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79. Memorandum From Richard T. Kennedy of the National Security Council Staff to Secretary of State Kissinger1

SUBJECT

  • Co-production in Iran

In the past year the Shah of Iran has proposed a number of co-production agreements with US defense manufacturers. These range from weapons which are ending their production run in this country to fighter aircraft and helos which are not yet out of the R and D stage. The Shah also wants to launch Iran into the production of US designed missiles of a wide variety. USG finance is not an issue in Iran and the number and magnitude of co-production agreements could rapidly grow to be very large.

Before proceeding too far on this road it is important to have the bureaucracy study several policy questions broadly and generally:

—How will US defense production and technology be affected by the proposed agreements for off-shore manufacturing? (DOD has worries on this score.)

—What are the commercial advantages and disadvantages? What will the impact be on US employment, balance of payments, and competitiveness of American products? (Commerce and Labor have expressed fears on this subject.)

—Would our interests in Iran and the Gulf be better served by traditional sales arrangements rather than co-production? (State should consider how far we want to go.)

—If we should agree to co-production, what controls, if any, shall we place on supply to third countries? What precedents and what regulations apply?

We have an existing set of guidelines on co-production (Tab C).2 They put responsibility for clearing specific projects in the hands of the Under Secretary of State for Security Assistance, Mr. Maw. These guidelines, however, do not anticipate issues of the scale involved in the projects proposed now by Iran. I believe the Under Secretaries’ Committee—expanded to include the Departments of Commerce and [Page 240]Labor—should carry out a study of the long range implications of co-production in Iran. (A draft memo is attached at Tab A.)3 As a general study of co-production, the USC work should be useful in replying to Israeli as well as Iranian requests. Obviously, any reply we make to Iran will have an effect on our handling of requests by Israel for co-production and vice-versa.

At the same time, it may be desirable to ask Mr. Maw to accelerate the review of a few, limited projects which you could discuss with the Shah on your proposed trip to Iran. Ambassador Helms has expressed his concern about the growing impatience of the Shah with our failure to reply to co-production requests which are, in some cases, a year old.4 USG approval would mean only that US manufacturers might be able to open detailed contract discussions with the GOI on terms of producing such well-established weapons as:

—missiles (Maverick, Sidwinder, Hawk, TOW, Redeye),

—helos (Bell 215’s and 216’s), and

—an inertial guidance system for aircraft.

Agreement on a few limited projects would strengthen the efforts we will want to make within our Joint Commission for broad cooperation in defense, oil pricing and political activity. Agreement will also focus Iranians on the technical and other difficulties of this sort of production.

The memo at Tab A requests the USC to do a study on the long-range military and economic implications of co-production in Iran. At Tab B is a memo requesting Mr. Maw to accelerate review of specific projects which might be approved in anticipation of your visit to Iran.5

Recommendation

That you sign the memoranda at Tabs A and B.

  1. Source: Ford Library, NSC Institutional Files, Box 72, Under Secretaries Committee, NSC–U/SM 152, Co-Production in Iran (2). Secret. Sent for action. Oakley concurred in the memorandum. Kissinger wrote on the memorandum: “Give a longer deadline.”
  2. Not found attached.
  3. Attached but not printed. The signed memorandum from Kissinger to the Chairman of the NSC Under Secretaries Committee is dated October 8. The study was to be completed for the President’s review by October 18.
  4. See Document 70.
  5. Attached but not printed. The signed memorandum from Kissinger to the Deputy Secretary of State containing instructions for Maw is dated October 8.