U.S. POLICY AND ASSISTANCE PROGRAMS TOWARD YUGOSLAVIA

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP80S00003A000100090002-9
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 22
• Document Creation Date: December 22, 2016
• Document Release Date: July 6, 2012
• Sequence Number: 2
• Publication Date: January 17, 1962
• Content Type: REPORT

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There is no evidence that you have seen
this and you may wish to look at least at
the first two pages, which summarize Rusk's
recommendations to the President re
Yugoslavia.
17 January 1962
(DATE)
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Remarks :
Attached memora da, and Memorandum for the
President from Mr. Rusk forwarded for your file.
ILLEGIB
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Paper for General Cabell -- for meeting on
Monday, Jan. 15, with the President
From Mr. McGeorge Bundy's office.
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MEMORANDUM FOR THE PRESIDENT
SUBJECT: U. S. Policy and Assistance Programs
Toward Yugoslavia
Attached for your use at the meeting on Yugoslavia to be
held Monday, January 15, is a paper with three annexes embodying
the Department's recommendations on U.S. policy and assistance
programs toward Yugoslavia. Annex A is a review of U.S. policy.
Annex B is a paper on U.S. military sales to Yugoslavia. Annex C
deals with export control policy toward Yugoslavia.
Our principal recommendations are given on pages three and
four of the attachment and can be summarized as follows:
1. Technical Assistance: A technical assistance program
in the magnitude of $500,000 to $750,000 should be continued in
the current fiscal year under the Development Grant category of
AID funds. The desirability of continuing technical assistance:
if any, beyond FY 1962 will be the subject of review after an
evaluation by Ambassador Kennan of the effectiveness of the
program.
2. Development Loans: We will encourage Yugoslavia to
rely henceforth on lending sources other than AID, while indi-
cating the willingness of the U.S. Government, as a transitional
measure, to accept further loan applications for consideration.
Within the U.S. Government it would be understood that loan
assistance would be in the range of $10 million to $20 million
of which the DLF portion would not exceed $10 million. The
Export-Import Bank will be instructed to give priority attention
to Yugoslav applications. The terms of DLF loans should approach
those of the Export-Import Bank.
3. P.L. 480: P.L. 480 agreements with Yugoslavia should
be considered from time to time to meet minimum Yugoslav consump-
tion requirements. With an increasing shift in the future from
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Title I to Title IV, Title III activities should be phased out
over the next several years.
4. Military Sales: We should continue to sell Yugoslavia
military equipment and spare parts and to train Yugoslav military
personnel in the U.S.
5. Export Licensing: Yugoslavia should be considered on
the same basis as non-Soviet Bloc nations for export licenses.
Dean Rusk
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REVIEW OF US POLICY AND ASSISTANCE PROGRAMS
IN REGARD TO YUGOSLAVIA
I. Present Status
1. Problem:
As a result of developments since last fall the Department
of State has been reexamining the various aspects of our relations
with. Yugoslavia. In accordance with the President's request at the
NSC meeting on October ,13 the Department has reviewed all types of
economic assistance to Yugoslavia and prepared recon?mendations for
the Council in regard to future assistance, on the basis of a
review and restatement of US policy toward that country. In
connection with this review the Department has had an extensive
exchange of views with Ambassador Kerman and there have been talks
with the British on policy toward Yugoslavia. In acdition to the
consideration of general policy toward Yugoslavia t1 is review has
focused on three main problems: (1) developmental assistance;
(2) policy on exports to Yugoslavia and (3) sales of military items.
2. Justification of Present US Policy:
Current US policy has been highly successful in avoiding
undesirable alternatives. If it were not for the policy pursued
over past years Yugoslavia might well have been forced back into
the Bloc. With such a development, the Red Army today might now
be in Trieste, on the Dalmatian coast and on the Greek-Yugoslav
border. The consequences of this for Greek and Italian political
stability could be serious indeed. Similarly, Austaia would have
been almost surrounded by Red-dominated territory, and the hold
of Russia on the Eastern European satellites would have been more
complete. The Soviet empire would have then thrust deeper into
Western Europe and affected its political stability.
Instead of such a possible situation, Soviet per tration of
Europe has been pushed back geographically. We have witnessed
settlement of the Trieste problem, and the establish cant of more
friendly relations and better cooperation amongst Yu ,slavia,
Greece and Turkey. Austrian-Yugoslav differences ov r minorities
have been submerged in the interests of more cordial relations.
Moreover, Yugoslavia now has close relations with Italy and very
prosperous economic ties exist between the two countries.
Finally,
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Finally, our policy has resulted in increased integration
of Yugoslavia into the Western economy, as evidenced by its
participation in OECD, GATT, IMF, IBRD and other multilateral
economic organizations. This has contributed to a substantial
modification of the Communist system in Yugoslavia in the
direction of decentralization and liberalization.
II. Conclusions
The Department of State has undertaken at Annex A a reexami-
nation of US policy toward Yugoslavia. The examination includes
a consideration of Yugoslavia's international position,
the benefits derived by the US from this position, our policy
objectives and practices in dealing with Yugoslavia and the role
of assistance programs. The Department has also reviewed the
specific assistance programs being carried out. The following
conclusions and recommendations emerge from this examination
and review.
I. The Yugoslav Government continues to maintain its
national sovereignty and a position wholly independent of Soviet
control. It continues to pursue policies directed at strengthen-
ing its independence and advancing its development and interna-
tional position.
2. As a neutralist country active among the nonaligned
states Yugoslavia frequently takes positions on :international
issues contrary to Western attitudes and interests. Although
these positions are often along the Soviet line i:his is also true
of other neutralists such as India and Indonesia.
3. Separated from the bloc Yugoslavia is developing its own
national system in the direction of decentralization and in
increasingly
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increasingly closer relation to the West. Yugoslavia has to
a considerable extent departed from Soviet doctrine and opened
itself to Western ideas and institutions. These changes in
Yugoslavia's internal system and in its relations with the free
world have become institutionalized so that there appears to be
no road back to the bloc provided that Western policies toward
Yugoslavia continue and no radical change overtaken the inter-
national situation.
4. The essential aspects of US policy have been to assist
Yugoslavia to build a firm secure base of national independence
and development and to exert our influence upon the evolution of
the Yugoslav system. This bold and productive policy formulated
in 1949 after Tito's break with the Soviets has been maintained
by three administrations. It is still a successful policy
bringing the US substantial benefits.
5. Yugoslavia's principal significance from the standpoint
of US interests remains that of an independent Communist regime
which successfully defied Soviet imperialism. The evolution of
the Yugoslav system toward greater liberalization and closer
association with the West and the dramatic economic growth
achieved in Yugoslavia have fortified Yugoslavia's role as a dis-
ruptive element in the international Communist movemint and as a
source of encouragement to nationalist anti-Soviet tendencies in
the bloc.
6. It is important for the US to continue to pursue this
basic policy including the extension of economic assistance as
needed to continue to derive the benefits from Yugoslavia's
independent position and national development.
7. The maintenance of this basic policy permits tactical
adjustments including adjustments in economic assistance so long
as these would not impede the pursuit of our long-range goals of
expanding relations with Yugoslavia and influencing its institu-
tional growth in a Western direction. Such adjustments may
occur for the purpose of exerting a positive force on develop-
ments in Yugoslavia of direct interest to the US and of re-
enforcing our reaction to positions taken by the Yugoslav regime
in serious conflict with US interests.
8. Consultations with certain of our allies having vital
interests in Yugoslavia, notably the Italians and the British
have revealed a common approach to Yugoslavia. The UK in
particular was concerned that there be no abrupt change in our
Yugoslav position which would prejudice the general Western
interest in an independent Yugoslavia.
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III. Recommendations
1. That a technical assistance program be continued in
the current fiscal year under the Development Grant portion
of the AID. The program should be directed towards the exposure
of key Yugoslav personnel to Western ideas and institutions. In
view of the passage of time in the current fiscal year we envisage
obligation this year of from $500 to $750 thousand as opposed to
the program of $2.8 million which had been earlier envisaged in
the Department of State. The program this year will perforce
be limited to the financing primarily of the tragel to the US of
Yugoslav technicians and the sending of some American contract
technicians to Yugoslavia. The desirability of continuing
technical assistance beyond FY 1962 will be the subject of
review, including an evaluation by Ambassador Kerman of the
effectiveness of the program.
2. That the Yugoslav Goverment be informed that because
of the present stage of the development of its economy and the
new criteria of US aid legislation, we believe that it should
henceforth look primarily to established international lending
agencies, including the ort-Import Bank, rather than to the
AID for development loans. However, as a transitional measure,
the US would be prepared to consider further loan applications
from Yugoslavia in the current fiscal year. (It is to be under-
stood within the US Government that such loan assistance for
FT 1962 would be in the range of $10 to $20 million of which
AID development loans would not exceed $10 million. The terms
of AID loans should approach those of the Export-Import Bank.
The Export-Import Bank should be instructed to give priority
attention to applications for financing develo ent projects
in Yugoslavia in this and in succeeding years.) The Yugoslav
Government should also be informed of our readiness, through
our participation in the Development Assistance Committee of
the OECD and in other international bodies, to lend sympathetic
support to Yugoslav efforts to obtain loans from other lending
institutions. This approach would enable us to continue our
identification with Yugoslavia's development efforts while at
the same time keeping to a minimum the use of AID resources.
3. That Title I PL 480 agreements be considered with
Yugoslavia in the future as may be necessary from time to time
to meet minimum consumption requirements for foodstuffs. We
should promote the sale of industrial type agricultural commo-
dities such as cotton and tallow under Title IV and inform the
Yugoslavs
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Yugoslavs of our intention to shift increasingly in the
future from Title I to Title IV. Our objective should be
to encourage the Yugoslavs to develop their agriculture and
other aspects of their economy so as to eliminate as early as
possible the need for FL 480 agreements. We should also con-
tinue to support over the next several years the activities of
US voluntary agencies in Yugoslavia through Title III of FL 480.
Our support should be phased oxt in a manner which will encourage
the maintenance of certain of these activities in Yugoslavia on
a self-sustaining basis.
4. That we continue to permit the Yugoslavs to purchase
such military equipment and spare parts as are necessary to
insure that Yugoslavia will avoid dependence on the Soviet blod
for such items. We should also permit training of Yugoslav
military personnel in the US on a reimbursable basis. Each new
Yugoslav request for equipment and training will be considered
at an appropriate responsible level in the Departments of State
and Defense. A background paper is attached as innex B.
5. That Yugoslavia continue to be considered on the same
basis as non-Soviet bloc nations in evaluating Yugoslav requests
for US export licenses so long as Yugoslavia's export control
practices remain generally consistent with the objectives of the
multilateral trade controls imposed against the Soviet bloc. A
background paper is attached as Annex C.
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REVI7W OF US POLICY T04ARD YUGOSLAVIA
The Yugoslav Situation
A .review of US policy toward Yugoslavia must begin with
an examination of the essential features of Yugoslavia's present
position in the world and must include an appraisal of the sig-
nificance of that position for the US.
In 1948 Yugoslavia under Tito's leadership broke away from
Soviet control and the international Communist movement essen-
tially over the issue of national independence. Since that time
Yugoslavia has vigorously maintained its national identity and
a position wholly independent of the wino-Soviet bloc. Yugoslavia
has done so in the face of political, economic and ideological
warfare conducted against it by both Moscow and Peiping. Yugo-
slavia has steadily steered a course to avoid the danger of the
.apparently ultimate Soviet objective of reasserting some1Q m
of effective control over the country. Independence fromroviet
control has been emphasized by Yugoslavia's participation as
either a member or an observer in a number of Western-oriented
international organizations (GATT, IMF, OEEC and the new OECD)
in which the USSR does not participate and which are in some
respects obstacles to Soviet objectives.
Yugoslavia has also made consistent efforts to maintain
its independence against any economic or political domination
from the West. Yugoslavia is a neutral or nonaligned country
and has been active as a leader in the large grouping of un-
committed states in order chiefly to avoid isolation and in-
crease its influence in international affairs. It frequently
takes positions on international issues contrary to ;'esters
attitudes and interests but this is also true of other neutral
countries which are not avowedly Communist. In the UN, for
example, Yugoslavia's voting record corresponds to that of India
Indonesia and the UAR.
Tito and the principal regime leaders,grew up in the school
of old fashioned Communism. As a Marxian Socialist of this
school Tito favors the concepts and symbols of Communism. He
wishes to develop his count:iy along socialist lines and he has
never abandoned the Marxist Leninist concept of socialism as
an international cause. The West must thus face the prospect
that so long as Tito remains in power, and so long as the world
situation remains substantially what it now is, the positions
taken'by Yugoslavia on various world issues will generally be
very close to those of the Soviet Union. For the immediate
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future the Yugoslavs may be expected to espouse the anti-
Western cause in all questions reflecting the issues of
"colonialism" or "neo-colonialism". The significance of
regime anti-Western statements and positions as well as the
proper estimation of Yugoslavia as a force in world affairs
must, however, take into account the following factie:
(1) They represent primarily the thinking of the older and
out-going generation of Yugoslav Communists; (2) frequently
these positions are adopted for tactical reasons and do not
re resent the real convictions even of. the top leaders;
C3) these positions are not always reflected in policy at
the practical level and behind this front of distrust and
defiance toward the West there has proceeded a significant
development of cultural, economic and personal relationships
with Western countries. Above all, as time goes on power in
Belgrade will inevitably gravitate into the hands of people
who have less commitment to old fashioned Communism, more
understanding for Western civilization and greater appre-
ciation of the value of relations with the West.
In spite of its professed Communism and uncommitted status,
forces have been at work since 1948 drawing Yugoslavia toward the
West. Economically Yugoslavia is dependent upon the West. The
German Federal Republic and Italy are Yugoslavia's most important
trading partners while only a quarter of its foreign trade is
with the bloc. It has improved its political relations with the
West since 1948 by such steps as resolution of the Trieste issue,
shelving the quarrel with Austria over minority and border issues,
ceasing its support of the Greek civil war and entering into
the Balkan Pact with Greece and Turkey. Ties with European
--economic organizations have developed. Cultural, educatinaal,
informational and scientific exchange flourish with W'esteim
Europe and the US.
Internally, Yugoslavia has evolved an economic and political
~~yz?'sum shat differs substantially from that of the Soviet Union.
This evolution away from the bloc pattern has been impelled by
the extent of Western influence upon Yugoslavia since 1948 and
by the inescapable need to solve urgent problems for survival
in separation from the Communist camp. Receptive to Western
ideas and practices, the Yugoslav pragmatists have modified or
abandoned elements of orthodox Communist doctrine when confronted
with the necessity to solve practical problems. At the same time
Yugoslavia has emerged from economic backwardness and developed
into a politically stable country.
The
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The regime has liberated itself from the Soviet obsessions
with completely standardized planning and administration, forced
collectivization of agriculture, rapid expansion of heavy industry
at any cost and insulation of the national economy against the
influence of world markets. The Yugoslav economic system has
undergone a process of decentralization resulting in a distinctive
type of nixed economy with definite elements of competition,
individual incentive and a market price system. The value of
independent initiative and reward have been recognized in the
effort to stimulate economic development. Yugoslavia has
achieved a rate of economic growth greater than anywhere in
the Sino-Soviet bloc. The results have apparently not been
lost upon the bloc. These developments have been naturally
accompanied by the progressively deeper involvement of Yugoslavia
in the world economy and the growth of closer economic relations
between Yugoslavia and the free world.
Although there has been less change in the political system
increased powers have been granted in recent years to local
government units and attempts have been made to draw the popula-
tion into the execution of policy. This decentralization has
been controlled and has not so far weakened the Party's dominant
position but the long-term effect of-decentralization could
erode this position. The strength of the Yugoslav regime lies
in identifying itself with Yugoslav nationalism, moderating the
severities of typical Communist rule, opening Yugoslavia to a
large extent to the outside world and taking into account the
capabilities of the individual.
These developments have produced a wide gulf between Yugo-
slavia and the Soviet bloc which, if Western attitudes and poli-
cies toward Yugoslavia continue, offers no apparent prospect
of being bridged. The fundamental changes in Yugoslavia's in-
ternal system and in its relations with the free world have be-
come institutionalized. So long as no radical change overtakes
the international situation there appears to be no road back to
the bloc and the gravitational forces that work through these
institutional arrangements should continue to move Yugoslavia
steadily toward the West.
The US Interest in the Yugoslav Situation
Despite the frequent differences that will inevitably arise
between the US and Yugoslavia it is important that the US never
lose sight of its own basic interest in the continued 'independence
of Yugoslavia from Soviet control. The separation of Yugoslavia
from the Communist bloc has brought major political advantages
to the US and the Western countries in the world struggle against
Sino-Soviet
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Sino-Soviet imperialism. Tito's assertion of independence set
in train a series of developments bringing into question the
basis on which the world Communist movement had previously
functioned, i.e., the identity of Moscow's interests and the
interests of international Communism; the unchallenged political
and ideological control by Moscow over every Communist party
and Communist regime; and the slavish copying of all Soviet
methods and institutions. Yugoslavia's split from the bloc
and development of its own institutions have profoundly dis-
turbed the political and ideological unity of the international
Communist movement. Within the bloc itself the effect has
been to force a modification of Soviet policies so as to make
control over the dominated countries of Eastern 3urope looser.
Definite encouragement has been given to nationalist antiC.Soviet
tendencies among these countries which was dramatically demon-
strated by the Sungarian uprising and the Polish October of 1956.
Yugoslavia's successful resistance against Soviet imperialism
has caused dissension and bitterness within the Communist bloc.
Yugoslavia continues to be the object of fierce attacks from the
Soviets, Chinese, Albanians, and other members of the bloc for
"deviationism" and "revisionism".
In a narrower strategic sense Yugoslavia's assertion of
national independence has afforded an obstacle to the advance
of Soviet imperialism in Southeastern Europe and aided the
restoration of political and economic stability in that area.
Its separation from the bloc has provided a buffer for NATO in
the Mediterranean especially for Italy. The defection of Yugo-
slavia not only opened the way for Greek recovery from the Com-
munist threat but isolated Albania with the later possibility
of its peculiar challenge to Soviet domination.
In relations with the nonaligned countries of Africa and
Asia the Yugoslavs have also opposed Soviet imperialist interests
by warning leaders of these states about the dangers to national
independence from becoming too reliant on Soviet and Chinese trade
or aid. The Yugoslavs have cited their own example of how the
Soviets have used both trade and aid in the effort to subject a
country to Soviet domination. In contrast the example of US-
Yugoslav relations has shown other uncommitted countries that the
US does not insist on political conditions in the extension of
economic aid and has facilitated the development of aid programs
with such countries.
It is of great importance to the US that Yugoslavia remain
independent of Soviet imperialism, that it continue to present
to the bloc a magnetic picture of successful national independence
and dramatic economic growth, that it continue its role as a
disruptive element in the international Communist movement and
that it continue to serve, as a classic example of the dangers
of becoming economically dependent upon the Soviet Union.
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US Polio
US policy toward Yugoslavia has in brief the following
objectives:
1. To assist Yugoslavia to build a firm, secure base of
national independence and development, and to support the de-
termination that Yugoslavia has shown to preserve and strengthen
its independent status.
20 To exert an influence for the evolution of Yugoslavia's
political, economic and social institutions along more democra-
tically representative and humanistic lines with increasing ties
to the West.
3. To follow a course which will bring the US maximum
benefit from Yugoslavia's role as an independent Communist or
socialist state outside the Communist bloc which acts as a
divisive force on the political and ideological unity of the
Soviet dominated international Communist movement and tends to
stimulate the Soviet dominated Eastern European Governments to
seek greater freedom of action from Moscow in shaping their own
institutions and policies.
In seeking to accomplish these objectives the US has main-
tained'a relationship with Yugoslavia generally similar to that
maintained with other neutral nations. We have pursued friendly
and frank official as well as personal contacts, conducted
extensive information activities in Yugoslavia and have carried
on a broad exchange program. Yugoslav requests for economic and
technical assistance have been considered on their merits in
relation to our appraisal of Yugoslav needs and of the potential
involved for contributing to the realization of US objectives.
This policy was formulated in the period following the Tito
break with the Cominform in 1948. It was a bold, imaginative
policy of that time requiring courage, foresight and a clear
perception of our long range interests and objectives. The
policy has been applied with consistency during three adminis-
trations. It has admittedly involved a considered risk for the
US both in political and in economic terms. It has been subject
repeatedly to certain domestic pressures and attack which usually
flare up when the Yugoslav Government makes offensive pronounce-
ments or when international tension increases. Nevertheless
the policy has been successfully explained and defended by the
Executive Branch. As a result this policy has, over the years,
been supported by informed public opinion and by Congress in a
long series of legislative actions.
Assistance
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sistance programs in US Policy Toward Yugoslavia
The US has utilized assistance programs preeminently as
an instrument to help achieve our political objectives in re-
gard to Yugoslavia. This basically has been a short tether
approach and the programs have been adjusted from year to year
in order to avoid encouraging the Yugo3lava to take for granted
the indefinite continuation of various amounts and forms of
assistance. Our purpose has been to move gradually toward a
basically commercial relationship as Yugoslav independence
and economic advance are consolidated. In this approach the
Department supports granting to Yugoslavia all facilities for
normal commercial and financial exchange with Western countries.
Until a basically commercial relationship is attained Western
countries should share in financing and assisting Yugoslavia's
industrial development with a view to encouraging a continued
rate of growth at least as high as that of Eastern 2uropean
countries in the bloc.
Between the fiscal years 1949 and 1961, the US furnished to
Yugoslavia approximately $2 billion in various forms of grant and
loan economic and military assistance. At the termination of the
grant military assistance program in 1957, the US has furnished
some $700 million worth of supplies and equipment, most of which
was obsolescent by US and NATO forces standards. Economic
assistance has taken the form of grants and loans in support
of Yugoslavia's balance of payments, sales of agricultural com-
modities, technical assistance, development loans and support
of US voluntary relief agencies operating in Yugoslavia. Of the
$1.3 billion in economic assistance provided through fiscal year
1961, almost $1 billion has consisted of surplus agricultural
commodities, $160 million has consisted of industrial raw
materials and $180 million has consisted of equipment for in-
dustrial development projects. Thus of the total of $2 billion,
some $1.7 billion has consisted of surplus agricultural commodities
and excess military equipment.
US economic assistance has been one of the principal factors
in enabling Yugoslavia to resist the effects of Soviet economic
pressures and to complete its successful schism from the bloc.
Our assistance to Yugoslavia has served to dramatize both the
Soviet use of economic pressures and the US policy of assisting
nations that are determined to defend their national independence
against Soviet efforts to destroy it. Yugoslavia Itself has
publicly and privately contrasted their treatment at the hands
of the Soviet Union and the US. This contrast in treatment has
not
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not been lost upon other non-aligned countries. This assistance
is identified in the minds of leading Yugoslavs with their aspira-
tions for economic development and national advance. It provides
a lever for exerting our influence on the evolution of institutions
in Yugoslavia.
US assistance to Yugoslavia has thus had important conse-
quences in connection with the internal development of the
Yugoslav system. Provision of US agricultural commodities
relieved the pressure on the Yugoslav regime which in turn
abandoned its coercive policies towards the peasantry. Freed
from the restraints of Soviet dogma the Yugoslav regime came
to realize that collectivization was not the answer to its
agricultural problem. While the regime has not abandoned its
eventual goal of socialization of agriculture, it is now pro-
ceeding toward this goal by means of incentives toward voluntary
cooperation.
US assistance activities in Yugoslavia have inevitably in-
volved the opening up of the country and exposure of its official-
dom and population to Western ideas and institutions. The effect
of this can be seen in the increasing liberalization and decen-
tralization'of the Yugoslav economic system. This past year, for
example, Yugoslavia undertook a reform of its foreign trade and
foreign exchange system, which will enable it to undertake a full
range of obligations toward the GATT.
From being a model Soviet satellite Yugoslavia has become
economically integrated with and dependent upon the West. Its
institutions have evolved to the point where Yugoslavia can with
little difficulty participate in Western economic organizations.
The kind of relations with Yugoslavia made possible by our
economic assistance has opened doors outside the strictly
economic field to our entry with extensive information acti-
vities and exchange programs. When the achievements of our
Yugoslav policy are compared to the real costs of the program
(i.e., total aid less our lus agricultural commodities and
excess military equipment) it reinforces the conclusion that
Yugoslavia has represented a very worthwhile investment for the
US.
Conclusion
In reviewing this basic policy and its advisability at the
present time it is important to note that this policy has been
successful. It has yielded and continues to yield the eignfi-
cant benefits to the US outlined above: deriving from Yugoslavia's
resistance to Soviet imperialism. It is also essential to give
careful consideration to those powerful tides constantly at work
bringing Yugoslavia closer to the West. Tito's leadership is
about to pass to a younger generation impatient to shape by
experiment and new ideas the course of development. Poten-
tialities for constructive change are increasingly found among
thiar
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among this rising group of Yugoslav leaders. Although a more
definite shift to liberal and humanistic socialism cannot be
predicted with assurance it would be a serious mistake
to ignore or dismiss such tendencies that are already apparent.
Any basic departure from this US policy would prejudice these
tendencies and diminish hopes of the more liberal and in-
pressionable elements in Yugoslavia we seek to encourage.
The Department finds no alternative to this policy that will
continue to produce the advantages mentioned from Yugoslavia's
statue as a successful independent state. If that status were
to be impaired as the result of a basic change in US policy it
would be a real gain for the Soviet Union and a substantial lose
for the US.
Adherence to our basic policy would not preclude tactical
adjustments to exert positive influence upon developments in
Yugoslavia of direct interest to the ITS. Nor would it inhibit,
steps to express our unfavorable reaction to anti-Western posi-
tions which the regime might take in serious conflict with US
interests or to encourage the regime to take a more balanced
view of important international issues. Some limitation of
economic aid to Yugoslavia could be considered for these
purposes so long as it would not impede the pursuit of our
long range goals of expanding relations with Yugoslavia and
influencing their institutional growth in a Western direction.
The Department concludes as a result of this review that
the fundamental interests of the US are served by continuing to
support Yugoslavia's independent status in defiance of Soviet
imperialism. This policy should be maintained since continuity
is a vital factor in the success of such a policy. A large
investment has been made by the US over three administrations
in assisting Yugoslavia to survive and develop as an independent
state. It has become a show window of the successful challenge
of Moscow's imperialism. The US should continue to reap the
benefit of this investment by continuing its present policy.
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US KI7,ITART SALES TO TUGOSLAVV.
US grant military assistance to Yugoslavia was initiated
in FY 1952 and from that time until the program's termination
in 1957 US military assistance to Yugoslavia totaled about
$700 million. Prior to the initiation of this assistance pro-
gram Yugoslav armed forces were loosely organized and poorly
equipped with obsolete German, Italian and Russian equipment.
The US program provided initial equipment, follow-on spares,
supplies, ammunition and training to support 8 divisions, 17 '
air squadrons and 37 naval vessels (11 of which were provided
under the assistance program).
In its later years the program became a source of friction
between the US and Yugoslavia. In the US, the program was subjected
to severe criticism in the Congress and by some segments of public
opinion. Repeated suspensions or slow-downs in deliveries,
following dissatisfaction with Yugoslav positions on interna-
tional issues, irritated the Yugoslavs. There was also evidence
that the program was a source of embarrassment to the Yugoslav
government since its position as a recipient of grant military
aid in the US was regarded as inconsistent with its policy of
nonalignment between the two major power blocs. In November
1957 the Yugoslavs refused to sign a declaration by Communist
parties meeting in Moscow, which recognized the primacy of the
USSR. In December 1957 the Yugoslav government requested that
the military aid program be terminated, having apparently con-
cluded that the composition and rate of US arms deliveries no
longer justified the difficulties the program caused in its
foreign relations.
At the same time the Yugoslav government demonstrated that
it did not wish to be dependent in any way upon the Soviet
bloc as a source of military supplies and equipment. It refused,
for example, Soviet offers for MIG aircraft. The Yugoslav
government preferred instead to equip its military establish-
ment out of its own production, where possible, and through
purchasing and licensing agreements with Western countries.
In the light of the determination of the Yugoslav govern-
ment to avoid dependence upon the Soviet bloc for military
equipment and the fact that Yugoslav forces had become largely
US equipped the US Government decided that US interests would
be served if Yugoslavia were permitted to purchase certain
military equipment and spare parts from the US. Accordingly,
there was concluded with Yugoslavia in August 1959 a military
sales agreement under which Yugoslavia became eligible for
purchases
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purchases of military equipment under the Mutual Security Act.
Under the terms of this agreement the Yugoslavs have undertaken
to use the materials and.equipment purchased from the US for
defensive purposes and to safeguard the security of the items
purchased. They also agree not to retransfer items to other
countries without prior US permission. Since 1959 the Yugoslavs
have purchased under the sales agreement various spare parts
and minor items of equipment and a total of 278 jet aircraft.
Yugoslavia's armed forces have no significant offensive
capability. The Army is capable of containing and eventually
repulsing an attack by one of its satellite neighbors. If
subjected to a nuclear attack by the Soviets and its satellites
the Yugoslav Army could resist for 30 days. The Navy is organized
to provide tactical and operational support to the Army. It has
only a limited mine-sweeping, mine-laying amphibious and anti-
submarine warfare capability. The Air Force has a limited capa-
bility to perform missions of air defense and ground support for
the Army. It would not function for more than 7 to 14 days of
combat without outside logistical support.
Yugoslavia has some industrial capacity for the production
of ships, artillery, and light weapons. It has no capacity,
however, for the production of modern military aircraft or weapons.
While the Yugoslavs have demonstrated their determination to avoid
dependence upon the Soviet bloc for military equipment, refusal
by the US and other Western countries to satisfy Yugoslavia's
minimum defensive requirements could drive the Yugoslavs to
seek military equipment wherever they could get it. It is our
opinion, therefore, that US interests would be served by con-
tinuance of the policy of selling to the Yugoslavs limited
amounts of US military equipment and supplies not essential
to our own requirements as may be needed to avoid Yugoslav de-
pendence on the Soviet bloc.
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EXPORT CONTROL POLICY TOWARD YUGOSLAOZA
The United States has treated Yugoslavia as a non-Soviet
bloc country for export control purposes for many years. The
nature bf Yugoslavia's trade with the Soviet bloc is such that
it can be said to be generally consistent with the objectives of
the multilateral trade controls imposed against the Soviet bloc,
although Yugoslagia could not be expected to associate directly
with the Coordinating Committee (COCOM) operation. Yugoslavia's
trade also is consistent with the provisions of the Mutual
Defense Assistance Control Act of 1951 (Battle Act).
Since 1955 Yugoslavia has provided the United States upon
request with end-use certificates for individual import trans-
actions. These import certificates constitute official under-
takings that goods of United States origin will be consumed
in Yugoslavia and will not be re-exported without prior United
States approval. These arrangements have been reconfirmed at
intervals since 1955. The only known diversion, involving borax,
took place in 1957. The investigation was prompt and succeeded
in having the bulk of the borax in question either retained in
Yugoslavia or recalled while on route presumably to a Soviet
bloc destination. In connection with the incident, the Yugoslav
Government gave assurances that the system of issuing end-use
guarantees would be tightened. Since that time there has been
no case involving diversion or irregular transshipment of United
States goods via Yugoslavia.
Because of the Berlin situation and apparent pressures
building up in connection with Congressional investigations
of export licensing policy, there was a temporary suspension
of export licensing actions last August for the Soviet bloc,
including Poland, and for Yugoslavia. On August 25 there was a
White House decision that there should be a "more rigorous
interpretation of the strategic criteria" in considering exports
to the Soviet bloc, including Poland. There was a further
specific review of the Polish and Yugoslav situation by the
National Security Council on October 13. This resulted in the
following agreement:
"(1) To remove the current suspension
of export licenses to Yugoslavia and
Poland, and
"(2) To revert to previous practices,
including the careful screening of all
export licenses issued."
The
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The discussion in the 1190 made it clear that Yugoslavia, as
contrasted with Poland, is not a Soviet bloc country and should
not be treated as such. While the ASC Action lumps the two
countries together, it would seem clear that the treatment of
Yugoslavia should be that which prevailed prior to the August
suspension of licensing. A decision on December 20 by the
Export Control Review Board to approve a number of cases which
had been held covering the export of copper and copper scrap
to Yugoslavia would seen to confirm this interpretation.
At the same time, the Department of Commerce is continuing
to review cases for Yugoslavia against standards which, while
not clearly defined, differ from the standards applied in the
review of cases for other non-Soviet bloc countries. Apparently
Commerce considers itself to be under some obligation, stemming
either from the NSC or from separate high level discussions,
to keep a tight hand on Yugoslav licensing. It is this apparent
impression on the part of Commerce which should either be removed
or confirmed ind made explicit.
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