337. Memorandum From the President’s Assistant for International Economic Affairs (Peterson) and the President’s Assistant for National Security Affairs (Kissinger) to President Nixon 1

SUBJECT

  • Scenario for State East-West Trade Decisions

For the past two years the Administration has generally, with a few exceptions, refrained from significant liberalization in our trade relations with the USSR and Eastern Europe. The exceptions have been:

  • —A gradual but relatively unimportant decrease in our export control lists under the review procedure called for by the Export Administration Act of 1969.
  • —A few favorable decisions in the COCOM allowing European countries to ship marginal items to Eastern Europe.
  • —Granting of export licenses in May for the shipment of $86 million of truck manufacturing machinery, including the Gleason application.
  • —Elimination of 50% American shipping requirement on grain sales in the context of our China policy.

Now, however, there has been a gradual increase in commercial and Congressional pressure for us to take further steps. In addition over the rest of the year there may be developments in our general relations [Page 857]with the Soviet Union and Eastern Europe justifying further moves. We should now examine what these moves might be and how we can prepare the technical staffing for decisions. Such preparation does not imply approval of these moves, but merely prepares the way for decisions. We already have in hand an interagency study of the trade potential involved in these measures.

Because of the variety of our controls on East-West trade, we have a number of fields in which we can take action:

  • —a decrease in the differentiation between the U.S. export controls and those of other Western countries;
  • —a decrease in the level of the international controls;
  • —credits for the Soviet Union;
  • —a decrease in our discrimination against imports from the European Communist countries.

This gives us a range of greater or lesser actions we could take in logical sequence. The first actions would be those of least consequence or those in which a time factor is important. As the technical staffing is completed on each of these issues, you could approve the actions, delay decisions, or disapprove the proposals. The agencies would prepare individual papers discussing the domestic, foreign and commercial issues involved in each step.

The sequence is as follows:

1.
Reconsideration of pending applications by U.S. companies for export licenses to sell U.S. petroleum catalytic cracking refinery plants to Eastern Europe. These are small cases, involving about $8 million, for permission to send primarily to Poland the same type of equipment which we sent to Romania in 1965. You decided to delay issuing these licenses in August 1970,2 but the American companies claim that time is running out since the Poles can buy this equipment elsewhere. Commerce is now preparing an interagency paper for submission on this issue.
2.

Consideration of whether to allow U.S. companies to participate in the Russian construction of a huge new truck factory on the Kama River. A number of U.S. companies have been approached. Henry Ford turned down the project after a negative public statement by Secretary Laird. The Mack Truck Company has pending a $700 million export license application and several other companies have made smaller applications. There are several options available on approaching this question including:

  • —continued delay;
  • —approval of piecemeal U.S. participation only in segments of the proposal;
  • —approval of U.S. participation in all aspects of the proposal;
  • —approval of U.S. participation provided the Russians agree to other commercial purchases from the U.S.

Most of the equipment for this project can be obtained from Western Europe and there are no export controls hindering shipment from there. The U.S. still demands specific export licenses for this type of equipment despite the fact that other nations do not do so. The magnitude of the project, well over $1 billion, and the necessity that the Soviets decide quickly argue for your being able to make a decision on this issue shortly should you wish to do so. The agencies are preparing an options paper.

3.
A general reduction in unilateral U.S. export controls down to the level prevailing in Western European countries under the International Coordinating Committee (COCOM). The U.S. requires specific export licenses, and sometimes refuses them, on a number of items which other western countries freely ship to Eastern Europe. By reducing our controls to the international level we would place our firms on a level equal to that of Western European firms and no longer need make decisions in specific cases such as the Kama River project. In so doing we might reduce European eagerness to relax the COCOM restrictions, since they would know we could then compete.
4.
Extension of Export-Import Bank loans guarantees and insurance should Congress eliminate the Fino Amendment. The Fino Amendment prohibits Export-Import Bank transactions in countries trading with North Vietnam, i.e. Eastern Europe and the Soviet Union. Despite Administration opposition, the Senate has already passed a bill repealing the amendment and the House may follow. This would give you the discretion of allowing Export-Import Bank transactions in Eastern Europe and the Soviet Union. Should Congress pass this legislation early this summer, you would need to decide whether to exercise this discretion. (We could also drop our opposition to the legislation.) The Eastern European Governments have constantly claimed that lack of Export-Import Bank guarantees, insurance and loans have inhibited our sales in those markets.
5.
A relaxation of the U.S. veto on requests by other Western European countries to export items to Eastern Europe as exceptions to the international COCOM lists. Many Western European countries, as well as the United States, request COCOM to grant exceptions on specific transactions. The United States, however, is the most frequent vetoer of such requests. We could adopt a somewhat less negative posture generally and ourselves seek more exceptions for U.S. exports.
6.
A reduction in the international COCOM lists. The COCOM will review its lists in October. Many Western European countries will [Page 859]propose that hitherto forbidden items be allowed to be exported freely to Eastern Europe. The United States will probably be the principal resister to such requests. We could decide to be less negative. In any case, the United States will need a position well before October.
7.
Request for, or support of, legislation allowing most-favored-nation treatment for the Eastern European countries. Legislation now requires that we collect Smoot-Hawley tariff rates on imports from most Communist countries. Bills have been introduced in the Congress giving you discretion to reduce those rates to most-favored-nation levels in connection with reciprocal trade agreements with those countries. We oppose those bills, but you have decided that we would not oppose such legislation directed solely at Romania. We could also indicate a more favorable Administration position toward legislation affecting other Eastern European countries.
8.
Proposal of legislation to repeal the Johnson Act. The Johnson Act forbids certain kinds of credits to countries which have defaulted on debts due the United States. The effect of the Act is ambiguous, since interpretations now exempt commercial export and Export-Import Bank credits from its restrictions. State is currently preparing a request for a ruling by the Attorney General that would clear up some of these ambiguities, since many businessmen see the Act as a serious obstacle to normal financial and commercial relations. Eventually, however, these ambiguities can only be totally eliminated by repeal of the Act.

It may not be possible to follow this sequence completely, but it is a general indication of the order in which steps might be taken. We would not necessarily always use the same bureaucratic mechanism in presenting issues for your decisions, since some of these actions, particularly on unilateral U.S. export controls, would generally come through the Secretary of Commerce and include comments of other agencies, while other issues might be better handled through the Under Secretaries Committee or other mechanism. To avoid a leak about a massive reconsideration of U.S. policy, we propose initiating these papers over a period of time, rather than all at once.

The agencies are already preparing issues papers on Steps 1 and 2; and we will shortly send them to you. We would propose initiation of an options paper on some of the next steps shortly, with the others to follow later.

Recommendation:

That we gradually instruct the agencies over a period of time to prepare options papers on these issues more or less in the order listed [Page 860]above, so that we shall be in a position for decisions should we wish to take action in this field.3

  1. Source: National Archives, Nixon Presidential Materials, NSC Files, President’s Trip Files, Box 491, Dobrynin/HAK 1971, Volume 6, Part 1. Confidential. The memorandum is Tab B to a June 30 memorandum from Johnston to Kissinger. Tab A is a June 30 memorandum from Hinton (acting for Peterson) to Kissinger providing talking points for Kissinger’s meeting with Dobrynin that evening. Hinton noted that Peterson had told Kissinger the previous day that “the object of the exercise would be to work toward a situation in which U.S. participation in the Kama River truck plant might be linked to Soviet purchase from us of consumer goods and equipment to manufacture consumer goods.” In suggested talking points Hinton pointed out that Komarov had recognized that such a linkage would help the President fend off criticism from political conservatives. In his covering memorandum, Johnston called Hinton’s talking points “excessively positive” in the absence of a firm decision and took exception to the possible linkage of Kama with additional purchases of non-strategic imports from the United States, which would hinder U.S. firms’ participation in the Kama project because they would face additional obligations not imposed on Western European competitors. Johnston noted that “such an approach would hinder the U.S. commercial opportunities, be less forthcoming with the Soviets, and would open the possibility of a comprehensive trade negotiation with the Russians, which would expose us to exceptional demands and might prove fruitless.” In a June 30 note transmitting the package to Kissinger, Haig noted that “no one was acquainted with your specific requirements as conveyed privately to Peterson” and added that he did not “see anything for your use tonight [with Dobrynin] except for the more general considerations outlined in the strategy paper at Tab B.”
  2. See footnote 5, Document 319.
  3. Neither the Approve nor Disapprove option is checked.