloped countries look increasingly to the Soviet Union for such assistance. He said that it appeared to Canada that any assistance from any source which supplies the legitimate economic needs of underdeveloped areas is in the interest of the West since the strength of the economies of such countries works naturally in the direction of increasing their political strength and independence. Thus he concluded that the economic assumptions which had been suggested by the United States as a factor in reshaping the international controls was of even more questionable validity than the strategic assumptions.

Mr. Mann said that of course the United States was not opposed per se to the underdeveloped countries receiving whatever economic benefits they are able to regardless of the motivation of the donor. The problem with Soviet economic aid, as we see it, is that the increase of trade and financial arrangements between the Soviet bloc and the underdeveloped countries carries with it an undesirable increase in Soviet political influence. We deplore the latter because it may lose us the uncommitted areas of the world.

Mr. Ritchie said that Canada was disposed to agree with the United Kingdom that it goes far afield to look at export controls as a matter of counter measures to Soviet economic penetration.

Mr. Mann emphasized the American view that it is not possible to divorce these two aspects. In this period of cold war our objective is to build up the deterrents to hostilities through restraining both Soviet military and Soviet political power. Mr. Jones endorsed this point, adding that the question of economic warfare was discussed with the United Kingdom at the time of the Eisenhower–Macmillan talks³ with a view to developing effective joint action in the face of Soviet activities in underdeveloped areas. He said it might indeed be true that economic blockade of the Soviet Union would be an extreme measure which it is not practical to consider. At the same time we are convinced that strategic controls cannot be operated in a vacuum. They are a part of the West’s total position of strength vis-à-vis the Soviet bloc.

Mr. Smith (of Commerce) noted that in the discussion of Soviet resort to limited warfare there had been no reference to the situation of Communist China. He said it seemed clear that the West should still have concern at what Communist China might do with Soviet support in pursuing limited warfare outside the NATO area. Since Communist China is in the Sino-Soviet bloc, the importance of the Sino-Soviet industrial base takes on added significance because of the more conventional nature of Chinese military technique. Since an industrial base is potentially more flexible and less subject to obsolescence than a stockpile of military items, the building up of such a base on as strong a basis as possible must represent a prime objective for Communist China.

Mr. Hosie said that so far as Chinese aggression was involved, he felt it was still valid to assume that the defense pacts such as SEATO would inevitably draw the European and Western hemisphere countries into such hostilities. Because of the very fact of the conventional equipment at the disposal of the Chinese, such an aggression could be halted rapidly unless the Soviet supplies nuclear bombs. In the latter event the hostilities would mushroom into global war. Mr. Clough pointed out that there remains in the picture the element of Chinese capacity for miscalculation and that this might have a bearing on the course of events.

Mr. Irwin pointed out that the British still seemed to exclude the importance of the present mobilization base as a relevant factor in the picture. He said that the United States still considers it important to identify the parts of the industrial complex which are critical to an offensive military-industrial base and to impose controls in those areas. He said that of course the United States is prepared to review this sort of coverage, to make adjustments in it and in essence to place the international controls on the basis of a 1958 model rather than a 1953 or 1954 model.

Mr. Hosie said that the British do not entirely exclude the element of peacetime industrial capacity so long as such capacity is related to the development of a thermonuclear capability. He said that of course in a sense the diversion of Soviet resources to produce materials for underdeveloped countries keeps the Soviets away from outright military production.

Mr. Irwin said that of course this raised a range of other considerations which would place a question mark beside such a simplified conclusion. For example, there would be the effect on the Soviet satellites of diverting resources to underdeveloped areas which might be required within the bloc itself for essential civilian purposes.

Mr. Garran said that apart from the question of the criteria as such, it seemed to him that the real issue was whether the United States agreed with the assumptions which underly the criteria. Specifically, he referred to paragraph 8 of the British memorandum and inquired whether the United States could accept that enumeration of objectives.

Mr. Mann said that the United States could at least provide the British with its views on criteria although it did not appear likely that agreement could be quickly reached on their interpretation. He suggested that there be further discussions between the British and Canadian defense elements and the American defense people. It was agreed such talks would take place. Mr. Thorold and Mr. Jackling pointed out that an examination of the military elements would not get us very far since the question would remain of whether or not we are discussing economic warfare. It remained the British view that the question at issue is that of the controls over strategic materials moving to the Soviet bloc and that a discussion of a limitation upon the Soviet economy as a whole would be out of order. Mr. Irwin said it was not a matter of attacking the economy “as a whole”. Mr. Jackling said that nonetheless the issue would remain of how far to go beyond the strict military area.

It was agreed that a meeting would be scheduled in Mr. Irwin’s office in the Pentagon for January 16 at 10 a.m.⁴ It was noted that any questions concerning the discussion raised by other participating governments or by the press would be dealt with on the basis of the agreed COCOM formula for press inquiries.⁵

[Attachment]

⁶

UNITED STATES STATEMENT FOR TRADE CONTROL DISCUSSIONS WITH THE BRITISH AND CANADIANS

We have studied the memorandum on “Revision of the Strategic Criteria” prepared by the United Kingdom and appreciate their explanation of the assumptions underlying the specific wording of their proposed new criteria. We believe the British and Canadian representatives are entitled to a similar general exposition of the American thinking on this matter.

We recognize that a re-examination of the multilateral strategic trade controls would be timely and we welcome an opportunity to discuss this matter. We consider the trade controls to be an integral part of the total security effort of the Free World through NATO and the associated bilateral and multilateral defense arrangements. We agree that the trade control program must be based firmly on the strategic concepts prevailing in NATO.

The chief objective of the NATO planners is to prevent war by creating an effective deterrent to aggression. [8 lines of source text not declassified]

[6½ lines of source text not declassified] The trade control program, in order to be consistent with current NATO concepts, should therefore be directed at inhibiting the ability of the Sino-Soviet bloc to create and further the development of a force in being and to sustain the Soviet bloc military efforts, once hostilities have begun, during the second phase of indeterminate duration.

We are pleased to note in paragraph 6 of the British memorandum that we seem to be in agreement that the NATO concepts require us to mount an effort through the strategic trade controls to hinder the Soviet bloc and Communist China in the accumulation of the nuclear weapons and the means of their delivery for a global offensive and in their development of defensive counter-measures. To us this pinpoints the importance of the current industrial base in the Sino-Soviet bloc and its capacity to produce the weapons necessary to mount either an all out nuclear war or a war of limited area. Thus we feel that the importance of trade controls as they relate to a mobilization base is more their effect on the base now in being in the Soviet bloc than upon the bloc’s capacity to mobilize industry after the outbreak of war. We think the size of a Soviet nuclear stockpile at the outbreak of a war marked by intense nuclear exchange is less significant than the current industrial mobilization base or capacity of the Sino-Soviet bloc to create and sustain effective forces in being which could be employed by the bloc in military operations. Thus any raw materials or products which currently help to expand current Sino-Soviet bloc industrial capacity contribute directly or indirectly to improving its war-making potential and the posture of its military force.

Against this background of NATO assumptions and strategic concepts, it is somewhat puzzling to us to see the British conclusion in paragraph 2 of their memorandum [6 lines of source text not declassified]. It is likewise puzzling to see the British suggestion in paragraph 5 of their memorandum that because of the importance attached to the concept of a short initial phase of global war, there should no longer be need for the trade controls to concern themselves over the expansion of Sino-Soviet industrial capacity and the accumulation of raw materials; the sole concern of the trade controls rather should be to hamper the Sino-Soviet bloc in the accumulation of nuclear weapons and the means for their delivery in a global offensive.

The United States cannot subscribe to this thesis. It seems to us to base the trade controls on a partial and hence defective view of the NATO strategic concepts.

We are pleased to note in paragraph 7 of the British note agreement that it would be unrealistic not to take account of political objections to the export even of conventional weapons together with that of materials which are essential to the utilization of machinery and materials whose primary function is the production of arms, and of know-how which improves the quality or output of such arms. Whereas nuclear weapons may or may not be of more importance in the NATO area for possible use in war, certainly the ability to provide conventional weapons in other less developed areas of the world increases the Soviet capacity for creating trouble, unrest and revolution in these areas. It might specifically be noted that in the Far East where the United States bears a heavy defense burden pursuant to collective security arrangements for deterring Communist aggression, limited war, and even non-nuclear war, are still possibilities to be reckoned with. It may be many years before Communist China has any significant nuclear capability and in the meantime it is essential to limit Chinese Communist ability to wage conventional war.

Beyond the shipment of weapons as such, the current Soviet industrial base also has relevance to Soviet economic warfare or economic penetration activities in the underdeveloped countries. It would seem that the ability of the Soviet to conduct such operations would depend directly on the size and build up of the current industrial base. It would likewise seem clear that it would be unwise for the West to be taking measures to counter Soviet intervention in key areas while at the same time shipping freely to the Soviet bloc commodities which facilitate such intervention.

There is one further point which merits comment. In their first criterion the British refer to the necessity to control materials and equipment designed specifically or “in peacetime used principally” for the development of arms. It would seem to us that use of the phrase “in peacetime” would substantially nullify the purpose of this criterion since it would have the effect of exempting from control materials and equipment which are not used exclusively or almost exclusively for the production of arms during peacetime. The only materials or equipment used principally for the development, production or utilization of arms in peacetime would seem to be the most highly specialized machines installed in arsenals or naval gun factories, for example. This seems to us much too limited a concept of military production for purposes of an effective trade control program, particularly against the background of NATO concepts and assumptions to which I have referred earlier.

0. Source: Department of State, Central Files, 460.509/1–1558. Secret. Drafted by Wright and cleared by Nichols and Mann.
1. Printed below.
2. Not printed.
3. Apparent reference to the Bermuda Conference, March 21–23. See Foreign Relations, 1955–1957, vol. x, pp. 434–438.
4. No record of such a meeting has been found.
5. On January 24, Assistant Secretary Mann outlined for Senator John Sparkman this exploratory conversation with the British. Mann stated that the Department had subsequently received an embargo list from the British which was a great deal shorter than the United States draft list. The British list concentrated on electronic and chemical categories, but made wide deletions in other categories such as nonferrous metals, machinery, and equipment. In general, Mann informed Sparkman that there was a wide gap between the United States and United Kingdom on the basic philosophy of the control system. Sparkman stated that the United States “tended to be a little too rigid on the trade control question” and urged compromise with the British and other allies. Sparkman saw trade as a means of increased understanding and improving relations between East and West and therefore saw no need to embargo commodities which added to the economic or industrial base of the Soviet bloc. Mann pointed out that many commodities had dual military and industrial applications, such as copper. Sparkman recognized the problem. At Mann’s request, Sparkman estimated that most Americans who had an opinion on the issue and most members of Congress would support a “moderate line” on trade controls. (Department of State, Central Files, 460.509/1–2458)
6. Secret.