180. Memorandum From the Under Secretary of State (Katzenbach) and the Under Secretary of Agriculture (Schnittker) to President Johnson 1

SUBJECT

  • PL-480 Sales to Yugoslavia

Recommendation:

That you approve the sale to Yugoslavia prior to the end of 1966 of 35,000 metric tons of vegetable oils and 450,000 tons of wheat2 under Public Law 480, subject to clearance with key Members of Congress.3

Discussion:

We have invested 3–1/2 billion since 1950 in Tito’s Yugoslavia. This investment made it possible for Tito to make good his break with Stalin. It paid off.

Tito’s defection started the dissolution of the Communist Bloc. It led to riots in Poland, revolution in Hungary, and a new sense of national independence throughout Eastern Europe. Your program of building bridges to the East takes advantage of the forces that Yugoslavia’s independence set in motion.

Yugoslavia is now taking far-reaching and equally risky steps in the economic field. It is moving toward a market economy tied to the free world. It has reduced its tariffs, abolished import quotas and is now a full member of the GATT. Economic liberalization in Yugoslavia is already setting the pattern for other countries in Eastern Europe. It is in our interest to make it succeed.

For this reason, the agricultural sales program we recommend would be a good investment. The proposed sale of vegetable oils and wheat amounts to $40 million. These credit sales would give the Yugoslav Government badly needed room to maneuver and help it deal with the balance of payment pressures that result from import liberalization. These dollar repayable credits would greatly encourage the Yugoslavs to [Page 480] continue in the direction we want them to go. They give good prospects for benefits throughout Eastern Europe.

You will recall that PL 480 was amended at the last Session in such a manner as to forbid assistance to governments trading with North Viet-Nam and, after January 1, 1967, governments trading with Cuba, except for agricultural products as to which a Presidential waiver would be possible.

Yugoslavia does not trade with North Viet-Nam and is the only Communist nation which does not do so. It does, however, permit small shipments of medical supplies and blood, collected through voluntary contribution to its Red Cross (a non-governmental organization). It is the view of the Department of Justice that these shipments would not, as a matter of law, preclude PL 480 aid.

Yugoslavia also does a small amount of business with Cuba in non-agriculture commodities and, therefore, PL 480 assistance after January 1 will be prohibited.

The wheat sales here recommended were under discussion between the United States and the Government of Yugoslavia prior to the amendment of PL 480 although no formal commitments were entered into. We have a signed agreement to sell the vegetable oil. If we are to go ahead with these sales, however, it would be important as a matter of law that they be approved prior to January 1. In addition, we agree that the sale of wheat should not be approved by you formally without discussion with key members of the Agriculture Committee so that there could be no misunderstanding with respect to the applicability of the amendments to PL 480. We would ask for your approval, therefore, subject to our straightening out any possible misunderstandings in Congress.

Attached is a memorandum to you from Ambassador C. Burke Elbrick setting forth his views on this matter.4

  • Nicholas deB. Katzenbach
  • John A. Schnittker
  1. Source: Johnson Library, National Security File, Country File, Yugoslavia, Memos, Vol. 2. Confidential.
  2. The Yugoslavs requested a sales program of 1,150,000 tons of wheat for this fiscal year. [Footnote in the source text.]
  3. There is no indication of Presidential action on the source text. At a December 21 press conference, Secretary Rusk, in reply to a question, stated that no decision had been taken on P.L. 480 shipments to Yugoslavia. For text, see Department of State Bulletin, January 9, 1967, pp. 46–47.
  4. Not found with the source text.