Foreign Relations of the United States, 1969–1976, Volume XXIX, Eastern Europe; Eastern Mediterranean, 1969–1972

17. Memorandum From Secretary of State Rogers to President Nixon¹

Washington, October 22, 1970.

SUBJECT

• Trade Relations with Communist Countries

Recommendation

As Europe evolves—especially in the aftermath of the Soviet-FRG treaty²—we foresee closer and expanded economic relations between East and West. We believe that the Soviet-West German Treaty will probably give a marked impetus to the broadening and deepening of economic relations between Eastern and Western Europe. It is our concern that unless we have new foreign policy tools, we will not share in the commercial benefits, or the economic and political influence, that may emerge from this developing economic cooperation. Specifically, I propose that you seek from Congress the authority, for use at your discretion, to extend most-favored-nation (MFN) tariff treatment and Export-Import Bank credits and guarantees to individual Communist countries with which we have diplomatic or trading relations in return for equivalent benefits to the United States. (Yugoslavia, as a recipient of MFN treatment and Export-Import Bank facilities, is not included in this discussion.)³

Discussion

Your policy decision of May 28, 1969 (NSDM 15)⁴ was that we should not seek at that time authority to extend MFN tariff treatment to Communist countries, although, according to the NSDM, we should be prepared to move generously to liberalize our trade policy whenever there is sufficient improvement in our overall relations with those countries.

A new situation in East-West European relations is arising as a result of the Brandt Governmentʼs initiatives. The USSR has responded positively to the German moves and the other East European Governments are echoing this response.

Whatever the degree of success enjoyed by Brandtʼs Eastern policy, it seems certain to lead to closer economic relations between the FRG and its Eastern neighbors. Brandt recognizes that, with the completion of the Ostpolitik package, political influence in both directions will be more than ever directly linked to the degree of economic collaboration.

With East-West relations in a more fluid state than might have been predicted several months ago, the United States has few foreign policy tools for advancing its own interests and taking advantage of the emerging possibilities.

The legislative prohibitions against MFN tariff treatment and Export-Import Bank export financing for the USSR and Eastern Europe, pose serious constraints on our commercial and diplomatic relations with those countries. (Section 231 of the Trade Expansion Act denies MFN to all Communist countries except Poland and Yugoslavia, and the Fino Amendment to the Export-Import Bank Act excludes all Communist countries except Yugoslavia.)

I believe that this legislation would have the following advantages for your Administration:

(1) it would permit practical steps following through on the most recent and effective demonstrations of continuing U.S. interest in the area—your 1969 trip to Bucharest and the 1970 flood aid; (2) it would advance the time when U.S. exporters can compete on an equal footing with their West European and Japanese competitors in making sales, and it would provide practical evidence of U.S. Government interest in Eastern Europe; (3) it would provide us additional leverage with which to increase our economic and cultural influence inside Eastern European countries; (4) it would help allay concern in Eastern Europe that the Bonn-Moscow Treaty was tantamount to Western recognition of a Soviet “sphere of influence” in Eastern Europe; and (5) in the longer perspective, our commercial and economic presence in Eastern Europe might provide a desirable balance and offset to what otherwise may become a preponderant West European and particularly West German presence there.

There are, of course, additional economic and structural barriers to expanded trade with Eastern European countries—such as their shortage of convertible currencies, their preference for bilateral and barter trading arrangements, and the existence of more restrictive U.S. export controls than those applied by other Western countries. Thus, in 1969, the USSR and Eastern Europe imported goods from the free world valued at more than $7 billion, of which only $250 million worth came from the United States. The Western Europeans, Canadians, and Japanese make full use of government export credits and extend MFN status to Communist countries.

It is difficult to predict the economic effect of MFN treatment and Export-Import Bank participation in export financing on United States trade with Eastern Europe. It can be assumed, however, that there would be some gradual increase in trade. For example, MFN treatment is partly responsible for the fact that Polandʼs trade with the United States exceeds that of any other East European country and exceeds Soviet/United States trade in most years. In fact, however, the availability of Export-Import Bank credits and guarantees would have a considerably greater trade impact than the extension of MFN treatment. For the short run at least, the main benefit the Soviets and the East Europeans would gain from MFN would be psychological—the removal of discrimination. Experience has shown that they will need far more market research, sophisticated sales techniques, and more competitive products to take full advantage of MFN status in the United States market.

Our purpose in seeking more flexible foreign policy tools would not be unilaterally to grant MFN or credit facilities, but to obtain flexibility through having these measures available for selective use in order to advance our own interests. When we decide to move forward with a given Communist country, we would expect to negotiate for equivalent benefits, with the framework of trade agreements, or in parallel economic and political agreements for the settlement of outstanding U.S. nationalization and defaulted bond claims (as well as Lend-Lease with the Soviet Union), and non-discriminatory treatment for the export of American products. We might also negotiate for commitments to purchase specified amounts of American goods. We would utilize these bargaining tools in an effort to reduce restrictions on U.S. information and cultural activities and to secure favorable resolution of pending bilateral issues such as consular conventions. Any agreements entered into could provide for periodic review and confrontation procedures covering not only commercial matters but other significant aspects of our bilateral relations.

Alternative Approaches to Congress

While the authority I recommend be requested would be discretionary, allowing the President to decide when and with what countries to negotiate, there are several possible approches that we might take in preparing draft legislation for submission to Congress:

1. request authority to extend MFN and Export-Import Bank credit and guarantees to Communist countries with which we have diplomatic or trading relations;

2. request authority to extend MFN and Export-Import Bank credit and guarantees to all of Eastern Europe including the USSR;

3. request authority to extend MFN and Export-Import Bank credit and guarantees to all Eastern European countries, except the USSR;

4. request authority to extend MFN and Export-Import Bank credit and guarantees to Romania alone;

5. request authority to extend MFN, but not Export-Import Bank credit and guarantees, to the countries as grouped above.

The arguments pro and con these choices are as follows:

1. Coverage to Communist countries with which we have diplomatic or trading relations (authority would include Communist China as soon as direct trade is opened with U.S.)

Pro

• —to request this general authority would be consistent with your policy of initiating an “era of negotiation”;
• —would demonstrate to Moscow a further U.S. capacity to improve our relations with Peking, which could have a healthy effect on the Soviet attitude towards the U.S.;
• —would be consistent with our desire to improve the climate of United States-Communist Chinese relations; there is fairly general Congressional and public agreement that improvement in our relations with Mainland China is in our long-term national interest.

Con

• —it would be more difficult to obtain Congressional approval if Mainland China were included as a possible beneficiary.

2. Eastern Europe and the USSR

Pro

• —would provide the Administration with the capability to make maximum use of actions to liberalize and promote trade in support of other objectives in our relations with the USSR;
• —would not arouse Soviet suspicions about United States aims in Eastern Europe to the same extent as choices 3 or 4;
• —would go far toward harmonizing United States East-West trade policy with that of its allies.

Con

• —so long as major fighting continues in Vietnam, there is likely to be significant Congressional opposition to granting this authority with respect to the USSR, even if only on a stand-by basis.

3. All of Eastern Europe except the USSR

Pro

• —would permit an expanded United States influence in these states and enable them to reduce their economic dependence on the USSR;
• —in view of Vietnam, additional Congressional support might be forthcoming if the USSR were excluded.

Con

• —excluding only the USSR might be even more irritating to Moscow than limiting these actions to Romania alone.

4. Limiting coverage to Romania

Pro

• —the climate in Congress is particularly receptive to action benefiting Romania because of Romaniaʼs relatively independent stance, the desirability of strengthening Romania against Soviet pressure, and Romaniaʼs need for credit growing out of the floods earlier this year;
• —urgent action is needed to permit MFN for Romania if the United States is to be able formally to participate in negotiating terms under which Romania may accede to the GATT;
• —a request limited to Romania would not only fare better on the Hill than a broader proposal, but would be consistent with our continuing efforts to take actions favorable to United States-Romanian relations.

Con

• —to single out Romania by specific legislation would be irritating to the Soviet Union and the other countries of Eastern Europe. It might be embarrassing to Romania in its relations with its Warsaw Pact partners;
• —would signal that we intend to remain out of step with other Western trading nations which accord MFN status to all European Communist countries.

5. MFN but not Export-Import Bank credit and guarantees

Pro

• —since the prohibitions of the Fino Amendment to the Export-Import Bank Act were aimed at countries supplying goods by direct government action to North Vietnam, it may be difficult to persuade Congress to drop the Amendment as long as major fighting involving U.S. troops continues in Vietnam.

Con

• —the offer of MFN without credit and guarantee facilities would have much less potency as a bargaining tool with Communist governments;
• —the contribution to expanded U.S. exports would also be considerably less.

Conclusion

On balance I am inclined to think that the best approach would be to ask Congress for general authority to offer MFN status and Export-Import Bank export credit and guarantees, in return for equivalent concessions, to any Communist country with which we have diplomatic or trading relations. This authority would be a highly useful bargaining instrument. Moreover, if we are going to make the effort with Congress, we might as well ask for broad rather than limited authority. We would make it clear that the only action contemplated for the immediate future was with respect to Romania. Assuming that the recent improvement in relations continues, we might later take up the terms under which we might negotiate a trade agreement with Hungary. Negotiations with Poland, Czechoslovakia and Bulgaria, as with the USSR, might follow under the right conditions. We would not, however, begin negotiations with either the Soviet Union or Communist China without first sounding out Congressional leaders.

William P. Rogers

1. Source: National Archives, Nixon Presidential Materials, NSC Files, Box 326, Subject Files, The Presidentʼs Annual Review of US Foreign Policy, Vol. II–part 2. Confidential.
2. The text of the Moscow Treaty of August 12, 1970, between the Federal Republic of Germany and the Soviet Union is in Documents on Germany, 1944–1985, pp. 1103–1105. Documentation on the U.S. reaction to the treaty is scheduled for publication in Foreign Relations, 1969–1976, volume XL, Germany and Berlin, 1969–1972.
3. Neither the approval nor disapproval option is initialed. For the result of Rogersʼ recommendation, see Document 21.
4. See Document 3.