59. Memorandum From the Executive Secretary of the Department of State (Battle) to the President’s Special Assistant for National Security Affairs (Bundy)0

SUBJECT

  • Legislation to Deny Most-Favored-Nation (MFN) Treatment to Poland and Yugoslavia

If successful, current efforts to deny Most-Favored-Nation (MFN) treatment to Poland and Yugoslavia, by specific legislation, would jeopardize much of our policy toward those countries. The denial of MFN treatment to Poland and Yugoslavia would run directly counter to our policy, which has been to draw those countries closer to the West and to provide an alternative to their dependence on Soviet Bloc countries in trade and other fields. Such legislation would also be undesirable in that it would limit Presidential flexibility in dealing with our bilateral relations with Poland and Yugoslavia.

The material effect of the denial of MFN treatment to Poland and Yugoslavia would not be substantial in terms of our own import trade, and might not be great in terms of present levels of Polish and Yugoslav export trade to this country. However, it could seriously impede the growth of their trade relations with this country in particular, and, by limiting their earnings, with the West in general. We could also expect our action in withdrawing MFN treatment to serve in a real sense as an indication to our allies of a hardening attitude and policy toward both Poland and Yugoslavia. We could expect such an interpretation to encourage in Western Europe the taking of harder lines toward Poland and Yugoslavia not only in the field of trade but in other broader areas of policy. Our action might indeed be welcomed by nations whose products compete with those of Poland and Yugoslavia, e.g. Greece, and any subsequent action on our part to restore MFN treatment to these countries could be made difficult by such attitudes on the part of our allies.

The ultimate consequences for Polish and Yugoslav policies would be out of proportion to the effects of our action in the field of trade. The Polish and Yugoslav reactions would probably be extreme. The full consequences of our action would be certain to slow the existing favorable developments in extending our influence in those countries. Additionally, we would have to reckon with the possibility that past favorable [Page 121]developments might even be reversed. Taken in conjunction with other factors in today’s international situation, such as Soviet pressures on Poland to support fully Soviet policies in Germany, and Polish and Yugoslav fears of the possible effects of the Common Market on their European trade, we could expect a realistic if not pessimistic reassessment on their part of the desirability of relying upon the West. This is particularly true of pro-Western individuals who may have staked their personal positions upon the prospects of the increasing association of their country with the West and who would suffer disillusionment at this negative and backward-turning action of the United States.

With specific reference to Poland, it will be recalled that on April 16, 1958, in the wake of the changes which had taken place in Poland since 1956 and consistent with developments in United States policy toward Poland, President Eisenhower approved a recommendation that Most-Favored-Nation status be restored to Poland at an appropriate time.1 It was subsequently decided that this action should be taken as soon as a nationalization claims agreement was concluded with Poland.

During negotiations leading toward a claims settlement, United States representatives informed the Poles of this. A claims agreement was concluded with Poland July 16, 1960 and, on November 16, 1960, the President ordered the restoration of MFN status to Poland.2

The implicit finding that Poland was eligible for MFN status within the meaning of Section 5 of the Trade Agreements Extension Act of 19513 was analogous to the earlier explicit finding by the Secretary of State that Poland was a “friendly nation” within the meaning of PL 480, the criteria for such determination being identical for the two acts.

In restoring MFN status to Poland, we had in mind the connection between Poland’s ability to earn dollars in the United States market and its ability to meet its substantial dollar obligations to the United States. These include contingency fund credits totalling $61 million, dollar repayment obligations under PL 480 agreements which, by now, exceed $400 million, obligations to American national holders of Polish dollar bonds, and $40 million in settlement of nationalization claims.

In the case of Yugoslavia, there is no reason consistent with the established legislative criteria dealing with MFN treatment which would justify taking what amounts to punitive action against Yugoslav trade with the United States. There is no question of Yugoslav domination by [Page 122]the world Communist movement, and Section 5 of the Trade Agreements Extension Act of 1951 has never been applicable, therefore, to Yugoslavia. We are convinced that the withdrawal of MFN treatment would be interpreted as an indication that the United States considers Yugoslavia has returned or is in the process of returning to the Bloc.

There can be no doubt that the taking of legislative action to deny MFN treatment to Poland and Yugoslavia would constitute a reversal in a real sense of our long-standing policies toward these countries. Moreover, in the case of Poland the withdrawal of MFN treatment would clearly violate our assurances given to that country at the time of the negotiation of the United States-Polish claims agreement. In neither case can we see any justification nor any gain but only loss. We urge every effort to forestall this action.

Lucius D. Battle4
  1. Source: Department of State, Central Files, 411.4841/5–362. Confidential. Drafted by Barnsdale and Wortzel and cleared by Weiss, Tyler, and Vedeler.
  2. For text of NSC 5808/1, see Foreign Relations, 1958–1960, vol. X, Part 2, pp. 110120.
  3. For text of the agreement on the settlement of claims against Poland, see 11 UST 1953. For text of the letter from President Eisenhower to the Secretary of the Treasury restoring MFN status to Poland, see Department of State Bulletin, December 5, 1960, pp. 863–864.
  4. For text of P.L. 50, the Trade Agreements Extension Act of 1951, approved June 16, 1951, see 65 Stat. 72.
  5. Printed from a copy that bears this typed signature. E.S. Little signed for Battle.