Foreign Relations of the United States, 1969–1976, Volume XXXI, Foreign Economic Policy, 1973–1976

255. National Security Study Memorandum 197/Council on International Economic Policy Study Memorandum 33¹

Washington, March 5, 1974.

TO

• The Secretary of Defense
• The Secretary of the Treasury
• The Secretary of Commerce
• The Secretary of Agriculture
• The Secretary of the Interior
• The Deputy Secretary of State
• The Director of Central Intelligence
• The Administrator, General Services Administration
• The Director, Office of Management and Budget
• The Executive Director, Domestic Council

SUBJECT

• Critical Imported Commodities²

The President has directed a further examination of the potential threat posed by foreign manipulation of the supply or price of critical non-fuel commodities. This study is to complement, and be coordinated with, the work on critical commodities being carried out by the domestic agencies under the chairmanship of Secretary Morton.

This study will use as a starting point the list being prepared in the domestic study of those imported basic commodities and intermediate products which are essential to the normal operation of the economy and to national defense preparedness and which are also vulnerable to artificial or natural shortages. The study should also utilize domestic agency work on the particular economic condition of each of these vulnerable commodities during the next three to ten years.

The study should be conducted in two phases. In the first phase each commodity and intermediate product on the above list should be reviewed for its potential effect on the U.S. economy, foreign economies and on the national defense. The first phase should also:

• —Identify key producers and the forms producer action might take individually or collectively, such as cartel formation, export embargoes and price manipulation. The possibilities for natural shortages should also be identified.
• —Identify the range of circumstances which might trigger adverse producer actions.
• —Analyze the time frame within which producer country actions could make themselves felt.
• —Assess the impact of commodity shortages or price increases on the economies of producers and consumers, including the impact on likely trade and investment patterns and on foreign policy trends.

The second phase of the study should consist of an evaluation of U.S. policy options. This evaluation should include examination of measures the U.S. can take, individually or with other states, to safeguard against supply or price manipulation or natural shortages of critical commodities, such as:

• —developing self-sufficiency; e.g., by encouraging development of domestic alternatives and substitutes;
• —diversifying foreign sources of supply;
• —developing an economic stockpile, perhaps as an adjunct to the strategic stockpile;
• —consumer-producer cooperation; e.g., possible commodity stabilization agreements; and
• —alternative responses to artificial price increases.

The study should be prepared by an Ad Hoc Group comprising representatives of the addressees and of the Assistant to the President for National Security Affairs and the Assistant to the President for International Economic Affairs, and chaired by the representative of the Secretary of State. The study should be forwarded not later than May 10, 1974 for consideration by the President.

• Peter M. Flanigan ³
• Henry A. Kissinger

1. Source: National Archives, Nixon Presidential Materials, NSC Files, NSC Institutional Files (H-Files), Box H–203, National Security Study Memoranda, NSSM 197 [1 of 3]. Secret.
2. At a December 6, 1973, Department of State staff meeting, Kissinger requested a study that examined “those raw materials situations where, like energy, the producing countries may try to form OPECs, drive up prices and then use the situation for political purposes.” (Ibid., RG 59, Transcripts of Secretary of State Kissinger’s Staff Meetings, 1973–1977, Entry 5177, Box 1, Secretary’s Staff Meeting, December 6, 1973) At his January 22, 1974, staff meeting, Kissinger requested further study “of the problem of use of raw materials as a weapon against the West or against selective targets by a combination of producer nations.” (Ibid., Box 2, Secretary’s Staff Meeting, January 22, 1974) Also in January, an attempt by Flanigan, Cole, and Ash, with the support of Shultz and Secretary of the Interior Rogers Morton, to initiate an inter-agency study on “Materials Supply” was quashed by the NSC for failing to address the national security and international economic policy aspects of the issue. Documentation is ibid., Nixon Presidential Materials, NSC Files, Box 1061, Institutional Materials, NSC Institutional Papers—January 1974 [1 of 2].
3. Flanigan initialed “PMF” above his typed signature.