UNIFORMITY OF PARTICIPATION IN FREE WORLD CONTROLS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP63-00084A000100080002-6
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 16
• Document Creation Date: December 9, 2016
• Document Release Date: March 24, 2000
• Sequence Number: 2
• Publication Date: June 23, 1955
• Content Type: REPORT

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CFEP DRAFTING GROUP
ECONOMIC DEFENSE POLICY REVIEW
Staff Studz
Revised. Pages o vune 23,
1955
4#2r i/C 111
07:4 ,A9
ELLEmlIz of LE-1121.111.1211 in Free World Controls
1,16
The following revised pages to Staff Study No. 7, "Uniformity
of Participation in Free World Controls", are attached. These pages
replace those presently in Staff Study No. 7, Draft of June 6, 1955:
Revisedg
VV ..' "'-- ''''' V 4.-. 1.- L-," ....,
Pages 2, 4, 6, 7, 8, 10, 11 12, 13, and 14
In addition, please make the following changes on the existing
copies of Staff Study No. 7g
Page 1, Paragraph B. 1,, Second Line g insert"and"tv
_ _ .
between "procedures, criteria". '
Page 3, Line L insert "future" between words "the
exercise".
Page 5, Line 7 substitute words "there is reason to v,
, _ _ .
believe" for words "it appears probable".
Irving I. Kramer
Executive Secretary
Distributiong
CF EP Drafting Group
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/A4b4/4/
/ 6 pr.....44-e(f3 8O53
CFEP DRAFTING GROUP
ECONOMIC DEFENSE POLICY REVIEW
Staff Study No. 7
Draft of June 6, 1955
Uniformity of Participation in Free World Controls
This draft of Staff Study No. 71 on "Uniformity of
Participation in Free World Controls", 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 repro-
duction and distribution facilities as a service to further the
work of the UFEP Drafting Group.
Distribution:
CFEP Drafting Group
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Irving I. Kramer
Executive Secretary
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CFEP0 DRAFTING GROUP
ECONOMIC DEFENSE POLICY REVIEW
Question No. 2(b)*
Staff Study No. 7
(MDAC Draft,
June 62 1955)
Must participation in the Free World controls be generally uniform: or
can special latitude be allowed one or more countries under special cir-
cumstances?
A. "Minimum uniform participation." It is the basic concept of the multi-
lateral control system operated through the CG/COCOM/CHINCOM structure that
strategic exports to the Soviet bloc can be effectively limited only by inter-
national agreement of such nature as to preclude frustration by one or more
Free World countries of controls imposed by one or more others. Under this
concept2 participating countries are free to exercise more stringent controls
than are agreed internationally, but not less stringent controls. Actual
practice, however, does not always conform with this concept of "minimum uniform
participation."
B. Special latitude among PC's.
1. The CG/COCOM/CHINCOM system provides for exceptions to the agreed
41.144
rules, under agreed principles, procedures,Acriteria applicable to all parti-
cipants. What we are concerned with here is action beyond the scope or intent
of the agreements governing exceptions, and involving practices or arrangements
extending over a period of some duration or of a continuing nature.
* Formerly 2(c). Following part of original question has been omitted:
"(i.e., Ceylon re rubber, Japan vis-a-vis Communist China, Germany re
interzonal trade, etc.)."
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2. a. The notable examples of PC's exercising special latitude have
been West Germany and Portugal.
(l) West Germany.
(a) West Germany has exercised special latitude in terns of
exports to Soviet-occupied East Germany in these respectst
(i) Items under quantitative control have been exported
to East Germany without reference to global quotas or to control procedures
established by COCOM.
(ii) West Germany has not supplied statistics to COCOM
concerning the delivery of strategic commodities in interzonal trade and does not
notify nor does it consult COCOM with respect to interzonal trade agreements.
(b) The West Germans have defended this special latitude
on the political grounds that East Germany should be regarded as part of Ger-
many. It follows that the West Germans feel that they must consider interzonal
trade not international but internal trade, and look at the East German economy
in terms of eventual reintegration with their own. However, principally under
U.S. prodding, West Germany is reexamining its COCOM position on interzonal trade,
and has assured the U.S. that she will apply the International Lists to East Ger-
many and intends to live up to the spirit of COCOM agreements.
(2) Portugal. The Portuguese government permits exports from
and/or through Macao of China-embargoed goods of types and in quantities inconsistent
with CHfNCOM policies and procedures regarding exceptions for Communist China.
The Portuguese argue that discontinuance of current practice would cause a real
military threat to Macao by the Chinese Communists or refusal by the Chinese Com-
munists to ship to Macao the goods on which Macao's existence depends.
b. Consideration might well also be given, in this fundamental review
of our economic defense program, to the possibility (perhaps real, perhaps
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e
academic), of therexercise of s eclal latitude by Japan in terns of exports
to Communist China. Japan regards more trade with Communist China as economically
necessary and also as politically desirable in order to vitiate the effects of
Communist or Communist-type political and propaganda offensives against the
orientation of the Japanese government toward the Western
C. Non-Pets. Our question here encompasses not only the Pets but all
Free World countries.
1. By and large, non-Pets that receive U.S. aid cooperate to the degree
that they are in practical terns participants in the multilateral system, Such
cooperation is generally assured by the fact that Titles I and II of the Battle
Act are administered in such a way as to make controls agreed upon in COCOM
standards of effective cooperation under the Act.
2. On behalf of COMM, as well as in its awn interests, the U.S.,
often in concert with the U.K. and France, attempts to persuade non-PC's that
do not receive U.S. aid to exercise controls parallel to those agreed upon in
COCOM. Title III of the Battle Act, in fact, obligates the U.S. to do so, in
that it requires the U.S. to invite non-aid recipients to adopt controls corres-
ponding to those asked of aid-recipients, and those asked of aid-recipients are,
by and large, those agreed upon in COMM. In consequence, although non-PC's
that do not receive U.S. aid operate with broader latitude than do PC's or than
do non-Pets that receive U.S. aid, in the sense that the controls of non-aid-
recipient non-Pets generally permit greater flexibility, in practice non-aid-
recipient non-PC's generally do not seriously undermine, or take advantage of,
the controls to which other countries have agreed. It is important, however,
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to note note the ways in which the control arrangements and systems of non-aid-
recipient non-PC,s differ from those of other countries. In terms of this
discussion, the notable non-aid-recipient non-PC's have been Sweden, Switzerland,
Austria and Finland. (Note separate treatment of Ceylon, p. 6.)
a. Sweden and Switzerland, as major "neutrals" and non-aid-
recipients? are careful to avoid identification with any activity directed
against the Soviet bloc. Nevertheless, from the inception of COCOM until the
present time, both countries have cooperated, on a most informal and confi-
dential basis, by effecting restrictions safeguarding against frustration of
COCOM controls. Early in 1955, however, Switzerland informed the U.S. that
she would hereafter restrict her exports only to the level of a base period,
i.e., to a "normal" pattern, so as to refrain from taking unfairly traditional
business of the PCs. Sweden's cooperation remains unchanged, the only problem
having been exceptions for COCOM-embargoed bearings, which have not in fact
involved greater latitude than have bearings exceptions for Italy, a COCOM member.
With respect to Switzerland, it is not yet clear that her "return to normalcy"
will in fact result in a substantially greater volume of strategic exports than
there has been.
b. The recent treaty restoring Austria to the sovereign status
she had prior to World War II places Austria in a formal position of neutrality
akin to that of Switzerland and Sweden insofar as relations with both the West
and the Soviet world are concerned. One of the articles in the treaty provides
specifically that Austria will not show preferential consideration to any
country or countries in the conduct of her trade relations. Moreover, under
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a USSR-Austrian bilateral agreement relating to the return of Soviet-controlled
properties to Austria, the latter is obligated to supply to the USSR $3.50 million
of goods over a six-year period and a million tons of crude oil annually for
ten years. The list of goods requested by the USSR contains a number of em-
bargoed commodities. Nevertheless, Austria has assured the U.S. that she will
endeavor to cooperate with COCOWCHINCOM controls, working through the U. S.
y/f4tftk:,'
Embassy in Vienna as before, and i-4---appeairs-prorie that actual deliveries of
strategic goods from Austria to Soviet bloc destinations will be substantially
smaller than were deliveries from Austrian plants under Soviet control.
c. The overriding U.S. policy objective insofar as Finland is
concerned is to maintain Finland as akee and independent country. Thus,
recognizing Finland's difficult geopolitical position and reliance on trade
with the USSR, the U.S. refrains from urging Finland to adopt measures directed
against the Soviet bloc that may cause significant economic harm or create signi-
ficant political or economic danger to Finland. Furthermore, more rigorous U.S.
action vis-a-vis Finland on the trade control front would be strongly resisted
by the Finns. In general, therefore, U.S. relationships with Finland in the
multilateral trade control field do not go beyond transmitting Battle Act Lista
to the Finns and keeping them generally aware of developments in the multilateral
trade control field, suggesting such Finnish cooperation in trade controls as
seems feasible without incurring undue risk for Finland. The strategic items
involved in Finnish "special latitude exports to the Soviet bloc are principally
ships (including tankers), copper, and some types of electrical and other machinery.
Generally speaking, the quantities involved are not so large as to cause very
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serious concern concern in terms of frustration of COCOM controls, or of contribution
to the Soviet bloc war potential. With respect to ships and shipping, however,
the U. S. has considered exports significant enough to warrant vigorous approaches
to the Finns.
d. Thus, we see that in the cases of Sweden and Switzerland, the
basic defense of special latitude is their neutral position and the fact that
their people expect them to permit exports in a way consistent with the neutral
positions of their governments. Economic pressures, undeniably important as
they are, are not so serious that they could not be surmounted were it not for
the political atmospheres and courses of these countries, The Austrian and
Finnish positions with respect to Western trade controls are necessary conse-
quences of their basic relationship with the USSR.
3. a. There is one country, Ceylon, to which U.S. aid has not been
extended because of inadequate cooperation under the Battle Act. Although
avowedly anti-Communist, as strongly reflected at the recent Bandung conference,
in 1952 Ceylon signed a five-year contract to ship 50,000 tons of rubber to
China annually in return for 270,000 tons of rice annually. Because the major
rubber-producing countries embargo rubber to China under the U. No Resolution,
Ceylon has been considered ineligible for aid, even though in all other regards
she has observed strategic trade control principles. Ceylon is not a member of
the U. N*3 having been blackballed by the Soviet Union, but this has not, in the
eyes of the U.S., modified the requirements of the Battle Act in terns of the
problem of extending aid to Ceylon.
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D. Injurious effects of special latitude. The conditions under which special
latitude has arisen and the arguments offered in defense or justification of
special latitude have been described above* The injurious effects of special
latitude may be summarized as follows: First, and most obvious, one injurious
effect of special latitude such as that described or, in the case of Japan,
hypothesized, above, is that it mitigates, and has the potential of frustrating,
the effects of various controls exercised by other countries. Second, the
existence of areas of special latitude makes it more difficult to negotiate
the adoption or maintenance of strict controls on the part of other countries*
Third, the exercise of special latitude by any country may lead others to desire
corresponding latitude with respect to certain commodities or destinations*
Fourth, the exercise of special latitude connotes, or may by other countries
be construed to connote, a more relaxed assessment of the importance of security
trade controls than the system is founded upon and may therefore lead to a
general diminution of interest in the control system, or, fifth, could lead
to a more relaxed posture vis-a-vis the European bloc and/or Communist China
in other fields as well.
E. Criteria for special latitude? Special latitude seems inherently
disruptive to a multilateral control system, but some attention might conceivably
be given to the possibility of developing agreed criteria, or agreeing on special
circumstances, under which individual PCs would be free to exercise special
latitude. Difficulties so serious as to make the attempt fruitless would, however,
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be encountered. encountered. In the first place, the circumstances or considerations involved
do not lend themselves to measurement or clear definition, falling as they do
in the realm of long-range political, economic, and security problems. Secondly
(and partly for the above reason), multilateral agreement on criteria could
probably be reached only under terms so broad as to enable any government to
make a case for special latitude should it desire to do so.
A practical consideration for the Executive Branch of the U.S. Government
is that the Battle Act is predicated on uniform cooperation, and to achieve
revision of the Act in such a way as to recognize special latitude would be a
formidable, perhaps impossible, task. Under the Battle Act (Title I), the
President may direct the continuation of aid even in the event of "knowingly
permitted" shipment by a foreign country of items included on the Battle Act
embargo list (unless the country knowingly permits the shipment of arms, ammuni-
tion, and implements of wars i.e. Title I, Category A goods) on the grounds
that termination of aid would clearly be detrimental to U.S. security interests,
but this provision was intended to allow for over-all consideration of U.S.
security interests after the fact of shipment; it was by no means intended to
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allow for U.S. formulation, prior to shipments, of conditions under which aid
would be continued despite non-compliance with the requirements of the Act.
The Battle Act provides, with respect to non-embargoed items that should be
controlled (Title II), that aid should be terminated in the event of Presidential
determination that a foreign country is not "effectively cooperating" or is not
providing the information on the basis of which the effectiveness of cooperation
can be evaluated. Although the President appears to be free to establish
varying standards of effective cooperation, utilization of the Act to achieve
adequate control of strategic goods other than those that are listed for embargo
would become most difficult were the U.S. to attempt to establish, or to parti-
cipate in the establishment of, different standards of effective cooperation
for different situations, because of the difficulty, noted above, of arriving
at anything resembling precise criteria for special latitude. Moreover, we
believe that the Act, mainly for this reason, envisioned uniform rather than
varying standards. On the other hand, the President is left free to determine
on a case-by-case basis whether cooperation is or is not adequate for the con-
tinuation of aid. In our opinion, such discretion is necessary, especially in
the absence of any provision, with respect to strategic but non-embargoed goods,
President
enabling the/to direct the continuation of aid on the grounds that to terminate
aid would clearly be detrimental to U.S. security interests.
F. Rebuilding control system on special latitude. From time to time some
thought has been given to the question whether it would be possible to rebuild
the control system on the basis of, or largely on the basis of, special arrange-
ments for each country, e.g. allocating certain Soviet bloc markets completely
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or predominantly to certain Free World countries, or, rather than distributing
COCOM quotas among the PC's, assigning each global quota to that COCOM country
which most warrants it on the basis of its historical production and export
pattern. The possible advantages conceived of for such a system would be that
it would, by preventing competition among PCs for Soviet bloc business, reduce
the flow of strategic goods to the Soviet bloc. Always, however, this possi-
bility has been discarded at an early stage of consideration on the grounds
that, aside from the difficulty which would be found in erecting such a system,
it would create or accentuate economic rigidities in Free World economies, and
would engender excessive reliance on imports from the Soviet bloc, in which
situations the Soviet bloc could easily cause serious disturbance to Free World
economies.
G. Conclusions. The pragmatic answer to our question would seem to be
that special latitude can "be allowed" under special circumstances because it
has existed in certain situations without critical injury or danger to the
objectives and philosophy of the multilateral control system. Such exercise
of special latitude, however, has clearly reduced the scope and effectiveness
of the system.
A further question requires considerations whether special latitude
should "be allowed". In answering this question, we interpret "be allowed"
to mean "be condoned" in order to avoid having to answer the question what
kind of action "not allowing" may involve, which is the subject of another
Staff Study (that on inducements and pressures).
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Our general answer to this question will probably be clearest if we
first offer some brief comments on the cases of special latitude cited aboves
1. In the case of West Germany, as we have seen, the basic motivation
is political. In the U.S. view the desirability of seeing West Germany in a
position of participation in Western world leadership decidedly overrides the
political importance of having West Germany seek to maintain a facade of a
single Germany in terms of the ultimate objective of unification or in terns
of alleviating domestic political pressures in West Germany. Therefore we
believe the U.S. should work as actively as possible without jeopardizing good
relationships with Germany to eliminate West Germany's exercise of special
latitude.
2. With respect to Portugal, although we doubt the possibility of
economic or military retaliation by China if Macao shipments cease, no objective .
answer to the question whether the Communist Chinese would retaliate -- economically
or militarily -- can be given and the Portuguese may very well be right. Secondly,
goods moving from or through Macao to Communist China, when considered in rela-
tionship to the goods denied Communist China by the Free World controls, do not
constitute a serious danger to Free World security. Therefore, although we
should continue our attempts to eliminate Portuguese special latitude, our
efforts in this direction should not be strenuous ones unless the latitude sought
becomes unreasonably great or the psychological danger which Portuguese special
latitude represents to maintenance of strict Free World controls to China becomes
acute and a high-level decision is made that the maintenance of such controls
overrides all other factors.
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3. With respect to the hypothetical possibility of Japanese special
latitude in terms of exports to Communist China, the situation is different from
that which involves Macao. Japan is a large and industrialized country which,
although desperately hungry for expanded trade everywhere, does not depend
exclusively on trade with Communist China for its existence as does the small
unindustrialized Macao. More importantlys any Japanese special latitude which
involved a large flaw of strategic goods to Communist China would not by itself
solve Japan's economic problems. It would make a substantial contribution to
Chinese war potential and would modify out of all recognition the posture the
U.S. wishes to see the Free World maintain with respect to Communist China as
an unrepentant aggressor and a continuing threat to the peace and stability of
the Far East. While it is not certain that Japan desires or would press for
such special latitude, she is highly sensitive toward what she regards as discrimina-
tion against her in the implementation of international controls, of which the
CON-CHINCOM differential is one aspect. If Japan is assured that her routine,
innocuous exception requests are handled with the same sympathetic consideration
as those of other countries, critical pressures for a relaxation of the CHINCOM
controls to the COCOM levels may be postponed, at least for a time.
4. With respect to Sweden, Switzerland, Austria, and Finland, it would
seem that the U.S. has every reason to hope for, but little right to demand
(although, in the case of Switzerland, some right to expect), more effective
cooperation than we are now receiving, and that the prospect of achieving more
effective cooperation lies more in the field of offering inducements than in
pressures or in simple persuasion on the basis of arguments used time and time
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again. Should the U.S. move in the direction of favoring a "neutral bloc", a
high-level decision would have to be made as to whether and to what extent
strategic exports by neutrals to the Soviet bloc should be considered simply
one of the inevitable costs of such a bloc, taking into account also the effect
of such exports on maintenance of the existing multilateral control system.
5* It should be our ultimate objective to maintain the Free World
embargo of strategic goods to Communist China. This effort extends to Ceylon,
as to all sources. However, our immediate course of action toward that goal
should be conditioned by these considerationsa
a. Rubber is recognized by the COCOM countries as only of "sur-
veillance" importance (International List III) in terms of exports to the Soviet
bloc in Europe.
b. Rubber is on the Title II List of the Battle Act rather than
the Title I List, so that, legally, adequate cooperation even in terns of exports
to Communist China need not require embargo.
Thus, our general answer to the question whether special latitude should
be condoned is that special latitude can never be condoned in terms of the U.S.
concept of the objectives of the control system, but that there are circumstances
in which the U.S. must accept or even concur in action that is injurious to the
control system on the basis of economic or political considerations overriding
the actual or potential injury to the control system. We are working, even in
the CO structure, under an informal system of cooperation, with nations whose
attitudes and problems differ from our own and also from each other's. In order
to make the control system as effective as possible, it should constantly be our
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objective to eliminate special latitude, but our action toward this objective,
or whether we take action toward this objective at any given time, should be
decided on an ad hoc basis after full evaluation of such considerations as the
nature and intensity of resistance of the country concerned, the extent to which
other countries are willing to join us in opposing special latitude, and the
economic and political facts, implications, and exigencies of the situation.
We can reasonably expect more of PC's and of aid-recipient non-PO's than
of non-aid-recipient non-PC's. With respect to the latter, we and all other
COOOM nations have a reason to press for cooperative action, but we must, at
the same time, recognize their different status.
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