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
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.
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.
[Page 780]
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.
[Page 782]
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.
[Page 783]
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.
