296. Memorandum From Secretary of Defense Laird to President Nixon 1

SUBJECT

  • US Trade Policy Toward Communist Countries

I have been asked to give you my recommendations on nine policy issues listed in the NSSM 35 Summary Paper, 12 May 1969,2 on the above subject. Before doing so, I think it is essential to give you my recommendations on the general line of trade policy I favor toward Communist countries.

I would continue our present policy while undertaking preliminary negotiations with individual Communist countries to explore whether there are reasonable prospects for liberalizing trade on the basis of quid pro quo concessions on both sides.3 [Page 772]In other words, I favor a combination of packages 1 and 5 of the Summary Paper. To achieve this end, we should first discover what areas of negotiation with the Communist countries are likely to bear fruit and then seek additional Congressional authority as needed. I believe it is neither wise nor necessary to seek broad changes in current laws affecting trade with these countries until we are reasonably sure that specific negotiations on a reciprocal basis can be successful. Congress is likely to take a similar view and be more disposed to grant liberalization authority to you if there is evidence of some reciprocal gain to the US from a specific area of negotiation.

The limited amount of study considered for NSSM 35 does not provide evidence for sound decisions on many of the issues on which I have been asked to give my views. However, the issues are not all equally urgent, and action on many can be deferred until more complete analyses are in hand. The one that must be dealt with at this time is the future of the Export Control Act, which expires on 30 June 1969. With respect to this and the other issues, my views are as follows:

a.

Should expansion of US trade with the Soviet Union and the other countries of Eastern Europe be actively and publicly endorsed by the Administration?

Comment: Recognizing the lack of a thorough-going analysis, I would refrain from active and public endorsement of new policies intended to expand trade with the Soviet Union and the other countries of Eastern Europe.

With or without a restatement of policy, it seems unlikely that US exports to Eastern Europe will grow at rates substantially above those applicable to US exports as a whole. Today the exports to Eastern Europe approximate 1 percent of total US exports. Assuming US exports reach $55 billion to $60 billion by 1975 and exports to European Communist countries reach the $500 million to $700 million projected in the Summary Paper, we are still dealing with an approximate 1 percent figure.

Since the economic effects of a revised policy are thus not likely to be significant, the Administration’s active and public endorsement of a more [Page 773]liberal policy should be determined by psychological and political considerations. In the short run, a new policy intended to expand trade would probably afford less leverage with the USSR than with the other East European countries, but in the absence of a detailed study of each situation it is difficult to determine whether the latter leverage would be significant or in the right direction. With respect to our allies, reactions would be mixed, depending, among other things, on the extent to which they regarded our policies as tending to preempt their export markets.

Endorsement of major changes in policy at this time could create several disabilities for the Administration. These would involve loss of flexibility both to deal pragmatically with the Congress while acceptable legislation is being evolved and to hold out the prospect of expanded trade for whatever future negotiating advantage it might have.

b.

Should we favor extension of the Export Control Act in its present form or propose or support amendments that would provide a suitable legislative base for a less restrictive Export Control Act?

Comment: I support extension of the Act in its present form. Under its provisions you have considerable flexibility to exercise judgment in the pursuit of trade policies that you perceive to be in the national interest. It has been possible under the present Act to generate an impressive list of commodities that can be freely exported to the Soviet Union and Eastern Europe. Only 2 percent by value of export license applications are currently rejected. Moreover, this list may be expanded or contracted without any change in legislation. Under these circumstances, arguments that amendments to the present Act are required to provide a suitable legislative base for expanded trade do not appear to be well-founded. If subsequent analysis, including assessment of probable Congressional reaction, produces adequate evidence in favor of amending the Act, this could be done next year.

c.

Should we seek authority to extend most-favored-nation tariff treatment to Eastern European countries, including the Soviet Union?

[Page 774]

Comment: I recommend against seeking this authority. The trade-creating effects of MFN would be small, even insignificant in the US perspective. As I have pointed out above, it is my general recommendation that we should first engage in preliminary negotiations with individual Communist countries to discover whether there are reasonable grounds for expecting some reciprocal gains to the US should such authority be obtained in each particular case. Only when such reciprocal gain has been identified should this authority be sought. One of the benefits of negotiating in advance would be to make it easier to obtain favorable Congressional response to a request for additional authority.

d.

Should we seek removal of the barriers to Export-Import Bank financing for Eastern European countries, including the Soviet Union?

Comment: I recommend against seeking removal of the barriers to the Ex-Im Bank financing for these countries. In addition to the reasons already given for not seeking general authority to extend most-favored-nation treatment, there are special problems involved in removing restrictions on Ex-Im Bank financing. We have a firmly established policy, enacted into various laws, of prohibiting lending or guaranteeing of loans by the US Government to countries with a record of (a) default of debts, (b) confiscation of property without due compensation, and (c) provision of supplies to countries engaged in hostilities with us. Here again I believe we should not seek to alter this policy until we have some concrete grounds for doing so.

e.

Should the United States continue to maintain a control list more restrictive than the international COCOM list?

Comment: I recommend we maintain control over commodities whose export, by reasonable interpretation, would endanger the security of the United States or be contrary to other vital interests. To the extent possible we should coordinate our policies with our COCOM allies, although it is becoming increasingly difficult to persuade them of the validity of our views, largely because our interests in the international arena are more extensive than theirs. In these circumstances, I think we will find it prudent to remain relatively restrictive. Of course, maintaining a differential should not in itself be considered an objective of our policy. If it is found that our national interests would be best served by bringing US controls closer to those of COCOM, we should do so.

f.

Should the Eastern European countries, including the Soviet Union, continue to be treated differentially in the application of our export controls?

Comment: I recommend we continue the concept of differentially applied export controls. The notion of differential treatment stems from a recognition of the economic/political differences between countries in the communist sphere. If the notion of differential treatment is abandoned, the opportunity is lost of exploiting the developments in one country vis-a-vis those in another; the mode of response to each nation is reduced to that required for the worst; and, the possibility of using trade as a flexible instrument of foreign policy is forfeited.

9.

Should we license a US firm to design and install a $26 million system for oil extraction and gathering for the USSR?

Comment: I recommend that, before we approve this transaction, we explore the possibility of using it as a means of gaining compensating benefits for the US from the USSR. While the type of item involved meets current criteria for non-strategic goods, the magnitude of this single transaction introduces an element not sufficiently taken into account in our current guidelines for export controls.

h.

Engine Foundry and Gear-Cutting Machines for Soviet Truck Factory.

Comment: As in the oil extraction case, the $60 million magnitude of this sale places it in a special category. Before being approved, it should be reviewed very carefully for any advantage that can be extracted for the US. CIA has estimated that at least 1/3 of these trucks will be military. My personal belief having studied the back-up support for Soviet army divisions would lead me to believe that this estimate is understated.

i.

Should we change our 50-50 shipping requirement to enable US firms to respond affirmatively to a Soviet request to buy US corn?

Comment: No strategic question is at issue. There is nothing to prevent this transaction except the 50-50 shipping requirement. There is also no reason to waive this requirement in order to consummate this sale, particularly since it is a one-shot affair sought by the USSR in order to tide them over a temporary difficulty. The 50-50 requirement, therefore, should be addressed on its merits. Parenthetically, it may not be wise to engage the labor unions on this matter when they have generally supported our foreign policy.

My views on the above subjects are shared by the Chairman, Joint Chiefs of Staff.

Melvin R. Laird
  1. Source: National Archives, RG 59, S/S Files: Lot 71 D 175, 5/21/69 NSC Meeting. Confidential.
  2. Document 292.
  3. In a May 19 memorandum to Richardson, Greenwald took strong exception to the Defense Department approach that “would virtually guarantee freezing up the trade channel of our relationship with the Soviet Union and Eastern Europe. Non-strategic East-West trade has been one area where we have some possibilities of moving when we think it would be useful in terms of our own evaluation of the general atmosphere of our relations with the East. The pre-negotiation concept which underlies the Defense approach has no validity when applied to specific trade issues. Relaxation of restraints we have placed on exports which go beyond those agreed with the COCOM countries have not been and will not be looked upon by the Soviets or Eastern Europeans as a subject for quid pro quo negotiations.” Greenwald attached a paper taking exception to 13 specific points in Laird’s memorandum. (National Archives, RG 59, S/S Files: Lot 80 D 212, NSSM 35)