298. Action Memorandum From the President’s Assistant for National Security Affairs (Kissinger) to President Nixon 1

SUBJECT

  • East-West Trade (excluding the Asian Communist countries and Cuba)

The NSC meeting on East-West Trade has been rescheduled for May 21.2 An immediate decision is needed on one issue: our Export Control Act, which establishes the basis for regulating exports to Communist countries, expires on June 30. Commerce, State and Defense will testify early next week on a Muskie-Mondale bill to liberalize the present act. [Page 779]They need a decision on whether you wish to support a simple extension of the present Act, support the liberalizing Muskie bill, or submit an Administration liberalizing bill.

Your decision on this issue, however, can best be made in the context of your decisions on our overall approach to East-West trade. The summary paper discusses the issues which underlie all U.S. policy in this area and offers five packages:3

1.
Continuation of the present fairly restrictive policy.
2.
Adoption of new liberalizing attitudes but without major legislative changes.
3.
Adoption of more liberalized attitudes plus support for Congressional initiatives toward liberalizing legislation and Administration initiatives as soon as Congressional acceptance becomes likely.
4.
An immediate liberalizing initiative, including legislative proposals.
5.
Linking of any of the liberalization approaches to specific concessions in return from Communist countries.

The specific issues, besides the Export Control Act, which could be part of any package and on which you could make decisions now, are listed on the first page of the summary paper and in the issues for decision paper.

When the NSC meeting on East-West trade scheduled for May 14 was cancelled, all agencies were asked to submit their recommendations on each issue for decision in writing.4 These are summarized in the issues for decision paper, which also includes my recommendations, and the replies themselves are at the tab “Agency Views”.5 The basic options paper is at the last tab.6

Attachment

ISSUES FOR DECISION AND SUMMARY OF AGENCY VIEWS ON POSSIBLE COURSES OF ACTION

All agencies agree that our present East-West trade policy hurts the Communist economies marginally, if at all; is a source of irritation between us and our allies and between us and our business community; and that increased trade could be of some help in improving East-West political relations.

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But there are three sharply different approaches to liberalizing our present policy:

1.
To seek political concessions before we take any forward steps, including requests for Congressional authority to liberalize (Defense view);
2.
To request Congressional authority prior to negotiations but then liberalize in the expectation that it will lead to improvement in the political climate (State view);
3.
To seek authority but then liberalize in return for purely economic concessions (Commerce view).

Defense would prefer to undertake prior negotiations with the Communist countries to determine in advance what political concessions we can get in return for U.S. trade concessions.

State advocates an immediate major legislative initiative to liberalize the Export Control Act, seek authority for the President to extend MFN treatment to the Communist community and remove the proscriptions on Export-Import Bank lending. They see this approach as most clearly reflecting your desire to move into an “era of negotiations” and to enhance your bargaining power with the USSR. They assume that your advocacy will help generate the needed public support.

Commerce is firmly opposed to any major legislative initiative at this time, fearing Congressional rebuffs and hence a setback to the improvement in trade relations which they foresee under existing law.

The other agencies are in between State and Commerce, advocating initiatives on some issues but not on others, but generally leaning more toward Commerce’s caution.

I recommend that the Administration take no major legislative initiatives at this time but go along with Congressional liberalizing initiatives. My judgment is based largely on foreign policy considerations, however, and domestic political ramifications must be a major element in your decision.

On the specific issues, the agencies’ views and my own recommendations are as follows. My recommendations are confined to the foreign policy aspects of the decisions.

1. Export Control Act

The Export Control Act requires the Administration to restrict exports to Communist countries of goods or technical data which would enhance their military or economic potential. Under this authority, exports can only be made if licenses are issued for them.

The proposed Muskie-Mondale bill would relax the conditions under which exports could be authorized by eliminating the “economic potential” criterion and liberalizing moderately the “military potential” test. It would also shift the administrative emphasis from requiring [Page 781] permission for exports, as at present, to requiring denial to keep exports from going. The presumption of denial would be replaced by a presumption of permission.

State, OEP, Labor and CEA (admitting that its expertise is of limited relevance on the overall subject) recommended that we seek liberalizing amendments. Defense, Commerce, Treasury, Agriculture, and STR support renewal of the present act (although STR would not rigidly oppose liberalization proposed by others). All are opposed to any tightening.

I recommend that we go along with the Muskie-Mondale bill for modest liberalization, subject to Bryce Harlow’s views on Congressional considerations.

2. Public support by the Administration for expanded East-West Trade

State and Commerce agree fully on the desirability of active promotion and are supported by Treasury, Agriculture, STR, and USIA. Commerce advocates a Presidential statement as soon as politically possible. Defense, OEP and CEA would hold back, feeling that there is little to gain with Defense arguing that there could actually be some costs in terms of our negotiating leverage with the Communist countries.

I recommend that we indicate our support for augmented trade, but in low key with prospects for more as the political situation improves. I recommend against a Presidential statement at this time and would leave most of the public presentation to the Secretary of Commerce.

3. Authority to extend MFN treatment

At present, U.S. imports from most Communist countries must pay the tariffs contained in the 1930 Smoot-Hawley Act. The sizable tariff reductions made in numerous trade negotiations since then do not apply to them because the President has not had authority to treat them like all other countries. This distinction applies only to Communist countries.

State and Treasury recommend that you seek such authority; State feels that there would be a foreign policy payoff even if Congress did not agree. Commerce recommends that you support any Congressional initiatives which emerge. (Senator Magnuson, supported by Senator Fong, may reintroduce the East-West Trade Act proposed by the Johnson Administration in 1966.) But Commerce opposes an Administration initiative since it is convinced that it could not pass and Defense would await assurance of a specific quid pro quo before seeking the authority. (State is indifferent between an Administration proposal and Administration support for Congressional initiatives.) OEP, STR and CEA would also defer any initiative.

I recommend against an Administration initiative at this time but would support a Magnuson or other bill to give you MFN authority.

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4. Elimination of Restrictions on Export-Import Bank Financing

Under the Fino Amendment, the Export-Import Bank may not provide export credits to countries trading with North Vietnam. This of course covers all of the Communist countries.

The same views prevail on eliminating this as on MFN except that Treasury is opposed to a request at this time.

I recommend no initiative. No Congressional initiative has been taken in this area.

5. Elimination of Differences Between the U.S. and COCOM Control Lists

The list of goods and data unilaterally controlled by the United States is much more restrictive than the list maintained multilaterally through COCOM. There is widespread agreement that we are simply losing sales without adversely affecting the Communist countries.

Everyone agrees that we should liberalize to the COCOM level except in the very few areas, such as advanced computers, where we can effectively maintain unilateral controls. (Defense makes no specific recommendation on this issue.) This would be a purely administrative decision.

I agree with the majority view.

6. Differentiation among the Eastern European Countries under our controls

We treat the different Communist countries differently under the Export Control Act, both for political reasons and because there are some cases where we do not think an Eastern European country will transmit data or goods to the Soviet Union.

All except OEP favor continuation of the present differentiation approach. USIA is strongly in favor.

I agree.

Specific Issues

There are three specific licensing issues of sufficient magnitude and policy implication that they require your attention, which illustrate the overall policy issues addressed earlier. Your decisions on them will be regarded as a signal of the Administration’s attitude toward trade with Eastern Europe.

The cases are:

a.

USSR negotiations with a U.S. firm to design and install a system for oil extraction and gathering that would give the USSR for the first time a modern, semi-automated oil field.

All are in favor of granting the license except Treasury which would defer a decision until we have more information. Defense would seek a specific compensating benefit.

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I recommend that we issue the license after conducting Congressional consultations.

b.

USSR negotiations with U.S. firms to design and install a $60 million engine foundry to expand and modernize a Moscow truck factory.

All favor except Treasury, which wants more information. But CEA expresses reservations; CIA notes that the factory has a significant military potential; and Defense thinks the military potential may be greater than cited by CIA. State and Commerce counsel prior consultation with Congress before proceeding and Defense would look for “advantages for the U.S.” (presumably beyond the export sale).

I recommend that we delay our decisions on these issues, until we can better assess our overall political relations with the USSR.

c.
Corn sales to the USSR, which would in practice require elimination of the 50-50 shipping rule through negotiations with the unions.

State (after Congressional consultation), Agriculture, Commerce, and STR are in favor. CEA and Defense oppose the effort if only a single corn sale is in sight, and CIA concludes that there is no assurance of ongoing sales. In an earlier memorandum to you, the Secretary of Labor concludes that a great deal of effort will be needed to achieve agreement with the unions. Treasury agrees.

I recommend no action. The cost of seeking union agreement is too high for a single sale.

  1. Source: National Security Council, Secretariat, Box 84, 5/21/69 NSC Meeting-U.S. Trade Policy Toward Communist Countries. Confidential. This memorandum is the covering memorandum on a package of briefing materials for the President’s use at the May 21 NSC meeting.
  2. The meeting was held in the Cabinet Room from 10:26 to 11:30 a.m. Nixon, Agnew, Laird, Lincoln, Richardson, Wheeler, Helms, Kissinger, Kennedy, Hardin, Shultz, Siciliano, Davis, Greenwald, Loomis, McCracken, Gates, Burns, Goodpaster, Haig, and Bergsten attended. (National Archives, Nixon Presidential Materials, White House Central Files, President’s Daily Diary) No formal record of this meeting has been found, but see Document 299.
  3. Document 292.
  4. See Document 293.
  5. Not printed, but see Documents 294, 295, and 296.
  6. The 35-page NSSM 35 Response is not printed.