320. Memorandum From Secretary of Commerce Stans to President Nixon 1

SUBJECT

  • Expansion of U.S. Commercial Relations with East Europe (Including USSR)

I am concerned over the rapid growth of Western Europe’s share of the Eastern Europe market. Japan, starting later, is also increasing its exports rapidly and is already ahead of the United States. Eastern Europe imported $8.5 billion from the free world in 1969. Western Europe’s share was $5.8 billion and Japan’s about $400 million. By contrast, U.S. exports were less than $250 million.

This is the case despite the fact that international trade and commercial relations are usually more stable and enduring than international political relations. It should be possible for us to widen our business relationships with Eastern Europe, despite current difficulties in the broader political sphere, and by doing so strengthen the foundation for progress in political relationships. The token level of our current trade with Eastern Europe convinces me that our trade program with Eastern Europe is outdated and not serving either our political or our economic interests.

An increase in our business with Eastern Europe would directly benefit our economy. Attachment I, which describes our present limitations on the shipment of automotive production equipment to the Soviet Union, illustrates the kind of benefit U.S. industry could gain if it were given access to the Soviet market. Eastern Europe’s markets are no longer negligible, even by U.S. trade standards, and promise to grow steadily. They have a strong appetite for American industrial equipment and technology. But the Western European and Japanese penetration threaten to impose a pattern which may be insurmountable in the absence of present U.S. action. I believe that the United States should now seek a more realistic share of these markets, consistent, of course, with our national security and foreign policy interests.

We accordingly propose to increase our recently initiated drive to enlarge peaceful U.S. trade with East Europe and to encourage the development [Page 825]of joint venture arrangements between American and Eastern European enterprises, along the lines developed by the Scott mission last summer. In the process we will continue our efforts to interest American firms in more active exploration of regional markets, and to encourage the vigorous pursuit of two-way trade opportunities by American exporters and importers. We will simultaneously continue to encourage those countries to identify areas in which they would welcome investment by American manufacturers, and draw these areas to the attention of American firms which might be interested in exploring them. We also plan to raise the number of specialized missions of U.S. industry leaders to develop on-the-spot contacts with potential customers and co-venturers in the region. In cooperation with the U.S. Information Agency, we hope substantially to increase exhibits of U.S. export products through trade fairs in the region. Finally, we intend to work with the State Department to increase the availability of commercial services to U.S. businessmen at our Foreign Service posts in the region.

To date these efforts have related primarily to the five countries Mr. Harold B. Scott, Deputy Assistant Secretary of Commerce, visited (Poland, Romania, Czechoslovakia, Hungary, and Bulgaria). But the Soviet Union, which the group did not visit, represents a market larger than those five combined. For this reason, I believe that we should soon consider sending a group like the Scott mission to the Soviet Union to explore in a similar fashion the opportunities for increased two-way trade and the possible receptivity of the Soviet government to an increase in “joint venture” relationships with American firms. An example of the kind of opportunity now emerging is the reported interest of the U.S.S.R. in forming an international consortium to exploit the very large copper deposits in Siberia. This would reportedly involve heavy purchases of mining and transport equipment, to be offset by long-term contracts for marketing the product.

In the export control field, where the Administration has wide freedom of action under present legislation, I believe we should try to put U.S. suppliers on as nearly equal a footing with their Western European and Japanese competitors as security considerations permit. As you know, Congress, in the Export Administration Act of 1969, enjoined the Administration to review and liberalize the list of controlled items, and we are making significant progress in this effort. With regard to our licensing decisions, we are for the most part giving full recognition to the availability abroad of comparable commodities, as the Act calls upon us to do. I believe that we should keep to an absolute minimum the instances in which licenses are denied even though the denial is ineffective by reason of foreign availability. Such denials frequently serve only to switch the order to other countries, or prevent the order coming to the United States. For example, after Camco of Houston was [Page 826]denied a license to supply $3 million of petroleum equipment to a Siberian field, the firm manufactured and shipped the equipment from the United Kingdom. Likewise, some American firms whose foreign subsidiaries hold or expect orders from Eastern Europe would like to transfer such business to their U.S. factories if a U.S. export license is granted. An illustrative case is La Salle Italia which will furnish $30.4 million in automotive equipment to the U.S.S.R. from its U.S. sources instead of from Italy, provided the U.S. issues an export license.

In addition to these vigorous trade promotion and export decontrol measures, for which the Administration already has full authority, I feel I should re-emphasize the recommendations in my September 26 memorandum to you.2 These urged early legislative action to authorize you to extend most-favored-nation tariff treatment to U.S. imports from, and Export-Import Bank financial support to U.S. exports to, Eastern Europe. These measures would enable you to remove two major obstacles still impeding expanded economic relationships. Any major long-term growth in our trade with Eastern Europe depends upon their removal, notwithstanding the importance of the other efforts I have listed. Because of the political and economic importance of this matter, I urge your favorable consideration of these recommendations.

Maurice H. Stans 3

Attachment I

SUBJECT

  • Impact of U.S. Export Controls on Shipments of Automotive Production Equipment for Trucks to the U.S.S.R.

Problem

The Department of Commerce is not authorized to issue export licenses for shipments of automotive production equipment for trucks to Soviet Russia. Denial of such licenses is not an effective instrument of policy, however, since the same equipment if denied ex U.S., will invariably be produced by the U.S. applicant in foreign countries which do allow such exports. Even if this should not occur, there are alternative sources of supply available to the Soviets from foreign competitors of the U.S. Thus, the Department’s inability to issue these export licenses [Page 827]results in a trade balance reduced by millions of dollars and the loss of hundreds of jobs for Americans, while the purpose of the denial is thwarted.

Economic Impact

The Department is currently aware of Soviet orders and negotiations for orders of American automotive production equipment and technology for use in truck building facilities valued at $81.7 million. In one case, follow-on orders could run as high as $75 million by 1975. Another firm is responding to Soviet inquiries for technical data valued at $15 million. The potential follow-on sales which could be generated by this sale are significantly higher.

If the Department is unable to issue licenses for these potential exports, the U.S. firms involved have indicated their intention to fill these orders through production facilities abroad.

In addition to the loss of the balance of payments impact of these sales, the United States stands to lose the jobs which these orders would create. In view of current domestic economic conditions, the U.S. firms involved would naturally prefer to use their domestic production facilities to produce for the Soviet market, but under existing policies are unable to do so. As a result, about 650 men have already been laid off, and the number is likely to grow to 1,150 by March.

Recommendation

The restriction on the following U.S. exports of production equipment for trucks to the U.S.S.R. should be eliminated:

Cross Company of Detroit—Transfer lines for truck wheel hub and brake drum manufacture, $12 million

Gleason Works of Rochester—Gearmaking equipment, $24 million

LaSalle Company of Detroit—Piston manufacturing transfer line, $30.7 million

Swindell-Dressler—Foundry technology, $15 million4

  1. Source: National Archives, Nixon Presidential Materials, NSC Files, Subject Files, Box 401, Trade General, Volume II 4/70-12/70. Confidential. Attached to a November 19 memorandum from Stans to Kissinger informing him he had given the memorandum to the President that morning and requesting a meeting. Stans, Siciliano, and Flanigan met with the President from 12:13 to 12:43 p.m. on November 19. (Ibid., White House Central Files, President’s Daily Diary)
  2. Not found.
  3. Printed from a copy that indicates Stans signed the original.
  4. Attachment II, which details, with case numbers, these $81.7 million of export requests and another $80.7 of requests not on Stans’ list, is not printed.