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

350. Memorandum of Discussion at the 460th Meeting of the National Security Council⁰

September 21, 1960.

[Here follow a paragraph listing the participants at the meeting and agenda items 1 (see Document 309) and 2.]

3. U.S. Economic Defense Policy (NSC 5704/e;¹ NSC Action No. 2166–b-(5);² Memos for NSC from Executive Secretary, same subject, dated July 12³ and September 2, 1960⁴)

Mr. Gray presented this subject to the Council. (A copy of Mr. Gray’s Briefing Note is filed in the Minutes of the Meeting and another is attached to this Memorandum.)⁵

Secretary Gates said this subject was a rather old one. The Department of Defense believed that the Soviet Bloc war-making potential was enhanced by trade with the Soviet Union. In the past the U.S. had had difficulty in maintaining the firmness of its allies in this field. Defense had always advocated stronger restrictions on trade with the Soviet Bloc. He believed we should have a controlled strategic list and would like to see our controls tightened. He understood that the Chairman-designate of COCOM, an Italian, believes that there is now an opportunity to add items to the strategic list.

General Twining said the Joint Chiefs of Staff, in addition to endorsing the comments of the Secretary of Defense, felt that the present policy had been approved at a time when the international situation was more peaceful and less tense than it is now.

Secretary Mueller pointed out that it was his responsibility to approve or disapprove licenses for the shipment of commodities to the Soviet Bloc. He said that in addition to the COCOM list on which our allies are agreed, there is a U.S. “positive list” of eighty items which the U.S. is not exporting to the Soviet Bloc. Of course it could be argued that any export, for instance sheet steel, a great deal of which we were now sending to the USSR, relieves the USSR of the requirement of making that commodity and therefore inures to the strategic benefit of the Soviet Union. However, Secretary Mueller was more worried about sales by U.S. nationals of industrial processes to the Soviets, whether such processes are strategic or not. Under present law and policy it is permissible for industrial processes to be sold to the USSR, thus enabling the latter’s industrial development to proceed by leaps and bounds which eliminate some of the long research and development activities necessary to the development of finished industrial processes.

The President believed that international trade was something like a horse trade. The question was, do we get greater benefits than the other side from the trade? He added that we were quite concerned by the outflow of gold, which might almost be classed as a strategic materiel. The President would be willing to ship almost any commodity to the USSR if we could receive gold in return, since gold was an important element in our economic strength. Secretary Mueller said we could not require U.S. nationals to receive gold in return for shipments to Russia. The President said it might be desirable to make a policy requiring the payment in gold for our exports to the Soviet Union. If objections to such a policy were voiced before the Supreme Court, we had an Attorney General to argue the case for us.

Secretary Dillon said we had experienced difficulties with our allies on the question of restricting exports to the Soviet Union. An agreement had been reached two years ago and the situation had been quiescent since then. An agreed list of items fully covers commodities which have direct strategic value. The view had been that trade in general industrial items should not be eliminated. The agreed list is reviewed each year. The first review took place last year and the second review is due to begin in a week or so. State and Defense are in agreement on the deletion of four items from the agreed list and the possible deletion of several more. There is also agreement that increased coverage should be sought for 23 items. Secretary Dillon felt that in the present situation we ought to look coldly and with a great deal of skepticism at any suggestion that items be deleted from the list of commodities which cannot be exported to the Soviet Bloc.

The President said the JCS views spoke of the implementation of economic defense controls being liberalized, rather than of adding or deleting items on the list. Secretary Dillon said implementation of U.S. Economic Defense Policy was good with respect to any item on the list. Therefore the question, he thought, was one of what items should be on the list.

The President asked why it was not desirable for the Department of Commerce, in considering applications for export licenses, to find out what kind of payment would be made for the export. Secretary Dillon said a great many of the transactions which the USSR attempted to arrange were barter transactions. Secretary Mueller agreed, adding that businessmen were constantly thinking up deals with the USSR and presenting them to the Department of Commerce, which generally turned them down. Each case arising under economic defense policy is presented to the inter-agency group working on this problem. Secretary Mueller noted that the Defense representative on this group usually voted against permitting trade with the USSR. Secretary Mueller said that multilateral as well as bilateral trade was often involved. The President asked whether this kind of problem could be processed through the National Advisory Council. Secretary Dillon said that a complex inter-agency organization existed for the purpose of dealing with this problem.

Mr. Randall believed that two types of controls were often confused—the multilateral controls of COCOM and the U.S. unilateral controls. He asked whether the JCS were suggesting that the U.S. initiate an entire new review of the COCOM controls. He believed such an undertaking would be hazardous. He had discussed this problem with Ambassador Burgess during his recent trip and had been told that NATO would be perturbed by a review of COCOM controls aside from the continuing review which constantly takes place in COCOM. With respect to U.S. unilateral controls, the President had established the general policy line when he said that the United States favors trade. The Department of Commerce was constantly attempting to increase our exports. Mr. Randall pointed out that exports to the USSR counted in the balance of payments the same way as exports to any other country. The President agreed but said he did not want soft currencies in exchange for our exports.

Mr. Randall said the Russians were shrewd traders whose credit was good. There was no need to worry about the soundness of the method of payment they used in making settlements for their imports. Secretary Dillon said one exception to Mr. Randall’s observation might be the barter deals which the USSR worked out. Mr. Randall believed it was in the overall interest of the U.S. not to limit trade in general. No commodity was involved which the USSR could not produce itself or buy from our allies. We had consented in advance to the sale of these commodities by our allies. Mr. Randall said there was wonderment in the business community at the idea that we should prevent the shipment of a commodity to the USSR while permitting our allies to ship it. In conclusion, he thought existing U.S. Policy on Economic Defense (NSC 5704/3) should stand as written. The President agreed. The President then remarked that the Soviet record on lend lease was not a good one. He added that in his view peaceful trade was desirable.

Secretary Mueller believed it was not in the national interest for our industrial processes and industrial secrets to be sold to the Soviet Bloc. He thought the acquisition of these processes improved the military potential of the Soviet Bloc. In response to a question from the President, Secretary Mueller said that under present rules the selling of industrial processes to the Soviet Bloc could not be halted. The process for making thermopane windows was a case in point. The Soviets could develop this process in time but they would require a long time. The President asked why the selling of industrial processes could not be stopped. He wondered whether industrial processes could not be declared strategic. Secretary Gates agreed that an industrial process could be declared strategic.

Secretary Anderson concurred in the remarks of the Secretary of Commerce. He said that ten to twelve years ago when someone invented a new industrial process, ten years were required before the process began to be used abroad. Now, however, a new industrial process comes into use abroad in about two years. We encourage private companies to engage in extensive research with the result that new processes developed by this research are exported and are soon producing goods which come back into the U.S. at a lower price than they can be produced here.

Secretary Dillon said that one problem faced by Commerce was that an industrial process which the USSR wanted has often been sold already to our allies, so that if we do not allow the sale to the USSR, the latter can obtain the process from our allies. Secretary Mueller said it was sometimes claimed that a process could be obtained from our allies when in fact the process obtained was not as effective as our own process.

Mr. Gray pointed out that U.S. Economic Defense Policy (NSC 5704/3) provided in Paragraph 11 that we should “maintain toward the European Soviet Bloc U.S. export controls over multilaterally-agreed items and over much materials, equipment, technology, and services as can be so unilaterally controlled by the U.S. as to achieve a worthwhile adverse impact on the war potential of the European Soviet Bloc or can effectively serve other U.S. policy objectives ... “⁶

The President said he believed he could apply that policy to prohibit the sale of U.S. industrial processes to the USSR. He pointed out that the word “technology” appeared in the paragraph Mr. Gray had just read. Secretary Mueller said that unilateral controls had been developed under this paragraph. Secretary Dillon believed the key to the problem was what the U.S. itself could effectively control. Mr. Gray believed that the thermopane process mentioned by Secretary Mueller could be controlled by the U.S. Secretary Mueller said the policy was one of peaceful trade. The President said trade was actually decreased by making our industrial processes available to the USSR.

Secretary Mueller hoped the Council would realize he was not in favor of trade with the Russians; in fact, he would like to cut off all trade with them. The President said he favored trade whenever the U.S. secured an advantage from such trade.

Mr. Gray believed that the policy statements in NSC 5704/3 would enable us to control the export of industrial processes. He then noted that no one seemed to be recommending a change in U.S. Economic Defense Policy. He suggested the Record of Action show agreement that the policy did not require change at this time but that the interested departments and agencies should keep the implementation of the policy under constant scrutiny.

Mr. Dulles pointed out that Cuba would soon be needing certain U.S. industrial processes in order to keep its oil industry going. Secretary Mueller said that in theory Cuba was still a friendly country and that we were not prohibiting general trade with Cuba. However, he had prohibited the export of certain items such as jeeps and crop-dusting airplanes. Secretary Anderson said our only recourse at present was to appeal to exporters not to export to Cuba. The President wondered why it would not be possible to delay clearance of ships or planes bound for Cuba. Secretary Anderson said that Cuba might need a chrome valve for its oil industry because of the use of corrosive Russian oil. Under present rules there was no way of preventing shipment of this valve to Cuba. The President said he would be inclined to delay the sailing of the ships carrying this valve for about four weeks. He felt this government had so many resources that we should not say we are helpless in the face of this kind of situation. Secretary Mueller said that he could stop trade with Cuba but we would have to make a public statement of our position. Moreover, the President could declare Cuba a Communist country, in which case commodities denied the USSR would also be denied Cuba.

Secretary Dillon questioned whether it was necessary to initiate a whole new study of the implementation of U.S. Economic Defense Policy. Mr. Gray said he had not meant to suggest that a new and separate study was required but was only recommending that the present inter-agency group keep the implementation of NSC 5704/3 under constant study. Secretary Dillon pointed out that it had been suggested that the Rand Corporation make such a study; he did not believe this would be a desirable step. Mr. Gray said the operating agencies could arrange for whatever studies they desired. He felt no new mechanism for a study should be created.

The National Security Council:⁷

a. Discussed the report on the subject by the Council on Foreign Economic Policy, transmitted by the reference memorandum of July 12, 1960; in the light of the views of the Joint Chiefs of Staff, transmitted by the reference memorandum of September 2, 1960.

b. Concurred in the recommendation of the Economic Defense Advisory Committee, as approved by the Council on Foreign Economic Policy, that existing policy on the subject (NSC 5704/3) be continued without change at this time; but agreed that the implementation of this policy should be kept under continuing scrutiny by all interested departments and agencies to ensure that it serves the purposes of retarding the growth of the war potential of the Sino-Soviet Bloc and reducing its unity. Noted that, with respect to paragraph 11 of NSC 5704/3, U.S. export controls over such materials, equipment, technology and services as can be unilaterally controlled by the United States may be imposed not only to achieve a worthwhile adverse impact on the war potential of the European Soviet Bloc, but also to serve other U.S. policy objectives, especially with regard to technology and services.

Note: The action in b above, as approved by the President, subsequently transmitted to all holders of NSC 5704/3.

[Here follow agenda items 5 and 6. There apparently was no item 4.]

Marion W. Boggs

0. Source: Eisenhower Library, Whitman File, NSC Records. Top Secret. Drafted by Boggs on September 21.
1. Reference is to NSC 5704/3, “Statement of U.S. Economic Defense Policy,” September 16, 1957, printed in Foreign Relations, 1955–1957, vol. x, pp. 495–498.
2. This NSC action, approved by the President on December 23, 1959, stated that the NSC should ask the Council on Foreign Economic Policy to undertake a review of NSC 5704/3. (Department of State, S/S–NSC (Miscellaneous) Files: Lot 66 D 95)
3. In this memorandum, Lay transmitted to the NSC a memorandum from the Secretary of the Council on Foreign Economic Policy describing the results of the Economic Defense Advisory Committee’s (EDAC) initial review of Foreign Economic Defense Policy. According to the memorandum transmitted by Lay, the EDAC recommended and the CFEP considered and approved the recommendation that “existing policy be continued without change at this time.” (Ibid., S/P–NSC Files: Lot 62 D 1, U.S. Economic Defense Policy)
4. In this memorandum, Lay transmitted to the NSC the views of the JCS on economic defense as set forth in a memorandum to the Secretary of Defense, August 15. The JCS stated that “from a military viewpoint, stringent restrictions on export trade of strategic materials with nations of the Sino-Soviet Bloc are a means of retarding the growth of the Bloc’s war making potential.” In view of the “increased world tensions since the breakup of the Summit Conference,” the JCS recommended tightening controls on trade with the Sino-Soviet bloc. (Ibid.)
5. Attached but not printed.
6. Ellipsis in the source text.
7. Paragraphs a and b and the Note that follows constitute NSC Action No. 2304, approved by the President on October 5. (Department of State, S/S–NSC (Miscellaneous) Files: Lot 66 D 95, Records of Action by the National Security Council)