290. Memorandum From Secretary of Commerce Stans to President Nixon 1
SUBJECT
- East-West Trade Relations
Here are my general views on East-West trade. They should not be taken as prejudicial to the results of current NSC study on the [Page 748] subject. My views are separately stated for Eastern Europe (including the USSR) and for Communist China and are followed by comment on my proposed handling of East-West trade questions on my European trip. I deal most extensively with the Eastern European part of the problem with emphasis on trade levels and controls, key legislative restrictions on export credit guarantees and most favored nation (MFN) treatment, the need for an Administration policy statement and our attitude toward promoting improved East-West trade.2
Recent U.S. Trade Position Toward Eastern Europe.
By way of background, our two-way direct trade with Eastern Europe has been, and remains, modest. It amounted to less than $420 million last year, divided about equally between exports and imports. This does not include the trade involvement by foreign subsidiaries of American firms, which was probably substantial. Estimates differ as to the potential growth prospects of East-West trade. My own opinion is that, even were conditions made more favorable by the removal of certain existing obstacles, there would be only a modest increase. Our East-West trade is likely to remain in fairly close balance (because the Communists do business on a bilateral, rather than a multilateral basis) and thus make little contribution to the amelioration of our balance of payments problem. From an economic and commercial viewpoint, however, such trade can be quite important to the firms, laborers, and industrial and agricultural communities involved. From a foreign policy viewpoint, also, there are benefits to be derived from extending the trade contracts of American businessmen with these countries.
Beginning with the Eisenhower Administration the long-range policy of the Department of Commerce has been to encourage peaceful East-West trade. During the past several years we have urged our businessmen to explore East-West trade possibilities, sent trade missions to Eastern Europe and made continuing efforts to relax our trade controls consistent with our national security and foreign policy requirements. Our promotional approach was interrupted by the invasion of Czechoslovakia in August 1968. Since [Page 749] then no Commerce official, nor any other Executive Branch official, has openly encouraged East-West trade.
Businessmen’s Attitude Toward East-West Trade and Trade Controls.
I believe the American business community for the most part is prepared to continue to expand its business relations and its trade with Eastern European countries and, at the same time, to abide by whatever reasonable trade controls we feel must be maintained toward these countries for national security and foreign policy reasons. Many businessmen feel that our current controls exceed what is now required and would welcome further relaxation of them and of various other governmental obstacles to trading relations with Eastern Europe. Views on the adverse impact of our trade controls are sometimes highly exaggerated. At the same time, some segments of the American public and the Congress rigorously oppose relaxation of trade controls, particularly while warfare continues in Vietnam. I have asked my staff to explore further whether our continuing efforts to reduce our controls, consistent with our national security and foreign policy interests, can be expedited.
Key Legislative Obstacles.
Legislative limitations effectively prohibiting Eximbank financing of export transactions to Eastern Europe and the extension of most-favored-nation (MFN) treatment to imports from Eastern European countries are far more important obstacles to improved trade with Eastern Europe than are trade controls. These limitations directly affect our firms’ ability to increase exports to these countries and the ability of these countries to increase their sales to us.
Credit Restrictions.
Extensive international trade requires credit. Such credit for East-West trade is readily available in other industrial countries, with appropriate governmental guarantees and facilities. It is not now available here. Without it, our firms cannot compete effectively for increased trade, particularly for the larger and more important transactions. In early 1968 Congress, by prohibiting Eximbank from using its facilities to finance transactions with countries aiding North Vietnam, ruled out such support for U.S. exports to Eastern Europe. There are strong Congressional views on both sides of this issue. I believe we should seek removal of this limitation as quickly as Congressional support can be obtained to do so.
Most-Favored-Nation (MFN) Restrictions.
The trade significance of MFN treatment to Eastern European countries (now extended by the U.S. only to Poland and Yugoslavia among [Page 750] communist countries) can be substantial.3 The tariff differentials involved are frequently large and become larger as the Kennedy Round tariff cuts are made effective. More importantly, the trade of these countries with the Free World is largely under bilateral agreements that require fairly close balancing. Thus, these countries have only limited leeway to use convertible currency earnings for the purchase of U.S. goods. Their own currencies are not convertible on the world money markets, and, except for the USSR, they have little gold. Therefore, any large increase in imports from the United States must be accompanied by increased exports to the United States. Two-way trade, in its narrowest sense, is therefore essential here until their overall trade bilateralism is significantly modified or abandoned. I believe it is essential that the Executive Branch once again obtain discretion to extend MFN to these countries because of its significance to the growth of such trade and of its leverage potential in commercial and broader foreign policy negotiations with these countries. Such leverage arises not only from the trade importance, but also from the important political and psychological significance these countries attach to obtaining MFN treatment from us—viewed by some as equivalent in importance to the trade value.
Need for Administration Policy Statement on East-West Trade.
Of equal significance will be the general public posture the Administration will take toward East-West trade relations. The seven-month interval since last August has been without a clear statement of governmental policy on this matter. This has left businessmen unguided following an extensive period of promotional efforts. They are seeking guidance from us. A negative attitude now would further disrupt past favorable trade developments. A merely permissive attitude toward peaceful trade transactions would bring little additional effort from the trade community. A positive and highly promotional approach, on the other hand, would give a substantial boost to the efforts of businessmen, particularly if it is coupled with strong efforts on credits and MFN and is implemented with some of the down-to-earth businesslike programs which this Department has instituted.
Attitude toward Promoting East-West Trade.
I would favor a positive promotional attitude even now, looking toward obtaining authority for extending Eximbank export credit [Page 751] guarantees and MFN treatment along with bilateral negotiation of other measures to improve East-West trading relations. Our promotional efforts could be tied in scope and intensity to the practical objectives and limitations of the changing East-West trade scene. We have, in Commerce, a number of promotional programs, already used in East-West trade, that could be used more widely and intensively, and others which are susceptible to effective use with such trade. I am prepared to move ahead on a positive program if you decide that this Administration clearly favors the promotion of such trade and expanded trade relations with Eastern Europe. Without such a determination, however, I would prefer not to mount any major promotional program.
I recognize that even with favorable conditions and with a full trade promotion program, our East-West trade will grow only to modest levels in the near future. However, there are also foreign policy advantages to be gained from extending our trade contacts with these countries. Even more important may be the foreign policy value of reaffirming a positive position toward East-West trade. I believe that these benefits can be obtained by a positive policy while retaining a high degree of flexibility to meet changing conditions, including a deterioration in the international situation.
Whatever East-West trade policy you decide upon following completion of the NSC study will probably find both supporters and objectors among the Congress. Such differences in view were apparent in Congressional exchanges on last years’ Eximbank legislation and in other Congressional hearings on East-West trade. Moreover, both viewpoints on East-West trade will also receive a thorough review during the Congressional hearings on the extension of the Export Control Act of 1949. The first of such hearings is being scheduled by Senator Mondale for April 21. We expect to hear there numerous proposals for liberalizing trade controls and promoting East-West trade, as well as attacks on any such proposals.
Of course, increased trade and improved trade relations will not result from U.S. action alone. There is much that the Eastern European countries must do as well. They must be willing to give our exports meaningful treatment that is equivalent in substantive effect to the extension of our MFN treatment to their exports. Among their other needs in this regard must be improvement of their products and their marketing to meet our requirements, the opening up of their own marketing channels more fully to our traders, the providing of better protection for industrial technology and other property rights, and the continuance of their partly-thwarted moves to develop more open economies.
[Page 752]Trade Relations with Communist China.
With respect to our trade embargoes with Communist China and other Far East Communist areas, the basic issue remains one of foreign policy. It may be some time before that foreign policy problem is resolved. In the interim, I believe it is important that we look forward to the possible reopening of trade with these areas. I am, therefore, planning upon my return from Europe to have my staff explore the nature and extent of existing trade potential for the United States with these areas and the manner in which we might react on the trade front to various possible contingencies in changing relations between the United States and these areas.
East-West Trade Relevance to European Trip.
On my trip to Western Europe during the next two weeks, I do not plan to raise the subject of East-West trade. If officials of other governments, the foreign press, or businessmen abroad raise East-West trade questions, I plan to respond only in general terms and will in no way commit the Administration to any policy or course of action. I shall note that the matter is even now undergoing policy review within the Administration and that the Export Control Act of 1949 is before the Congress for extension. I shall, of course, listen with an open mind to any comment they may make on East-West trade, including U.S. controls and the multilateral control system, and I shall bring any such comment to your attention upon my return.
- Source: National Archives, Nixon Presidential Materials, NSC Files, Agency Files, Box 213, Commerce, Volume I 1970. For Official Use Only. Attached to an April 17 memorandum from Bergsten to Kissinger that called Kissinger’s attention to the June 30 expiration of the Export Control Act, which governed sales of strategic goods to Communist countries, and noted that Congressional hearings would begin the following week on a bill to dramatically liberalize controls.↩
- On April 12 Arthur Burns initialed the following memorandum to the President: “I have sympathy for Secretary Stans’ recommendations to promote East-West trade. In my judgment, however, this economic problem should be handled in conjunction with our political discussions with the Russians. I doubt the wisdom of asking Congress for special legislation before we make definite progress in our political negotiations.” Burns’ memorandum is also attached to Bergsten’s April 17 memorandum to Kissinger; see footnote 1 above.↩
- In his April 22 Evening Report to the President, Secretary Rogers reported that that day Romanian Ambassador Bogdan had met with Samuels to reiterate Romania’s desire for most-favored-nation status. Bogdan reportedly thought the climate was favorable, but had the impression the Congress was awaiting an administration initiative. (National Archives, RG 59, S/S Files: Lot 74 D 164, President’s Evening Reading Items)↩