189. Current Economic Developments1
US PROPOSAL IN COCOM FOR HANDLING TECHNOLOGY CASES WAS WELL RECEIVED
The US proposal for resolution of the problem involving the supply of computer production technology to Czechoslovakia was favorably received in COCOM on September 19. We expect the proposal will probably be formally accepted when COCOM meets again October 6—after the normal 18-day period for review of our proposal and of the amended French submission to COCOM on the Fund exception case. Meanwhile, the US objection remains binding on the French and UK cases for supplying the computer technology for Czechoslovakia. (See page 5, August 15, 1967 issue.)2
We are pleased with the reaction in COCOM to our proposal and believe that we obtained the foreign relations advantages we hoped for by our handling of the Czech computer cases.
Background
The UK and France applied to COCOM for exceptions involving competing interest in the manufacture of computer central processing units and magnetic tape handlers in Czechoslovakia. (Both the British and French proposals were amended to exclude tape handling technology, the most strategic aspect of the transactions.) The British computers are believed to be independent of US subsidiaries, licensing arrangements, parts, and technology. The French firm, Bull/GE, has an American majority interest. GE has applied for a Commerce license for re-export of the US-origin parts and technology. GE also has applied for a Treasury license for the export of COCOM embargoed parts by its subsidiary in France.
These cases are the first in recent COCOM history proposing the export of technology for producing embargoed commodities. Implicit in the cases is an obligation to approve continuing export of embargoed parts, components, and peripheral equipment for carrying out the resulting manufacturing operations.
The US formally objected in COCOM to these cases. In the US view, the proposed transactions would significantly advance the capabilities [Page 536] of the country receiving the technology to produce the specific computers and magnetic tape handlers. The transactions also would materially augment the capabilities of Eastern European produced computers—both civil and military—and permit the avoidance of the present restriction in the administrative exceptions note regarding the number of memory units. We recognized that the transactions were commercially attractive but concluded that the strategic risks inherent in such exports compelled us to interpose a formal objection in these cases.
In reaching a decision to object in COCOM to the transactions, the US agencies concerned agreed not to try to stop the transactions by use of the unilateral Commerce or Treasury controls. We informed the UK and French Governments bilaterally of this aspect of our position. The French said that their principal interest was to help out a company (Bull/GE) which has a substantial American majority interest and is in financial difficulty. They went on to reiterate the disadvantages for the French of membership in COCOM because of the limits imposed on French freedom to export to Eastern Europe. The British reiterated their desire to abide by COCOM rules but pointed out the problems that could arise from a negative US decision.
US COCOM Proposal
The reactions to the US objection prompted the USG to review the Czech computer problem. We concluded that reversal of the US position on the significance of the cases in question was not warranted. We wished, however, to handle the matter so as to minimize the impact with the French and in COCOM and to attempt to use the cases to improve the handling of technology cases generally.
To this end, the US on September 19 proposed in COCOM that member countries should adopt the practice of submitting to COCOM for prior consultation technology cases applicable to design, production, and use of all embargoed items whether or not subject to administrative exception. The understanding would be that the countries will not attempt to exercise a veto in the cases, however. In making the proposal, our delegate explained that it is important to control technology related to administratively excepted items on COCOM embargo list because technology for their production is often also useful for production of embargoed items not subject to administrative exception and should, therefore, be protected. At the same time, the US recognizes the difficulty of determining which technology warrants control and submission to COCOM. The nature of this problem, therefore, argues for some agreed system of exchanging views on technology transactions.
At the COCOM meeting, France concurred in the US proposal, and the other participating countries reserved, although several commended the US for its initiative. The French stressed at the meeting that their $22 million deal included only $2–1/2 million for which a license needs [Page 537] COCOM approval. Off the record, they underscored the unemployment implication and probable closure of the Bull/GE Belfort plant if the deal is not approved. The British, apparently anxious for commercial reasons to keep the French from proceeding, stressed that no licenses should be signed in the Czech cases until completion of formal COCOM consideration of the US proposal and the revised French case.
The Chairman ruled that as long as the present procedures are in effect, the US objection is binding in both cases. COCOM will meet again October 6 after the normal 18-day period for study of the US proposal and the revised French case.
Aftermath of COCOM Meeting
The French obviously were pleased with the US proposal and apparently understand its purport in general as well as its significance for the GE/Bull case. In sum, we believe that our responsive attitude in this matter benefited US-French relations, improved the atmosphere and effectiveness of COCOM, and paved the way for tightened multilateral control over trade with Communist China.
China Differential
The bilateral discussions associated with the US proposal in COCOM have suggested that it may be feasible to amend the US proposal to provide a tighter procedure for technology exceptions cases for Communist China. It may also be feasible to establish a differential control under which exceptional exports to China would be more tightly controlled than those to Eastern Europe and under which some additional advanced equipment might be brought under embargo to China. The issue will be how much we have to reduce the East European embargo to counterbalance the coverage for China.
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