183. Airgram From the Embassy in France to the Department of State1
SUBJECT
- Strategic Trade Controls
REF
- Dept Circular 783872
The comments in this airgram are based on the Embassy’s experience in dealing bilaterally with the French Government on various trade [Page 522] controls. As far as COCOM controls are concerned, our comments deal with our experience in the administration of the Comprehensive Export Schedule rather than with relations with the French in COCOM itself. In evaluating the effect on US-French relations of the application of various trade controls, it is necessary to consider their cumulative effect; no one kind of controls can be identified as the chief irritant nor any one problem pin-pointed with certainty as the determining factor in any given French Government action.
Though the Department’s inquiry referred only to trade with the USSR and Eastern Europe, it is not easy to distinguish in their effect on US-French relations between US controls on trade to these destinations and such controls as the US maintains on trade with Communist China, Cuba, and South Africa. The French recognize that US controls are intended to support US objectives vis-a-vis all these countries of destination and the French decreasingly share these objectives.
Problems arise when US controls on trade more restrictive than those of France affect French businesses. Each major trade problem risks becoming a political problem which, even if smoothed over, no doubt influences French Government thinking on US investment in France, on the establishment of competitive French industry, and the search for alternative foreign sources of supply, all of which are intended to make France more independent of the US. To the extent that we are able to make our controls stick, the loss to French business resulting from our differing national policies highlights these differences and leads France to be even more critical of US policies. Where we cannot effectively enforce our restrictions, there may be come lingering resentment over the attempt—reduced perhaps by the advantage to French business of the absence of US competition.
Though there are certain common aspects to all of the problems that we have with France in the exercise of our trade controls, discussion of these problems may be described as follows:
(A) Country-of-Origin Problem:
The French readily acknowledge the US right to control direct exports from the US, but in those instances where US controls are more restrictive, the strict US rule on the retention of national identity after fabrication causes difficulties with respect to the incorporation of US components in items manufactured in France. We are not aware of any major problems of this kind with respect to the USSR and Eastern Europe. There has been some mention of our delay in permitting a US component to be used on a French computer exhibit in Moscow. The most recent US components problem (see B below) concerns the use of US-made parts in French helicopters and jet aircraft for South Africa.
[Page 523](B) US Controls to Non-Communist Areas:
As noted above, a problem has arisen with respect to the shipment to South Africa of French-made products with US components. The imposition on France of the US interpretation of the UN boycott is not welcome. Furthermore, the use of trade as a political weapon is not accepted by the French and no doubt causes some uncertainty as to how far the US can be relied upon as a continuing source of supply. In the jet aircraft case, we have heard that the French company concerned is exploring the possibility of substituting non-US parts for at least a portion of their production. If this occurs, France is likely to use the alternative sources not only for the South African market but for other areas as well. (See USUN 1468 October 12, 1966, State 54140 September 26, 1966, Paris 3334 September 9, 1966.)3
(C) French Subsidiaries of U.S. Firms:
As we read the U.S. Treasury’s Transactions Control regulations, French subsidiaries of US firms are subject to these regulations in their exports of products on the US positive list to the USSR and Eastern Europe. While we are unaware of any recent problems in this category the restriction remains. Nevertheless, the kind of problem that has arisen with respect to the exports of French subsidiaries of US firms to Communist China could arise with respect to their exports of certain strategic goods to USSR and the other Communist bloc countries of Eastern Europe, and we feel the nature of this problem, as it has revealed itself in connection with exports to Communist China, merits consideration here.
The aspect of our controls which the French find most objectionable is their extension to the exports from France of French subsidiaries of US firms. Although they do not like, as a practical matter, being dependent on a supplier who attaches conditions to the supply of his product (as in the case of US equipment for French aircraft being exported to South Africa, China, or Eastern Europe), they do not object to this type of conduct between sovereign states on grounds of principal. That is to say, if they cannot find an alternate supplier they have the choice of doing without the product or accepting the conditions. However, in the case of controls applied to French subsidiaries of US firms, they consider them an infringement of French sovereignty.4 They have difficulty making a legal case (at least for wholly owned subsidiaries of US firms), since French law imposes no legal obligations on French firms, whether French or foreign owned, to export at all, much less to the USSR or China. The legal [Page 524] basis for the action against Frehauf was, of course, the minority French interest, adversely affected by the effort of the company to get out of a contract by which it was already bound. The absence of such French legislation makes it difficult for the French authorities to assert an obligation on French subsidiaries of US firms to disregard US controls, but it does not weaken the French position vis-a-vis the US that such subsidiaries should, as a basic principle of international conduct, not be bound by US legislation, but should conform to the policies and conduct which the French authorities consider in the French public interest. This view has been repeatedly stated by French officials.
Conceivably, legislation could be enacted by France which would make it difficult for French subsidiaries to refuse orders from China, the USSR or other specified country because of legislation in the country where the parent firm has its headquarters. And of course, it would be no problem at all for the French Government in its contacts with the state trading Communist countries to encourage interest in the goods produced by these subsidiaries. However, to date the French have shown no signs of going beyond general statements.
While we do not believe that the French Government at present desires to assert its sovereignty in this area, and believe they will allow things to continue more or less as they are now, this does not exclude the possibility of a cause celebre which would oblige the Government to take further steps.
- Source: Department of State, Central Files, STR 13–1. Confidential. Drafted by Arthur P. Allen (FIN) and Selma G. Freedman and William A. Hayne (CTP), cleared by Richard Long (POL), and contents approved by Stanley M. Cleveland (MINECON).↩
- See footnote 2, Document 182.↩
- USUN 1468 was not found. Telegrams 54140 and 3334 are in Department of State, Central Files, AV 12–2 S AFR.↩
- Handwritten in the margin next to this sentence is “point already made.”↩