USE OF INDUCEMENT OR PRESSURES ON FREE WORLD COUNTRIES IN SUPPORT OF THE U.S. ECONOMIC DEFENSE PROGRAM

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP63-00084A000100110004-0
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 17
• Document Creation Date: December 9, 2016
• Document Release Date: July 10, 2000
• Sequence Number: 4
• Publication Date: September 20, 1955
• Content Type: REPORT

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CONFIDENTIAL
Staff Study No. 11
Draft of May 20, 1955
CFEP, DRAFTING GROUP
Use of Inducements or Pressures on Free World Countries In Support
Of the U. Economic Defense Program
This draft of Staff Study No. 11 on Use of Inducements or
Pressures on Free World Countries in Support of the U. S. Economic
Defense Program 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 CFEP Drafting Group.
*DOC Exempt Letter On File*
Irving I. Kramer
Executive Secretary
Distribution:
CFEP Drafting Group
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CFI g DRAFTING GROUP
Staff Study No. 11
Draft of May 20, 1955
"USE OF INDUCEMENTS OR PRESSURES ON FREE WORLD COUNTRIES IN SUPPORT
OF THE U. S. ECONOMIC DEFENSE PROGRAM"
INTRODUCTION
This paper describes the various techniques which the U. S. has used or
may consider using to obtain the closer cooperation of other free world
countries in the Economic Defense Program. An evaluation of these techniques
is attempted, based upon examples shown in Appendix A, and general criteria
for their use are suggested.
In view of the many variables. present in real situations, no attempt has
been made to develop definitive rules for the selection or application of the
techniques described. In general, however, it is suggested that it is better
to use the "Carrot" of possible benefit rather than the "Stick" of possible
loss of benefit or actual punishment, where the alternatives are open.
Study of the various techniques and of examples of their use has also
brought out that some of themy whether of a positive or negative nature, are
general in impact. They may be used effectively in creating an atmosphere
in which agreement to take specific actions can be more readily obtained, but
may be quite ineffective where specific acts or items are concerned. Others,
on the other hand, may be used so as to bear directly and solely on the
particular problem. However, in the latter instance action on specific
problems may influence positions of governments, firms or individuals on
more general issues both within and outside of the Economic Defense Program.
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The judgment that certain of the techniques described below cannot be
usefully employed in solving specific problems of Economic Defense is not to
be taken to mean that the action could not or should not be taken in support
of other important Government objectives.
DISCUSSION OF TECHN
1. There is reproduced in the Appendix B, a check list of the individual
techniques constituting the types of inducements and pressures which have been
utilized by the United States up to the present time and including a few which,
although not as yet utilized, are theoretically possible.
2. In general, these techniques fall into two categories-.
b.
Methods of expanding or contracting U. S. Government urQcure-
ment of foreign goods and services;
Methods of expanding or contracting the availability abroad of
U. S. goods and services.
3. In this first group i.e., expansion or contraction of Government
procurement of foreign goods and services, are included the various techni-
ques such as off-shore procurement, stockpiling, the Formosa Clause, and
use of the selection of spots for military bases as an inducement. In the
second group i.e., the expansion or reduction of the availability of U. S.
goods and services, are the techniques such as the making available of short
supply items, withholding of export licenses, off-shore bunkering controls,
punitive actions under the administrative action program, (although certain
of these punitive actions such as the withdrawal of FOA contracts are of
the nature included in Item A), denial of visas, financial loans and grants
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(here there will be occasions where this technique will fail into the first
category such as the procurement of locomotives in one foreign country for
shipment to another foreign country under the FOA program), technical assist-
ance projects, use of agricultural surpluses and health and sanitation
projects.
4 Some of these are applicable on a country basis (such as action
under the Battle Act or under the Department of Commerce Anti-Frustration
policy, i.e., PD 810), while others are directed at an individual or company.
5. It will be noted that some of these techniques involve lines of
action undertaken solely in order to obtain greater conformity in other
countries with the U. S. Economic Defense policy. Other of the techniques
involve already established U. S. government actions which are being under-
taken originally for other reasons and where their increased or decreased use
in an attempt to obtain closer adherence to the U. S. Economic Defense policy
is collateral to their main purpose. It is believed that in general those
techniques which are solely applicable to our effort to obtain closer ad-
herence to our Economic Defense policy are generally superior to those
techniques which infringe upon other policy objectives of the U. S. Government
since, in the latter case, the Economic Defense benefits obtainable may
frequently be more than offset by the possible losses to other programs.
6e It will be noted that certain of the techniques are specific in
their application in that they are designed solely to meet a given situation
while others are much broader in their implications and may have adverse
collateral effects. An example of this latter situation is to be found in
the possibility that the use of the Battle Act may be more damaging to the
military program than the economic defense gain which might result.
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CRITERIA
7. The following are suggested as guidelines for the use of any or all
of the techniques discussed above and described in detail in the Appendix.
These relate solely to considerations in connection with supporting the
Economic Defense Program and in no way are intended to imply that certain of
the actions described should not or could not be taken completely apart from
that program.
8. Guides in considering possible use of any or all of the techniques
described in support of the Economic Defense Program:.
a. Is there an economic defense problem warranting special atten-
tion?
b. Would the use of one or more of these techniques be effective in
producing a net gain to the Economic Defense Program? (continue
use of any particular technique only where past results in
somewhat similar circumstances justify its continued or expanded
use).
c. Would the net gain to the U. S. outweigh the resulting costs to
.other U. S. programs and objectives?
d. If the particular problem permits a choice between the use of
inducements or pressures, costs permitting, it is preferable to
use inducements. (Inducements of relatively high cost to the
U. S. to be employed only on determination that the objective
cannot otherwise be attained by means such as mild pressures).
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CONCLUSIONS
9. The techniques described in the Appendix are of varying degrees of
usefulness in influencing other countries and their natioilals to cooperate
more closely with the U. S. Economic Defense Program.
10. With reference to East/West trade there is a broad field of items
where trade interests conflict with security objectives. These items shade
from those of minor strategic importance to others approaching the importance
of items directly related or principally used for military materiel production.
In this area some of these techniques are being or can be used to influence
other free world countries to support the U. S. views of an adequate Economic
Defense Program.
11. Clearly those techniques listed as inducements which provide
alternate markets for the materials or products for which restrictions on
sale to the Soviet Bloc are desired, are the most effective as they lessen
the pressures to ship such items to the Bloc. Off-shore procurement in con-
nection with FOA or defense programs J(5,6 & 7); and/or increased stockpile
procurement (4 & 15), provide such free world markets and can be very effect-
ive tools in support of this program.
12. The pressures which could be related directly to the Economic
Defense Program mostly are the reverse of those described above. In general,
it is preferable to take such actions only as a last resort; rather using
the implied threat of the use of such techniques than actually employing
them.
These numbers relate to the items in the attached Appendix A, which
provides examples of the particular techniques.
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13. In this category falls: Withholding export licenses (18, 23);
reducing availability of short-supply items (24, 19); curtailment or with-
drawal of off-shore purchasing (16, 22); and reducing stockpile purchases
(21, 26).
14. Another pressure technique is the withholding of export licenses
for specific commodities (19, 23), where the country of destination is ship-
ping the same item to the Bloc or shipping a strategic product made therewith
or therefrom.
15. Reference should be made to the actions taken under the inter-agency
"Administrative Action Program" (28, 29). Here where it is determined that
individuals are negating the objectives of the U. S. Defense Program various
disciplinary actions are taken until agreement is obtained from the individual
for conformance with that program. Related to this is the denial of visas
(27), to persons who flagrantly disregard the objectives of the U. S. security
program and as a result cannot expect such considerations.
16. Two other techniques listed: Treasury overseas bunkering regula-
tions (31); and the Formosa Clause (30), are aimed at hampering the transport
of items to the Bloc or precluding the use of ships by the Bloc,where such
ships are gainfully employed in carrying aid goods to friendly areas.
17. With these points in mind it is believed that the following tech-
niques are those most advantageous in that they attack directly the problem
confronting us and also in that they are less likely to have undesirable
indirect reactions.
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a. Procurement (5,6,22,16)
b. Stockpiling (4, 15, 21, 26)
c. Availability of short-supply items (199 12, 24)
d. Withholding of export licenses (23, 28, 189 20, 25)
e. Formosa Clause actions (30)
f. Bunkering restrictions (31)
Z. Punitive actions under the administrative action program (28, 29)
h. Denial of visas (27)
18. On the other hand, the following types of actions are felt to be of
less value because either they do not directly address themselves to the
problem at issue or because they may have indirect reactions of an unfavor-
able nature.
a. Financial loans and grants (1, 2, 3, 14, 17)
b. Technical assistance (3)
c. Military bases (7)
A. Agricultural surpluses (9)
e. Health and sanitation projects (10, 11)
f. Disposal of military surplus materiels (8)
APPENDIX A
Listing techniques and
examples of each.
APPENDIX B
Check list of techniques
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_.m.----~ Appendix A
Examples of Pressures or Inducements which have been, or may be used, to
obtain foreign support of the U. S. Economic Defense Program.
1. Inducements which may be offered to countries or individuals to persuade
them to cooperate with the U. S. Economic Defense Program.
a. Country wide
(Examples of aids and grants)
10 $10 million has been made available to Japan in the form of a
grant for the support of defense production industries.
2. Approximately $45 million has been used to finance the trans-
portation, relief and resettlement of refugees from North Vietnam
to Free Vietnam.
(Example of technical assistance)
3. Afghanistan. An American technical advisory group, called the
Helmand Valley Advisory Service, has been created to assist the
Afghan administration in all phases of engineering, agriculture,
health and sanitation, community development, public administra-
tion, and training, in connection with the Helmand Valley
Development program. A Community Development Training School and
Demonstration Farms have also been established in the Helmand
Valley.
(Example of increasing stockpile procurement)
4. It has been suggested that Turkish cooperation in the denial of
borax to unfriendly countries might be improved by arranging to
purchase from Turkey, for the U.S. Strategic Stockpile, quanti-
ties of chromium or copper greater than would otherwise be
acquired from this source, in such fashion as to be of more bene-
fit to Turkey than the sale of this material in the open market.
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(Example of off-shore procurement)
5. The U.S. Armed Forces buy approximately $200 millions of goods
and services abroad, per year, for subsistence and maintenance of
troops and installations. It is suggested that the placement of
contracts for such items might be used to increase cooperation
with the Economic Defense Program.
6. The FOA sold U.S. coal to private individuals in France and with
the francs bought cement in Tunisia for shipment to Iran; tires
and tubes in France for Turkey; logs in French West Africa for
Israel.
(Establishment of US bases abroad)
7. The US has expended approximately $250 million in Germany and
$100 million in Italy, as well as large sums in other countries,
for the construction of military bases. It has been suggested
that the location of bases and the letting of construction con-
tracts may be used, to some extent, to obtain greater cooperation
with the US Economic Defense program.
(Disposal of military surplus materiel)
8. The U. S. Armed Services possess thousands-of tons of surplus
materials of many kinds, which may be disposed of locally. The
sale of such surplus. material should be confined to countries
which maintain satisfactory controls over the movement of
strategic materials to the Soviet Bloc.
(Disposal of agricultural surplus commodities)
9. The 1956 budget estimate of;;MSA proposes that $30 million in agri-
cultural surplus commodities be given to India, and that the
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sales proceeds of these commodities be used for agreed economic
development purposes such as local costs of irrigation, flood
control and power. Such aid might also carry a condition relating
to the Economic Defense program.
(Health and sanitation programs)
10. Through the work'of:the Iran-US Public Health Cooperative,
malaria has been brought under control and should be virtually
wiped out within a few years, and serious epidemics of conta-
gious diseases are now less frequent.
11. Substantial progress has been made in malaria control in Indonesia.
For example, in one area sample tests on infants made before the
program was undertaken showed that 30%'had malaria. Two years
later, a similar teat showed no cases of malaria.
(Increasing availability of items in short BUPPly)
12. A supplemental allocation of copper alloy scrap was made to West
Germany for the second quarter, 1955. It is expected that this
allocation will strengthen West German support of the US in
COMM and other Economic Defense activities.
b. Inducements for individuals.
(Loans and grants)
13. $3 million have been made available for the making of technical
surveys and engineering reports for the Tata steel company expan-
Sion project, India.
14. A loan of $1.2 million to the Rio Tinto pyrites mine, Spain, was
made for the general purpose of increasing production. The
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licensing of certain equipment for the mine, however, and the
final implementation of the loan were held up until it could be
ascertained that this development would not increase the avail-
ability of pyrites to the Soviet Bloc.
(IncreasinStockt~ile Procurement)
15. The GSA might direct its purchases toward particular mines or
companies, if so directed by ODM, in the interests of the Economic
Defense program.
(Off-shore procurement)
16. Both Defense and FOA purchase large quantities of materials and
services of many types, in foreign countries, either for use
locally or for shipment to some other country. The nature of
other business carried on by the prospective suppliers could be
taken into account in the placement of FOA or Defense contracts.
II. Pressures which may be exerted to persuade countries or individuals to
cooperate with the US Economic Defense Program.
a. Countries
(Curtailment or withholding of US aid)
17. The preparation of an aid program for Ceylon was interrupted
because of failure of Ceylon to discontinue its exports to
Comemnist China of rubber and rice.
(Withholding of export licenses)
18. Export licenses were withheld on certain excavating machinery
for the UK, under the provisions of PD 810, following upon the
withdrawal-by the UK Government of assurances with regard to
the possible transshipment of such items to the Soviet Bloc.
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Licensing was resumed upon receipt of the necessary assurances
from the UK Goverrnment.
(Reducing availability of commodities in short supply)
19. Licenses for the export of dusting sulfur required for rubber
production were denied to Ceylon, because of the refusal of
Ceylon to discontinue its exports of rubber to Communist China.
This was unsuccessful as other friendly countries supply the
required sulphur dust without demanding discontinuance of ship-
ments of the resulting rubber to Communist China.
(Restricting availability of technical data)
20. The export of technical data relating to metal rolling mills was
made subject to obtaining validated export license, and such
information is being withheld from the UK pending satisfactory
agreement upon the export control of metal rolling mills.
(Reducing stockpile purchases)
21. The GSA might, upon direction from the ODM, reduce purchases for
the stockpile from a particular country, if such action seemed
in accord with US economic defense objectives.
b. Individuals.
(Curtailment of offshore procurement)
22. During the final year 1955 two offshore procurement contracts
totalling about $25 million were cancelled in Italy by the
Defense Department because the Communist labor union gained
control in the plants concerned after the contracts had been
placed.
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(Withholding of export licenses)
23. Export licenses were withheld from the Italian firm SALEM until
the firm furnished information regarding its transactions in
molybdenum, and gave assurances that its future activities would
be in accord with applicable export regulations.
(Reducing availabilit of short supply items)
24. The known trading activities of applicants may be taken into
account when short supply quotas are allocated among the appli-
cants.
(Withholding technical data)
25. An application was made by several American firms to export
technical data relating to metal rolling mills to FIAT, Italy.
The advisability of denying this application was studied in view
of the large Communist membership in the FIAT labor force and of
past trade between FIAT and the Soviet Bloc. It was finally
decided to approve the license, in view of the compliance by FIAT
with trade controls, during recent years, and of the possession
of Defense Department contracts.
(Reducing stockpile purchases)
26. The GSA might, upon direction from the 0DM, reduce purchases for
the stockpile from a particular company, if such action seemed
in accord with US economic defense objectives.
(Denial of US visas}
27. Individuals known to be conducting trade not considered to be
to the security interests of the US might be denied visas, for
themselves, or for company representatives, thus hindering
their business activities.
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(Administrative Action)
28. The denial of offshore procurement contracts and the withholding
of US export licenses to the firm of Wheelock, Marden, has
resulted in the opening of negotiations with Mr. Marden to obtain
adequate assurances that he will comply with applicable regula-
tions with respect to trade with Communist China.
(Administrative Action Watch List)
29. The BFC maintains a file of firms and individuals whose applica-
tions for export licenses are either aubjeeted to special
scrutiny, or denied without further consideration, in view of
known undesirable activities of these firms or individuals.
(Formosa Clause)
30. The Formosa Clause (restrictive charter) was instituted by NSA
to insure that foreign flag vessels chartered MSA would pot be
placed in an advantageous position to trade with Communist China.
This clause provides that vessels chartered by MSA may not go
to Communist ports within 60 days after discharge of MSA cargo
at Formosa. There is a provision for holding back 25% of the
freight payment as a means of enforcement.
(Treasury overseas bunkering reRUlations)
31. Under Treasury Department regulations, American firms abroad may
not supply bunkers to vessels bound for Communist China if such
vessels are carrying strategic cargo. The vessel Les Glieres,
operated by the French line Messageries Maritimes, was denied
bunkers under this regulation.
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Appendix B
CHECK LIST OF TECHNIQUES
INDUCEMENTS
EXAMPLE NO.
Aids and grants (country wide)
1
&
2
Technical assistance (country wide)
3
Increasing stockpile procurement (country wide)
4
Off-shore procurement (country wide)
5
&
6
Military bases
7
Military surplus disposal (country wide)
g
Agricultural surpluses (country wide)
9
Health and sanitation programs (country wide)
10
&
11
Availability of short supply items
12
Loans & grants (individual)
13
&
14
Increasing stockpile individual orders
15
Offshore procurement specific suppliers
16
PRESSURES
Curtailment or withholding US aids from
17
specific countries.
Withholding export licenses for particular country 18 & 19
Restricting availability of technical data 20
to named countries.
Reducing stockpile purchases 21
Curtailment of offshore procurement from 22
non-cooperative firms
Withholding individual export licenses 23
Reducing availability of short supply items 24
Withholding technical data from individuals 25
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PRESSURES (Cont'd)
Curtailing stockpile purchases from
specific individuals
Denial US visas
Administrative action
Formosa clause
Treasury overseas bunkering regulations
EXAMPLE NO.
26
27
28 & 29
30
31
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