Foreign Relations of the United States, 1955–1957, Foreign Aid and Economic Defense Policy, Volume X

66. Memorandum of a Conversation, Department of State, Washington, August 11, 1955¹

Washington, August 11, 1955

PARTICIPANTS

• The Secretary
• Mr. Murphy
• Mr. Waugh
• Mr. Hollister
• Mr. Merchant
• Mr. Robertson
• Mr. Jones
• Mr. Goodkind

SUBJECT

• Current East-West Trade Problems

The conferees first read a memorandum to Mr. Waugh from Mr. Goodkind, dated August 11, 1955 (copy attached).² This memorandum set forth informal comments on four East-West trade topics: (A) U.S. attitude toward a meeting of the Consultative Group (“CG”); (B) licensing the export of passenger automobiles to the USSR; (C) non-strategic U.S. exports to the European Soviet bloc; and (D) China trade controls.

Certain preliminary questions were asked. The Secretary inquired why it was felt that the U.S. controls put more pressure on Communist China than did the multilateral controls. It was explained that the higher level of multilateral export controls applied against Communist China than against Eastern Europe increased the cost to the Chinese Communists of procurement of these differential items through Eastern Europe, but an even greater cost in loss of foreign exchange was imposed, not by the still higher level of U.S. export controls, but rather by the U.S. import and blocking controls, which cut off dollar remittances and denied the U.S. market to Chinese Communist goods. The Secretary inquired whether the Chinese did not sell their products elsewhere and whether these products, such as bristles, did not come indirectly into the U.S. market. It was explained that the U.S. market was largely unique and irreplaceable for certain important Chinese products and that there was relatively small leakage of these goods into the U.S. via friendly countries. The import from friendly countries of paint brushes with Chinese bristles had been restricted; cashmere wool had presented some problems.

As background to the automobile topic it was explained that Ford was interested in the sale of 700 passenger cars to the USSR, but didn’t want even to approach the Commerce Department for a license if the State Department were disposed to object to the transaction. It was assumed that the sale would be for cash, and in answer to a question from Mr. Murphy, it was explained that the earlier Chevrolet sale to Bulgaria had represented a cash transaction for which the license had been sought by an exporter of automobiles.

Discussion was then had upon the four topics dealt with in the memorandum.

Concerning the French call for a CG meeting, it was agreed that the date proposed was most untimely, and that as we had now asked the French to alter the date to November or December, we should simply await developments.

Concerning the related topic of the China controls, Mr. Robertson remarked that we should do everything possible to prevent any curtailment of the controls. However, it was felt here too that no detailed discussion was necessary now, since we hoped the meeting would be deferred. If we later had to face a meeting, a position paper would be drafted and discussed at that time.

Concerning the question of the export of Ford automobiles to Russia, the Secretary said he was inclined to let Ford make the sale. He then went on to develop some of his philosophy toward East-West relations in this “post-Geneva” period.

The Secretary said one should not expect the spirit of Geneva to operate to maintain the status quo in the world. Rather, the spirit of Geneva should accelerate the evolutionary processes toward German reunification and other Free World goals related to peace. Geneva, he said, had downgraded the attitude that certain positions in the way of the attainment of these goals were necessary for defense.

The present period, he said, is a sort of probationary period. If after some six months we can discern no progress toward our objectives, we may then have to go back to our old posture. This is a line of thought, he said, which he was presently engaged in hammering out with the President.

The Secretary said that we should do all we can now to create conditions that will encourage Russian willingness to pay the price for the new posture. In this respect he felt that we could create more pressure on the Russians if we start now to let some things move which are under our own control, with the threat of cutting them off again if the Soviets did not come through. If we hold back completely, the Russians may wonder whether they would really get anything once they had made concessions. Let some things go now, he said; let the Soviets taste how good this is and whet their appetites for more.

The discussion was then broadened to other non-strategic items. The pending case of rolled steel sheets was cited, it being pointed out that we had not licensed an item like that to the bloc for years, that such an item carried a greater connotation of relationship to military production and that the export would be more likely to imply a change of policy.

Mr. Hollister said the export of automobiles would release steel sheets for other purposes. The point also was made that steel sheets could be exported to the bloc by other countries.

The Secretary said we should let the steel sheets be exported (he pointed out, however, that if the steel sheets, or any other item, were sought to be exported to East Germany, we should check to make sure we did not frustrate any effort that the Federal Republic was making to use the pressure of curtailed trade to resolve the problem of the highway tolls).

Mr. Murphy inquired about heavy machinery or items of electrical equipment. The Secretary said we need not try to determine such cases hypothetically; the problem should be brought up again when and if such cases arose.

Mr. Waugh then pressed the question of agricultural exports. He pointed to the magnitude of our disposal problem and suggested that the Soviet bloc was one place where we might be able to dispose of substantial quantities of our surpluses. In reply to a question from Mr. Hollister, Mr. Waugh said he thought we could get gold from the Soviets if we offered our agricultural products at world prices. Allusion was made to the earlier plan to barter perishable agricultural products for non-perishable strategic materials, and to the Attorney-General’s ruling barring certain actions under P.L. 480.³ Mr. Waugh suggested that the legal status be reviewed and the policy questions be explored, particularly before Mr. Benson departed on his European trip.⁴

Mr. Robertson commented that agricultural products were high cost items in the Communist economy and that food had been highly strategic for the Chinese Communists. However, it was emphasized that the present discussion dealt only with possible exports to the European Soviet bloc.

Mr. Merchant said he believed that the USSR does not face any immediate food crisis. Therefore, and in line with what the Secretary had said regarding gaining leverage on the Russians by beginning to ease trade restrictions, perhaps as a sort of one-shot operation we should explore letting go a trickle that could be turned off.

The Secretary said that the question that concerned him was, could we turn this off? He was clear that we could cut off automobiles or machinery whenever we chose, but with agricultural surpluses, would we not be whetting our own appetites as well as the Russians’? Might we not be building up political pressures that we could not control? He would not want to start something we couldn’t stop.

Mr. Waugh said he thought we could control public opinion and pressures through the farm organizations. The leaders of these groups are good men with whom we can work closely and who have a pretty good control over their members.

The Secretary said he was satisfied that the Russian leaders’ change of tactics stemmed from two causes: one, that their old tactics had failed them; and two, that they are under great pressures from within to give their people more, particularly consumer goods. He said he believes the Russians will pay a real political price in Europe to be able to carry on with their new policies and not have to revert to their old policies. How big a price they will pay, he didn’t know; this is what we shall find out in Geneva in October.

The Secretary concluded that we should go ahead and feel out the situation concerning possible sale of agricultural products. He agreed that the legal question should be reviewed and explored. He agreed that he should talk with Mr. Benson about this before the latter leaves for Europe. Mr. Waugh then suggested that Mr. Benson be invited to come with Messrs. Garnett and Butz to have lunch with the Secretary next week.

1. Source: Department of State, Central Files, 460.509/8–1155. Secret. Drafted by Goodkind.
2. Not printed.
3. For text of P.L. 480, the Agricultural Trade Development and Assistance Act of 1954, enacted on July 10, 1954, see 68 Stat. 454.
4. Secretary of Agriculture Benson was scheduled to visit several European nations between August 27 and September 9 in order to initiate negotiations for the marketing of U.S. surplus agricultural commodities. Documentation on his trip is in Department of State, Central File 033.1100–BE.