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117. Memorandum From the President’s Assistant for National Security Affairs (Kissinger) to President Ford1

SUBJECT

  • Co-Production in Iran

The Chairman of the NSC Under Secretaries Committee (USC) has forwarded for your approval a study of Co-production in Iran (Tab B).2 Co-production is, in essence, the manufacture or assembly of U.S. weapons under license abroad. It is an alternative to arms purchases in the U.S. and has been exhaustively examined because it could create serious economic and political liabilities rather than advantages for the U.S.

The USC study reports that there is a consensus among participating agencies—including State, Defense, Treasury, Commerce, and Labor—that co-production can be, if carefully handled, a useful adjunct to an established military supply relationship and, increasingly, a form of political cooperation which friendly states will request as a supplement to large purchases of U.S. military equipment manufactured in the U.S.

At the same time, given the industrial, managerial and technical difficulties of co-production, it does not seem likely that underdeveloped countries like Iran will want to—or be able to—develop co-production to replace purchases to any great degree. Even where co-production projects are implemented successfully, the need for U.S. advice and support—from contractors and the U.S. Government—will create a dependent arms industry which will tend to tie those countries to a foreign policy of mutual interests with the United States.

The Chairman also reports a consensus that even under limited forms of co-production there are likely to be U.S. financial and economic benefits which will be as great or greater than the benefits of direct sales. This is because per unit cost is likely to be greater and jobs for U.S. employees just as great. (The Labor Department, while not disagreeing with this conclusion, wishes to observe specific examples of co-production before it is convinced that the economic and financial impact will be favorable to the U.S.)

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Finally, the study concludes that particular projects will have to be carefully screened to protect defense technology of the U.S. Government and to limit our official involvement in Iranian or other foreign arms industries, and that all projects need to be carefully reviewed in advance with other governments to ensure that our requirements will be met and that future misunderstandings are minimized.

Based on the above analysis the USC recommends:

—That in the near term, we approve on a case-by-case basis, a limited number of co-production projects in Iran. These projects should generally be undertaken between a U.S. contractor and the Government of Iran rather than under DOD supervision.

—Approval of additional cases in the long-term after a thorough evaluation of initial co-production products.

—Proceeding in all instances on a case-by-case basis using newly-prepared guidelines which insure that Iran has primary responsibility for the successful completion of the project and can export co-production items to third countries only with prior U.S. written approval. Also, these guidelines authorize the Under Secretary of State to coordinate inter-agency consideration of particular requests for co-production agreements in Iran, and in the event of a disagreement to refer the matter to the USC or to you.

—That selected Congressmen and Senators be thoroughly briefed on the limits and character of our co-production projects in Iran in order to limit any increase in Congressional concern with U.S. military supply policies in the Middle East.

I believe the conclusions and recommendations of the USC are sound as applied to Iran, and that the guidelines and procedures are satisfactory for considering co-production requests from other countries.

I also believe—and Max Friedersdorf agrees—that the limited number of the co-production projects which will be carried out in Iran will not per se be a cause of great Congressional concern. At the same time, the concern of Congress for arms sales in the Middle East is growing and close consultation will be necessary to avoid restriction on executive authority in this area.

At Tab A is a memorandum to the Chairman of the Under Secretaries Committee, conveying your approval of the conclusions and recommendations he has made on co-production in Iran.3

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Recommendation

That you authorize me to sign the memorandum at Tab A.4

  1. Source: Ford Library, NSC Institutional Files, Box 74, NSC–U/DM–131, Co-Production in Iran (3). Confidential. Sent for action. A stamped notation on the memorandum indicates the President saw it.
  2. Dated March 22; attached but not printed.
  3. Not attached.
  4. The President initialed his approval of the recommendation. The signed memorandum, May 2, reads: “The President has reviewed the study conducted of Co-production in Iran and approves both the conclusions and recommendations in your memorandum to the President of March 22, 1975.” (Ford Library, NSC Institutional Files, Box 42, NSSM 238 (3))