Foreign Relations of the United States, 1969–1976, Volume E–11, Part 1, Documents on Mexico; Central America; and the Caribbean, 1973–1976

279. Memorandum From the President’s Assistant for National Security Affairs (Kissinger) and Secretary of the Treasury (Shultz) to President Nixon¹

Washington, March 14, 1974.

SUBJECT

• Canadian Request for Foreign Assets Control Exemption

Under the Cuban Assets Control Regulations, American officials of U.S. firms abroad are prohibited from allowing the foreign subsidiary to trade with Cuba without a Treasury license. In selected cases, however, where special agreements or circumstances have required, exemptions have been granted on a case-by-case basis and licenses issued. In the particular case of U.S.-owned firms in Canada, our policy is conditioned by the Eisenhower-Diefenbaker Agreements of 1958. Under this agreement the United States agreed to issue licenses to cover transactions with Cuba of non-strategic goods which cannot be produced except by U.S.-owned Canadian firms and which are important to the Canadian economy. On eleven occasions in the past, exemptions have been granted and licenses issued to permit the sale of small quantities of goods to Cuba.

On February 13, 1974, the Canadian Government requested that an exemption be made to the Foreign Assets Control Regulations in a case involving the export of Canadian locomotives to Cuba. The particular interest of the Canadian Government in this case derives from the impact the sale would have on the economy of Quebec, which is now experiencing serious unemployment. An exemption in this case could be authorized under the Eisenhower-Diefenbaker Agreement, but due to the magnitude of the contract ($13 million), which far exceeds the level of earlier cases, it could be viewed by other firms and by Latin American countries as a breach of U.S. policy on trade with Cuba.

The Canadian Government has made it clear in official representations to the State Department, and in a call by Finance Minister Turner to Secretary Shultz, that a refusal to issue a license in this case would result in a very unfavorable political reaction in Canada. Further, the Canadian Government has drawn attention to recently enacted legislation—Canadian Foreign Investment Review Act—permitting reprisals against U.S. firms that practice extraterritoriality in Canada.

A similar situation arose recently with regard to the Argentine Government’s threats of retaliation against U.S. firms in Argentina which could not under U.S. law accept contracts for sales to Cuba. Your decision in that case was to authorize waivers of the Foreign Assets Control Regulations on a case-by-case basis if the corporations concerned could demonstrate that they faced serious retaliation by the Argentine Government for refusing to sell to Cuba. Because of the possibility of misinterpretation of U.S. Cuban policy at the time of the Mexico City Foreign Ministers’s meeting, this decision has not yet been implemented.

The fact that the Argentine and Canadian cases would become public knowledge in the same time period substantially accentuates the impact this would have. Therefore, reviewing both of these cases together, in our judgment:

—There will be serious political and economic repercussions with Canada if we do not authorize an exemption in the pending case.

—On the other hand, granting the license will be interpreted, especially in conjunction with the Argentine case, as a breach of our policy toward Cuba.

If the exemption for the Canadian firm is granted, the decision must also be made as to whether a small amount of U.S. exports to Canada associated with the manufacture of these locomotives would be authorized. In the past, Commerce has granted such export licenses in similar cases where the percentage of the total sale represented by U.S. exports has been small. In our view, if we grant the license for sale to Cuba, it would be inappropriate to block the small volume of exports from the U.S. to Canada associated with this transaction. Commerce Secretary Dent will be consulted once the basic decisions have been taken.

Decision Required

The following factors require consideration in making a decision on the Canadian case:

In favor of the Canadian Sale

—Canada clearly attaches great importance to this sale.

—Canada would react favorably and would not move against U.S. foreign investment (as might be expected if the license were not approved).

—The decision, when made public, could be qualified to indicate that it has been taken on its merits, is in keeping with past policy and that future decisions will continue to be taken on a case-by-case basis.

—There are parallels with the Argentine case.

Against the Canadian Sale

—Despite the qualifications accompanying a favorable decision it might be interpreted as a relaxation of the Cuban embargo.

—OAS member states and other countries would regard this decision as being inconsistent with U.S. assurances that no changes are planned in U.S. policy toward Cuba.

Because of the very great importance attached to this issue by the Government of Canada, and bearing in mind Canada’s forthcoming and helpful role on energy matters at present, we recommend that you approve issuance of the license allowing the Canadian firm to sell locomotives to Cuba.

Peter M. Flanigan concurs. Bill Timmons recommends against approval.

1. Summary: Nixon rejected Kissinger and Shultz’ recommendation that a license be issued to allow the Canadian subsidiary of a U.S. company to export locomotives to Cuba.

   Source: Ford Library, National Security Adviser, Scowcroft Daily Work Files, April 19–30, 1974, Box 6. Secret. Sent for action. A note on the memorandum reads: “The President has seen.” Nixon initialed his disapproval. In a February 16 memorandum informing Kissinger of Canada’s request for approval of the sale, Hartman and Armstrong recommended approval, while Kubisch advised disapproval; Kissinger wrote, “Agree with ARA unless P [President?] approves,” and initialed his disapproval on February 21. (National Archives, Nixon Presidential Materials, NSC Files, Box 1338, Unfiled Material, 1974) In a February 23 memorandum to Kissinger, Hartman reported that Canadian officials regarded the denial as “explosive.” (Ibid.) In a May 13 memorandum to Kissinger, Clift reported that the Canadian subsidiary’s directors had voted to proceed with the sale. (Ibid.) In a January 29 memorandum to Nixon, published in Foreign Relations, 1969–1976, Volume E–11, Part 2, Documents on South America, Document 12, Kissinger recommended that licenses for trade with Cuba be issued to subsidiaries of U.S. firms in Argentina when it could be demonstrated that the companies would be subject to retaliation for refusing to do business with Cuba; Nixon initialed his approval, while recording his preference for the “disapprove” option.