297. Information Memorandum From the Assistant Secretary of State for European Affairs (Hillenbrand) to Acting Secretary of State Richardson1
- Arguments for Presidential MFN Authority for Eastern Europe
In setting forth the rationale for Presidential authority to extend MFN treatment to those Eastern European countries which do not have it (only Poland and Yugoslavia do), one must begin with the premise that it is desirable to seek improvement of relations between these countries and the United States. If merely standing still or retrogressing is the preferred course of action, then MFN becomes irrelevant. I take it, however, that our present policy is to try to take advantage of such opportunities as exist to move towards better if not completely normal relations with Eastern Europe.
On this assumption, arguments for MFN authority for the President may be made on two levels:
- On the psychological-political level, it is a fact, rightly or wrongly, that US failure to offer MFN has acquired considerable symbolic significance in the minds of Eastern European leaders. They regard it as a significant area in which the United States can evidence the reality of its desire to improve relations with them, even though in their more realistic moments they recognize that the immediate economic benefits will be small. MFN treatment would thus have an effect considerably beyond its intrinsic importance, not only removing one of the standard excuses which these regimes advance for not being able to improve relations with us, but providing real evidence of movement by the United States away from the political aloofness, if not downright hostility, which characterized political relations during the cold war period. If one asks why the United States should take the initiative in the absence of any real gesture of good will from the other side (Romania had already made them),2 the answer is that we are a great power, hopefully capable of conducting an imaginative and flexible diplomacy.
- On the economic level, the principal argument is that failure to grant most-favored-nation treatment works to the disadvantage of American exports to Eastern Europe. While one should have no illusions about [Page 777] the potential for such exports (Eastern Europe will always remain a marginal market), countries such as the United States which face a secular problem in balancing their foreign trade accounts cannot afford to scorn even limited export possibilities. Patterns of trade are now being established between Eastern Europe and the West which are working to the detriment of American interests as the countries of Western Europe move into Eastern European markets on a preferential basis. American exports suffer not only from the higher tariffs raised against them in the absence of MFN treatment, but by the negative effects in directing imports which its absence has on economic policy-makers on Eastern Europe. We are likely to wake up one day and find the established patterns of trade so firmly fixed that we will have lost any possibility of significant penetration of the Eastern European market in the face of Western European competition.
One final point—in this context it is better to have tried and lost than not to have tried at all. The US executive will be in a better diplomatic posture if the President requests MFN authority and fails to get it from Congress than if the effort is not made. In the latter case, invidious comparisons with the previous Administration will be inevitable.
There are definite limits to what one might expect to be able to trade-off with specific countries for most-favored-nation treatment. The most tangible effects are likely to be in the general areas noted above. A country-by-country breakdown follows:
If the President had authority to grant MFN to Bulgaria, we might be in a position to link this position persuasively with such matters as cultural exchanges and VOA jamming. Another possibility would be to speed up the negotiation of a consular convention which we want.
In our proposed claims settlement package (on which we will now begin consultations on the Hill), an essential ingredient will be the offer to grant MFN treatment to Czechoslovakia as a quid pro quo for a more generous settlement of US claims. After the initial payment, execution of further payments by the Czechs would be contingent on our extension of MFN.
Willingness to extend MFN treatment to Hungary could have the effect of breaking the existing log jam in our bilateral relations. It would increase Hungarian willingness to be forthcoming on a range of subjects, including settlement of claims, consular convention, and removal of administrative disabilities imposed on the US Embassy in Budapest.
If we were actually in a position to deliver MFN, which the Romanians now seem to doubt, it would undoubtedly have a positive effect in such matters as reuniting divided families, achievement of a consular convention, and perhaps additional scope for our cultural activities.
While the MFN issue plays a considerably lesser role in our over-all relations with the Soviet Union than with the smaller Eastern European countries, it would undoubtedly have psychological and political effects along the general lines indicated above. Moreover, it might make the Soviets somewhat more forthcoming in their willingness to accept American imports which are competitive with those from other Western sources. MFN might also serve as effective bait to the Soviets as part of an acceptable settlement of the lend-lease debt.