CFEP DRAFTING GROUP ECONOMIC DEFENSE POLICY REVIEW

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP63-00084A000100160003-6
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 22
• Document Creation Date: December 12, 2016
• Document Release Date: October 27, 2000
• Sequence Number: 3
• Publication Date: June 20, 1955
• Content Type: STUDY

? Approved For Release 2001/08/27 : CIA-RDP63-00084A000100160003-6
CONFIDENTIAL
CFEP DRAFTING GROUP
ECONOMIC DEFENSE POLICY REVIEW
Staff Study No. 16
Revised Draft of June 20, 1955
U.S. Policies on Enforcement of Controls
This revision of the draft of June 7, 1955 of Staff Study No. 16,
on "U.S. Policies on Enforcement of 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 reproduction and
distribution facilities as a service to further the work of the CFEP
Drafting Group.
Irving I. Kramer
Executive Secretary
*DOC Waiver Letter In ERU File*
Distribution:
CFEP Drafting Group
CONFIDENTIAL
Aprod F Rela/ e1/08~27 : ,- QPy3-00084A000100160003-6
 Approved For Release 2001/08/27 : CIA-RDP63-00084AO00100160003-6
CONFIDENTIAL
Staff Study 16
June 20, 1955
CFEP Drafting Group
Economic Defense Policy Review
U.S. Policies on Enforcement of Controls
I. COCOM Enforcement
A. Present Control Arrangements and Understandings
1. Primary' controls over the export of strategic goods
It has always been understood in COCOM that the main responsibility
for applying and enforcing strategic controls rests with the country from which
the shipment originates. In the first two years of COCOM, relatively minor
attention was given to the manner in which the participating governments im-
plemented the International Lists. Member governments were assumed to have the
means of applying and enforcing export controls.
As various ancillary controls and greater enphasis on enforcement
have developed, the exporting country's responsibility has been modified to the
extent that the cooperation of other countries involved in the transaction as
importer, shipper, forwarder, etc. may be enlisted (in accordance with IC/DV,
voyage licensing, TAC controls). However, it remains a basic principle that the
exporting country must exercise its export controls (normally based on a require-
ment for individual export license) with due care as to the reliability of the
exporter and the final destinee, including end-use checks when necessary. End-
use checks are particularly important where the destinee is located in a non-PC
with sensitive transshipment areas.
2. Ancillary Controls
a. The IC/DV (import certificate - delivery verification) system
was the first of the ancillary controls, adopted P-.rly in 1951. It is a procedure
(IINFIDENTIAL
Approved For Release 2001/08/27 : CIA-RDP63-00084AO00100160003-6
 Approved For Release 2001/08/27 : CIA-RDP63-00084AO00100160003-6
CONFIDENTIAL
for the exchange of these documents (IC's and DV's) covering shipments of strategic
items between participating countries, having the purpose of assisting export
control authorities in determining the legitimacy of export applications and acting
as a deterrent to illegal diversions. In the IC, the importer makes a commitment
to his government not to re-export or divert the shipment without the approval of
his government. The IC is then submitted to the authorities of the exporting
country in support of the export license application. The DV is issued by the
importing country when the goods actually arrive, certifying that the goods
actually came under its export control. IC/DV has become an important adjunct
of primary export licensing procedures exercised by C)COM PC's and to a limited
extent by several non-COCOM countries.
Operating problems and proposals for improving the effective-
ness of the system have been discussed periodically among CGOOM countries. The
most notable improvement has been the government-to-government transmittal of
copies of IC's. This, together with other improvements, appear to have sub-
stantially eliminated forgery of IC's and other fraudulent devices used by illicit
traders.
b. The TAC (transit authorization certificate) system was put into
effect in January 1955 by the COCOM countries, and was the main new enforcement
feature of the 1954 revision of COCQM controls, providing a basis previously
lacking for preventing transshipments of embargo items (I/L I, Atomic Energy and
Munitions items) to the Sino-Sovie oc. Such goods originating in participating
countries will not be allowed to be transshipped 1 Soviet
bloc destinations by PC's unless that is the intent of the originating country,
evidenced by a TA certificate accompanying the goods.
CONFIDENTIAL
Approved For Release 2001/08/27 : CIA-RDP63-00084AO00100160003-6
 Approved For Release 2001/08/27 : CIA-RDP63-00084A000100160003-6
CONFIDENTIAL
The TAC scheme has not been in operation long enough to permit
a real testing and evaluation, but it seems clear that several of the PC's have
taken a narrower view of the TAC system than had been anticipated by the U.S.
and others, reducing its effectiveness as a means of stopping diversions as well
as raising questions as to the proper operation of TAC and complicating present
efforts to enlist participation in the TAC system by non-COCOM countries originating
strategic shipments.
c. Transactions controls are in effect in the U.S., U.K. and Canada,
having the purpose of prohibiting residents of these countries from engaging in
a
off-shore transaction~involving the delivery of I/L I, Atomic Energy or Munitions
items to the bloc. (U.S. transactions controls cover other Positive List items as
well.) Other COCOM countries have indicated that their existing financial controls
would accomplish the intent of transactions controls. The Dutch have long claimed
that they made no distinction between strategic goods exported from The Netherlands
and those commodities which were purchased abroad and sold by a Netherlands firm
to a third country, In discussions prior to the 1954 revision they refused to
adopt transshipment controls (i.e. TAC) until the UK would agree to exercise
transactions controls. The British agreed to adopt transactions controls as a
result of the 195 list reduction.
While there are questions under study in the Executive Branch
as to the adequacy of UK transactions controls, there has not been sufficient
experience with them to identify positively any major problems. Other questions
as to interpretation of transactions control regulations have arisen in the context
of stoppages under the TAC system.
CONFIDENTIAL
Approved For Release 2001/08/27 : CIA-RDP63-00084A000100160003-6
 Approved For Release 2001/08/27 : CIA-RDP63-00084A000100160003-6
CONFIDENTIAL
d. Voyage licensing and bunkering controls have been operated by a
number of COCOM countries to prevent the carriage of embargoed goods to Communist
China and North Korea in flag vessels of participating countries, and, by the U.S.
and U.K., to deny bunkering to any vessels carrying embargoed goods. A number of
non-COCOM countries have also taken steps to ensure that ships of their registry
would carry out the intent of the UN embargo. These controls have, however, been
of limited value in restricting the flow of strategic goods to Communist China
and North Korea mainly because such shipments can still move to these areas by
bloc vessels and other means of transportation.
The effectiveness of these controls would be increased (a) if
voyage licensing were to be applied by other PC's to Far East ports of the USSR,
in view of the possibility of subsequent transshipment to Communist China and
North Korea, and to any shipments known to have such a destination whether or
not they are actually delivered there by the vessel in question, and (b) if
bunkering controls were to be applied by the U.K. to return voyages. The U.K.
and other participating countries have considered such extensions to be un-
warranted in the absence of conclusive evidence as to these shortcomings. Thus
far the U.S. has not been in a position to bring forward such evidence as would
be necessary for the negotiation of tightened controls.
3. Multilateral Exchange of Information on Illegal East-West Trade
Transactions.
In June 1951 COCOM worked out a procedure for multilateral con-
sideration of diversion cases (CQCQM Doc 1634). This provides for coordination
by interested COCOM delegates of live cases in order to prevent the diversion
CONFIDENTIAL
Approved For Release 2001/08/27 : CIA-RDP63-00084A000100160003-6
 Approved For Release 2001/08/27 : CIA-RDP63-00084A000100160003-6
CONFIDENTIAL
of strategic shipments and also for discussion of closed cases to illustrate loop-
holes in enforcement techniques. It was the U.S. intent that this procedure would
serve to develop greater awareness in other COCOM countries of the need for
stricter enforcement and would also stimulate direct representations by them to
countries responsible or involved in diversion cases rather than relying on U.S.
representatives as intermediaries.
To date relatively few discussions of cases have been initiated
in COCOM under these procedures. There have been various reasons, including
apathy or reluctance on the part of various PC's and some limitations on
initiation of cases by the U.S. Means to bring about increased discussion of
enforcement cases in COCOM are under consideration in the EDAC agencies, in-
cluding a proposal for meetings of technical investigative and enforcement officials
of the PC's under COCOM auspices.
4. Extension of COCOM Agreements and Understandings to Non-WCOM
Countri es.
In the enforcement field this is likely to remain a significant
and time consuming exercise. Those third countries which have an export trade
in strategic items have for the most part indicated their intention to cooperate
with the purpose of the International Lists or Battle Act List in not allowing
direct exports of embargo items to the bloc. However, it is in connection with
better application of source controls and adoption of TAC and IC/DV, so as to
prevent indirect shipments to the bloc, that greater success is needed.
The cooperation of a number of non-CO DM countries appears to be
especially important to the success of the TAC scheme. The U.S., with help
QONFIDENTIAL
Approved For Release 2001/08/27 : CIA-RDP63-00084A000100160003-6
 Approved For Release 2001/08/27 : CIA-RDP63-00084A000100160003-6
CONFIDENTIAL
-6-
from the U.K. and France, hav conducted most of the third country approaches on
behalf of 0000M. A few non-C000M countries have already agreed to cooperate in
TAC.
IC/DV procedures have already been adopted in whole or in part by
Austria, Switzerland (blue certificate), Yugoslavia, Peru, Mexico (Cobre de Mexico),
Chile (some copper exports).
The problem countries comprise those which are significant as
transit points in Europe and the Mediterranean area and a few which have a sig-
nificant export trade in strategic items, such as Chile and Mexico. Certain of
these have posed delicate negotiating problems, made more complex by the fact
that the Netherlands and possibly other ODOOM transit countries appear to expect
fairly complete export control systems on the part of the third countries and
public identification with the TAC scheme before they can be recognized as
participants in TAC.
II. U.S. Enforcement Measures Taken on a Bilateral and/or Unilateral Basis
A. U.S. Measures
1. Battle Act Termination of Aid Provisions (Title I and Title II)
On eight occasions prior to July 1, 1955, the President has
announced his decision to continue aid to specific countries when there had been
shipments of items specified under Category B Title I of the Battle Act, on the
.basis that it would be contrary to U.S. security interests to terminate aid. These
shipments have amounted to $17.6 million. There has been no instance of termi-
nation of aid under the Battle Act (either Title I or Title II)3 but, for policy
reasons, the U.S. has refrained from extending economic aid to Ceylon because of
the latter's shipments of rubber to Communist China in the face of the UN embargo..
CONFIDENTIAL
Approved For Release 2001/08/27 : CIA-RDP63-00084A000100160003-6
 Approved For Release 2001/08/27 : CIA-RDP63-00084A000100160003-6
CONFIDENTIAL
-7-
Most of the CDODM countries have been the subject of Battle Act exceptions, as
well as Austria, Israel, and Iran. Most of the cases arose from prior commit-
ments, and were discussed in COCOM prior to inclusion in trade agreements.
COOOM procedures for prior consultation and exceptions have served
to deter the inclusion of embargo items in new trade commitments, and bilateral
discussions pursuant to Battle Act termination of aid provisions have also worked
toward this end. In addition, there have been reportz~ from certain non-0000M
countries that improvements were instituted in the application of local controls
following discussions with local officials of cases which, had they not arisen
from administrative error, would have been the subject of Battle Act determinations.
2. Administrative Action Program
This program (which is one of withholding certain U.S. privileges
from foreign firms which are reported to have participated in diversions) in the
past year has had some revisions designed to encourage the other participating
countries to assume their responsibilities in enforcing strategic trade controls.
Solo efforts by the U.S. to police international controls may have tended to
expend goodwill unnecessarily and to "wear out our welcome". These revisions
have also been intended to make the program more adaptable to the circumstances
which generally prevail in individual cases and more acceptable to foreign govern-
ments*
3. Complian ce Proceedings - Department of Commerce
While criminal penalties are provided in the Export Control Act
of 1949, it is seldom that evidence can be obtained in a form that is required
under U.S. criminal law for the conviction of either a U.S. or foreign national,
Thus, increasing emphasis has been placed on the employment of administrative
CONFIDENTIAL
Approved For Release 2001/08/27 : CIA-RDP63-00084A000100160003-6
 Approved For Release 2001/08/27 : CIA-RDP63-00084A000100160003-6
CONFIDENTIAL
sanctions against both U.S. and foreign violators, using the compliance pro-
ceeding,,.
Unlike the black list techniques of World War II, compliance proceedings
have served to give foreign countries and their nationals an assurance that the
U.S. would give them the same fair notice and hearing, the same kind of due process,
that it would extend to U.S. nationals.
The sanction itself is imposed by a published order issued by the
Department of Commerce. Since the beginning of the cold war about 200 cases
have been instituted, of which about one-third have been against foreign nationals.
(The total of U.S. and foreign nationals suspended is well over 500.)
The decision of whether or not to institute a case against a foreign
national invoyves consideration not only of the offense itself but also such
factors as the impact of the case on the country of the violator and the deterrent
effects that the case may be expected to have on other traders and possibly even
other countries.
1. Foreign Assets Control
The Foreign Assets Control Regulations administered by the Treasury
Department, prohibit all United States dollar account transactions, direct or
indirect, with Communist China and North Korea, regardless whether or not
strategic trade is involved. Where the United States dollar facilities of foreign
banks are utilized in. connection with transactions with Communist China, the
Treasury Department can take appropriate blocking measures against the dollar
accounts of such banks.
In addition, the Treasury administers the transaction control
CONFIDENTIAL
Approved For Release 2001/08/27 : CIA-RDP63-00084A000100160003-6
 Approved For Release 2001/08/27 : CIA-RDP63-00084A000100160003-6
CONFIDENTIAL
regulations which prohibit persons in the United States from engaging in trans-
actions involving the shipment of strategic materia]s located outside the United
States to the iron curtain.
Both regulations contain criminal provisions. Criminal prosecutions
to date for violations of the Foreign Assets Control Regulations have resulted
in a number of convictions with substantial fines and one with a prison sentence.
There have been no criminal prosecutions for violation of the transaction control
regulations.
Import controls under FAC regulations with respect to goods in which
there is a Communist Chinese financial interest will be taken up in greater detail
in a separate paper being prepared in the Treasury Department, and their signifi-
cance and impact are not evaluated herein,
5. Controls Over Foreign Sales of Surplus Strategic Equipment
Consideration of the problem of working out control measures to
prevent the diversion to the Soviet bloc of strategic items sold locally from
U.S. overseas surplus was undertaken some time ago when it came to light that
strategic goods from surplus stocks, in particular automotive parts, were moving
by indirect means to the Soviet bloc following normal overseas surplus disposal
sales. Recommendations for safeguards which should bring about adequate controls
were devised by representatives of USRO/ST, CIN CEUR, USAFE, USAREUR, and USFA
and are under review in Washington.
6. Diversion Control Net and Related Activities, Including Intelligence
Collection
Arrangements for preventing diverejona of strategic shipments to
the Soviet bloc have constituted a major part of the enforcement program. In
CONFIDENTIAL
Approved For Release 2001/08/27 : CIA-RDP63-00084A000100160003-6
 Approved For Release 2001/08/27 : CIA-RDP63-00084AO00100160003-6
CONFIDENTIAL
-10-
Washington this led to the development of the Diversion Control Network (DCN),
an inter-agency group chaired by MDAC with the Departments of State (ECD),
Commerce (BFC)3 Treasury (FAC), Defense (0SD), and CIA all represented. In the
field, Economic Defense Officers were designated in all the principal posts, and
a European regional coordinator designated in USRO/ST.
The DCN has served to improve the coordination and pooling of efforts
and to ensure that in any particular case each agency knows who has action responsi-
bility. It has also been concerned with evaluating the effectiveness of controls,
uncovering weak spots and developing improved enforcement techniques, backstopping
and instructing U.S. missions and the delegation to COMM in specific diversion
The importance and magnitude of the diversion control problem was
illustrated recently by a study on shipments of copper
from the Free World to the Soviet bloc in 1951. The study concluded that about
80,000 tons of embargoed forms of copper reached the bloc despite COCOM controls.
The DCN is heavily dependent upon intelligence support. An effort is
constantly made to bring to bear all intelligence collection resources to support
the DCN and other enforcement activities.
7. Watch List and Other Commercial Intelligence Operations.
All of the U.S. agencies which administer export controls maintain
and exchange information about U.S. and foreign individuals and firms suspected
or known to be engaged in illicit East-West trade and other kinds of violations
of export control regulations. These are confidential lists and are mainly used.
in screening of applications for export licenses. The BFC Special Check List
CONFIDENTIAL
Approved For Release 2001/08/27 : CIA-RDP63-00084AO00100160003-6
 Approved For Release 2001/08/27 : CIA-RDP63-00084AO00100160003-6
CONFIDENTIAL
-11-
is often called the "Watch List " by those officials who work with it. It also
serves to alert Foreign Service and other Government officials to particular
firms or individuals whose activities might require more than routine attentions
end-use inquiries, etc.
There has never been acceptance in COCOM of an international watch
list of suspect firms or individuals, except for identifying Communist controlled
firms in Austria.
8. Exchange of Technical Teams
There have been visits to the U.S. of technical teams from all but
three of the COCOM countries, while teams of U.S. experts have now visited seven
of the most important COC0M trading countries. These have served to bring about
better knowledge and mutual understanding of each other's control policies,
licensing procedures, enforcement techniques, inspection methods, and to emphasize
U.S. concern with adequate enforcement. There have also been occasional informal
discussions of policy questions in connection with these visits.
Just as greater initiative in enforcement activities by other PC's
is desired, it has long been felt that the most desirable future development in
exchanges on technical teams would be exchanges between the European PC's them-
selves. The most promising field for this appears to be in implementing and
improving the TAC scheme.
CONFIDENTIAL
Approved For Release 2001/08/27 : CIA-RDP63-00084AO00100160003-6
 Approved For Release 2001/08/27 : CIA-RDP63-00084A000100160003-6
CONFIDENTIAL
-12-
Analysis of Problems and Deficiencies of Enforcement
The problems and deficiencies in the enforcement program may be placed
into two categories -- one relating to the multilateral aspects, the other
to the unilateral or bilateral phases. Strictly speaking, it is difficult to
separate the two since activities in which we engage unilaterally cannot fail
to have some effect on our multilateral relationships.
A. Multilateral Problems and Deficiencies in Enforcement
1. Negotiating Lelays and Difficulties. On the international side,
the development of the enforcement program by CG/COC6M/CHINCOM has been achieved
only with considerable negotiating delays and difficulties. Agreements on TAE
and UK Transactions Controls were part of a quid pro quo for the August 1954 list
reduction. The adequacy in practice of individual PC implementation of the new
ancillary controls and their impact on the patterns of East-West trade have yet
to be determined, and the institution of equivalent controls in certain non-PCs
is still in the negotiating stage.
2. Non-Uniformity of Controls Among PCs. The systems of controls of
the individual PCs inevitably are non-uniform inasmuch as they are elements of
the legal-administrative framework of individual states. In spite of agreement
upon common objectives in COMM, the technicalities inherent in local customs
regulations, licensing procedures and the like provide many opportunities for
both real and assumed inequities in controls. The stimulus of private competi-
tion, national rivalries and divisive propaganda tend to magnify these essentially
technical problems unduly to the general detriment of mutual confidence in a joint
effort.
CONFIDENTIAL
Approved For Release 2001/08/27 : CIA-RDP63-00084A000100160003-6
 Approved For Release 2001/08/27 : CIA-RDP63-00084A000100160003-6
CONFIDENTIAL
-13-
3. Inadequate Legal Bases for Controls, Without adequate legal bases not
only is it impossible to exercise satisfactory licensing controls, including the
use of end-use checks and other precautionary measures, but it is also difficult
to impose strong enough punitive action to deter violations of controls. Laws in
force in some countries greatly restrict the normal collection of commercial
intelligence. Although a generalization attempting to characterize the inadequacies
of foreign administrative and legal systems with respect to trade control laws
and regulations would not be meaningful, it would be correct to assert that the
laws and regulations of the United States are markedly more useful in support of
the economic defense program than are those of most other PCs. The availability
of and the approval accorded to administrative (quasi-legal) sanctions in the
United States exceed considerably their acceptance and utilization in other PCs.
4. Reluctance To Implement Satisfactorily Enforcement Program. The
reluctance to implement satisfactorily the enforcement program is based on a
number of factors. Possibly the most important of these is the political climate
prevailing in Europe at this time, which influences the attitudes of PC govern-
ments toward the entire control program.
More specifically there are the following:
a) Reluctance of some countries to adopt enforcement measures
unless all interested countries adopt similar measures,
b) Emphasis of foreign government economic agencies on trade
promotion rather than trade control;
c) Commercial secrecy resulting from fear of competition;
d) Confidential nature of controls in some countries;
CONFIDENTIAL
Approved For Release 2001/08/27 : CIA-RDP63-00084A000100160003-6
 Approved For Release 2001/08/27 : CIA-RDP63-00084A000100160003-6
CONFIDENTIAL
e)
Understaffing of enforcement agencies of foreign countries;
insufficient orientation of enforcement personnel re the
objectives of the program;
f) Reluctance of foreign enforcement personnel to discuss
mutual problems with U.S. embassy officers;
g) Inadequate intellivence information; difficulty of investi-
gation on the basis of limited information,
h)
Personal risk to
laws*
officials under foreign libel and slander
Technical Descriptions of Controlled Items Complicates Enforcement.
the enforcement official is made difficult by the detail and technical.
nature of the description of certain controlled items. The distinction between
a controlled and uncontrolled item may depend upon a technical difference which
the average enforcement official is not trained to recognize. There are in-
adequacies in existing and available instructional material for the use of
enforcement officials in the various PCs.
6. Professional East-West Traders. A sizeable number of professional
East West traders has always been available to the Bloc for the procurement of
strategic commodities. They are experienced in commercial matters and possess
an on-the-spot familiarity with East-West trade opportunities. Their ingenuity
represents a constant challenge to the enforcement officials of the individual
PCs.
7. Inadequate Enforcement by PCs of Lists II and III, The utility
of IL/II and IL/III controls is measurable directly by the adequacy and timeli-
ness of the statistical reports which the PCs have agreed to make to (JDCOM.
CONFIDENTIAL
Approved For Release 2001/08/27 : CIA-RDP63-00084A000100160003-6
 Approved For Release 2001/08/27 : CIA-RDP63-00084A000100160003-6
CONFIDENTIAL
-15-
Having been forced to a recognition of prior inadequacies of their performance,
the PCs agreed in COCOM in December, 1954 on a revised program to which adherence
was promised.
$. The China Differential. Perhaps the most active and troublesome
problem in the enforcement area is that caused by the differential level of
controls over trade with the Soviet bloc in Europe and in Communist China. At
the time of the 1954 List reduction the PCs agreed that the List changes would
not be applicable to trade with China, that exports to the European Soviet bloc
should not frustrate controls over trade with China, and exports to the Soviet
bloc in Europe should not be approved if it was likely that they would be diverted
to China. There has been little evidence of denial of exports under these cir-
cumstances. In fact, the quantity and value of known diversions to China via the
European Soviet Bloc and Western countries have been significant. Diversions of
non-I/L I goods to China have been facilitated by the removal from pre-shipment
licensing controls, except for direct shipment to China, of most I/L III and
China Special List items and by the applicability of IC/DV to only Munitions,
AE and I/L I and II items, and of TAC to only Munitions, AE and I/L I items.
Of the problems referred to above, the last (relating to the differential level
of controls) is the most serious. However, with the general resistance by the
PCs to any extension of controls, albeit small, plus the desire on the part of
most PCs to reduce the level of China controls, it is most doubtful if we can
obtain substantial tightening of enforcement measures applicable solely to China
trade. Our future course of action in this area is dependent on the outcome of
CONFIDENTIAL
Approved For Release 2001/08/27 : CIA-RDP63-00084A000100160003-6
 Approved For Release 2001/08/27 : CIA-RDP63-00084AO00100160003-6
CDNFIDENTIAL
-16-
the over-all review of security trade control policy, in particular that covering
trade with China. It should be noted that the criteria for an evaluation of the
importance of trade to China are not necessarily the same as those established for
the 1954 review of controls relative to the European Soviet Bloc, and the enforce-
abRity of controls is directly related to the composition of the list of controlled
commodities.
For the other problems, 1 - 7, we can point to the PCs deficiencies as they
occur and press for the small modifications required to effect improvements. To
this end the exchanges of teams of technical experts initiated by the United States
can go far to impress upon the PCs the importance which we attach to effective en-
forcement and provide an orientation for foreign government relative to U.S.
policies, standards and procedures.
B. Unilateral Problems and Deficiencies in Enforcement
The U.S. has also experienced certain problems originating in its 25X1C
unilateral enforcement activities. From the beginning the U.S. has found itself
in the position of international policeman in the enforcement of trade controls.,
particularly in cases involving non-U.S. goods. We have
conducted our own investigations, have pressed for foreign investi-
gations and appropriate action, have coordinated action by several PCs2 have under-
written costs of preventive measures, and have taken administrative action against
foreign firms involved in illegal trade. Our activities have been received by the
PCs with mixed feelings. Our ability to act in the enforcement area varies from
country to country, to the extreme that in certain countries we are restricted to
contacts with the Foreign Offices and may be politely told that investigations
ODNFIDENTIAL
Approved For Release 2001/08/27 : CIA-RDP63-00084AO00100160003-6
 Approved For Release 2001/08/27 : CIA-RDP63-00084A000100160003-6
ODNFIDENTIAL
-17-
involving non-U.S. origin goods or nationals should not be of concern to use Our
taking of administrative action is usually resented, at best only tolerated. This
attitude on the part of foreign governments is especially pronounced when their
firms have actually not violated local laws or regulations and they accordingly
consider U.S. interest and action as unjustified interference. Because of this
feeling the U.S. modified its Administrative Action program last year to change
its basis from one of prejudging liability under foreign law and to encourage
investigations of AAP cases by foreign governments.
With respect to illicit East-West trade in non-U.S* origin goods, the
most serious U.S. problems come from friendly countries' embarrassment when we
expose inadequacies in particular cases or in the general aspects of their
programs. Much of this, of course, hinges on how we make our approaches. If
we give to the countries concerned the information that we obtain about diversions
so that they can take actions themselves, we will naturally cause less embarrass-
ment than if we publicize to others their weaknesses. Essentially our problem
for the future would seem to be to find the most diplomatic ways of 1-r---rg-r j
persua fr endly governments themselves to improve their controls
and to take action against violators.
In the case of U.S. origin goods, some countries have taken the position
that U.S. strategic materials which are processed or made components of products
of more or less different nature are "nationalized" (i.e. origin changed) by
tho 5e actions; accordingly the U.S. should have no right to object to shipments
to the bloc of the finished product. This brings up, of course, the iU. 3 - problem
of U.S. anti-frustration policy (PD 810). In addition, some countries object
CONFIDENTIAL
v
Approved For Release 2001/08/27 : CIA-RDP63-00084A000100160003-6
 Approved For Release 2001/08/27 : CIA-RDP63-00084A000100160003-6
CONFIDENTIAL
-18-
to inveEtigations conducted by U.S. Foreign Service personnel of the activities
of foreign nationals engaged in illegal diversions of U.S. goods on the grounds
that such investigative activities constitute an invasion of sovereignty or even
commercial espionage. Certain countries have objected to our imposition of
sanctions against participants having only a marginal role in diversions =- e.g.,
freight forwarders, carriers, banks, etc. However, since the beginning of
security controls we have had only one cause celebre involving complaints by a
foreign country against the U.S. for imposition of compliance action against
one of its nationals. Under these circumstances claims of embarrassment and
fruitless expenditure of goodwill may not be too well founded.
On the question of enforcement of U.S. controls over commodities not
included in the international export control lists, we must bear in mind our
long time premise that C000M controls are only the minimum which any PC is
committed to impose over its commodities. Further, it has been agreed in WOOM
that source countries have primary responsibility for the control of their own
goods. Our problems vary depending on whether the goods are Positive List items
or under only General License control. Our determination that goods are sufficiently
strategic to warrant unilateral control regardless of CO WM agreement should be
made with the realization that such action implies the need for further actions
to enforce these controls. Goods under General License control (i.e., non-
strategic or non-short supply) do not provide similar justification for full
enforcement control and the needless expenditure of goodwill. However, we
cannot ignore them completely since domestic considerations such as political
and public relations enter into even this field. Obviously, from the U.S. point
WNFID ENTIAL
Approved For Release 2001/08/27 : CIA-RDP63-00084A000100160003-6
 Approved For Release 2001/08/27 : CIA-RDP63-00084AO00100160003-6
CONFIDENTIAL
-19-
of view, the problems in trying to use U.S. export control enforcement in the
general license commodity field are quite substantial; the present U.S. control
system as applied to such commodities represents a number of administrative and
public relations compromises that have the ultimate effect of making our enforce-
ment in this area considerably weaker than in the area of Positive List commodities.
CONCLUSIONS
A. Multilateral Controls:
1. General
It would be desirable if the problems and deficiencies in the enforce-
ment field as described above could be corrected. , es
of fnrPian g'overnmenta -^+^~ ? a^fo Y om., ,? yn__tranarnl anti -Fhca
O-U
Lza-- `e d s. Negotiation of
proposals for any broad extension of the enforcement program must be dependent
on the review and future course of the over-all security control program.
2. Encouragement of International Cooperation in Diversion Control
It is important to continue to encourage multilateral cooperation
and exchanges of information in the handling of illegal East-West trade trans-
actions. Our efforts toward this end should be with a view to encouraging more
active participation by other PCts,^- 4--?raaa a do- _ pilm-A_ af rt initi^+i ra
CONFIDENTIAL
Approved For Release 2001/08/27 : CIA-RDP63-00084AO00100160003-6
 Approved For Release 2001/08/27 : CIA-RDP63-00084AO00100160003-6
CONFIDENTIAL
-20-
a. Specifically we should press other PCs to employ the COCOM pro-
cedures outlined in Doc. 1634 and to support the activities of the COMM Sub-
. ,:.:.~ ...... ~
Committee or. Export Controls: .
b. An additional proposal wow be for the establishment of a COCOM
Sub-Committee for the interchange among the technical investigative and enforcement
experts of the PCs of useful investigative and related information. Such a Sub-
Committee would provide a basis for understanding and cooperation among the
investigative and enforcement staffs of the various PCs not obtainable through
the existing Sub-Committee structure.
B. Non-Participating Country Cooperation:
The U.S. can and should continue its.efforts to enlist non-PC cooperation
and participation in existing enforcement measures, without prejudice to any
decisions which might result in a change in over-all policies. The most immediate
problems in this regard are our pending negotiations with certain Latin American,
European, and Near Eastern countries for the institution of the TAC scheme and
IC/DV system or similar controls.
C. U.S. Controls:
1. General
In the light of the conclusion outlined above for the international
program and in consideration of [the added cost and possible foreign and domestic
trade criticism which would result from tighter U.S. enforcement controls, 44..,,,,,,,
.. yi.n^U.S. enforcement olicies
.._,./
(except for ?changes which can be made to plug loopholes) pending some
A
major revision in our over-all economic defense policy.
ODNFIDENTIAL
Approved For Release 2001/08/27 : CIA-RDP63-00084AO00100160003-6
 Approved For Release 2001/08/27 : CIA-RDP63-00084AO00100160003-6
011NFIDENTIAL
-21-
22 Improved Intelligence and Inter-Agency Support
There is an open field for improvement of:
a* intelligence collection and dissemination;
be better collaboration between U.S. elements abroad which
would assist in the more satisfactory implementation of
already existing enforcement measures.
the Foreign
Service c engage in the covert collection of information on illegal East-We t
is neither staffed nor organized~t&mdo. a An ex-
panded effort on the part of the intelligence collection agencies in the field
of East-West trade would undoubtedly bring forth an increased volume of information.
ODNFIDENTIAL
Approved For Release 2001/08/27 : CIA-RDP63-00084AO00100160003-6