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

294. Memorandum From Stephen Low of the National Security Council Staff to the President’s Assistant for National Security Affairs (Kissinger)¹

Washington, February 25, 1975.

SUBJECT

• Restrictions on Subsidiaries of U.S. Companies Trading with Cuba

Attached at Tab A is a memorandum from the Deputy Secretary to the President transmitting a recommendation by the Under Secretaries Committee that the President authorize modification of our regulations to permit subsidiaries abroad of U.S. companies to trade with Cuba when their refusal to do so would be contrary to the law or policy of the host country. At Tab I is a memorandum from you to the President describing the problem, suggesting three options, and seeking approval for the Under Secretaries’ recommendation.

State, Defense, Treasury, Commerce and CIA have all concurred in the Under Secretaries’ recommendation. In transmitting his concurrence, however, Secretary Dent points out that the problems are only mitigated and a number will still remain (Tab A). He notes that the effect of the recommendation would be to lift restrictions on trade with Cuba in countries which encourage such trade, while continuing them in more cooperative countries which continue to abide by the OAS sanctions. He also points out that, since the licensing procedure would be maintained on trade in goods a substantial proportion of which were manufactured in the U.S., another effect of the modification would be to discriminate against U.S.-based firms in favor of their foreign subsidiaries. While recognizing that we may not wish to go too far at this stage, he believes that the most straightforward thing to do would be to lift all restrictions. He would prefer that the present recommendation propose lifting the licensing regulations on subsidiaries whether the host country trades with Cuba or not. This is a somewhat academic question, however, since we are not likely to get license applications from subsidiaries in countries which still prohibit trade with Cuba.

The options as set forth in the paper are either (1) continue granting licenses on a case-by-case basis only when faced by host governments determined to favor trade with Cuba; or (2) modify the regulations so as to permit licensing in countries which trade with Cuba. Under the second option there are two variants: the first (2A) would continue the policy of applying moral suasion to companies in order to urge them to refrain from trade, while the second (2B) would eliminate such moral suasion and announce both to the host governments and publicly that there was a change in our regulations. Variant (2B) would also modify sanctions on licenses which continue to be required (in cases involving strategic goods or substantial U.S. componentry) so as to apply them against the parent company rather than against the U.S. citizen-directors or officers. Since changing individual directors of subsidiaries has been a means of avoiding the application of licensing restrictions, State believes the change to holding the U.S. parent company responsible would be considered a tightening of restrictions on subsidiaries, unless it were accompanied by abandonment of moral suasion and a public announcement of the practice of granting licenses to subsidiaries in countries favoring trade with Cuba. State felt that this last provision could not be applied in variant (2A) so long as moral suasion were being exercised because it would appear that we were tightening the regulations rather than loosening them.

Since it is quite possible that the OAS General Assembly in May will succeed in finding a way to lift the 1964 Cuban sanctions, the question arises of whether we should proceed before the OAS. Following are pros and cons:

Pros:

—As a result of the publicity surrounding granting the Argentine subsidiaries’ licenses, this would be considered only a formalization of previous action.

—Pressure from Mexico and Canada is building rapidly. Every week presents a new case there or elsewhere.

—The change can be accomplished immediately by Executive action.

—The OAS may not succeed in finding a formula to lift the sanctions or may only go halfway, delaying the final, formal vote for a further period.

—Proceeding might give some encouragement to OAS members to believe that the U.S. would not look unkindly on lifting 1964 sanctions.

Cons:

—There is an implication of weakening the 1964 sanctions which we supported so strongly.

—If we waited till after the OAS action we have a rationale to lift all third-country sanctions, instead of doing it piecemeal and leaving us open to the question, “Why now?”

The exact timing of when to announce these changes would depend on the developing situation relating to the OAS sanctions, considerations relating to your trip, and Castro’s actions. Therefore, the memo to the President explains that if he approves the recommendations in (2B), you would proceed on a step-by-step basis, first dropping the moral suasion requirement which gives us most difficulty and then moving to approving pending cases, making the public announcement and changing to holding parent companies responsible.

The action that is being recommended will only relieve some of the pressure. In effect, the area of friction will shift to those cases involving U.S. componentry. The Canadians have drafted a regulation “naturalizing” U.S. components once they enter the country, which may be aimed at avoiding denial of licenses for export of goods by subsidiaries when the U.S. proportion is substantial. Problems can be expected over this matter soon. There will be increasing pressure from U.S. business objecting to a policy the effect of which is to favor firms with subsidiaries abroad and their subsidiaries over domestic manufacture. The charge that U.S. laws are being applied extraterritorially will continue to be made at any arbitrary cut-off level for U.S. componentry, particularly below fifty percent.

Recommendation:

That you initial the memorandum to the President recommending that he approve a modification of our regulations so as to permit subsidiaries abroad of U.S. companies to engage in trade with Cuba if the host government has a policy of permitting such trade.

1. Summary: Low transmitted an interagency recommendation to ease restrictions on trade with Cuba by foreign subsidiaries of U.S. companies.

   Source: Ford Library, National Security Adviser, NSC Latin American Affairs Staff Files, 1974–1977, Country Files, Box 2, Cuba—Economic, Social—Sanctions 2. Confidential. Sent for action. At the bottom of the memorandum, Scowcroft wrote, “HAK [Kissinger] says he does not want to do anything before the OAS meeting.” A February 25 memorandum from Ingersoll to Ford transmitting a recommendation from the Under Secretaries Committee, is attached but not published (Tab A). Tab I, a draft memorandum from Kissinger to Ford, is not attached and not found.