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

329. Memorandum Prepared in the Department of State⁰

June 16, 1958.

NOTES ON THE EXPANSION OF US–USSR TRADE

I. Summary of Khrushchev Proposals

In his June 2 letter to the President,¹ Mr. Khrushchev made the following main proposals:

A. Massive expansion U.S.-Soviet trade in “non-strategic” goods. Soviet purchases concentrated chiefly on industrial equipment, especially for the production of synthetic materials and consumer goods. Soviet exports would comprise chiefly basic commodities, such as manganese and chrome ore, asbestos, lumber and furs.

B. Expansion could be accelerated by long-term U.S. credits.

C. Conclusion of licensing agreements and various proposals to exchange technical information.

D. An inter-governmental trade agreement.

II. Major Considerations

The major considerations in our response to the Khrushchev letter are political. The economic consequences of an affirmative reply would be relatively small. In any event, the volume and composition of our exports would be controllable by the United States.

A. In favor of acceptance:

1. It would be viewed abroad as concrete evidence of our interest in a relaxation of East-West tensions, a rapprochement with the Russian Government, and our interest in the Russian people.

2. It might reduce Russian suspicion of U.S. policy.

3. It would avoid the unfavorable repercussions abroad of a rejection of what appears to be a bona-fide offer to trade. (The letter is not an obvious attempt to make propaganda points against the U.S.)

4. It would provide increased opportunity to expand our contacts with the Soviet people.

5. If the U.S. does not supply the non-strategic goods referred to in Khrushchev’s letter, the USSR will probably be able to obtain them elsewhere in the free world, particularly in the U.K. and Germany.

B. Against acceptance:

1. An attitude that suggested rapprochement with the USSR might weaken the solidarity of the anti-Communist coalition. In particular, it might weaken the current unity of purpose of NATO and other free world military alliances.

2. It would discourage anti-Russian elements in the satellite countries.

3. It would accelerate the trend of primary producing countries toward expanding their trade and making long-term purchases and sales agreements with Communist countries.

4. Increased U.S. imports from the USSR would be at the expense of imports from free world countries, largely the primary producers.

III. Other Considerations—Economic

A. Khrushchev’s letter of June 2 is consistent with his May 6 speech to the Central Committee Plenum announcing plans for a rapid expansion of the chemical industry, particularly synthetics, and with Soviet decisions to expand consumer goods output. This indicates that the letter is not entirely a propaganda gambit.

B. Expanded trade between the U.S. and USSR would contribute, to a limited extent, to the economies of both countries. It is unlikely that the trade would become a large proportion of the trade of either country. In 1956, U.S. exports to the USSR were $3.5 million; U.S. imports from the USSR were $16.5 million.

C. The USSR could expand its imports from the exports to the U.S. without any change in U.S. policy and without any trade agreement. U.S. policy (see IV below) only moderately affects our imports.

D. However, U.S. exports to the USSR are limited by a variety of legal, extra-legal and administrative factors.

E. It is not likely that increased trade would directly affect the military strength of either the U.S. or the USSR. The amount of resources which both countries devote to military purposes is independent of the amount of trade between them.

IV. U. S. Obstacles to Expansion of Trade

A. Political

The strong anti-Communist sentiment in the U.S. and the non-committal Government attitude toward legal trade with the USSR are major factors inhibiting American business from exploiting trade opportunities with the USSR.

B. Legislative

1. Section 5 of the Trade Agreements Extension Act of 1951 prohibits the applications of MFN treatment to the USSR. Thus, it does not have the benefits of the U.S. tariff reductions which have been made since 1934.

a. A detailed analysis of the items in Khrushchev’s letter indicate that the lack of MFN status for the USSR has probably had only a limited effect on the volume of U. S. imports from that country. Many of the items in Khrushchev’s letter, e.g., chrome ore, platinum, palladium, asbestos, certain potassium salts, cellulose and paper products, certain chemical products, some undressed furs, iron ore and sausage casing, are free of duties or restrictions. Lack of MFN treatment probably prohibits imports of Soviet manganese ore and certain ferrous alloys.

b. Nevertheless, the Soviets may attach an importance to the denial of MFN treatment out of proportion to its actual economic value.

c. An Act of Congress would be required to extend MFN to the USSR.

2. Section 307 of the Tariff Act of 1930 prohibits the importation of products made by forced labor. In a 1951 finding under this Act, imports of canned crab meat from the USSR were prohibited. In 1950 these imports amounted to $2.3 million.

3. Section 11 of the Trade Agreements Extension Act of 1951 prohibits the entry of seven specified furs from the USSR and Communist China. Imports of undressed furs declined from $21.1 million in 1951 to $12 million in 1953. The decline of $9 million is largely attributable to this Act.

4. The Johnson Act² makes it a criminal offense for any private American firm to make a loan to any country which is in default on a debt to the US and is not a member of the IBRD and the IMF. This law would have to be repealed or the Soviet Union would have to join the named international institutions to permit private US credits to be granted.

5. The Mutual Defense Assistance Control Act (Battle Act) might be interpreted as preventing the US Government from granting economic aid to the USSR.

6. The Export Control Act of 1949 authorizes the President to prohibit or curtail the export of “strategic” goods to the Soviet bloc. In contrast to the legislation noted above, which would have to be repealed in order to permit trade to expand or public and private credits to be extended, the Export Control Act of itself does not severely restrict U.S. exports. It is the administration of the Act which is determining. The President has the authority to designate the goods which are “strategic” and which are not. This list is under continuous review and change.

C. Administrative

The administration of the Export Control Act is the major governmental device limiting U.S. exports to the USSR. This could be altered by Executive Branch decision.

1. The Commerce Department estimates that under current practice, some 95 percent of the commodity groups in the Khrushchev shopping list would require individual export licenses. Only a few items could be shipped without hurdling this administrative obstacle.

2. a. There would be a presumption of approval for refrigerator equipment, air-conditioning installations, and equipment for the cellulose paper and wood processing, textile, leather footwear and food industries.

b. The rest of the equipment categories on page 6 of the Khrushchev letter would not carry a presumption of approval since most of them are metalworking, pumps and compressors, or electronics equipment.

3. The U.S. now denies licenses for the export of some goods which are not embargoed by other countries. The current COCOM review of the international list is likely to reduce the international “strategic” list and may logically be expected eventually to lead to a modification of the more stringent U.S. export control requirements. The latter decision, however, is independent of the former.

4. In 1957 export license applications for shipments to the USSR amounted to $24 million. Of this, $13 million were approved, $11 million were rejected. The Department of Commerce estimates that as much as 90 percent of the licenses rejected were for items not on the international list.

V. The Request for Credit

A. It is not politically and probably legally impossible for the U.S. Government to extend credit to the USSR.

B. In a reply we should note that the USSR has relatively large financial (gold) and economic resources available to it and that the U.S. desires to direct its assistance to countries, principally the underdeveloped ones, which are in greater need.

C. It is possible that the USSR intended to suggest that normal private commercial installment financing for their purchases of long-term capital equipment be made available. The Johnson Act may prevent the extension of such credit by private institutions if these were interpreted as “loans” within the meaning of the Act.

0. Source: Eisenhower Library, CFEP Chairman Records. Official Use Only. Drafted by Herbert F. Propps and Alfred Reifman of the Office of International Trade, Trade Agreements and Treaties Division, Bureau of Economic Affairs. According to an attached covering memorandum by Cullen to the CFEP, June 23, this memorandum was prepared to supplement general discussions at the Council on the Khrushchev letter and would not be subject to further Council action.
1. Khrushchev’s letter of June 2 and Eisenhower’s response of July 14 are printed in American Foreign Policy: Current Documents, 1958, pp. 846–850.
2. April 13, 1934; 48 Stat. 574; as amended by the Bretton Woods Agreement Act, July 31, 1945; 59 Stat. 516.