195. Memorandum From Helmut Sonnenfeldt of the National Security Council Staff to Secretary of State Kissinger 1

SUBJECT

  • Trade Bill Strategy and US-Soviet Relations in the Next Phase of the Middle East Bargaining

The House is apparently going to call up the trade bill around November 12. Although, despite the ineptness with which it was done, the Administration’s rationale for dropping Title IV is meeting with some support, it is far from clear whether enough votes will be there in the end. Moreover, it is quite likely that a further amendment, in effect prohibiting further government credits to the USSR, will have sufficient support to pass.

The trade people in the Administration are, as you know, aghast at the prospect that the threat of a Presidential veto will be used to obtain the dropping of Title IV. They feel that such a threat is all the opponents to the bill as a whole need to solidify support for Title IV and the Vanik amendment so as to ensure a veto and hence the death of the trade bill.

It has now been suggested by some that in order to marshall the votes for dropping Title IV some additional sweeteners are needed—beyond the argument that a debate on it at present would be damaging to prospects for US-Soviet cooperation on a Middle East settlement. Their idea is to tell supporters of Vanik that in recognition of their strong desire to curtail government credits to the USSR, we would be prepared to put a freeze on additional credits until a new Administration bill on East-West trade is submitted some time next year at which time there would be an opportunity to debate all aspects of our Soviet trade policy. STR paper at Tab A.2

I have no way of knowing whether such a gambit will produce the votes needed to drop Title IV. I would assume, however, that [Page 715]under present conditions Senator Jackson would not find it sufficient to call off his troops. Almost certainly, he would want to extract additional commitments regarding the Administration’s position on a Middle East settlement and on arms supply to Israel. On the other hand, a credit freeze might be enough to get the required support in the House, even if Jackson were adamant.

The impact on the Soviets is hard to judge. They evidently understand our tactics in urging withdrawal of Title IV; whether they would accept a credit freeze with equal equanimity is another question. While our original commitment to the Soviets was for no more than 500 million of EXIM credits during the first three years of the trade agreement, we have since then made noises suggesting the availability of additional sums. But there has been an issue concerning additional extensions due to Soviet reluctance to meet EXIM’s normal requirements for proof of credit worthiness. Because of various Congressional problems, EXIM would be reluctant in any event to go much beyond 500 million unless the Soviets met these requirements. This matter is being haggled over between EXIM and the Soviets. A flat freeze on additional credits, even if explained in terms of tactical considerations relating to the Trade Bill, might lead the Soviets to cut off lend-lease payments. (The lend-lease settlement was tied to both MFN and EXIM credits.)

Apart from these considerations, it is however worth considering action on credits for another reason. It is clear that the Soviets have supported Arab manipulation of oil supplies to us and other Western countries, partly because they think it gives them bargaining leverage for the Middle East negotiations, partly, and more cynically, because they think they can profit from it themselves. Credits are one of the few economic means at our disposal to exert some counter-leverage on the Soviets. Since Congress may very well take the issue over in any case, there is a question whether the Administration should not do so itself and use it for its own purposes. If one did not want to be crude about it with the Soviets, the line to take would be that a freeze is intended to prevent even greater restrictions from being enacted but that the lifting of the freeze would to some extent depend on whether we were still under an oil embargo.3 (Any such message would of course be lost if the Soviets continued to be assured that the President would veto a trade bill that includes the JacksonVanik amendment.)

I am not necessarily advocating this tack; but since the credit issue will arise very soon in any event, it is important that the Administration have a coherent position on it.

  1. Source: National Archives, Nixon Presidential Materials, NSC Files, Box 403, Subject Files, Trade, Vol. VI, April 8–December 1973. Secret; Sensitive; Exclusively Eyes Only. Sent for prompt attention. A handwritten note at the top of the memorandum reads: "OBE." Sent under cover of an undated note from Scowcroft to Kissinger that reads: "Maybe I don’t understand this, but it seems to me to give up the fight for something which is almost indistinguishable from full JacksonVanik, except for a ’freeze’ rather than a ’ban’ on credits. Looks to me like an attempt to save the Trade Bill by throwing MFN to the wolves."
  2. Attached but not printed at Tab A is a November 1 draft memorandum prepared by Pearce entitled "Proposed Compromise."
  3. Beginning October 19, Arab oil producers imposed an oil embargo on the United States and other Western nations in retaliation for aid to Israel in its war against Egypt and Syria.