Foreign Relations of the United States, 1969–1976, Volume XVII, China, 1969–1972

217. Memorandum From John H. Holdridge and Robert Hormats of the National Security Council Staff to the President’s Assistant for National Security Affairs (Kissinger)¹

Washington, undated.

SUBJECT

• SRG Meeting on U.S.–PRC Trade and Exchanges

In order to have the agencies consider ways in which the statements on trade and exchanges in the Shanghai Communiqué should be implemented you directed two papers:

• —NSSM 148² called for a study of ways in which U.S.–PRC exchanges in such fields as science, technology, culture, and journalism could be facilitated. It asked that the study include the roles of U.S. governmental and non-governmental institutions, ways in which direct contact in a third nation capital should be used to facilitate exchanges, specific types of exchanges to which the U.S. should give priority, and other problems associated with exchanges such as funding, security and legal implications.
• —NSSM 149/CIEPSM 21³ called for a study of PRC attitudes and practices in conducting trade with other countries, ways in which the USG can facilitate trade, and the effect on non-tariff barriers, tariff barriers, the claims settlement problem, and other trade issues on U.S.– PRC trade.

We suggest that you begin the meeting with a discussion of the trade paper, since Peter Flanigan and the CIEP people could then depart, if they so wished, before the session on exchanges.

Trade

The Trade Paper

The paper was prepared by the Ad Hoc Group chaired by Ambassador Brown.⁴ It discusses the background of U.S.–PRC trade to date, the objectives of both sides, PRC trade patterns and practices, ways in which trade between the U.S. and the PRC might be facilitated, substantive issues which we should raise with the PRC, and U.S. laws and practices which affect our trade with the PRC.

The PRC appears concerned about import and export control discrimination against the PRC, and the lack of Most Favored Nation treatment. Foreign Minister Chi also indicated that the claims question could be discussed. The PRC has made it clear that trade could be expected to grow only slowly and hinted that the rate of growth would be determined politically.

The paper points out that despite the historic allure of the China market, we must recognize that trade will not grow rapidly, although in such areas as aviation and agriculture we may be able to sell to the Chinese. The PRC looks on trade as a means of obtaining items essential to its economy and exports only items which it must in order to get the hard currency for vitally needed imports. It also uses trade as a means of encouraging people-to-people relationships and influencing policies of other countries concerning such issues as Taiwan.

The paper contains a number of alternatives for facilitating trade between the U.S. and the PRC:

• —Improve the ability of our Embassy in Paris to act as a contact point by assigning officers within the existing Embassy structure or personnel to a separate China Section of the Embassy. (The handling of this matter will depend on how much status you wish to give to the Paris talks.)
• —Ask the PRC to designate one or more contact points to which American businessmen might be referred, continue and expand cooperation between the American Consulate General in Hong Kong and the American Chamber of Commerce in Hong Kong (which is likely to become a middleman for U.S. businessmen in establishing contacts with PRC), encourage groups interested in trade with PRC by providing them with information and guidance, and encourage formation of a private “Sino–American Trade Council” (perhaps under the auspices of the U.S. Chamber of Commerce).
• —Undertake a number of other measures including: a vanguard trade delegation⁵—with U.S. businessmen and USG representatives—to establish liaison with the China Council for the Promotion of International Trade (CCPIT); a U.S. trade exhibit in the PRC; assistance to U.S. [PRC?] trade and industrial associations wishing to exhibit in the U.S.; and, contacts with PRC banks through the Treasury representative in Hong Kong.
• —Among specific issues are: the U.S. position on the sale of civil aircraft to the PRC, mutual visits by U.S. and PRC ships, the question of scheduled air services, means of facilitating prompt issuance of export licenses, Most Favored Nation treatment, the COCOM differential, the private claims/blocked assets problem, the issue of Ex-Im credits, the cotton textile problem, and the issue surrounding meat imports.

The paper does a good job of pulling together the major issues and provides a large number of possible ways in which we might facilitate trade with the PRC. There appear to be no major issues over which the agencies violently disagree. However, there is a danger that, in their enthusiasm to facilitate trade with the PRC, the agencies are inclined to move too quickly and in too many areas at once. In addition, State shows signs of wanting to take the ball and run without proper controls from the White House.⁶

The Meeting

The best way to handle the trade paper at the SRG would be:

• —First, to determine what our objectives are in trade with the PRC and their objectives in trading with us.
• —To identify which, if any, specific options or recommendations are disagreed on by the agencies.
• —To seek agreement on the items of highest priority to facilitate trade between the U.S. and PRC in a way consistent with objectives.
• —To determine the timing of our action on individual items and our presentations to the PRC.

The meeting should focus primarily on our objectives and the timing, style, and coordination of our approaches to the PRC. Specifically, we need to determine our priorities and try to determine between those items which we should deal with now and raise with the PRC on a priority basis—which may include means of facilitating contacts and transmittal of information, plus resolution of impediments to trade such as the claims issue. It should also identify items of medium-term priority—which could include trade missions and exhibitions and issues presently of low priority such as Most Favored Nation status and providing China with Ex-Im credits.

The Issues

The highest priority items at this point are to facilitate trade by:

• —Encouraging the exchange of general information on products and trading techniques.
• —Facilitating contacts between individual, or groups of, Americans interested in trading with the PRC.
• —Removing, where feasible, major obstacles to trade and resolving pressing trade issues by settling the claims question, and providing the PRC with information on U.S. laws and regulations concerning trade. Other items such as trade exhibitions might be explored with the PRC in Paris, and the issues of Ex-Im credits and MFN need not be decided at this time.

In pursuing the above issues, our objectives should be to gradually improve trade relations, avoid giving the appearance of “rug merchants” intent on pushing our products, recognize that the PRC will require balance in trade, and gauge our actions based on consideration of PRC receptivity.

The following considerations are major elements in assuring a rational approach to trade issues:

• —Rather than pushing products on the Chinese—which particular agencies in response to prodding from the private sector may wish to do—we should attempt to exchange information on products and methods of trade so that importers and exporters on both sides know what the other country has and wants to sell or buy, and how to engage in trade.
• —In approaching the Chinese, there may be a tendency to avoid raising unpleasant matters which may impede trade between us. (These would include the claims issue, questions of export licensing, U.S. legal obligations on textiles and meats.) However, raising these issues in a frank and businesslike manner will be far preferable in the long run to papering over potential problems.
• —Regarding the variety of items recommended in the paper, it is important to get a better idea of when particular items should be raised with the PRC. (From the paper it is unclear when the agencies believe we should raise particular items.) In order to avoid pushing too hard, we should carefully assess PRC receptivity in determining how far and how fast to move. And, instead of venturing forth enthusiastically with a wide variety of programs, we might consider attempting to draw out the PRC.

Among the main issues are:

• —How quickly should we move on the many items suggested in the paper to facilitate trade relations? Should we begin merely by making proposals in Paris for PRC reaction, or move now on a number of fronts? Which items should we move on now and which require Presidential decisions at this time?
• —When should we bring up with the Chinese potentially sensitive issues such as the claims question and textile restraints. (The claims settlement issue is extremely important. Failure to settle the claims problem might mean that PRC ships or goods would be subject to harassing lawsuits by U.S. citizens, and this also should be settled with the PRC to remove a major impediment to trade. The textile problem could become embarrassing domestically and internationally if we do not clarify our position with the PRC, and I believe it should be brought up relatively soon.)
• —Should the USG at this point encourage any one private group to clear information and research on PRC trade practices. The paper contains an option that the USG encourage formation of a “Sino–American Trade Council,” perhaps under the auspices of the U.S. Chamber of Commerce. (I am inclined to believe that this is a good idea since it would allow a primarily private organization to deal with the PRC to exchange information; however, this may raise domestic equity problems, and it is not certain that the PRC would deal directly with such a group.)⁷

An additional issue which you should focus on is that of interagency coordination. The paper makes no mention of a White House role in future implementation of the trade scenario. You might stress in the meeting that in view of the President’s keen interest in the development of trade with the PRC, and the number of specific questions of judgment and timing which will be necessary as relations evolve, there must be constant interagency discussions on these matters and positions taken by our negotiators in Paris should be cleared by the NSC and CIEP staffs.

Exchanges

The Exchange Paper

NSSM 148 was prepared by an Ad Hoc Group chaired by Assistant Secretary of State for Cultural Affairs John Richardson, Jr. The study finds that while we and the PRC share a common interest in moving to normalize relations—in part through exchange programs—the specific objectives that each side will seek through such contacts are quite different. Where the U.S. will attempt to develop favorable attitudes toward the United States among PRC elite groups, the Chinese side will use people-to-people contacts to build popular support for their cause which can be used to undercut USG backing of the Nationalists. As well, there is a basic disparity of institutions through which exchange programs will be promoted which gives us very limited leverage to influence Chinese involvement in American society or to elicit genuine reciprocity on their part.

The study suggests that in order to provide some degree of structure and control on our side of the exchange relationship, the U.S. government will want to identify one or more “umbrella organizations” to coordinate exchanges and provide guidance, assistance, and funding to private groups. (It identifies as a likely organization to play such a role the National Committee for U.S.-China Relations.) It also suggests that the State Department will want to expand the capabilities of the Paris Embassy in order to facilitate negotiations with the Chinese on exchange matters, and to process specific requests. The study thus implies a three-tiered structure of exchange relationships between the U.S. and the PRC: an “approved” level of programs that have been negotiated between PRC and U.S. authorities in Paris, a second level of exchanges that have USG blessing but that are managed without negotiated approval via one or another “umbrella” organizations, and a third level of contacts that the Chinese will be free to develop through groups that are not directly subject to governmental influence.

While this NSSM makes substantial progress in identifying the problem areas and procedures related to implementing exchange programs with the PRC, we find a number of deficiencies in the present version:

• —The study clearly envisages a predominant State influence in developing exchanges. There is no mention in the paper of White House interest, or of the NSC.
• —No clear position is developed for responding to the Chinese should they resist dealing with “umbrella organizations” that are acceptable to the U.S.
• —The paper does not spell out very clearly how official judgments will be passed in approving certain exchange programs and rejecting others.⁸
• —The exact mechanics of dealing with the Chinese on exchange matters, and liaisoning with private groups in the U.S., are not clearly conceptualized.
• —The paper looks at possible future problems, but does not address those that exist now, e.g., what is being done to process the myriad of requests for assistance on exchanges which we are now receiving.

It is our feeling that in some measure it is too early to define fully such aspects of exchange programs, in part because we have only limited evidence of Chinese intentions in this area. We are now in the process of gaining such experience through our dealings with PRC authorities and the National Committee on U.S.-China Relations—as noted, now the prime candidate for an “umbrella organization”—in connection with the tour in the U.S. of the Chinese ping pong team. We suggest that shortly after the tour is over we assess this experience as the basis for more explicitly structuring our approach to dealing with the PRC in the area of exchanges.

The above noted problem areas concerning exchange programs are worked into your talking points for discussion of NSSM 148.

One important issue is common to both papers—the level and composition of State’s machinery in Paris for dealing with PRC representatives on these and other matters. State clearly prefers a major and all but independent section in the Embassy. This could have the effect of eroding over time Ambassador Watson’s role and White House control. Your talking points raise this issue in the context of the proposals in the two papers in order to get a firm grip on the question before State runs away with the ball on its own.

Your book contains:

• —Talking points arranged to deal with trade first and then exchanges.
• —Analytical summaries of each of the State papers.
• —NSSM Response—Trade
• —NSSM Response—Exchanges
• —NSSM 148—Trade Issues
• —NSSM 149—Exchanges⁹

1. Source: National Archives, Nixon Presidential Materials, NSC Files, NSC Institutional Files (H-Files), Box H–061, SRG Meeting, NSSM 148–149, 3/31/72 [1 of 2]. Secret. Sent for action.
2. Document 209.
3. Document 211.
4. Davis forwarded the responses to NSSM 148 and NSSM 149 to members of the Senior Review Group on March 27. The papers and Davis’ covering memorandum are in the National Archives, RG 59, S/S Files: Lot 80 D 212, National Security Files, NSSM 148. The papers are also ibid., Nixon Presidential Materials, NSC Files, NSC Institutional Files (H-Files), Box H–061, SRG Meeting, NSSM 148–149, 3/31/72 [1 of 2].
5. Kissinger’s handwritten comment beside this paragraph reads: “Location?”
6. Kissinger’s handwritten comment beside this paragraph reads: “How?”
7. Kissinger’s handwritten comment beside this paragraph reads: “Can’t we start dialogue?”
8. Kissinger’s handwritten comment above this paragraph reads: “Can’t we get some systematic approach?”
9. Copies of these documents are attached but not printed. NSSM 148 and 149, the resulting reports, and “issues and summary” papers for each are also in the National Archives, RG 59, S/S Files: Lot 80 D 212, National Security Files, NSSM 148.