377. Memorandum From the Acting Chairman of the National Security Council Under Secretaries Committee (Samuels) to President Nixon 1

SUBJECT

  • Export of Integrated Circuit Technology to Eastern Europe

In response to your request of February 8, 1972, this Committee2 has reviewed the status of a number of pending cases involving the export of integrated circuit technology to Eastern Europe. A status report prepared by an ad hoc inter-agency working group is attached.3

This memorandum considers, in particular, cases involving proposed British and French exports to Poland and a proposed U.S. export to Romania. Related, generally less significant cases are enumerated in the attached report ( pp. 9 10). These minor cases would be reviewed in the light of your decisions respecting the Polish and Romanian cases.

The Polish Case

During 1971, you decided in favor of permitting French assistance to Poland in the manufacture of transistors and against permitting such assistance for manufacturing integrated circuits.4 The French Government has asked us to re-examine our rejection of assistance related to integrated circuits.5

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The British introduced in COCOM in 1971 a proposal to assist Poland in the manufacture of integrated circuits. Following a U.S. objection, the British have also asked us to withdraw our opposition.

The French case involves exports valued at $7-8 million; the British, $6 million. Both cases involve export of technological assistance and manufacturing equipment which would enable Poland to move from a pilot to mass production stage. The stated purpose is to manufacture integrated circuits for “civilian-type” use—television sets, desk calculators, small computers. The integrated circuits could, however, be used in military equipment and more advanced computers. The assistance rendered Poland would also help Poland to advance to strategically more significant circuits.

The British technology is slightly more advanced than the French, but the difference is not sufficient to provide a technical basis for distinguishing between the two cases. We are not entirely sure whether the two cases are competitive or complementary; however, there is some reason to believe that if both were approved, Poland might, because of financial considerations, elect to conclude only one of the two projects. Completion of both transactions would provide the Poles with a higher probability of success in solving their production problems.

The ability to mass produce integrated circuits has permitted the West to enter a stage of electronic technology that is still largely closed to the Soviet Union and the countries of Eastern Europe. Integrated circuits permit higher reliability and smaller size, cost, and power requirements for electronic equipment. They are widely applied in the U.S. in computer circuits, industrial controls, communications, avionics, entertainment products and desk calculators. Integrated circuits have become essential to a wide range of Western military equipment, including the most advanced strategic weapons systems. Their reliability and compactness are ideally suited for uses in communications, guidance, control and related systems which operate in the extreme environments that are normal for strategic weapons. They account in significant degree for the qualitative superiority of US strategic weapons over those of the USSR. Their application in advanced computers has significant military ramifications.

The Soviet Union and East European countries were delayed in undertaking integrated circuit research and have not based their military electronics on integrated circuits. They are capable of manufacturing integrated circuits on a limited basis in laboratories and pilot programs. However, these countries have been unsuccessful in their attempts to mass-produce these integrated circuits and, as a result, they have not been able to profit from this technology in their weapons systems. While individual pieces of Western equipment have been diverted [Page 950]illegally to the USSR and Eastern Europe, these countries still lag behind the U.S. by at least five years in mass production and application of integrated circuits.

China has acquired equipment illegally from Japan that should enable it to produce integrated circuits suitable for its modern weapons program. There is, however, no solid evidence as to the scale of production China has achieved.

In urging us to agree to these exports, the British and French have argued that Poland will, in any event, be able to achieve mass production on its own within several years. They consider that it would be better to assist Poland on a controlled basis than to refuse all help, thereby obliging Poland to cooperate more closely in electronics with the USSR.

The French and British have cited economic difficulties of their firms which are involved, Thomson-CSF and Ferranti, respectively. These firms are experiencing difficulties, but the Polish orders are not large in relation to the total turnovers of the two firms. Accordingly, we do not find the economic argument overly persuasive.

The high level approaches by the British and French Governments in these cases makes it likely that our continued refusal to approve them will bring lasting repercussions. During the week of February 28th, the British made a new series of representations and French Foreign Minister Schumann again wrote to Secretary Rogers to stress France’s “particular interest” in its case.

The French have stated they must sign a contract with Poland by March 31. In the past, the French have in some instances proceeded with projects without securing COCOM approval. They may well be prepared to act in defiance of COCOM in this case if it is of sufficient interest to them, or to retaliate against American electronics imports into France. In the case of the British, it can be argued that rejection of the Ferranti proposal would heighten British disenchantment with COCOM arising from American vetoes. The British have implied that they might feel obliged if necessary to issue a license in violation of COCOM.

On the other hand, approval of these cases would also have repercussions in COCOM. Smaller countries, noting the US response to political pressures, might claim their share of relaxation of controls. Having accepted a major relaxation in a key strategic area, the US would find it more difficult to resist pressures for weakening other important elements of the COCOM structure. Under these circumstances, it can be argued that it would thus be less objectionable, in view of the fact that COCOM violations have previously occurred, to risk French and British violations in this case than to give these transactions US endorsement.

Since we have always discouraged American firms from promoting the sale to Communist countries of equipment for manufacturing integrated [Page 951]circuits, approval of the French and British cases could be viewed, in effect, as discriminatory against American companies that might have competed for the same contracts.

American firms with off-shore operations are quite competitive in the sale of integrated circuits as finished products. An application by an American firm to export $10.5 million of non-military type integrated circuits to Bulgaria for use in desk calculators is now under review in the Commerce Department and is subject to approval under present rules.

If you should decide in favor of the British and French proposals, it can be argued that it would be consistent to license the sale of end-product integrated circuits in Eastern Europe up to a comparable level of technology. American firms would thus be afforded the opportunity of competing for orders for a wider range of integrated circuits.

The Romanian Case

The particular Romanian case which you asked this Committee to examine involves the export from the United States of manufacturing equipment valued at $200,000 for testing integrated circuits.

The Romanians need this equipment in connection with a production line set up by the French. In 1969, the French informed us of their plans to assist Romania to produce the IRIS-50 computer and integrated circuits for the computer, but refused to submit the case to COCOM.

Export of the test equipment was rejected by the Department of Commerce in 1971, but the Romanians have recently asked for review of this decision. We have also objected to the sale by other COCOM members of pieces of equipment apparently intended for the same production facility in Romania.

Agency Views

The interested Departments (State, Commerce and Defense) have considered several alternative ways of replying to the French and British. The alternatives considered but rejected are presented in the attached report. The specific recommendations of the Departments concerned are given below. Explanations by the three Departments for their recommendations are presented in the first attachment to this memorandum.6

The Department of State recommends that you approve the export to Poland and Romania of integrated circuit manufacturing technology and equipment up to the performance levels of the British and French [Page 952]proposals, subject to the following conditions: (a) assurances from Poland and Romania of non-transfer of the technology; (b) no export of finished circuits from Poland and Romania to other Communist countries without prior authorization; (c) assurances from Poland and Romania regarding peaceful end-use of the integrated circuits; (d) agreement by France and U.K. that they will support continued denial of integrated circuit manufacturing capability to other Communist countries, as well as denial to Poland and Romania of technology going beyond the performance levels of these proposals.

The Department of Commerce recommends that you disapprove the export to Poland and Romania of integrated circuit technology and equipment, but approve a more liberal COCOM licensing policy on sales of integrated circuits themselves for civilian uses. Commerce recommends that this decision be communicated to the French and British Governments at a high level with an expression of the importance the US Government attaches to continued multinational control over integrated circuit technology and equipment and to their support of this position in COCOM.

The Department of Defense recommends that you avoid so far as possible relying on assurances of other governments to protect the important strategic interests involved in these cases and disapprove the export to Poland and Romania of integrated circuit technology and equipment.

As Acting Chairman of the Under Secretaries Committee, I strongly recommend that, at the conclusion of the current COCOM list review, a basic examination should be undertaken of our strategy toward future efforts to control, through COCOM, exports to the Communist countries. This Committee is prepared to undertake this study if you so direct.

Although this memorandum and its attachments were forwarded to the Department of Defense and Defense views have been incorporated, formal Defense Department concurrence has not been received as of this date.

Nathaniel Samuels
  1. Source: National Archives, RG 59, S/S Files: Lot 83 D 276, NSC-U/DM 85. Secret. Copies were sent to the Deputy Secretary of Defense, Under Secretary of Commerce, the President’s Assistant for International Economic Affairs, the President’s Assistant for National Security Affairs, the Director of Central Intelligence, Chairman of the Joint Chiefs of Staff, and the Director of the Office of Science and Technology under cover of a March 8 memorandum from Hartman. (Ibid.)
  2. For the purposes of this report, the Committee has, in addition to regular members, included representatives of the Department of Commerce and the Office of Science and Technology. The Office of Science and Technology may present additional views separately. [Footnote in the source text. The February 8 request was not found.]
  3. Not found. An undated 31-page report entitled “Export of Integrated Circuit Technology to Eastern Europe,” presumably an early draft of the report attached to this memorandum, is in the National Archives, RG 59, S/S Files: Lot 83 D 276, NSC-U/DM 85.
  4. See Documents 371 and 375.
  5. According to a February 29, 1972, letter from Schumann to Kissinger, the Foreign Minister had raised the issue with Secretary Rogers during the Azores Summit December 13-14, 1971. (National Archives, Nixon Presidential Materials, NSC Files, Country Files-Europe, Box 678, France, Volume IX 1/72-7/72)
  6. Not found.