Foreign Relations of the United States, 1949, Eastern Europe; The Soviet Union, Volume V

611.60H31/1–1049: Telegram

The Ambassador in Yugoslavia ( Gannon ) to the Secretary of State

secret

Belgrade , January 10, 1949—2 p. m.

28. Against background Embtel 27, January 10,² we find unprecedented Yugoslav offer sell $15,000,000 copper and lead to US firm reported airgrams A–760 and A–764, December 23 and 24³ presents striking opportunity develop sound trade with. Yugoslavia. Because offer is partly conditional on Yugoslavia obtaining US export licenses for capital equipment major policy decision required.

Events have moved much faster than anticipated even two months ago. What then seemed illogical or unreasonable to expect has happened. USSR and satellites have taken those steps which inevitably force Yugoslavia divert major volume trade to West thereby unexpectedly furthering important ERP aim. Czechoslovakia and Poland in current negotiations expected follow USSR lead and materially reduce Yugoslav trade this year. Future Hungarian trade naturally would follow same trend. Result is more Yugoslav ores, timber and agricultural products available to meet increasing Western European commitments.

Whereas Yugoslavia helping Britain, Italy and other Western nations to meet challenge new situation by saying concretely what it wants through trade negotiations we have mostly had to guess. Nevertheless, question future course US-Yugoslav trade requires answer now. We are convinced first to improve trade relations with Yugoslav’s means recognition following:

1. Yugoslavia will not exchange political for economic concessions.

2. What Yugoslavia wants from US are means to build own industry including iron, steel and petroleum and supplies required sustain own economy.

3. Only if US grants these means either directly or under ERP permits third countries such as Bizonia, Italy and Britain to furnish them can we obtain important quantities Yugoslav ores and metals despite apparent Yugoslav dollar difficulties.

4. Otherwise trade expansion can occur only by our absorbing products which Yugoslavia finds difficult market elsewhere. Of these tobacco alone at present seems at all promising in future US-Yugoslav exchange.

We emphasize that industrial phase Yugoslav five-year plan is now primarily oriented to eliminate Yugoslav dependence on others, meaning dependence on USSR and satellites.

This Yugoslav leaders have made increasingly clear in public statements. Even if present objectives meet with maximum success it would be many years before Yugoslavia can build true heavy industry in modern sense but much will have been done meanwhile to separate Yugoslavia from Eastern economic tyranny.

We feel positive policy encouragement US business interests desiring trade with Yugoslavs on above basis will best serve our national interest in European sphere. Therefore, we urge our export controls regarding Yugoslavs be further liberalized to match changed circumstances.⁴

Sent Department 28; repeated Paris for Harriman⁵ 2, Moscow 8, pouched Warsaw, Praha, Budapest, Sofia, Bucharest, Rome, Trieste, London.

Cannon

2. Not printed. It observed that the announcement of the 1949 Yugoslav-Soviet trade agreement, signed in Moscow on December 27, 1948, and calling for a greatly reduced volume of trade between the two countries, indicated that far-reaching changes in the structure and direction of Yugoslav trade were under way. The telegram presented a detailed analysis of Yugoslav trade in 1948, particularly with the U.S.S.R. and the Eastern European satellites, and concluded that Yugoslavia incurred a large payments deficit in 1948 and faced the prospect of an exchange crisis early in 1949 (660H.6131/1–1049).
3. Neither printed. In a memorandum to Under Secretary of State James Webb, January 17, not printed, Director of the Office of European Affairs, John D. Hickerson, reported that a representative of the American firm involved, Phillips Brothers, informed officers of the Department of State that the offer involved $6,000,000 worth of copper and lead and was contingent upon obtaining export licenses for a steel blooming mill worth approximately $3,000,000 (611.60H31/1–1049).
4. Telegram 272, January 25, to London, repeated to Paris for Ambassador Harriman as 270 and subsequently repeated to Belgrade as 32, January 27, not printed, stated that the Department favored granting an export license to Yugoslavia for the blooming mill if the equipment was genuinely useful to Yugoslavia and was discussing the issue with other agencies. It was further stated that the general Department position on trade with Yugoslavia was currently being examined (641.60H31/1–1749). In a memorandum of February 3 to S/S, reviewing recent developments in U.S. trade policy toward Yugoslavia, Hickerson observed that the first concrete result of the more favorable attitude toward exports to Yugoslavia had been expressed in the form of licenses for five mobile repair shops and several thousand tractor tires which the Yugoslavs had been seeking to import for months (611.60H31/1–3149).
5. W. Averell Harriman, Special Representative in Europe for the Economic Cooperation Administration, with the rank of Ambassador.