360. Memorandum From the Executive Secretary of the Department of State (Eliot) to the President's Assistant for National Security Affairs (Kissinger)/1/

Washington, August 7, 1969.

SUBJECT

French Desire to Sell Transistor Technology to Poland

In your conversation with Foreign Minister Schumann he referred to problems France has had with COCOM over the sale of strategic materials and technology to Eastern Europe./2/ He noted that the French Government is currently considering a proposed transaction with Poland whereby licenses would be sold to Poland for technology to manufacture silicon transistors (the transaction would also include integrated circuit technology). France did not wish to proceed without COCOM approval for the sale and US support, which he hoped would be forthcoming through bilateral discussions with us at the expert level.

The French first mentioned the possibility of this sale in conversations with us in February./3/ At that time and in subsequent conversations Ambassador Shriver and Embassy officers have had with Foreign Ministry officials, the French were urged to submit the case to the Coordinating Committee with full technical information about the equipment and technology involved. Such detailed information would permit the US Government and the Governments of other participating countries to give thorough consideration to the French request.

The French were told, however, that the US Government has always denied applications from US firms to export transistor and integrated circuit technology to Poland and other Eastern European countries. US intelligence estimates indicate that the West is well ahead of the Soviets and the other Eastern Europeans in both technology and manufacturing knowhow with respect to silicon transistors and integrated circuits. Since these items are used in the manufacture of advanced communications equipment and computers, they are in the US view among the more critical areas of the COCOM embargo.

There have been several instances in which France has been anxious to export to Eastern Europe equipment or technology which had originally been included in the COCOM embargo list with French approval. In these cases the French had approached us seeking our support for the proposed transactions, which would then be followed by proforma approval in COCOM. Last December the French opened discussions with the US on a proposed sale of computer technology to Romania by means of a personal call by the Minister of Science on the Ambassador. The US responded by sending a high level team to discuss the matter but found the French-Romanian contracts to be advanced and apparently beyond recall. Subsequently the French proceeded with this contract without prior COCOM consultation. In 1967 the French exported computer technology to Czechoslovakia over US objections.

In the present case, French failure to deal with COCOM places the US in the difficult position of being made privy to French contracts not reported to COCOM as required by the COCOM rules. The British were especially irritated over French actions in the Romanian computer case. While the U.S. and possibly one or two other participating countries would have great difficulty in approving this transaction, no firm position can be taken until full technical information about the technology involved and the delivery schedules has been supplied and studied by us. Although the French indicated on July 5 that they would prepare a technical memorandum, which we would be willing to study even in advance of its submission to COCOM, they have not yet provided anything further to us.

We have noted Ambassador Shriver's recommendations in his telegram 11850/4/ and plan to instruct him to convey to Foreign Minister Schumann (1) assurances that we wish to work out a mutually satisfactory solution, (2) that on the basis of preliminary information it is clear that some items are on the embargo list and should therefore be submitted now for COCOM consideration; (3) but that in light of Mr. Schumann's comments we are willing to examine informally technical or any other information bearing on the case which they may wish to supply us in advance of their COCOM submission; and (4) after review of this additional information we will advise the French of our views on the strategic significance of the technology concerned and related COCOM considerations./5/

Theodore L. Eliot, Jr.

Washington, August 14, 1969.

TO
The Secretary of State
The Secretary of Defense
The Secretary of Commerce
The Director of Central Intelligence
The Director, Office of Science and Technology
The Chairman, Atomic Energy Commission
The Administrator, National Aeronautics and Space Administration
The Director, Arms Control and Disarmament Agency

SUBJECT
Advanced Technology and National Security

The President has directed that a review be conducted of our policies governing the access by foreign countries to certain advanced technologies vital to our national security. The review will consider nuclear power reactors, ballistic missile systems, advanced computers, and other scientific and technological devices and information whose acquisition from the United States by other nations would assist in the development or improvement of independent national nuclear weapons capabilities or strategic delivery systems.

The review should clarify the purposes and scope of existing policies and discuss the major issues posed by the export of sensitive technologies worldwide and with respect to specific countries. As a result of the review, recommendations should be offered on alternative policies to regulate the export of these technologies and on various procedures for policy implementation. Consideration of the impact on friendly and hostile governments should be included in reporting the assets and liabilities of each option. More specifically in recommending alternatives, the report should:

--Consider any further obligations of the United States Government with regard to advanced technologies that result from (a) the commitment of this government to a single global commercial communications satellite system, and (b) the nuclear Non-Proliferation Treaty should it come into force;

--Make explicit those policies applicable to all countries; when a policy is not universally applicable, adequate guidelines should be prepared for identifying those countries, or types of countries, to which it is directed;

--Propose criteria to be applied in considering requests for export licenses or for government financing of foreign projects involving these advanced technologies;

--Offer any necessary procedures to allow the United States Government to monitor policies governing advanced technologies.

This review should give full consideration to the commitment of the United States Government to international cooperation in the peaceful application of nuclear and space technologies and to the necessity for free exchange of scientific knowledge when national security is not impaired.

This review will be conducted by a committee to be chaired by a representative of the Secretary of State. The committee will include representatives of the addressees of this memorandum and the Assistant to the President for National Security Affairs. The committee will forward its report to the NSC Review Group by September 30, 1969./2/

Henry A. Kissinger

Washington, August 20, 1969.

SUBJECT
Conversation with French Charge--Transistor Deal with Poland; Schumann visit; Pompidou visit

The Minister came in under instructions to follow up on Foreign Minister Schumann's conversation with you in Paris on the proposed French transistor deal with Poland./2/ He said the French had no intention to bypass COCOM. In their view the equipment was not so sophisticated that the Soviets or East Europeans, not to mention some West Europeans, could not furnish it to the Poles. Siemens, for example, was sending a team to Poland in mid-September. (I interjected that the Germans were also subject to COCOM but Leprette said they might be "more clever" in getting around it.) In the French view, if the West loses the contract the Poles would be dependent on the Soviets when it was in our interest to divert such Polish dependence. (These are all old points.)

Leprette then read from his instructions to provide certain technical data and to suggest that French technicians should come here to discuss the matter with us. (Text attached.)/3/ He said the matter was urgent because the French wanted to settle the matter before the formal COCOM meeting in September.

I noted that as a result of your conversation with Schumann, Ambassador Shriver had been instructed to suggest technical exchanges before the COCOM meeting;/4/ Leprette said he heard nothing of any such demarche. (We have seen nothing either and Fred Bergsten is checking.) Leprette asked what our substantive position was and I said I did not have any information; our first order of business had been to clear up the matter of getting the technical information.

Leprette said Schumann planned to be in Washington on September 25, following his UN speech and he asked about the possibilities of an appointment with the President. I said I would check and recalled that you had also expressed an interest in seeing the Foreign Minister.

Comment: Perhaps you would like to set up an appointment on your calendar for September 25 and then take Schumann up the back steps to see the President./5/ If we make a public, formal appointment it will of course be much harder to turn down requests from other Foreign Ministers. (We already have one from the Belgian, and there is talk that Gromyko wants to come down. Manescu also has expectations; and Stewart will be hard to ward off.)

On the Pompidou visit, I said we still had no firm date but were working on it./6/

Comment: We ought to get off the dime.

On September 8 and 9, 1969, a 10-member French delegation, divided evenly between government and industry representatives, visited Washington for technical-level discussions with U.S. officials regarding their interest in exporting transistor technology to Poland. The U.S. delegation was headed by Assistant Secretary of State Philip Trezise and included representatives from the Defense Department, Commerce Department, and the CIA.

On September 10 the Department of State sent a report to Henry Kissinger apprising him that as a result of the informal discussions, the French on September 15 were to submit a formal request to COCOM for an exception to the embargo for the first phase of the technology for silicon transistor production. The French reportedly understood that the United States would examine carefully all aspects of the transaction and might not approve exceptions for some of the items. In a September 12 memorandum to Kissinger transmitting the report, Helmut Sonnenfeldt noted that the talks had gone well and that the State Department report indicated that all agencies approved. He added that Kissinger had "brownie points" in Paris for his role in moving this case forward. (National Archives, Nixon Presidential Materials, NSC Files, Country Files-Europe, Box 695, France, Volume III Jan 69-10/31/69)

On October 8 Sonnenfeldt sent Kissinger a memorandum reporting on Sonnenfeldt's meeting with French Ambassador Lucet that day. Sonnenfeldt noted that French officials were becoming increasingly "upset" and recommended that if Lucet raised the issue, Kissinger should tell him it had turned out to be more complicated than expected and was still under review by the concerned agencies. Sonnenfeldt attached a background paper on the transistor problem for Kissinger's information in which he explained that following the French presentation of their request in COCOM on September 15, the U.S. delegation had been without instructions at subsequent meetings on September 23 and 30 and on October 7. He indicated that all Kissinger could tell Lucet was that the U.S. position would be ready for the next COCOM meeting on October 14. (Ibid.)

Washington, October 14, 1969.

SUBJECT

French Desire to Sell Transistor Production Line to Poland

We are at the point where we must take a position for or against a proposal by the French to sell to Poland a silicon transistor production line. The contract would include certain machines as well as transistor production technology (for general purpose transistors used in communications equipment) that are subject to the international strategic embargo maintained by the fifteen countries (NATO plus Japan) in the Coordinating Committee (COCOM). The rules of the COCOM permit exceptions to the embargo provided all the member countries agree.

The French submitted such an exception request on September 15/2/ but in the COCOM discussions thus far the United States has reserved its position, as has the United Kingdom. The Netherlands has been the only country to file an objection, on the grounds that it is inconsistent to permit exports of machinery to produce transistors unless the transistors themselves are removed from the embargo list. The Dutch, whose motivations are probably largely commercial, have indicated that their final position would be strongly influenced by the United States position. The case is to be discussed again in COCOM on October 14.

The French have made it clear from the outset that they attach great political and economic importance to this project. While the transistor contract is valued at only $2 million, the French state that it is part of a larger French/Polish industrial venture which is still being negotiated totaling some $50 million. Foreign Minister Shumann described the case and sought United States support during Mr. Kissinger's conversation with him in August./3/ He referred to it again when he was in Washington at the end of September./4/ Ambassador Lucet here and the Foreign Ministry in Paris have continuously kept the Foreign Minister's interest before us and have pressed us to take a favorable position in Tuesday's meeting.

Early in September a French Delegation came to Washington to discuss the project in technical detail./5/ (It should be noted that this is the second time this year that the French have attempted to get the US outside of COCOM to approve a contract to ship embargoed technology to Eastern Europe. The first case was for a production facility to make the French IRIS-50 computer in Romania.) Our first objective in agreeing to these discussions was to persuade the French to submit their case to COCOM, because their initial intention seemed to be to proceed without such consultation. They agreed to submit their case and we agreed to give a prompt response.

The following considerations are pertinent:

a. The equipment and technology in this case as well as their product are currently covered by COCOM embargo. The U.S., and other PC's, have consistently denied many applications for exports of such machinery, technology, and the products in the past. For example, the UK, without coming to COCOM has turned down a proposal from a UK company similar to the French request and has a similar proposal now before UK licensing authorities.

b. U.S. Intelligence estimates state that, while there has been a limited number of silicon planar transistors listed in Bloc catalogs, there is no evidence that they have sufficiently mastered the production process to satisfy their basic strategic needs. The U.S. information was detailed during the course of the recently finished list review. The continuing stream of COCOM exceptions cases for silicon planar devices attests to the shortage.

c. The basic planar production process used (epitaxy, successive maskings and diffusions, wafer probing, bonding, etc.) is that now employed in strategic transistor and integrated circuit production.

d. The production facility in this case, even with the masks being sent by France, could be used to produce military grade transistors of types currently being used in U.S. military equipment production. In view of Bloc deficiencies in this area there is reason to believe they might well be so used.

e. Despite a French assertion to the contrary, the equipment and technology in this case, while insufficient by themselves to produce integrated circuits, would all be usable for such production. Equally important, the acquisition of skills in planar transistor production is a necessary prerequisite for integrated circuit production, and the additional equipment for such production would be minimal.

f. The French have suggested that since they would only supply three basic masks they would retain some control over the products produced. As noted before the masks can produce excellent military grade transistors. The French, during the Washington discussions, also said the USSR, Hungary, and Czechoslovakia have a mask-making capability. While mask making is not an easy task, it is basically a high precision adaptation of photolithographic techniques. It is a problem that can be more easily solved than that represented by the epitaxy, diffusion, and bonding technology and equipment which are to be ex-ported.

g. The French, during Washington bilateral discussions, did not supply technical specifications of the equipment but have recently supplied limited data on the diffusion furnace and the mask aligners. Equipment technical specifications are of little consequence, in any event, since equipment which is adequate for the production of the specified products would be usable for the production of a variety of strategic devices.

h. The French Delegation emphasized that the equipment to be exported was limited to manually operated devices. Only one U.S. company employs a significant degree of automation in transistor production and the quality of the transistors produced is degraded by the changes required to effect this automation.

i. CIA says that approval of this case would be of major importance not only to Poland but also to the USSR.

There are three possible choices as set forth below with considerations pro and con.

1. Would be responsive to a French request made at high levels concerning a project to which they attach major economic and political importance.

2. Would be helpful in developing closer relations with the present French Government, particularly since this is likely to be viewed by the French as the first significant bilateral issue to be dealt with by the present Governments in both countries.

3. Would increase Western relations with Poland.

1. Would incur an important security risk since the technology and machinery would enhance Polish and probably Soviet capability to produce silicon transistors and integrated circuits.

2. Would probably put an end to the multilateral embargo in COCOM of the transistors in question and would make more difficult a continued embargo on related manufacturing equipment.

3. Would penalize the UK for its adherence to COCOM rules and regulations.

4. Would undermine the whole COCOM structure since it could be interpreted as demonstrating a lack of U.S. concern for COCOM regulations.

We might say that we will not object provided the French add such additional safeguards as: no copying, transshipment, or re-export of machinery; no improvements in the machinery to be provided by the French without COCOM approval; only French production masks will be used; French would discontinue technical assistance when a certain quality standard is achieved.

1. Would reduce risk of diversion or manufacture of more advanced semi-conductors.

2. Would provide precedent for very strict conditions relating to any future sale of production technology to Eastern Europe.

1. Would be very disappointing and possibly unacceptable to the French since it would require re-negotiation and major changes in the contract terms (which were agreed more that a year ago and suspended until now because of the invasion of Czechoslovakia).

1. Would avoid a significant security risk if in fact French did not proceed with sale anyway.

2. Would continue embargo on silicon transistors and technology and would not provide assistance to Eastern Europe for production integrated circuits.

3. Would strengthen COCOM by reassuring all members that the U.S. will not abet a flagrant disregard by any COCOM member of security factors in pursuit of commercial advantage.

1. Would be resented by the French Government and embarrass personally Foreign Minister Schumann.

2. If French should complete the transaction despite disapproval by COCOM, COCOM's value as a facility for coordinating a Western embargo policy would be somewhat undermined.

The Department of Defense recommends Option 3, on the basis that a) the security factors are overriding, b) the effect on COCOM will be to strengthen it and, c) the French method used both in this case and the earlier IRIS-50 case of attempting to evade COCOM rules by presenting a contract fait accompli should be given no further encouragement.

Washington, October 20, 1969.

SUBJECT
French Desire to Sell Transistor Technology to Poland

The President has carefully weighed the options and considerations presented in your memorandum of October 13,/2/ and has decided to approve your recommendation that we express no objection to the exception requested by the French in COCOM. Please take steps to implement this decision at the earliest opportunity./3/

Henry A. Kissinger

Washington, October 20, 1970.

SUBJECT
French COCOM Case; Your Potential Involvement

In June, the French submitted to COCOM their proposal to sell to Poland certain machinery and technology required to produce a line of integrated circuits. The request also included an expansion of the number and type of silicon transistors to be produced by the Polish plant approved for export by COCOM last October./2/ This particular case involves only $7 million, but is the second stage of the French/Polish industrial venture, the total value of which might exceed $50 million. You will recall that the first stage (involving silicon transistors) was approved last October only after lengthy inter-agency debate and French intercession with you. It was made clear then to the French that the U.S. decision in no way established a presumption for approval of subsequent transactions.

In the present case, all agencies concerned (Defense, State and Commerce) agreed that qualitatively and quantitatively transferring the technology and production equipment in the French request involved a substantial increase in the security risk over last year's case. The quality and quantity of the devices to be produced exceed the needs implicit in the stated end use, and have direct military potential. Further, neither the USSR nor any Eastern European country has the capability at this time to manufacture the integrated circuit systems commercially, and the acquisition of this technology has been high on the Soviet shopping list. It is considered that the Soviets would probably have access to any Western electronic technology acquired by Poland. Finally, the agencies considered that approval of this case would make it almost impossible to maintain COCOM embargoes on this line of important technology (obversely, there is the possibility that, if their request is not approved, the French might proceed with the sale and thumb their nose at COCOM). Thus, in light of the unanimity within the bureaucracy not present in the case last year, we cleared (with General Haig's concurrence) a cable stating the U.S. objection. Copy is attached at Tab A./3/

Predictably, the French were upset at the U.S. objection. Late on October 16, Lucet sent me an aide-memoire for transmission to you (Tab B)./4/ I told the French that the note would be studied with care, but that they should understand that there was unanimity within the U.S. Government on this case unlike the situation which prevailed last year. In short, I gave the French no basis for encouragement. On October 17, Alphand called in Culley (DCM in Paris) and gave him a similar note (Tab C)./5/ The notes point out the considerable importance the French place on this deal, and also indicate that the French read more into the favorable American decision of last year than they should have. The French proposed to send a team to Washington to furnish us with additional information which, they say, it is not possible to provide within COCOM because of potential competition in the Polish market. The French insist that the transfer of technology will not create any strategic difficulties in the military field.

Prior to Lucet's transmittal of the note to me, Phil Trezise met with his French counterpart who happened to be here and provided him with a copy of the aide-memoire Lucet later sent me. Trezise told him that we were willing to hold meetings with a French team of technicians, as well as individuals who could review the political aspects. Having received Trezise's report, Culley also told Alphand the same thing. The French will very soon propose a date for the arrival of their team./6/

There are two possible directions which this issue can take. One possibility is that once the French team arrives, the solid phalanx of agency opposition will begin to crumble, with State finally favoring the deal, and with Defense remaining opposed on security grounds. At some point the issue will then be sent here for arbitration as it was last year. The other possibility (probably more remote) is that the agencies will remain solidly opposed, and the French then will expect you or the President to reverse the bureaucracy by a political decision. At that point you may want to take up the issue with the President. Regardless which direction the matter takes, the issue will be sticky, particularly in light of our own negative decision in the case of the catalytic cracker for Poland./7/ The other COCOM members are cagey in playing this one. Apparently, the UK, Dutch, Italians, Germans and Japanese are not happy with the French request on security grounds, but may not wish to buck the French (the UK increasingly feels that the French are getting away with more in COCOM than others). Commercial factors are also at play. These others may very well consider that if the French have their way on this case, then a quid pro quo can be demanded which would involve a loosening of the COCOM restrictions for future cases--which would benefit their own commercial interests.

That you approve the general line of "no encouragement" which I took with the French./8/

That, since State has already agreed to receive the French team, you agree that there is no need for you to become involved at this point (I shall of course continue to monitor the action)./9/

Washington, December 8, 1970.

SUBJECT
French Proposal to Manufacture Integrated Circuits in Poland

In M. Alphand's meeting with you on December 11 it is anticipated that he will raise the French proposal to transfer equipment and technology to Poland for the manufacture of integrated circuits. This proposal, which constitutes the second phase of a large Franco-Polish electronics project, was opposed by the United States in COCOM/2/ on October 13./3/ You will recall that M. Schumann raised with you the first phase of the project, i.e., silicon transistor technology, during your meeting with him in Paris in August 1969. Following bilateral discussions with the French in Washington later in the year, the United States approved that first phase while warning that the later stage would be more difficult./4/

As reported in my memorandum to you dated October 27, 1970,/5/ we agreed to meet with French about their proposal and discussions were held in Washington on November 16 and 17 (see enclosed reporting telegram 189344 to Paris)./6/ The French placed special stress on the political and economic importance of the overall Franco-Polish venture (valued at $100 million), which they say will be placed in jeopardy if the integrated circuit portion is not approved. They emphasized also the current depressed state of the French electronics industry and noted the advantages to the West in helping Poland become less dependent on the Soviet Union in the important electronics field.

The main point at issue in the technical part of the discussions was the French assertion that the integrated circuits concerned are produced in France on a civilian production line and do not meet performance levels required for military applications. United States experts pointed out that in the United States, military and civilian integrated circuits are produced from the same process and materials. In this country testing determines which integrated circuits meet the higher military standards and which can be sold for less rigorous civilian applications.

At the conclusion of the talks, the French invited us to send experts to inspect a French integrated circuit production line to clarify the question of whether a valid distinction can be made between military and essentially civilian integrated circuits. We accepted and a United States team plans to visit the plant on December 9 and 10. Their findings together with further technical evaluation of the French proposal which is taking place here will assist in reaching a final decision on this case.

The Department went along with the desire of the other agencies concerned to object to the French proposal primarily because of the probable impact on COCOM strategic controls in the electronics sector. The French case cannot be judged in isolation since there are pending cases submitted by other COCOM members which will be virtually impossible to deny if the French case is approved. Moreover, it is clear that French assistance in this case could be expected to advance Polish production capabilities and it cannot be ruled out entirely that the Poles would in turn be able to provide some assistance to the Soviets.

On the other hand, the Polish plant will not be in full production until 1975 when the Soviets will probably have expanded their own production of integrated circuits to meet their needs and when the state-of-the-art in the Soviet Union will probably have advanced beyond that represented by this French technology. Moreover, there is strong and growing support among COCOM members for a relaxation of COCOM controls on semi-conductors and manufacturing technology. West European and Japanese firms, as well as our own electronic component firms, are looking increasingly to the Eastern European market, and some relaxation of COCOM controls in this sector is likely to take place over the next few years in any event. All COCOM members have expressed approval of the French proposal except the United States and the Netherlands, and the Dutch will undoubtedly be guided by the final United States position.

If this question is raised by M. Alphand, it is suggested that you tell him that we are following up on the French suggestion to visit their integrated circuit plant and that we hope to reach a final decision shortly.

Ted C/7/

Washington, January 22, 1971.

SUBJECT
French Proposal to Manufacture Integrated Circuits in Poland

In my memorandum of December 8, 1970,/2/ I reported that discussions had been held with the French about their proposal to transfer equipment and technology to Poland for the manufacture of integrated circuits and that United States experts would conduct an on-site inspection of the production line in question. The technical evaluation of the French production line prepared by Mr. Howard H. Steenbergen, Electronics Engineer at the USAF Avionics Laboratory, is attached./3/

The report confirms the French assertion made during the Washington talks that separate production lines are operated for civilian and military integrated circuits. The major differences in the circuits produced on the two lines are described as follows: the military version uses ultrasonic aluminum wire bonding whereas the commercial version uses gold wire bonding (without tight production controls gold wire bonding may be less resistant to high temperatures), and the civilian version is encased in plastic whereas the military version is in a metal package. The report does not mention that the military circuits are required to meet broader temperature tolerances and in some cases have different switching characteristics (these differences were cited by French engineers at the plant and are also given in the firm's product catalogs).

While there has been no testing of finished integrated circuits from the French production line to determine how many would meet U.S. military specifications, the report states that since the production equipment and techniques are comparable to U.S. production facilities a significant portion of the French output from their commercial line would be expected to meet the requirements for advanced computers and certain military applications including missiles. On the other hand, the French maintain that circuits from their commercial line are unacceptable to French military purchasers. (The five circuits to be sold to Poland are all produced on the commercial line.)

In discussing this report with Mr. Steenbergen, he stressed that it deals solely with the integrated circuit portion of the large Franco/Polish electronics project. He agreed that the additional security risk resulting from the sale to Poland of the integrated circuit technology and machinery, given that silicon transistor technology and machinery has already been sold to the Poles, would be small. He bases this conclusion on the following: 1) the planar technology for producing integrated circuits is essentially the same as that required to produce silicon transistors, 2) the only additional manufacturing equipment required is sorting and testing machinery, and 3) the French will supply from France the masks required for integrated circuit manufacture rather than supply the technology and machinery to produce the masks.

We have summarized in an attachment the various technical considerations in this case as we see them./4/ As indicated, the precedent-making aspects cause us some concern. On the other hand, we do not believe that the Steenbergen report supports a conclusion that major strategic risk would be incurred if this sale goes through. The French can be expected to press in the strongest way for our concurrence. They will reiterate the importance of the Polish project to the French economy and stress that the project has taken on a new significance in light of the recent political developments in Poland. In the circumstances, we recommend the lifting of our objection to this transaction which was registered in COCOM last October./5/

James Carson/6/

Washington, January 25, 1971.

SUBJECT
Sale of British Computers to the Soviet Union

During his recent conversations with the President, Prime Minister Heath raised the question of the export of U.K. computers to the Soviet Union./2/ As a result, the President would like to receive an interagency review of the issue, outlining the implications for U.S. national security and foreign policy of the different courses of action open to the United States Government.

The review should be conducted by the Under Secretaries Committee and submitted to the President by February 15, with agency recommendations. It would be useful if, prior to the Committee review, a technical examination were conducted by the Office of Science and Technology to help provide a basis for the policy decision, as proposed in the Executive Secretary's memorandum of January 13./3/

Washington, February 12, 1971.

SUBJECT
French Proposal to Manufacture Integrated Circuits in Poland

The memorandum at Tab I forwards to the President for decision agency recommendations on the French proposal for integrated circuit manufacture in Poland./2/

We had previously hoped that a Defense Department "expert's" report on the French production line/3/ would assist in reaching a decision on this issue. However, the report is not very helpful on the question of Eastern Europe capability in producing integrated circuits. The report (attached to the State memorandum)/4/ concluded that in the French plant there is a difference between the military and commercial production lines, but that the commercial production line produces a significant share of integrated circuits fit for military use.

State argues for approval mainly on the basis that the transaction does not represent a serious threat to U.S. security. (State neglects making a strong foreign policy argument.)

Commerce and Defense argue against the transaction primarily on the basis that it would enable the Eastern countries to produce high quality integrated circuits in great volume, something they are yet unable to do, though these agencies acknowledge that the Russians can produce a small number of these circuits already./5/

Your memorandum to the President makes no recommendation. I am afraid that if you want to make one you will have to weigh yourself the effect on our relations with France against the President's either overriding (for the second time)/6/ or going along with Secretary Laird. The security issue seems to be insoluble as between the interested agencies. There is no way for us to make an independent judgment on it unless you want to commission a whole new study, subject it to debate and thus delay a decision even longer than it unfortunately has been already./7/

After the President's decision, you should sign the memorandum at Tab II if the President decides to approve the transaction, or the memorandum at Tab III if the President decides to deny the request./8/

To avoid future memoranda straggling in from the various agencies addressing the subject in a piecemeal fashion, both of these decision memoranda also ask that future contested cases be sent to the President through established interagency procedures to avoid our having to solicit separate agency comments which bypass each other's arguments.

1. That you sign the memorandum for the President at Tab I.

2. That after the President's decision you sign the appropriate memorandum at Tab II (approval) or III (denial).

Washington, February 25, 1971.

SUBJECT
French Proposal to Manufacture Integrated Circuits in Poland

The French are pressing forward on a $100 million industrial transaction with Poland. You approved our assent to the first phase of this operation in October 1969 allowing the French to export silicon transistor technology./2/

Since June 1970 the French have been seeking our agreement in the international Coordinating Committee for Export Controls (COCOM) for the second stage of the project allowing manufacture of integrated circuits in Poland. In October we opposed their request./3/

The French then suggested a series of technical discussions and invited American experts to visit the SESCOSEM plant in Grenoble to examine the technology which would be reproduced in Poland. The French claim that their Grenoble plant had two separate production lines, one capable of making military-quality integrated circuits; the other makes a lower grade civilian quality circuit and would be the prototype of the Polish plant. The French maintained that their proposed sale would not significantly enhance Eastern bloc military capabilities and would not be a danger to Western security.

In order to establish a basis for US Government decision, the agencies took advantage of the French invitation for an American expert to visit the Grenoble plant, but they now disagree on the implication of the expert's report and on whether or not we should accede to the French request.

In short, State recommends that we approve the transaction as one unlikely to be dangerous to the US national security and as necessary because of the serious foreign policy consequences of a refusal on US-French relations./4/ Secretary Laird recommends that we continue our refusal primarily because the proposal would significantly enhance Polish (and Soviet) capability to produce in large numbers high quality low-cost integrated circuits for military usage. CIA confirms the Defense analysis. Secretary Stans also concludes that the transaction would represent a major security risk./5/ In addition, he argues that acquiescence would place us in the untenable position of approving foreign applications for shipment of electronic products to Eastern Europe while denying this same market to American producers.

The French maintain that the strategic implications of the transaction would be minimal. A number of high French officials have indicated that they will consider US refusal a blow to US-French relations. Should we continue to refuse, there may be a direct appeal from President Pompidou to you. It is also quite possible that the French would decide to go ahead anyway, which would undermine Western cooperation in the COCOM.

You have two choices:

1. I tend to agree with Defense and Commerce that we should continue to oppose the sale at this time. This course will cause displeasure with the French, and provide no guarantee that the French will not proceed with the sale despite our opposition (and undermine COCOM); but they have not been sufficiently cooperative of late, especially on Southeast Asian affairs, to justify approval on essentially political grounds since the security implications appear on balance to be on the negative side./6/

2. Agree to the sale as proposed by State, overruling Defense and Commerce. This would be consistent with the approach of making political gestures to the French, but could have negative security implications./7/

Washington, March 18, 1971.

SUBJECT
Sale of British Computers to the Soviet Union

Prime Minister Heath raised with you during his visit last December the British proposal to sell two large computers to the Institute of High Energy Physics at Serpukhov near Moscow./2/ This matter has now been reviewed by the Under Secretaries Committee, following a technical study conducted by the Office of Science and Technology. The Committee's report as well as the OST study are enclosed./3/

The basic questions posed are 1) would the special safeguards proposed by the British be effective in reducing the risk of misuse of the computers to an acceptably low level, and 2) would approval seriously erode existing computer export controls or could this application be considered as constituting a unique case? The Committee could not agree on answers to these questions and the different views are given in the enclosed report.

The Committee was also unable to agree on recommendations with respect to the policy options. DOD, JCS, AEC, and STR recommend that we reaffirm our objection to the sale. Commerce favors reaffirmation of our objection; but, if your decision is to approve the transaction, believes that approval should be predicated upon prior acceptance by the three governments concerned of very explicitly articulated safeguards and procedures for implementing them. State, Treasury, OST, CEA, and USIA recommend that we lift our objection on condition that the UK agree to effective implementation of the proposed safeguards and to support continuation of tight controls on computers and technology at the next COCOM list review.

NS

Washington, March 16, 1971.

NSC UNDER SECRETARIES COMMITTEE REPORT

SUBJECT
British Proposal to Sell Two Large Computers to the USSR

I. Introduction

In response to Mr. Kissinger's memorandum of January 25, 1971,/5/ the Under Secretaries Committee has reviewed an outstanding U.S. objection in COCOM to the export by a United Kingdom firm (ICL) of two large computers to the Institute of High Energy Physics at Serpukhov in the USSR. Prime Minister Heath raised this matter during his visit with the President and with Secretary Rogers. In order to assist the Committee review, a technical study on this matter was prepared by a panel convened by the Office of Science and Technology (OST) and is attached to this report.

The Institute at Serpukhov conducts unclassified basic research and engages in extensive exchanges of data, publications, and personnel in international cooperation efforts with institutions and scientists from free world countries, including the United States. The principal instrument around which the Institute's activities center is the world's currently most powerful (76 Gev) proton accelerator./6/ An appropriate computer facility has been designed to complement the research potential of the Institute. The computers proposed for export exceed the performance standards of the BESM 6, which is the best Soviet computer available to the Institute, and will satisfy only approximately one-half of the Institute's foreseeable computational requirements.

When the U.K. presented this proposal to COCOM in October 1970, we objected to it because of the risk of diversionary use of the computer facility for other than its intended purposes as well as the precedent-making implications which the export could have for controls over advanced computers. Additionally, the Joint Committee on Atomic Energy had urged that advanced computers not be sent to the USSR.

Because of the unanimity rule in COCOM, and the inclusion of more than $3 million in U.S. parts and components, the British Government has been constrained from licensing the proposed export although the U.S. is alone in objecting. Italy and the Netherlands had reserved judgment at the time the U.S. raised its COCOM objection in October, 1970.

A refusal by the United States to approve the case will offend the British, for whom this $11 million sale is a significant transaction in terms of their hope to be a principal supplier of large computers to the USSR. It also may disappoint some members of the U.S. scientific community whose work involves them with the Institute at Serpukhov.

In order to overcome the U.S. objection, the British Government, in cooperation with ICL, has since outlined a series of safeguards which they believe will reduce the risks of misuse of the computers. Safeguards include (1) the planning of as full a research schedule as possible for the machines, (2) the necessity of written supporting documentation for individual program runs, (3) contractual rights of free access by specialists of free world parties, which have cooperation agreements with Serpukhov (presently U.S., U.K. and France), (4) 10-year control over spares and on-site maintenance, and (5) ICL willingness to obtain Soviet agreement before export of the computers to permit U.K. personnel to empty memory cores on demand of their stored informational contents and to transmit them for U.K. (and U.S.) governmental analysis.

II. Security Aspects

No transfer of production technology would be involved in this case. The security risk is the potential clandestine use of the computers' capacity for strategic military purposes, e.g., advanced weapons design computations. The risk of diversion depends on the answers to two questions:

1) Can the proposed safeguards be implemented?

2) If implemented, will the safeguards be effective in reducing the risks of misuse of the computers?

There is general agreement that the answer to the first question is, for the most part, yes. On the second question, opinions differ. State believes that the safeguards bring the risk of misuse to an acceptably low level. DOD believes that the safeguards are ineffective since they offer no high probability that diversion, if attempted, would be eventually discovered.

The OST panel study deals with the British presentations on safeguards as well as the technical feasibility of establishing absolute safeguards and detection against misuse of the facility.

The OST panel believes that diversion of less than of the order of 25 percent of capacity for two or more years would not be worth the effort required of the Soviets to effect clandestine diversion. The panel believes that this much diversion of the computers' time from legitimate work needs would likely be sensed by foreign specialists working at the Institute and who will be familiar with its research programs. The study concludes that while complete elimination of risk of clandestine misuse is not possible, the risk of such diversion is low. The study posits that it is not possible to assert with certainty that diversion, if attempted, would be discovered. However, the study notes that the ability to "dump" the contents of the computers exposes the Soviets to a finite danger of discovery provided these dumps are analyzed by U.S. personnel. Experts believe that someone familiar with high energy physics programs and weapons programs would have a good chance of detecting a significant illicit program in the core, provided he had a knowledge of the machine's language and an awareness of the program supposedly being run at the time of the dump.

State accepts the technical views of the panel, noting that it consisted of distinguished scientists with extensive experience in the fields of computers, high energy physics and strategic weapons design. State suggests, moreover, that because of the presence of foreign scientists at the Institute and the core dump provision, the Soviets would not consider the Institution's computers to be fully secure for handling classified programs despite the machines' location on Soviet territory. Hence, they would be extremely unlikely to use weapons programs on such systems. The Soviets would be much more likely to use an additional Soviet-built BESM 6, which has approximately 25 percent of the power of the total British system, for weapons calculations than to try to divert time from an installation not completely under their control.

State notes that the British have supplied information subsequent to the OST report which demonstrates that the main and secondary storage capacity planned for Serpukhov is similar to that provided for comparable U.S. and U.K. installations.

The fundamental flaw in the safeguard proposals is that when the concrete steps required to put them into meaningful practice are examined, the potential effectiveness of the safeguards appears increasingly remote.

For example, the first three safeguards proposed by the British assume that discrepancies between computer usage and the needs of legitimate programs would be quickly noted. Yet, according to the OST study, a knowledgeable U.S. scientist working at Serpukhov and knowing the various experimental and test programs there could assess the computational load only within a factor of two. In other words, so far as these three safeguards are concerned, a diversion of approximately half of the computational capacity might go undetected. To achieve even this much control would require considerable and continuing experience with the installation. Thus, these safeguards depend on the presence at Serpukhov of knowledgeable U.S. scientists willing to carry out a monitoring scheme and able to remain at the installation for extended tours of duty. DOD believes such a U.S. presence would be required on all shifts./7/

The OST report lists the "dumping" of the computer core as the only special safeguard offered by the U.K. which has any teeth against a determined effort at diversion. In this connection, it is worth noting that it is only the content of the cores, e.g., the internal memory of each central processing unit, and not all stored informational content which is subject to dumping on demand.

Thus, the OST panel stated it could not assert that diversion, if attempted, would be eventually discovered with a high degree of probability. It pointed out that schemes are possible to "capture" the executive system and replace it with one which "looks" the same externally on legitimate work but which allows "hidden" programs to be run. This means that an illicit program might be detected only if it happened to be in the central processing unit when the dump was made. It is at this point that the OST panel's questions as to why the system includes unusually large external memories become especially relevant.

Assuming the right to demand core dumping is exercised at sufficiently frequent intervals to capture any illicit programs, there is, according to a report of the National Academy of Sciences,/8/ no presently developed methodology for analyzing the contents of such a dump. Moreover, the National Academy of Sciences has estimated that an expenditure of several hundred thousand dollars of research effort over a period of one to three years would be needed to develop such a methodology.

In addition, DOD believes it would be necessary to create in the U.S. a group of high-energy physicists, computer center managers and weapons designers to analyze the recorded data obtained from each dump. How large this group would need to be and whether it would be engaged on a full or only part-time basis will depend upon the frequency of the dumps and the methodology developed for analyzing their contents. Unless this aspect of the problem is addressed and solved, including the funding of such a group, even the core dump provision will be an empty safeguard.

The 10-year control over spares and on-site maintenance is less a safeguard against diversion than the basis on which sanctions would be applied if a diversion were detected. It is, of course, a threat whose impact will depend on whether the USSR has any reason to suppose the U.K. would actually cut off support if a diversion was suspected and proved. In this connection, it is not easy to imagine such a drastic sanction being employed on the basis of the kind of evidence which the other safeguards are apt to provide.

It is worth noting that when the Soviets two years ago expressed interest in a comparable U.S. computing system, the CDC 6600 for Serpukhov, an interdepartmental review, backed by two outside studies, concluded that the U.S. Government would be unwilling to issue an export license except possibly under safeguard conditions which would be either unacceptable to the Soviets or too expensive to carry out on the U.S. side.

AEC believes that the OST panel based its conclusion of low risk of diversion largely on U.S. presence at Serpukhov, although in the AEC view there is waning interest in Serpukhov and there may not be any U.S. scientists there after the present program is completed later this year.

On the other hand, OST points out that the panel's estimates were based on Western presence, not just U.S., and that the British have agreed to obtain random core dump printouts. OST believes that there will be continuing U.S. interest in the Serpukhov accelerator even after the large U.S. accelerator at Batavia becomes available.

III. Precedent-Making Implications

A difference of Committee views also developed in assessing the precedent-making implications of a decision to lift the U.S. objection to the export of these ICL computers.

Regarding the potential impact of this export on COCOM and U.S. export controls, the international stature and importance of the Institute as the largest in its field, its willingness to accept extraordinary safeguard conditions and its openness to foreign scientists, can be considered as constituting a unique situation which justifies a single exception. Should the British export be approved, possible proposals by Control Data Corporation to sell large computers to other Soviet research institutes such as those at Yerevan and Dubna, as well as any subsequent proposals, would necessarily be subjected to detailed investigation on their individual merits in accordance with the standards applied in this case. An additional factor relating to large CDC machines, which does not apply in this case, is that there are weapons codes compiled in CDC computer machine language.

Pressures for relaxation of computer parameters which exist within COCOM are endemic and can be anticipated to continue regardless of the outcome of the British proposal. As far is known British ICL is the only non-U.S. company presently seeking orders in Eastern Europe for computers which exceed the COCOM technical limits. A further consideration is that the Soviet agreement to on-site inspections by Americans on their territory could, if carried out, establish a useful precedent which might facilitate future arms control negotiations. Finally, the safeguards in this case bring it within the U.S./U.K. guidelines for dealing with computer exceptions requests.

There is little doubt that this transaction, if approved, would create an undesirable precedent for both COCOM and U.S. controls. The OST panel noted that each of the two systems exceeds the COCOM guidelines in every relevant specification by a considerable margin. To approve this export and not do great violence to COCOM controls, it would be necessary for the U.S. to claim that the Institute is a uniquely deserving end-user, that its personnel are not likely to be required by the Soviet Government to divert the system and that, in any case, the safeguards included in the contract effectively eliminate the risk of such diversion. If these claims are made, the predictable result would be the prompt submission, by U.S. firms as well as others, of a number of requests for the export of very large computers to other destinations in the USSR. Each request will claim the end-user to be deserving; each will assert the improbability of diversion; and each will propose to include safeguards similar to those accepted for Serpukhov. It will be difficult for the U.S. to object to these requests since by approving the Serpukhov case, it will have, in effect, certified the adequacy of the Serpukhov safeguards. If the safeguards were, in fact, adequate, this result would be entirely acceptable. The crucial fact, however, is they are not, and to the extent that they can be used to justify computer exports the net result will be the rapid destruction of existing U.S. and COCOM controls.

The British could go ahead despite lack of COCOM approval, but would then have to consider the need for U.S. unilateral approval to ship the estimated $3 million of U.S. parts and components which are included in their proposed export.

The AEC believes that a favorable U.S. decision could result in the establishment of undesirable precedents in our international embargo control scheme as well as increased pressures from both U.S. and foreign computer firms to sell embargoed computers to the bloc. It would be extremely difficult to maintain present U.S. and international controls if such a major exception is made to these embargo controls. The U.S. has been the primary spokesman among our Western European allies over the years for restraining trade with the bloc in large, strategically-useful computers. A major departure from this position, as would be represented by approval of the U.K. case, would erode significantly our posture on computer controls that the U.S. has long held with its Western allies. AEC believes that U.S. companies, particularly CDC, will push for approval of several large computer exports to the Soviet Union if the U.K. case is approved.

OST believes that the security risk from this one transaction is not significant. Approval should be predicated on the uniqueness of the Serpukhov facility, its use and needs, as well as a clear understanding with the British that it would not represent a precedent for frequent exceptions of such magnitude. It notes that there are at present no other 76 GEV accelerators in the USSR or the world, which could similarly qualify as unique international institutions.

Policy Options

1. Reaffirm U.S. objection in COCOM.

a. Would avoid incurring any security risk.

b. Would avoid the precedent-making implications which would flow from approval of computers of this size.

c. Would permit additional time to develop more effective safeguards as well as to determine if safeguards negotiated with the U.K. in previous cases are effective.

a. Prime Minister Heath's raising this subject with the President underscores the great importance the British attach to it. Reaffirmation of our negative position after their extraordinary efforts to satisfy our concerns would be very disappointing to the British.

b. The Soviets would cite our decision as further evidence of U.S. reluctance to permit peaceful trade in goods containing advanced technology.

c. If this exception is not approved, the U.K., supported by others, can be expected to press for relaxation of COCOM controls during the coming List Review.

2. Lift our objection.

a. Would be responsive to Prime Minister Heath's personal approach to the President.

b. The on-site inspection arrangements could establish a possibly useful precedent for future arms control negotiations.

c. Would provide increased opportunities for Western cooperation in high energy physics at Serpukhov and might cause some general improvement in the Soviet attitude toward cooperative scientific ventures.

d. Would ease pressures for sales of computer production technology to Communist countries by demonstrating that occasional sales of advanced hardware can be approved.

a. Would provide the USSR with an advanced computer system better than any they now have and capable of being diverted to important strategic uses. Until additional details are developed on implementation of proposed safeguards, it is not possible to establish that such diversion would be detected.

b. Would encourage U.S. and other firms to attempt sales of large computers to the USSR and Eastern Europe.

c. Would cause increased pressure by American manufacturers for relaxation of U.S. export controls.

d. Would encourage some COCOM members to demand a more flexible policy toward exceptional exports of other strategic items and technology.

e. Would set the stage for demand by other COCOM members for a major reduction in computer embargo levels at the List Review.

3. Lift our objection on conditions that 1) U.K. agree to effective implementation of the proposed safeguards, particularly joint procedures for the inspection and random core dump provisions including the transmission of the core printouts to the U.S., 2) U.K. agree to support continuation of tight controls on computers and technology at the next List Review.

a. Would be responsive to Prime Minister Heath's personal approach to the President provided agreement can be reached on effective implementation of the safeguards.

b. Would involve the British with us jointly in a safeguards implementation procedure, which could provide valuable experience to both countries and have important implications for future transactions in the computer field.

c. Would tend to reduce the unfavorable precedent-making aspects.

d. Would provide increased opportunities for Western cooperation in high energy physics at Serpukhov and might cause some general improvement in the Soviet attitude toward cooperative scientific ventures.

e. Might establish a precedent for inspection or safeguards of some future value in arms control negotiations.

a. Could be expensive in U.S. manpower and money to implement safeguards.

b. Would delay execution of ICL contract until implementing details were worked out.

c. Would require USSR to accept controls possibly beyond those already contemplated.

d. Would probably still entail some security risk.

e. Might encourage U.S. and other firms to attempt sales of large computers to the USSR and Eastern Europe.

f. Might encourage other COCOM partners to demand equal treatment on other strategic items and technology.

g. Export of these large computers by the U.K. would tend to reduce the value of U.K. support for continued tight controls over computers in COCOM.

DOD, JCS, AEC and STR recommend Option 1. State, Treasury, OST, CEA and USIA recommend Option 3. Commerce favors reaffirmation of the objection as in Option 1; but, if the President's decision is to approve the transaction, believes that approval should be predicated upon prior acceptance by the three governments concerned of very explicitly articulated safeguards and procedures for implementing them.

Approve:

Option 1--reaffirm our objection

Option 2--lift our objection

Option 3--lift our objection on conditions that 1) UK agree to effective implementation of the proposed safeguards, particularly joint procedures for the inspection and random core dump provisions including the transmission of the core printout to the U.S., 2) UK agree to support continuation of tight controls on computers and technology at next list review/9/

Washington, May 12, 1971.

Dear Mr. Prime Minister:

Thank you for your recent message on the proposal to sell two computers to the Soviet Physics Laboratory at Serpukhov./2/

We have now studied the matter at length, for, as you well realize, those aspects involving precedents or what might be construed as precedents we felt needed to be considered very carefully. As a result of this study, we have come to the conclusion that it should be possible for our two Governments to work out an arrangement that will meet our security problems both in regard to this sale and in regard to future consideration of computer cases in the Coordinating Committee.

The State Department will shortly be in touch with your representatives to settle these details./3/ I am pleased that we have been able once again to settle satisfactorily a question that was of concern to you and, consequently, to us.

With warm personal regards,

Sincerely,

Richard Nixon

NSC-U SM 94D

Washington, May 13, 1971.

TO
The Deputy Secretary of Defense
The Assistant to the President for National Security Affairs
The Director of Central Intelligence
The Chairman of the Joint Chiefs of Staff
The Under Secretary of Treasury
The Under Secretary of Commerce
The Special Trade Representative
Mr. Hendrik S. Houthakker, Council of Economic Advisers
Mr. James R. Schlesinger, Assistant Director, Office of Management and Budget
The Chairman of the Atomic Energy Commission
The Director of the Office of Science and Technology
The Director of the United States Information Agency

SUBJECT
Sale of British Computers to the Soviet Union

The President has decided that on the basis of the Acting Chairman's memorandum to the President of March 18,/2/ we should lift our objection to the sale of two British computers to the Serpukhov Laboratory on the conditions that (1) the U.K. agree to effective implementation of the proposed safeguards, particularly joint procedures for the inspection and random core dump provisions including the transmission of the core printouts to the U.S., and (2) the U.K. agree to support continuation of tight controls on computers and technology at the next Coordinating Committee List Review./3/

The U.K. Government has been informed of this decision./4/ The Acting Chairman has asked Assistant Secretary of State for Economic Affairs, Philip Trezise, to chair an inter-agency group to consider questions of implementation.

A.A. Hartman

Washington, June 2, 1971.

SUBJECT
French Proposal to Manufacture Transistors in Poland

You decided in March that the U.S. would oppose in COCOM a $20-million French proposal for the manufacture of integrated circuits in Poland./2/ This was the second stage of the $100 million French/Polish electronic transaction. You had approved the first stage for transistors in 1969./3/

Because of our opposition, the French have now pared the second stage in half and requested that we approve only that part relating to the production of transistors and diodes, thus eliminating the manufacturing capacity for integrated circuits. State recommends (at Tab A)/4/ that you approve the new proposal. Commerce and Defense (at Tabs B and C)/5/ recommend that you deny.

Arguments for approval are:

--Ambassador Lucet, Foreign Minister Schumann, Finance Minister Giscard, and other officials in Paris have indicated that France was deeply disappointed at your previous refusal and that it attaches great importance to approval of this version. Refusal would be viewed as an unfriendly act, but acceptance would soften the blow of Export-Import participation in the El Paso project./6/

--The quantity of transistors to be produced is consistent with Polish plans for expansion of their production of civilian communications equipment.

--The French have previously indicated that if we block the proposal in COCOM, they are likely to go ahead anyway. Schumann has now informed me that he has authorized the signature of the contract.

--By eliminating the integrated circuit manufacturing aspects and concentrating on the manufacture of transistors and diodes, the transaction is less objectionable from a security viewpoint. Though the French admit that the remaining part could, with some changes, be used to manufacture integrated circuits, they claim that Poland is technologically too backward to do this without Western help.

The Commerce and Defense arguments against the transaction are:

--This project would significantly increase Polish production of semi-conductors, some of which would be of sufficiently high quality to be useful for the military or for high speed computers.

--Poland will be able to make the changes that would allow this technology to produce integrated circuits and strategic-type transistors, particularly since there is some evidence that the French are not being completely frank with us on this project and are willing to supply missing elements outside the COCOM controls.

--Even if the whole production could be used in civilian production, it is obvious that the military will be able to skim off whatever it needs.

--Approval of this project would threaten the maintenance of effective COCOM controls on transistors and integrated circuits. Specifically it would make it more difficult to resist approval of other similar projects such as a smaller Italo/Romanian transaction and an RCA proposal one-fifteenth the Polish size, to manufacture transistors in Romania. (I do not consider this wholly negative argument because of our special relations with Romania, and Pete Peterson believes that we should approve the RCA case, along with the French one.)

The current reduced French proposal represents less of a security risk than the one you refused in March, though it is not clear by how much. Your decision last time was partially based on a lack of French cooperation with us on Southeastern Asian problems. President Pompidou has not repeated that mistake./7/ On balance, I believe that the consequences of a refusal on our relations with France outweighs the economic security considerations.

Pete Peterson also recommends approval of the project, but he believes that approval should be contingent upon our concurrent approval of the RCA Romanian proposal./8/ Though we do not have the case formally for White House decision, the agencies agree in the attached papers that approval of the Polish case would make it very difficult to refuse the much smaller RCA/Romanian case. Approval of the RCA application would indicate an interest in U.S. exports and fit in with our economic cooperation with Romania.

1. That you approve the reduced French proposal for the manufacture of transistors and diodes in Poland.

2. That you also accept Pete Peterson's suggestion that we approve at the same time the RCA/Romanian proposal./9/

Washington, June 22, 1971.

SUBJECT
Security Trade Controls

As you know, I have from time to time made known to you my misgivings over certain types of trade transactions with Communist countries. A number of actions taken in the last few weeks or currently in preparation give me fresh cause for concern.

The most recent one is the decision to approve the French sale of transistor-making machinery to Poland./2/ Another is the approval given a few weeks ago to the British export of very advanced computers to the USSR's High Energy Physics Institute at Serpukhov./3/ In addition, some far-reaching proposals are now being formulated for your consideration regarding the next steps we should take toward Communist China as well as ways to increase the U.S. share of East-West trade.

My concern is that these several measures, taken together, are virtually certain to weaken seriously if not destroy the existing system of security trade controls which form an important, although not always adequately recognized, element in our defense structure. In order to preserve that margin of military power required by the deterrent strategy upon which our security depends, it is not enough to maintain our Defense establishment. We must also frustrate as far as possible the build-up of forces which are or may be arrayed against us. An effective system of controls over the export to Communist countries of strategic commodities therefore contributes directly to our national security and can help to keep U.S. military expenditures at a minimum.

Although it has been subjected to heavy pressures both at home and abroad in the last few years, we still have an effective system of security trade controls. In fact, a study done by the Department of Defense last year in support of the since cancelled NSSM 71/4/ fully documents the conclusion that our export controls have delayed the development of new independent nuclear weapons systems capabilities and the improvement of existing ones abroad by substantial periods of time, in some cases by a number of years. Moreover, the study, a copy of which is attached,/5/ further shows that the economic and diplomatic costs of these controls to the U.S. in terms of loss of trade, resentment by other governments, interference with scientific exchange and loss of U.S. influence over the technological developments in other countries have not been significant.

In the light of this evidence, I feel compelled to express my deep uneasiness over the course we seem to be taking, not only because it appears to be based on the erroneous assumption that our controls are both ineffective and costly, but because, by approving the release of highly strategic items on an ad hoc basis, we are paving the way for the rapid dismantling of all controls. It is already clear that our Allies, who feel they can rely on the U.S. to offset whatever increased military risk may result, will treat these decisions as precedents for additional exceptions or the early removal of such items from the international embargo list altogether. In my judgment, we cannot afford thus to jeopardize our security trade controls unless as a result we will achieve tangible diplomatic and economic gains of substantial value.

Under present circumstances, I believe our principal aim should be constantly to refine our embargo list to insure that it contains only items which are, in fact, strategic in nature and, having done so, to hold fast to that list. This is of particular importance at this time since negotiations with our Allies on revisions to the international embargo list are scheduled to begin this fall.

To provide guidance for our negotiators in this list review as well as to insure that appropriate emphasis is given to the security aspects of all trade measures involving Communist countries, I recommend that you reiterate to the departments and agencies concerned that it is vital to our national security that an effective system of security trade controls be continued.

Mel Laird

Washington, March 8, 1972.

SUBJECT
Export of Integrated Circuit Technology to Eastern Europe

In response to your request of February 8, 1972, this Committee/2/ has reviewed the status of a number of pending cases involving the export of integrated circuit technology to Eastern Europe. A status report prepared by an ad hoc inter-agency working group is attached./3/

This memorandum considers, in particular, cases involving proposed British and French exports to Poland and a proposed U.S. export to Romania. Related, generally less significant cases are enumerated in the attached report (pp. 9-10). These minor cases would be reviewed in the light of your decisions respecting the Polish and Romanian cases.

During 1971, you decided in favor of permitting French assistance to Poland in the manufacture of transistors and against permitting such assistance for manufacturing integrated circuits./4/ The French Government has asked us to re-examine our rejection of assistance related to integrated circuits./5/

The British introduced in COCOM in 1971 a proposal to assist Poland in the manufacture of integrated circuits. Following a U.S. objection, the British have also asked us to withdraw our opposition.

The French case involves exports valued at $7-8 million; the British, $6 million. Both cases involve export of technological assistance and manufacturing equipment which would enable Poland to move from a pilot to mass production stage. The stated purpose is to manufacture integrated circuits for "civilian-type" use--television sets, desk calculators, small computers. The integrated circuits could, however, be used in military equipment and more advanced computers. The assistance rendered Poland would also help Poland to advance to strategically more significant circuits.

The British technology is slightly more advanced than the French, but the difference is not sufficient to provide a technical basis for distinguishing between the two cases. We are not entirely sure whether the two cases are competitive or complementary; however, there is some reason to believe that if both were approved, Poland might, because of financial considerations, elect to conclude only one of the two projects. Completion of both transactions would provide the Poles with a higher probability of success in solving their production problems.

The ability to mass produce integrated circuits has permitted the West to enter a stage of electronic technology that is still largely closed to the Soviet Union and the countries of Eastern Europe. Integrated circuits permit higher reliability and smaller size, cost, and power requirements for electronic equipment. They are widely applied in the U.S. in computer circuits, industrial controls, communications, avionics, entertainment products and desk calculators. Integrated circuits have become essential to a wide range of Western military equipment, including the most advanced strategic weapons systems. Their reliability and compactness are ideally suited for uses in communications, guidance, control and related systems which operate in the extreme environments that are normal for strategic weapons. They account in significant degree for the qualitative superiority of US strategic weapons over those of the USSR. Their application in advanced computers has significant military ramifications.

The Soviet Union and East European countries were delayed in undertaking integrated circuit research and have not based their military electronics on integrated circuits. They are capable of manufacturing integrated circuits on a limited basis in laboratories and pilot programs. However, these countries have been unsuccessful in their attempts to mass-produce these integrated circuits and, as a result, they have not been able to profit from this technology in their weapons systems. While individual pieces of Western equipment have been diverted illegally to the USSR and Eastern Europe, these countries still lag behind the U.S. by at least five years in mass production and application of integrated circuits.

China has acquired equipment illegally from Japan that should enable it to produce integrated circuits suitable for its modern weapons program. There is, however, no solid evidence as to the scale of production China has achieved.

In urging us to agree to these exports, the British and French have argued that Poland will, in any event, be able to achieve mass production on its own within several years. They consider that it would be better to assist Poland on a controlled basis than to refuse all help, thereby obliging Poland to cooperate more closely in electronics with the USSR.

The French and British have cited economic difficulties of their firms which are involved, Thomson-CSF and Ferranti, respectively. These firms are experiencing difficulties, but the Polish orders are not large in relation to the total turnovers of the two firms. Accordingly, we do not find the economic argument overly persuasive.

The high level approaches by the British and French Governments in these cases makes it likely that our continued refusal to approve them will bring lasting repercussions. During the week of February 28th, the British made a new series of representations and French Foreign Minister Schumann again wrote to Secretary Rogers to stress France's "particular interest" in its case.

The French have stated they must sign a contract with Poland by March 31. In the past, the French have in some instances proceeded with projects without securing COCOM approval. They may well be prepared to act in defiance of COCOM in this case if it is of sufficient interest to them, or to retaliate against American electronics imports into France. In the case of the British, it can be argued that rejection of the Ferranti proposal would heighten British disenchantment with COCOM arising from American vetoes. The British have implied that they might feel obliged if necessary to issue a license in violation of COCOM.

On the other hand, approval of these cases would also have repercussions in COCOM. Smaller countries, noting the US response to political pressures, might claim their share of relaxation of controls. Having accepted a major relaxation in a key strategic area, the US would find it more difficult to resist pressures for weakening other important elements of the COCOM structure. Under these circumstances, it can be argued that it would thus be less objectionable, in view of the fact that COCOM violations have previously occurred, to risk French and British violations in this case than to give these transactions US endorsement.

Since we have always discouraged American firms from promoting the sale to Communist countries of equipment for manufacturing integrated circuits, approval of the French and British cases could be viewed, in effect, as discriminatory against American companies that might have competed for the same contracts.

American firms with off-shore operations are quite competitive in the sale of integrated circuits as finished products. An application by an American firm to export $10.5 million of non-military type integrated circuits to Bulgaria for use in desk calculators is now under review in the Commerce Department and is subject to approval under present rules.

If you should decide in favor of the British and French proposals, it can be argued that it would be consistent to license the sale of end-product integrated circuits in Eastern Europe up to a comparable level of technology. American firms would thus be afforded the opportunity of competing for orders for a wider range of integrated circuits.

The particular Romanian case which you asked this Committee to examine involves the export from the United States of manufacturing equipment valued at $200,000 for testing integrated circuits.

The Romanians need this equipment in connection with a production line set up by the French. In 1969, the French informed us of their plans to assist Romania to produce the IRIS-50 computer and integrated circuits for the computer, but refused to submit the case to COCOM.

Export of the test equipment was rejected by the Department of Commerce in 1971, but the Romanians have recently asked for review of this decision. We have also objected to the sale by other COCOM members of pieces of equipment apparently intended for the same production facility in Romania.

The interested Departments (State, Commerce and Defense) have considered several alternative ways of replying to the French and British. The alternatives considered but rejected are presented in the attached report. The specific recommendations of the Departments concerned are given below. Explanations by the three Departments for their recommendations are presented in the first attachment to this memorandum./6/

The Department of State recommends that you approve the export to Poland and Romania of integrated circuit manufacturing technology and equipment up to the performance levels of the British and French proposals, subject to the following conditions: (a) assurances from Poland and Romania of non-transfer of the technology; (b) no export of finished circuits from Poland and Romania to other Communist countries without prior authorization; (c) assurances from Poland and Romania regarding peaceful end-use of the integrated circuits; (d) agreement by France and U.K. that they will support continued denial of integrated circuit manufacturing capability to other Communist countries, as well as denial to Poland and Romania of technology going beyond the performance levels of these proposals.

The Department of Commerce recommends that you disapprove the export to Poland and Romania of integrated circuit technology and equipment, but approve a more liberal COCOM licensing policy on sales of integrated circuits themselves for civilian uses. Commerce recommends that this decision be communicated to the French and British Governments at a high level with an expression of the importance the US Government attaches to continued multinational control over integrated circuit technology and equipment and to their support of this position in COCOM.

The Department of Defense recommends that you avoid so far as possible relying on assurances of other governments to protect the important strategic interests involved in these cases and disapprove the export to Poland and Romania of integrated circuit technology and equipment.

As Acting Chairman of the Under Secretaries Committee, I strongly recommend that, at the conclusion of the current COCOM list review, a basic examination should be undertaken of our strategy toward future efforts to control, through COCOM, exports to the Communist countries. This Committee is prepared to undertake this study if you so direct.

Although this memorandum and its attachments were forwarded to the Department of Defense and Defense views have been incorporated, formal Defense Department concurrence has not been received as of this date.

Nathaniel Samuels

Washington, March 17, 1972.

SUBJECT
Proposed US Position on UK Sale of Satellite Earth Station to PRC

In the attached message, the Department of State proposes to raise no objection in COCOM to UK sale of another satellite earth station to the PRC./2/ It would be comparable to the one which RCA sold, ostensibly in connection with the President's visit./3/ I would like to state my non-concurrence in the proposed U.S. position.

Approval of the UK sale will establish another precedent weakening the U.S. negotiating position on strategic communications export controls to the PRC and Eastern Europe.

The stated technical merits of the case set forth in paragraphs 2(a) through (d) are questionable. The PRC cannot on its own operate "within the Intelsat framework" until she joins the International Telecommunications Union. She is unlikely to join the ITU as long as the Republic of China is a member. In the meanwhile her only point of contact with Intelsat is through RCA. The PRC's need to have several satellite earth stations for international communications has not been established. It is also not "clearly established" that Intelsat offers sufficient control against strategic use. If the PRC obtains more than one earth station, and later orbits its own satellite, the resulting system could be used for any purpose and in a country as deficient in strategic communications as the PRC, this risk would be significant. The argument that satellite communications are more expensive than land communications is not convincing in view of existing facilities in the PRC. Working up from the present low level would be costly and time-consuming. Satellites would seem a quicker and cheaper means of attaining a trunking system to meet the most urgent, immediate need for strategic communications.

The RCA sale has been taken as a precedent for the UK application and the Japanese are close behind. I now gather that the two video-voice terminals delivered by RCA to Shanghai apparently had nothing to do with the President's visit, except in the company's press releases and in its statement of end use which we in State, Commerce and Defense unfortunately accepted. I understand that the White House communications people did not allow the use of the Shanghai earth station for public radio or television purposes, on the advice of PRC officials, even during the portions of the visit in that city and in Hangchow. I do not believe we should now throw good money after bad. The difference between one earth station in the PRC and two stations is the potential for internal strategic communications. If we go to two, I do not see how we can hold the line at four, eight, or any number. Hence, my nonconcurrence in the proposed U.S. position on the UK sale./4/

Melvin R. Laird

In a March 28, 1972, letter to President Nixon, British Prime Minister Heath reviewed his views of the security issues regarding British export of integrated circuit technology to Poland, and wrote:

"The COCOM system has survived now for some 22 years and I think that all its members would agree that it has served a useful purpose. I am sure it will continue to do so provided it operates, and is seen to operate, on strictly relevant and up-to-date criteria. I am convinced that there will be no increase in the Warsaw Pact threat to the West as a result of the Ferranti proposal.

"Bearing these various factors in mind, I have come to the conclusion that I could not justify withholding an export license from the firm, at a time of high unemployment in this country. Accordingly, I have decided to authorize the issue of an export license on 30 March.

"I am sorry that we have been forced to go ahead on this, but I am sure you will appreciate that I have come to this decision only after the most careful consideration."

Prime Minister Heath had first raised British interest in the export to Poland in a February 11 letter to the President. His two messages were sent to Kissinger in a March 29 memorandum from Sonnenfeldt, along with a letter from French Foreign Minister Schumann; see footnote 2, Document 381. (National Archives, Nixon Presidential Materials, NSC Files, Country Files-Europe, Box 678, France, Volume IX 1/72-7/72)

Haig approved for Kissinger a telegraphic message to Prime Minister Heath, and a notation on Sonnenfeldt's March 29 memorandum indicates it was transmitted on March 29. Following a quick response by Heath on March 30 on the export of integrated circuit machinery, President Nixon in his reply of April 4 wrote that Heath had now given his "views on the assurances that we consider necessary. I believe that this aspect, which has longer range control implications, should be handled at the COCOM level." Both messages are ibid., NSC Files, Presidential Correspondence, United Kingdom, Heath.

Washington, March 29, 1972.

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

SUBJECT
Integrated Circuit Technology Exports to Poland and Romania

The President has reviewed the issues involved in the export of integrated circuit (IC) technology to Eastern Europe. He has considered the views of the Departments of State, Defense, and Commerce presented in the NSC Under Secretaries Committee memorandum of March 8, 1972,/2/ and has made the following decisions:

1. The export of integrated circuit technology and equipment by British and French firms to Poland and by a U.S. seller to Romania described in the Under Secretaries Committee memorandum is approved subject to the following conditions:

(a) assurances from Poland and Romania on non-transfer of the technology and on non-export of the finished ICs to other Communist countries without prior authorization;

(b) assurances from Poland and Romania that the finished ICs will be used for peaceful purposes only; and

(c) agreement by France and the UK that they will continue to support denial of integrated circuit manufacturing capability to other Communist countries.

2. The Departments of State and Commerce should take steps to bring about a liberalization of COCOM regulations that will permit sales to Eastern Europe of ICs themselves for civilian use up to a level of technology comparable to that which the ICs produced by the equipment going to Poland will provide. IC-producing equipment, however, should continue under present COCOM controls.

3. The Department of Commerce should modify U.S. export licensing policy so as to permit sales to Eastern Europe of ICs themselves up to a level of technology comparable to that of the ICs produced by the British and French equipment. IC-producing equipment should remain under present controls.

4. The Under Secretaries Committee should, following the current COCOM list review, undertake a basic examination of how the COCOM system should be used in the future to control exports to Communist countries. The results of this examination should be submitted to the President for his consideration no later than June 15, 1972./3/

Henry A. Kissinger

Washington, March 29, 1972.

Dear Maurice:

I am writing you about the sale of integrated circuit production equipment to Poland to which you refer in your letter of February 29./2/ After having given the most careful consideration to the issues connected with this export, the President on March 29 directed the Department of State to lift our previous objection to it./3/

In making this decision, the President believes that the sale should not be finally concluded until there have been received assurances from the Poles that they will not transfer the technology obtained from this equipment to other communist countries, that they will not export the finished circuits to such countries without prior authorization, and that the finished circuits will be for peaceful end-uses only. We hope furthermore that your Government will continue to support our common effort to deny the export of integrated circuit manufacturing capability to other communist countries.

You will appreciate, I am sure, that the President reached this decision only after the extensive and meticulous deliberations appropriate to the complexity of the issues involved.

Warm regards,

Henry

Pursuant to item 4 in NSDM 159 (Document 380), John N. Irwin, II, in his capacity as Chairman of the NSC Under Secretaries Committee, sent a memorandum to the Deputy Secretary of Defense, the President's Assistant for National Security Affairs, the Director of Central Intelligence, the Chairman of the Joint Chiefs of Staff, the President's Assistant for International Economic Affairs, the Under Secretary of Commerce, and the Director of the Office of Science and Technology on May 22, 1972, informing them that the President had requested the Under Secretaries Committee to undertake a basic examination of how the COCOM system should be used in the future to control exports to Communist countries. He noted that although the COCOM list review had not yet been completed, work on the project would have to get underway in order to meet the June 15 deadline for the report to the President. Irwin indicated that he had asked Assistant Secretary Willis C. Armstrong to chair an interagency task force to prepare the report, and attached a suggested seven-page outline of topics the task force might include in the report. (National Archives, RG 59, S/S Files: Lot 81 D 309, NSC-U/SM 109B)

Armstrong forwarded a copy of the task force report to Irwin under cover of a November 20 memorandum, Document 383.

Washington, November 20, 1972.

REVIEW OF THE COCOM SYSTEM (NSDM 159, PARA. 4)

I am submitting herewith the report on this subject requested in the memorandum of the Chairman of the Under Secretaries Committee dated May 22, 1972./2/

The study has been completed in the immediate aftermath of a major COCOM List Review./3/ It has also been conducted within the environment of our changing economic and political relationships with the countries of East Europe--notably the U.S.-Soviet agreements on lend-lease, trade, and shipping, as well as improving economic relations with Poland, Hungary and other Eastern European countries. This process of regularization is drawing our East-West commercial policy more within our overall economic foreign policy with strong emphasis on export promotion.

In conducting the work of the Task Force, I have found that there is general agreement on the need for an effective strategic embargo and on the continued value of COCOM as an essential part of such a program. No one has suggested either the withdrawal of U.S. support for COCOM or, at the other extreme, any sharp increase in the scope of the COCOM embargo program. All have agreed that there have been problems in maintaining the cooperation of the COCOM members in a relatively tight COCOM system. There has been general agreement on a number of steps, both within the U.S. Government and in COCOM itself, that would be helpful in making the system function somewhat more smoothly.

Despite this considerable area of agreement, however, our discussions have reflected differences in evaluating the weight or priority that should be accorded to the U.S. effort in COCOM in relation to other elements in our national policies, both foreign and domestic. Other U.S. objectives in our political or economic programs, or compulsions that may flow from important international developments, may and indeed do compete with the objective of maintaining a strong COCOM system. When this happens, compromises may be necessary.

It is clear from our discussions in the Task Force that the way different agencies would determine the kind of adjustment that should be made grows out of their evaluation of the relevant assumptions in the light of their primary responsibilities.

One of the options reflects this aspect of our discussions, in suggesting a higher priority effort in COCOM based on evaluations of its high importance and low cost in terms of impact on competing programs. This option, espoused by Defense and supported by Defense comments at various points in the study, asserted a greater need for new basic guidelines, a more pessimistic view of the future of strategic controls without a major U.S. effort, and a higher appreciation of the past accomplishments of COCOM than the other members seem prepared to support.

Since the agency views have been so fully developed in connection with the drafting of the report, I hope it will be possible to obtain agency positions without holding a meeting.

Washington, November 17, 1972.

STUDY OF COCOM (NSDM-159)

I. Summary

In 1950, the U.S. and its principal Allies established a strategic trade control system the function of which was to restrict the flow to the Communist world of equipment and technology which could make a significant contribution to the military strength of those countries. This system remains today in its essential operating features much as originally established. Its administration is in the hands of a permanent Coordinating Committee (COCOM) which sits in Paris and whose 15-nation membership consists of all of the NATO nations (less Iceland) plus Japan. U.S. participation is authorized by the Mutual Defense Assistance Control Act of 1951 (the Battle Act), and U.S. positions and actions in COCOM are formulated and taken by the Department of State in coordination with the Departments of Defense and Commerce and the Atomic Energy Commission, as well as other departments and agencies concerned with security controls over exports.

The basis of COCOM actions is a list of commodities (and technology related thereto) the export of which is embargoed. By agreement among the participating countries, no member country will license exports of these items to Communist countries without COCOM approval. A unique aspect of COCOM is that all decisions require unanimous agreement of the members, whether they are determinations of what will be included in the International List or approvals of requests by the participating countries for exceptions to permit them to license specific transactions of embargoed items.

Despite many spotty areas and variations in thoroughness of application, the COCOM system has in our view worked reasonably well in accomplishing its limited purpose of controlling the flow of a selective list of strategic goods and related technology to the Communist countries. Approximately every three years this list is reviewed and revised in negotiations carried out over a period of months, the latest such review having just been completed. This updating process has resulted in a considerable narrowing of the embargo coverage over the past decade or so, but new items have also been added to protect new technological developments.

Generally speaking, the U.S. has been in favor of maintaining more extensive controls than our COCOM partners, who are constantly seeking reductions in the embargo coverage. This basic difference in policy approach has led periodically to fairly serious strains within the Organization. Our partners have made a few spectacular departures from the rule of unanimous decision in response to heavy commercial pressures. The most serious of these was unilateral denunciation of the differential China list in 1957 by the UK. There have also been several important exports of embargoed commodities and technology without COCOM approval, particularly in the aircraft and computer fields. However, such instances have been surprisingly few.

Defense points out that the COCOM system was established at a time when our partners, still trying to rebuild their economies in the aftermath of World War II, had little of strategic value to export. Now their situation is different and while all COCOM members render lip service to the principles of the embargo and even occasionally propose additions to it, their major emphasis is on its reduction and on obtaining exceptional treatment for the sale of their manufactures and technology. They have proved themselves quite willing to class as strategic and place under embargo a commodity which only the U.S. can export, but when they develop a capability to produce the same commodity (often as a result of U.S.-furnished technology) they tend to argue that it is no longer strategic, confident that the burden of any increased Free World defense expenditures which may have to be made as a result will be borne by the United States.

Some inroads into the system have been made by illegal diversions to Communist countries of shipments of strategic commodities. While such diversionary activity can never be stopped completely, efforts to minimize it have varied greatly in intent and effectiveness from country to country and at different times. While it is of course difficult to assess the effects of this type of activity, such information as is available indicates that the controls have not been seriously undercut in most instances.

A further limitation on the effectiveness of the embargo is the availability to a limited, though increasing, degree of strategic commodities from five Western "neutral" non-COCOM countries. The three most important--Austria, Sweden and Switzerland--have cooperated with COCOM in varying degree.

As demonstrated in the body of the report, the USSR's technology applicable to nuclear weapons delivery systems lags significantly behind the West--from two to six years for such items as liquid and solid propulsion systems, guidance systems, penetration aids, test equipment, communications equipment, transistors, integrated circuits, and advanced computers. The study cited in the report shows that the lag is even greater for the PRC, ranging from eight to twelve years. It is a reasonable assumption, and Defense believes it is demonstrably the case, that the COCOM controls are playing a significant role in preventing this gap from closing.

The resulting gain to the U.S., in military terms, is a margin of technological advantage on which the success of our deterrent strategy heavily depends and on whose maintenance in FY 1973 we will expend more than $8 billion for defense research and development alone. The Department of Defense considers that, in economic terms, the gain to the U.S. is the saving of several billion dollars for additional defense research, development, procurement and deployment which would become necessary if our present margin of technological advantage were to be lost or seriously impaired.

At the same time, in terms of effect on total trade, only a small percentage of potential exports are affected by the embargo, and its complete elimination could be expected to produce only a minor increase in the present $12 billion level of Free World exports to the Communist areas.

The COCOM organization remains voluntary and informal, depend-ent upon the cooperation and cumulative effectiveness of the national control systems of the member nations. The principle of unanimous decision continues in effect. A major review of the lists has just been successfully concluded, and the day-to-day handling of exceptions requests continues relatively smoothly.

However, the COCOM system as it presently exists is faced with some increasingly serious problems. First, as a result of the prevailing spirit of dŽtente, the new emphasis on East-West trade, and heightened commercial interest, our COCOM partners put increased pressure on the U.S. during the recent list review to agree to substantial relaxation in the embargo. For example, at one stage the UK made it clear that it was unenthusiastic about continuing its COCOM cooperation if the U.S. could not be more forthcoming in reducing controls on items the UK regarded as crucial./5/ Our partners have also pressed for U.S. approval as exceptions to the embargo of exports of highly advanced technology. Departures from the principle of unanimity have been averted in several instances only by U.S. acquiescence in such proposals after high level political representation and review. We do not agree with our partners' apparent assessment that the strategic risk has sufficiently lessened to permit the degree of liberalization they desire. However, it is evident that our increasingly divergent views are creating a serious political problem which threatens the continued effectiveness of the organization.

In the view of the Department of Defense, in agreeing to relaxation of controls in the last list review and in approving a number of major exceptions cases, the U.S. has made substantial concessions to allied pressures. There is every sign that these pressures will continue unabated, particularly in the very areas, such as electronics, which can continue to benefit from strong controls, and the U.S. is thus faced with the choice of stiffening its stand from here on out, or having the COCOM system become little more than a facade.

Second, the volume of requests for exceptions to the embargo has increased to such a degree that further measures must be found to permit concentration, both in COCOM and within the U.S. Government, on cases of major concern and to screen minor cases out of the international review process. In the ten years from 1961 to 1971, the value of exceptions to the embargo rose from $3.4 million to over $75 million annually, and the number of exceptions cases processed through the Committee from 142 to 635 per year. The results of the recent list review will eliminate many exceptions requests, but requests in 1972 are running at almost double the 1971 rate.

Third, by 1972 it was apparent that the U.S. role in COCOM had undergone a gradual but distinct change. The U.S. still served very much as the conscience of COCOM, proposing more new embargo listings that the others, opposing the combined judgment of our partners on certain key items, and objecting to more exceptions cases than any other COCOM member. At the same time, the U.S. itself began to take a more aggressive interest in seeking exceptions. It moved into first place in number of submissions in 1971, and pressed hard for urgent action on some of its own cases. The handling of the RCA earth station and Boeing aircraft cases for the PRC dramatized for the other COCOM members this unusual U.S. interest in rapid almost after-the-fact COCOM approvals. The new U.S. policies on trade with the PRC and vigorous trade initiatives toward the USSR suggested to other COCOM members that the U.S. attitude toward COCOM was becoming more relaxed. Although we have repeatedly assured them that this is not the case, it seems unlikely that they are fully persuaded. Our pressing of exceptions which appear to diverge dramatically from our previous policy, and which in some cases are inconsistent with positions recently taken in the Committee on others' exception proposals, has furthermore led to the view, now seriously held in some quarters, that the U.S. is attempting to take commercial advantage of its dominant COCOM role. The corrective steps recommended under Options B and C appear needed to prevent this new divergence of attitudes from fatally weakening the COCOM structure.

In the judgment of the Department of Defense, many of our current difficulties in COCOM could be dealt with more effectively were it not for deep-seated differences of viewpoint toward COCOM, its role, its effectiveness, its cost, and its worth among the principal U.S. departments and agencies involved in the Washington decision-making machinery. These differences have resulted in an increasing inability of the interdepartmental machinery, particularly at the working group level, to reach decisions both on exceptions cases and on list review questions as is manifested by the growing number of COCOM matters which in recent months have had to be escalated to the White House for Presidential level decisions. If these differences, most of which remain unstated could be brought into the open, authoritatively examined and resolved once and for all, many difficulties in the system would either disappear or be reduced to manageable proportions.

As part of the extended analysis of COCOM in the basic paper, a range of options for the United States is examined. These options are summarized with pros-and-cons in the section immediately following, entitled Options and Recommendations./6/

Most of the agencies participating in this study believe that it would clearly be unrealistic under prevailing conditions to expect success in any effort to broaden or strengthen COCOM. On the other hand, the agencies agree that the problems being experienced in the organization are not yet of sufficient gravity to warrant reliance on alternative mechanisms for controlling strategic trade nor to attempt to obtain basic modification of the COCOM structure. Several measures for improving operation of the system and preventing its deterioration, including procedures within the U.S. Government, have been identified. The question of undertaking preparations to make the COCOM List coverage as selective as possible is also examined in the report.

The options considered in this study have been grouped into five basic approaches, as described below.

Under this heading are listed a number of specific actions which might be undertaken as a positive U.S. program to prevent deterioration of the COCOM system.

In recommending this Option, the Department of Defense believes that, while strategic trade controls have been reasonably effective to date, their future prospects are not promising unless the U.S. acts to give them greater support. The Departments of State and Commerce do not support the Option as presented. They believe that approaches to other member governments at an appropriately high level along the lines of Sub-Options (1) and (4) could be useful and appropriate if tied in with implementation of Sub-Option C (4) and completion of the U.S. review there referred to, dependent on the outcome of the review, but consider that a recommendation along these lines can usefully be made only after completion of the U.S. review. They also believe that such an approach made now, and unrelated to the outcome of the U.S. review, would be both undesirable and ineffective.

A fuller statement of advantages and disadvantages of this Option is found on pages/7/

Under this heading we have grouped several actions which might be undertaken, without major overhaul of the existing system, to improve Washington support arrangements--by speeding up decisions on COCOM cases, insuring adequate and timely technical contributions, and minimizing paper work.

With the exception of B (4) on which Defense dissents, these recommendations are supported by all agencies, although Defense believes that none of them go to the heart of the problem.

Under this option, we have considered modifications of the COCOM system itself including the adoption of majority voting, national determination in exporting end-items, a liberalized de minimis rule, and further refinement of the embargo list.

For reasons set out in the Options section and in the report, all agencies agree that it would be unwise to modify the present unanimity rule in COCOM or to curtail the COCOM structure to the extent of abandoning the system of international review of individual exceptions to the embargo. The Departments of State and Commerce believe that, although the de minimis level was raised from $200 to $500 earlier this year, it could without significant strategic risk be further raised to $1,000 (and from $4,000 to $5,000 for servicing of previously exported equipment). The Department of Defense disagrees.

The Departments of State and Commerce are of the opinion that limiting the list to the minimum essential coverage necessary to meet the basic COCOM objectives should permit a further refinement of the list in 1974. Such a refinement will aid in preserving the existing effectiveness of COCOM in the face of the present spirit of détente and the mounting pressure for relaxation.

The Department of Defense can accept this recommendation only to the extent that "further refinement of the list" is not a euphemism for a sharp reduction; first on security grounds, because with the list review just ended, a sharp reduction has been made and second, on practical grounds, because, as the mounting pressure for further relaxation shows, our COCOM partners are not appeased by such U.S. action. Moreover, the Department of Defense believes this fresh review should be undertaken only in connection with the other measures outlined in Option A. In fact, Item 6 in Option A provides for essentially this kind of review.

A shift away from the COCOM to a unilateral approach is examined but the conclusion is reached that the U.S. no longer has sufficient technological leadership to make such an alternative viable. Additional factors are the commercial discrimination that would affect American firms and other Western firms subjected to unilateral U.S. controls, and the serious political problems which would result from attempting to enforce these controls extraterritorially. While Defense agrees that the COCOM mechanism continues to be the preferred approach, it would not entirely rule out this alternative when it judged that COCOM controls were no longer sufficiently effective.

The possibility of expanding COCOM's role and giving it a more positive aspect has been studied. All agencies which have expressed positions on this option consider that it would be inadvisable under present circumstances to seek to broaden COCOM into a trade development or coordination group. While other existing organizations might prove to be more suited to this purpose, the possibility should be retained of utilizing COCOM in such a role upon completion of the Conference on European Security and Cooperation.

[Omitted here is the body of the paper.]

Washington, December 12, 1972.

SUBJECT
Review of the COCOM System (U)

In response to your memorandum of 24 November 1972, the Chairman, Joint Chiefs of Staff and I have reviewed the report and the draft Memorandum for the President prepared in response to NSDM 159./2/

We consider the report represents a balanced analysis of the COCOM system as it presently functions and options that could be adopted to control future exports to communist countries. It appears to reflect adequately those agency dissents on substantive issues. However, the draft Memorandum for the President does not present in adequate balance the views contained in the report and we cannot concur in it. We note that there was no interagency collaboration in the development of the Memorandum for the President. To insure that it reflects agency views as clearly as the Report, we recommend that our staffs collaborate in writing a new memorandum which does provide the needed balance and that it be returned subsequently for our concurrence.

Kenneth Rush/3/

Washington, December 20, 1972.

Dear Mr. Weiss:

Your memorandum of November 24, 1972 sought our concurrence or views on the proposed report to the President on the review of the COCOM system required by NSDM 159, paragraph 4./2/ We have examined the report thoroughly and find it acceptable in most respects. We do note that, as might be expected from a report which has been subjected to inter-agency negotiations and compromise for six months, it does not have as hard and clear a focus on some of the basic issues as we might have wished. There are, moreover, several specific matters which we would like to see modified. These are set forth below:

1. Regarding Option A: Maintaining an Effective COCOM System:

The present statement of the Commerce position in the second paragraph under this heading on page 7 (Chapter 1--Summary) is incorrect. Commerce believes that effective implementation of Sub-Options (1) and (4) could, indeed, be useful if tied to implementation of Sub-Option (C) (4) but feels strongly that the advantages from pursuing these Sub-Options would be maximized if the approaches to other governments were made at the outset of the next COCOM List Review which will probably occur in late 1973 or early 1974. Furthermore, Commerce believes consideration should be given to possible discussion of these problems with key COCOM governments at the same time that discussions are initiated with them on GATT issues. This tactical approach would, of course, require staffing out.

Commerce recommends, therefore, that the subject paragraph be modified, beginning with the 8th line, to refer to the Department of State only and that the following statement be included to reflect the Commerce view: ". . . the Department of Commerce believes that approaches to other member governments at an appropriate high level along the lines of Sub-Options (1) and (4) could be useful, provided that they are properly tied in with implementation of Sub-Option (C) (4) and the approaches are made at the outset of the next COCOM List Review rather than now or following the completion of such list review. The Department of Commerce also believes that the possibility of combining and/or coordinating negotiations on these two points with the next broad GATT negotiations with key COCOM countries should be examined and reported on in the immediate future."/3/

2. Regarding Option B, Commerce recommends that:

a. Sub-Option (1) on page 14 be made more realistic by revising it to read as follows: "(1) Introduce a more formalized decision-making procedure, as described on pages 96 and 97 to facilitate the resolution of interagency differences on COCOM matters within a specified period of time."/4/

b. Sub-Option (2) on page 15 be modified by removing the words "such" and "those" from the third line to reflect fully the intent of the Act.

c. Sub-Option (4) on page 16 should be revised by adding thereto the words "to the extent consistent with an effective enforcement mechanism."/5/

3. Regarding Option C: Although Commerce staff officers accepted inclusion of the increased de minimis and servicing value levels in Sub-Option C (3), Commerce has now concluded that consideration of this Sub-Option should await further experience under the recently increased levels. In the Commerce view, there remains too much question as to the likely adverse strategic impact of further increase at this time. Therefore, Commerce should be dropped from support of this recommendation, and the second paragraph under Option C on page 8 of the Summary should be changed accordingly./6/

I ask that the report to the President be modified to reflect the above views and suggestions.

Sincerely,

James T. Lynn

Washington, December 21, 1972.

Dear Mr. Weiss:

I refer to your memorandum of November 24, 1972, to Chairman Schlesinger enclosing a copy of the National Security Decision Memorandum 159 (NSDM-159) COCOM Study and requesting AEC's concurrence or comments./2/

The Commission has reviewed this study and is in agreement with the general substance of the report. With specific reference to the Options and Recommendations, the Commission favors the preservation of the COCOM system and a positive program to prevent its deterioration as similarly reflected in Option A. To achieve this goal, it recommends options (4), (5), and (6) of Option A/3/ and the various options set forth in Option B. The Commission noted that State and Commerce are recommending Option C. (3) to increase the de minimis level from $500 to $1,000 and the servicing level from $4,000 to $5,000. While the Commission is sympathetic to decreasing the administrative burden occasioned by exception requests, it noted in the report that the present levels were at least doubled in September of this year, and concluded that further refinements in the embargo definitions based on careful technical reviews would be a more practical solution than arbitrarily increasing the value of the de minimis and servicing levels. With regard to Option C. (4), it was concluded that while changes in the COCOM list were necessary to maintain a current and workable list, these changes should result from careful strategic evaluations and current policy guidance or criteria as suggested in Option A. (5) without preconception of how the list should be limited./4/

Since the Commission's views are not completely shown in the draft report, we would ask that they be reflected in the proposed memorandum to the President.

Sincerely,

Edward B. Giller

Washington, December 29, 1972.

SUBJECT
Study of the COCOM System

On March 29, 1972, you directed that the Under Secretaries Committee, following the COCOM list review, undertake a basic examination of how the COCOM system should be used in the future to control exports to Communist countries./2/

The Committee's report is attached./3/ All agencies agree that the system has been effective and has made a valuable contribution to our deterrent strategy. All agree also that there have been problems in maintaining the cooperation of the COCOM members in a relatively tight COCOM system and that these problems threaten the continued effectiveness of the system. Generally speaking, our present difficulties in COCOM arise from the prevailing spirit of détente, the new emphasis on East-West trade, and increased commercial pressures which have accompanied these developments in the U.S. as well as abroad.

The agencies have agreed that we should reject the more extreme options of abolishing COCOM and relying on U.S. unilateral controls (Option D), or reconstituting COCOM as an East-West trade coordinating body (Option E). The agencies have also agreed on a number of procedural steps to help the system function more smoothly (Option B, parts 1-3). The agencies differ, however, on the more basic course of action which the U.S. should adopt in dealing with the difficulties described above.

There are two such basic approaches reflected in the study:

--the first, proposed by Defense, envisages now a high priority effort focused on encouraging a more positive attitude and commitment in COCOM on the part of its members--a program as set forth in Option A consisting of a number of individual measures designed to secure greater recognition at home and abroad of the direct linkage between national security and strategic trade controls;

--the second, proposed by State and Commerce, envisages a thorough and probing analysis of the embargo list well in advance of the next COCOM List Review in order to satisfy both ourselves and our COCOM partners that we have made every effort to limit the embargo coverage to the minimum necessary based on sound strategic evaluations--a program as set forth in Sub-Option C (4) that would utilize the government-industry technical advisory groups provided for in the Export Administration Act as recently amended and would assure that U.S. objectives in COCOM are fully consistent with our changing political and economic relationships with the Communist countries.

The distinction between these two approaches has a great deal to do with timing and emphasis. Thus, Defense would not reject a careful review of the embargo list provided it is undertaken in connection with the program outlined in Option A and does not presuppose a further sharp reduction. While neither State nor Commerce supports Option A as set forth, Commerce believes that the approaches to other governments foreseen in Sub-Options A (1) and (4) could, indeed, be useful if tied to implementation of Sub-Option C (4) but believes strongly that the advantages from pursuing these approaches would be maximized if they were made at the outset of the next COCOM List Review, which will probably occur in late 1973 or early 1974, rather than now.

State considers that such approaches at an appropriate time and level might well be useful, but believes it is too soon now to determine such tactics which would be both undesirable and inappropriate if undertaken at this time. State also believes that we cannot legitimately influence the degree to which defense elements in member governments have a role in COCOM matters (Sub-Option A (2)) and that it would be impractical to try to relate COCOM formally to NATO (Sub-Option A (3)). The Atomic Energy Commission generally favors a positive program to prevent deterioration of COCOM as reflected in Option A and specifically recommends Sub-Options (4), (5), and (6). The Commission has also expressed the view that a review of the COCOM List as provided in Sub-Option C (4) should be undertaken within the kind of current policy guidance or criteria suggested in Sub-Option A (5) without preconception of how the list should be limited.

The choice between these two approaches involves a decision on the priority to be given the COCOM effort in relation to other elements in our national policies. The first approach involves a concerted and strenuous U.S. initiative to strengthen support for the system. It is based on a relatively high appreciation of COCOM's past achievements and a pessimistic view of its future effectiveness without this major effort. The other approach would attempt to assure that U.S. efforts in COCOM are in perspective with current developments in East-West relations; it is based on a pessimistic view of the prospects for influencing our allies toward a stronger course of action in COCOM.

Sub-Option C (3) requires special comment. It recommends a moderate increase in the minimum value of exports proposed as exceptions to the embargo which must be submitted to COCOM for review. In the Study as circulated the proposal, supported by State and Commerce, was for an increase from the present $500 cut-off for new exports to $1000 and from the present $4000 cut-off for servicing of previous exports to $5000. Commerce has withdrawn its support for this recommendation on grounds that consideration of this Sub-Option should await further experience under the present recently-increased levels because there remains, in the Commerce view, too much question as to the likely adverse strategic impact of further increase at this time. The Department of State, as the only agency supporting this Sub-Option, has modified its recommendation to propose a $2000 rather than a $1000 level for new cases. This is a figure consistent with the basic analysis of the issue in the body of the Study which shows that during the sample period 28 percent of the cases submitted to COCOM were valued below $2000. State believes that leaving with individual countries the responsibility for deciding such minimum value cases would be an acceptable risk and would greatly relieve the work-load in the committee.