Foreign Relations of the United States, 1964–1968, Volume XXX, China

250. Action Memorandum From the Assistant Secretary of State for East Asian and Pacific Affairs (Bundy) to Secretary of State Rusk¹

Washington, March 29, 1967.

SUBJECT

• A New Approach to Our Trade and Transaction Controls Against Communist China

Background:

1. On October 4 we advanced for your approval a memorandum recommending certain changes in our trade and transaction controls against Communist China. Briefly, these recommendations concerned changes in Foreign Assets Control and other regulations to provide for the rescission of special bunkering controls, to establish a general license for travel and related expenses of Americans travelling legally to Communist China, and to place under general license all tourist purchases of Chinese-type goods valued at $100.00 or less. These changes were directed not at China itself but at removing points of irritation in the enforcement of our regulations with third countries and with United States citizens. However, the changes were envisaged as a first step in a relaxation of our embargo on trade with China in the light of our exploration of possible ways to pierce mainland China’s isolation. (Memorandum attached at Tab A)²

2. That memorandum has been held in abeyance at the request of the Under Secretary.

3. Changes in our foreign assets control regulations already approved by you and now under inter-departmental consideration would accomplish two things so far as China is concerned: (a) allow U.S. subsidiaries abroad, with certain exceptions, to engage in non-strategic trade with China, and (b) make FAC regulations inapplicable to U.S. dollar transactions between China and third parties. These proposed changes are designed to strengthen our relations with third countries by eliminating points of friction over extraterritorial application of FAC regulations. They will have practically no influence on our trade policy toward China.

4. Developments since October have added a note of urgency to the need for certain changes in our controls on trade with Communist China. We are therefore now submitting our original recommendation that imports and exports of foodstuffs be placed under general export-import license, and, separately, that medical supplies usable in combatting epidemics be placed under general license for export.

5. These recommendations are based on the following considerations:

a. The breakdown of order and authority in mainland China associated with the Cultural Revolution has brought with it the strong possibility that food supplies will be very short later in 1967, conceivably reaching famine proportions. The extreme concern of the Peking regime regarding the belated organization of spring planting argues for this possibility.

b. Meningitis has already reached epidemic proportions in China. The arrival of warm weather brings with it the threat of other diseases, endemic to China, reaching epidemic proportions. A copy of your letter to the Secretary of the Treasury (Tab B)³ proposes separately that pharmaceuticals and medical supplies be exempted from the applicability of the Foreign Assets Control regulations during this period of epidemics.

c. In the American humanitarian tradition we are concerned with famine or disease, wherever they may exist. Neither U.S. public opinion, that of China, or that of the rest of the world should be presented with a picture of total U.S. indifference to prospect of famine in China. As the only country in the world pursuing a public national policy of an embargo on food to China, it would be hard to rebut charges of callousness and of lack of concern for and friendship with the people of China.

d. The effects of famine and disease cannot necessarily be contained within the borders of China, and we should prepare in advance to be free to take what measures may be appropriate and required in our interests and those of friendly nations.

6. Trade with China has been dealt with in recent discussions of our China policy. The China Advisory Panel, which met at the beginning of February, recommended easing controls, with some members believing that paving the way for limited trade now was the most promising way for giving credibility to the U.S. stance of hoping for long term reconciliation with the people of Communist China. The members of the Panel were all highly interested in your remarks at the concluding session on the possibility that food would represent a major lever in affecting the direction that China moves.

7. Although not a major subject of discussion, there was a unanimous view among the Chiefs of Mission at Baguio earlier this month that our trade controls should be relaxed, particularly those that would “have the effect of removing certain unnecessary irritations for Americans in their dealings involving China” such as the elimination of bunkering controls and removing requirements for certificates of origin on purchases in Hong Kong up to $100 in value of Chinese-type products.

8. On timing, the same two groups believed that while the Cultural Revolution was raging, no major policy initiatives towards China were advisable. At the same time both groups believed that the Cultural Revolution offered us the opportunity for further action in removing barriers on our side to eventual reconciliation. Relaxation of trade controls was specifically cited by both groups as falling within this latter category. The possibility of food shortages later this year adds urgency.

9. Changes in our regulations would not, we believe, lend material support through China to North Viet-Nam’s war effort. Permitted exports include no “strategic” goods. China supplies rice to North Viet-Nam, but if cereals are sold to Communist China we do not envisage shipments of rice; 1967–68 world demand for U.S. rice already exceeds our capacity to meet it; and Peking’s 1966–67 grain imports from Western sources are entirely wheat.

10. A general licensing of trade in items of artistic value is recommended on the two grounds that (1) this would contribute to reestablishment of some cultural interchange between the peoples of China and the United States, and (2) would eliminate a long-standing complaint against the U.S. Government lodged by museum curators across the country that FAC regulations deprive the United States of treasures whose value far outweighed any foreign exchange gain to Peking.

11. Fuller justification for our recommendations is contained in the original memorandum.

Recommendations:⁴

That you authorize E and EA to work out with Defense, Treasury, Commerce and Agriculture, as appropriate:

1. Changes in the special bunkering controls which would rescind those controls as applied to ships in the Chinese Communist and North Korean trade.

2. Changes in the Foreign Assets Control regulations to allow for general licensing for costs of trips to Communist China, North Korea, and North Viet-Nam for American citizens who hold passports validated for travel to those areas.

3. Changes in the Foreign Assets Control regulations to allow general licensing for Chinese-type goods up to the value of $100 per American tourist per trip abroad.

4. Changes in the Foreign Assets Control regulations to allow general licensing for art objects.

5. Procedures for placing food commodities under general license for import and export with Communist China.

These recommendations, if approved, would be put into effect at such time as you and the President direct.

1. Source: Department of State, ACA Files: Lot 72 D 175, U.S. Trade with Communist China, I. Secret. Drafted by Richard H. Donald and Frank O. McCord of ACA. The memorandum was sent by Bundy and his counterpart in the Bureau of Economic Affairs, but the source text does not indicate whether it was signed by Assistant Secretary Solomon or an Acting Assistant Secretary. The memorandum was sent through Katzenbach.
2. The October 4 memorandum (Tab A) from Bundy and Solomon to Rusk, attached but not printed, bears a handwritten note from Katzenbach: “Bill—I think we should hold this awhile. NdK.”
3. A copy of the draft letter is attached but not printed.
4. The recommendations bear no indication of approval or disapproval, but see Document 280.