230. Paper Prepared by the National Security Council Staff1

ECONOMIC ISSUES

For the Soviets, increased trade with us is a priority objective and they intend to stress it at the summit. There have already been intensive negotiations in recent months. The elements of a deal have been established:

They want:

  • US credits to finance extensive imports of high-quality US manufactured goods and machinery;
  • MFN to enable them to earn some of the dollars needed to pay for imports from the US;
  • —the end of various kinds of “discrimination” which they find politically and psychologically obnoxious;
  • —in the longer run “joint ventures” under which we would provide capital for the exploitation of Soviet raw materials, like natural gas, and the Soviets would earn dollars by selling these materials to the US market.2

We want:

  • —access to the Soviet market for US goods;
  • —a grain deal, preferably for three years at a time;
  • —a lend-lease settlement.3

At the summit, Soviet eagerness for significant progress on economic issues provides you with leverage on other issues.

In brief, Soviet objectives in the economic area involved a mixture of practical and political considerations.

  • —On the practical side, the Soviets obviously want access to our high quality manufactured goods and advanced technology and they need our credits to achieve this since even with MFN they are unlikely to sell enough in our market soon to finance large purchases.
  • Politically, the Soviets want to see our “discriminatory” trade practices (i.e., export controls, no MFN and no government credits) [Page 855]dismantled to emphasize their equality as a superpower. Beyond that they probably feel that the lure of substantial business with them may in future inhibit our political freedom of maneuver vis-à-vis the USSR.
  • —Finally, the Soviets expect that once US barriers to extensive trade with them fall, there will be even greater intra-Western competition than already exists for the Soviet market and this will work to Soviet economic advantage.

Our objective, in brief, is to turn the Soviet interest in increased economic relations with us to political advantage. This obviously requires subtlety since the Soviets resist direct linkage. But they already understand well enough that major US concessions with respect to credits and tariffs depend on a generally stable political situation. This is not to say that the Soviets will be wholly deterred from political or other actions inimical to our interests. But once we have begun to turn on the tap we will have a certain leverage not available in the past.4

—In addition, we do of course stand to gain economically ourselves from increased access to the Soviet market. Business with the East is of considerable appeal to important US economic interest groups who judge the performance of the Administration in part by the degree to which it responds to their desires for increased business with the USSR.

Recent Developments

Over the past several months there have been intensive exchanges with the Soviets on the elements of a new economic relationship.

  • —In these we have sought to get the old lend-lease debt settled5 as a first order of business since without this the political acceptability in this country of extending new credits and other benefits to the USSR is highly questionable.
  • —We have also sought to get the Soviets committed to a substantial grain deal which is of direct interest to an important segment of our economic community.
  • —We have also sought to negotiate a commercial shipping agreement to ensure that cargoes can actually move. This requires terms that will prove acceptable to the unions so that they will work ships.6
  • —In response to the Soviet priority interest in credits and MFN, we have held out hope that there will be favorable US action if there is a satisfactory lend-lease settlement and if the political climate is right.
  • —We have also stressed the desirability of setting up a joint US-Soviet Commercial Commission at the summit which would thereafter [Page 856]serve as the venue for detailed follow-up negotiations.7 The Soviets, who themselves have a penchant for setting up institutions of this kind, have accepted this, though their goal has been, and in Moscow will undoubtedly be, to end up with more than simply a procedural step.

There have been a number of exchanges on these matters in the confidential channel, including in the discussions with Brezhnev in April.

  • —Our strategy in these has been to be forthcoming in general, without making specific commitments.
  • —The Soviets have been told that if our relations before and during the summit go as we hope, the various elements of our new economic relationship can be worked out at the summit, with more concrete negotiations on specifics taking place in the summer. (The idea would be to have Secretary Peterson go to Moscow for the first meeting of the new Commercial Commission in July.)

Your Strategy and Moves in Moscow

At the summit, the schedule has been structured in such a way as to hold completion of any economic agreements until near the end of the period of your visit.8 This will enable you to use economic issues implicitly as a carrot in the political discussions scheduled for the earlier phase of the meetings. You will therefore be in a position to fine-tune your actions in accordance with the general progress of the talks.

Early in the talks you should lay out what you believe can realistically be accomplished during the visit. This would include:

(1)
Agreement on a lend-lease settlement,9 including terms of Soviet payment.
(2)
A three-year grain deal under which the Soviets would commit themselves to buy $750 million, with some $200 the first year. We would provide CCC credits as provided by our laws of three years duration at market rates of interest.10
(3)
A commitment by you to find the Soviets eligible for the facilities of the Export-Import Bank in the near future and to make available up to half a billion dollars worth of credit; the Soviets would likewise make credit available for US imports from the USSR.
(4)
A commitment by you to seek MFN legislation in the Congress at an early date, with the Soviets passing similar legislation beneficial to us.11
(5)
The establishment at the summit of a Joint Commercial Commission, which would be the venue for concrete follow-on negotiations [Page 857]on commercial issues, specifically on a formal trade agreement which would embody MFN provisions, and on “joint ventures.”12

In addition, you should propose signature of the commercial shipping agreement which has been under negotiation, but with the understanding that the Soviets would not send their bulk carriers to US East Coast or Gulf Ports until the US Government has made satisfactory arrangements for getting these ships worked.13 (As you know, the problem is that our unions will not work Soviet ships unless US ships get a fair part of the business. But since US bulk carriers are not able to meet world prices at present, the Soviets would not use them. Hence to get the unions to load and unload ships in the Soviet trade we must find ways to subsidize US carriers14 or to get the Soviets to use only third-country shipping.)

If the summit goes well, you could toward the end of the week, make a more liberal set of propositions, as follows:

(1)
As regards the grain deal, you could offer one of shorter duration than three years, i.e., $400 million for two years, or even $200 million for one year beginning this summer. (Credit terms would still be for three year repayment.)15
(2)
Instead of only committing yourself to find the Soviets eligible for EX–IM facilities, you could actually find them eligible in Moscow; negotiations for an initial $150 million credit (which the Soviets want for their Kama River truck project) could then begin quite soon.16
(3)
The Soviets could stop their payments on their lend-lease debt if Congress had not authorized MFN by the end of 1973.17 If necessary to agreement you can go one step further: the Soviets could delay their first lend-lease payment until MFN is actually granted.

Separate papers, prepared with Peter Flanigan, provide details on the status and content of our commercial negotiations with the Soviets up to this point. There is also an annex containing all exchanges in the confidential channel.18

  1. Source: National Archives, Nixon Presidential Materials, NSC Files, Box 487, President’s Trip Files, For the President’s Personal Briefcase, May 1972, Part 1. Secret; Sensitive; Eyes Only. A notation on the memorandum indicates the President saw it. According to a May 16 memorandum from Kissinger to Nixon, this was part of the fifth briefing book for the summit delivered to the President before books one to four. (Ibid., RG 59, S/P Files: Lot 77 D 112, Box 335, Lord Chronology, May, 1972)
  2. The President underlined these four points.
  3. The President underlined these three points.
  4. The President underlined the first and last sentences of this paragraph.
  5. The President underlined “sought to get the old lend-lease debt settled.”
  6. The President underlined this paragraph.
  7. The President underlined this sentence.
  8. The President underlined this sentence.
  9. The President underlined “lend-lease settlement.”
  10. The President underlined “market rates of interest.”
  11. The President underlined the two previous sentences.
  12. In a May 20 memorandum the President’s Assistant for International Economic Policy Peter Flanigan informed the President that Secretary of Commerce Peter Peterson recommended that at the summit there be announced only the establishment of the Joint U.S.-Soviet Commercial Commission and, if possible, a Soviet agreement to purchase $750 million worth of grain over 3 years. The Secretary advised that no further commercial agreements be signed at the summit unless there were overriding political or security issues. (National Archives, Nixon Presidential Materials, NSC Files, Kissinger Office Files, Box 73, Country Files, Europe, USSR, 1972 Summit, Economic Commission)
  13. The President underlined this sentence.
  14. The President underlined “subsidize U.S. carriers.”
  15. The President wrote “or better” in the margin next to this paragraph.
  16. The President underlined this sentence.
  17. The President underlined this sentence.
  18. Not attached. (National Archives, Nixon Presidential Materials, NSC Files, Box 487, President’s Trip Files, For the President’s Personal Briefcase, May 1972, Part 1)