Office of the Historian

Summary

Table of Contents:

  • Foreword
  • Foreign Assistance Policy
  • International Investment and Development Policy
  • Economic Defense Policy
  • Commodities and Strategic Materials

Foreword

(This is not an official statement of policy by the Department of State; it is intended only as a guide to the contents of this volume.)

Since 1861, the Department of State’s documentary series Foreign Relations of the United States has constituted the official record of the foreign policy and diplomacy of the United States. A staff of historians in the Office of the Historian collects, arranges, and annotates the principal documents comprising the record of American foreign policy. Volumes in the Foreign Relations series are published when all necessary editing, declassification, and printing steps have been completed. Among the most recently published volumes in the series are Foreign Relations, 1961–1963, Volume XI, Cuba, Cuban Missile Crisis and Aftermath, 1961–1963, Volume X, Cuba, 1961–1962, including the Bay of Pigs operation, and 1964–1968, Volume XI, Arms Control and Disarmament.

The documents in this volume are drawn from the centralized indexed files of the Department of State and the decentralized Bureau, Office, and other lot files of the relevant Departmental units. The volume also includes records from the Department of Defense, the Department of Commerce, and the Agency for International Development. In addition, the editor made extensive use of the Presidential and other papers at the John F. Kennedy Library in Boston, Massachusetts, and the Lyndon B. Johnson Library in Austin, Texas.

A distinctive feature of this Foreign Relations volume is that it is one of the first to utilize the tape recordings of President Lyndon B. Johnson’s telephone conversations. Following access by Department of State historians to these telephone conversation at the Johnson Library in early 1995, Department historians have listened to hundreds of these taped conversations, and transcripts have been prepared of important conversations to supplement the documentary record. Although only a half dozen extracts from the telephone conversations are published in editorial notes and footnotes in this volume, they help to document more fully the President’s active involvement in the serious discussions about and decisions on foreign economic policy.

Most of the documents printed here were originally classified. The Information Response Branch of the Office of IRM Programs and Services, Bureau of Administration, Department of State, in concert with the appropriate offices in other agencies or governments, carried out their declassification.

The following is a summary of the important issues covered in the volume. Parenthetical citations are to numbered documents in the text.

Foreign Assistance Policy

At the beginning of 1964, Johnson administration officials weighed the effects of Congressional cuts to the White House’s foreign assistance request for FY 1965. Essentially, as David Bell, Administrator for the Agency of International Development (AID), reported, Latin America looked to be well funded, other foreign assistance appeared barely adequate, and Military Assistance Program (MAP) stood to be underfunded by at least $50 million. Bell proposed that AID Contingency Funds cover this last shortfall. The Department of Defense, for its part, moved to free MAP funds for Vietnam by reducing that program’s obligations in the Forward Defense Countries. (1, 12)

On April 22, 1964, the President directed that Latin American countries receive military aid in accordance with the specifications of the 1961 Foreign Assistance Act; these findings were codified in National Security Action Memorandum No. 297, issued the same day. (7, 8)

In the fall of 1964, Bell described the administration’s foreign aid legislative results as the “most favorable in many years,” with funds being cut only 8 percent from the President’s request. Bell also urged the President to propose a multi-year authorization instead of the current yearly exercise, which to Bell appeared as far too demanding an activity at such frequency. (13)

Meanwhile, Walt Rostow, as Chairman of the Department’s Office of Policy Planning, wrote a paper in October 1964, on “The Future of Foreign Aid” in which he predicted that funding needs of the economic assistance part of the program would increase because of the “self-help” requirements in Latin American countries and, to a lesser extent, interests in emphasizing agriculture and private enterprise assistance. He also argued that increased tensions in Asia and miscellaneous assistance claims elsewhere in the world made it “unlikely that the present $1 billion military aid ceiling will prove compatible with the national interest.” (17)

One month later, a Presidential Task Force on Foreign Economic Policy presented a lengthy report which summarized the “fundamental propositions of our current aid philosophy,” and concluded that unless the United States increased its foreign assistance spending “sharply” in the years ahead, it would lose its ability to influence long term developments among nations targeted for assistance in its favor. (20)

In a letter of December 4, 1964, to the Director of the Bureau of the Budget Kermit Gordon, Bell transmitted detailed budget recommendations for FY 1966 and added that AID was “considering two major legislative changes,” 4-year authorization terms and the separation of economic and military assistance bills. (21) The success of this legislative agenda was seen to turn on the efforts of Senator William Fulbright, Chairman of the Senate Foreign Relations Committee, but Fulbright expressed an unwillingness to continue leading legislative battles over aid appropriations as long as the current system continued. He favored instead channeling all aid through multilateral agencies. (22)

In writing President Johnson on December 9 on the topic of “New Directions in Foreign Aid,” Bell used the arguments of Rostow and the Task Force to emphasize the need for more economic aid, and relayed the legislative initiatives regarding 4-year authorization, separation of economic and military requests, and Senator Fulbright’s stated preference for multilateral funding. Bell also directed the President’s attention to the Senator’s critical role vis-à-vis these initiatives. (23) Secretary of State Dean Rusk would later advise the President of the value of increasing assistance dissemination through multilateral bodies, but that doing so should never come at the expense of attendant U.S. influence. (37)

In January 1965, Administrator Bell wrote to Rusk that despite the planned $50 million supplement for military assistance from Contingency Funds, McNamara had requested an additional $50 million to cover still more unanticipated costs in Vietnam. (28) Agreeing with AID Acting Administrator William Gaud’s arguments that funds were not available, Secretary Rusk denied McNamara’s request and suggested that the latter instead seek monies through a supplemental appropriation. (30, 31) The President approved the initial transfer request from Contingency Funds on April 15, but at a greater level¾$55 million. (33)

In summarizing the administration’s legislative and administrative accomplishments, Gaud wrote: 1) the $241 million cut from the aid request was the lowest in the program’s history; 2) private enterprise funding of the assistance effort was increasing rapidly; and 3) the “economy and efficiency” of AID had continued to improve, marked by a 12 percent reduction in the agency’s workforce, budgetary reductions in 1964 of $17.4 million and the hopes of nearly twice such savings in 1965. (40)

In early 1966, Secretary Rusk wrote President Johnson that a 5-year instead of 4-year authorization would be sought. (47) With respect to the FY 1967 foreign assistance package, Gaud wrote the President that Congressional cuts from $2.469 billion down to $2.144 billion would force a 6 percent cut in Alliance for Progress funding and a 25 percent cut in development loans, but he felt both were tolerable. A 13 percent cut in technical assistance, however, was a severe blow in Gaud’s eyes and would require a supplemental request from Supporting Assistance and the Contingency Fund, particularly because the probability of escalating costs in Vietnam would continue to eliminate the saving or redistribution of current funds. (57) In the ensuing executive-legislative in-fighting over foreign assistance, the President utilized the 30-day legislative override measure (wherein no vote after the introduction of a bill leads to its automatic passage) as a way of expanding the number of aid recipient countries (10 to 29 for economic, 40 to 48 for military) imposed earlier by Senator Fulbright. In a February 8, 1967, letter to the President, the Senator wrote that he “deplored” this tactic. (64)

A few months later, Gaud (who had succeeded Bell as AID Administrator in August 1966) explained that the effect of Congress’s paring-down of the FY 1968 foreign assistance request¾initially at $3.126 billion and later upped $100 million in an agreement made at the inter-American summit held at Punta del Este, Uruguay¾to $2.5 billion, was that the amount was “clearly not enough to do the job.” (66) Rostow, the President’s Special Assistant, endorsed these views, which were also approved by Rusk and McNamara, and added that a likely 20 percent cut in technical assistance would eliminate the intended expansion of many programs such as family planning. (67) On December 15, 1967, Deputy Assistant Secretary of Defense for International Security Affairs Paul Warnke advised Secretary McNamara of the advantages in reconstructing the overall MAP authorization request and spreading it instead throughout the overall DoD authorization request. Soon thereafter, in a memorandum to Rostow, the President’s Special Assistant Edward Hamilton endorsed this new strategy and agreed that McNamara should try to obtain Presidential approval. (71, 72)

In June 1968, Rostow assured President Johnson of the viability of intended military sales to Latin America. (77) That same month, the President authorized the transfer of up to $1.8 million in foreign assistance funds for FY 1968 to efforts to handle the upsurge in immigration to the United States from Cuba. (78) Toward the end of 1968, the President’s General Advisory Committee on Foreign Assistance delivered a report (the Perkins Report) which Rostow wrote the President, was “careful and tame.” He nonetheless thought it might serve as a generally pro-aid tool with which the incoming Nixon administration might lobby Congress successfully, and he welcomed its proposal for the establishment of an Overseas Investment Corporation. (79, 80) The compilation closes with President Johnson leaving disposition of the Perkins Report to Nixon. (84)

International Investment and Development Policy

This compilation deals primarily with U.S. efforts to replenish the resources of the International Development Association (IDA) and to intensify the commitment of the Development Assistance Committee (DAC) of the Organization for Economic Cooperation and Development (OECD) to the promotion of private investment in international development. The United States also became increasingly aware of the worsening indebtedness of developing nations and the relative stagnation in food production resulting in a world food crisis.

The IDA, created in 1960 by the member governments of the International Bank for Reconstruction and Development (World Bank) to meet the rising need for very low-cost long-term credits, had extended credits by mid-1964 amounting to $778.35 million for economic development projects in twenty-two countries. (86) The role of the World Bank expanded as well. Relying on private capital markets for loan funds, as the principal multilateral operating agency it provided both leadership on international investment issues and economic analysis. It also served as the principal source for evaluation of individual country programs and performance. To encourage its expansion, U.S. officials proposed that the World Bank develop effective facilities for mobilizing private savings in the capital markets of industrialized countries that were accumulating international reserves. They also explored possibilities for better coordination between the Bank and the DAC on aid for individual less developed countries (LDCs) and with the nascent regional development banks. (91, 94, 97, 101, 103, 128) Western European nations, especially West Germany, supported these initiatives. George Woods, President of the World Bank, also expressed willingness to take the lead in debt-rescheduling negotiations with debtor countries. (95, 105, 106)

A growth in the role of multilateral agencies in the development assistance process was evident as well. Between 1963 and 1967, the rate of multilateral development assistance flows to LDCs slightly outpaced official bilateral flows from the DAC member countries. (128, 145) About one-half of this multilateral assistance to LDCs came from current official contributions, while the rest was provided through multilateral development institutions’ borrowings in private capital markets and by drawing down past contributions.

Meanwhile, the OECD’s Development Assistance Committee frequently reaffirmed the importance of the Annual Aid Review which documented the individual members’ progress in meeting foreign assistance targets. (132) To meet the need of the developing countries for further easing of the financial terms and conditions of foreign assistance, the DAC tried to ensure a permanent upward flow of assistance. AID Administrator David Bell summarized the two resolutions adopted at the July 1965 DAC high-level meeting: “to encourage other developed nations to increase the amounts and to soften the terms of the aid which they provide.” (88, 109, 110)

As early as 1965, however, the DAC appeared to be faltering. Most obviously, the flow of aid was decreasing. Moreover, because it could not legislate by majority vote, the effectiveness of its recommendations depended on the willingness of governments to accept them. The U.S. Representative to the DAC complained about “the distressing signals of reduced activity in Germany, retrenchment in France, and glacial progress elsewhere.” In addition, although some claimed that the DAC’s main problems arose from its bloated size and from its too numerous meetings, he felt its real shortcoming was the lack of political agreement on its objectives. (99, 102) There were also two conflicting views on the role of the DAC. One called for an introverted, “little DAC,” comprised of a group of donors instructed not to deal with individual country problems or undertake individual country reviews. The second view desired a broader role for the DAC, encouraging it to pay closer attention to performance of the LDCs and their problems and advocating country reviews. (113)

The DAC increasingly recognized the importance of foreign private capital in financing economic development. Aware that budgetary limitations meant that not all the financial needs of LDCs could be supplied by official assistance, the DAC members attempted to improve knowledge of the flow of private investment and technical know-how and their economic impact. Several member governments took special measures to stimulate the flow of private investment to LDCs with special tax measures, government loans to private investors, financial support of feasibility studies, investment guarantees, investment protection agreements, and information programs. (111, 112, 117, 118)

Perceiving the relative stagnation of food production in developing regions, the DAC at U.S. initiative met in April 1966 to discuss the world food problem. The representatives agreed that the upcoming DAC high level meeting in July should give the food problem top priority. (119) At this Washington gathering, Secretary of State Dean Rusk referred to “the recent work of the Committee in developing greater understanding of the world food problem and the need for increased efforts by donor and recipient nations alike to deal with it.” Because agricultural production had failed to keep pace with expanding population, the DAC adopted a resolution recommending that member governments continue to increase their programs of food aid to developing countries and provide increased amounts of capital and technical assistance to the agricultural sector. (122, 123, 124) It thereafter also sought to coordinate its efforts in the areas of food and population with the UN’s Food and Agriculture Organization (FAO) and other UN agencies. (125, 133)

Concerns about donor support for foreign assistance nonetheless continued into the last few years of the Johnson administration. The DAC admitted in late 1966, for instance, that the volume of aid fell short of what was desirable, and a July 1967 meeting to discuss the international flow of economic aid determined that LDC receipts from economic aid donors fell off slightly in 1966 and that the flow of U.S. private investment and credits was half that of the previous year. (131, 138)

The DAC also expressed increasing concern over the rising indebtedness of the LDCs. The representative of the EEC felt that the increasing debt burden was the most serious problem facing the development of most LDCs. The DAC began to assemble and assess data on the growing LDC indebtedness. A definite connection was found between debt problems and development aid programs, making debt consolidation and rescheduling practices yet another priority. (105, 110, 129, 131, 132, 147)

Finally, it became clear by early 1967 that the International Development Association, which operated from a soft loan window and adhered to a policy of requiring full international competition for procurement of goods and services financed by IDA, needed more money. The Treasury Department, Agency for International Development, and the Bureau of the Budget suggested U.S. support for replenishment for IDA at levels of $600, $800, and $1,000 million for fiscal years 1969, 1970, and 1971, with the U.S. share not exceeding 40 percent. With France insisting on cutting back to match the U.S. reduction in contributions, however, the yield of total commitments for the 3 years was scaled down, and in early 1968 the major donor countries agreed to a $1,200 million figure for the 3 years. Moreover, because of U.S. balance-of-payments difficulties, they also accepted deferment for at least 3 years for 100 percent of the U.S. contribution not used for procurement in the United States. (128, 132, 134, 135, 136, 143)

In the midst of the difficulties in maintaining a constant flow of international investment funds, President Lyndon Johnson referred to the importance of replenishing the resources of the IDA in his address to the Governors of the World Bank and International Monetary Fund in September 1968. He claimed that the developed nations were “the custodians of the world’s economic welfare¾ultimately of its security.” He also asserted that “the new replenishment of IDA resources is a first priority development need.” But because of the inaction of Congress, by the end of 1968 only the United States among the developed countries had failed to approve the resolution on the terms and conditions of an IDA replenishment. (146)

Economic Defense Policy

The debate over the nature of East-West trade, which also had occupied the Kennedy administration, continued into the Johnson administration. In early 1964, the focus of the debate was a proposal to allow U.S. manufacturers to sell beet harvesters and fertilizer plants to the Soviet Union. The Departments of Agriculture, Commerce, and Defense argued that it was not in the national interest to aid Soviet agriculture. Therefore, if such agricultural sales were approved, they should be linked to quid pro quos over and above the selling price, e.g., “agreements on copyrights, patents, or use of technology gained from prototypes [that] would provide a means of protecting advanced technology.” With some support from the Central Intelligence Agency, the Department of State and National Security Adviser McGeorge Bundy favored the sales. They argued that the Soviets could get the technology from U.S. allies and that denying the sale of agricultural items was not an appropriate form of economic warfare in a non-strategic area. (149, 150, 151)

The President endorsed such sales in principle, but felt that at the moment it would be difficult to justify the decision domestically. As a result, he decided to defer decision, presumably until after the upcoming 1964 election, on the immediate sale and on the broader issue of U.S.-U.S.S.R. trade. He also delegated to Commerce the task of considering what trade assurances or undertakings the United States “could reasonably expect to obtain from the USSR and the European communist countries in return for licensing advanced agricultural equipment and technology.” (153, 154, 155, 156) Meanwhile, when Agriculture withdrew its objection to the licensing of fertilizer plants, licenses were approved without requiring a quid pro quo. (159)

In the case of videotape recorders, the Central Intelligence Agency conducted a study which concluded that the basic commercial technology could directly benefit the Soviet Union’s strategic and intelligence capabilities. But because it conceded that many of these U.S. recorders were already in foreign hands, it did not categorically oppose their sale to the Soviet Union. In response to this study and vigorous lobbying by RCA executives, who argued that the technology was well known and easily duplicated and that the Soviet Union was already prepared to accept the French color television system, the Johnson administration agreed to allow the sale of the U.S. color television system, including video tape recorders, to the Soviet Union. (160, 166, 168)

The Johnson administration was simultaneously considering broader initiatives on East-West trade. The Department of State and a Presidential Task Force, believing that increased trade with Eastern Europe would promote independence from Moscow and ultimately create a sizable market for U.S. goods, encouraged new trading initiatives. (157, 161, 162) Then in the spring of 1965, a special Presidential committee of private citizens headed by J. Irwin Miller, Chairman of the Board of Cummins Engine Company, conducted an intensive study of the problem. (164, 165, 167) The Department of State urged the committee to stress more flexible administration policies “as regards substance and timing of all the various issues that arise under the title of ‘East-West trade’” and to use trade as a political vehicle to promote the process of liberalization in the Soviet Union and Eastern European nations. (169, 170)

The Johnson administration endorsed the Miller Committee’s recommendations, which called for giving the President “the necessary authority … to use trade to drive hard, realistic political bargains with European Communist countries,” and began to draft legislation that would “support the idea of building bridges with Eastern Europe, including a further development of East-West trade.” (172, 173, 174, 175, 176, 177) Finally, on May 11, 1966, President Johnson directed Secretary of State Rusk to send Congress a proposed East-West Trade Act that would give the President authority to conclude commercial agreements with the Soviet Union and Eastern European nations under which the United States could grant nondiscriminatory tariff treatment in return for equivalent benefits to the United States. Hearings on the legislation were held in 1966 and 1968, but nothing was passed. (179, 181, 185, 186, 192)

A more specialized and sensitive issue for the Johnson administration was the growing dissension between the United States and its allies within the Coordinating Committee on Export Controls (COCOM) over the export of technologically advanced items, such as video tape recorders and computers, to Communist nations. Generally, the Europeans, led by France and the United Kingdom, which hoped to increase their growing markets in the East, favored more liberal trade guidelines. The United States, however, believing that these items could be used for military purposes, took a more restrictive position. (182, 183, 184, 189)

The computer issue came to a head in September 1967, when the United States vetoed French and British applications in COCOM to sell computer equipment to Czechoslovakia. (189) Disagreements within the Johnson administration as well as with its allies in COCOM over the export of strategic goods to Communist nations were largely unresolved by the end of the Johnson presidency. (196)

While the administration was promoting increased trade of non-strategic goods with Eastern Europe and the Soviet Union, it was pushing COCOM to accept a “China differential,” i.e., more restrictive trade policies towards Communist China, North Vietnam, and North Korea. The administration believed that because these nations were much less developed than Eastern Europe and the Soviet Union, and Sino-Soviet relations were worsening, such restrictions could significantly retard China’s development and further isolate it from the rest of the Communist world. (189, 190, 191, 194)

The chances for real progress in East-West trade were halted in August 1968 following the Soviet Union’s invasion of Czechoslovakia. The military intervention engendered a comprehensive reassessment within the Johnson administration of its trade practices with Soviet bloc nations. President Johnson and his advisers determined that while the long-term rationale behind increased East-West trade remained valid, the United States would consider denying new economic benefits to the invading countries, including the discouragement of new business contracts, withholding approval of pending U.S. export licenses, and temporarily suspending long-term credit applications. These new measures would be imposed in such a way, however, as to exempt the non-invading states, Romania, Yugoslavia, and of course Czechoslovakia. (195)

Commodities and Strategic Materials

This compilation deals with policy toward and management of the U.S. stockpile of strategic materials, the negotiation of multilateral agreements regarding international trade in grains, cocoa, coffee, rubber, and cotton, U.S. efforts to launch negotiations regarding trade in woolen textiles, new wool-fiber certification/testing rules and duties on certain woolen products, and U.S. sugar policy. Other documents deal with the price of extra long staple cotton and European Community levies on U.S. poultry products.

President Kennedy had initiated a review of the stockpile of strategic and critical materials, and President Johnson on December 1, 1964, ordered a general review of stockpile objectives. (246) On October 31, 1968, the President approved the recommendations of the review committee. (374) This assessment assumed a 2-year conventional war instead of the former assumption of a 3-year war, and availability of new supplies on a more global, free-world basis, subject to JCS determination, instead of availability only from Canada and Caribbean sources. (240, 244, 297, 298, 370) One review determined that stockpile holdings of 7 of 14 commodities could be zeroed out and the other 7 could be significantly reduced. (344) The Department of State was concerned about the negative foreign policy impact of sales from the stockpile on the economies of friendly developing countries. It worried, for example, about the anticipated decline in the price of natural rubber supplied by Malaysia, Indonesia, and Thailand. In consequence, the Johnson administration moderated its proposed sales program for rubber but resisted commitments to a long term agreement until a need was determined by the International Rubber Study Group. (304, 307, 328, 349) Attorney General Katzenbach, on November 15, 1965, gave the legal opinion that it was within the President’s authority, on national security rather than economic security grounds, to release copper from the stockpile to moderate upward global price pressure, and the Defense Department soon announced the release of 200,000 tons of copper from the stockpile. (296, 299, 300)

An International Cereals Agreement was negotiated in the Kennedy Round context that improved upon the former International Wheat Agreement; the President authorized signature on November 6, 1967. (204, 270, 354) A 1964 bilateral grain agreement with the United Kingdom was entered into reluctantly by the United States and was a source of on-going discontent due to reduced British imports of U.S. wheat. (197, 198, 247, 256, 257, 309) A negotiating framework for extending the Long Term Agreement (LTA) on cotton textiles was accepted in late 1967, overcoming objections from producers such as India and Pakistan. (294, 302, 311, 336) The United States also signed the new International Coffee Agreement on March 21, 1968. (366) The United States (the major consumer) and Ghana (the major producer) tried to collaborate on a proposal for an International Cocoa Agreement, notwithstanding resistance from both the U.S. cocoa industry and the Congress, but negotiations had broken down as the Johnson administration ended. (317, 321, 341, 345, 351, 352, 368, 369) Legislation extending the Sugar Act to December 31, 1975, and reassigning the Cuba quota was signed on November 8, 1965. (295) A Protocol for Further Prolongation of the International Sugar Agreement of 1958 entered into force for the United States on December 21, 1967. (255, 312, 342)

Efforts to launch discussions, let alone negotiation, of a woolen textile agreement with Japan, Italy, and the United Kingdom, the principal suppliers of U.S. imports in 1964 and 1965, failed. (209, 213, 218, 233, 234, 271, 272, 273, 274) Special Trade Representative Christian Herter, Under Secretary of State George Ball, and Deputy Special Assistant for National Security Affairs Francis Bator all told the President the agreement would not happen and could weaken the U.S. hand in Geneva on the LTA. (226) In 1966 Bator also told the President that the industry, which was “making money hand over fist,” did not need protection and that the President should move away from an earlier commitment to consider import relief. (313, 334) In 1967 the Federal Trade Commission’s proposed rule on certification of wool fiber content in imports, said to make imports subject to the same labeling requirement as domestic production (339, 358), and a 1968 tariff increase on certain wool imports provoked cries of protectionism in Europe and threats of requesting a GATT Panel. (370, 372, 373) By the end of 1968, the European Community had formally expressed its “concern and disappointment” over the tariff increase. (377, 378)