Washington, July 3, 1969.

SUBJECT
Possible Desirability of Modifying Administration Tactics on the Export Control Act

Five factors make me think that the Administration should consider modifying its tactics on the Export Control Act--from active opposition to any liberalization of the bill to passive opposition. This would essentially mean avoiding a massive campaign to defeat any amendments to the present law, including planted speeches on the Senate floor and intense lobbying with individual Congressmen, as now planned. To avoid changing the message to the Soviets, we could make it clear--perhaps when the President signed the bill--that in practice we would do no more liberalizing under a liberalized act than under the present Act. We are of course liberalizing administratively now, by moving our list of restrictions toward the list maintained by the other COCOM countries.

1. We may not be able to defeat a liberalization of the Act without major expenditures of Presidential prestige. The Committees in both houses are certain to report out liberalized bills. There are no accurate readings yet on the likely floor votes but the Senate leans toward liberalization while the House leans toward simple extension.

The worst result for the President, vis-a-vis the Soviets, would seem to be a liberalized bill against which he had fought hard but lost. Domestically, much of the recent overall criticism of the President from liberal quarters is keyed explicitly to his position on the Act. Such criticism would greatly intensify if he were to wage a major battle against its liberalization. There would also be costs in terms of his position on other more important legislation such as the surcharge and the ABM.

2. We could then proceed with the NSDM 17 package of trade liberalization toward China,/2/ which will be held up for at least a month if we continue to condition it on passage of the Act. (The likelihood of leaks about our plans for China, which would lead to conservative outcries which may make it difficult to move at all, become more likely as time passes.) Modification of our active opposition to liberalization of the Act would sharply reduce the apparent inconsistency which persuaded the President to postpone announcing the China package until the Act passes.

3. We would be able to prepare a more meaningful package for Romania as requested by your memorandum of June 30./3/ The same contradiction which caused postponement of the China package will affect Romania, although to a lesser extent because Romania is smaller, and less hostile to the United States, and because the Act may be passed by the time the President gets to Bucharest./4/

4. The State Department proposal on settling the gold claims problem with Czechoslovakia, which I sent you earlier this week,/5/ could be broadened. One reason I recommended against inclusion of MFN treatment in the package, as proposed by State, was the blatant inconsistency with our position on the Export Control Act. The Czech element is less important than the others but not irrelevant if we sincerely wish a settlement on this issue.

5. We could proceed to reduce our control list administratively with fewer problems of apparent inconsistency with our position on the Act. Such administrative liberalization is required to implement that part of NSDM 15/6/ which calls for us to move our control list toward the COCOM list. Bryce Harlow has quite rightly raised the question of whether any administrative liberalization is consistent with active opposition to legislative liberalization./7/ (I have sent you a separate memorandum for an immediate decision needed on this subject.)/8/

It thus seems to me that the President might (a) avoid the risk of possible significant Congressional losses, and (b) greatly increase his flexibility for dealing with a number of important foreign policy problems, by modifying his stance on the Export Control Act.

I fully recognize that he wishes to avoid giving the Soviets anything at this time and that he might interpret the suggested shift as doing so to such a degree that it would override the gains just cited.

It seems to me, however, that he could maintain precisely the same posture toward the Soviets by making it clear that, even if Congress forces upon him a "liberalized" Act, we would in practice do no more liberalizing than we would with a simple extension of the Act. We have argued that we can do any liberalizing we want within the present law, which is true, and this approach would simply make the same argument in the obverse way.

If you think there is any merit to this analysis, I recommend that you raise the issue with the President as soon as possible so that we could: (a) soften the tone of the Administration's testimony at the Senate hearings on the Act on July 10, (b) call off the planned campaign to aggressively oppose any amendments to the Act, and thus (c) proceed with the China and Romania packages and the administrative liberalization currently proposed by Commerce under the present Act.

Pursuant to NSDM 17 (Document 302), Eliot Richardson, in his capacity as Chairman of the NSC Under Secretaries Committee, on July 8, 1969, sent a memorandum to the President informing him that the Committee had prepared the documents to implement the NSDM. Richardson asked the President's approval for new regulations and the strategies for Congressional, diplomatic, and press notification of the new policy. (National Archives, RG 59, S/S Files: Lot 83 D 305, NSDM 17)

On July 10 Richardson sent a follow-up memorandum to the President recommending that he authorize implementation of NSDM 17 prior to his departure on his July 25-August 3 around-the-world trip, which included a final stop in Romania. Richardson noted that early announcement of a change in China trade controls could be helpful in getting an extension of the Export Control Act by demonstrating the flexibility the President already had in administering trade controls, obviating the need to amend the Act at that time. Richardson voiced concern that action on the Export Control Act might take another 60-90 days, a delay during which the Sino-Soviet border situation could deteriorate, the administration might lose the diplomatic benefits it was seeking, and the likelihood of press leaks would increase. Richardson was also concerned that if the announcement were delayed until after the President's visit to Romania, it risked being tied to speculation regarding an anti-Soviet purpose to the visit that would give the China trade decision a "too overt anti-Soviet significance." The Approve option is checked after Richardson's recommendation to authorize implementation of NSDM 17 prior to the President's departure and at the top of the first page is the typed note, dated August 11: "The Under Secretary's office indicates that the President authorized implementation to recommendations related to visits to China. Decision with respect to the rest is held in abeyance. MAbramowitz to RLBrown." (Ibid.)

On July 21 Department of State Press Release No. 211 (Corrected) announced new regulations, effective July 23, to permit American tourists and residents abroad to purchase limited quantities of goods originating in Communist China. In addition, members of Congress, journalists, teachers, college and university students and scholars with postgraduate degrees, scientists and medical doctors, and representatives of the American Red Cross would be eligible for automatic validation of their passports for travel to Communist China.

This liberalization of travel was reconsidered, however; Public Notice 314, September 15, stated that "U.S. passports shall not be valid for travel to, in, or through Mainland China unless specifically endorsed for such travel under the authority of the Secretary of State." (Department of State Bulletin, October 27, 1969, page 362)

On October 6 Assistant Secretary of State for East Asian and Pacific Affairs Marshall Green sent Under Secretary Richardson a memorandum on "Next Steps in China Policy." The portion of Green's memorandum concerning trade issues reads: "the President has expressed his general interest in modifying our trade policy toward Peking, privately through NSDM 17 . . . and publicly through our relaxation of tourist purchases of Chinese goods on July 21." Green indicated that recommendations were being developed to modify Foreign Assets Control regulations regarding extraterritorial aspects of current trade policy toward Communist China, and possibly proposing lifting the ban on importation of Chinese antiques and objets d'art. Green also recommended that all travel restrictions should be dropped as soon as possible. (National Archives, RG 59, S/S Files: Lot 83 D 305, NSDM 17)

Concerning Secretary Rogers' recommendations to implement the remaining measures in NSDM 17, see Document 308.

Following President Nixon's August 2-3, 1969, visit to Romania, Henry Kissinger stopped in Paris to brief French officials. During his August 4 call on President Pompidou at the ElysŽe Palace, Kissinger and Pompidou discussed Asia, Vietnam, Romania, the Middle East, and Nigeria-Biafra. The section of the memorandum of conversation on Romania reads as follows:

"Pompidou then asked whether we anticipated any relaxation on East-West trade, and he asked further whether there was any Nixon Administration position or principle concerning the Most-Favored-Nation doctrine. Dr. Kissinger responded that with respect to East-West trade the US wants to deal with each Eastern European country on the basis of their political acts vis-ˆ-vis the US, i.e., we are not adopting generalized positions on East-West trade. Dr. Kissinger added with respect to the Most-Favored-Nation doctrine that the Nixon Administration is not in a position at this time to take any action because of the law which states that any nation trading with or helping North Vietnam cannot receive Most-Favored-Nation treatment. As long, therefore, as the war in Vietnam continues and the East European countries help North Vietnam, the Nixon Administration cannot take any actions with respect to the Most-Favored-Nation doctrine in Eastern Europe. He added that with respect to Romania, we have agreed to review our policy on export licenses; we have agreed to send a scientific team to Romania to improve the exchange of scientific information and personnel. We have also agreed to review the applications already made by Romania to join certain international organizations." (National Archives, Nixon Presidential Materials, NSC Files, Presidential/HAK Memcons, Box 1023, HAK-Pompidou 8/4/69)

In his August 6 Evening Report to the President, Acting Secretary Richardson reported that Senator Mondale and Congressman Findley had introduced bills authorizing the President to negotiate a commercial agreement with Romania that would provide MFN treatment to Romania in return for compensating concessions to the United States. (Ibid., RG 59, S/S Files: Lot 74 D 164, Box 410, President's Evening Reading Items)

Washington, November 5, 1969.

SUBJECT
Administrative Liberalization of U.S. Export Controls

Secretary Stans needs a prompt response to his request for permission to release a liberalized list of export control items. The House-Senate Conference Committee on the Export Control Act meets on Thursday.

In response to your telephone request, Secretary Stans has now forwarded three alternative lists (60 items, 100 items, 135 items) (Tab B). Stans' previous memorandum (Tab C) had agency concurrence for decontrolling the long list in implementation of the President's NSDM 15 decision (Tab D)./2/ In the present memorandum Stans states that adverse press comment and the upcoming Senate-House conference on extension of the Export Control Act make it highly desirable to release now either the 100 item or 135 item list.

Commerce and Congressman Widnall believe administrative liberalization will blunt the Senate campaign to liberalize the Act. Bryce Harlow is dubious that any administrative action now will be very helpful.

Foreign policy considerations vis-a-vis the Eastern Europeans do not argue for administrative liberalization. However, the new moves of the Brandt government will highlight the appearance of U.S. immobility and with the passage of time our own domestic posture will seem more rigid. From late October 1966 until July 1968 the Johnson Administration liberalized about 500 items, most of them during the early period./3/ For over a year there has been no liberalization and during that time Commerce has worked up the 135 items.

By waiting until after the conference before releasing lists we would avoid the appearance of influencing the conference, but unless we delay for a long time the liberals can then claim that the new bill, which will certainly be somewhat more liberal than the current Act, forced the Administration to move.

The qualitative differences among Stans' three lists are not very large. Although the smallest list contains a large number of obviously non-strategic items (soft drink pumps, mops, flashlight batteries) it also has some more sensitive items (carbon steel ingots, alloy steel scrap, ferromolybdenum). The middle list adds other semi-sensitive items (agricultural machines, drill bits, aluminum ingots) as well as obviously non-strategic ones (multitype typewriters, insecticides). The additions making up the longest list contain the same diversity (cotton and synthetic tire cord and cattle stunners as well as trucks, meteorological balloons and non-computerized railway traffic control equipment).

It would, of course, be possible to pare down the smaller list so that it is completely innocuous. I would not, however, recommend this for then the list would appear frivolous and would serve mainly as an argument for those who are trying to amend the current law and force the Administration's hand.

Commerce also needs strategy guidance in working with the conferees. Muskie and Mondale, on the Senate side are likely to push hard for the liberal Senate version. Several of the house conferees will not resist too hard unless they are promised a Presidential veto, which, I believe, would blow up the issue unnecessarily. Pro-Administration conferees, Senators Tower and Bennett and Representative Widnall, believe that some Administration compromises may help avoid the Senate version.

Assistant Secretary Davis of Commerce has forwarded you a list of acceptable changes (Tab E)/4/ which he wishes to propose. These are principally non-substantive though they would accept some of the Senate language.

The changes would:

--focus controls on goods contributing to the military potential (rather than military and economic potential) of other countries;

--state that it is U.S. policy (a) to trade with countries with which we have diplomatic relations unless the President determines it against the national interest and (b) to restrict exports that contribute to the military potential of nations and would prove detrimental to the national security (eliminating much of the cold war language);

--state that it is U.S. policy to use trade to further our own economy as well as to further national security.

The alternatives are:

--to refuse any compromise, with the possibility that the outcome may be more toward the Senate than the House version;

--to accept the Commerce compromises in order to bring an outcome that is closer toward the House version.

1. That you agree to release of the middle list of 100 items.

Approve

Disapprove, prefer 135 items

Disapprove, prefer 60 items

Disapprove, prefer no liberalization/5/

2. That future decontrol be checked with you in advance.

Approve/6/

Disapprove

(The memorandum to Secretary Stans at Tab A4 incorporates these decisions.)

3. That Commerce be allowed to work with Administration supporters in reaching cosmetic compromises that preserve the substance of the House version.

Approve/7/

Disapprove

Washington, November 7, 1969.

SUBJECT
Export Control Act--Administration Position Defeated in Conference

A House-Senate conference committee has voted out an Export Control bill which includes the key liberalizing Senate language requiring us to permit export of all items not explicitly controlled, instead of our present authority to control all items not explicitly decontrolled. (The other key provision which I discussed with you on Wednesday/2/ was resolved in our favor.)

This would put us under heavy pressure to decontrol a wide range of items, both because of the new legal requirement and because this provision is the main manifestation of the Senate's liberalizing intentions. It would thus represent a signal to the Soviets of significant U.S. liberalization.

The conference bill can come to the floors as early as next Wednesday. It cannot be amended on the floor. Thus, the only way to change its language is for at least one house to defeat the bill in its entirety and call for a new conference.

Based on our conversation on Wednesday, I assumed that the President continues to strongly oppose any liberalization at this time. I thus held a meeting today of the relevant officials from Commerce, State and Bryce Harlow's office. The legislative strategists agreed that the best approach was to ask Gerry Ford to send a letter to all members of the House, indicating that the Administration opposed the conference bill.

With such a letter, they think there is a good chance to defeat the bill on the House floor. We could then seek changes in the key provision when it returned to conference with a good chance to prevail because of the House rejection of the Senate language.

Harlow, however, now tells me that the President told him this week not to make a major effort on this issue. Harlow therefore opposes the plan described here, which would be fairly unusual in that it would seek to override a conference report. His alternative is to try to build some legislative history on the floors which would permit us to go on administering the controls as at present.

The success of such an approach is dubious, however, given the long buildup to date to the contrary. An effort to defeat the bill on the House floor would thus be necessary if, contrary to Harlow's report, the President feels strongly about avoiding any liberalization at this time.

If the President wants to strongly oppose any liberalization of the Export Control Act, contrary to Harlow's report, that you inform Harlow to that effect and enlist him to pursue the legislative tactics outlined above.

Washington, December 2, 1969.

SUBJECT
Next Moves in China Policy

I believe the time has come to proceed with the remaining measures relaxing economic controls against Communist China, which you approved in principle in June (NSDM 17),/2/ as well as to consider other steps we might take toward China.

--Talks between the Soviet Union and Communist China began in Peking on October 20. We do not believe that these will result in a fundamental change in the Sino-Soviet relationship. The roots of the ideological dispute will remain, together with a certain level of tension. Although the Sino-Soviet discussions have apparently not gone well thus far, we cannot exclude the possibility of at least a partial rapprochement between the Soviets and the Chinese, which might take the form of some restoration of normalcy in state-to-state relations.

--Our moves may introduce an additional complicating factor into the Soviet leadership's assessment of our intentions towards China--and towards the USSR, as well. Such an effect would also serve our long-term interest of forestalling an eventual more fundamental rapprochement between the USSR and China.

--At the same time, this conjunction of Soviet agreement to negotiations both with China and with us on SALT, enables us to maintain our posture of noninvolvement in the Sino-Soviet dispute. Moves by us at this time in the direction of opening the door towards China a little more can hardly be the object of plausible objections by the Soviet Government when it itself is talking with the Chinese.

--Notwithstanding the ups and downs in Chinese propaganda stridency in recent months, there have been signs of moderation in Peking's foreign policy stance including--in private encounters--toward the U.S. We cannot predict that such steps as I propose would evoke a favorable response from Peking, but the chance that they might now appears to be greater than it has been for some time. Additionally, when the Chinese leadership appears to be in some disarray, we may contribute to a strengthening of those who advocate moderation and thereby continue to move towards a position where we may be able eventually to exert some influence on the Chinese Government in a direction more favorable to our own interests.

--Finally, the steps I propose would serve specific U.S. interests. They would also be useful preliminaries to an attempt by us in the near future to revive bilateral discussions with the Chinese and as further signals that we are interested in continuing to move towards more normal relations.

The Republic of China will object to such moves, but I do not believe this should deter us. These actions would not affect any vital security interest of Taiwan or diminish in any way our existing treaty commitments. They would be consistent with what I have told ROC leaders about our general approach towards Communist China.

If you agree that we should move forward, I would contemplate undertaking the requisite Congressional consultation, preparatory to announcement of changes in regulations.

Treasury concurs that all the actions described below can be taken by executive action and approves of the recommendations.

I have considered the whole range of measures we might take--economic, travel, raising the level of the Warsaw talks, etc.--but at this time recommend the following moves to be implemented in two stages./3/

a. For implementation immediately:

1. Remove Foreign Asset Control (FAC) restraints on foreign subsidiaries of United States firms on transactions with China regarded as non-strategic by COCOM (approved by you in principle in NSDM 17, June 26, 1969);

2. Eliminate the present restrictions on U.S. business participation in third-country trade in presumptive Chinese goods;

3. Modify slightly your approval in June allowing the noncommercial purchase of Chinese Communist goods by Americans traveling or resident abroad by removing the $100 ceiling and the requirements that noncommercial imports from China enter the United States as accompanied baggage.

In addition to their political effects on the Chinese and Russians, implementation of these measures would:

--remove a substantial licensing burden on Foreign Asset Control and the general public;

--relieve a number of difficult problems which our Allies have raised pertaining to United States extraterritorial controls on the activities of American subsidiaries abroad;

--not make any commodities available which the Chinese cannot already purchase abroad;

--contribute to the competitive strength of American business concerns overseas and respond to strong pressures from foreign branches of U.S. business concerns in several Asian countries to be allowed to compete for third-country business in goods administratively assumed to be of Chinese origin; and

--satisfy the desire of tourists, collectors, museums, and universities to import Chinese products for their own account and rid us of administrative headaches.

b. For implementation following the resumption of our bilateral Ambassadorial talks with the Chinese:

1. Modify the Department of Commerce export control regulations through a general license for the export of food, agricultural equipment, fertilizers and pharmaceuticals (approved by you in principle in NSDM 17, June 26, 1969). This would

--provide an initial opening in the area of non-strategic direct U.S. trade with Peking;

--would not enable Peking to obtain commodities they are not already able to purchase elsewhere;

--would represent only a modest extension beyond the offers to sell grain and pharmaceuticals on an ad hoc basis to the Chinese made during the Kennedy and Johnson administrations; and

--would open up a potential outlet for American farm products (for example, the Chinese Communists have recently expressed interest in purchasing U.S.-produced oilseeds from a large West Coast vegetable oil company through a Hong Kong intermediary).

WPR

Washington, December 11, 1969.

SUBJECT
Proposal on China Policy

I have worked out with Elliot Richardson the next steps you might take to further relax economic controls against Communist China. Secretary Rogers has sent over a memorandum outlining these proposals (Tab A) which are in line with NSDM 17 (Tab B)./2/

The proposals are:

1. Remove Foreign Asset Control (FAC) restraints on foreign subsidiaries of United States firms on transactions with China regarded as non-strategic by COCOM (approved by you in principle in NSDM 17, June 26, 1969).

2. Eliminate the present restrictions on U.S. business participation in third-country trade in presumptive Chinese goods. (This move is intended to enable American businessmen to deal in goods which, though not of Chinese origin, are on the Chinese "presumptive" list

--such as certain Hong Kong-made products.)

3. Modify slightly your approval in June allowing the non-commercial purchase of Chinese Communist goods by Americans traveling or resident abroad by removing the $100 ceiling and the requirement that non-commercial imports from China enter the United States as accompanied baggage.

These measures would not make commodities available to the Communists which they cannot already purchase. The actions might lead to objections from the Republic of China, but they are clearly within our China policy as we have described it to GRC leaders, and they would not affect Taiwan's vital security interests.

Treasury concurs and believes that the actions can be taken by executive action.

In view of the present situation and the recent moves made by Communist China, I believe this is a good step to take at this time in response to tomorrow's meeting in Warsaw. The impediment which has led you to defer execution of NSDM 17 was the problem of getting the East-West Trade Act through Congress. The bill is expected to come up next week, and will probably be passed./3/ The actual promulgation of the new rules on China should not be made until that bill is disposed of, one way or another.

That you approve the recommendations for the relaxation of certain economic controls toward Communist China, as explained above. That the actual promulgation of these changes be deferred until Congress has acted on the East-West Trade Act./4/

Washington, December 24, 1969.

SUBJECT
Extension of the Export Control Act

Commerce's brinksmanship in encouraging the House to reject the Conference report on the Export Control Bill paid off yesterday, when both Houses passed a bill containing operative provisions which are less forcibly liberalizing than the earlier Conference report. (The risk was that we would get no bill at all.)

The agreed bill still requires the Secretary of Commerce to review the control lists and liberalize them "in furtherance of the policy, purposes and provisions of this Act," and the Secretary must report what he has done in about six months. However, the control regulations may provide for denial of licenses that would prove detrimental to the national security, regardless of foreign availability--although the Secretary of Commerce must report to the Congress when national security considerations do in fact override foreign availability. (There is some debate whether this provision merely means that he must report on specific license denials, or on all items which continue on the control list despite their foreign availability.)

Assistant Secretary of Commerce Ken Davis, who did an excellent job as the principal legislative shepherd of the bill, put out a rosy release (attached)/2/ stating that the President is gratified at the results since the bill offers the potential of broader trade with the Communist countries while still preserving Presidential prerogatives on deciding the extent and timing of liberalization. Nevertheless, this new Act means that we will be forced to allow extensive liberalization in the near future unless the President wishes to buck hard against the intent of the Congress.

Washington, January 2, 1970.

SUBJECT
New Export Control Law

The Export Administration Act of 1969, which was passed on December 23,/2/ contains a strong Congressional endorsement of expanded trade with Eastern Europe. It provides for the denial of exports, apart from foreign policy or short supply reasons, only when it is determined that the export would prove detrimental to the national security of the United States. Foreign availability must be taken into account in denying an export application as well as in establishing the export licensing requirement. When export licenses are required on the grounds that considerations of national security override considerations of foreign availability, the reasons for doing so must be reported to Congress. The new Act drops all reference to economic potential as grounds for denying an export.

Major changes embodied in the new Act are described below:

The former Act stressed export control as a means of defense against the Communist threat, as seen in 1949. The new Act declares that it is the policy of the United States to "encourage trade" with the countries of Eastern Europe and the Soviet Union and states that exports will be controlled only to protect the domestic economy, to further the foreign policy and "to the extent necessary to exercise the necessary vigilance over exports from the standpoint of their significance to the national security of the United States."

As in the former Act, the President has discretionary authority to regulate exports and to determine the timing of decontrol actions. In the new Act, however, the Secretary of Commerce is directed to review and make necessary revision of the United States export control list, and to make such organizational and procedural changes as required to carry out the policy set forth therein. Commerce is also directed to report to the Congress within six months on the progress made. Senator Muskie stated for purposes of legislative record on December 23 that while the conferees could not agree on an interpretation of the language changes in the Act, they envisioned an orderly transition to the new policy contained therein. He said that the Administration would have the flexibility it needs to review the control list in light of the new policy.

As indicated in paragraph 1, the new Act requires that free world availability be taken into account in determining the requirement for an export license as well as in taking action on the license application. The old law did not mention foreign availability.

The new Act stipulates that, insofar as it is consistent with national security, exporters will be informed of the considerations causing their export license requests to be denied or to be subject to lengthy examination. This is new.

The bill approved by the Senate would have granted authority to control exports for four years. However, the compromise finally adopted grants authority for only 18 months, i.e., until June 30, 1971. The former Act was extended several times over its 20-year validity, usually for two or four year periods.

The new legislation provides the President with a legislative basis for the policy he has already approved in NSDM-15,/3/ which is to bring our export control list more closely in line with the COCOM list. In total there are roughly 1800 items which require validated licenses for export to the Soviet Union and Eastern Europe. These include 600 items on the multilateral COCOM list and 1200 items controlled unilaterally by the U.S. Of the 1200 items, there should be little difficulty in decontrolling for Eastern Europe and the USSR the 700 which do not now require licenses for export to free world countries. For most of these products there has been a presumption for approval for export to Eastern Europe, but the mere requirement of an export license constitutes an obstacle to trade. Of the remaining 500 items on the U.S. list which require export licenses for free world as well as Communist destinations, it is estimated that about 300 are available elsewhere in the free world and thus are additional candidates for decontrol under the new legislation. In sum, our target presumably should be to reduce the present 1200 items under United States unilateral export control to approximately 200. (The 600 items on the COCOM strategic list will not be directly affected by the new Act.)

We are in touch with Commerce with respect to the decontrol actions to be taken in pursuance of the policy contained in the new Act and in NSDM-15. It may develop that I will want to ask you to make some suggestions to the White House concerning the extent and timing of these actions.

Washington, January 26, 1970.

SUBJECT
Economic Relations with the USSR

The National Security Council in May 1969 decided that Commerce should not issue a license for the sale of a truck foundry to the Soviet Union "in view of overall U.S.-USSR relations."/2/ That decision is being cited as a probable basis for holding up approval of a $20-odd million sale to the USSR of gear making equipment by the Gleason Works of Rochester, New York. Moreover, there may be other possibilities for expanding our economic relations with the Soviets which could be affected by a literal reading of this portion of the National Security Council ruling.

Meanwhile, some new factors have entered into the picture:

--The Export Control Act (now the Export Administration Act) was liberalized by the Congress./3/ We are now directed to "encourage trade" rather than focus primarily on defense against the communist threat.

--The Soviets are showing serious interest in some substantial purchases from the United States.

a) The Gleason organization has a firm contract for the gear making machines and hopes for $75 million more in future orders. (The Soviets, by the way, have given a signed statement that the gear equipment would be used only for peaceful production.)

b) Ford and Chrysler have had feelers from Soviet officials about taking part in the very large planned expansion of Soviet automobile and truck capacity.

c) Cooper-Bessemer, an Ohio manufacturer of valves and compressors, has been in what appear to be serious talks with the Soviets on the development of transmission lines for natural gas from Siberia to Western Russia and Western Europe. The Cooper-Bessemer people talk in terms of an initial $50 million export sale, and there are prospects for cross-licensing of Soviet and American equipment.

--Finally, in a different area of economic relations, Pan American tells us that the USSR may be interested in extending our aviation route exchange to give Aeroflot a route to our West Coast in return for a Pan American route east across the USSR to Tokyo or south to South Asia./4/ If so, it would be quite a dramatic step, since the normal high political value attached to air routes would be raised by several powers when United States and Soviet commercial aircraft begin flying across the two continental land masses.

We believe that we ought to take a positive view of these prospects.

There is nothing to suggest that we could in fact prevent, or even seriously impede, the Soviets from expanding truck capacity or from building a natural gas pipeline. Our producers presumably have some advantages to offer to the USSR, but there is no absence of other suppliers who would be ready to do the business. The international embargo agreement is not applicable.

If we do not sell, the Soviets will find other sources readily. Moreover, I believe it is worth giving serious consideration at this juncture to the positive impact on our relations with the USSR provided by the opportunity for favorable action on these important trade transactions.

I thus conclude that it is in our interest to reduce controls on our trade with the Soviet Union. Such a positive step, in line with recently expressed Congressional attitudes on East-West trade, would provide tangible benefits to our export interests at a particularly opportune moment and have a favorable impact on our relations with the USSR. It could also have the effect of easing the way for an improvement of our relations with other Eastern European countries, whose Western associations are inevitably a source of apprehension to the Soviets.

That in light of the Export Administration Act and the prospect of improving trade relations with the Soviet Union you agree to a broader interpretation of the National Security Council decision on East-West Trade Policy (NSDM-15)./5/

WPR

On February 2, 1970, President Nixon met with Secretary Hardin, Don Paarlberg, Bryce Harlow, John Whitaker, and John Ehrlichman from 3:10 to 4:10 p.m. Henry Kissinger and Fred Bergsten joined the meeting at 3:44 p.m. (National Archives, Nixon Presidential Materials, White House Central Files, President's Daily Diary) On February 4 Bergsten sent Kissinger a memorandum for his files recording the discussion. The first item was the meat import program; see Document 424. The portion of Bergsten's record of the meeting that deals with P.L. 480 programs for Communist countries reads as follows (Kissinger's memorandum and the legislation mentioned in the first sentence are not further identified):

"The President indicated that he had read Dr. Kissinger's memorandum on the subject and asked whether we could write language into the bill to provide Presidential authority to waive the present restrictions. He wished to get us into position to have something with which to bargain with the Communist countries. As a practical matter, we cannot make subsidized sales to countries trading with North Vietnam. The present prohibition will thus over-ride until that situation changes, but it certainly could change.

"Dr. Kissinger indicated that there were now four restrictions on PL 480 sales to Communist countries. The President could not waive the restriction on sales to countries trading with North Vietnam. He could waive the restriction on countries trading with Cuba. He had no waiver authority on the prohibition on sales to 'countries controlling the world Communist movement,' which means the USSR and presumably China. He had no authority to waive the prohibition on local currency sales to Communist countries.

"Dr. Kissinger thought that the restriction on sales to countries trading with Vietnam was helpful. It enabled us to blame Congress when the issue comes up, as it did with Romania. However, we might consider seeking a waiver authority on the other prohibitions: those applying to local currency sales and sales to the USSR/China. Our possessing this authority would put pressure on them to help in Vietnam and would signal that we are prepared to deal with them after the war.

"The President agreed with Dr. Kissinger's suggestions. They would give us a better bargaining position. We can tell Congress that there will be a market in those countries in the future. Dr. Kissinger agreed that they would give us an additional foreign policy tool and that we cannot get away from the restriction on Vietnam trading anyway. Secretary Hardin supported the changes.

"The President repeated his strong view that the present prohibitions on trading with Communist countries are obsolete. When the Vietnam war is over, we will sell to China if they are able to buy from us. We should not anticipate a huge market but there will be something in it. (Dr. Kissinger clarified that the issue was credits and local currency sales, not dollar sales.) The President directed that waiver authority on the two provisions be included in the proposed PL 480 legislation." (National Archives, Nixon Presidential Materials, NSC Files, Agency Files, Box 196, Agriculture, Volume I 1969-1970)

Washington, February 13, 1970.

SUBJECT
Export Control Guidelines

We have reviewed the two memoranda on the above subject, one of which was sent to you by the Department of Commerce on 13 January and the other by the Department of State on 26 January./2/ Although there are some points on which we differ with both papers, the Department of Defense is in general accord with the views outlined by the Department of Commerce.

In implementing the Export Administration Act of 1969 it is necessary to note that the language used in the Act as well as the statements of its proponents in both Senate and House are unequivocal in stating that liberalization of controls is not intended to apply to strategic items whose export would prove detrimental to the national security. The formulation in paragraphs A.1 and A.2 of Attachment A to the Department of Commerce memorandum is consistent with this aspect of the legislation and the Department of Defense therefore would support it.

By contrast, while correct in observing that the new Act expressly drops "economic potential" as grounds for requiring an export license or denying an export, the Department of State memorandum is in error in equating "economic potential" with the criterion of "military-industrial capability" which the Department of Commerce proposes to continue to apply. The potential contribution of an export to the military-industrial capability of the country of destination has always been one of the tests applied to determine whether the item should be treated as strategic. The criterion of "economic potential" was introduced only in 1962 as an additional and quite distinct ground for controlling exports. Whether this criterion is or is not now discarded has no bearing on the continued use of the test of "military-industrial capability."

We also agree with the Department of Commerce that a prompt review of all presently controlled commodities is required but again we cannot accept the Department of State idea that in making this review the COCOM list be used to determine what items have significance for the national security of the United States. To place an item on the COCOM embargo list requires the unanimous consent of all the NATO nations and Japan.

Given this fact and the traditional attitudes of our allies on sharing the burdens of maintaining international security, the COCOM embargo list cannot provide any reliable measure of the significance for U.S. national security of individual commodities. Indeed, the smaller COCOM embargo list is probably indicative of little more than the level of success we have achieved in negotiating these matters with our allies.

With regard to the Commerce proposal on items of "emotional" or "public image" significance, we believe these are not a special category and should be dealt with in the framework of "foreign policy" reasons. Certainly the export of jet fuel, to cite one of the examples given, may need to be controlled on occasion to some destinations in terms of the diplomatic consequences which may follow its export from the U.S.

As we see it, the chronic difficulty with our export control activities is that they have not been and are not now discriminating enough both as to the commodities placed under control and the countries to which controls have been applied. Accordingly, we are wholly in accord with the idea of a prompt and thorough review of the present control list, but would emphasize that a review based on superficial judgments intended to result in sweeping changes in present controls would not be in accordance with the new legislation and could be detrimental to our national security.

In sum, we believe that the differences in basic views which exist between the Department of State on the one hand and the Departments of Commerce and Defense on the other are important enough to make an inter-agency discussion with you worthwhile. If the broad questions involved can be settled, we believe it will be possible to reach prompt decisions on the individual transactions mentioned in the Department of Commerce memorandum.

RA Ware

On February 6, 1970, Fred Bergsten sent Henry Kissinger a memorandum stating that the Gleason case (see Document 312) highlighted the need for establishing guidelines on the new Export Administration Act or "we shall again be faced with ad hoc decisions and wide interagency differences on specific cases." He added that the Act required a review of export control lists and procedures on licensing requirements. Bergsten reported that the Commerce Department had already put forward a proposal for administering the Act, with recommendations for some relaxation of controls. The State Department position, by contrast, was that the Commerce position exceeded the President's revised legal authority to restrict exports and desired a more liberal interpretation. The Defense Department, which did not object in principle to the Commerce proposals, wanted a more restrictive interpretation in practice and wanted to bargain with the Soviet Union for some unspecified quid pro quo when deciding on specific licensing cases. Kissinger noted on Bergsten's memorandum that, rather than meeting with agency representatives to seek a solution, he preferred requesting the agencies to prepare a NSSM-like paper for the President setting out issues and options. (National Archives, Nixon Presidential Materials, NSC Files, Subject Files, Box 401, Trade General Volume I)

In a February 18 memorandum to Kissinger, Bergsten proposed sending a memorandum to the Secretaries of State, Defense, and Commerce requesting a paper to the President setting forth the options on 1) the extent of liberalization of the existing export control lists; 2) the standards for decisions on particular license applications; and 3) the procedures to be followed on controversial cases, including the need for referral of decisions to the White House. Kissinger wrote on Bergsten's memorandum: "Chairman of group? (Commerce) Submit to Asst to Pres." (Ibid.)

In a February 27 memorandum Kissinger informed the Secretaries of State, Defense, and Commerce that the President had directed the preparation of an interagency paper setting forth the options open to him under the new Act for administering export controls. Kissinger indicated the paper was to be prepared by an Ad Hoc Group chaired by a representative of the Secretary of Commerce and should be submitted to the President's Assistant for National Security Affairs by March 9. (Ibid.)

A copy of Kissinger's February 27 memorandum is attached to the following February 27 typewritten note from Executive Secretary Theodore Eliot to Secretary of State Rogers, which reads: "You will note that the attached memorandum from Henry assigns action on an important foreign economic policy matter to a working group headed by the Commerce Department and would have the working group report to Henry. This is an example of how far we will have to go if we are to put coordinating responsibility for foreign economic policy back in your hands." (Ibid., RG 59, S/S Files: Lot 73 D 288, Box 839, NSC/MISC)

Washington, March 27, 1970.

SUBJECT
Removal of Validated Export License Controls over Shipments of Selected Commodities to Eastern European Countries (including the USSR)

In my memorandum to you of October 21, 1969, on the above subject,/2/ I recommended for immediate decontrol to Eastern Europe approximately 135 items on our Commodity Control List. As you know, we have been advised on several occasions by your office to coast before proceeding. Additional review has found 81 more items (Attachment A)/3/ that should be decontrolled. State, Defense, Interior, AEC, NASA, and CIA have participated in the reviews of these items, and all agree that they are of no strategic importance.

The last time that the Department of Commerce announced any decontrol actions to Eastern Europe was in May 1968. Since that time, the hearings on the Export Control Act and the language of the Export Administration Act of 1969 clearly indicate that Congress wants a reduction in our controls to Eastern Europe. In addition, there are numerous public indications that the business community is eagerly awaiting decontrol actions.

In response to your memorandum of February 27,/4/ I have submitted to you separately recommendations of the "Interagency Ad Hoc Group on Implementation of Export Administration Act of 1969,"/5/ which I chaired. There is unanimous interagency agreement that there would be no inconsistency between now decontrolling the 216 items referred to above and any future decisions made pursuant to above-mentioned broad policy review submitted March 19.

Accordingly, unless you have reservations, I propose to decontrol these 216 items March 31 so that such action can be included in the First Quarter 1970 Report on Export Control by the Secretary of Commerce to the President, the Senate, and the House of Representatives, as required under the Export Administration Act of 1969. By such action, the Administration would be demonstrating responsiveness without compromising national security.

Maurice H. Stans

Washington, April 9, 1970.

SUBJECT
Export Controls--Implementation of New Export Administration Act

Congress passed a new Export Administration Act late last year, which puts us under heavy pressure (a) to liberalize our present list of controlled items and (b) to set up liberalized guidelines for deciding license requests in the future./2/ Commerce has now submitted a paper, worked out with State and Defense, outlining your options for doing so (Tab A)./3/

The new Act makes two basic changes in the law:

1. The old Act required export denial if the items would contribute to either the "military potential" or "economic potential" of a Communist country. The new Act eliminates "economic potential" as a criterion. However, instead of just letting "military potential" stand, it requires denial for "national security" reasons.

The implication is that we should not deny on "economic potential" grounds, but neither should we deny solely on "military potential" grounds. It is thus up to us to interpret where to draw the line in between, and this is a major issue to be decided. Defense and Commerce want to control exports which contribute to "military-supporting industrial capabilities", while State would limit controls to items which contribute "to the development, production or use of military hardware."

2. The old Act made no reference to "consideration of foreign availability" as a criterion for determining our export controls. The new Act puts heavy emphasis on our permitting the export of items which are available in other non-Communist countries, and requires a report to Congress on any decisions to stop such items. Commerce wants to honor this mandate, while Defense argues against doing so as a general rule.

Our controls would be limited to items contributing directly to Communist military potential. We would decontrol some items not directly related to military hardware, even when their lack of availability elsewhere makes our controls effective.

State favors this option as an opportunity to increase trade, to reduce frictions with our allies and to avoid Congressional and Public charges of inadequate liberalization under the Act.

This option would maintain our controls on items where we could effectively deny additions to Communist industrial power. It would not be limited to directly military items. It would decontrol items available from other non-Communist countries, however, and would thus remove certain highly visible U.S. goods from the current lists.

Commerce favors this option.

This option would be the closest to our current controls. It would continue to control items well beyond those contributing directly to Communist "military potential", and would not permit exports simply because the items were available in other non-Communist countries. (Even it would mean immediate decontrol of 216 items no longer considered strategic by any agency, with more later as the lists are reviewed.)

Defense supports this option on the grounds that our general relations with the Communist countries justify no more open policy. They believe that it is consistent with the new Act. State maintains that it would be contrary to the provisions and intent of the new Act. At a minimum, it would clearly frustrate the expectations of some Congressmen and the business community that the new Act would result in broad liberalization.

As a result of the new Act, there is a widespread expectation of some liberalization of our export controls, and your decisions will be judged against those expectations--not against our present control lists.

Option 1 would probably be interpreted as a fairly liberal implementation of the Act. Option 3 would be regarded as more restrictive than called for by the Act, because it would restrict (a) non-military items (b) available from other countries. Option 2 would be most in line with expectations and represent the most neutral possible foreign policy signal.

That you approve Option 2, as recommended by Commerce that our control lists for the Soviet Union and Eastern Europe henceforth comprise: (a) COCOM items; (b) items which contribute significantly to their development, production, or use of military hardware regardless of foreign availability; (c) material contributing to their military-supporting industrial capability, when such material is not otherwise readily available. (This would mean immediate decontrol of 216 items deemed non-strategic by all agencies, which however would also be decontrolled under any other option.) William Timmons concurs.

Approve/4/

Disapprove, prefer harder Option 3 as proposed by Defense: in addition, control items contributing significantly to the military-supporting industrial capability of the USSR and Eastern Europe regardless of foreign availability

Disapprove, prefer softer Option 1 as proposed by State: limit the control lists to COCOM items plus military hardware regardless of foreign availability

Washington, April 23, 1970.

MEMORANDUM FOR
The Secretary of State
The Secretary of Defense
The Secretary of Commerce

SUBJECT
Export Controls

The President has made the following decisions on this subject on the basis of the several memoranda recently submitted by the Secretary of Commerce:/2/

1. The list of items and data subject to control for export to the USSR and the Communist countries of Eastern Europe should henceforth be limited to:

a. COCOM items

b. Those non-COCOM commodities and technical data, which, in the judgment of the U.S., could contribute significantly to the development, production, or use of military hardware, or to the military-supporting industrial capability of the USSR and the countries of Eastern Europe, to the detriment of our national security, regardless of foreign availability./3/

2. Decisions on specific cases should be made as recommended in Section H of the paper prepared by the Interagency Ad Hoc Group on Implementation of the Export Administration Act of 1969, taking into account that Option D was chosen./4/ This would permit denial in exceptional situations of items which would contribute significantly to the military-supporting industrial capability of the USSR and Eastern Europe, notwithstanding foreign availability.

3. Decisions on specific cases should take account of over-all U.S. policy toward the specific country for which the export is destined. At present, this would mean, for example, more liberal treatment for Romania than for other Eastern European states./5/

4. Validated export license controls should be removed on the 216 selected commodities to Eastern European countries including the USSR) which all agencies agree fall outside the definition of paragraph 1./6/

5. The proposed 271 commodity entries should be removed from the list for control to Romania.

6. The special controls on the export of 261 items to East Germany should be retained./7/ However, all new decontrol actions, including that of paragraph 4, should apply to East Germany as well as to all other Eastern European countries.

Henry A. Kissinger

Washington, August 20, 1970.

SUBJECT
Export Controls: Refinery Technology for Romania and Poland

The Acting Secretary of Commerce has requested permission to issue export licenses for the sale of petroleum refining technology and engineering services to Romania and Poland (Tab A)./2/ State and Dr. DuBridge support his proposal. Defense and Interior oppose.

The Romanians want a $6 million hydrocracking plant with a capacity of 33,000 barrels per day. We have approved sales of refinery technology to Romania since 1965.

State and Commerce urge approval because:

--After your trip, we are obliged to show special economic treatment for Romania./3/

--The new plant will not increase Romania's jet fuel capacity by any significant amount, and will therefore not be detrimental to our national security. Dr. DuBridge agrees.

Defense and Interior urge denial because:

--The Romanians could produce the products they wish with more conventional and less expensive equipment.

--The hydrocracker would allow them to make a fast conversion to jet fuel production in case of a war.

--There is no overriding foreign policy reason for approval of the licenses.

Poland wants a modern catalytic cracker, worth $8 million and similar to equipment which we sold Romania in 1965.

Commerce and State again urge approval:

--Despite its fall from the high levels of 1956 liberalization, Poland is still more open in many respects than the other countries of Eastern Europe.

--If Poland does not use our technology, she will erect the same refining capacity with less efficient Russian technology.

Interior and Defense urge denial for the following reasons:

--Neither Poland nor the USSR can now duplicate our catalytic cracking process, which is very efficient.

--The equipment could turn out products useful to the Communists in case of war.

In the case of Romania, whatever minimal strategic costs might exist seem clearly outweighed by your commitment to economic cooperation. This case is particularly important, since we have so far not been able to do much about implementing the commitment. Denial would set back our Romanian effort significantly.

In the Polish case, the national security aspects are not sufficient to justify a refusal. Our denial would not prohibit Poland from constructing equivalent capacity to turn out precisely the same products; our technology merely allows them to be more efficient. The Poles claim that the USSR is pressing to have Poland buy Soviet rather than U.S. equipment.

The key is the signaling effect. The Poles have made strong pleas for approval, describing the project as an important test case in our relations. It is clear that our decision on the license will be a major signal to them on two levels: (a) U.S. interest in participating in Poland's new industrialization plans, and (b) our attitude toward overall U.S.-Polish relations. Approval of the license would give a positive signal on both counts. Refusal of the license would be negative on both, particularly if coupled with approval for Romania. Deferral of the decision would be a middle course, which would be read as negative on (a) but leaving (b) essentially open.

As long as we base our relations with Poland largely on its attitude toward Vietnam, which has not changed, I do not believe that approval is justified. They could read approval as a relaxation of our concern about their attitude on Vietnam. At the same time, our relations do not require a flat denial. I would therefore prefer to defer the decision, although in fact the Poles have informed the applicant that unless we approve by August 31 they will seek the equipment elsewhere.

Bill Timmons recommends that, from a Congressional standpoint, both transactions would raise questions and that neither should be approved before the November elections. Timmons believes, however, that there would be less opposition to the Romanian than to the Polish sale. (Delaying our decisions beyond the election is not an option, because both countries have informed us that they must proceed on their refinery projects--soon whether or not with U.S. equipment.) Peter Flanigan concurs in my recommendations.

1. That you approve the application for export of technology and engineering services for the construction of a hydrocracking plant in Romania (endorsed by State, Commerce, and Dr. DuBridge--opposed by Defense, Interior and Bill Timmons).

Approve/4/

Disapprove, prefer to deny the application

2. That you defer a decision on the application for export of technology and engineering services for the construction of a catalytic cracking plant in Poland (thus satisfying Defense, Interior, and Timmons--but not State, Commerce, and Dr. DuBridge, who support approval now).

Approve/5/

Disapprove, prefer to deny application altogether

Disapprove, prefer to approve application

Washington, November 19, 1970.

SUBJECT
Expansion of U.S. Commercial Relations with East Europe (Including USSR)

I am concerned over the rapid growth of Western Europe's share of the Eastern Europe market. Japan, starting later, is also increasing its exports rapidly and is already ahead of the United States. Eastern Europe imported $8.5 billion from the free world in 1969. Western Europe's share was $5.8 billion and Japan's about $400 million. By contrast, U.S. exports were less than $250 million.

This is the case despite the fact that international trade and commercial relations are usually more stable and enduring than international political relations. It should be possible for us to widen our business relationships with Eastern Europe, despite current difficulties in the broader political sphere, and by doing so strengthen the foundation for progress in political relationships. The token level of our current trade with Eastern Europe convinces me that our trade program with Eastern Europe is outdated and not serving either our political or our economic interests.

An increase in our business with Eastern Europe would directly benefit our economy. Attachment I, which describes our present limitations on the shipment of automotive production equipment to the Soviet Union, illustrates the kind of benefit U.S. industry could gain if it were given access to the Soviet market. Eastern Europe's markets are no longer negligible, even by U.S. trade standards, and promise to grow steadily. They have a strong appetite for American industrial equipment and technology. But the Western European and Japanese penetration threaten to impose a pattern which may be insurmountable in the absence of present U.S. action. I believe that the United States should now seek a more realistic share of these markets, consistent, of course, with our national security and foreign policy interests.

We accordingly propose to increase our recently initiated drive to enlarge peaceful U.S. trade with East Europe and to encourage the development of joint venture arrangements between American and Eastern European enterprises, along the lines developed by the Scott mission last summer. In the process we will continue our efforts to interest American firms in more active exploration of regional markets, and to encourage the vigorous pursuit of two-way trade opportunities by American exporters and importers. We will simultaneously continue to encourage those countries to identify areas in which they would welcome investment by American manufacturers, and draw these areas to the attention of American firms which might be interested in exploring them. We also plan to raise the number of specialized missions of U.S. industry leaders to develop on-the-spot contacts with potential customers and co-venturers in the region. In cooperation with the U.S. Information Agency, we hope substantially to increase exhibits of U.S. export products through trade fairs in the region. Finally, we intend to work with the State Department to increase the availability of commercial services to U.S. businessmen at our Foreign Service posts in the region.

To date these efforts have related primarily to the five countries Mr. Harold B. Scott, Deputy Assistant Secretary of Commerce, visited (Poland, Romania, Czechoslovakia, Hungary, and Bulgaria). But the Soviet Union, which the group did not visit, represents a market larger than those five combined. For this reason, I believe that we should soon consider sending a group like the Scott mission to the Soviet Union to explore in a similar fashion the opportunities for increased two-way trade and the possible receptivity of the Soviet government to an increase in "joint venture" relationships with American firms. An example of the kind of opportunity now emerging is the reported interest of the U.S.S.R. in forming an international consortium to exploit the very large copper deposits in Siberia. This would reportedly involve heavy purchases of mining and transport equipment, to be offset by long-term contracts for marketing the product.

In the export control field, where the Administration has wide freedom of action under present legislation, I believe we should try to put U.S. suppliers on as nearly equal a footing with their Western European and Japanese competitors as security considerations permit. As you know, Congress, in the Export Administration Act of 1969, enjoined the Administration to review and liberalize the list of controlled items, and we are making significant progress in this effort. With regard to our licensing decisions, we are for the most part giving full recognition to the availability abroad of comparable commodities, as the Act calls upon us to do. I believe that we should keep to an absolute minimum the instances in which licenses are denied even though the denial is ineffective by reason of foreign availability. Such denials frequently serve only to switch the order to other countries, or prevent the order coming to the United States. For example, after Camco of Houston was denied a license to supply $3 million of petroleum equipment to a Siberian field, the firm manufactured and shipped the equipment from the United Kingdom. Likewise, some American firms whose foreign subsidiaries hold or expect orders from Eastern Europe would like to transfer such business to their U.S. factories if a U.S. export license is granted. An illustrative case is La Salle Italia which will furnish $30.4 million in automotive equipment to the U.S.S.R. from its U.S. sources instead of from Italy, provided the U.S. issues an export license.

In addition to these vigorous trade promotion and export decontrol measures, for which the Administration already has full authority, I feel I should re-emphasize the recommendations in my September 26 memorandum to you./2/ These urged early legislative action to authorize you to extend most-favored-nation tariff treatment to U.S. imports from, and Export-Import Bank financial support to U.S. exports to, Eastern Europe. These measures would enable you to remove two major obstacles still impeding expanded economic relationships. Any major long-term growth in our trade with Eastern Europe depends upon their removal, notwithstanding the importance of the other efforts I have listed. Because of the political and economic importance of this matter, I urge your favorable consideration of these recommendations.

Maurice H. Stans/3/

SUBJECT
Impact of U.S. Export Controls on Shipments of Automotive Production Equipment for Trucks to the U.S.S.R.

The Department of Commerce is not authorized to issue export licenses for shipments of automotive production equipment for trucks to Soviet Russia. Denial of such licenses is not an effective instrument of policy, however, since the same equipment if denied ex U.S., will invariably be produced by the U.S. applicant in foreign countries which do allow such exports. Even if this should not occur, there are alternative sources of supply available to the Soviets from foreign competitors of the U.S. Thus, the Department's inability to issue these export licenses results in a trade balance reduced by millions of dollars and the loss of hundreds of jobs for Americans, while the purpose of the denial is thwarted.

The Department is currently aware of Soviet orders and negotiations for orders of American automotive production equipment and technology for use in truck building facilities valued at $81.7 million. In one case, follow-on orders could run as high as $75 million by 1975. Another firm is responding to Soviet inquiries for technical data valued at $15 million. The potential follow-on sales which could be generated by this sale are significantly higher.

If the Department is unable to issue licenses for these potential exports, the U.S. firms involved have indicated their intention to fill these orders through production facilities abroad.

In addition to the loss of the balance of payments impact of these sales, the United States stands to lose the jobs which these orders would create. In view of current domestic economic conditions, the U.S. firms involved would naturally prefer to use their domestic production facilities to produce for the Soviet market, but under existing policies are unable to do so. As a result, about 650 men have already been laid off, and the number is likely to grow to 1,150 by March.

The restriction on the following U.S. exports of production equipment for trucks to the U.S.S.R. should be eliminated:

Cross Company of Detroit--Transfer lines for truck wheel hub and brake drum manufacture, $12 million

Gleason Works of Rochester--Gearmaking equipment, $24 million

LaSalle Company of Detroit--Piston manufacturing transfer line, $30.7 million

Swindell-Dressler--Foundry technology, $15 million/4/

Washington, November 21, 1970.

SUBJECT
Improving Trade Relations with Communist Countries

In response to a request by your staff, I am submitting my views on the proposals by Secretaries Rogers and Stans to liberalize East-West trade./2/

The issue of whether to propose legislation authorizing the President to extend most-favored-nation treatment and Export-Import Bank credits and guarantees to individual Communist countries has already arisen in connection with NSDM 15 (May 28, 1969),/3/ the Export Expansion Act of 1969, and the Export Administration Act of 1970 [1969].

In NSDM 15 you decided that "present legislation provides an adequate basis for US trade policy toward the USSR and the Communist countries of Eastern Europe at this time, in view of the status of our overall relations with them," and that "we should be prepared to move generously to liberalize our trade policy toward the Soviet Union and other Eastern European countries whenever there is sufficient improvement in our overall relations with them."

I recognize that this important issue should be reexamined periodically. However, the first question to reexamine is whether there has been a real improvement in our overall relations with the Soviet Union and specific countries in Eastern Europe.

Similarly, the concept of "equivalent benefits" to the US is the key to defining overall US objectives. Equivalent benefits need to be related to our political and national security objectives and to Soviet and Eastern European moves to liberalize their trade arrangements with us, if authority is to be requested from Congress to liberalize our trade arrangements with them.

Again, to achieve "equivalent benefits" and to convince Congress that a request for discretionary authority should be granted, we need a plan that states explicitly what is to be expected of the Soviet Union and specific countries in Eastern Europe. This plan should be in the form of potential negotiating packages that link our, and their, interests and objectives with practical moves on both sides.

The preconditions of negotiating should include some non-economic quid pro quos, such as a move by the Soviet Union to urge Hanoi to move toward release of US prisoners of war. The trade package itself should require the Soviet Union and Eastern Europe to reduce such barriers to East-West trade as import quotas, bilateral trading arrangements, unrealistic exchange rates, inconvertible currencies, and preferential pricing.

The Communist countries of Eastern Europe should move toward membership in GATT and the IMF, as some of them are already doing. They should be required to accord nondiscriminatory treatment to our exporters and the same exchange rates that we provide to Communist countries.

Above all, we should take no actions that will strengthen the bilateral state-trading system of Communist countries. Rather, we should use the opportunity to negotiate new kinds of multilateral, more direct, and flexible trading arrangements acceptable to both sides.

A summary of the rationale for my views on the potential effect of the State and Commerce proposals on total exports and exports of strategic commodities and technology is attached (Tab A).

I recommend that:

a. In accord with NSDM 15, we first determine those cases in which there is sufficient improvement in our overall relations to warrant further liberalizations of our trade policy.

b. We take no steps to request discretionary authority from Congress until we have developed a broader plan and specific negotiating packages that spell out how we propose to use it.

Mel Laird

IMPROVING TRADE RELATIONS WITH
COMMUNIST COUNTRIES

It is an illusion to believe that extending most-favored-nation (MFN) tariff treatment and Export-Import Bank credits and guarantees to individual Communist countries would lead to greatly expanded trade with the US, even if potential "equivalent benefits" are extended to the US. The Communist economies, as presently organized, simply do not produce the types of commodities that will be bought in large quantity in the US.

"Equivalent benefits" to the US would include a reduction of Communist barriers to trade with the US as well as nondiscriminatory treatment. They would also include a substantial modification of the rigid bilateral state-trading arrangements and convertibility of Communist currencies. The great problem is to identify specific equivalent benefits to the US and to specify what kind of new trading arrangements might be acceptable to both sides. Discrimination is the very heart of Communist trading practice, and separate terms are set not only for different countries but also for each individual transaction.

An overall plan and potential negotiating packages need to be developed before discretionary authority is sought from Congress. Such a plan does not yet exist, even in the case of Romania. A request for broad authority would make sense and have a better chance for a favorable response in Congress if the aims and conditions under which it will be exercised were spelled out in advance.

There are special problems involved in removing restrictions on Export-Import Bank financing. There is a firmly established policy, enacted into various laws, of prohibiting the US Government from lending or guaranteeing loans to countries with a record of (a) default of debts, (b) confiscation of property without due compensation, and (c) provision of supplies to countries engaged in hostilities with the US. Before this policy is altered, the grounds for doing so should be clearly established.

US general export policy toward Communist countries is to restrict trade in those goods and technologies that would significantly contribute to their military capabilities, while allowing maximum freedom of trade in peaceful goods. This policy is difficult to implement in the case of goods that can be used for both purposes.

The problem in expanding trade is to find an appropriate balance of diplomatic, military, and economic interests and objectives.

The quantum of exports to Communist countries (including Yugoslavia) by both the US and its allies has been rising, in part in response to Western economic growth. Japan and Western Europe are much more heavily dependent on external trade than the US, and Communist countries are their natural trading partners in many areas of commerce.

As the volume of trade has expanded, controls over the export of technology have been substantially relaxed. As a consequence, the level of advanced Western technology made available to Communist countries has risen significantly.

Communist countries can find much to buy in the US under the modest trade controls now in force. Their problem is to find things to sell us in exchange. The only way to achieve a rapid and sizable expansion of US exports is for us to sell on credit. In the absence of fundamental economic reforms in hostile Communist countries, we have no reason to believe that such a temporary spurt in US exports financed by loans would develop into long-term growth in genuine two-way trade.

If such a policy were applied to Communist countries whose relations with us have shown few signs of improvement, the benefit would seem to accrue overwhelmingly to them. By financing some of their needed imports, we would help the present governments cope with pressing domestic economic problems and close more quickly the technological gap with the US. We could gain only if improved economic conditions in those countries caused them to improve their political relations with us.

I find little in history to support the view that short-term relief of internal economic problems will lead hostile Communist powers to modify their international relations in our favor. On the contrary, it seems to me that relaxation of East-West tensions depends on liberalization of the political and economic orders of those hard-core Communist powers. Such liberalization is more likely to come from the existence of internal economic pressures than from their elimination.

Whether or not additional credits are used to expand US trade with the Communist countries, the minimum requirement for national security is that effective strategic trade controls must continue to be maintained. Similarly, any request for discretionary authority from Congress to extend credits to Communist countries should identify the "equivalent benefits" to be achieved by the US.

Washington, February 23, 1971.

SUBJECT
Steps Towards Augmentation of Travel and Trade between the People's Republic of China and the United States

You have asked for recommendations for steps to carry out your policy of increasing personal and commercial contacts between the People's Republic of China (PRC) and the United States as a step toward improvement of relations between our two governments. After a review based on NSDM 17/2/ and the current studies under way in NSSM 106,/3/ the Under Secretaries Committee/4/ recommends two steps to facilitate personal contacts by relaxing restrictions on travel by American and PRC citizens, as well as steps in seven areas which would provide the basis for development of more normal commercial relations. All of the recommended steps can be implemented without new legislation.

I enclose a study containing a full review of the various issues and action possibilities considered by the Committee./5/ The following is a summary of our action recommendations, with appropriate page references to the full study.

In the field of travel, the Committee recommends removal of all passport restrictions on travel to the PRC when they expire on March 15 (Travel, Option B, page 4). The Department of Justice opposes this proposal [5 lines of source text not declassified] (see Annex)./6/ The remainder of the Committee believe the potential gains outweigh the risks.

The Secretary of State, under whose authority the passport regulations are issued, concurs in recommending that controls on the use of passports for travel to the PRC be dropped on March 15, while continuing them on travel to North Viet-Nam, North Korea, and Cuba. This would eliminate the last formal passport barrier on our part to travel by American citizens to the PRC. Because of court decisions, and in keeping with our policy since 1969 of granting exceptions to the passport restrictions on travel to the PRC for broad categories of travelers, the barrier has in any event had little practical effect./7/

Additionally, it appears to us desirable to make a public statement offering to expedite visas for groups of visitors from the People's Republic of China to the U.S. (Travel, Step 2, page 6), in order to establish our willingness to facilitate on a reciprocal basis a flow of persons between the two countries. Justice opposes [1-1/2 lines of source text not declassified] (see Annex).

The United States relaxed some of its controls affecting trade between the PRC and third countries in December 1969, in April 1970, and again in August l970 by a minor move on bunkering non-communist ships. The Committee believes that we should now commence relaxation of our controls on direct Sino-US trade, eventually to accord the PRC approximate parity with the Soviet Union. The closer our treatment of trade with the PRC approaches that applied to the Soviet Union, the more seriously our assertions of willingness to improve relations with the PRC will be believed, and the more likely it becomes that Peking will eventually respond favorably to our initiatives.

The trade steps could be accomplished separately or in a single package. The single package would probably have the most favorable effect on the PRC, while gradualism runs a greater risk of inviting scornful responses from Peking.

However, implementing these measures on a steady phased basis, in an undramatic fashion, would minimize an adverse effect on Taipei in general and on our limited ability to influence the GRC on the sensitive Chirep issue in particular. In fact a first step in this process, if not too dramatic, might well be helpful in making clear to the GRC that while we are anxious to help preserve its position in the UN, our purpose of seeking improved relations with the mainland is still firm and something which it would do well to take seriously. The timing of steps beyond the initial one would depend on a number of considerations, including the climate of US-GRC relations and the evolution of our Chirep position. For these reasons the Committee makes no recommendations on precise timing after the first step.

To sum up, therefore, the Committee recommends approval of all the steps described below, in deliberately spaced stages, and in an undramatic fashion, starting in the near future with authorization of direct export trade (Timing, Option A, page 33). The Committee is prepared to supervise the implementation of your decision with the aim of completing the program at or near the end of 1971.

The Committee's objective is ultimately to place exports to the PRC on the same footing as the Soviet Union, but the Committee believes it is necessary to review experience with a more restricted level of exports before moving all the way to that goal. Specifically, therefore, the Committee recommends at this time the authorization of exports to the PRC under general license of all commodities currently under general license to the USSR except those which, after item-by-item interagency review, are deemed to be of strategic significance to the PRC (Exports, Option B, page 16).

The Committee recommends that later this year direct commercial imports from the PRC be authorized on essentially the same basis as the Soviet Union (Imports, Option A, page 20). It is important that this move be correlated with exports, preferably as one of the first steps subsequent to the initial export step.

A gesture in the trade field which would enhance the political impact of relaxation of export and import controls would be a decision to permit the export to China of used American passenger aircraft not under COCOM restrictions (i.e. of a type which has been operating in normal civil use for more than one year), providing certain strategic equipment on board the aircraft is first removed. We have in the past approved the sale of British-made aircraft containing American-made components, after strategic equipment was removed.

A large number of older American aircraft are owned by airlines which would like to sell them to get capital to buy new American aircraft--which would be much welcomed by our industry. A case in point is a proposal by Pakistan International Airlines to sell to the PRC three of its used Boeing 720B passenger aircraft, after certain strategic equipment aboard them is removed (Aircraft Sales, page 23). If the PRC makes a firm offer to PIA, we recommend approval. We would accord the same treatment on a case-by-case basis to proposed transactions concerning similar used passenger aircraft of American manufacture, after certain strategic equipment is removed.

The Committee also recommends relaxation later this year of our currency controls to permit Chinese use of dollars (Currency Controls, Option A, page 24). This would be important in conjunction with a decision to permit direct trade, especially imports, but could also be put into effect independently.

An irritation to the PRC and to American oil companies could be removed by changing bunkering controls (including those on petroleum products of US origin) to permit fueling Chinese-owned or chartered carriers--surface as well as air--(except those bound to or from North Viet-Nam, North Korea or Cuba) as well as non-communist and Eastern European carriers bound to or from China (Bunkering, page 26). The Committee recommends this relaxation of bunkering controls before the end of this year. (This relaxation would not affect our existing controls on entry of PRC carriers into US ports.)

A step in the trade field which would integrate closely with efforts to spur travel between the U.S. and the PRC would be to propose an exchange of trade delegations if circumstances warrant (e.g. a positive PRC response to our trade relaxation emerges) (Trade delegations, page 27). The Committee recommends that this step be authorized as a means of getting the proposal on record with the PRC. (Justice opposes; see Annex).

Finally, the Committee recommends adoption of two steps to permit (i) U.S. vessels to carry Chinese cargoes between non-Chinese ports and (ii) U.S.-owned foreign flag vessels to call at Chinese ports (Shipping, Options B and C, pages 30 and 31). We make no recommendation on amending current regulations to permit U.S. vessels and aircraft to call at Chinese ports at this time.

We note, however, that a decision in the export field to permit grain sales to the PRC--a major importer of grain--would raise the question of whether to allow more favorable treatment of the PRC than the USSR by not requiring that 50 percent be shipped in American bottoms. (The Department of Commerce expects shortly to refer a case to the White House involving grain sales to the USSR which is stymied because of the cost of shipping 50 percent in American bottoms.) If we do extend the 50 percent requirement to apply to the PRC as well, we might defeat the purpose of permitting sales of grain to the PRC because of high shipping costs. Moreover, regulations would have to be amended to permit U.S. ships to call at PRC ports.

We recommend these steps, not in the expectation of any substantial immediate increases in travel or trade, but because their adoption would be designed to show the genuineness of our desire to improve relations and eventually to develop significant trade.

John N. Irwin II

Washington, February 26, 1971.

SUBJECT
Stans' Proposals for (a) Another Eastern European Trade Mission, and (b) His Own Trip to Europe and the Near East

Secretary Stans has proposed that his Deputy Assistant Secretary for International Business, Harold B. Scott, lead a U.S. trade and investment mission to Bulgaria, Czechoslovakia, Hungary, Poland and Rumania in June 1971. (Tab B)./2/ The mission would consist mainly of senior represent-atives of U.S. firms. Stans believes that the mission is justified in order to demonstrate continued U.S. government interest in expanding trade to Eastern Europe. He says that the State Department has offered planning and staffing support.

Scott led a similar mission to Eastern Europe last June,/3/ and he has strongly supported increased trade with the Communist European countries in a number of public statements. In fact, with the full backing of Stans, he has tread on the edge of pushing a policy line contrary to the President's own decisions. For example, on February 4 he told a Boston business group that Commerce and State had suggested that the President seek Most-Favored-Nation treatment for Communist products; this could have been the source of Senator Brooke's call to you on the subject./4/ Scott also told the group that the President's decision might be revealed in the State of the World report, for which there was of course absolutely no basis in fact. And he actively agitated for opposition to the President's policy by saying that "political awareness of the tariff problem can be heightened by agitation by the business community for even broader trade . . ."

Stans himself has often given the same impression. In recent testimony before the Joint Economic Committee, the Journal of Commerce reported that he said that the only area in the world with potential for expanded U.S. exports was Eastern Europe--the obvious implication of which was that the business community should lobby for USG help to do so.

The President told Secretary Stans orally sometime back that he would not stand in the way of increased trade with Eastern Europe--apart from the USSR. However, I do not see how our present policy could condone a second trade mission within a year, with its strong implication that we favor expanded East-West trade, particularly in view of the President's recent decision to defer any Administration initiatives in this area. (I held Stans' memo until the President made this decision.)/5/

Secretary Stans has not specifically asked your permission for Scott to go, but Commerce will undoubtedly follow up to find out if the trade mission can proceed. You could of course let it pass or you could object in the name of the President's policy. An objection would make it clearer to Stans that Commerce should be more restrained in its East-West trade statement.

Stans' Trip to Europe and the Near East

Secretary Stans has also (Tab C)/6/ asked for comments on his own planned trip in April and May to Ireland, Spain, Greece, Romania, Iran and Turkey. The only problem is the reaction he can expect in Spain if the President decides to agree with Stans on the need to increase shoe duties in response to the Tariff Commission report./7/ Nevertheless, I see no reason to discourage his trip at this time.

That you sign the memorandum for Secretary Stans at Tab A,/8/ approving his trip in April and May but suggesting a delay before another trade mission to Eastern Europe (except of course to Romania and Yugoslavia).

Washington, February 26, 1971.

SUBJECT
USC Paper on China Trade and Travel

We have received word from Mr. Packard's staff at Defense that Mr. Packard has looked at the language of the Committee's recommendation on exports,/2/ and feels that he did not agree to identify parity with the Soviet Union even as a goal.

All of the State representatives present believe Mr. Packard stated no objection to the goal, but merely to the idea that we should seek approval at this time to move all the way to the goal. The NSC Staff representatives have informally confirmed our understanding of the sense of the meeting on this point.

I recommend that you call Mr. Packard to urge that the present language be left intact. The main advantage of the present formulation is that it permits steady progress toward the goal of parity without a series of new decisions by the President. The next decision by the President would not be required until the Committee reaches an impasse over whether the political gain of parity with the Soviets outweighs strategic considerations with respect to the small number of general license items still treated differently for the two countries.

If Mr. Packard cannot be persuaded on this point, which we have not been able to resolve with staff-level officials at Defense, you may wish to suggest either that he register his dissent directly with the White House, or that his view be noted in a follow-on memorandum from you as chairman of the Committee. I would be glad to give you any additional oral briefing you may wish before calling Mr. Packard.

The language to which Defense objects is underlined on page 4 of the attached copy of the USC study./3/

Washington, March 1, 1971.

TO
The Secretary of State
The Secretary of Defense
The Secretary of Commerce

SUBJECT
East-West Trade

In response to the recent memoranda from the Secretaries of State, Defense and Commerce on possible measures to increase U.S. trade with Eastern Europe and the Soviet Union,/2/ the President has decided to defer any decision on new Administration initiatives to liberalize U.S. trade policy toward the Communist countries in regard to most-favored-nation tariff treatment or Export-Import Bank transactions. The President has also decided, however, that Congressional initiatives in these areas should be opposed only in a very low key way.

Henry A. Kissinger

Washington, March 1, 1971.

Dear Henry:

I regret that I must inform you that the Memorandum and Report which the President received from the Under Secretary of State on USM-91 (Travel and Trade with Communist China)/2/ was in error. Specifically, the Memorandum states that the Committee agreed that "The Committee's objective is ultimately to place exports to the PRC on the same footing as the Soviet Union, but the Committee believes it is necessary to review experience with a more restricted level of exports before moving all the way to that goal." The Department of Defense specifically did not agree to this. In fact, it is the stated goal of Option A which the Committee considered and rejected.

It is the Defense Department's position that the only change in our export policy should be to place individual items under general license for the PRC after interagency review to determine if they are of strategic significance to the PRC but that there should remain a significant differential in the levels of control over strategic items for PRC and the USSR because of their different levels of industrial and technological development. This step is in itself a large and important one. After a year or two of experience, the policy should then be reviewed to determine whether the US national interest could be served by taking further steps to liberalize our export policy toward the PRC. Perhaps at that time we might be in a position to decide that our ultimate goal should be to place these two communist countries on the same footing. I was under the impression that the Commerce and Justice Department's representatives at the USC meeting of 11 February 1971 took the same position.

Sincerely,

Dave

Washington, March 13, 1971.

MEMORANDUM FOR
The Secretary of State
The Secretary of the Treasury
The Secretary of Agriculture
The Secretary of Commerce
The Secretary of Labor
The Director, Office of Management and Budget
The Chairman, Council of Economic Advisers
The Assistant to the President for National Security Affairs
The Assistant to the President for Domestic Affairs
The Special Representative for Trade Negotiations

SUBJECT
East-West Trade

National Security Decision Memorandum 99/2/ recorded the President's decision to take no policy initiatives with respect to East-West trade at this time. At the present time, there are also major questions about the magnitude and availability of such trade opportunities.

Thus, the President believes it would be useful to have a more definitive understanding of the size and nature of trade and investment opportunities in the USSR and Eastern European countries and of any special commercial problems (e.g. financing) should circumstances arise in which a change in policy might be wise.

I am, therefore, asking the Secretary of Commerce to designate a senior official to chair an inter-departmental working group to prepare a comprehensive factual and estimative paper on this subject by June 15, 1971. Defense should be invited to participate and perhaps, as well, such other concerned institutions as the Export-Import Bank and the Federal Reserve Board. Mr. Deane R. Hinton will be my representative in the working group.

The study should, as a minimum:

(1) Describe and analyze the significance of existing levels, product categories, and patterns of trade and investment between Eastern European countries, on the one hand, and the US and our major free world competitors, on the other.

(2) Set forth the facts, not only as concerns the US but also, where appropriate, as far as our major allies and international agreements or understandings are involved, concerning:

(a) export controls on goods and technology;

(b) financial limitations on both trade and investment;

(c) import restrictions--both tariffs and NTB's;

(d) shipping limitations; and

(e) attitudinal limitations on the part of business, labor, and government.

(3) Estimate the potential magnitude of US trade and investment in the USSR and the various Eastern European countries five years from now, assuming expansion-oriented US trade, credit, and investment policies.

Peter G. Peterson

Washington, March 15, 1971.

SUBJECT
Proposed Visit and Trade Mission

I would like to confirm our earlier telephone conversation in regard to your two recent memoranda on official travel./2/ The President fully approves your trip to Europe and the Near East during the period April 17 through May 3, 1971. He is particularly pleased at your intention to include Romania in your itinerary.

There is doubt, however, about the need for a second trade and investment mission to Eastern Europe, which you raised in your earlier memorandum to me. I do not believe that the status of our relations with these countries, apart from Romania and Yugoslavia of course, justifies a second business mission within a year led by a Deputy-Assistant Secretary. It would be more consonant with the President's policy, as just conveyed in NSDM 99,/3/ to delay for some time before sending another high-level official group to that area.

Henry A. Kissinger

Washington, April 13, 1971.

TO
The Secretary of State
The Secretary of Defense
The Director of Central Intelligence
The Attorney General

SUBJECT
Steps Towards Augmentation of Travel and Trade Between the People's Republic of China and the United States

The President has reviewed the recommendations forwarded by the Under Secretaries Committee on steps to increase personal and commercial contacts between the People's Republic of China and the United States,/2/ and has directed that the following moves be undertaken:

--Issuance of a public statement offering to expedite visas for groups of visitors from the People's Republic of China to the U.S.

--Relaxation of currency control to permit Chinese use of dollars.

--Ending restrictions on American oil companies providing bunkers except on Chinese owned or chartered carriers bound to or from North Vietnam, North Korea, or Cuba. This relaxation covers ships as well as planes, but would not affect our existing controls on entry to PRC carriers into U.S. ports.

--Granting permission to U.S. vessels to carry Chinese cargoes between non-Chinese ports, and for U.S.-owned foreign flag vessels to call at Chinese ports.

--Commencement of a relaxation of controls on direct trade between the U.S. and China by placing individual items under general license for direct export to the PRC after item-by-item interagency review to determine if they are of strategic significance. The Under Secretaries Committee is to be charged with the responsibility of determining which items should be placed on general license, and should forward a report within 30 days requesting approval of these determinations. Upon the commencement of these limited direct exports, direct imports from China of a similar and correlated nature will be allowed.

The President has also directed that the Under Secretaries Committee review and report to him after a period of four months the results of the steps taken. The report should include an assessment of the reactions to these steps by the PRC and the GRC. The President will then determine whether implementation of additional steps recommended by the Under Secretaries Committee may be warranted.

Henry A. Kissinger

Washington, April 27, 1971.

I note that the present line with regard to our China initiative is that trade with China should be on the same basis as trade with the Soviet Union and other Communist countries.

I realize this is our final objective.

The question is whether we should consider now the timing of such announcements and whether this might not be a good move to make at an earlier time than we had anticipated for reasons that are obvious.

Washington, May 13, 1971.

SUBJECT

Trade and Travel with the People's Republic of China

On April 13 you directed that a number of moves be taken to increase personal and commercial contacts between China and the United States./2/ I attach at Tab A this Committee's report of the actions taken to fulfill your instructions as well as certain proposals for your decision which will complete these first steps./3/

The following is a brief summary of both the major points of decision as well as the actions already taken by appropriate agencies.

As you requested, we have reviewed for strategic significance and prepared for your approval at Tab B a list of non-strategic items to be placed on general license for export to China. In carrying out your instructions, we have attempted to produce a meaningful list, both in trade and political terms. About 95% of the items available to the USSR under general license are on the recommended list for the PRC, and some of the remainder are still under review. Omissions include heavy construction equipment of possible military use, overly broad categories which might include items of strategic significance to the PRC, but not to the USSR, and some atomic energy-connected items.

There has been some, relatively minor, disagreement between agencies as to the completeness of this list. The Committee is satisfied, however, that the list at Tab B, with or without the two additions recommended by the Department of State but objected to by the Department of Defense and placed for your decision at the end of the list, will be received as a significant first step in opening trade with China.

We therefore recommend that you approve the list (Tab B) of non-strategic items to be placed on general license for export to China, indicating at Tab B your decision concerning the additional items proposed by the Department of State./4/

We, except for the Department of Defense, recommend that you approve inclusion of wheat, other grains and wheat flour in the general license list. While the Department of Agriculture, in particular, feels strongly that this recommendation should be adopted, the Departments of Labor and Commerce do not concur unqualifiedly in this recommendation. The arguments pro and con on this issue appear at pages 3 through 6 of the attached report together with a space for you to indicate your decision on page 6.

Once you have taken your decision we would plan to orchestrate appropriate agency and/or White House announcements in order to capitalize on and reinforce the thus far most favorable international and domestic reaction which your April 14 announcement has generated. For example, the Department of Commerce will make a public announcement in the Export Control Bulletin, and state that there will be a continuing interagency review of items to be placed under general license to the PRC, the additions to be published from time to time. In addition, agencies will operate under the assumption that if individual export licenses are requested for items not on general license to the PRC, such applications will be considered on their merits.

The Department of Defense believes that the entire list of eligible non-strategic items should not be announced on the general list at one time, but should be timed over a period of several months of 50, 25, and 25 percent of the items, contingent on PRC reactions.

The rest of this Committee does not agree with such a phasing of this step. Such an approach would be not only impractical and unrealistic, but quite out of keeping with your announced policy of measured but steady movement to open contacts with the PRC wherever possible.

You have stated that upon commencement of direct exports, direct imports from China would be allowed, of "a similar and correlated nature." In order to emphasize U.S. interest in real, two-way trade, the Committee recommends that you announce an appropriate import regime at the same time the export list is published, making clear, of course, that we are interested in a mutually beneficial trading relationship, one that avoids damage to domestic firms and workers in both countries.

We have carefully considered a large number of possible import control systems, given our concern that Chinese imports not damage in any way American manufactures, particularly in such sensitive commercial areas as textiles or shoes. After a study of such factors as historic and present Chinese trade patterns and already existing self-protection devices including non-Most-Favored-Nation treatment under the tariff, anti-dumping regulations, and the Long Term Cotton Textile Arrangement, we recommend that you approve the issuance of a general license authorizing all imports (not otherwise restricted by legislation) from the PRC, coupled with an announcement that import restrictions may be imposed in the future if trade developments so dictate (page 10 of the report).

The principal advantage of such a policy is that it would permit the maximum amount of trade development and would hopefully elicit the most positive political and commercial response from the PRC. We would, of course, keep a careful watch on imports and be prepared quickly to take remedial action to prevent damage to U.S. concerns. We have listed for your consideration two other options, more restricted in nature, at pages 10 and 11 of the report.

License all imports from the PRC under a general license subject to possible future dollar quota.

We have prepared regulations carrying out your instructions on the following three steps: 1) relaxation of dollar controls; 2) ending of bunkering restrictions; 3) transport of Chinese cargoes by U.S. carriers.

The new regulations on these topics were announced on May 7 and no further decisions from you are required on these points./5/

With respect to travel, we feel your public statement on April 14 that "the United States is prepared to expedite visas for visitors or groups of visitors from the PRC to the United States" requires no further supplemental action at this time./6/

The Committee will continue to coordinate implementation actions in this field and will, as you requested, provide you with an analysis of the results of these initial steps after a trial period of four months--that is, by mid-August 1971.

John N. Irwin II

In mid-May 1971 a Soviet trade delegation led by Deputy Minister of Foreign Trade Komarov visited the United States to meet with U.S. businessmen, members of Congress, and Nixon administration officials. The delegation met with Peter Peterson in New York on May 17 and again on May 19 in Washington. A memorandum of the May 17 meeting is attached to a May 19 memorandum from Peterson to Henry Kissinger regretting any problem he may have caused with the Russians over the trade issue. Peterson thought he had concluded with the Soviets on May 17, agreeing only to give their proposals further thought and discuss them in Washington. He had been surprised to learn that the delegation was on the way to his office on May 19 and apparently even more surprised when Kissinger called to inform him Dobrynin was coming. Peterson continued: "it is an enormous overstatement to say I 'invited' the Russian 'delegation'. Dobrynin's presence without any notice is further evidence that they are trying to manufacture something much larger out of this than anything I said." (National Archives, Nixon Presidential Materials, NSC Files, Agency Files, Box 218, CIEP)

According to Peterson's memorandum of the May 17 meeting, the Soviet delegation outlined the Soviet plans for the Kama River project, which would produce 600,000 trucks per year for use in agriculture and inter-city transport, not to enhance the military power of the Soviet Union. Mack Truck reportedly was interested in supplying equipment for the $1.3 billion project, $850-$900 million of which would go to purchase equipment. The Soviet Union appeared ready to make cash purchases. The Soviet delegation also outlined Soviet interest in purchasing up to $1 billion of equipment to produce non-strategic consumer goods, e.g., electric appliances, home air conditioners, coffee grinders, pencils, flatware, suitcases, etc., over a 2-3 year period. The latter apparently was a "sweetener" for the United States linked to the Kama River project, approval of which the Soviet negotiators regarded as a necessary demonstration of U.S. willingness to cooperate in the trade field.

During his first meeting with Ambassador Dobrynin in February 1969, President Nixon had told Dobrynin that matters of particular sensitivity should be taken up first with Kissinger. (The White House Years, page 141) Particularly after the May 20, 1971, announcement of a breakthrough in the SALT talks, trade issues were among the topics discussed in that channel during the latter part of 1971. Numerous memoranda from Kissinger to the President reporting on his meetings with Dobrynin are in the National Archives, Nixon Presidential Materials, NSC Files, President's Trip Files, Boxes 491 and 492, Dobrynin/HAK 1971. On May 28 Kissinger informed the President of a May 24 meeting with Dobrynin to inform the Ambassador of U.S. relaxation of certain trade restrictions: the President's decision to authorize the sale of a British computer for the

Serpukhov physics laboratory (see Documents 373 and 374), the Gleason Gear contract, and the export of some machine tools. Responding to Dobrynin's query about a decision on the more comprehensive Komarov request by the end of June, Kissinger replied that he would be able to provide an indication of the administration's general direction by mid-July. (National Archives, Nixon Presidential Materials, NSC Files, President's Trip Files, Box 491, Dobrynin/HAK 1971)

On May 26 Ernest Johnston sent Kissinger a memorandum informing him that, pursuant to Kissinger's direction, Commerce Secretary Stans was resubmitting the Gleason case to the White House along with $30-$50 million of additional export license applications for the Soviet Union. Johnston noted that Stans understood they would be approved and that he should submit additional cases. The Commerce Department reportedly also understood "that it should make no dramatic announcements when these projects are approved and there should be no public linking with any improvement in U.S.-Soviet relations. If questioned Commerce will respond that these are old cases which have been reviewed on their merits." Johnston recommended that Kissinger call Peterson to explain what he and the President were planning on export controls. (Ibid., Subject Files, Box 402, Trade, Volume IV 7-12/71)