CFEP DRAFTING GROUP ECONOMIC DEFENSE POLICY REVIEW FOREIGN ATTITUDES TOWARD ECONOMIC DEFENSE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP63-00084A000100040007-5
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 40
• Document Creation Date: December 9, 2016
• Document Release Date: March 22, 2000
• Sequence Number: 7
• Publication Date: June 27, 1955
• Content Type: STUDY

lee-C, ~r _4)11g
Approved For Release 2000/08/23 : CIA-RDP63-00084A0001000 ,0O 5 ,1
.-2 7Qf-J'
SECRET
CFEP DRAFTING GROUP
ECONOMIC DEFENSE POLICY REVIEW
Staff Study No. 3 (Revised)
Draft of June 24, 1955
Foreign Attitudes Toward Economic Defense
This draft of Staff Study No. 3 (Revised), "Foreign
Attitudes Toward Economic Defense", is transmitted for your use
in connection with the work of the CFEP Drafting Group on
Economic Defense Policy Review.
In compliance with the request of the Chairman of the
Drafting Group, the Executive Secretary, EDAC, is providing re-
production and distribution facilities as a service to further
the work of the CFEF Drafting Group.
Irving I. Kramer
Executive Secretary
Distribution:
CFEP Drafting Group
SECRET
State Dep pp ovledSFFor~ eiease (~QUAg1 i i4rISPt R0B94Rbe0100040007-5
 Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100040007-5
TABLE OF CONTENTS
Page
Abstract .. . . . . . . . . . . . . . . . . . a . . . ii
I. United Kingdom . . . . . ? . * . . . ? a . . . . . 1
III. France . . . . . . . . . . O O a . . e ? e O O O O a o . O 10
IV. Germany . a . . ? . . . a . . . . . . . . . . . . . o . 12
Italy . . . . . . . . . . . . . . . . . . . . . . . . .
Portugal ? ? . . . . ? . a . . . . . . . a . . . . . . . .
14
17
18
VII. Denmark . . . . . . . . . . . . . . . . . . . . . . . ..
VIII. Sweden . . . . . . . . . . a . . . . . * . . . . . . . . . 20
IX. Switzerland . . . . . . . . . . . . . . . . . . . . ? . . 23
X. Greece and Turkey . . . . . . . . . . . . . . . . . . . 21L
XI. Japan . . . . 000000690 00 . q ? . . e a . . .
25
XI
I
. Southeast Asia . . . ? ? ? ? ? ? a b ? b . o o . a b b ? b 30
T
y
I
XIII. South Asia ? ? . b . b . n . o . o b a . b 4
33
Approved For Release 2000/08IA-RDP63-00084A000100040007-5
 Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100040007-5
SECRET This document consists of
39 pages. No. of
7 copies, Serie A.
Staff Study No. 3
Revised, June 2I, 1955
Foreign Attitudes Toward Economic Defense
Abstract
In any discussion of the restriction of trade with the Soviet bloc,
foreign attitudes must be considered of paramount importance. The US by
itself has now virtually no direct control over Soviet bloc imports in the
sense that US exports to the Communist bloc amount to only one-tenth of
one percent of the small total of Free World exports to that area.
While there is considerable agreement among the Free World countries
about the necessity for controlling trade with the bloc,, US public and
popular attitudes have generally favored tighter restrictions than have
other countries.
Two major factors probably explain most of the difference. First,
foreign countries are more inclined than the US to act on the belief that
trade is a potentially important means for reducing international tensions
and the danger of war. Second, many foreign countries, more dependent for
their economic well-being than the US on foreign trade in general, are more
concerned with the effect on their domestic economies of restrictions on
trade with the bloc. In fact, at times their concern sears out of pro-
portion to the actual potential for trade with the bloc. Thus, there was
and continues to be widespread support for the Danish statement in the
Consultative Group in the spring of last year, which proposed that in any
ii
Approved For Release 2000/08/3iR9A-RDP63-00084A000100040007-5
 Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100040007-5
revision of the export control system "it was essential that the effect
of the restrictions on economic and social conditions in the participating
countries themselves be kept closely and firmly in mind."
While there are wide differences among the countries of the Free
World in their attitudes toward economic defense measures, a considerable
degree of uniformity has been achieved in the application of the controls
multilaterally agreed upone Denmark., which frequently attempts to have
the restrictions on trade with the bloc reduced, has not concluded a trade
agreement with the USSR because the latter insists on the inclusion of
tankers which COCOM has termed '"strategic." The countries of Asia have
generally adhered to the UN embargo of "strategic" goods to Communist
China. In Indonesia and Burma., however., there are considerable political
and economic pressures for expanded traded These attitudes are particularly
influenced by the neutralist foreign policy orientation of these countries.
India which loudly proclaims its neutrality and independence of the US,
secretly follows Western trade controls from considerations of foreign
policy, although, in addition., it has only limited amounts of 1"strategic"
goods available for export. While the program of economic defense has
little public support., Japan has faithfully observed its international
commitments in this regard. West Germany favors tight controls but objects
to applying them equally which nevertheless it does in the main., to its
trade with East Germany. The UK has been a positive force in developing
the present limited trade control program., especially the important relaxa-
tion of controls of the summer of 195:, and in providing for its effective
implementation.
Approved For Release 2000/08/3 IA-RDP63-00084AO00100040007-5
 Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100040007-5
SECRET
Currently, there are two major areas of disagreement between the
US and other countries of the Free World in the matter of trade controls.
First is the question of treatment of Communist China. The second is the
question of the definition,, identification and treatment of 11strategic"
versus 'non=strategic' trade.
Most foreign countries are opposed to applying higher levels of
controls against Communist China than against the rest of the Communist
bloc now that the wars in Korea and IndoA,hina are over. The principal
exceptions are Taiwan and South Korea. Many Asian countries are, in
particular., motivated by neutralist sentiment and,a desire to reduce
international tension as well as economic considerations in seeking to
reduce the barriers to trade with Communist China. It is pointed out
that the differential in export controls can readily be circumvented. by
Communist China which can have the anbargoed goods transshipped via.
European bloc ports and carriers. Moreover, Japaw-i feels that this factor
puts it at a serious disadvantage vis-a-vis the Western European countries
in trade with Communist China.
Foreign countries have generally embraced the philosophy of
"strategic" goods in the sense that they wt1lingly embargo exports of
such goods but believe that trade in "r,;+}n--3trategic" goods is not only
not undesirable but is to be positively encouraged. Moreover, they
:gwerally favor a narrower definition of "strategic," wanting it to
relate solely to goods which seem to have an immediate military application.
The present control system., limited primarily to embargoing exports of
goods of direct military use, is the result of fairly general foreign
Approved For Release 2000/08/",9IA-RDP63-00084A000100040007-5
 Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100040007-5
pressure, led largely by the UK, for a narrow sphere of trade controls.
Foreign pressure is more generally behind limitations and reductions in
the scope of trade controls; there is little sympathy for any increase in
the degree of restriction of the program,
v
Approved For Release 2000/08/l~IA-RDP63-00084AO00100040007-5
 Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100040007-5
I. UNITED KINGDOM
General Brrtt1`sh Position. As early as 1949 the UK Government, after
consulttatiorr-with. tyre US, took the lead in getting the countries of Western
Europe tageth+er- to -agree on a framework of strategic controls over trade
with. th?e Soviet Blac. The UK has played a key role in the Consultative
Group since it wes-established in 1949. The British also initiated controls
over, exmrts---ta Coziu un est China even before the Korean War and supported the
UN resoltation .in.19S1 under which China was declared an aggressor and exports
were strictly limited. British initiative was also important in the relaxa-
tion of controls over trade with members of the European Soviet Bloc agreed
upon in the Consultative Group in 1954. (The change did not affect controls
ove ?trade?with?Communist China, North Korea, Tibet, and more recently North
Vietnam. In addit?an., trade with Macao is carefully regulated.)
The UK fluxing the past year took the lead in seeking to reduce the
export control Lists to include only those items which are in the main of
immediate mtIttary-significance. The British cannot, however, be character-
ized as arrtis~l Actually they have probably made more positive con-
tributions to COCOM than any member except the US. The record of formal
-British cormitnerts on East-West trade controls indicates both independent
initiative by the government in plugging some loopholes in the -controls
system inaugurated by the UK and approved by COCOM and in cooperating with
other Western countries to render the system effective. Labor and Conservative
governments, as well as the majority of the British people, have recognized
the need for some such controls. They are not likely to alter their position
Approved For Release 200019&9: CIA-RDP63-00084AO00100040007-5
 Approved For Release 2000/08/23 : CIA-RDP63-00084A000100040007-5
SECRET
? 2
as long as the international situation requires limitations on trade with
the.Communist world.
Considerations Affecting British Attitudes Toward Controls. The British
Government regards the international political and strategic aspects of the
existing control system as a paramount consideration of national policy. The
government is not likely to act unilaterally to change this system or to
evade compliance with its regulations because of some differences with
other COCOM members concerning Soviet-Chinese capabilities or intentions or
because of overwhelming economic urgency, Although subject to considerable
pressure from private British traders and political groups to increase the
volume of trade with the Soviet-Chinese bloc,, both on economic and political
grounds,, the government does not attach an exaggerated importance to this
trade.
The trade comprises only about 2 percent of Britain's total overseas
trade., partly as a result of the imposition of controls. Under the most
favorable circumstances it is not likely to assume the proportions (about
6 percent) it had with Soviet-Satellite members in Europe before World War II.
Soviet economic policies and the changed pattern of economic life in most of
the satellite countries have worked to limit exports-and the capacity to pay
for imports,, and have probably altered fundamentally the long-term economic
relationships between the UK and Eastern Europe. In addition,, the lack of a
satisfactory settlement on British properties nationalized by the Eastern
Europeans acts to depress British trade and investment in the area.
The influential Federation of British Industries and the Trades Union
Congress have generally concurred in the estimate of the limited economic
Approved For Release 2000/08/23: CIA-RDP63-00084A000100040007-5
s
 Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100040007-5
SECRET
Gam
importance of East-West trade for the UKa stressing the need to increase
legitimate trade opportunities wherever they arise but warning against large
expectations from trade with the Soviet Bloc countries. Despite persistent
demands for increased trade by segments of the British business community
and for an equalization of controls between the European-Soviet Bloc
countries and Communist China., the national economic stake in this trade
remains marginal and is not likely to become the sole determinant of British
policy in COCCM. The British are., however,, concerned about the economic
future of Hong Kong.
There are' nevertheless reasons why the British Government and much of
the business community still continue to favor a progressive relaxation of
controls., if the international situation warrants it. Generally., the British
view the whole control system as an international expedient,, voluntarily
agreed upon to meet an emergency of uncertain duration and only valid so long
as it meets the requirements of the emergency without causing unnecessary
economic embarrassment to the cooperating members or perpetuating political
tensions between the West and the Communist vorld. The British favor the
largest possible area of permitted trade and., conversely., prefer to limit
the area of prohibited trade. There is no essential difference between
Conservatives and Laborites in this basic respect. The viewpoint is the
closest the British are likely to come to what may be called a philosophy
for CCC(t4 actions comparable in some respects., but far more flexible and
loose., to the British approach to the pr?ely military aspects of NATO.
The British accept the fact that economic defense precautions are
inseparable from military preparadpess against a potential enemy. They do
Approved For Release 2000/08/23: CIA-RDP63-00084AO00100040007-5
SECRET
 Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100040007-5
SECRET
not always agree, however, that the priorities are the same or that the
justification for particular economic defense measures is clear They have
adopted a highly selective attitude toward controls and lately have resisted
hard restrictions on goods which they consider to have a marginal strategic
character and have opposed the imposition of embargoes on individual items
like shipping of certain tonnage and speeds, copper wire, rolling mills, some
types of generators, and other commodities. The government has interpreted
its COC +I commmitments narrowly and, in the view of sOm a observers, has taken
advantage of all the loophoXes to permit its citizens to trade with the
Communist world. In part this may be due to the strong position of the
Board of Trade in the cabinet. Other reasons for this position undoubtedly
arise from the tough., pragmatic line the British have customarily adopted,
regardless of the party in power., toward international trade, and from
domestic economic and political pressures which every British Government
must somehow attempt to reconcile with both the national self-interest and
British international commitments.
US-UK Differences over Control Policies. The record of US-UK coopera-
tion on the establishment and enforcement of international control policies
is far more impressive than the differences in outlook and detail which
have divided the two countries. This fact is overwhelmingly true at the
governmental and technical levels, although it is often obscured by public
and partisan controversies in both countries over particular cases of
alleged v#lation of the system of controls or differing interpretations of
t the system calls for.
Some diffrences have already been referred to, both substantive and
Approved For Release 2000/08 lA-RDP63-00084A000100040007-5
 Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100040007-5
SECRET
- ,
procedural, and need not be stressed again. Broadly speaking,?h~ R.,,. f,-4 4;.
believe that elements in the US administration and Congress think rC:z7CM
in terms of a comlrehensite, quasi-permanent, rigid system of c ontro1s, while
the British tend to think of COCA as a means of applying a series of ad hoe,
and by no means necessarily permanent set of restrictions on particular com-
modities designed to reduoe the offensive threat of the Soviet-Communist world.
Betoause the US and the USSR are so deeply polarized in basic political
and economic philosophy and so deeply opposed in strategic aims, the British
believe that little disposition exists in the US for compromise or flexibility
in dealing with international Communism on the Trade front. Yet, because the
British Government and most responsible political leaders appreciate the
danger of Soviet-Chinese ex;~;ansionisme they do not disagree fundamentally on
the need for some controls; they nevertheless are disposed to more far-
reaching compromises than the US in various economic and political situations.
The spirit of this approach reflects a more prevalent public view in the UK
than in the US of the possibility of peaceful coexistence with world Com-
munism under certain circumstances. It reflects a softer and more accommo
dating type of diplomacy and a willingness to live with situations of
stalemate or half-measures.
The British attitude is, of course, directly related to a heightening
sense of fear of war and the vulnerability of the British Isles and territories..
If economic defense measures deter Communist aggression, they serve a major
purpose, the British agree; if, on the other hand, they exacerbate tensions
without effectively deterring, they have little justification. All too often,
British critics of US foreign economic defense policies believe, the US appears
Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100040007-5
SECRET
 Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100040007-5
SECRET
-6-
willing to follow an inflexible trade policy toward international Communism
that leaves little room for Western maneuver. They do not seem to recognize
that the US has made many substantial concessions and that in the view of
this government, the British appear inflexible. Their case is also often
based on an indictment of general US economic foreign policies which they
would like to see liberalized and freed from controls that allegedly impede
British exports. This merging of criticisms about specific East-West trade
controls with those relating to the general posture of free world economic
foreign policies reflects the permanent concern of all British Governments
with international trade.
The divergent recognition policies of the US and UK toward Communist
China have also raised special problems. The Conservative government has
resisted various Labor attempts to dramatize the potential value of the
Chinese trade and to secure the lifting of the UN embargo. Labor and
businessmen's junkets to Communist China during 1954 and much fanfare on
Peiping's side about the possibility of reviving and expanding Sino-British
trade have been coupled with criticisms of the "hard" US policy toward Com-
munist China and US support of the Chinese Nationalist regime on Formosa.
In large part, the difference in attitude between the two major British
political parties reflects not so much a difference in doctrine as the fact
that one is in a position of responsibility while the other is in opposition.
The British business community., several individual firms of which
have suffered heavily from near confiscatory Carnnunist Chinese actions., has
probably few illusions about building up a secure Chinese market for British
goods on an effective reciprocal basis. Yet., almost as a matter of principle,,
Approved For Release 2000/08s/2~3 : CIA-RDP63-00084AO00100040007-5
 Approved For Release 2000/08/23 : CIA-RDP63-00084A000100040007-5
SECRET
- 7.-
these business elements and doctrinaire political groups in the Labor Party,
who want Communist China to be admitted to the UN and recognized as a great
new revolutionary force in Asia, will continue to insist that trade between
the Communists and the UK is the key to better political relations between
Peiping and the West. Although the Communist Chinese trade front is a soft
area in British thinking and policy, the estimates of its possibilities are
far more sober than they were before Korea, Indochina, and the recent Formosa
Straits disputes. The British recognized that trade with China must be a
two-way street, and the most critical of them fear that Peiping may continue
to control or adversely influence the main Asian avenues of trade, including
Hong Kong, and deny it any real meaning.
,tritish Attitudes toward Sanctions. The British regard COCG as a
multilateral effort based on voluntary cooperation and would like to keep it
that way. They would almost certainly resist US attempts to impose policies
on COCCM members which were thought to violate the voluntary principle or to
ignore the special needs of individual countries. There is already some of
that feeling ?n the UK. Although the more sophisticated British officials
and public observers recognize that certain sanctions are implied in
donor-recipient relationship and are explicit in provisions of the Battle Act,
they would react sharply against a US move to tighten or broaden existing
sanctions as applied to the UK. Not only would such a move create serious
political problems for the British Government in dealing with an always latent
anti-Americanism on the left (and, in foreign trade matters, on the right as
well), but it would also be interpreted as an indication of US lack of con-
fidence in the British will and effectiveness in carrying out COCCM policies.
Approved For Release 2000/08/23 : CIA-RDP63-00084A000100040007-5
 Approved For Release 2000/08/23 : CIA-RDP63-00084A000100040007-5
SECRET
The British are convinced that their record in this respect is good, both in
fulfilling agreed international trade policies and in containing those dom-
estic elements which favor increased trade at almost any price. The UN
embargo on trade with Communist China, for example, cgntains no sanctions,
yet the UK has thus far abided by the policy despite often intense pressure
to relax or abandon it. Responsible British opinion in government and the
press does not believe that the controls agreed upon in the UN and in COCCN
are the result of US dictation. They would almost certainly hold that view,
if the US sought to apply broad sanctions which the British regarded as
inappropriate and demeaning to their national self-respect. Rather than
accept such conditions (whatever they might be) they would be strongly in-
clined to refuse aide They are also very pragmatic -- if the sanctions did
not cause loss of self respect and were heavier than the value of the dis-
puted trade, they might conceivably give up the trade. But the negotiations
would be most delicate and uncertain. Moreover, whether an attempt at US
sanctions were successful or not, it would always run the danger of reducing
British cooperation in COCCN.
Approved For Release 2000/08/23 : CIA-RDP63-00084A000100040007-5
SECRET
 Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100040007-5
-9-
The Canadian Government's po3.Cy toward export controls is as
rigorous as any other country's, being similar to that of the US. Thus,
there is no prospect of jeopardising US export control policy by trans-
shipment of strategic goods from Canada and, consequently, US exports to
Canada are exampted from the license requirements of our export control
regulations. While the Canadian Government's policy is as strict as that
of the US, the Canadian representative in COCOM plays a very passive role.
The Canadian press and public shows little or no interest in the
whole problem of economic defense. In part, this is due to the small economic
stake which the country has in trade with the Sino-Soviet bloc.
Approved For Release 2000/08/?4 ~4A-RDP63-00084A000100040007-5
 Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100040007-5
SECRET
-1?-
III. FRANCE
Political considerations strongly influence French attitudes toward
economic defense, including control of East-West trade. Most Frenchmen view
the strengthening of trade bonds as a means of lessening international
tensions and of promoting a general detente between the Soviet orbit and
the Free World. Moreover, the belief that expanded trade relations can
benefit the West politically is far more widespread than in the US. For
example, many Frenchmen feel that Soviet absorption of its satellites can
be delayed by the skillful manipulation of commercial ties. This view was
clearly stated by the French during their attempt at "co-existence" with
the government of Northern Vietnam. The French argued that retention of its
economic interests was important not only for financial reasons but also to
prevent the extension of Chinese Communist influence over the Ho Chi Minh
government.
The influence of purely economic considerations dh French attitudes
is much less important today than at any time in the past few years. As
long as the French economic position remained precarious, the hope of expanded
trade with Eastern Europe and China served to keep France and the US apart on
this issue. Furthermore, the heavy scale of US financial assistance made it
appear that French governments were being forced to adopt a position against
the national interest. With the general improvement in the French economic
situation and particularly in the foreign exchange situation, French trade
with the USSR and its satellitS has become a much less tempting prospect.
Commentators now point out thet'this trade amounts to less than two percent
Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100040007-5
SECRET
 Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100040007-5
SECRET
-'ll-
of the total, and that the difficulties of dealing with Soviet and satellite
state trading enterprises make it an even less attractive prospect. Moreover,
the Soviet Union itself is held primarily responsible for the current lag in
trade following its unilateral restriction of shipments after French ratifi-
cation of the Paris accords.
Differences between the US and France on the subject of East-West
trade now are minor, and the French who with the US and the UK founded COCA'!,
have come more and more to share in leadership of the Consultative Group.
In the first years of controls, the French insisted on secrecy of COCOM
commitments and took the view that the Battle Act was a unilaterally-imposed
US statute not legally binding on France. At present, more important measures
are discussed t ri-laterally (France, US, and UK),, France chairs the CG and
relations are smoother than at'any time in the past. Recent reorganization
of that part of the French bureaucracy concerned with economic defense has
made it into a more responsive and responsible instrument. Propaganda
against control measures in the press has diminished markedly in extent and
effectiveness.
Approved For Release 2000/08/~ IA-RDP63-00084AO00100040007-5
 Approved For Release 2000/08/23 : CIA-RDP63-00084A000100040007-5
SECRET
- 12 -
IV. GERMANY
The question of controls on trade with Communist dominated countries
has recently received relatively little attention in West Germany, either
among official or business circles. This stems directly from the general
lack of interest in East-West trade. The Germans see little economic
necessity for a greatly expanded volume of trade with the East since there
are abundant western markets for German exports.
The business community feels that the US has overemphasized the need
for trade restrictions and exaggerated the strategic benefits which might
accrue to the East from expanded economic intercourse. A number of business
spokesmen have hailed recent indications of a partial relaxation of restraints
on trade with the East and have pointed out that West Germany must keep
abreast of other western states, particularly the UK, in regard to commercial
ties with the Communist bloc. Pressure for relaxed controls have come from
certain vocal industries such as shipbuilding (for Eastern Europe) and
chemicals (for export to Red China). However, neither the Bonn authorities
nor any important segment of public opinion has expressed any serious opposi-
tion to the basic concepts of embargoes, export quotas and sanctions for
violation of such strategic controls.
An exception to this situation that has caused marked difficulty
between the Federal Republic and COCOM members has been the question of
interzonal trade -- i.e., between East and West Germany. West German
authorities recognize that COCC restrictions apply technically to exchange
with the Soviet Zone as well as with other Communist-dominated areas.
Approved For Release 2000/0/&IA-RDP63-00084A000100040007-5
 Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100040007-5
SECRET
-13-
Nevertheless, both the government and public opinion feel that in practice
special exceptions must be made for interzonal trade. They assert that
West Germans have a special duty to maintain close economic ties with the
East German area and to assist its population by the export of goods to
raise the standard of living. The real and primary concern of the govern-
ment is to avoid any public admission that East Germany is in the bloc and
not a part of the German state.
Latest information indicates that such difficulties have been at
least partially resolved and that on the whole the Federal Republic is at
present carrying out its important C?CC and CHINCCM obligations. There
has been a noticeable diminution of complaints over West Germany's being
subjected to more stringent trade controls with the East than other western
states. The Bonn authorities used to be resentful because of the traditional
position of leadership of the US, UK, and France with COCOM and because,
during the occupation, controls were imposed on West Germany.
The US in the past year has generally endeavored to keep the Federal
Republic informed on tripartite discussions, and, during this time, the Bonn
authorities have recognized the desirability of the US solving its disagree-
ments with the UK and France on a bilateral or trilateral basis rather then
airing them publically in COCOM. Germany also appears convinced of the need
to strengthen ties with this organization and are eager to develop it into
a general clearinghouse for exchange of information and coordination of
policies in regard to East-West trade.
Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100040007-5
SECRET
 Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100040007-5
SECRET
- 14 -
In its participation in COCCI/CHINCOM Italy has generally followed
the proposals of the US and, except for the vigorous leadership of D'Orlandi,
Chairman of COCOM/CHINCCM, Italian delegates have not tended to display
serious conviction as to the goal or effectiveness of strategic materials
controls. The Italian governmental attitude, as expressed both in COCOM/
CHINCCM and in practical application of controls in Italy, has recognized
the vital, necessity of American aid -- both economic and military -- and the
concomitant necessity of complying with US wishes (and Battle Act pro-
visions) as to controls, but with no great display of enthusiasm.
The Italian government has on occasion been willing to accept more
stringent economic defense controls than those advocated by the US or the
UK (especially in the case of materials or products not normally exported
by Italy). This tendency has, however., been counterbalanced by efforts to
obtain COCC4 concurrence for exceptions to controls to permit the export of
Italian strategic commodities to the Soviet bloc at the behest of pressure
groups in industry.
The vacillating position of the Italian government both as to policy
and enforcement of strategic controls has mirrored the difficulties and
problems of the postwar political and economic situation. Factors involved
include the weak operating majority of the center parties in parliament for
the last few years, fear of social-communist strength in political and
economic activities (particularly the control of the largest labor union
federation), corruption of certain government officials engaged in
Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100040007-5
SECRET
 Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100040007-5
SECRET
15-
enforcement of economic defense controls (primarily caused by insufficient
wages), the privileged position of monopolies and cartels -- both govern-
mental and private, and the existence of a small group of unscrupulous
traders and industrial executives willing to deal in strategic exports for
the sake of abnormally large profits from such illegal activities
Until relatively recently the Ministry of Foreign Commerce has not
encouraged publicity of Italy's role in COCOM/CHINCa and the legal penalty
for violating export controls has been so nominal as to be an ineffective
deterrent. Nevertheless., in the past two years or so the noncommunist
press has seized upon the "sensational" aspects of smuggling of strategic
materials to the Soviet bloc, treating these on a careful factual basis
(Italy's strict libel laws inhibit press freedom in speculating and naming
mere suspects in illicit trade as such). A few more daring articles on the
scope of evasion of economic defense controls have appeared in weekly and
monthly periodicals. The communist press., following the usual party line.,
has missed few opportunities to attack economic defense controls as being
"imposed" by the US on a "lackey" Italian government to the detriment of
trade with the Soviet bloc, painting a seductive picture of the lucrative
possibilities of such trade were it not *'barred by COC@'i." In fact, the
principal exports of Italy are normally consumer goods such as textiles
and foodstuffs (fruits and vegetables) which do not find a ready and stable
market in Eastern Europe and mainland China. Most responsible Italian
business leaders are aware that possibilities for trade with the Soviet bloc
are limited but communist-front firms and press continue to revive the issue
with flurries of interest inevitably resulting. Certain import-export
Approved For Release 2000/0(fi CIA-RDP63-00084A000100040007-5
 Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100040007-5
- 16 -
companies in Italy controlled by the Communist Party have endeavored to
monopolize commerce with the USSR and satellites and with Communist China,
diverting profits to the Party Treasury.
The Italian reading public cannot fail to have some knowledge of the
free world system for control of exports of strategic materials and, keeping
in mind a 35 percent socialist-communist vote, can be considered as generally
mildly sympathetic to such controls. There is little doubt, however, that
a majority of Italians (regardless of political complexion) feel that these
controls were mainly imposed by the United States and are sustained by
American pressure.
Approved For Release 2000/00(&L CIA-RDP63-00084AO00100040007-5
 Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100040007-5
SECRET
-17-
VI. PORTUGAL,
In its trade with the European Soviet bloc, Portugal follows the
COCOM restrictions. In part, this is a matter of conviction and, in part,
a result of the small amount of potential trade in strategic goods in
which Portugal can engage.
Portugal's role in COCOM has been very passive except in the
question of China controls where the government has been active in
attempting to eliminate the differential in controls against Red China.
Moreover, the government has not taken effective action to eliminate trade
in strategic goods between Macao and Communist China, though this trade
has been limited. It is argued that this trade is essential to the
economy of Macao which depends on Mainland China for its food and
that this trade must continue so as not to provoke the Chinese Communists
into attacking that colony,
Approved For Release 2000/OW ,CIA-RDP63-00084A000100040007-5
 Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100040007-5
SECRET
-18-
VII. DENMARK
Denmark reluctantly accepts in principle the concept of restricting
the sale of strategic goods to the Communist-dominated world, but wishes to
have the term very narrowly defined. Economic controls as such are not
regarded as having a significant effect on the war potential of the Soviet
bloc.. Beyond this, Denmark looks upon East-West trade as something which
should be eagerly pursued as economically and politically desirable.
Nevertheless, Denmark has refused to sign a trade agreement with the USSR
because the latter insists on the inclusion of tankers in the list of goods
to be traded.
Denmark's attitude is strongly influenced by regard for the country's
specialized economy which is dependent upon a relatively high level of
foreign trade. To achieve optimum stability and volume in their trade, the
Danes want extensive international markets. They do not see very favorable
prospects for increased and stable trade with the US which they consider a
highly restrictive and' unpredictable trading partner. Moreover, for the
past 18 months a serious deterioration in the nation's reserves of EPU
currencies has enhanced the already strong desire to seek more trade with
the East. A chronic unemployment problem has worked to the same end. The
Danes also feel that the COCCM limitations on East-West trade have not only
lost them some traditional business without providing alternatives, a Com-
munist theme to which the government is sensitive, but have put Denmark with
its specialized exports in an especially unfavorable bargaining position
vis-a-vis the Communist bloc which has shown a particular interest in ships.
The Danes want as much flexibility as possible in their current efforts to
Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100040007-5
 Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100040007-5
SECRET
-19 -
renew trade talks with the Soviet Union which were broken off in the summer
of 1951 over Danish refusal to deliver additional tankers. As a result., on
shipbuilding the Danes have strongly insisted on concessions to their views
on quantitative controls and speed limitations on several classes of com-
mercial shipping.
There is also a widespread conviction in Denmbrk that trade with the
Soviet orbit will have a salutary effect on the relaxation of world tensions.
In addition to avoiding the feared specter of economic warfare,, it is also
looked upon as a device for maintaining the economic dependence of the
Communist bloc states on the West. Co-existence is looked upon by government
and people alike as a vital necessity. This view is a product of Denmarkfs
military weakness in the face of a pronounced strategic vulnerability' and
a legacy of pacifism,, anti-militarism and neutralism that still influences
important segments of the population.
Denmark has tended to regard strategic controls as primarily a
product of unilateral efforts by the United States., a view strongly influenced
by Danish experience. It was the US alone., for example., that attempted
publicly under the terms of the Battle Act to dissuade Denmark from making
delivery of two 13,000 ton tankers to the Soviet Union. This effort was
indignantly denounced as unwarranted interference in Danish affairs on the
ground that Denmark was morally and legally bound by its contract with the
USSR and that COCCM regulations took specific cognizance of exceptions for
such prior commitments.
Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100040007-5
SECM
 Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100040007-5
SECRET
-20-
VIII. SWEDEN
Sweden stands in a special relationship to COCOM. Although it
regards membership in this body as incompatible with its policy of freedom
from great power military alliances., it nevertheless cooperates with it
secretively in denying to the Communist-dominated states those items in
their trade included on the international prohibited lists: This cooperation
in COCON strategic controls is effected principally through informal dis-
cussions carried on between Sweden on the one hand and the US, UK, and
France as the major COCCV+I members on the other. In the past the US has
taken the initiative in securing Swedish cooperation on internationally
embargoed items,
Sweden's views on the issue of East-West trade controls have dif-
fered to some degree from those of the COCOM members. Since the Battle Act
was passed,, Sweden has accepted no direct aid from the US and, therefore, has
not been exposed to the threat of sanctions included in that law. Government
leaders as a result were not confronted with the political problem of
appearing to bow to the public threat of foreign duress. This charge has
been made in the Swedish Communist press, nevertheless, but has not caused
serious embarrassment to the government which is not bound by public agree-
ments to maintain trade controls.
Aside from these special circumstances, the Swedish Government and
people have tended to share in large measure the attitudes of the continental
COCCM members toward the US on the issue of strategic trade controls. These
attitudes may be summarized as follows-,
Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100040007-5
SECRET
 Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100040007-5
SECRET
21 -
1) Sweden accepts in principle the importance and necessity of not
building up the military strength of a potential enemy. Where it tends to
differ with the US is on the definition of strategic, preferring a restrict-
ive interpretation. It is opposed to what may be called economic warfare
as carrying with it the risk of military conflict. It refused, for example,
to support economic sanctions by the UN against Communist China, and even
abstained on the resolution to embargo strategic items alone. Sweden also
tends to regard the free flow of the maximum amount of international trade
as not only essential to its own economic prosperity, but also as constituting
a factor for peace by holding open channels of communication and by retaining
the tie of economic inter-dependency. These views are strongly influenced
by Swedenps exposed position as a small country vis-a-vis the Soviet Union
in the Baltic, and by the experience of having had to live with more powerful
neighbors. Like the other continental countries, Sweden also has tended at
different times to regard the US as inexperienced and impetuous in dealing
with the Communist-dominated states, and as over-stressing the Communist
military threat.
2) Swedish business circles in particular have tended to regard
international economic controls on strategic goods, and the Swedish govern-
mentIs cooperation in applying these, as the result primarily of US
initiative and pressure. During the past year a multilateral approach has
been utilized in which the UK and France have joined with the US in taking
up with the Swedish Government trade control problems. Disappointments in
trading with the USSR and lessened dependence on Polish coal have also
served to soften Swedish criticisms of the US.
Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100040007-5
SECRET
 Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100040007-5
J SECRET
22-
Sweden has been critical of the sanctions contained in the Battle
Act even though its provisions have not been applicable to Sweden.
Swedish sympathies were clearly on the side of Denmark., for example,, at
the time of US objections to the delivery of Danish built tankers to the
Soviet Union in 1952 and 1953.
Approved For Release 2000/08//23 : CIA-RDP63-00084AO00100040007-5
SEW
 Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100040007-5
SECRET
-23-
IX. SWITZERLAND
Swiss attitudes toward East-West trade are conditioned by Switzerlandts
determination to preserve its traditional neutrality which precludes a
membership in COCCI. Nevertheless, Switzerland has cooperated, if reluctantly,
in strategic trade controls through informal, secret arrangements with the US,
UK, and France since 1951. The US took the initiative in the 1951 negotiation
in which possible sanctions in the form of withholding American export
licenses in the event of non-compliance with US economic defense policies
was one of the factors in securing Swiss participation. On the other hand,
the Swiss succeeded in obtaining a concession which allowed them to export
List I items within certain agreed quotas.
As a result of the US action raising tariffs on Swiss watches, US-
Swiss relations are now strained. Furthermore, the Swiss believe that East-
West tensions have been relaxed appreciably. Thus, the Swiss government
has recently made it known that it intends to return to the 'normal pattern
of trade," and has increased quotas for List I and II items by unilateral
action. The Swiss maintain that these larger quotas still represent only
a small proportion of total exports to the bloc but are essential to
successful bargaining in trade negotiations. They also profess to fear
that their competitors may build up markets in the Soviet Orbit at the
expense of Swiss exports.
Approved For Release 2000/0 2 CIA-RDP63-00084A000100040007-5
 Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100040007-5
SECRET
-24-
X. GMMCE AND TURKEY
On the whole, controls on trade with the Communist countries are
accepted uncritically in Greece and Turkey. Except for a few Turkish raw
materials,, controls do not call for a significant sacrifice on the part of
either country. Neither has any important quantity of strategic commodities
to offer the Soviet bloc or any possibility of conducting an extensive trade
with the Communist Far East. Moreover, both countries have closely
associated themselves with the US in the cold war and are inclined to regard
adherence to the US concept of economic defense as an inevitable element in
that association. Greece and Turkey look to the US as the prime source of
the assistance they require in building military strength and in economic
development objectives to which they attach the first importance and which
they believe are far more likely to be served by a close relationship to
the US than by unrestricted trade with the Communist countries.
Approved For Release 2000/W ~r CIA-RDP63-00084AO00100040007-5
 Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100040007-5
SECRET
25
XI. JAPAN
1. Japanese Attitudes toward economic Defense
In Japan there has been relatively little understanding of or
sympathy for the economic defense program on the part of the general
public and little positive support for the maintenance of export controls
within business circles and certain agencies of the government itself.
At least three broad factors appear.; to shape Japanese attitudes in this
regard$ uncertainty as to the pres,snt necessity for or effectiveness of
export controls, the high priority given to the expansion of trade in
order to achieve economic self-support, and the national, drive to achieve
increasing independence in the realm of foreign policy.
(a) Uncertainty as to the necessity for or effectiveness of export
controls. There is present in Japan little sense of imminent war or fear
of direct Communist military threat, a fact in part attested by the slow
pace of Japanese rearmament efforts. The attitude of successive Japanese
governments increasingly has reflected the ready response of the public to
signs of a relaxation of international tensions, and it is the announced
policy of the Hatoyama administration to encourage such a tendency by
promoting closer relations between Japan and the bloc. Despite an increas-
ing awareness of the political objectives underlying Communist trade offers,
most Japanese apparently are confident that their national security will
not be endangered by an acceptance thereof.
In addition., the view is not uncommon in government and business
circles that export controls have not in fact weakened Communist China's
Approved For Release 2000/0( TCIA-RDP63-00084A000100040007-5
 Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100040007-5
SECRET
-26-
military potential but rather have forced Peiping to depend upon the USSR
not only for its war materiel but for its industrial development. The
inevitable corollary of this view is that freer trade between the mainland
and the non-communist world may in fact weaken the Sino-Soviet axis by
providing an alternative to that dependence.
(b) The pressures to expand trade. Few, if any, national policies
are given a higher priority in Japan than the expansion of international
trade in order to achieve economic self-support. Despite the admitted
importance of expanding Japan's markets in Southeast Asia and other areas
of the free world, history and geographical proximity have combined to
sustain the notion that mainland China is a natural market of prime
importance.
The widespread acceptance of this view has lent credence to
left-wing criticism that export. controls are largely responsible for
Japan's economic ills -- a view assiduously cultivated by domestic and
foreign communist propaganda. Among the most vigorous exponents of this
view have been small businessmen and the Japanese trade unions, whose
members are confronted with the growing threat of unemployment. Moreover,
little effort has been made by the press or the government to counter the
false impression that export controls are the principal cause for the small
volume of trade with Communist China. This impression has persisted
despite the fact that a substantial reduction in those controls during 1951
apparently had little effect on trade levels.
Many Japanese trade experts and representatives of major industrial
concerns acknowledge the unlikelihood that trade with the mainland could
Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100040007-5
SECRET
 Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100040007-5
SECRET
-27-
again reach prewar levels. Even if controls were completely eliminated,
procedural and financial difficulties, the relatively high price of many
Japanese commodities, and the inability or unwillingness of Communist
China to supply the exports desired by Japan would continue to limit an
expansion of trade. Nonetheless it is argued that Japan cannot afford
permanently the sacrifice of such a natural market, however limited. The
ancillary point frequently is made that Japan's present difficulty in
maintaining trade controls is increased by the failure of the free world
to assist Japan in finding alternative markets and sources of raw
materials.
(c) The impact of nationalistic sentiment. As in other aspects of
its foreign policy, Japanese attitudes toward participation in a program
of economic defense increasingly have been influenced by the desire to
achieve a position of equality with other nations and greater independence
of action in the conduct of its foreign policy. It is significant in this
respect that Japan was initially committed to the economic defense program
during the period of Occupation. This circumstance may account for the
fact that Japanese criticism of continued participation in that program
appears to stem, at least in part, from a sense that Japan has not been
free to exercise an independent power of decision in an area vitally
affecting its national interests.
The operation of such nationalistic sentiments was clearly evident
in Japanese efforts to cbtain cancellation of the bilateral agreement con-
cluded with the US in September 1952 by which Japan maintained a higher
level of controls on its China trade than any other COCOM country except
Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100040007-5
SECRET
 Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100040007-5
SECRET
- 28 -
the US. and Canada. Prior to its cancellation in April 1954, Japan argued
that the obligation of this agreement constituted discriminatory treatment
and a derogation of Japanese sovereignty. Similar sentiments also have
motivated Japanese efforts to obtain a reduction of CHINCCM controls to
COCOM levels. In this case, Japan has insisted that the differential in
controls enables West European countries to engage in indirect trade with
Communist China through the East European satellites. This., it is pointed
out, not only discriminates against Japan but defeats the purposes of the
economic defense program. Wen more significant, however, is the sub-
stantial Japanese concern that West European countries will have established
themselves strongly enough to exclude Japanese competition when and if
controls on mainland trade are removed.
The adverse impact of nationalistic sentiments upon Japanese
attitudes toward the economic defense program is heightened by the
prominent role played therein by the United States. In large measure,
Japanese attitudes in this respect mirror the resentments arising from
the conflict between Japan's necessary economic dependence upon the US
and its drive for greater independence of action in the realm of foreign
policy.
Experience with the bilateral agreement suggests that Japan's
cooperation can be more readily obtained if an economic defense program
is undertaken as a multilateral program in which Japan regards itself as
occupying a position equal with all other members. To date, however,
COCOM does not appear to have satisfied completely this need. Although
the government has demonstrated an increasingly independent attitude
Approved For Release 2000/08/2, 3 T CIA-RDP63-00084AO00100040007-5
 Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100040007-5
SECRET
- 29 -
toward the US in its activities within COCOK, the Japanese public tends
to regard US policy as the major determinant of the decisions of that
organization and of Japan's role in that organization.
2. Japan'.s Observance of Trade Controls
The Japanese government has for the most part faithfully observed
its international commitments in matters of economic defense and has
effectively administered its export cunt ro1t on trade with the Communist
bloc. To date, the threat of ,unctions has not been necessary to obtain
such cooperation and the government itself has taken effective action
against individual firms suspected of violations.
In the final analysis, however, the hesitation to flout US opinion
and the fear of the loss of vitql, support and protection probably have
been the chief factors in insuringJapan's effective participation in the
economic defense program. Only less important in this regard is the
sensitivity of both government and business to the possibility of
counteraction by Nationalist China, one of Japan's major trading partners
in Asia.
It is not likely, therefore, that Japan will unilaterally abrogate
its obligations to the economic defense program. Oanestic political
pressures, however, will continue on the government to facilitate the
extension of trade with mainland China within the limits of the present
export controls while at the same time seeking a reduction of those
controls to COCOM levels. Inability of the government to make some pro-
gress in this direction seems certain to arouse resentment and weaken its
ability to continue effective participation in the economic defense program.
Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100040007-5
SECRET
 Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100040007-5
SECRET
?30_
XII. SOUTHEAST ASIA
In general, the countries in Southeast Asia have adhered to the UN
embargo on the export of strategic commodities to Communist China, the
measure of Western economic defense principally at issue in the area.
Only minor shipments of rubber have been made and most well-informed
officials in Southeast Asia recognize that potential trade with Communist
countries is probably limited. Nevertheless, there is considerable
pressure for expanded trade., notably with Communist China-, in the
expectation that such trade would ameliorate serious economic problems
and satisfy basic political objectives.
Because of their policies of political neutrality, Burma and
Indonesia are particularly anxious to free exports of restriction and
are unlikely to find any control arrangements satisfactory so long as, in
principle, participants in controls are committed to sanctions against the
Communist Bloc. More than other countries in the area., Burma and Indonesia
can also be expected to react adversely to the threat of punitive action
for non-compliance with export controls. These countries most recently
expressed their disapproval of the control system at the Bandung Conference
in April 1955 when they seriously questioned the UN embargo.
The considerable and growing gap between US and Burmese attitudes
toward trade controls stems from Burma's basic policy of neutrality and
from its current desire to expand trade with any country able to assist
in a solution of Burma's surplus rice problem. As a matter of policy,
therefore, Burma is prepared to conclude trade or economic assistance
Approved For Release 2000/08123 - CIA-RDP63-00084AO00100040007-5
SECR2T
 Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100040007-5
agreements with any nation, providing no restrictive political requirements
are included. In the Burmese view, US economic policies are insufficiently
oriented toward relaxation of tension in the Far East at a time when wars
in the area have been terminated. Friendly relatior.; with Communist China
are believed to be especially important, given Burmat.s exposed strategic
position. In these circumstances, the government has negotiated a general
trade agreement with Communist China; however., no emb!.rgoed items have as
yet been shipped under this agreement and there are nt, indications that
commitments for such shipments have been made.
The Government of Indonesia favors an expansici of trade with the
Sino-Soviet Bloc, particularly with Communist China.' This policy is chiefly
intended to demonstrate Indonesia's "independent" fc;neign policy, but there
is also some belief that Communist China would be a valuable market for
Indonesian rubber and thus provide some relief for :.ndonesia's difficult
economic position. There is, therefore, persisten? pressure within the
country for a relaxation or termination of controls which is particularly
exploited by the important Indonesian Communist Par',y and its numerous
front organizations. In practice, however, Indone.?:a has deliberately
avoided a sharp break with the export controls sysl.;m, and trade agree-
ments executed with most Communist areas omit firm. Indonesian commitments
for delivery of strategic commodities. And the irrr.ediate importance of the
export control issue to Indonesia has been somewh&'> reduced by the recent
rise in world rubber and tin prices.
Other countries in the area are in basic a..cord with US economic
defense policies. They closely restrict trade wi?;h the Bloc, which, in
Approved For Release 2000/08t CIA-RDP63-00084AO00100040007-5
 Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100040007-5
SECRET
- 32 -
any event, would probably be small. They anti-Communist orientation of
the Philippines, the Republic of Korea and the Republic of China., the
alignment of their foreign policy with that of the US and the close
economic ties of the countries with the US are the basis for their
adherence to East-West trade controls. Thailand's policies stem from a
basic political decision to support the US and the free world in return
for assistance in developing a capacity to resist Communist expansion.
Since the US supports strong trade controls and these restrictions impose
little hardship especially when compared with the foreign aid received,
the Thai virtually embargo all trade with the Communists, including non-
strategic items.
Although policies on trade controls?are set for Malaya in London
there has been a general willingness in Malaya to accede to these controls.
However, some local business interests, particularly among the Chinese,
have exerted pressure.on UK officials for a relaxation of controls with
aview to the possible expansion of the rubber trade and to enhancement
of Singapore's position in entrepot trade.,
Approved For Release 2000/08/pIA-RDP63-00084A000100040007-5
 Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100040007-5
SECRET
-33-
XIII. SOUTH ASIA
While in Pakistan and Ceylon there is at least lukewarm support of
trade controls, there is in India little public sympathy with the US con-
cept of economic defense. That concept appears to many Indians to be an
extension of the US emphasis on military defense -- an emphasis which they
believe increases tensions in the cold war and makes hostilities more
likely. Moreover, they have some confidence that increased East-West
trade in itself contributes to the reduction of tensions. They also
believe that restrictions on trade are self-defeating in that they
penalize peoples -- in non-Communist as well as Communist countries --
striving to raise their living standards. "Economic defense" thus delays
increased prosperity that hinders the spread of Communism.
Some south Asians resent the threat of withholding US aid to
countries that do not conform to the provisions of the Battle Act.
Positive offers of aid to induce compliance with the Act would probably
encounter no less resentment in India; in Ceylon, such offers, provided
they involved substantial aid, might be acceptable. The South Asian
countries were unwilling firmly and publicly to commit themselves to
support the UN Additional Measures Resolution of 1951. That unwillingness
is as strong in India in 1955 as it was four years ago, based on
reluctance to take any position that might compromise its independent
foreign policy." Unwillingness has declined somewhat in Ceylon. In
Pakistan it has been largely submerged in the current orientation of
the country's foreign policy toward the US.
Approved For Release 2000/08/3~tIA-RDP63-00084A000100040007-5
 Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100040007-5
SECRET
- 34 -
In fact, however, only Ceylon presents a serious obstacle to the
implementation of US economic defense policies in the area. India with
few exceptions does not export its strategic commodities and in any case,
its trade with Communist countries is very small. Fakistan'a exportable
commodities include no items on the US list of strategic good;; if that
were not the case, the country's understandings with the US mould dictate
caution in circumventing US controls. Ceylon, whose present anti-Communist
government might be favorably disposed to the US control syst-m, violates
the UN embargo by exporting rubber to Communist China.
Though Indians have paid more attention than any other, South Asians
to the issues involved in US economic defense policies, they also recognize
that Communist propaganda over-estimates the value of Communist trade with
non-Communist countries. Accordingly, though increased economic inter-
course with the USSR is approved in part for its psychological value in
underlining the country's independent foreign policy, there is a wait-
and-see attitude regarding the practical benefits to India. Pressure from
Communists in Parliament and elsewhere may force the government publicly
to seem more unquestioningly receptive to Soviet trade offers than it
actually is. In some business quarters, increased trade with Communist
countries may be viewed as a healthy development tending to force com-
placent, established shippers to India to become more aggressive in their
salesmanship and to offer more competitive prices.
Approved For Release 2000/08123 - SEC ,9IA-RDP63-90 4A0 019,0s
o40097
ZaZe , a, OR,