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

460.509/10–951

Memorandum by Mr. Raymond Vernon of the Office of Economic Defense and Trade Policy to the Under Secretary of State (Webb)

confidential

[Washington,] October 9, 1951.

Attached hereto are two memoranda which Mr. Linder asked me to put in your hands today.

The two memoranda deal with closely related subjects. The first considers the question which you raised in your recent conversation with Mr. Linder, whether the Department should revive its earlier proposal for the creation of an Economic Defense Strategy Board. The second deals with the role which State should play in the administration of the Battle Bill.

[Attachment 1]

Memorandum Prepared by the Acting Chief of the Economic Defense Staff (Moline)

confidential

[Washington,] October 9, 1951.

Reviving the Proposal for the Creation of an Economic Defense Strategy Board

the problem

Should steps be taken to revive our earlier project for the creation of an Economic Defense Strategy Board, chaired by State, with general responsibilities for formulating and coordinating policies on economic defense?

recommendations

1. The Department should take no action at this time to revive the project for creation of an Economic Defense Strategy Board unless the matter is likely to be seriously considered on the initiative of some other agency.

2. In the latter case, and as the preferred alternative to creating an Economic Defense Strategy Board at this time, the Department should urge the continuation of the present interim arrangement under which the Department serves as the coordinator of activities in the field of economic defense.

3. If a more positive proposal seems necessary in order to forestall steps to transfer the coordinating function elsewhere, the Department should urge the creation of an Economic Defense Strategy Board under its chairmanship.

discussion

The proposal for an Economic Defense Strategy Board was made first in the Labouisse report¹ last February. The Bureau of the Budget, to which the proposal was referred by the President, studied it carefully and decided it was correct in principle. That the proposal would be strongly resisted by other agencies also became apparent during the course of the study. In the circumstances, it was decided not to press the project further at the time. Instead, as an interim arrangement it was recommended by the NSC that the Department of State serve as the coordinator of activities in the economic defense field stemming from the proposals outlined in NSC 104/2.² The President approved this proposal on April 12.

There seems little to be gained from changing the present arrangement. It is working well and it will get better. The Department is now organized and staffed to handle the job of coordinating the interdepartmental work on economic defense matters. Acceptance by other agencies of the State Department as a coordinator in this field has increased noticeably during the past three months, and there is every reason to expect that it will increase further during the coming months.

There is a decided risk in establishing formally an Economic Defense Strategy Board, irrespective of who chairs it. The principal danger is that the nations of Western Europe would interpret such a move as the start of efforts to extend security controls to the point of economic warfare. Their fear of such action has long been evident, and is stronger now than six months ago. It has been voiced strongly in recent months, notably during the COCOM discussions in June and during the NATO Conference in Ottawa in September. Despite assurances that economic warf are is not the US goal, any evidence at this time which might be so interpreted could lead to a lessening of the international cooperation and a weakening of international controls rather than otherwise. Since economic defense measures, by and large, depend heavily for their effectiveness on international cooperation, we should avoid taking any steps which will jeopardize it.

If a decision is taken that a more formal mechanism is needed, notwithstanding the considerations described above, a strong effort should be made to ensure that State retains the coordinating function in that mechanism. The reasons why the State Department should continue to coordinate the economic defense work derive from the growing political importance of this problem in our foreign relations and from the fact that the Department conducts the extensive negotiations necessary to make the work meaningful. Moreover, effective work in relation to economic defense necessarily involves shipping, telecommunications, international monetary policy, control of enemy assets, acquisition and distribution of raw materials, exchange of technology and other matters with which State Department is familiar, notwithstanding the fact that in some instances primary responsibility rests with other agencies.

No agency other than State has the same widespread interest in the foregoing range of subjects. In addition, economic defense problems require attention in the UN Collective Measures and Additional Measures Committees, The Finance and Economic Board of NATO, the Organization of American States, GATT, and in other international bodies in which the Department customarily represents the United States Government and in which it can ensure that economic defense matters are properly related to other objectives in the international field.

Given the present predominance of export control work in the economic defense field and the important position which the Administrator of the Battle Bill, who is also Director of the Mutual Security Program,³ will have in such work, there may be an effort to make him responsible for coordinating all of the economic defense work. He would appear to be the only one, other than the Secretary of State, with a possible claim to such a position.

Assignment of the coordinating responsibility would necessarily bring the Administrator into fields which are properly the responsibility of State and would require some duplication of staff as well as interest if the job was to be well done. An even more compelling reason for not making the assignment is that the Administrator is primarily concerned with the extension of aid. If the central position in economic defense were in the hands of the Administrator, other countries whose cooperation is essential to success in this field would undoubtedly consider that their cooperation was being solicited on an inherently coercive basis. The officer with control of the international purse strings would be the officer requesting their cooperation. In those circumstances, the kind of cooperation the United States received would fall far short of the kind which could be received, given a different kind of approach.

[Attachment 2]

Memorandum Prepared in the Department of State⁴

restricted

[Washington,] October 9, 1951.

Administration of the Battle Bill

problem

It seems probable that the Battle Bill will be passed in the Senate version. Once the bill becomes law the President will presumably issue an Executive Order designating the Mutual Security Director as the Administrator and laying down the “ground rules” for the administration of the law.

discussion

The principal functions which have to be performed under the Battle Bill are assigned in part to the Administrator, and in part left to the President. These functions and assignments are as follows:

1. The Administrator is directed to determine which items should be embargoed to effectuate the purposes of the Act.

2. The Administrator must recommend termination of assistance to any country which knowingly exports items determined by him to require embargo.

3. The President may, in certain circumstances, direct the continuation of aid.

4. The President determines when aid should be resumed because of compliance with the Act.

5. The United States negotiates with countries receiving assistance, programs for controlling certain other items.

6. The President determines when countries are not adequately cooperating in respect to 5 above and terminates aid in these circumstances.

7. The President invites the cooperation of countries not receiving assistance to cooperate in controlling the embargo list and other items.

8. The Administrator coordinates the activities of the various U.S. Government departments concerned with security controls over exports from other countries.

Three principal issues will arise with respect to the way in which these functions are performed:

1. To what extent and by what mechanism will the President and the Administrator each obtain the advice of other agencies?

2. Who will do the required negotiating with foreign countries?

3. Who will the President and the Administrator call on for staff work?

the mechanism for advice to the administrator and to the president

The clearest provision for consultation with other agencies is contained in Section 103(a) which states that “The Administrator is . . .⁵ directed to determine . . . after full and complete consideration of the views of the Departments of State, Defense, and Commerce; the Economic Cooperation Administration; and any other appropriate agencies” . . . the embargo list.

In our view the Administrator should receive this and related advice through an interagency committee, specifically charged with this function. The present NSC Special Committee on East-West Trade might be used for this purpose, although it would be desirable in the interests of efficiency to reduce the committee’s membership by eliminating ODM and E. This committee has been the principal vehicle in the past for the interdepartmental consultation required to implement both the Cannon and Kem amendments. It may be suggested that advice on the lists of strategic materials should, instead, be provided by the Advisory Committee on Export Policy. This suggestion should be resisted for two reasons. First, the ACEP is advisory to the Secretary of Commerce; second, the ACEP is concerned exclusively with U.S. export licensing policy and deals with many issues unrelated to the Administrator’s work. Its membership is correspondingly broad.

Insofar as the decisions to terminate or resume aid are concerned, it is assumed that the President will look principally to the Director of MSA, the Secretary of Defense and the Secretary of State for guidance. It is probably not necessary to specify in detail the mechanism through which any conflict in views is resolved.

negotiations with foreign governments

Throughout the Bill, wherever there is a provision requiring negotiations with foreign governments, the words “The United States …” or “The President shall negotiate” are used, thus clearly differentiating the responsibility for negotiations from the functions specifically given to the Administrator. The Secretary of State would, in customary circumstances, be assumed without question to be the appropriate agent of “The United States” or “The President” for this purpose. Some question in the present case may, however, arise because of the fact that the Administrator of the Battle Bill is not only the MSA Director but also the head of the Mutual Security Agency which has a foreign staff. Therefore, it should he made clear, either through an Executive Order or otherwise, that the negotiating function and the essential staff work related thereto, such as the determination of negotiating tactics, remains as it is today, in the Secretary of State. In this connection, it should be noted that the responsibility for negotiations in this field, although at one time carried on by OSE, was transferred at the request of Mr. Harriman, then U.S. Special Representative in Europe, to the State Department.

staff work

The Administrator of the Bill will require various kinds of staff work in addition to the negotiating functions mentioned above. Staff work will, for example, be required in:

(1) the preparation of the list of strategic materials and their continuous adjustment to current conditions, as provided in the Bill.

(2) assessing the factors which the Bill stipulates must be taken into account in order to grant exceptions or to resume aid.

(3) reports to Congress.

(4) studies on the administration of export controls of other countries, and assistance to other countries regarding export control procedure.

It is our strong view that staff responsibilities should in general remain as at present and that the Administrator should neither assign new staff responsibilities to the ECA (MSA) nor build up a staff of his own to undertake these functions, since the same or similar functions are already being performed elsewhere in the Government. The two functions of the Administrator are quite distinct, and the delegation of new staff work to the MSA is in no way implied by the Battle Bill. To the extent that staff work requires coordinated action on the part of several agencies, the Administrator might well utilize the NSC Special Committee on East-West Trade which has been responsible for analogous coordinated staff work in connection with the Kem Amendment. It should be noted that although this Committee has been used as the coordinating mechanism, most of the policy aspects of the staff work have been done by the Department of State, with the Department of Commerce supplying technical data and trade analyses. It is believed that there has been increasing satisfaction with the Department’s predominant role.

economic defense problems beyond the scope of the battle bill

The Department has taken the view in the past that responsibility for coordinating economic defense strategy should rest in State. This position was confirmed on an interim basis by the President’s letter to the Department of last April. The appointment of the Battle Bill Administrator outside the Department does not affect the desirability of continuing Departmental leadership on the broad question of economic defense. The Battle Bill is concerned with only one aspect of economic defense policy and, as noted above, even in that field the Administrator’s functions are limited and key decisions are vested in the President. It should further be noted that the Mutual Security Act prohibits the Director from assuming functions other than those assigned to him by law, and hence it is to be expected that those responsibilities in the field of economic defense which he will assume as Administrator under the Battle Bill will only be those enumerated in the Statute.

recommendations

It is recommended that the Acting Secretary discuss the question of administration under the Battle Bill with the Director of the Bureau of the Budget and leave with him the attached draft Executive Order which incorporates the views of the Department in this matter.

[Subattachment]

Memorandum by Mr. Carroll S. Hinman of the Management Staff of the Department of State⁶

[Washington, October 9, 1951.]

Draft Executive Order To Implement H.R. 4550, “The Mutual Defense Assistance Control Act of 1951” (Battle Bill)

providing for the administration of the mutual defense assistance control act of 1951

By virtue of the authority vested in me by the Constitution and Statutes, including the Mutual Defense Assistance Control Act of 1951, and as President of the United States, it is hereby ordered as follows:

1. The responsibility for giving effect to the purposes of the Mutual Defense Assistance Control Act of 1951 is hereby vested in the Director of Mutual Security in the Executive Office of the President, hereafter referred to in this Order as the Administrator in accordance with Section 102 of said Act.

2. In the exercise of his responsibilities under this Order, the Administrator shall give full and complete consideration to the views of the Departments of State, Defense, and Commerce, the Mutual Security Agency, and any other appropriate agencies. To the extent appropriate, the Special Committee on East-West Trade of the National Security Council shall serve as a means for advising the Administrator of the views of the agencies concerned. The Administrator or his representative shall serve as Chairman of the Special Committee on East-West Trade when it considers matters related to the implementation of the Mutual Defense Assistance Control Act of 1951.

3. In exercising his functions under this Order, the Administrator shall utilize to the fullest extent practicable resources of the appropriate agencies of the government for such analyses, reports, investigations, evaluations, and services as are necessary in connection with recommendations and determinations to be made by him.

4. Negotiations with foreign governments to give effect to the purposes of the Mutual Defense Assistance Control Act of 1951 shall be carried on by or under the direction of the Secretary of State.

1. Presumably reference to the Report prepared by the Office of Intelligence Research of the Department of State, which is Appendix to the memorandum by NSO Executive Secretary Lay of February 12, p. 1035.
2. Dated April 4, p. 1059.
3. For documentation concerning the development of the Mutual Security Program, which was approved by the Senate and the House on October 2 and 5, respectively, and subsequently signed by President Truman on October 10, see pp. 266 ff.
4. Drafted by Vernon and Camp and cleared with Bonbright and Linder.
5. All ellipses in the source text.
6. Cleared with Vernon and Camp.