(UNTITLED)

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP63-00084A000100080003-5
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 11
• Document Creation Date: December 9, 2016
• Document Release Date: March 24, 2000
• Sequence Number: 3
• Content Type: REPORT

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2. a. The notable examples of PC's exercising special latitude are
West Germany and Portugal.
(1) West Germany.
(a) West Germany exercises special latitude in terms of
exports to Soviet-occupied East Germany in these respects:
(i) Items under quantitative control are exported
to East Germany without reference to global quotas or to control procedures
established by COCOM.
(ii) West Germany does not supply 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.
(2) Portugal. The Portuguese government permits exports from
and/or through Macao of China-embargoed goods of types and in quantities falling
outside of CHINCOM 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 Communists 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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to 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 are Sweden, Switzerland,
Austria, and Finland.
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 generally parallel restrictions safeguarding
against frustration of 0000M 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 traditional business of the PC's. 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 exports than there has been.
be 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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serious concern in terms of frustration of COCOM controls, or of contribution
to the Soviet bloc war potential. With respect to ships, 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. N. Resolution,
Ceylon has been considered ineligible Sbr aid. Ceylon is not a member of the
U. N., 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 terms of the
problem of extending aid to Ceylon.
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b. Ceylonese shipments of rubber to Communist China may be said
in effect to reflect a mathematical exercise: the calculation that Ceylonese
profit would exceed the maximum amount of aid the U.S. might be expected to
offer. Political considerations were involved only in the sense that the Ceylonese
saw no political arguments, in either the domestic or the international realm,
outweighing the economic advantage involved.
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 completely
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 exercisecf special latitude connotes, or may by
other countries be construed to connote, a more relaxed assessment of the im-
portance 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,
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E. Criteria for special latitude? Special latitude is theoretically
that
inadmissible in a multilateral control system, in the sense/it means operating
beyond the bounds of multilateral agreement. Some attention might conceivably
agreeing on
be given to the possibility of developing agreed criteria, or/special circum-
stances, under which individual PC's would be free to exercise greater latitude
than international agreements permit. Difficulties so serious as to make the
attempt fruitless would, however, be 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 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 war, 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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or predominantly to certain Free World countries, or, rather than distributing
COC014 quotas among the PCts, assigning each global quota to that COC014 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 PC's 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.
A further question should, however, be considered, i.e. 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).
The proper answer seems to be 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
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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 CG 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 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 have a right to expect more of PC's and of aid-recipient non-PC's
than of non-aid-recipient non PC's. With respect to the latter, we and all
other COCOM nations have a right to press for cooperative action, but the
compulsion to recognize their different status. Obviously our attitude toward
non-PC's may be conditioned by any developments in our attitude with regard to
the desirability of a "neutral bloc" between Western Europe and the European
Soviet bloc.
With this general answer in mind.., we offer these brief comments on the
cases of special latitude cited above:
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
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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 terms
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
or military
economic/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
relationship 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 psychological
danger Portuguese special latitude presents 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.
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 does not depend on trade with Communist China for its existence as does
the small unindustrialized Macao. More important, the kind of special latitude
in which Japan might be interested would not be a limited quantity of exception
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items, such as are involved with Macao, for this would not appreciably alleviate
Japan's economic or political problem, and what we would be concerned with
would be a large flaw of strategic goods to Communist China. Not only would
this make a substantial contribution to Chinese war potential, but it 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 con-
tinuing threat to the peace and stability of the Far East.
L. With respect to Sweden, Switzerland, Austria, and Finland, it would
seem that the U.S. has every right 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
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 eliminate shipments of rubber
to Communist China from Ceylon, as from all sources. However, our immediate
course of action toward that goal should be conditioned by these considerations:
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.
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be Rubber is on the Title II List of the Battle Act rather than
the Title I List, so that adequate cooperation even in terms of exports to
Communist China need not require embargo.
c. In order to achieve the desirable over-all U.S. relationship
with the Southeast Asian rubber-producing countries, allowance ought to be
made for shipments of rubber to Communist China so long as they do not contri-
bute excessively to Soviet bloc military capabilities -- specifically, so long
as they do not permit Communist bloc stockpiling.
In terms of these considerations, Ceylonese shipments could be
considered as not involving special latitude, and therefore defensible, if
they were reduced to a level consistent with what other countries were per-
mitted to ship within a "global quota" low enough to prevent Communist bloc
stockpiling.
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