Foreign Relations of the United States, 1964–1968, Volume XXXII, Dominican Republic; Cuba; Haiti; Guyana

242. Paper Prepared in the Department of State¹

Washington, undated.

MEMORANDUM ON SOME BASIC ISSUES IN THE CUBAN
PROBLEM REQUIRING POLICY DECISIONS

[Omitted here is section I on “OAS Action on Venezuelan Arms Cache.”]

Counter-Measures Against Free-World Economic Ties with Cuba

During the past two months there have been major compromises of our efforts to reduce trade between the free world and Cuba. These breaches have made it clear that our present tactics of relying essentially on diplomatic persuasion are not adequate.

We confront a major policy decision. Should we:

1. quietly abandon our efforts against Cubaʼs trade with the free world and accept the probability of a significant increase in this trade with all its consequences?

2. adopt new tactics designed to bring our pressures more directly against the commercial interests of trading firms?

3. continue our present tactics, even though they are not adequate, because they may be an acceptable response to both domestic pressures to “do something” about Cuba and foreign pressures not to do too much?

If we decide to adopt new tactics, we have two major approaches open to us. We can employ either:

1. A proclaimed list barring U.S. citizens from any business or financial transactions with foreign firms trading with Cuba² and freezing the U.S. assets of such firms; or

2. A variety of partial measures, either singly or together, such as a denial of government contracts to traders with Cuba and private boycotts.

Although a significant amount of trade between Cuba and the free world would occur despite the establishment of a proclaimed list, the action would almost certainly be much more effective than any other measure or combination of measures we might employ. The fundamental question regarding a proclaimed list is whether we are prepared to endure the very real political costs that would result from its establishment and whether we would also be prepared to incur the risk of retaliation that might be directed against either United States commercial interests or the government itself.

Our problem is made more difficult by the probable necessity of a waiver for Spain under Section 620(a)(3) of the Foreign Assistance Act³ because of the great importance of our bases there. The concession of the waiver will encourage Spanish-Cuban trade, but beyond that other free-world countries will exploit the waiver to justify their own economic activities toward Cuba. Furthermore, the waiver will be incongruent with and harmful to our attempts to obtain forward action from the OAS in the economic and anti-subversion sectors.

The prospect of the signing of a US–USSR civil aviation agreement poses another serious issue for our Cuban policies and illustrates, as in the case of the Spanish waiver, the sharp conflict between apparently irreconcilable major objectives. The policy choice we face is between:

1. The important broad interest to be served in our relations with the Soviet Union by the signature of the agreement; and

2. The serious damage to our attempts to maintain and strengthen the isolation of Cuba with respect not only to trade but also to the anti-subversion effort.

The choice is complicated by the negative effects of the conclusion of the agreement on our ability to obtain OAS action to sever air and sea transportation between the OAS countries and Cuba.

II. Counter-Measures Against Free-World Economic Ties with Cuba

A. Necessity to Consider New Measures Against Trade

It has become clear that the United States Government must either change its methods of restricting free-world trade with Cuba or accept the probability of a significant increase in this trade, with all its consequences. Our present tactics of relying essentially on diplomatic persuasion, reinforced by pressures on free-world firms trading with Cuba by their American associates and occasional small-scale preclusive purchases, have not prevented major breaches in our efforts to isolate Cuba. Key free-world governments have flatly refused to cooperate with our policy, even when approached at the highest level, and we are suffering successive losses. If we are to continue to try to arrest and turn back the trend in Cuban-free-world trade, we must turn our pressures more directly against the commercial interests of the trading firms, essentially making them choose between trade with Cuba or trade with the United States.

B. Possible Dimensions of Expanded Cuban Trade

In 1963 Cuban exports to the free world may have amounted to about $190 million, while imports were probably about $115 million, a total of around $300 million. During the year Cuba also increased its foreign exchange holdings from about $20 million to approximately $75–100 million.

Assuming that, in 1964, we are unable to reduce Cuban trade and that:

1. Cuba maintains sugar exports to the free world at about 1.4 million metric tons;

2. Sugar prices average about 8 cents a pound;

3. Cuba exports about $10 million worth of other commodities to the free world;

4. Cuba maintains foreign exchange holdings at about present levels;

5. Cuba finances imports from the free world out of current export earnings;

6. Credits extended by free world suppliers to Cuba cover only Cubaʼs net deficit on invisibles,

then:

Cubaʼs exports to and imports from the free world would each amount to about $260 million, for a total of about $520 million, an increase of nearly 75 percent over 1963.

Obviously, a decrease in sugar prices or Cuban inability to export as much as 1.4 million tons of sugar to the free world could lower the export earnings and perhaps the total trade figure. On the other hand, if free-world suppliers were willing to extend large-scale credits to Cuba, then Cubaʼs imports from and total trade with the free world could use above the $260 million and $520 million estimates.

With respect to the impact that any increase in free world-Cuban trade would have on the Cuban economy, much depends, of course, on how Cuba allocates its foreign exchange holdings and how wisely it employs the goods it does import. A conservative assessment, however, would have to assume increasing Cuban competence in such matters. Significantly increased imports of commodities critical to the Cuban economy could provide the crucial margin between a wallowing economy and one showing satisfactory growth.

[Omitted here is section C, a detailed discussion of U.S. alternatives concerning free world trade with Cuba, and section III, “Measures to Counter Castro-Communist Subversion.”]

1. Source: National Archives and Records Administration, RG 59, Central Files 1964–66, POL 1 CUBA–US. Secret. Drafted by Crimmins, Bowdler, and Charles R. Carlisle (ARA/CCA), and approved by Mann and Crimmins. The paper was attached to a February 19 memorandum from Johnson to Bundy in which Bundy stated that the paper was prepared “solely to serve as a basis of discussion” for a meeting of national security officials later that day at the White House including McCone, Kennedy, Johnson, Mann, Bundy, Ambassador Bunker, and General Maxwell Taylor. The meeting was held at 5 p.m., and was almost entirely devoted to a discussion of projected OAS action against Cuba; see Foreign Relations, 1964–1968, vol. XXXI, Document 3.
2. According to the memorandum for the record of this February 19 meeting at 5 p.m., drafted on February 22, several of the participants felt that one stumbling block to the proclaimed list appeared to be an impossible hurdle, i.e., how could Free World firms be blacklisted while Soviet Bloc ones were not? On the one hand, the U.S. Government was pursuing measures designed to lessen tensions with the Soviet Bloc and to draw these countries closer to the West. On the other, if the blacklist procedures were not employed against the Bloc and Yugoslavia, then the United States would be open to the charge that it was punishing its friends but not the Communists. (Johnson Library, National Security File, Country File, Cuba, OAS Resolution (Arms Cache), Vol. II, Memos, 11/63–9/64)
3. Section 620(a)(3) of the Foreign Assistance Act of September 4, 1961 (PL 87–195), as amended by Public Law 87–872 on October 23, 1962, prohibited economic and military assistance to countries whose ships and aircraft transported merchandise to Cuba. The amended act authorized the President to waive the provisions penalizing such countries if he found it in the national interest to do so. President Johnson chose not to waive the actʼs provisions in the cases of Britain, France, and Yugoslavia, and in mid-February the Department of State announced that all assistance to them was terminated. The administration also suspended new aid commitments to Spain and Morocco, in the hope that they could be weaned from trade with Cuba.