154. Summary of Record of the 527th Meeting of the National Security Council1
U.S. Trade Relations with the USSR, East European Communist Countries
Secretary Hodges, as Chairman of the Export Control Review Board, briefly summarized the Board’s discussion and inability to reach agreement.2 He gave in detail the Commerce Department’s view.
Secretary Freeman, speaking with emotion, said the decision on the beet harvesters involved a decision as to how much we want to help Soviet agriculture. He argued that beet harvesters and fertilizer plants (see attached list),3 as well as any other advanced technology, would help the Russians deal with one of their most difficult problems, i.e., how to increase their food production.
Secretary Ball pointed out that the beet harvesters involved could be bought elsewhere in Europe. Soviet possession of the beet harvesters would be marginal because if the Soviets wanted to get the machines they could get them if they paid enough for them elsewhere. The Soviets can make effective propaganda use of our refusal to sell them machines which increase their food production. He asked whether anyone thought we were now conducting economic warfare against the USSR. If we decide to do so we would lose much and gain very little. To adopt the policy of trying to suppress agricultural production in the USSR would be to follow a different course of action than we were now following. As regards the sale of petro-chemical plants, this is a different issue because such plants verge on being strategic by definition.
Ambassador Thompson said our only hope of achieving peaceful coexistence lies with the Soviet people. If they are led to believe that we are refusing to assist their government in increasing food production, they might then turn against us. In addition, the sale of the machines to the Soviet Union would be a helpful move at a time when they are in deep trouble with the Chinese. There appears to be no way to prevent the Russians from getting the machines from other buyers in Europe.
Secretary Freeman asked again whether we wanted to help the Russians overcome their agricultural failure. When they are in trouble, do we want to make them look good?[Page 455]
Secretary Ball said an issue of broad policy is involved. What we can do in this field of trade is very small. We can get no support from our allies if we try to prevent trade in peaceful goods. Mr. McGeorge Bundy said the question came down to one of whether we wanted to delay their getting the beet harvesters for a short time, at the cost of giving up Soviet peaceful trade and forfeiting important political advantages.
Secretary Hodges said he was not proposing to engage in economic warfare with the USSR. He merely wanted to try to see if we could get some quid pro quo from the Soviets in return for selling them advanced agricultural machines and technological data. Could we not do some of the negotiating now and more later after the elections?
Secretary Ball said that after the elections we could consider broad trade negotiations with the Soviets. In such negotiations the Russians would want to talk about credits and most-favored-nation trade treatment. In such negotiation we might be able to gain such advantages as protection of patent rights, etc. However, we cannot get a quid pro quo for a small sale. We must either sell these machines unconditionally or give up the idea of selling them.
Ambassador Stevenson asked whether we could license the equipment rather than sell it to the Russians. Secretary Hodges said it might be possible to do this. In addition, we could ask the Soviets to give us a written agreement that they would not copy the machines.
Secretary Freeman said the case was not a small one because the Russians wanted huge fertilizer plants involving highly advanced technology. If we gave them such technology the amount of fertilizer they would produce would be sufficient to make a big difference in their total agricultural production.
Director McCone said that as regards the fertilizer plants, the Russians could get them in Europe. In flat opposition to the statement made by Secretary Freemen, Mr. McCone said we had no corner on technology covering fertilizer plants and that the difference between our plants and European plants, including Russian plants, was very little indeed.
In response to the President’s question, Deputy Secretary Vance said his view was a very simple one, i.e., we have something unique to sell; therefore, let us get a quid pro quo for it.
Secretary McNamara pointed out that if the Russians wanted to obtain the machines or the plants they could do so either by secretly blueprinting one in the U.S. or purchasing them elsewhere. He did not think that we should pay a substantial price for not making the sales, especially if a political loss is involved. He thought that we ought to try to get a higher price for the technical data which would be involved, but that this would be for the sellers to try to get.
Mr. Buddy asked whether the manufacturers or the U.S. Government should attempt to get a higher price for the technical data involved. [Page 456]Secretary McNamara replied that the Government should attempt to get a general agreement covering all sales and that individual sellers could operate under this cover.
Secretary Ball said it was up to the manufacturers to protect their technology. They could obtain a price for the technology by increasing the price of the produce sold to the Soviets. He said that the U.S. Government should not go in to try to protect a private dealer. The Government is not in a position to police any such agreement in the USSR. We must rely on the seller to include in his sales price a sufficient amount to cover the technology involved.
Mr. Buddy pointed out that although we have tried over the years we have so far not yet solved even the simple problem of protecting U.S. copyrights. Ambassador Stevenson pointed out that he himself had negotiated unsuccessfully with the Russians as the representative of the writers and publishers.
Mr. McCone said the Soviet lag in agriculture is due to disorganization and lack of incentive. Modern machines will not solve this problem nor will they have a major effect on Soviet production. In response to the President’s question, Mr. McCone recommended that we approve only small transactions until a broad policy decision is reached. He recalled that a Congressional committee has questioned him closely on the sale of U.S. wheat to the USSR. He said if we sold agricultural equipment to the USSR and not to Cuba we would have difficulty in explaining why. He then read U.S.-Soviet trade figures and made the point that U.S. trade of approximately $44 million is a tiny part of the total Soviet trade of approximately $4 billion annually.
Secretary Freeman said he had had the same trouble as Mr. McCone in explaining to a Congressional committee why we were selling wheat to the Communists and opposing peaceful trade with Cuba. He thought we should try to avoid further discussion of this matter until after November. (The President intervened to add that after November we may not have to answer Congressional questioners.)
In response to the President’s request for his views, the Speaker said he wondered what our position would be if the situation were reversed. He reminded those present that he had always fought for foreign aid and that he always put the national interest uppermost. He then noted that the ability of the Soviets to carry on their economy is a part of the cold war.
There followed a discussion on how long it would take the Russians to mass produce a U.S. machine used as a prototype. Secretary Freeman said it would take two to four years. Secretary McNamara said it would take a very short time.
Secretary Freeman said that if we helped the Russians to produce sugar surplus to their domestic needs they would then try to affect the [Page 457]world sugar market. Mr. Buddy pointed out that any reduction in the world price of sugar would create real difficulties for Castro.
The President asked how we answered the argument about why we opposed the British sale of buses to Cuba. Mr. Ball replied by saying there was a great difference between sales to the USSR and sales to Cuba. Cuba is small. The USSR economy is huge. The sales we are talking about to the USSR are a tiny part of a huge market. If we refuse to sell the goods now under discussion, our action would be no more than a small mosquito bite. However, sales to Cuba might make the difference between whether the economy continued to operate or whether it broke down. Our purpose is to maintain our relations with the Soviet Union in the current period, avoiding minor irritations during a period of uncertainty in the Soviet Bloc. The sales issue is not important enough to risk hampering our policy of keeping our relations with the USSR steady.
There followed a discussion as to whether we had superior technology which the Russians wanted. Secretary Freeman argued that we did and Director McCone argued that the differences were very small. Mr. McCone said the Russians could buy fertilizer plants equal to ours in the U.K. and in Italy.
Secretary Hodges, indicating considerable irritation, said our allies were making monkeys of us. They are selling to the USSR and we are not. If we decide to sell to the Soviet Union, we should go in whole hog and seek to obtain a major market.
Mr. Buddy, noting that Secretary Dillon was not present, said he thought he should state the Secretary’s views., i.e., we can probably keep our allies from granting credit to Cuba, but we cannot prevent them from selling to the USSR.
Secretary Ball suggested that we decide to approve the specific items under discussion and then look toward broad trade negotiations about the end of this year. As to petro-chemicals, he repeated his view that his is a hard case and it is another problem because it affects the life of our oil investments. He opposed issuing licenses in this area. He suggested we wait until the end of the year to decide whether we want to undertake trade negotiations with the USSR.
The President asked Governor Herter for his views. Mr. Herter said that weighing the considerations was very difficult. He felt that the Soviet reaction to a denial would be greater than any gain to us. He pointed out that foodstuffs are in a different category than other goods and recalled that in 1922, when our attitude toward the USSR was very hostile, we shipped food to the USSR. Actions having to do with the production of food are very sensitive indeed. All that we would be doing by denying the licenses would be slowing up food production in the USSR slightly.[Page 458]
Ambassador Stevenson said that for years he had urged an increase in non-strategic trade with the USSR. The Russians will get their machines from somewhere. There is no net gain in denying the licenses. The only result would be to heat up the cold war. Trade relations with the USSR should be reviewed after the elections. He had tried and failed to persuade the Russians to deal properly on the issue of copyrights. He suggested that we might try to license the equipment to the USSR in return for their agreement not to sell copies of the equipment outside the USSR. Acting USIA Director Wilson said that granting the licenses would produce a favorable foreign reaction and that the refusal would give the Soviets an argument against us.
Mr. McDermott said he did not understand why the Russians would be upset if we refused to make a sale of such small size. He thought that such a sale would be very difficult to explain to the American people.
The President commented on the broad implications of East-West trade. He said he was encouraged that the Foreign Relations Committee was studying this problem. He thought that we should try to get an overall position and suggested that one thing we might do is to list those things we want from the Russians in return for our sales, such as a prohibition on the sale of our machines outside the USSR. If we let the Russians think that we will sell them the items now under discussion without asking them for anything more than the sales price, the Russians will conclude that we would be prepared to sell them anything they wanted. He said we should not take any immediate action. As to how the Russians would react, he said that if we held back the sales or even refused to make them, he doubted the Moscow reaction would be strong. We should explore the problem and consider it further. If we make this sale, would it lead to other sales? One sale will determine our general policy. We are doing everything to encourage good relations and ease tensions. If he had to decide now, which he did not think he had to, on balance, he would let the Russians have the machines because there would be no real damage to us. However, we must retain our self-respect and let the Russians know that in our dealings with them it is a two-way street. We give and we get. He said no one in the room wanted to agree to large industrial sales to the USSR certainly in the next six months because of the difficulty of dealing domestically with such sales.