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

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP63-00084A000100040008-4
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 32
• Document Creation Date: December 9, 2016
• Document Release Date: October 27, 1999
• Sequence Number: 8
• Publication Date: June 6, 1955
• Content Type: REPORT

r-
Approved For Release 2000/08/23: CIA-RDP63-000 (1400$'=4
f ~O
SECRET
CFEP DRAFTING GROUP
ECONOMIC DEFENSE POLICY REVIEW
Staff Study No. 3
Draft of June 6, 1955
Foreign Attitudes Toward Economic Defense
This draft of Staff Study No. 3, on "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 reproduction and
distribution facilities as a service to further the work of the CFEP
Drafting Group.
Irving I. Kramer
Executive Secretary
Distribution:
CFEP Drafting Group
SECRET
Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100040008-4
 Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100040008-4
SECRET This dpcument contist of
31 pages. No. of
5C copies, Series A.
ECQNQ4IC DVEt POLICY REVIEW
Staff Study No. 3
(Draft of June 69 1955)
Foreign Attitudes TOwaril Economic Defense
In any discussion of the restriction of trade with the Soviet blec9
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 Ca ama .st bloc amount to only one-tenth of one
percent of the small total of Free World exports to that areas
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 a that trade is a
t+tially important means for reducing international tensions and the
danger of ward Second, many foreign countries., more dependent for their
economic well-being than the US on foreign trade in general, are more con-
cerned with the effect on their domestic economies of restrictions on trade
with the bloc. In fact., at times their concern seems out of proportion 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
of COCCI in the spring of last year, which proposed that in any revision of
the export control system 'it was essential that the effect of the
Approved For Release 2000/08/23 SDP63-00084A000100040008-4
ECRET-
 Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100040008-4
SECRET'
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 upon. 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 COCCM 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.9 there are considerable political and
economic pressures for expanded trade. 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 "strategic"
goods available for export. While demonstrating lia ul.e sympathy .or
of the program "of economic defense,, Japan has faithfully observed
its international commitments in this regard. West Gear favors tight
controls but objects to applying them,, which it does,, to its trade with
East Germany, The UK has been a positive force in developing the present
limited trade control p gram and in providing for its effective implementation.
Currently,, there are two major areas of disagreement between the US
acid other countries of the Free World in the matter of trade controls.
First is the questi.cn of treatment of Communist China. The second is the
Approved For Release 2000/08/2~~-RDP63-00084A000100040008-4
 Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100040008-4
SECRET
question of the definition, identification and treatment of "strategic"
versus *nonmstrategic" trade.
Most foreign countries are opposed to Applying higher levels of con-
trols against Communist China than against the rest of the Communist bloc
now that the wars in Korea and Indochina are over. 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 imposes only a light burden on Communist
China since the latter cans through the services of European bloc traders,
purchase goods denied it directly, Moreover,, Japan 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 willingly embargo exports of such goods but
believe that trade in 'non-strategic goods is not only not undesirable but
is to be positively encouraged. Moreover, they generally favor a narrower
definition of "strateg.c9" wanting it to relate solely to goods which seem
to have an immediate military application. The present control systdm9
limited primarily to embargoing exports of goods of direct military uses is
the result of fairly general foreign. pressure,, led largely by the UK9 for a
narrow sphere of trade controls. There seems to be little recognition abroad
of the implications of the fact that export controls cannot prevent the bloc
from achieving a given level of domestic availability in any particular
commodity (other than a new product)
Approved For Release 2000/08/23 -3DP63-00084A000100040008-4
 Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100040008-4
SECRET
TABLE OF C( JTENTS
1. United Kingdom o a o a o 0 0 o e o 00000 0 0 000 06
TIa France a o 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 8
III. Germany o O o O o o O O O o a 0 0 0 0 0 o D a 0 0 0 10
IV. Italy o 0 0 0 o a 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 o o 12
V. Swedes. 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 a 0 0 0 0 0 0 0 0 o a 13
yIo Denm k o 0 0 0 0 0 0 0 0 0 0 o e o 0 0 0 0 0 0 0 0 0 0 0 15
VII o Greece and Turkey o 0 o o o o o o o o o o o 0 o 0 0 0 0 0 17
VIII. Japan 0 0 0 0 0 0 0 0 0 0 0 0 0 o 0 0 0 0 0 0 0 0 0 0 0 0 18
IX. Southeast Asia 0 0 0 0 0 0 0 0 o 0 o 0 o 0 o 0 0 o o o 0 o 23
South ASia o o a o o o 6 0 0 o o 0 0 0 0 o o o o o 0 o 26
Approved For Release 2000/08/23 : c gpP63-00084A000100040008-4
 Approved For Release 2000/08/23 : CIA-RDP63-00084A000100040008-4
spa / J.~
General British Position. As early as 1949.. the UK Government, after
, took the lead in getting the countries of Western
consultation with the US
Europe together to agree on a framework of strategic controls over trade
with the Soviet Bloc, The UK has played a key role in the Consultative
Group since it was established in 1949. The British also initiated controls
over exports to Communist China even before the Korean War and supported the
UN resolution in 1951 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
over trade with Communist China, North Korea, Tibet, and more recently North
Vietnam, In addition., trade with Macao is carefully regulated.)
The UK during the past year took the lead in having the export control
o
lists limited to items which ar a of immediate military act on,
The British cannot, however., be characterized as anti-control. Actually
they have probably made more positive contributions to COCOM than any member
except the US. The record of formal British commitments 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 as long as the international situation
requires limitations, on trade with the Communist world,
Approved For Release 2000/08/23 : CIA-RDP63-00084A000100040008-4
SECRET
 Approved For Release 2000/08/23 : CIA-RDP63-00084A000100040008-4
SELF
Considerations Affecting British Attitudes Toaard Controls. The
British Government regards the international political and strategic aspects
of the existing control system as a paramount consideration of national
policy. The goverrnnent is not likely to act unilaterally to change this
system or to evade compliance with its regulations because of some dif-
ferences 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 import-
ance 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 importance of East-West trade for the UK., stressing the need to
increase legitimate trade opportunities wherever they arise but warning
Approved For Release 2000/08/23 si1RDP63-00084A000100040008-4
 Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100040008-4
SECRET
against large expectations from trade with the Soviet Bloc countries. Despite
persistent demands for increased trade by segments of the British business com-
munity 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 COCC't. 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-oonffunity 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 mergency without causing unnecessary economic
? = embarrassment to the cooperating members or perpetuating political tensions
between the West and the Communist world. The British favor the largest pos-
sible 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 COCOM action,, com-
parable in some respects,, but far more flexible and loose,, to the British
approach to the purely military aspects of NATO.
The British accept the fact that economic defense precautions are
inseparable from military preparedness against a potential enemy. They do
not always agree,, however,, that the priorities are the same or that the
justification for particular economic defense measures is clear. They have
Approved For Release 2000/08/23 ~ JtDP63-00084A000100040008-4
 Approved For Release 2000/08/23 : CIA-RDP63-00084A000100040008-4
SECRET
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. 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 co-
operation 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 violation of the system of controls or differing interpretations of
what the system calls for.
Somedifferences have already been referred to, both substantive and
procedural, and need not be stressed again? Broadly speaking, the British
believe that elements in the US administration and Congress think of CCCOM
in terms of a comprehensive, quasi-permanent, rigid system of controls, while
the British tend to think of COCOM as a means of applying a series of ad hoc am&
by no means necessarily permanent set of restrictions on particular commodities
designed to reduce the offensive threat of the Soviet-Communist world.
Approved For Release .2000/08/23 ~ -RDP63-00084A000100040008-4
 Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100040008-4
SECRET
- 5-
Because 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 Scviet-Chinese expansionism, 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 Communism
under certain circumstances.
It reflects a softer and more accommodating
type of diplomacy and a willingness to live with situations of stalemate or
The British attitude is., of course, directly related to a heightening
OK w4l't~~
sense of fear of war and the vulnerability of the ritish Isles If economic
defense measures deter Communist aggression., they serve a major purpose, the
British agree; if, on the other hand, they exacerbate tensions without effect-
ively deterring., they have little justification. All too of ten,'British critics
of US foreign economic defense policies believe, the US appears willing to
follow an inflexible trade policy toward international Communism that leaves
little room for Western-maneuver. 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
Approved For Release 2000/08/23 J~tDP63-00084AO00100040008-4
 Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100040008-4
SECRET
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
Peipingfls 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.
The British business community,, several individual firms of which
have suffered heavily from near confiscatory Communist Chinese actions., has
probably few allusions about building up a secure Chinese market for British
goods on an effective reciprocal basis, Yet., almost as a matter of principle,
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,
Approved For Release 2000/08/23 : TRDP63-00084A000100040008-4
 Approved For Release 2000/08/23 : CIA-RDP63-00084A000100040008-4
SECRET
British Attitudes toward Sanctions. The British regard CQCOM 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 COCOM 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 in the UK. Although the more sophisticated British officials
and public observers recognize that certain sanctions are implied in any
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
ant -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 COCOM policies.
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 C