227. Memorandum From the Under Secretary of State (Ball) to President Johnson1
- Free-World Economic Ties with Cuba
In response to NSAM 274 of December 20, 1963 (attached) which was issued as a result of the meeting on Cuba which you conducted on December 19,2 the Department of State, with the collaboration of the Department of Commerce and the Central Intelligence Agency, has prepared the attached study on free-world economic ties with Cuba.
Organization of Study.
The study is presented in two parts. Part One contains a summary view of current free-world economic relations with Cuba, a brief statement of our efforts to date to restrict and reduce those relations and the results of those efforts, a discussion of the prospects of success of additional efforts, and recommendations for further measures. Part Two contains individual papers setting out, in essentially the same format as Part One, the details of the economic relations between Cuba and the twelve free-world countries having the most important trade and transportation ties with the island.
- Current level of economic ties: Fragmentary data for 1963 indicate that free-world trade with Cuba increased perhaps as much as $50–75 million over 1962, to a total of $250–$320 million. The increase reflects larger free-world purchases of sugar at higher prices because of the world sugar shortage. There appears to have been little or no increase in free-world exports to Cuba. Calls by free-world vessels in Cuba fell 60 percent in 1963, with British and Lebanese ships now predominating. Aviation ties with Cuba were sharply reduced in 1963, with Spanish activity running counter to the general trend.
- Mixed results of efforts to prevent Cuban acquisition of US-origin and critical commodities: Very small amounts of US-origin goods have slipped through. Some significant critical commodities of non-US origin have been denied, but substantial amounts of such items have in spite of our efforts been supplied.
- Prospects in aviation and shipping: There is a reasonable chance for a modest decrease in free-world shipping in 1964. Aviation ties will probably be cut back, but the conclusion of a US–USSR aviation agreement will reduce our leverage.
Basic consideration affecting trade: On the Cuban earnings aspect of the problem, the world-wide shortage of sugar and increased sugar prices make it impracticable at the present time to do much in the way of shutting off Cuban sales of sugar to free-world buyers.
With these increased earnings, Cuba is now embarked on a major effort to acquire free-world goods, not only to meet present shortages but to provide the means for an upturn in its economy.
Our problem is thus not just reducing the present level but preventing such an upturn. However, this is going to be increasingly difficult as, with the increased foreign exchange reserves at its disposal, Cuba will be an increasingly attractive customer and, even where blocked from direct purchases from the free world, may be able indirectly to procure some goods through the Soviet Union. Also, of course, the Soviet Union can itself make up additional shortages in the Cuban economy, albeit at some additional cost to itself and with delays in delivery.
Thus, even if our efforts are fully successful the cutting off of free world sources of supply cannot be expected to have a decisive effect on the Cuban economy. As a whole, however, well-executed denial programs can seriously impair specific segments of the economy and should be able to prevent Cuba utilizing its increased sugar earnings to bring about any significant upturn. It is clear that, unless we make a major effort in this field, Cuba will increasingly be able to “normalize” its economic relations with other free-world countries and probably bring about an upturn in its economy.
- Key importance of British: The problems we have with the United Kingdom are representative of those we have with other free-world countries in that it is dependent on trade; needs Cuban sugar; does not share our assessment of the Cuban threat; and justifies its position by citing our own economic relations with the USSR. Because of their attitude, economic importance and special relationship with us, we need the cooperation of the British. The recent sale of buses has had and will have grave consequences for our denial program by undercutting our efforts with other countries.
- The basic issue of political costs: The effectiveness of our efforts to get the cooperation of any country depends on (1) the relative importance to the national interest of the objective of cutting off Cuban access to critical commodities and other objectives in the country; (2) the balance of negotiating advantage between the country and us; and (3) the degree of risk to other objectives we are prepared to accept in obtaining cooperation on Cuban trade. In short, how much political capital are we willing to expend?
- Cooperation of American firms: American firms have been cooperative and effective in putting pressure on associated foreign firms. While this technique might be expanded, it would involve problems of “extraterritoriality” with our Allies.
- Improved intelligence reporting and investigation: We have severe problems in obtaining timely intelligence in depth and in pursuing investigations because of the very nature of the trade in critical commodities and US-origin goods. Improvement in these sectors requires additional personnel, particularly if our present controls on American know-how are extended to all commodities produced with such knowhow and destined for Cuba.
- The fundamental question: Our prospects for success in the economic conflict with Cuba ultimately depend on the priority to be assigned this effort—the results of which are at best uncertain—in the entire range of our relations with the free world.
The recommendations on pages 20–22 of the study are feasible but will create frictions in our international relations. Failure to move on them will also pose problems.
Since carrying them out will involve several NSC agencies, I suggest that, before you move on them, you may wish to convene an NSC session to explore all the issues with the participating agencies, and particularly the political costs indicated in subparagraph (h) above.
- Source: Johnson Library, National Security File, Country File, Cuba, Free World Economic Ties with Cuba. Secret.↩
- NSAM No. 274 was attached but is not printed. For text, see Foreign Relations, 1961–1963, vol. XI, Document 389. For an account of the December 19 meeting, see ibid., Document 388.↩
- According to a January 14 memorandum from Mann to Ball, the study was prepared by the Coordinator of Cuban Affairs in collaboration with INR and the Bureau of Economic Affairs. (National Archives and Records Administration, RG 59, ARA/LA Files: Lot 66 D 65, Cuba File) Printed here are pages 20–22 of the study.↩
- A handwritten note in the margin next to this paragraph reads: “EUR objects.”↩