Foreign Relations of the United States, 1961–1963, Volume IX, Foreign Economic Policy

304. Summary Minutes of Meeting of the Interdepartmental Committee of Under Secretaries on Foreign Economic Policy⁰

Washington, January 10, 1962.

[Here follows a list of participants.]

PROBLEMS OF TRADE WITH COMMUNIST BLOC

Under Secretary of Commerce Gudeman opened the presentation by calling attention to the tables in the secret report submitted by Commerce entitled US Economic Relations with the Soviet Bloc.¹ He noted that in 1960 US total exports amounted to $18,834 million of which only $193.4 million were to Eastern Europe. The largest portion—$143.1 million—was to Poland and this was due to the PL-480 arrangement. Russia itself accounted for $38.4 million. On the import side, total US imports amounted to $14,654 million of which $80.9 million or six-tenths of one per cent, were from Eastern Europe. The tables show that the bulk of the imports from the bloc come from Czechoslovakia, Poland and the USSR and that they consisted chiefly of meat and meat products, furs, glass and glass products, platinum and benzine. Leading US exports to the bloc were wheat, barley, cotton, iron and steel mill products, and textile, sewing, and shoe machinery. Another table shows the various countries and what they get from and ship to the bloc, indicating dependence on the bloc by some of these nations.

Assistant Secretary of Commerce Behrman then made the major presentation. He thought discussion should focus on three major things: a) the assumptions on which we base our activities with the bloc; b) the policy objectives we hope to achieve; and c) specific techniques we might employ to achieve these objectives.

Basic Assumptions. Mr. Behrman listed some of the basic assumptions which underlie our approach to the problem.

1. Russia apparently wants a type of coexistence but on her own terms.

2. Russia will continue using trade to exert economic pressures.

3. A relaxation of the US position toward the bloc would be followed by an even greater relaxation of Western Europe and the less developed countries.

4. Russia is not interested in contracts with the usual commercial advantages but wants to get technological advances from the West and to avoid dependence on the West.

5. If we gain what we want in the way of trade with the bloc, it may be at the expense of other trade.

6. Russia will continue to pose problems for us by penetrating the LDC’s, and Russia’s capacity to do this will increase. We thus face a different sort of problem in interesting these countries in trading with the West.

7. Trading patterns are changing rapidly and we face a new kind of competition.

8. We cannot stop Russian efforts to expand its trade with other countries and it would be undesirable to try to stop them.

Objectives. Mr. Behrman called attention to the objectives as listed on page 4 of the above-mentioned report. He noted particularly the following:

To support the growth of free international trade and to maintain such trade on a fair and competitive basis.

To accelerate the economic growth and maintain the economic preeminence of the US and its Allies.

To promote sound and progressive economic and political growth of the newly emergent free nations and of friendly less-developed countries.

To maintain the preeminence of the US and its Allies in technological and scientific research, development and production.

These and the other objectives can be narrowed down to specific objectives which may point the way on techniques.

To try to force the Soviet bloc to trade on our terms (i.e. on an open market basis). We can do this better by waiting for them to come to us than by our seeking them out.

To provide an alternative to the LDC’s to trading with the bloc. This might involve commodity stabilization agreements.

To achieve a maximum agreement on controls by NATO countries on trade with the bloc.

To establish a means of relieving the burden on the LDC’s and others caused by any interdiction of trade coming out of situations such as that in Berlin. (This would apply to countries other than LDC’s such as Italy, Greece, Iceland, Turkey, and Yugoslavia.)

Techniques. Mr. Behrman then outlined a number of techniques which might be employed to obtain these objectives.

1. We should try again in NATO to get agreement on trading rules with the Soviet bloc. We should decide whether there is any hope of the Russians trading according to rules not incompatible with Western practices.

2. Commerce feels it is necessary to continue very strong pressure on COCOM to maximize the area of agreement or we will have to relax our unilateral controls. We must also consider whether there should be revision of Treasury controls of subsidiaries in Western Europe and whether we want to exercise control over them. These things must be examined, keeping in mind what the effect of such pressure and controls on subsidiaries would be on our relations with our Allies.

3. We should consider whether we are directing our control efforts in the wrong area. What Russia wants is capital equipment and technology, and we may have been putting too much emphasis on specific commodity imports rather than on technological data, including transfer of the latter from Western Europe. We may not have paid enough attention to component parts. We have perhaps not been sufficiently attuned to the matter of prototypes and samples. In considering this, Commerce thinks we need studies of the technological aspects of some industries and the uses made of technology in bloc countries. For example, Commerce found that a substantial part of the licenses for Yugoslavia are for electronic materials. We do not know what Yugoslavia is doing in electronics. Commerce has begun a study.

4. We should consider relaxing our unilateral controls of items not controlled multilaterally.

5. Tightening of enforcement. This has begun to be more important in terms of Cuba and Latin American countries. We are studying integrating all countries into one system instead of having classes of countries. We haven’t had the same ability to check on shipments to Cuba as on those to the bloc.

6. A program to induce trade of LDC’s to the West. This might be through a trading corporation or through preclusive buying. We should consider this even on a discriminatory basis if necessary.

Discussion

Should We Tighten or Relax Controls? Mr. Martin commented that there seemed to be some ambiguity in the presentation. On the one hand, it was implied we should extend controls across the board and on the other, that we should trade more with the bloc.

Mr. Behrman explained that he did not mean across the board but that controls should be extended to some industrial items that are not so directly related to strategic uses. He was thinking of a broader base of controls on such things as plant prototypes which the bloc could later send to the LDC’s. Mr. Behrman said that it seemed to him that we should get the maximum multilateral agreement we can on controls and then minimize the negative aspect of our controls, putting as much positive emphasis as we can on peaceful trade, such as consumer goods, and try to push through trade rules that open the way to this trade for us. In other words, we should tighten up on the technological data but loosen up in the other area.

Trade Terms. With respect to Mr Behrman’s remark about forcing the bloc to trade on free market terms, the question was asked whether we had not tried that. It was stated that this had been pushed at the end of World War II and discussed in 1956, but it did not get anywhere.

Mr. Martin said that the State Department did a very thorough study on this last spring for the White House.² Our stumbling block has been how to persuade the Soviets to desert their dogmas to do this.

Motivation for Soviet Trade. Mr. Fowler stressed on several occasions that trade with the bloc is not trading in the commercial sense, that we are dealing with a political system, and that the trade will have political consequences for the West. When we sell Russia packaged know-how in a non-military area, Russia can pull its people off this research and put them to work on missiles. Moreover, our trade enables the bloc to penetrate the LDC’s more successfully. They use our prototypes to manufacture plants which they can then offer to the LDC’s.

Mr. Martin noted that while a great deal of Soviet interest in trade is political, there seems to be some interest in trade for economic benefits. Soviet economists seem to be leaning now to the view that they can benefit from foreign trade and see some future in it for their country.

Mr. Ball said that so far as we can tell there is mixed motivation on the part of the USSR. The commercial is one component (particularly with Western Europe). Another component is economic warfare objectives; another, building up their war machine; and still another, improving their relations with the LDC’s. In shaping up a policy we, in concert with our Western Allies, should try to see what we can do to counter the components which are not commercial in character but not counter those which are commercial.

Attitude of our Allies. Mr. Ball observed that there are obvious limits to what we can obtain from the Western trading nations in the way of agreement on controls of trade with the bloc. It will be the least common denominator of their appreciation of the problem. If we talk about departing from the strategic concept and getting into a concept that has to be redefined as the mobilization base or something more than that, we have to consider the realities of getting agreement on it. Unilateral action by the US is hopeless.

Mr. Martin said that when he was in London he talked with the bankers and they could not understand our viewpoint. They have been trading with Russia for years and think they are getting the best of the deal. They see nothing but a commercial proposition. British officials are coming here next month to talk with us about trade controls and they will take the attitude that since this is a missile age, the controls we are asking are no longer relevant. This City of London view is typical of the view all over Western Europe.

Mr. Ball noted that the conditions on each side of the Atlantic are quite different. Our dependence on our exports is very low. We are concerned about our balance of payments, but we are not in as desperate straits as the UK where everything depends on trade. We must recognize that there is a difference in approach. To the UK, trade with the bloc is important to its ability to live. To the US, it is a drop in the bucket. To them, it is asking a lot to give up trade with the bloc; to us, it is nothing.

Asked if the British did not realize that they would be building up the bloc so that it would compete with them in some instances, Mr. Martin said this did not trouble them. The UK has been doing business that way for centuries. It sold textile machinery until now it has to get out of textile manufacturing itself. The British just regard that as progress.

Mr. Fowler asked whether the British recognize, apart from the military consequences of strategic items, that they enable the Soviets to beat us in the less-developed countries and the consequences of this from the free world standpoint. Mr. Martin replied that the British think that the Soviets can squeeze out what they need for this purpose in any case.

Elements Which US Must Consider. Getting back to the basic issue of whether we should try to trade with the bloc or cut off trade, Mr. Martin said that we should weigh the value of what we get from the bloc and what the value of trade is to the bloc.

Mr. Ball said two things should be considered: First, what does the Soviet Union get out of trade in terms of technical knowhow and goods? Second, what advantage does it get out of trade as pure economic warfare—the ability to disrupt markets and to penetrate the economies of other countries? There is some advantage to keeping these two things separate as they are really quite different.

Mr. Martin cited Secretary Rusk’s thinking (as stated to Kitchin Committee)³ that it is important to keep the channels of trade open as a possible means of reorienting the attitudes of the Russian people. If our consumer goods go to Russia, they will create a greater demand in the USSR for better products.

Mr. Fowler said that if there were a central strategy board representing the West and acting in concert and taking these and other things into consideration, he would feel more secure about developing more trade with the bloc. We need a coordinated free world approach to the problem of trade and economic relations with the Sino-Soviet bloc or with any of its individual components.

Significance of the Sino-Soviet Situation. Mr. Martin called attention to the fact that there may be a very great significance in the present Sino-Soviet relations. The split looks deep and it may be long-term. We have not drawn conclusions as to what this means for economic policy as yet, but it probably opens up some trade possibilities of political significance. We should be sufficiently flexible to influence this situation in the US interest.

Mr. Ball said that we will probably want to take a look soon at policy on trade with China.

Joseph D. Coppock ⁴
Executive Secretary

0. Source: Washington National Records Center, RG 59, E Files: FRC 71 A 6682, Item 53, ICFEP, January 10, 1962, Problems of Trade with Communist Bloc. Secret. Presumably drafted by Ruth S. Gold, who is listed as the Recording Secretary on the list of participants.
1. Dated January 2; a copy is filed with the source text.
2. Reference presumably is to the paper entitled “US Economic Relations with the Soviet Bloc;” for text, see vol. V, Document 71.
3. Reference is to Secretary of State Rusk’s testimony before the House Select Committee on Export Control in executive session on October 25, 1961. Portions of his testimony relating to possible economic countermeasures in the Berlin crisis are quoted in telegram 3230 to Paris, December 6, 1961. (Department of State, Central Files, 460.009/12-661) A copy of his statement is Tab 1 to the memorandum from Kohler (EUR) and Martin (E) to McGhee (M), January 25. (Ibid., S/S-NSC Files: Lot 70 D 265, NSC Standing Group—January 26, 1962)
4. Printed from a copy that bears this typed signature.