294. Memorandum From Acting Secretary of State Richardson to President Nixon 1

SUBJECT

  • U.S. Trade Policy Toward Communist Countries—NSSM 35

My recommendations to you on the issues set forth in this study are based on four major premises:

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1. Impact of Strategic Controls

We share the CIA judgment2 that

  • —the cost imposed on Communist military capabilities by the Western strategic trade controls has been some lag in the efficiency of design and production technology in certain areas involving advanced weapons systems.
  • —while there has been no measurable impact upon the economic growth of the Soviet Union and Eastern Europe, the quality of that growth has been adversely affected in some sectors.
  • —the cost of the export controls unilaterally imposed by the United States has added marginally, in the overall, to these impacts.

2. Relations With Our Allies

Our allies attach more importance to commercial prospects in Communist countries than does the United States. This fact has put us very much on the defensive in COCOM where we attempt to hold the line on multilateral strategic controls. Although the current COCOM list review can probably be brought to a moderately satisfactory conclusion without a major crisis, friction over COCOM and the extraterritorial impact of our more extensive controls will continue unless the direction of U.S. policy changes.

3. Political Significance

In the case of the Soviet Union, good trade relations can be associated with favorable political relations, but increased trade by itself is not a matter that would rank high in importance in influencing basic political attitudes on either side. Increased trade and the removal of obstacles thereto would, however, have some beneficial effect on U.S. bilateral relations with the USSR and individual Eastern European countries. Moreover, in varying degrees, all of these countries actively want closer economic and trade relations with Western Europe and the United States, and modifications in our trade policies towards them could carry a significance beyond the purely commercial.

4. Trade Prospects

We accept the estimates that direct trade gains will be modest, but it is hard to make firm predictions in this field. The Western Europeans are certainly trading with the East at a much higher level.

In foreign policy terms, U.S. trade policy toward Communist countries is properly a function of the broader U.S, relationship with each of these countries. Our aim is to move toward improvement in these [Page 767]broader relationships as rapidly and effectively as circumstances permit. Hence my recommendations on the issues are as follows:

1. Public Encouragement of Non-Strategic Trade

I favor active promotion of such trade because it will help to convey to the Soviet Union and the Eastern European countries the direction in which you wish to move in East-West relations. A positive lead by the Administration in this matter is essential because otherwise American business will tend to hold back. We believe this initiative will be welcomed and supported in trade circles and should help to develop support by such interests for the legislative proposals that we recommend below. It will also help our balance of payments.

2. Legislative Program

Legislative proposals should constitute a logical set of changes that will give you the basic authority and maximum flexibility to develop constructive relations in the trade area including direct negotiations as appropriate with the Soviet Union and the Eastern European countries. This can be done either by a Presidential submission or by supporting bills already before the Congress which cover all the necessary points.

A. Export Control Act

The present Act should be amended a) to include a clear statement that we favor trade in peaceful goods, b) to eliminate the ambiguous language that seems to require controls over goods of purely economic (as opposed to military) significance, and c) to include a narrow definition of what constitutes strategic trade so that we can move promptly towards a much shorter control list.

B. Most-Favored-Nation Tariff Treatment

An essential element in any East-West trade expansion program is flexible authority for you to enter into negotiations for the extension of most-favored-nation tariff treatment in bilateral commercial agreements with individual countries (in addition to Poland and Yugoslavia which already have MFN treatment) in return for benefits to the United States. Whether or not we are successful in obtaining the authority, the fact that you would actively seek it would give credibility to our diplomatic posture toward the USSR and the Eastern European countries.

C. Export-Import Bank Act

Presidential discretionary authority to permit Export-Import Bank financing of East-West trade on a country-by-country basis should be restored removing the Fino amendment3 that has the effect of an absolute ban for the duration of the Viet-Nam war. This is an important negotiating tool.

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3. Administration of U.S. Export Controls

A.

U.S. Control List

The U.S. control list should be reduced to the level of the COCOM list except for those cases where the United States clearly can maintain an effective unilateral control.

B.

Differential Country Treatment

The practice of differentiating in the treatment of the Communist countries should be continued as a logical part of using trade as an element in our relations with individual countries.

4. Pending Export Sales

These are all cases whose approval would be consistent with the approach I have recommended and would carry a useful message as to the direction of Administration policy. In the case of the truck engine foundry for the USSR it would be advisable for Commerce to carry out appropriate Congressional consultation before approval. In the case of lifting the 50-50 shipping requirement, there should be consultation not only with the Congress but also with the unions.

With respect to the negotiating approach described in Package 5, we would not propose to offer better tariff treatment to the Communist countries except in exchange for trade and other related benefits of importance to the United States. This concept of negotiation, we believe, is accepted by Communist countries. Beyond such a negotiation, however, it is unrealistic to think in terms of obtaining other specific benefits except possibly in the broad atmospheric context.

Conclusion

The foregoing recommendations constitute an endorsement of Package 4, except that we would, for the present, defer a decision on further initiatives in COCOM. The principal difference between Package 4 and Package 3 relates to the timing of legislative changes. Package 3 assumes that the climate for achieving Congressional action is not present at this time. In making our recommendation for Package 4, we assume that your endorsement of this approach and your support for obtaining these negotiating tools will have a positive effect on the Congressional climate. We believe that Package 4 more clearly reflects your desire to see the beginning of an “era of negotiation” and that flexible negotiating authority in your hands will enhance the chances of developing a broad administration policy toward relations with the Soviet Union and Eastern Europe. A strong Administration position supporting this approach to East-West trade would provide us with potential diplomatic advantages.

ELR
  1. Source: National Archives, RG 59, S/S Files: Lot 80 D 212, NSSM 35. Confidential. Drafted by R. B. Wright (E/ITP/EWT) on May 13 and cleared by Springsteen (EUR), McHenry (C), Greenwald (E), Schnee (H), Neubert (S/P), and Frank (L). Attached as Tab A to Document 293.
  2. Not further identified.
  3. The Fino Amendment banned assistance to countries that provided assistance to North Vietnam.