21. Memorandum From the Presidentʼs Assistant for National Security Affairs (Kissinger) to President Nixon1
SUBJECT
- Administration Initiatives on East-West Trade Policy
Issue
Secretaries Stans and Rogers, in separate memoranda to you (Tab A and Tab B),2 have proposed that the Administration seek legislative authority sometime next year to extend most favored nation treatment (MFN) and Export-Import Bank credits and guarantees (XMB) to Communist countries in exchange for “equivalent benefits to the U.S.”
[Page 39]I have also solicited a memorandum on the issue from Secretary Laird (Tab C),3 who recommends that we make no Congressional requests until we have: (a) developed a broad plan of action to use the request for such trade authority to pursue our political objectives, (b) developed negotiating packages for individual Communist countries, and (c) determined which Communist countries have sufficiently improved their relations with us to warrant new trade liberalization toward them.
Background
In May 1969, you decided that present legislation provided an adequate basis for U.S. trade policy toward the Communist countries in view of our overall relations with them at that time. You also indicated that we should move generously to liberalize this policy “whenever there is sufficient improvement in our overall relations.” Adoption of the State/Commerce proposal would thus require either a determination that there has now been sufficient improvement in our relations with at least some of the Communist countries, or a shift from your earlier decision.
Whatever decision you make with regard to the Commerce/State proposals for new initiatives, we will probably have to have a position on the XMB issue in the new session of Congress. The Export-Import Bank must submit legislation to increase its borrowing authority, and, when it does, there is certain to be a Congressional effort to eliminate the Fino amendment, which prohibits XMB lending to countries trading with North Vietnam—a move which is likely to succeed at least in the Senate.
Secretary Stans recommends that we seek authority to extend MFN and XMB credits in order to expand U.S. exports to Eastern Europe. He is particularly concerned about the growing penetration there of the Western Europeans and Japanese, and feels that U.S. firms will be permanently frozen out unless we begin to compete more actively. He concludes that we must extend XMB credits to sell more now, and that we must enable the Eastern Europeans to export more to us—which is possible only if we give them MFN—if they are to buy more from us over the longer run.
Secretary Rogers shares Secretary Stansʼ interest in expanding U.S. business in Eastern Europe. His primary emphasis, however, is on getting additional U.S. foreign policy tools to extend our influence there, especially in the era of expanded East-West economic relations which he foresees as a result of general European evolution and particularly the Soviet-German treaty. The Secretary also believes that our seeking more authority would help allay Eastern European fears that we have recognized Soviet hegemony over them. Over the long run, he feels [Page 40] that increased U.S. trade with Eastern Europe would help offset a preponderant Western European, especially German, presence there.
Secretary Laird, on the other hand, sees no change in the political situation which justifies a change from your decisions of May 1969. He also feels that increased trade, especially financed by U.S. credits, could reduce the likelihood that the Eastern European countries would liberalize their regimes by reducing the economic pressures on them to do so. It should be added that any signs of U.S. relaxation on this issue will accelerate European willingness to trade with the Soviets and thus—especially since financed partly via credits—will increase the resource levels which the Soviets can devote to their military program.
All three Secretaries agree that any new authority to actively liberalize East-West trade should only be used on a country-by-country basis, in return for concessions to the U.S. Secretary Stans would seek concessions related to U.S. exports to the country involved. Secretary Rogers would seek broader liberalization of the Eastern European economies, both to benefit our trade and to open their societies increasingly to the West, and minor political concessions. Secretary Laird, on the other hand, recommends that we insist on major political concessions, such as a Soviet move to urge Hanoi to move toward release of U.S. prisoners of war, before we seek Congressional authority to liberalize trade. He would also require major changes in their economic systems as part of the bilateral packages which would be negotiated under the authority.
There does seem to be general agreement on three key points. The immediate gains to the U.S. from even the most liberalized conceivable East-West trade package would be small. The contribution of such expanded trade to the Eastern European economies would also be marginal, at least in the short run, and would have no impact on their strategic capabilities. But such steps would clearly be more important for the Eastern European countries than for the Soviet Union.
From an economic standpoint, the issue is thus quite minor to the U.S. and to the Soviet Union and more important to the Eastern Europeans. It thus seems unlikely that the Soviet Union would make major political concessions even to get MFN and XMB financing; they are clearly not going to do so to get our approval of export licenses on individual cases. On the other hand, some of the Eastern Europeans might make more significant political concessions. For example, our effort to find concrete steps to improve our relations with Romania, which has taken major political steps in our direction, has not yet been hampered by our inability to meet their most pressing requests—MFN and XMB credits—but it might well be in the future. Extension of MFN would appear to have a greater political and psychological impact in Eastern Europe, while XMB credits would have a greater concrete economic effect in at least the short run.
[Page 41]It would thus appear desirable for us to have additional legislative authorities to carry out a selective policy toward individual Communist countries, especially the Eastern Europeans, which gave you sufficient leverage to extract meaningful concessions from them. However, in view of the notorious uncertainties of Congress, it is highly unlikely that we could extract such concessions as a price for requesting such authorities; and there is always the question of whether we would require these prior concessions from all of the Communist countries, or only from the Soviets.
The issue thus remains one of timing. Any request for new legislative authority would of course have to be clearly portrayed only as seeking authority to position you to participate more fully in this era of negotiation, not as presaging any major actual steps at this time with the exception of Romania. Even so, I would prefer to hold off any Administration initiative until we see how our overall relations with the USSR develop this spring.
Bill Timmons feels that Congress would not now pass MFN or repeal Fino anyway, although a request for MFN would trigger hearings—which President Johnsonʼs proposed East-West Trade Act of 1966 failed even to do.4 Timmons recommends that we should first relax our export controls administratively if you want a liberalization of East-West trade, and then consider submitting MFN legislation if there is no public outcry. (Such liberalization has already been going on under the new law, however, and there has been no outcry at all.) He would withhold proposing XMB changes until the international situation improves significantly.
On the other hand, Congress significantly liberalized the Export Control Act only a year ago over our low-key opposition. They may try to liberalize it further when it comes up again this spring. As noted above, they may also strike the Fino amendment from the Export-Import Bank Act, whatever we do. So we may very well get some new authority without taking any initiative, and I think we should accept it with no fanfare.
Recommendation
That you defer at this time a decision on any new Administration initiatives to liberalize U.S. trade policy toward the Communist countries, as recommended by Secretary Laird, but that we not oppose Congressional initiatives in this direction which might develop in the new session.
[Page 42]Approve5
Disapprove, prefer to seek authority to extend MFN treatment and XMB credits to Communist countries (indicating that we would use them only for Romania at this time) as proposed by Secretary Rogers, Secretary Stans, and Paul McCracken
Other
- Source: National Archives, Nixon Presidential Materials, NSC Files, NSC Institutional Files (H-Files), Box H–222, National Security Decision Memoranda, NSDM 99. Secret. Sent for action. A notation on the memorandum indicates the President saw it on February 22. At the top of the memorandum is a handwritten comment by Sonnenfeldt: “Notify Bergsten.”↩
- Regarding Tab A, see Document 19. Tab B is printed as Document 17.↩
- See footnote 4, Document 20.↩
- An October 6, 1970, memorandum from Timmons to Bergsten voicing these views is in the National Archives, Nixon Presidential Materials, NSC Files, Box 326, Subject Files, the Presidentʼs Annual Review of US Foreign Policy, Vol. II–part 2.↩
- Nixon initialed this option.↩