295. Memorandum From Secretary of the Treasury Kennedy to President Nixon1
In general, the summary paper, “Trade Policy Toward Communist Countries” (NSSM: 35)2 is a fair presentation. It also becomes rather obvious that there is lacking a comprehensive analysis of both the effect of our export control policies relative to Communist countries and the impact which can be expected should we change our policy to either a softer or harder line.
In addition to the political questions, there just are not expected to be any big trade benefits with cash or early repayments in the foreseeable future, for Eastern Bloc countries do not have the foreign exchange resources. Thus, it would not appear too profitable to make a big push in this direction, especially when economic return would be modest and political expense could be sizable.
The underlying question requiring a decision is: Would sufficient benefits result from liberalizing our trade policies toward the Communist countries of eastern Europe to justify running the domestic political risks of seeking necessary authority?
Since liberalizing trade with Communist countries is construed by many in Congress and the public generally as “trading with the enemy” there are political dangers. It is a volatile issue; therefore, approach and timing become all important. A proper environment must be established before requesting legislation.
You have already clearly taken the stance that we are entering “an era of negotiation”; thus the use of trade as an instrument of negotiation is both logical and desirable. It seems to me that the major element which would gain you acceptance would be to make it clear that you are seeking some reciprocity. Further, that you distinguish between Communist nations.
The most desirable position for you would be to have the various instruments necessary to bargain effectively available—meaning that there should be an extension of your present authority to regulate exports, have the ability to permit Eximbank to guarantee credits, and the authority to offer tariff concessions. On this basis you should: [Page 770]
- —Take a public stance in favor of increased trade of peaceful goods provided that there is reciprocity in some form.
- —Support the renewal of the Export Control Act of 1949 without major change, and certainly without crippling restrictions.
- —Take administrative action to reduce the scope of our controls (COCOM lists) to the internationally agreed level. (In addition continue to try to control strategically significant goods and techniques as it is within our unilateral power to block the export to Communist countries.) Our licensing procedures should be speeded up and simplified.
- —Request authority to be able to extend tariff concessions to Communist countries in consideration of equivalent trade benefits from them.
- —An effective tool would be the ability to extend Eximbank guarantees on export credits to Communist countries. However, since the prohibition on such guarantees was only recently enacted, and is tied closely with a prohibition on guarantees to countries trading with North Vietnam, it would be inappropriate to request such repeal at this time.
Relative to the three specific pending cases mentioned in the summary paper, it is my understanding that based upon the current interpretation of the regulations, approval would not contravene the terms of the Act. Since these cases are so large and significant, however, caution is suggested. In my view all three could have serious political repercussions. Let me make clear that in my opinion there is insufficient data, at least on the oil and truck factory cases, to give you a recommendation with a very high degree of confidence.
Based upon the experience of past Administrations, I would expect that there is a very real possibility the oil and truck factory cases will receive adverse acceptance by the more conservative and right wing elements in the country. In both cases there appears to be directly or indirectly strategic implications. Based upon the data available the extent is not known. With particular reference to the truck factory, we were specifically informed that it would have “significant” military applications. (The sense of the Congress was expressed last year when it amended the Eximbank Act to include a prohibition against guaranteeing, insuring or extending credit, or participating in any extension of credit, for exports to Communist countries—e.g. the Fiat deal.)
Your decisions on these three cases will be interpreted as a signal both at home and abroad as to your attitude toward trade with Communist countries. With the Czechoslovakian incident still in peoples’ minds and the recognition that the Soviets are heavily supplying [Page 771] North Vietnam, any favorable decision would require extensive justification by the Administration as well as preparing the Congress and the public for its acceptance. With these qualifications based upon the data available, I would recommend deferring a final decision at this time. Certainly more data is needed as well as a precise assessment of Congressional and public acceptance for these actions.
Regarding the corn sales, it is again a political risk with the public and Congress generally but more specifically with the unions and their insistence on 50-50 shipments in American ships. It is my opinion that the unions (and other large sectors in our country), particularly in view of Vietnam, would not readily accept a favorable decision on this transaction. It is not to say that neither the union nor public acceptance cannot be gained but it certainly will take far more direct and specific effort than has been accomplished to date.