289. Letter From the Ambassador to Austria (MacArthur) to the Deputy Under Secretary of State for Economic Affairs (Samuels)1

Dear Mr. Samuels:

I have just received CA-1888 of March 26, 1969,2 indicating that we are reviewing our East-West trade policy at this time. I am happy to hear this because I think a basic and searching high-level review as to the validity of some of the assumptions under which we have been and are now operating in the field of East-West export controls in peaceful trade is long overdue. Last year I recommended to the previous administration that such a high-level review be conducted not only because I believe our present system is outmoded but also because I think it could have, over a period of time, an important relationship to our very difficult long-term balance of payments problem.

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Since my arrival here about two years ago I have followed this problem closely, not only because Vienna is a major center of East-West trade but also because a number of U.S. companies handle their trade with the Danubian states through their Vienna offices. My conviction is that a number of the fundamental premises on which our present East-West trade policies and procedures are based are no longer valid and are even contrary to our own long-term interests.

At the heart of the problem is the fact that in our East-West trade policy as it relates to peaceful trade we are going it alone. Today only American industry has such heavy bureaucratic governmental licensing requirements and controls for the export of many kinds of peaceful goods to East Europe. If the governments of the European industrial nations of NATO followed a policy similar to ours, it would be one thing. But this is not the case. Not only do they not have the barriers we have unilaterally erected for our own exports of peaceful commodities, but European NATO and other free-world governments are actively supporting their business communities to expand exports to East Europe by assisting in long-term credits, subsidizing exports, encouraging barter arrangements, etc.

Fundamental to our policy has been the premise that by limiting or controlling our exports to the East European Communist states we can exert meaningful economic pressures on them or do them economic hurt. This premise is, of course, not valid in a very broad range of peaceful trade and would only be valid if a substantial majority of European and other free-world industrial nations followed a similar course. Our policy of denial in this field denies very little and simply forces the satellite nations to obtain comparable products from Britain, France, West Germany, Italy and other European nations, and Japan at the expense of American business and industry.

What is the balance sheet of our present East-West trade policy in nonstrategic items which constitute the bulk of Western exports to the East and what are we accomplishing? We are certainly not denying such exports to the East because while there is often a preference for U.S. products, if they are not readily obtainable, products generally competitive in quality and price can and will be obtained from European NATO and other industrial free-world sources. We are certainly not getting any moral or other credit in East or West Europe for our policies, nor is our image being burnished by them, although Western European businessmen naturally welcome our controls as they tend to inhibit or eliminate American competition for trade with East Europe.

And finally we are punishing American business and industry by making it uncompetitive at a time when peaceful trade with Eastern Europe is beginning to open up and we should be getting in on the [Page 745]ground floor and building a solid foundation for winning and holding a permanent part of this market. If we continue on our present course there is danger that we risk being permanently frozen out of a market which although presently not extensive has great potential value in the years ahead, as a Dow-Jones study by some 90 leading foreign businessmen clearly indicated last year.3 Today we are progressively being considered as an uncertain and unreliable source for peaceful goods by East Europeans and they are turning elsewhere.

Business representatives here in Vienna of West European countries make no bones about the fact that they are today laying a solid foundation for permanent and increasing foothold in the presently interesting but potentially very lucrative East European market. They maintain that their governments have no intention of changing their basic policy and cutting back on peaceful East-West trade because of Czechoslovakia.

West European industry today is turning out products for export to Eastern Europe which increasingly are highly competitive in quality and price with those we have to offer. However, we do have one important asset. This is not the temporary edge we have in a few sectors but the general belief in East Europe that American products are superior and, therefore, there is willingness in some cases even to pay a premium for them. This asset will be frittered away in a few short years unless American companies can fill orders for peaceful goods in reasonable length of time. Continuing our present policies will simply force American industry out of much of the field over the longer term and result in the loss of this market to West European, Japanese, and other free-world competitors with no corresponding advantage for us.

With due respect I suggest that in our East-West trade policies we tend to look backward to the past for our guidelines for the future—back to the war and then post-war period when the concept of economic denial bloomed since we virtually alone had things to export—back to the time when the Communist world appeared a steel-hard monolith—back to the days before Europe and Japan were industrially and economically restored with a major capability for export. The realities of today are vastly different. Europe and Japan are not only restored but are making a major trade drive to the east where the winds of political and economic change are blowing despite Czechoslovakia. And in this connection most qualified observers (both businessmen and officials) agree that the welcome winds of economic change in parts of Eastern Europe have been substantially encouraged by contacts of [Page 746]Western businessmen with East European communist economic and other officials.

I, of course, realize that this is a difficult emotional and political problem to deal with in the United States because of the aid the Communist nations of Eastern Europe have extended to Hanoi. It is also clear that Czechoslovak developments will tend to obscure the longer-term picture and evoke calls for economic restraints or sanctions against the five communist nations that raped Czechoslovakia.4 While some temporary pause may have been indicated and it is indeed useful for us to consult with our NATO allies on this, I would hope that we would go no further in our pause than our NATO allies, some of whose business representatives here are saying that there is no question of any serious cutbacks, delays, or failures to keep pushing for more trade with all the countries of Eastern Europe. For us unilaterally to cut back on trade with East Europe or maintain barriers that no other country observes would seem to accomplish little constructive. It seems to me that a high-level review which lifts the problem from the official bureaucratic level that administers the present system is essential. I have had some people in the “E” area of the Department argue that the Congress will not accept change in our control system. I am inclined to doubt this from talks I have had with many members of the Congress in the past nine months. Furthermore, I note from the Journal of Commerce of March 24, 1969, that Senator Mondale will seek sweeping liberalization of our export control system.

How can we best get at this problem? If the judgment should be that we have a serious congressional and public opinion problem, consideration could always be given to establishing a nonpartisan, nongovernmental special commission of highly respected business and other leaders, including members with experience in government (for example, people of the stature of Jack McCloy, Douglas Dillon, David Rockefeller, Henry Ford, etc.) to take a thoroughly objective new look at the entire history and nature of our present controls; their effectiveness in terms of preventing Communist satellites from getting what they want elsewhere in light of the policies of NATO and other free-world countries; the future effect of the present system on our enlightened self-interest and on the ability of American business and industry to lay a basis for future expansion of trade to the East; whether mutually beneficial trade ties and contacts with us do not encourage economic liberalization in East Europe more than the present system; etc. If such a special Blue Ribbon Commission, after a searching study, [Page 747]came up with recommendations for modifying our present system of controls and regulations to bring them more into keeping with reality, it could be of great help with U.S. public and congressional opinion.

I apologize for writing you at such length about this matter for I know how desperately busy you are at this time as you take on your new and very heavy responsibilities. However, I do feel that our present system of East-West trade controls not only needs overhaul but over the long term can place certain important sectors of American business and industry in a position which makes it either very difficult or virtually impossible for them to compete with the business and industry of many of our free-world allies with sad consequences for our balance of payments.

To conclude, what I am really suggesting is a new and basic look at the entire problem not by people who understandably have certain preconceived ideas because they are also administering the system, but by a broadgauge high-level group. Perhaps my views from Vienna are myopic. If so, such a review would establish that fact.

With every good wish and again apologies for the length of this communication,

Sincerely,

Doug MacArthur II
  1. Source: National Archives, RG 59, S/S Files: Lot 80 D 212, NSSM 16. Confidential.
  2. Not printed. (Ibid., Central Files 1967-69, FN 1 EUR E-US)
  3. Not further identified.
  4. In his February 17 Evening Report to the President, Secretary of State Rogers reported that that day Czech Ambassador Duda had called on Under Secretary Alexis Johnson to press for most-favored-nation treatment for Czechoslovakia. Duda reportedly said that the current attitude in the United States, including the Congress, was sympathetic to Czechoslovakia and that bills on MFN or tariff concessions for Czechoslovakia were being prepared. (National Archives, RG 59, S/S Files: Lot 74 D 164, President’s Evening Reading Items)