Foreign Relations of the United States, 1969–1976, Volume IV, Foreign Assistance, International Development, Trade Policies, 1969–1972

59. Memorandum From Secretary of Defense Laird to President Nixon¹

Washington, April 9, 1971.

SUBJECT

• US Posture and Practice on Military Exports

Armistead Selden’s 26 March letter to Dr. Kissinger outlined the vigorous military sales activities of the United Kingdom and France in Latin American countries—and our serious doubts about the wisdom of US statutory sales ceilings in that region.²

Our problem is, I believe, broader than Latin America and statutory ceilings. Remembering the 1967 Congressional concern about the validity of arms sales, this Administration adopted a low profile approach to such transactions—agreeing to honor obviously valid purchase requests arising at the initiative of friends and allies but taking no initiatives ourselves. This new policy on US sales has coincided with substantial progress in the technological ability of industrial European countries to develop and produce such equipment for themselves and for sale to others—and has encouraged them to enter the free world market. They have been quite successful: Even as of a year ago, the US share of the free world defense market (details in attached tables)³ had dropped from virtual monopoly to 51% as the French share increased to 22%, the British to 13%, the German to 5% and the Italian and Canadian to 4% each.

The trend is worsening. During FY 1970, British and French military export orders worldwide totaled about $1.88 billion (not even counting minor equipment and support) while US orders (counting everything) declined to $1.5 billion.

Moreover, our competition is taking over in the large number of developing countries where we, in the absence of grant aid, want to maintain that influence that now can come only or largely from the relationship of dependable supplier of defense equipment. During FY 1970, British and French orders from Latin America totaled an incredible $760 million while the US total was $46 million. In our own backyard during that year we had less than 6% of the market.

While our data are quite incomplete, it appears that the Soviet is also trying to move into the free world defense market. Soviet sales deliveries (we understand most if not all Soviet “assistance” is on terms of sale with long repayment periods and low interest) totaled $890 million during 1970—more than double the $434 million of 1968 and $305 million in 1969. Major recipients were Iran ($150 million), Iraq ($25 million), Libya ($40 million), the United Arab Republic ($650 million), and Somalia ($10 million). India was a large recipient in 1969 ($153 million). A $50 million transaction (terms unknown) also occurred in 1969 between Communist China and Pakistan. Clearly, the Communist world views military exports as a significant element of its foreign policy relationship with friends and potential friends.

In regard to competition in the free world defense market, we must not assume that the current US disadvantage is redressable solely by US policy. It increasingly occurs that US equipment is too sophisticated for some countries. Small British frigates and submarines sold to Brazil simply have no US equivalent. In the absence of the International Fighter now starting development, the US, similarly, would not have a small, inexpensive, easy-to-maintain, and easy-to-operate air defense fighter that is needed (against the MIG-21) by many of the developing countries.

Of course, there are some purchase requests that we simply should not honor whatever the merits of the industrial/financial consequences may be. There are desires for acquisition of first-line equipment by less-developed countries that we do not want to accommodate—for reasons of arms races, imprudent expenditure or provocation to neighbors. There are releases of technology that we do not want to approve for reasons of security.

But within such limitations, I believe there is much that we can do within current authority to bring about a US posture and practice in regard to arms sales which are more consistent with overall US interests. One such major US interest is achievement of the Nixon Doctrine—the orderly transition from US responsibility for free world defense to a more equitably shared responsibility. It is, I believe, indefensible to anticipate greater needs for US grant aid to develop a maximum self support capability throughout the free world without anticipating an equivalently expanding sales relationship with those friends and allies already able to pay their own way.

I am setting in motion a review of possible modifications in our military sales posture and practice. First, in regard to legislative authority, we might present to the Congress

• —the merits of avoiding regional ceilings which add an arbitrary and unnecessary restraint to our normal case-by-case assessment of the validity of specific arms sales;
• —the need for and the practicability of removing such other arbitrary restraints as the Conte (sophistication), Symington (diversion of resources), Reuss (dictators) and Pelly (fishing rights) Amendments;
• —the continuing need for adequate credit appropriations to accelerate the transition from grant to sales.

Second, in regard to Executive Branch teamwork in this matter, we will consult with

• —State on the features of security assistance legislation which promise greater and more effective reliance on sales;
• —Treasury on the adoption of more attractive credit terms and conditions;
• —Commerce on more effective DOD participation in the National Export Expansion Council;
• —Office of Management and Budget on budgetary and fiscal aspects.

Third, within DOD, we will review the possibilities and merits of

• —improving the effectiveness of our efforts to assist US industry and the banking community in their export efforts;
• —further relaxation of our restraints on the releasability of technology;
• —modifying or abandoning our policy of placing a nonrecurring cost recovery surcharge on our military export sales prices;
• —relaxing DOD unwillingness to make “offset” procurement arrangements with governments that procure from us;
• —using our “fixed price” statutory authority to assign a portion of the normal sales prices to the US mobilization base interest for selected equipments or, alternatively, to assign a portion to grant aid;
• —modifying or abandoning our 50% “gold flow rule” under which we have effectively excluded foreign ability to sell to us, and, consequently, reduced their desire to buy from us.

I will come back to you on the results of this review.⁴

Melvin R. Laird

1. Source: National Archives, Nixon Presidential Materials, NSC Files, Subject Files, Box 402, Trade, Volume III 12/70-6/71. Secret. A stamped notation reads: “The President has seen.” Attached to a May 4 memorandum from Kissinger to the President summarizing Laird’s points and noting that Kissinger had sent a brief reply to Laird that indicated that the President’s interest in Laird’s study that would be used as the basis for re-examining military sales policy. On Kissinger’s memorandum to the President, Nixon wrote: “K—I agree totally with Laird’s concern—The foreign service types will of course disagree—I don’t want a leisurely study of this made. I want action—soonest possible to reverse this trend. Inform Connally of my concern. He shares it.” A May 6 memorandum from Haig to Bergsten informed him of the President’s reaction to Laird’s memorandum and asked Bergsten to monitor closely the progress on Laird’s study. (Ibid.) In a May 15 memorandum, Haig also asked Bergsten to provide a memorandum from Kissinger to Connally. (Ibid., Box 226, Department of Defense, Volume XI 2/24/71-5/15/71)
2. Not found.
3. Not printed.
4. No report from the Department of Defense on this subject was found.