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

327. Memorandum of Discussion at the 356th Meeting of the National Security Council⁰

February 27, 1958.

[Here follows a paragraph listing the participants at the meeting.]

1. U.S. Economic Defense Policy (NSC 5704/3¹ and references listed therein; NSC Action No. 1857;² Memo for NSC from Acting Executive Secretary, same subject, dated June 25, 1957;³ Memos for NSC from Executive Secretary, same subject, dated February 17⁴ and 26, 1958;⁵ Progress Report, dated March 8–December 31, 1957, by the Secretaries of State and Commerce on NSC 5704/1 and NSC 5704/3⁶)

Upon entering the Cabinet Room ten minutes late, the President commented with a smile that national security affairs occasionally had to give way when domestic politics raised its ugly head.

Thereafter, General Cutler briefed the Council in some detail on the CFEP position paper (CFEP 566)⁷ and the recommendations of the CFEP with respect to the U.S. position in the current COCOM negotiations, particularly as they concerned the U.K. proposal for a drastic reduction in the existing levels of multilateral controls on trade with the Sino-Soviet bloc. General Cutler concluded his briefing by pointing out that the basic issue confronting the United States in the current COCOM negotiations was whether: (1) to be more influenced by the objective of maintaining what the United States considers to be an effective multilateral control system, or (2) to be more influenced by the objective of achieving a unified allied position with respect to the level of multilateral controls (having in mind the possibility of an upcoming Summit Meeting). He also noted that the State and Commerce Departments, in the CFEP, wished general authority to negotiate downward from the agreed position of the Economic Defense Advisory Committee (EDAC). Defense, on the other hand, wished instead to hold substantially to the EDAC position for the present, and to develop alternatives to the EDAC position only after (a) there had been an attempt to reconcile international differences at a meeting of the policy-level Consultative Group, and then only after (b) a determination by the Secretary of State that further pursuit of U.S. objectives would endanger important U.S. mutual security relationships.

In the course of his briefing, General Cutler also noted the continuing views of the Joint Chiefs of Staff to the effect that any further erosion of international trade controls must be viewed as “imposing an increasing threat to our national and collective security by virtue of its direct contribution to Bloc military build-up.” (A copy of General Cutler’s briefing note, together with a statement entitled “Comparison of Present International Control Lists, Lists Proposed by U.K., and Lists Proposed by U.S.”, are filed in the minutes of the meeting and attached to this memorandum.)⁸

Upon concluding his briefing, General Cutler called first upon Secretary Dulles, who stated that he was dissatisfied with both the position taken by State-Commerce as well as the position taken by the Department of Defense in the discussion of this problem in the CFEP. He therefore wished to present an alternative position, which went further in the direction of liberalization than either of the other two. Secretary Dulles expressed great doubt as to whether the military potential of the Sino-Soviet bloc was appreciably affected by Western controls on trade with the bloc (assuming, of course, that we maintain controls on certain generally agreed items).

In explaining this doubt, Secretary Dulles went on to state that a nation as strong as the Soviet Union, and one as capable of giving priority to military needs, would encounter virtually no impairment of its military power through the imposition of trade controls by the Free World states. In illustration of this, Secretary Dulles reminded the Council of the widely-held and quite mistaken view at the outset of World War II, that Germany was incapable of fighting a long-drawn-out war.

Secretary Dulles pointed out further that all our U.S. military planning is based on the assumption that if general war breaks out it will be a nuclear war and that, accordingly, it would be of relatively short duration. He believed that our economic planning should be kept in line with the above assumption underlying our military plans.

Secretary Dulles said that of course he recognized that elimination of controls on some of the items presently controlled would help the Soviet Union to accelerate slightly its current rate of industrial development—as, for example, in providing automation more rapidly. On the other hand, this may be a good thing or it may be a bad thing, in terms of keeping the peace. It was quite possible that the more rapid development of the Soviet industrial base would not turn Soviet policy to more peaceful ends, but rather would increase its capability to wage effective economic or political warfare against the Free World, although the Secretary was inclined to doubt it. Furthermore, we should remember that trade is a two-way proposition. When we trade with the Soviet bloc we do not give things away; there has to be an exchange of goods and advantages.

All this was one side of the picture. Beyond this side, however, we must remember that we are obliged to think of the impact of our policy on trade controls as it affected our alliances; not only the obvious impact on NATO, but the impact on other allied countries like those in Latin America, for example. In the face of an economic recession in the United States, with the resultant severe impact on industrial activity, it was going to be increasingly difficult to induce other countries to maintain restraints on their trade with the Soviet bloc when they feel they need to trade with bloc countries. As an illustration, we might take copper. The world price of copper is now approximately half what it has been. This works a very great hardship on countries like Chile and Peru, which depend on the sale of their copper. We would be in a difficult position if we find ourselves obliged to raise a protective tariff on imports of copper, while at the same time being obliged to insist that Chile and Peru refuse to sell their copper to Soviet bloc nations.

As for NATO, the pressure to trade with the Soviet bloc would become irresistible if there is any considerable recession in the United States. If we take an isolated position on this issue, our cordial relations with our NATO allies and other allies will be seriously endangered. For all these reasons, Secretary Dulles said he would personally go further than the positions outlined in the CFEP paper which was now before the Council. He would favor more liberal trade policies than this paper envisaged. He did not think that the negotiating position in COCOM proposed for the United States in this paper was sound—a negotiating position which amounted to prolonged wrangling over each item, with appeal to the three Cabinet Members (the Secretaries of State, Defense and Commerce). In support of this latter view, Secretary Dulles reminded the Council of the bitterness which had been occasioned in COCOM by the battle over the elimination of the China differential, particularly on the part of the British. Before the China differential had been eliminated, the British had been in the habit of blaming us for the fact that trade between the United Kingdom and Communist China was of negligible size. Now that the differential has been removed and the trade is still not very notable in volume, the British must blame the Chinese Communists rather than ourselves.

When Secretary Dulles had concluded his observations, the President spoke up to state that in five long years this was the first time that a voice had been raised in support of his, the President’s, position on the issue of controls on trade with the Soviet bloc, which for the most part he had considered damned silly practices (laughter).

General Cutler addressed himself to Secretary Dulles and said that he understood that in favoring liberalizing the controls on trade with the Soviet bloc, the Secretary would still maintain the controls on war-making items. Secretary Dulles replied in the affirmative, whereupon General Cutler summed up the Secretary’s position as in general following closely the British position. Both the President and Secretary Dulles said that this was correct, generally speaking; the President adding that of course we would continue to control shipment of scarce items, of which we were the sole producers, to the Soviet bloc. Secretary Dulles agreed with this proposal, and added that we would also negotiate the controls on an item-by-item basis rather than on a category basis, as the British desired.

General Cutler then called on Mr. Walter Williams, the Acting Secretary of Commerce. Secretary Williams indicated that while he was somewhat intimidated by the force of the views of the President and the Secretary of State, he still felt that he must make his differing position clear. He believed that the issue was essentially a matter of protecting ourselves by refusing to provide an enemy with items which are potentially useful and helpful, especially items involving advanced technology. He then added that he had four main points which he wished to make.

In the first place, it seemed to Secretary Williams that it was not necessary, as the CFEP paper suggested, to make a choice between maintaining an effective multilateral control system or achieving a unified allied position with respect to control levels. We don’t want merely either one or the other of these desiderata; we want both. Our negotiating approach should be to sift the list of items carefully, make up our minds which items should be controlled, and then do a job of selling our U.K. associates on our list.

Secondly, Secretary Williams wanted to ask whether our past efforts to maintain controls on trade with the Soviet bloc had been effective. Secretary Williams maintained that these efforts would seem to have been effective, because of the evidence of Soviet procurement through clandestine trade and activity. So eager had been the Soviet Union to obtain certain scarce items which had been controlled, that there was evidence that they had paid five times the original price of the items they desired. Secretary Williams cited certain instances—Soviet deficiencies in copper have been and remain very serious; so also was their deficiency in hydraulic industrial presses, where the United States was far ahead of them. Do we really want to make our technology and know-how in such areas available to the Sino-Soviet bloc?

At this point the President interrupted to ask what the argument was about. We were all agreed that items such as those mentioned by Secretary Williams should be embargoed to the bloc. The President emphasized that he had never argued that we would simply accept the British list of items to be decontrolled.

On the same subject, Secretary Dulles stated that of course he was not competent to judge the particular items that Secretary Williams had cited. It was, however, foolish to delude ourselves that the Soviets, on their part, do not have some very fine machines; the launching of the Sputniks had clearly proved this. Our previous idea of our innate industrial and technological superiority has been blasted, and properly so. If the United States and the Free World possess a real know-how and a superior technology, we should by all means restrict the export of this know-how or technology to the Soviet bloc. But we must check carefully to be sure that we do possess these advantages. Secretary Dulles also stated that he too did not propose simply adopting the British list of items to be decontrolled. He was, rather, proposing a different approach, and he did not think it very productive to battle to keep every item that we thought should be controlled on the control list.

Secretary Williams pointed out, in answer to this argument, that the United States had already made concessions to the British with respect to the decontrol of various items. Secretary Dulles replied that while we should constantly keep in mind how we could hurt the Soviet bloc most, we must not forget or overlook how we may in the process hurt ourselves and our alliances.

Secretary Williams reverted to his list of points, noting thirdly that the proposed reduction of items for control would surely increase the Soviet bloc’s capability for economic penetration of the Free World.

Secretary Williams’ fourth point was a plea that if the urgency of the situation doesn’t actually compel an answer to the United Kingdom right now, could we not postpone a decision on further reduction of the levels of control until the approach of the Summit Meeting or at least of a pre-Summit meeting. If we decontrolled too many items now, we would have nothing to bargain with the Soviet Union at these meetings.

Secretary Dulles answered this latter point by indicating that the State Department had given consideration to a delay, but had concluded that the matter could not be handled in this fashion. If postponed much longer, the thing would blow up. The Soviet Union knows very well the attitude and position of most of our allies on the issue of trade controls. Moreover, continued Secretary Dulles, he did not believe in the wisdom of negotiating with the Russians on any basis that we do something injurious to ourselves in order possibly to gain some concessions from the Soviet Union—concessions which might well prove illusory.

General Cutler then called on Secretary McElroy, who stated that he thought that Secretary Dulles’ exposition of the problem had been very persuasive. The most that he would like to add at this time was that the approach of the Department of Defense to these lists of items would be more conservative than the approach of the Department of State. However, when you added it all up, Secretary McElroy said he did not believe that it would be too difficult to reach a common point of view. Accordingly, the Defense Department did not want to take a violent position on the issue.

Secretary Dulles said that it was his guess that we would probably end up in a position somewhere about half-way between the control list desired by the British and the list desired by the United States. While the lists were not susceptible of a mathematical division, we would probably end up roughly mid-way.

The President said he was deeply impressed with the variety of considerations which entered into the development of lists for multilateral trade controls. On the other hand, if the Soviets want copper, he couldn’t think of anything that would be better for the United States now than to sell it to them. He had been under very heavy pressure by U.S. copper producers. In general, the President added, he did not believe in these restrictive trade practices except on items whose technology was known to the United States but not known to the Soviet bloc. He would like to see these lists taken up in the negotiations item by item for a careful scrutiny. The President predicted that the Free World would be stronger if we in the United States were more sensible about trade practices. The President cited Japan.

The Japanese desired to manufacture stainless steel. Our manufacturers of stainless steel wanted the President to put on a protective tariff. If he did so, what would the Japanese do?

In summing up the discussion of this item, General Cutler said that he would try to write out in general terms the desired policy guidance for the U.S. negotiators. He would submit this proposed policy guidance to the Departments of State, Defense and Commerce before showing the guidance to the President. General Cutler then outlined what he believed to be the consensus of the meeting as to the desirable U.S. position in the COCOM negotiations.

Thereafter General Cutler suggested to the President that it would be desirable for the President to ask the CFEP to review our current U.S. Economic Defense Policy (NSC 5704/3) in the light of the changes which were now contemplated in our COCOM position with respect to the level of multilateral trade controls against the Sino-Soviet bloc.

The President reiterated that he wanted a scrutiny of the lists item by item. General Cutler said that this would be done, and that the three Secretaries (State, Defense and Commerce) would agree on which items were to be decontrolled. Such a process, however, would be better accomplished in the CFEP than in the National Security Council.

Mr. Allen Dulles said that the Central Intelligence Agency ought to be brought into this scrutiny of the items on the lists, because of the immense amount of information on the subject available to that agency.

After consulting with Under Secretary Dillon, who sat behind him at the meeting, Secretary Dulles pointed out that there was very little time to reach agreement on the U.S. position, and he added that he thought the technique of having all three of the Secretaries agree on the items to be decontrolled, before they were presented in the COCOM negotiations, would not be effective. He believed, therefore, that the decision as to the actual items which we would agree to decontrol should be determined by the Secretary of State in consultation with the Secretaries of Defense and Commerce, together with the advice of the Director of Central Intelligence.

The National Security Council:⁹

a. Discussed the actions by the Council on Foreign Economic Policy, taken pursuant to NSC Action No. 1857 and transmitted by the reference memorandum of February 17, 1958, with particular reference to the U.S. position in current negotiations on multilateral security trade controls; in the light of the views of the Joint Chiefs of Staff, transmitted by the reference memorandum of February 26, 1958, and the reference Progress Report on NSC 5704/1 and NSC 5704/3.

b. Agreed that the best interests of the United States would be served by liberalizing the multilateral security controls on trade with the Sino-Soviet bloc; thereby facilitating accord with our allies and agreement on the maintenance of an effective multilateral security trade control system. Such system should continue controls on munitions and atomic energy items and on other items having a clear military application or involving advanced technology of strategic significance not available to the Sino-Soviet bloc.

c. Requested the Council on Foreign Economic Policy to review current U.S. Economic Defense Policy (NSC 5704/3) in the light of b above and of developments in such current multilateral security trade control negotiations.

Note: The action in b above, as approved by the President, subsequently transmitted to the Secretary of State for implementation, in consultation with the Secretaries of Defense and Commerce and with the advice of the Director of Central Intelligence, in relation to the current multilateral security trade control negotiations.

The action in c above, as approved by the President, subsequently transmitted to the Chairman, CFEP. [Here follow agenda items 2–4.]

S. Everett Gleason

Attachment 1

¹⁰

Briefing Notes Prepared for the President’s Special Assistant for National Security Affairs (Cutler)

February 27, 1958.

Item 1

1. The first item concerns U.S. economic defense policy and the U.S. position in the current COCOM negotiations for review of international trade controls.

2. The Council will recall that, in the course of similar negotiations a year ago, the so-called “China differential” was eliminated, with the result that the system of multilateral trade controls which applied to the European Communist bloc now also applies to China, North Korea and North Vietnam. The U.S., however, has continued a unilateral embargo on China trade.

3. During 1957, as the recently-circulated CFEP Progress Report covering that period points out, there was continuing disunity and deterioration in the overall multilateral trade control structure:

“These disturbing elements reflect the participating countries’ belief that the system needs to be revised and brought up to date. This belief is motivated partly by consideration of commercial advantage, but also by genuine concern that present controls are not an effective response to the Soviet threat.”

4. A further evidence of this deterioration was noted by the Secretary of State at the Council meeting on February 6¹¹ when he told of his talks with the British Foreign Secretary relative to new British proposals for further radical reductions in the international trade controls.

5. Since the last Council meeting, a Special Committee of the CFEP (representing State, Commerce and Defense) has submitted a report, circulated to Council members by the CFEP as a basis for discussion today, relative to the U.S. negotiating position in the COCOM negotiations.

6. There is before you a single page table showing by categories: (a) the current level of international trade controls; (b) the new international trade control level proposed by the U.K., and (c) the new level worked out by EDAC, the U.S. Economic Advisory Committee, as the U.S. negotiating position. (EXPLAIN)

7. At the CFEP meeting which considered the Special Committee’s report, these points were discussed:

a. The proposed UK reduction in controls is based on the stated British concept that such controls:

(1) should be limited to items having a direct bearing on the Soviet capabilities in an initial thermonuclear exchange;

(2) should be imposed only for strategic military purposes; and

(3) should not be directed at the Soviet industrial base, even though the strengthening of that base facilitates Soviet penetration of underdeveloped areas.

b. The basic concept underlining U.S. economic defense policy (NSC 5704/3–9/57) is:

(1) that the current Sino-Soviet threat warrants continued application of economic defense measures “to retard the growth of the war potential of the bloc and to reduce its unity” (para 1).

(2) that our attitude and program should not increase the possibility of war, and should be based upon the assumptions; (a) that interference in trade should take place “only where a clear advantage to the Free World would accrue from such interference”, and (b) that personal, cultural, and commercial contacts with the bloc have positive advantages (para 1).

c. A difference of view exists as to the U.S. negotiating position in the COCOM deliberations:

(1) State and Commerce wish general authority to negotiate downward from the agreed EDAC position, subject only to reference of proposed changes to the appropriate interagency forum.

(2) Defense wishes instead to hold substantially to the EDAC position for the present. Defense would develop alternatives to the EDAC position only after (a) there had been an attempt to reconcile international differences at a meeting of the policy-level Consultative Group, and then only after (b) a determination by the Secretary of State that further pursuit of U.S. objectives would endanger important U.S. mutual security relationships.

Defense also indicated that it was not satisfied with the effectiveness of existing controls and believed that some controlled items (e.g., tanks) were less important than some that are not controlled (copper wire).

d. There was no agreement in the CFEP with the British concept.

e. There was a belief, confirmed by reports received since, that most countries would not be prepared to go as far as the UK, but would insist on going further than the present U.S. position.

f. The CFEP, therefore, agreed that the basic issue confronting the U.S. in the current negotiations is whether: (1) to be more influenced by the objective of maintaining what the U.S. considers to be an effective multilateral control system, or (2) to be more influenced by the objective of achieving a unified Allied position with respect to the level of multilateral controls (having in mind the possibility of an upcoming Summit meeting).

g. The CFEP also agreed that any reductions from the present U.S. position (EDAC D–142) should take into account Presidential guidance on the foregoing issue and should be subject to agreement of the Secretaries of State, Defense and Commerce consistent with approved policy.

8. In their written views dated February 25, the Joint Chiefs of Staff have reaffirmed their position taken in 1957:

That any further erosion of international trade controls must be viewed as “imposing an increasing threat to our national and collective security by virtue of its direct contribution to Bloc military buildup”.

9. Call on

• Secretary Dulles
• Secretary Weeks
• Secretary McElroy

Attachment 2

¹²

Comparison of Present International Control Lists, Lists Proposed by U.K., and Lists Proposed by U.S.

	List I13(Embargo)	List II(Quantitative Control)	List III(Surveillance)
Present	181	25	63
U.K. Proposal	8514	0	0
U.S. (EDAC D–142)15	141	0	5316

0. Source: Eisenhower Library, Whitman File, NSC Records. Top Secret; Eyes Only. Drafted by Gleason on February 28.
1. See footnote 1, Document 320.
2. See footnote 4, Document 322.
3. Apparent reference to a memorandum from the Joints Chiefs of Staff, June 13, 1957, transmitted to the NSC by the Executive Secretary on June 25, in which the JCS stated their opposition to erosion of trade controls against the Soviet bloc. (Department of State, S/P-NSC Files: Lot 62 D 1, U.S. Economic Defense Policy)
4. Document 324.
5. In this memorandum, Lay transmitted the views of the JCS, February 25, in which they reiterated their opposition to erosion of trade controls against the Sino-Soviet bloc on the grounds that from a military point of view it constituted a threat to the national security. (Department of State, S/P-NSC Files: Lot 62 D 1, U.S. Economic Defense Policy)
6. Not printed. (Ibid., E/CFEP Files: Lot 61 D 282A, U.S. Economic Defense Policy, CFEP 566)
7. See Document 323.
8. Printed below.
9. Paragraphs a-c and the note that follows constitute NSC Action No. 1865, approved by the President on March 3. (Department of State, S/S-NSC (Miscellaneous) Files: Lot 66 D 95, Records of Action by the National Security Council)
10. Secret. Drafted by Cutler and Robert H. Johnson on February 25.
11. See Document 322.
12. Secret.
13. Does not include 16 International Munitions List items or 35 International Atomic Energy List items, on which the UK has made no specific proposals but which it has suggested should be reviewed. [Footnote in the source text.]
14. Early in the current COCOM negotiations the indicated tentative UK position was to retain 31 items, plus perhaps parts of 62 other items. As a result of further review, the indicated tentative UK position has been modified to retain 77 items and to add 8 new items (total of 85); to considerably narrow definitions of 30 of the 77; and to broaden definitions of 3. [Footnote in the source text.]
15. The US reductions in the three Lists (EDAC D–142 above) should be judged in the light of: (a) certain items, now listed separately, would be combined, thus reducing numbers without changing the level of controls; (b) U.S. agreement to drop List II is contingent upon international agreement to add most of its items to Lists I or III, and (c) definitions for a number of items would be broadened and the exceptions procedure would be strengthened. [Footnote in the source text.]
16. The composition of List III will be altered by eliminating altogether some of the present 63 items, by transfer of others to List I and by adding some items from List II. [Footnote in the source text.]