321. Memorandum From Secretary of Defense Laird to President Nixon1
Washington, November 21, 1970.
SUBJECT
- Improving Trade Relations with Communist Countries
In response to a request by your staff, I am submitting my views on the
proposals by Secretaries Rogers
and Stans to liberalize East-West trade.2
Discussion
The issue of whether to propose legislation authorizing the President to
extend most-favored-nation treatment and Export-Import Bank credits and
guarantees to individual Communist countries has already arisen in
connection with NSDM 15 (May 28,
1969),3 the Export Expansion
Act of 1969, and the Export Administration Act of 1970 [1969].
In NSDM 15 you decided that “present
legislation provides an adequate basis for US trade policy toward the
USSR and the Communist countries of Eastern Europe at this time, in view
of the status of our overall relations with them,” and that “we should
be prepared to move generously to liberalize our trade policy toward the
Soviet Union and other Eastern European countries whenever there is
sufficient improvement in our overall relations with them.”
I recognize that this important issue should be reexamined periodically.
However, the first question to reexamine is whether there has been a
real improvement in our overall relations with the Soviet Union and
specific countries in Eastern Europe.
Similarly, the concept of “equivalent benefits” to the US is the key to
defining overall US objectives. Equivalent benefits need to be related
to our political and national security objectives and to Soviet and
Eastern European moves to liberalize their trade arrangements with us,
if authority is to be requested from Congress to liberalize our trade
arrangements with them.
Again, to achieve “equivalent benefits” and to convince Congress that a
request for discretionary authority should be granted, we need a [Page 829] plan that states explicitly
what is to be expected of the Soviet Union and specific countries in
Eastern Europe. This plan should be in the form of potential negotiating
packages that link our, and their, interests and objectives with
practical moves on both sides.
The preconditions of negotiating should include some non-economic quid
pro quos, such as a move by the Soviet Union to urge Hanoi to move
toward release of US prisoners of war. The trade package itself should
require the Soviet Union and Eastern Europe to reduce such barriers to
East-West trade as import quotas, bilateral trading arrangements,
unrealistic exchange rates, inconvertible currencies, and preferential
pricing.
The Communist countries of Eastern Europe should move toward membership
in GATT and the IMF, as some of them are already doing. They should be
required to accord nondiscriminatory treatment to our exporters and the
same exchange rates that we provide to Communist countries.
Above all, we should take no actions that will strengthen the bilateral
state-trading system of Communist countries. Rather, we should use the
opportunity to negotiate new kinds of multilateral, more direct, and
flexible trading arrangements acceptable to both sides.
A summary of the rationale for my views on the potential effect of the
State and Commerce proposals on total exports and exports of strategic
commodities and technology is attached (Tab A).
Recommendation
I recommend that:
- a.
- In accord with NSDM 15, we
first determine those cases in which there is sufficient
improvement in our overall relations to warrant further
liberalizations of our trade policy.
- b.
- We take no steps to request discretionary authority from
Congress until we have developed a broader plan and specific
negotiating packages that spell out how we propose to use
it.
[Page 830]
Tab A
IMPROVING TRADE RELATIONS WITH COMMUNIST COUNTRIES
Overall Trade
It is an illusion to believe that extending most-favored-nation (MFN)
tariff treatment and Export-Import Bank credits and guarantees to
individual Communist countries would lead to greatly expanded trade
with the US, even if potential “equivalent benefits” are extended to
the US. The Communist economies, as presently organized, simply do
not produce the types of commodities that will be bought in large
quantity in the US.
“Equivalent benefits” to the US would include a reduction of
Communist barriers to trade with the US as well as nondiscriminatory
treatment. They would also include a substantial modification of the
rigid bilateral state-trading arrangements and convertibility of
Communist currencies. The great problem is to identify specific
equivalent benefits to the US and to specify what kind of new
trading arrangements might be acceptable to both sides.
Discrimination is the very heart of Communist trading practice, and
separate terms are set not only for different countries but also for
each individual transaction.
An overall plan and potential negotiating packages need to be
developed before discretionary authority is sought from Congress.
Such a plan does not yet exist, even in the case of Romania. A
request for broad authority would make sense and have a better
chance for a favorable response in Congress if the aims and
conditions under which it will be exercised were spelled out in
advance.
There are special problems involved in removing restrictions on
Export-Import Bank financing. There is a firmly established policy,
enacted into various laws, of prohibiting the US Government from
lending or guaranteeing loans 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 the US. Before this policy is altered, the grounds
for doing so should be clearly established.
Strategic Trade
US general export policy toward Communist countries is to restrict
trade in those goods and technologies that would significantly
contribute to their military capabilities, while allowing maximum
freedom of trade in peaceful goods. This policy is difficult to
implement in the case of goods that can be used for both
purposes.
[Page 831]
The problem in expanding trade is to find an appropriate balance of
diplomatic, military, and economic interests and objectives.
The quantum of exports to Communist countries (including Yugoslavia)
by both the US and its allies has been rising, in part in response
to Western economic growth. Japan and Western Europe are much more
heavily dependent on external trade than the US, and Communist
countries are their natural trading partners in many areas of
commerce.
As the volume of trade has expanded, controls over the export of
technology have been substantially relaxed. As a consequence, the
level of advanced Western technology made available to Communist
countries has risen significantly.
Communist countries can find much to buy in the US under the modest
trade controls now in force. Their problem is to find things to sell
us in exchange. The only way to achieve a rapid and sizable
expansion of US exports is for us to sell on credit. In the absence
of fundamental economic reforms in hostile Communist countries, we
have no reason to believe that such a temporary spurt in US exports
financed by loans would develop into long-term growth in genuine
two-way trade.
If such a policy were applied to Communist countries whose relations
with us have shown few signs of improvement, the benefit would seem
to accrue overwhelmingly to them. By financing some of their needed
imports, we would help the present governments cope with pressing
domestic economic problems and close more quickly the technological
gap with the US. We could gain only if improved economic conditions
in those countries caused them to improve their political relations
with us.
I find little in history to support the view that short-term relief
of internal economic problems will lead hostile Communist powers to
modify their international relations in our favor. On the contrary,
it seems to me that relaxation of East-West tensions depends on
liberalization of the political and economic orders of those
hard-core Communist powers. Such liberalization is more likely to
come from the existence of internal economic pressures than from
their elimination.
Whether or not additional credits are used to expand US trade with
the Communist countries, the minimum requirement for national
security is that effective strategic trade controls must continue to
be maintained. Similarly, any request for discretionary authority
from Congress to extend credits to Communist countries should
identify the “equivalent benefits” to be achieved by the US.
