Foreign Relations of the United States, 1964–1968, Volume IX, International Development and Economic Defense Policy; Commodities

184. Airgram From the Embassy in the United Kingdom to the Department of State¹

A–1363

London, December, 9, 1966.

SUBJECT

• Problems Resulting from US and International Strategic Trade Controls

REF

• State Circular Telegram 78387²

EXCON—NATUS. As the Department is well aware, the difference between the UK and the US in the matter of export controls is one of degree. While the British Government is generally in agreement on the need for strategic trade controls, and is a participant in COCOM, they have consistently taken a liberal, and frankly commercial, view towards the question of what should be considered strategic. Historically oriented towards foreign commerce, and as a practical matter highly dependent upon it, with the foreign sector accounting for a heavy percentage of their GNP, they are much less inclined than we to sacrifice export earnings for the sake of what we may consider the greater good. Whether for this practical reason or for more philosophical reasons, the British generally favor less controls than we. When the United States, either in COCOM or through its Positive List, pushes for more stringent controls, the British are generally inclined to regard this as an unnecessary overreaction on our part. There are times, however, when they read commercial considerations into our motives, as when we proposed to COCOM a definition of “strategic computer” which would have allowed sale of the IBM 1401 and 1410, but just cut out the principal British computers (see A–1899 of February 12, 1966).³ In the case of COCOM, the multilateral committee provides a mechanism which insures that international controls reflect UK thinking. In the case of our Positive List, however, there is no such mechanism. To the extent that UK products incorporate US-origin components which are on the Positive List, to that extent the UK is brought indirectly but effectively under the jurisdiction of US export control regulations with which it does not agree. One result of this is that such US components are being designed out of as many products as possible, or are being obtained elsewhere. If this were possible in all cases then there would be little adverse effect on our relations with the UK; only our trade balance would suffer. But since the US is the only source of certain components, or the only place where sufficient quantities can be obtained, this means is not always practical. The extraterritorial jurisdiction thus exercised by the US in the British export market is keenly felt and strongly resented at all levels. The British take the position that if an item is not restricted by COCOM, then its licensing for export is a matter for British discretion, notwithstanding the origin of its components.

The British tendency to view our insistence on stringent controls as an overreaction is not ameliorated by the history of such US-backed measures as the embargo on large diameter pipe. Now that this embargo has been lifted there is no evidence that during its lifetime it had any significant effect (other than a strategically insignificant delay) on completion of the so-called Friendship pipeline. Rather it forced the Soviets to develop their own pipe manufacturing industry to the point that they may now become exporters of pipe. Our embargo forced our adversaries to do what was probably in their best economic interests. In the process, the market for western production of pipe was reduced, and in all probability some of the effects of this reduction will be permanent. It is possible to argue, as we have argued, that our embargo forced the USSR to employ scarce resources in overcoming the effects of the embargo. This is undoubtedly true. However, the British would probably agree with the French reply to this argument; an embargo on virtually any essential import commodity will force the Soviet bloc to divert resources to make up the shortage—but this is not the function of COCOM, which concerns itself only with control of strategic items, nor is it compatible with the policy of the UK (nor presumably with that of the US).

We pay a high price for our program of Strategic Trade Controls in the time and effort of the large numbers of personnel employed in its administration, in the loss to US trade resulting from its limitation of markets, in the detrimental effect on our negotiating position in several international bodies which must inevitably result from our lone insist-ence on extreme firmness in COCOM, and in the public image of obstinacy, uncooperativeness and interventionism which invariably results from press treatment of our policies. In our present efforts to control the sales of computers to Communist China we are paying yet another price. Like the boy who cried “wolf”, we have accustomed our allies to expect alarms and warnings over the relatively trivial as well as the urgent. Now, when we have again sounded the alarm over a matter of clear urgency, our allies find it difficult to heed our warning. We assume this report will be part of an effort to estimate the price of having controls. Have we any empirically determined evidence by which we may meas-ure the benefits of the program against its cost to the US in the terms outlined above? Our experience with the embargo on large diameter pipe would suggest that even the absolute benefits may be slight.

Another aspect of this problem which has caused a great deal of difficulty in US/UK relations is the extraterritorial jurisdiction that is exercised over foreign firms and individuals in the enforcement of strategic trade controls. The question of ordering British flag carriers to return goods to the US in violation of their shipping contract is a very touchy subject which has been covered in previous communications concerning the Woodham-Glovet case. The FAC’s power to freeze the US funds of British subjects without resort to due process is another potentially explosive issue.While we may be totally within our legal rights in exercising these powers, we cannot expect a normally chauvinistic press, public, or even Parliament to accept this with equanimity. Exercise of these powers is likely to have adverse effects on our relations no matter how justified we may be in their use. This does not mean we must forego use of these powers entirely. We need only ensure that they are used only in those instances where there would clearly be a net gain to our national interest. This may sound elementary, but the fact is that a predetermination of where net national interest lies has not always been made prior to taking these actions. To the best of our knowledge the FAC does not participate in any interdepartmental clearance procedure except on a post facto basis (see London’s 1513,⁴ and State 40912⁵).

For our national interests to be a net loser, an enforcement action need not be so dramatic as freezing foreign assets or giving orders to foreign flag carriers. Virtually any insistence on carrying our prerogatives to their limits may suffice. While the British do not agree with our Cuba embargo, for instance, they will not normally object to our blacklisting UK firms who divert US goods to Cuba. But related party actions can be something else entirely. The Sway Engineering affair is a good case in point (see Department’s A–240 of November 16, 1966⁶ and previous). While Sway clearly acted for the denied party, Rad-Reps, there was no question of diversion to a prohibited destination. The violation consisted solely in assisting a denied firm to sell US goods to an acceptable end-user. To treat such a situation in the same manner as an actual diversion is to invite unnecessary difficulties.

Conclusions:

In these early years of what may be the world’s first true era of multilateral relations, when countries have voluntarily surrendered more national sovereignty than ever before to the formation of economic communities, customs unions and other international organizations, it may be that we should expect countries to guard even more vigorously the sovereignty they retain. And when a single country dominates the political and economic scene as does the United States among the free-world countries, then any action of the United States which results in a real or imagined infringement of national sovereignty is likely to be felt more acutely and to arouse indignation in a wider segment of the public than would otherwise be the case. This “colossus of the north” syndrome is one we have long had to live with in our relations with Latin America and certain other areas. But we are not yet accustomed to meeting this in a country we have for so long regarded more or less as a co-equal ally. It would be foolish to disregard this attitude simply because it is emotionally, rather than logically, based.

Clearly, some aspects of our system of Strategic Trade Controls cost us a great deal more in disturbed bilateral relations alone than is gained through any eventual benefits. In order to enable us intelligently to embrace only the productive and turn away from the counter-productive, we must strive for a clearer and more realistic picture of the overall costs of maintaining an export control program on the one hand, and the actual benefits which we may realistically hope to gain from it on the other. Withholding computers from Communist China may be well worth limited disruption of our relations with the UK. Withholding tractor parts from Cuba may not be. To accomplish the former, in fact, may cost a good deal less than the latter. More importantly, our success in achieving the former may be prejudiced by our insistence upon the latter.

Bruce

1. Source: Department of State, Central Files, STR 13–1. Confidential. Drafted by John J. St. John (E/GEN) on December 8, cleared in draft by Willis C. Armstrong (E/MIN), and contents approved by Arthur A. Hartman (E/GEN). Repeated to Ankara, Athens, Bonn, Brussels, Copenhagen, The Hague, Lisbon, Luxembourg, Oslo, Ottawa, Paris, Rome, Tokyo, Bern, Stockholm, Vienna, and the Mission in Geneva.
2. See footnote 2, Document 182.
3. Not printed. (Department of State, Central Files, STR 14–2)
4. Dated August 24. (Ibid., STR 7–1 UK)
5. Dated September 2. (Ibid.)
6. Not printed. (Ibid.)