Foreign Relations of the United States, 1951, National Security Affairs; Foreign Economic Policy, Volume I

S/S–NSC Files, Lot 63 D 351, NSC 104–Progress Reports

Memorandum by the Acting Secretary of State to the Executive Secretary of the National Security Council (Lay)

secret

Washington, September 21, 1951.

Subject: Second Progress Report on NSC 104/2,¹ “U.S. Policies and Programs in the Economic Field Which May Affect the War Potential of the Soviet Bloc”

NSC 104/2 was approved as Governmental policy on April 12, 1951. It is requested that this Progress Report (covering the quarter ended August 15, 1951) be circulated to the members of the Council for their information.

Export Controls

1. Prohibition of all Exports to Communist China, Manchuria and North Korea

Since the submission of the first progress report,² a general license designated G/PUB has authorized exportation to all destinations except North Korea, of the following publications, provided the publications do not contain technical data:

• Motion picture films, developed
• Books, bound, text, educational
• Bibles and testaments
• Books, bound, other
• Books, unbound, in sheets
• Catalogs and pamphlets
• Music in books and sheets
• Newspapers, current
• Periodicals, current
• Calendars, printed or unprinted

2. Export Licensing of all United States Shipments to the USSR and Eastern European Satellites

The only new development in licensing shipments to the European Soviet bloc concerns technical data. A validated export license shall be required for the exportation, directly or indirectly, of technical data to Subgroup A destinations:

a. The Office of International Trade, Department of Commerce shall deny export license applications for the export of technical data to Communist China and North Korea.

b. The Office of International Trade shall deny to all other Subgroup A destinations applications received to export technical data which, in its opinion, would be of assistance to these countries,

(1) in the production of commodities contained on the United States Security Lists I, IA, II and IIB; or

(2) in significantly maintaining or expanding the short term or long term war potential of these countries through the production of commodities or facilities other than those included under (1), or through contributions to industrial or theoretical research; or

(3) in providing information of intelligence value, such as that included in maps or plant location and layout descriptions.

3. Prohibition on Export of Armaments and Short Supply Items

The United States continues to prohibit exports of all such items destined for the Soviet bloc, whether shipped directly or indirectly.

4. United States Licensing Policy for Items Other than Armaments and Short Supply Items

The provisions of Program Determination No. 502 of the Advisory Committee on Export Policy still apply.

5. Strengthening Western European Security Controls

The Consultative Group meetings, requested by the United States in an effort to obtain a tightening of existing security export controls on the part of participating countries, were concluded on August 3. In these discussions, and in the preliminary tripartite discussions, significant progress was made towards meeting the United States’ desire (a) to eliminate the disparity between International List I and the United States list of items of primary strategic importance, (b) to clarify the conditions under which exceptions to the embargo rule may be justified, and (c) to tighten controls over items of secondary importance. Of the 53 items proposed by the United States for addition to List I, 34 were accepted by all participating countries. The 19 unagreed items were referred to the Coordinating Committee for further discussion in September. United States proposals on quantitative controls and on exceptions to the embargo rule were accepted by the group with minor changes.

Bilateral negotiations with Sweden and Switzerland have resulted recently in substantial progress towards solving the special problems presented by these two countries.

(See Appendix I for a more detailed report.)³

6. Licensing United States Exports to Western Europe

The provisions of Notices of Action 77.2 and 79.2 of the Advisory Committee on Export Policy are still being followed.

7. German Controls

The Federal Republic appears to be making satisfactory progress to ensure more effective controls over the illegal trade and transshipment of goods agreed for control in the Coordinating Committee. A revision of German export licensing procedure, conforming closely with United States recommendations, will be put into effect as soon as administrative arrangements can be made. As of August 15, all exports to the Soviet bloc require approval by the Central Licensing Agency, which recently has doubled its staff. A federal ordinance has been issued providing for stricter control over interzonal trade and establishing a much firmer basis for prosecuting violators of interzonal trade regulations. Various other administrative arrangements have been made to employ effectively intelligence concerning illegal trading activities, to improve HICOM-German liaison in the general field of security export controls, and to preclude the benefits of United States assistance to firms guilty of illegal dealings with the bloc.

8. Cooperation of American Republics

On June 5 the Department of State instructed all United States missions in Latin America, except Bolivia and Guatemala, to initiate negotiations to determine the extent to which each government would proceed in developing effective controls prohibiting the export or transshipment of strategic and short supply materials to the Soviet bloc.

On June 14 and 15 the Ambassadors of all of the American Republics were called to the Department of State for briefing on the provisions of the Kem Amendment. The Ambassadors were asked to present the matter to their governments and to ascertain “(a) the date when controls could be made effective enough to serve as a basis for certification, and (b) what obstacles must be overcome.”

Information received in the Department of State as of the date of this progress report showed that: (1) six of the Republics have certified in compliance with the provisions of the Amendment; (2) ten may certify; and (3) it will be necessary to seek exceptions for Uruguay, Brazil, Chile, and possibly some of the ten countries included in (2) above. In the case of Argentina no exception will be sought under the terms of the Kem Amendment.

The United States continues to urge and assist those countries in Latin America which have not adopted export controls parallel to those of the United States to take the necessary steps to institute such controls.

9. International Controls on Exports to Communist China⁴

On May 18, 1951 the General Assembly of the United Nations adopted a resolution recommending that every State (both Members and non-Members of the United Nations) apply an embargo on the shipment to Communist China and North Korea of arms, ammunition and implements of war, atomic energy materials, petroleum, transportation materials of strategic value, and items useful in the production of arms, ammunition, and implements of war. The Additional Measures Committee was requested by the resolution to report to the General Assembly on the general effectiveness of the embargo and the desirability of continuing, extending or relaxing it.

As of the date of this progress report, sixty countries had submitted reports or acknowledgements. Of these, forty-two are generally satisfactory. This category includes the principal Allies of the United States as well as China’s principal non-Communist foreign sources of supply.

Consideration has been given in the United States Government to the status of the strategic embargo in the event of a cease fire or an armistice in Korea, and, alternatively, to measures to increase the effectiveness of the embargo and extend its scope if the Kaesong talks break down.

10. International Allocation of Short Supply Materials

Developments to date in the International Materials Conference have been consistent with the objective of denying or limiting shipment of short supply materials to the bloc. The international allocations which have been made (tungsten, molybdenum, sulphur and newsprint) do not include any provision for supplies to countries in the Soviet bloc. If allocation programs, now under active consideration, are developed for copper, zinc and wool, such programs are expected to conform fully with the objective of paragraph 10.

Preclusive and Preemptive Operations (Recommendations 11 and 12)

No opportunities have arisen warranting active consideration of the use of the preemptive device.

Financial Measures

13. Blocking Controls

There has been no determination that the point has been reached at which export controls have become so restrictive and other economic and political relations so curtailed that blocking of the dollars and dollar transactions of the USSR and its European satellites would be appropriate.

The Report to the Collective Measures Committee of the United Nations, of the Sub-Committee for the Study of Economic and Financial Measures, dated July 18, 1951, contains references to blocking controls, as well as the sterilization of gold resources (see Item 14 below), among the prohibitions which the United Nations might decide to recommend in the event of any future aggression by any country. This Report, therefore, is not focused on the Soviet bloc specifically. Papers regarding these measures were submitted by Treasury and considered by the Inter-Departmental Working Group on Economic Problems of the Collective Measures Committee as part of the development of a United States Government position for the guidance of our representative on the Sub-Committee.

14. Sterilizing Gold

Study has been given to the subject of gold with a view to evaluating the techniques and procedures for the coordination of international action in this field. A position paper on this subject was submitted by Treasury and considered by the Inter-Departmental Working Group on Economic Problems of the Collective Measures Committee of the United Nations (see Item 13 above). This study is not, however, focused specifically on the Soviet bloc, since it is designed for possible consideration in the event of any future aggression by any country.

Blacklisting

15. The establishment of a secret International Black List has recently been agreed upon in the Coordinating Committee. The participating countries are presently considering names of violators or suspected violators of export controls for inclusion on the list.

Technology

16. Strengthening Plant Security

The program for protecting critical industrial facilities, including technology, has been furthered through the establishment of the Facilities Protection Board. This Board will be responsible to the Interdepartmental Committee on Internal Security.

17. Coordinating Committee Action

Consideration of the United States program for “Security of Technical Information” is pending in the Coordinating Committee. This matter is on the Coordinating Committee agenda for October 2, at which time the other participating countries are expected to supply similar information on measures they have taken to deny the Soviet bloc technical data.

18. Export Controls on Technology

The Interdepartmental Committee on Internal Security has recommended to the Secretary of Commerce that an interim general license be issued to allow export to the Soviet bloc of technical publications generally available to the public. The Committee felt that prompt action was demanded to avoid retaliatory action by the USSR which would deprive the United States of Soviet published material of great value to our intelligence programs. The Committee’s recommendation was made with the understanding that the interim general license would be a temporary expedient pending further study. The general license has been approved by the Secretary of Commerce and will be issued shortly.

Shipping (Recommendations 19 and 20)

In the quarter ended August 15 brief consideration was given in the Coordinating Committee to the problem of controls over chartering vessels to the Soviet bloc and of prohibiting the carriage of embargoed goods to the bloc in vessels of any participating country’s registry. The question of the Coordinating Committee’s competence in this field was referred to the Consultative Group, which decided that the Coordinating Committee should give further consideration to these controls in September.

The United States has succeeded, in bilateral discussions, in securing the cooperation of a limited number of countries with regard to the adoption of chartering and carriage controls over vessels of their registry.

Air Traffic Controls: Relatively successful implementation of NSC 15/3⁵ has minimized the problem of air transport as related to the movement of embargoed goods to or within the Soviet bloc. The major development in this field since May 15, 1951 has been the termination of Czechoslovak and British air service between the United Kingdom and Praha. Further efforts are under way to terminate completely Czechoslovak air service to Western Europe. For further information on this subject reference may be made to the second progress report on NSC 15/3.

Decreasing Reliance on Trade With the Soviet Bloc (Recommendations 21, 22, and 23)

At the request of the Special Committee on East-West Trade, the Department of State has taken steps to develop immediately a program directed towards decreasing Western European economic reliance on the Soviet bloc. An interagency working group has been constituted for this purpose comprising representatives of the Economic Cooperation Administration, the Central Intelligence Agency, and the Departments of Commerce, Defense, and Treasury. At the first meeting of this group, on July 20, it was decided that it would be necessary to have certain ECA commodity studies in hand before proceeding to draw up a comprehensive program of action. These studies will deal individually with the most important commodities imported by the Free World from the Soviet bloc countries and the commodities exported to the Soviet bloc which are believed to pose the most serious problem of readjustment. A general paper on East-West trade will synthesize the findings of the various commodity studies, draw general conclusions as to the desirable level of East-West trade, and suggest policies which the United States should follow to maintain that level. These studies are scheduled for completion by the end of September.

(See Appendix II for a more detailed report.)⁶

Import Controls

24. The need for controls on United States imports from the Soviet bloc in order to minimize dollar earnings of the bloc is not an immediate one.

Steps have been taken, nevertheless, which serve to reduce or eliminate these imports. Among these measures are the Foreign Assets Control Regulations (see Item 13 above), which effectively curtail imports of merchandise of Communist Chinese origin. A recent amendment to the regulations tightens the controls with regard to the importation of goods originating in Communist China but processed in other countries. At the request of the Secretary of Defense, importations of a few articles of strategic importance have been authorized. Also the Trade Agreements Extension Act of 1951 (Public Law 50, 82nd Congress, 1st Session) requires the withdrawal of United States tariff concessions from Communist-controlled countries, thereby reducing such imports to the extent that they will be impeded by increased duties.⁷

James E. Webb

1. Dated April 4, p. 1059.
2. Dated June 7, p. 1086.
3. Appendix I, not printed, is a five-page summary entitled “Results of Recent Negotiations with Western European Countries.”
4. Documentation concerning United States policy with regard to restriction of trade with North Korea and Mainland China is presented in volume vii.
5. Extracts of the text of NSC 15/3 of January 5, 1950, are printed in Foreign Relations, 1950, vol. iv, p. 1.
6. Appendix II, not printed, is brief summary of attempts to decrease reliance on trade with the Soviet bloc.
7. The National Security Council noted the source text at its 107th Meeting on November 28. (NSC Record of Action 582, November 28; S/S–NSC Files, Lot 66 D 95, Record of Actions–1951)