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

342. Memorandum From the Secretary of the Council on Foreign Economic Policy (Cullen) to the Council⁰

CFEP 579/1

January 19, 1959.

SUBJECT

• CFEP 579—Economic Defense Policy

1. On December 4, 1958 the Chairman of the Council on Foreign Economic Policy requested the Economic Defense Advisory Committee (EDAC) to examine and submit recommendations on U.S. Economic Defense Policy (NSC 5704/3).¹

2. Attached as Inclosure 1 is the report by the Chairman of EDAC submitted pursuant to the above.

3. The Chairman, EDAC, reports that all EDAC agencies except the Departments of Treasury and Commerce support a continuation of the present policy. Commerce recommends a cessation of all trade with the Soviet bloc except where a clear advantage would accrue to the United States. Treasury reserves its position. The language required to effect the changes in policy proposed by Commerce are contained in Tab A, Inclosure 1. Justification for the Commerce proposal appears in Tab B, Inclosure 1.²

4. Inclosure 2 contains our present Economic Defense Policy (NSC 5704/3) together with the changes recommended by Commerce for changing this policy.

5. In addition, the Department of Defense, with the concurrence of EDAC, recommends that a study be made by a group outside of Government to determine the relative advantages and disadvantages to be derived from an expansion of peaceful trade with the Soviet bloc.

6. The National Security Council (NSC) on January 15³ considered a CFEP recommendation concerning the question of trade with Communist China by foreign based subsidiaries of U.S. companies (See Incl. 3). The NSC deferred action on this recommendation pending completion of this review of U.S. Economic Defense Policy by the CFEP. This matter and the EDAC recommendations have been scheduled for CFEP consideration on Thursday, January 22, at 4:00 P.M. in Room 213 of the Executive Office Building.⁴

Paul H. Cullen
Lt. Col., USA

Inclosure I

⁵

Memorandum From the Chairman of the Economic Defense Advisory Committee (DeLany) to the Chairman of the Council on Foreign Economic Policy (Randall)

January 14, 1959.

SUBJECT

• Economic Defense Policy Review

REFERENCES

• 1. Your memorandum to me dated December 4, 1958⁶
• 2. NSC 5704/3, U.S. Economic Defense Policy
• 3. EDAC D–154, December 5, 1958⁶

Pursuant to the request contained in your memorandum (Reference 1), the Economic Defense Advisory Committee has taken under consideration current economic defense policy (Reference 2). Only the Department of Commerce has made recommendations for changing current policy.

The major Commerce proposal is attached as Tab A. The Commerce memorandum to EDAC which explains the reasons for these changes is attached as Tab B.

Commerce recommends, in effect, the reversal of the present attitude toward “peaceful trade” and the substitution of economic warfare approach. The concept now contained in our policy provides for interference with trade only where a clear advantage to the free world would accrue from such interference (Reference 2, paragraph 1). Commerce takes the position that “peaceful trade” with the USSR is incompatible with the current situation brought about by the Berlin crisis and by what Commerce interprets as the USSR declaration of economic warfare and its dumping of goods in free world markets. Commerce proposes a policy which would deny U.S. exports of strategic or nonstrategic goods to the USSR unless such exports are individually determined to be to the advantage of the U.S.

The Department of State considers that the proposals of the Commerce Department would reverse established policy as expressed by the President and by existing policy directives. The Department does not interpret the existing situation as requiring such a reversal of policy. The Department favors a continuation of the present policy on the grounds that it provides desirable flexibility for dealing with the Soviet bloc on trade control questions. The achievement of any effective impact upon the military and economic capabilities of the Soviet bloc is dependent upon multilateral actions. On the basis of the known attitudes of other cooperating countries, there is little likelihood of obtaining their support for a tightened control policy. Moreover, assuming the maximum level of $150 million annually for U.S. exports to the USSR, outlined in SNIE 100–8–58,⁷ the denial of U.S. present or potential exports to the Soviet bloc would not significantly affect the bloc’s ability to continue to engage in economic penetration activities in free world countries.

The Department of Defense feels that a greater effort should be made to overcome the many shortcomings in the implementation of the present policy, but that beyond that a whole new approach to the problem of our over-all economic posture, vis-à-vis the Soviet bloc, is needed. Defense feels that an impartial study to determine the relative advantages and disadvantages to be derived from a change in policy should be made by qualified experts (preferably an outside of government research organization) before a sound position can be taken. The Commerce proposal, it seems to Defense, underlines the need for such a study.

EDAC generally supports the Defense proposal for a study. State endorsed the proposal with the understanding that current policy would apply pending the completion of the study.

EDAC notes that if economic defense policy is changed as recommended in the Commerce document (Tab A), there would be a need for reviewing several other NSC policy statements. These include, but are not limited to, the following: 5706, 5726/1, 5808/1, 5810 and 5811.⁸

It would be necessary for EDAC to consider very carefully the new courses of action which would be necessary to implement such revised policy and, further, that it would be necessary to revise and expand the terms of reference of the Advisory Committee on Export Policy and the terms of reference of the Economic Defense Advisory Committee itself because neither Committee has as a current frame of reference either economic warfare concepts or policies designed to provide countermeasures for the penetration efforts of the Sino-Soviet bloc.

It is recommended that the CFEP consider the revision of policy proposed by the Department of Commerce in Tab A. EDAC has been unable to agree to this proposal. The positions of the Departments of Commerce, State and Defense are stated above. The Department of Agriculture, the Office of Civil and Defense Mobilization and the International Cooperation Administration support a continuation of the present policy. The Treasury Department reserved its position.

0. Source: Eisenhower Library, White House Office Files, Staff Research Records, East-West Trade. Secret. T.W. Stanley sent this memorandum with its enclosures to Goodpaster in the hopes of getting the issue placed in the President’s Staff Notes. On January 27, a summary of the issue was included as item 2 of Staff Notes No. 491, which was seen by the President. (Ibid., Whitman File, Eisenhower Diaries)
1. See footnote 1, Document 320.
2. Attached but neither printed.
3. See Document 341.
4. At its January 22 meeting, the CFEP considered CFEP 579/1 and agreed that existing U.S. Economic Defense Policy should be continued pending a CFEP study of the effectiveness of implementation of existing NSC policy on trade with Russia. The study was to be undertaken by a committee made up of representatives of the Departments of State, the Treasury, Commerce, and Defense, and chaired by Commerce. The committee was asked to report in 60 days on the terms of reference for a study by an outside agency on the advantages and disadvantages to the United States of peaceful trade with the Soviet Union, who should make the study, and how it should be financed. (Minutes of the January 22 meeting of the CFEP; Eisenhower Library, White House Office Files, Staff Research Group Records, Economic Policy)
5. Secret.
6. Not found.
6. Not found.
7. Document 335.
8. NSC 5706, “U.S. Policy on Defectors, Escapees, and Refugees from Communist Areas,” February 13, 1957; NSC 5726/1, “U.S. Civilian Aviation Policy Toward the Sino-Soviet Bloc,” November 22, 1958; NSC 5808/1, “U.S. Policy Towards Poland,” April 16, 1958; NSC 5810, “Basic National Security Policy,” May 1, 1958; and NSC 5811, “U.S. Policy Toward Soviet Dominated Nations in Eastern Europe,” May 9, 1958.