U.S. ATTITUDE TOWARD EXPORTS TO THE EUROPEAN SOVIET BLOC OF NON-STRATEGIC COMMODITIES

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP63-00084A000100100007-8
• Release Decision: RIFPUB
• Original Classification: C
• Document Page Count: 17
• Document Creation Date: November 16, 2016
• Document Release Date: March 23, 2000
• Sequence Number: 7
• Publication Date: June 17, 1955
• Content Type: REPORT

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U.S. Attitude Toward Exports to the
European Soviet Bloc of Non-Strategic Commodities
Summary and Conclusions
Introductions Basic Assumption
I, Present U.S. Attitude Toward Non-Strategic Exports
A. Exports from the U.S,
1. NSC 152/3
2. Department of Commerce Licensing Policy and Procedures
3, Special Provisions Relating to Agricultural Products
B. By Other Free World Countries
1, Qualified Acquiescence
2, Policy of Avoidance of Undue Reliance and its Application
II0 Evaluation of Effects of U.S, Policy
A. Level of Trade
B. International Trade Control Program (COCCt4)
C. Posture in International Organizations
D. Participation in Trade Fairs Behind the Iron Curtain
III0 Alternative Courses of Action
A. Active Promotion
B. Further Stiffening of U,S, Attitude
C. Less Qualified Acquiescence
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U.S. Attitude Toward Exports to the
European Soviet Bloc of Non-Strategic Commodities
Introduction: Basic Assumption
Strategic goods are defined to include the commodities on the U.S. Master
Export Security List, comprising atomic energy items (Part A), munitions items
(Part B), and the other items specified under Parts C-I, II9 III and I9. All
other commodities, including agricultural products, are considered to be "non-
strategic" for the purposes of this paper. To assume otherwise would require a
departure from the existing U.S. criteria of strategic significance. Such a
departure would take us far afield.
I. Present U.S. Attitude Toward Non-Strategic Exports
A. Exports from the U.S./
The principal specific method of implementation of the economic defense
program has been to deny the bloc goods directly related to its war potential.
This policy has been carried out by prohibiting the export of all goods having
any strategic significance whatever. The export of clearly non-strategic items
is and has been permitted, although under close scrutiny, on a case by case
basis. This surveillance is made possible by the requirement for a validated
export license before shipment of any commodity. Control of quantity or the
modification or denial of a proposed export can thereby be accomplished, in
keeping with whatever special circumstances may surround a particular
transaction.
The U.S. applies a broad range of economic sanctions against Communist China
and North Korea, for a combination of security, political, and moral reasons.
Thus, the U.S. embargoes all exports, whether strategic or non-strategic, prohibits
all imports, and generally forbids any economic intercourse with those regimes by
persons, or through transactions, subject to its jurisdiction. Throughout this
paper, unless otherwise specified, the term "Soviet bloc" excludes Communist China
and North Korea.
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Up to now the U.S. Government has refrained from actively promoting trade
of any sort with the Soviet bloc, and the withholding of Government promotion
has quite possibly been a contributing factor to the low level of the trade
discussed below.
1. NSC 152/3
NSC 152/3 contains several provisions of particular pertinence to this
discussion, which run along the following lines:
a. During the current prolonged period of tension between the free
world and the Soviet bloc, U.S. courses of action should be based upon the
assumption that the maintenance of some personal and commercial contacts
between the free world and the bloc may have positive advantages, particu-
larly as far as the Soviet satellite states are concerned.
b. While there is a continuing necessity for U.S. controls over ex-
ports to the Soviet bloc, a gradual and moderate relaxation in a practice
amounting to virtual embargo of exports would be appropriate, provided that,
in the pace and timing of such relaxation, due consideration is given to
the effects on the total economic defense effort.
c. One of the general objectives of the economic defense program is
to decrease the political and economic unity of the Soviet bloc through
skillful flexibility in applying controls.
2. Department of Commerce Licensing Policy and Procedures
Under b. above there has been agreement on a Department of Commerce
licensing policy which makes possible a freer licensing of non-strategic
exports from the U.S.
U.S. export
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U.S. export controls toward the Soviet bloc were revamped on August 26,
1954, in a manner which brought them much closer than previously to the
international controls. All shipments to the bloc still require individu-
ally validated export licenses; and the general policy is to deny or limit
those commodities which appear on the three international lists plus a few
items respecting which unilateral U.S. controls can be effective or which,
by their nature, might raise difficult domestic political problems if
shipped to the bloc. For all other commodities there is supposed to be a
general presumption of approval.
Under existing procedures of interdepartmental consultation and re-
view, the Department of Commerce notifies the EDAC agencies of signifi-
cant export license applications received in the Bureau of Foreign Commerce.
In addition, BFC, of its own accord, raises for inter-departmental discus-
sion any application which contemplates an export to the Soviet bloc that
would significantly affect the trend of U.S. exports to the bloc either in
general or in terms of the particular commodity, or that might have any
significant impact on the supply situation for that item within the Soviet
bloc.
3. Special Provisions Relating to Agricultural Products
During the past eighteen months, export license applications were re-
ceived covering large shipments to the bloc of butter and cottonseed oil,
which would have come from U.S. Government-owned surplus stocks. The
applications were denied, principally on the grounds that the U.S. should
not sell
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CO IDENTIAL
not sell these commodities at a loss to unfriendly countries, and that
adverse public reaction would follow the sale of butter to the USSR at
a price below that paid by American housewives.
At the present time the conditions governing the export of agricul-
tural products from the U.So to the Soviet bloc are as follows:
Exchanges of goverment-owned agricultural surpluses for strategic
materials with the bloc in barter deals appear, at least for the present,
to be ruled out by a Justice Department legal opinion of February 21, 1955.
Sales for local currency under the Agricultural Trade and Development Act
of 1954 (PL 480) cannot be made because of the provisions of that law.
Direct dollar sales of surpluses acquired from goverment-owned stocks
by private traders, where the sales price is less than the government's
investment, have been disapproved on policy, not legal, grounds. This
policy was fixed in January 1954 when the Cabinet decided not to permit
licensing of butter exports to the Soviet bloc on the grounds stated above:
(1) that the U.S. should not sell this commodity at a loss, and (2) that
adverse public reaction would follow the sale of butter to the USSR at a
price below that paid by American housewives.
In February 1954 the Cabinet further decided was a matter of policy
to deny commercial export license applications for the export for cash of
U.S. Government-owned surplus agricultural or vegetable fibre products to
Russia or her satellites." At that time the Cabinet agreed that there
would be no objection to bartering perishable agricultural surpluses to
the bloc in exchange for strategic minerals. At the present time, however,
barter
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barter exchanges appear to be precluded, in view of the Justice Department
opinion of February 21, 19550
This would leave only two theoretical possibilities for the export of
agricultural products to the bloc. The first possibility is in the area
of private transactions involving products acquired from commercial stocks.
Such transactions have not been of interest to the bloc, as may be noted
from the following facts. Total U.S. exports to the bloc in 1953 were
valued at only $2 million, three-quarters of which consisted of tobacco
products and wool rags. In 1954 exports were valued at $6 million. Over
$3 million of this comprised flood relief shipments of agricultural sur-
pluses to East Germany, Hungary and Czechoslovakia, $0.5 million was in
tobacco products, another $0.5 million in inedible tallow, and over
$1 million in wool rags.
The remaining possibility would be direct government-to-government
sales for dollars. Such sales are legally permissible, but they have not
been affirmatively declared to be desirable on policy grounds; and the
NSC decided in April 1954 that, in the event of such transactions, there
must be a clear advantage to the U.S. and no material injury to the trade
of friendly countries.
B. By Other Free World Countries
NSC 152/3 provides that, in the current prolonged period of tension, the
courses we take should be based upon the assumption that interference in the
trade between the free world and the Soviet bloc should take place only where
a clear advantage to the free wdrld would accrue from such interferences,
particularly
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particularly since controls on trade still pose economic and political problems
for many of our allies. At the same time NSC 152/3 enjoins us to:
(1) Seek to demonstrate to other countries the risks of excessive reliance
on the Soviet bloc as a trade partner.
(2) Encourage and facilitate the flow of trade within the free world, in-
cluding the entry of commodities into the U.S. by reduction of trade barriers,
particularly when the effect of such action would be to decrease the reliance
of the free world on the Soviet bloc.
(3) Encourage and support, by all reasonable means, the development of
alternative markets and sources of supply within the free world, so as to re-
duce dependence of free world countries on Soviet bloc markets and sources of
supply.
(4) Seek to provide safeguards designed to minimize the immediate effects
of a sudden reduction or cessation of trade initiated by the bloc.
(5) Administer current U.S. programs, such as economic development, mili-
tary procurement, defense support, stockpiling and similar activities, in such
a way as to take into account the impact on the economic defense program and,
particularly, the objective of decreasing the free world's reliance on Soviet
bloc trade.
1. Qualified Acquiescence
The foregoing adds up to a policy of acquiescence, often expressed in
terms that the U.S. "does not object" to an increase in non strategic trade
as such with the bloc. This position diverges from that of many other
countries, which believe that non-strategic East-West trade should be
promoted
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promoted to the maximum extent possible. This belief is reinforced by
the continuously growing competitive pressures for markets. The U0S0
position has been characterized as essentially negative and, as discussed
below, affects U.S. participation in international bodies and in trade
fairs behind the Iron Curtain.
As NSC 152/3 stresses, the U.S. does not seek a total embargo on East-
West trade, for a variety of reasons, some political, some psychological,
and some economic. As a result of this position, we sometimes feel bound
not to object to a particular export or exports to the Soviet bloc when,
in truth-, there may be misgivings about such exports or a preference that
they not take place. Two cases in point are Brazilian exports of iron ore
to Poland some time ago and, more recently, proposed Spanish exports of
pyrites to Eastern Germany. In both cases the foreign firms involved had
been recipients of U.S. financial assistance, and neither of them had had
an historical trade with the Soviet bloc. In both cases the commodities
involved were classified as non-strategic under present criteria, or quasi-
strategic at most. These cases, however, were unusual ones in which secu-
rity considerations were secondary.
2. Policy of Avoidance of Undue Reliance and its Application
An important qualification in the U.S. policy of "acquiescence" or
"non-objection" with respect to promoting non-strategic trade with the bloc
stems from the concbrn that, in the case of certain countries or under cer-
tain circumstances, non-strategic trade can be manipulated by the bloc with
results that would be unfavorable to our political and security objectives.
There are,
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It is true today--as it was two years ago when the present economic
defense policies of the U.S. embodied in NSC 152/3 were given expression--
that, over the long run, the major results in achieving a position in which
the free world countries will view their trade with the bloc as marginal,,
are apt to accrue from the progress that is made in solving some of the
more basic economic problems of the free world. It should be recognised,
however, that even if these basic problems were to be solved over-night,
trade with the Soviet bloc would still go on simply because-. businessmen
in the non-Communist countries could make a profit from such trade; there
is a desire in some countries to trade with the bloc for political reasons;
and in most free world countries outside the western hemisphere there is
no stigma connected with this trade. The solution of problems of economic
dependence on the Soviet bloc is not unconnected with existing U.S. programs
and policies in the economic field which., it should be noted, we would be
pursuing even if the Communist menace did not exist. Some of these pro-
grams and policies aim at improving the dollar position of the free worlds
better conservation and increased production, lowering free world trade
barriers, economic growth in the less-developed areas of the free worlds
and international commodity stabilization.
On a few occasions the U.S. Goverment has taken special measures to
assist free countries in lessening the impact of Soviet bloc economic pres-
sures or in reducing their dependence on trade with the bloc. Denmark and
Finland have been the principal recipients of this assistance.
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all for Finnish marks. The U.S. intends to utilize the major portion of
the available local currency proceeds for the purchase of prefabricated
buildings. This would provide a temporary cushion to the Finnish industry,
which has suffered a sharp curtailment of its exports because of a large
reduction in Soviet purchases.
A number of other modest measures have been considered in the U.S.
Goverment for the purpose of reorienting Finland?s trade more preponder-
antly westward, but few of these measures have been so specific as those
described above. By and large,, it is probably correct to say that a small
measure of success has been achieved, particularly in terms of buttressing
the Finnish Goverment?s resolve to keep its economic dependence on the
bloc down to manageable proportions.
II. Evaluation of Effects of U.S. Polio
A. Effects on Level of Trade
It is generally agreed that U.S. export policies have not had a major in-
fluence on the over-all level of East-West trade, anal there are sound reasons to
support this conclusion. The basic factors are (1) that the Soviet bloc has
been unwilling to permit a higher level of trade, and (2) that, under existing
policy, the Soviet bloc has been unable to export sufficient goods of attractive
quality and price. For several decades Soviet foreign trade has been strictly
maintained at very low levels, amounting to only a tiny fraction of the Soviet
national product. Similarly, Soviet satellite states have drastically reori-
ented their historical trade with Western countries and have forced an abnormal
expansion of intra=bloc trade. This low level of East-West trade is a result
of Soviet
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For propaganda purposes the Soviet bloc has maintained thst East-West
trade has been held back by U.S.-inspired export controls. This theme, start-
ing in the summner of 1951 with the preparations for the Moscow Economic Con-
ference (April 1952) and continuing through the relaxation of Western export
controls in August 1954, gained considerable acceptance in European trade
circles. However, from the last half of 1954 to the present it has become
increasingly clear that concrete trade results would not approach expectations.
Currently, European traders are concerned over cancelation of some Soviet con-
tracts, mainly for consumer goods. This development, while not yet of major
significance, serves to illustrate that Soviet policy, not international trade
controls or U.S. policy on non-strategic trade, is the real limitation to ex-
pansion of East-West trade.
B. International Trade Control Program (COCOA!)
In COCOM the U.S. Delegation has consistently taken the lead in seeking
the maximum level of restriction of strategic trade. This position is inher-
ent in the nature of COCCM, which in part came into being as a forum to recon-
cile differences between American and European thinking on trade controls,
Before the reduction of the COCOM embargo list from 260 to 170 items in August
1954, many European business and goverment leaders openly differed with the
U.S. as to what commodities should be considered strategic, and, to a degree,
felt that the long-range goal of the U.S. was to control all trade, including
non-strategic.
However, as a result of the reduction in the embargo lists, this feeling
was considerably dissipated, despite the fact that the reduction was not as
drastic as some had hoped. Another outstanding factor in lessening the
pressure
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Other disadvantages which it is said result from our present attitude
relate. to the limitations on the use of trade as a means of propaganda. As
has been indicated in Part II of this paper, we have avoided up to now par-
ticipation in trade fairs so as not to create erroneous inferences as to U.S.
encouragement of East-West trade and future U.S. licensing of exports. We
have, as a result, lost potential propaganda and personal contact opportuni-
ties. It is further argued that a more positive policy on trade would per-
mit exploitation of whatever propaganda opportunities are inherent in empha-
sizing availabilities to the Soviet bloc populations of non-strategic goods,
especially consumer goods, in the face of the Communist goverruents' inability
or refusal to buy. Our ability to use trade for purposes of propaganda exploi-
tation, however, does not so much require a policy of active promotion of non-
strategic trade as a licensing policy which conforms to our stated policy of
non-objection to non-strategic exports to the Soviet bloc. Similarly, although
our policy of not promoting East-West trade affects our ability to encourage
private American firms to participate in Iron Curtain trade fairs, it should
be possible to conceive of ideas, such as the Good Housekeeping exhibit men-
tioned above, which avoid the implication of active promotion of trade.
Finally, it can be argued that our present policy results in the sacrific-
ing of trade opportunities for American business. However, it is clear, as
noted above, that there is little interest in trade with the Soviet bloc on
the part of the American business community in general.
As is indicated by the foregoing, there may be, as is alleged, certain
disadvantages to the present U.S. attitude on non-strategic trade. These
do not
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The remaining obstacles to the active promotion of East-West trade lie
in the field of public and Congressional opinion. This question, however,
is to a very large degree related to the state of international tensions.
So long as the policies and actions of the Communist world continue to be
directed toward aggression and subversion, American public opinion will not
favor trade with Communist countries on a large scale and large segments of
public opinion will undoubtedly continue to insist upon stringent control
measures.
B. Further Stiffening of U.S. Attitude
A second possible alternative to the present U.S. attitude on non-
strategic trade might be a Further stiffening of our attitude. Such an
alternative would be more theoretical than practical under present circum-
stances. Under the assumption that international tensions would not increase
in the near future, and so long as there is the promise or even a possibility
of an improvement in the international situation, it would be virtually im-
possible to obtain agreement on the part of other free world countries to
further restrictions on East-West trade. Thus, a further stiffening of the
U.S. attitude at the present time would serve to reduce further only U.S.
exports to the Soviet bloc. In view of present low levels of such exports,
a further reduction would constitute an embargo.
In the absence of comparable action by the free world it is doubtful
that a stiffening of the U.S. attitude would have any effect whatsoever on
the countries of the Soviet bloc. On the other hand, it may be expected that
such a policy on the part of the U.S. would alarm our allies and might lead
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A policy of less qualified acquiescence would nevertheless encounter a
number of problems and might involve seeking changes in existing legislation.
One of the problems which may be anticipated is the question of what is
strategic. The strategic significance of some commodities is in large measure
dependent upon the quantity. Thus a shipment of one or two automobiles might
not involve any problem of strategic significance, whereas a shipment of five
hundred automobiles would raise a serious question in some quarters. A less
extreme case is the question of commodities which, because of the supply situ-
ation both in the Soviet bloc and the free world, is not strategic but which,
nevertheless, is considered strategic in the public mind for historical
reasons. Commodities which might fall into this classification include iron
ore and rubber. It is problems such as these which have resulted in the
numerous qualifications to our general policy of non-objection to non-
strategic exports.
The most serious exception to our general policy of acquiescence, how-
ever, concerns the export of agricultural commodities. Apart from the inter-
pretations of PL 480 which prohibit sale for foreign currency or direct or
indirect barter of government-owned agiiuultural commodities, it has been
decided as a matter of policy not to license the export of such goods which
are sold to the bloc at prices less than the government?s investment in such
goods. As has been indicated elsewhere in this paper, the effect of this
policy and the Justice Department's interpretation of PL 480 has been to limit
severely the possibilities of agricultural exports to the bloc, Unless it
were
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were determined that agricultural products should be embargoed to the bloc
for strategic reasons, it is believed that a policy of non-objection to
non-strategic trade should permit sales of agricultural commodities on a
less restrictive basis than at present,
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SUMMARY AND CONCLUSIONS
The present U.S. attitude toward non-strategic exports to the European
Soviet bloc can be characterized as one of qualified acquiescence. As re-
gards exports from the U.S., the general policy is to deny or limit the
export of commodities which appear on the international control lists plus
several commodities on which unilateral U.S. controls are considered to be
effective, or commodities which, by their nature, might raise difficult
domestic political problems if shipped to the bloc. There are certain ad-
ditional restrictions relating to agricultural exports. Similarly,, our atti-
tude toward non-strategic exports by other free world countries is one of
general acquiescence, subject to the qualification that such trade should not
lead to an undue reliance upon the Soviet bloc.
This policy of qualified acquiescence has diverged from the policies and
attitudes of most free world countries, which have adhered to a general policy
of promoting an expanded East-West trade in non-strategic commodities. As a
result of this divergence, and because of Soviet emphasis on expanded East-
West trade, the essentially negative position of the U.S. has been highlighted
and exaggerated. The failure of the U.S. to promote non-strategic trade
has affected also our ability to take advantage of certain propaganda oppor-
tunities, including participation in trade fairs behind the Iron Curtain.
Among the possible alternatives to our present policy are (1) active
promotion of trade in non-strategic items, (2) a further stiffening of the
U.S. attitude, and (3) less qualified acquiescence in the promotion of non-
strategic East-West trade by other free world countries. A policy of active
promotion is considered to be inappropriate in the absence of a marked
improvement
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improvement in international tensions, unwarranted from a commercial point of
view, and subject to adverse public opinion and some legal obstacles.
A further stiffening of the U.S. attitude toward East-jest trade would
find little support among free world countries in the absence of a serious
deterioration in world conditions, and, as a unilateral U.S. policy, would
have little effect on the Soviet bloc. Accordingly, such a course is con-
sidered inadvisable at the present time.
The third alternative, less qualified acquiescence, is essentially a
modification of our present position. Such a course of action would be
aimed at reducing or eliminating the confusion and contradictions in our
present policy of qualified acquiescence. Since the qualifications in our
present policy result in large measure from public and Congressional opin-
ion factors, there may be some obstacles to removal of these qualifications.
However, a policy of acquiescence unencumbered by existing qualifications
would overcome many of the disadvantages of our present policy without en-
countering the major disadvantages of a policy of active promotion.
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