CFEP DRAFTING GROUP ECONOMIC DEFENSE POLICY REVIEW FOREIGN ATTITUDES TOWARD ECONOMIC DEFENSE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP63-00084A000100040002-0
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 32
• Document Creation Date: December 12, 2016
• Document Release Date: March 8, 2001
• Sequence Number: 2
• Publication Date: June 6, 1955
• Content Type: STUDY

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CFEP DRAFTING GROUP
ECONOMIC DEFENSE POLICY REVIEW
Staff Study Noe 3
Draft of June 6, 1955
Foreign Attitudes Toward Economic Defense
This draft of Staff Study No. 3, on "Foreign Attitudes Toward
Economic Defense", is transmitted for your use in connection with the
work of the CFEP Drafting Group on Economic Defense Policy Reviews
In compliance with the request of the Chairman of the Drafting
Group, the Executive Secretary, EDAC, is providing reproduction and
distribution facilities as a service to further the work of the CFEP
Drafting Group.
Irving I. Kramer
Executive Secretary
Distribution:
CFEP Drafting Group
State Dept. declassification & release instructions on file
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EGRET This document consists of'
31 pagesm No. 3 Z of
copies., Series 'A
ECONOMIC DEFENSE POLICY REVIEW
Staff Study Nos 3
(Draft of June 6, 1955)
Foreign Attitudes Toward Economic Defense
Abstract
In any discussion of the restriction of trade with the Soviet blec9
foreign attitudes must be considered of paramount importance. The US by
itself has now virtually no direct control over Soviet bloc imports in the
sense that US exports to the Communist bloc amount to only one tenth of ore
percent of the small total of Free World exports to that area.
While there is considerable agreement among the Free World countries
about the necessity for controlling trade with the bloc., US public and
popular attitudes have generally favored tighter restrictions than have
other countries.
Two major factors probably explain most of the difference. First,,
foreign countries are more inclined than the US to believe that trade is a
potentially important means for reducing international tensions and the
danger of ware Second,, m ore3 n countries, more dependent for their
economic well-being than the US on foreign trade iii-general are more con-
cerned with the effect on their dQiestic_.economies of restrictions on trade
t,h the bloc,. In facts at times their concern seems out of proportion to
the actual potential for trade with the bloc. Thus, there was and continues
to be widespread support for the Danish statement in the Consultative Group
of COCON in the spring of last year,, which proposed that in any revision of
the export control system it was essential that the effect of the
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restrictions on economic and social conditions in the participating countries
themselves be kept closely and firmly in mind."
While there are wide differences among the countries of the Free
World in their attitudes toward economic defense measures,, a considerable
degree of uniformity has been achieved in the application of the controls
multilaterally agreed upon. Deg which frequently attempts to have the
restrictions on trade with the bloc reduced, has not concluded a trade
agreement with the USSR because the latter insists on the inclusion of
tankers which COC04 has termed "strategic." The countries of Asia have
generally adhered to the UK embargo of "strategic" goods to C nunist China.
In Indonesia and Burma, however, there are considerable political and
economic pressures for expanded trade. These attitudes are particularly
influenced by the neutralist foreign policy orientation of these countries.
India which loudly proclaims its neutrality and independence of the USs
secretly follows Western trade controls from considerations of foreign
policy,, although, in additions it has only limited amounts of "str?ategicc"
goods available for export. While demonstrating little sympathy or under-
standing of the program of economic defenses Jahas faithfully observed
its international commitments in this regard, West GermarLy favors tight
controls but objects to applying them, which it dooess to its trade with
East Germany. The UK has been a positive force in developing the present
limited trade control program and in providing for its effective implementation.
Currently, there are two major areas of disagreement between the US
xdau-z,. entries of the Free World in the matter of trade controls.
First is the question of treatment of Communist China. The second is the
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question of the definition., identification and treatment of 'Wstrategicd'
versus "non-strategic" trade.
Most foreign countries are opposed to applying higher levels of con-
trols against Communist China than against the rest of the Communist bloc
now that the wars in Korea and Indochina are over. Many Asian countries
are., in particular., motivated by neutralist sentiment and a desire to reduce
international tension as well as economic considerations in seeking to
reduce the barriers to trade with Communist China. It is pointed out that
the differential in export controls imposes only a light burden on Communist
China since the latter can., through the services of European bloc traders,
purchase goods denied it directly. Moreover., J' feels that this factor
puts it at a serious disadvantage vis-a-vis the Western European countries
in trade with Communist China.
Foreign countries have generally embraced the philosophy of 'strategic
goods in the sense that they willingly embargo exports of such goods but
believe that trade in ?t or n~stte?~ goods is not only not undesirable but
is to be positively encouraged. Moreover., the generall favor a narrower
definition of Ogtrateg.cl9 wanting it to relate solely to goods which seem
The present control system,
limited primarily to embargoing exports of goods of direct military use, is
the result of fairly general foreign pressure, led largely by the UK, for a
narrow sphere of trade controls. There seems to be little recognition abroad
of the implications of the fact that export controls cannot prevent the bloc
from achieving a given level of domestic availability in any particular
commodity (other than a new product).
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TABLE OF Ct ITENTS
Abstract 0 o 0 0 0 0 0 0 o a o o o o 0 0 0 0 0 0 0 0 0 0 0 0 0 0
L, United Kingdom 0 0 0. 0 0 0 0 0 a o 0 0 0 0 0 0 0 0 0 0 0
iia France
III Germany
IV. Italy O O
Sweden O O O O O O O O 0 O O O a a O 0 0 0 0 0 0 0 0 0 O O
VI O DenmArk c o c o a 0 0 0 0 0 0 0 0 0 0 0 0 0 o n o c o o O
VIIO Greece and Turkey o 0 0 0 0 0 0 0 0 0 0 0 o a o o a o o a
III0 Japan O O o O o O O O O O 0 0 0 0 0 0 0 0 0 0 0 0 0 O O 0
IX0 Southeast Asia o 0 0 0 0
South Asia 0 0 0 0 o a 0 0 0 a o 0 0 0 0 0 0 0 0 a 0 o 0 0
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General British Position. As early as 1949.. the UK Government,, after
consultation with the US., took the lead in getting the countries of Western
Europe together to agree on a framework of strategic controls over trade
with the Soviet Bloc. The UK has played a key role in the Consultative
Group since it was established in 1949. The British also initiated controls
over exports to Communist China even before the Korean War and supported the
UN resolution in 1951 under which China was declared an aggressor and exports
were strictly limited. British initiative was also important in the relaa-
tion of controls over trade with members of the European Soviet Bloc agreed
upon in the Consultative Group in 1954. (The change did not affect controls
over trade with Communist China,, North Korea., Tibet, and more recently North
Vietnam. In addition, trade with Macao is carefully regulated.)
The UK during the past year took the lead in having the export control
lists limited to items which are in the main of immediate military action.
The British cannot, however., be characterized as anti-control. Actually
they have probably made more positive contributions to CCCOM than any member
except the US. The record of formal British commitments on East-West trade
controls indicates both independent initiative by the government in plugging
some loopholes in the controls system inaugurated by the UK and approved by
COCCM and in cooperating with other Western countries to render the system
effective. Labor and Conservative governments,, as well as the majority of
the British people,, have recognized the need for some such controls. They
are not likely to alter their position as long as the international situation
requires limitations. on trade with the Communist world.
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Considerations Affecting British Attitudes Toward Controls. The
British Governnnt regards the international political and strategic aspects
the existing control system as a paramount consideration of national
policy? The government is not likely to act unilaterally to change this
system or to evade compliance with its regulations because of some dif-
ferences with other COCOM members concerning Soviet-Chinese capabilities
or intentions or because of overwhelming economic urgency. Althou h subject
to considerable pressure from private British traders and political groups to
incr ase the volume of trade with the Soviet-Chinese bloc., both on economic
and political grounds, the government does not attach an exaggerated import-
ance to this trade
The trade comprises only about 2 percent of Britain's total overseas
t, ,partly as a result of the imposition of controls. Under the most
favorable circumstances it is:: rua?.1.j,,ytossum
the proportions (about
6 percent; _ it had frith Soviet-Satellite members in Europe before World War II.
Soviet economic policies and the changed pattern of economic life in most of
the satellite countries have worked to limit exports and the capacity to pay
for imports,, and have probably altered fundamentally the long-term economic
relationships between the UK and Eastern Europe. In addition., the lack of a
satisfactory, settlement on British properties nationalized by the Eastern
Europeans acts to depress British trade and investment in the area.
The influential Federation of British Industries and the Trades
Union Congress have generally concurred in the estimate of the limited
economic importance of East-West trade for the UK9 stressing the need to
increase legitimate trade opportunities wherever they arise but warning
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against large expectations from trade with the Soviet Bloc countries. Despite
persistent demands for increased trade by segments of the British business com-
munity and for an equalization of controls between the European-Soviet Bloc
countries and Communist China, the national economic stake in this trade
remains marginal and is not likely to become the sole determinant of British
policy in COCOM. The British are., however, concerned about the economic
future of Hong Kong,
There are nevertheless reasons why the B iqh Goyqrnment and mulch of
the business -commffanity still continue to favor _a -progressive relaxation of
controls, if the international situation warrants it. Generally., the British
view the whole control system as an international expedient, voluntarily agreed
upon, reet an, emergency of uncertain duration and only valid so long as it
meets the requirements of the mergency withouft causing unnecessary economic
embarrassment o t eps ?e?? n~memb z,,s or perpetuating political tensions
between the West and the Communist world. The British favor the largest pos-
sible area of permitted trade and, conversely, prefer to limit the area of
prohibited trade. There is no essential difference between Conservatives and
Laborites in this basic respect. The viewpoint is the closest the British
are likely to come to what may be called a philosophy for COCON action, com-
parable in some respects,,, but far more flexible and loose, to the British
approach to the purely military aspects of NATO.
The British accept the fact that economic defense precautions are
nseparable from military preparedness against a potential enemy, They do
not always agree, however,, that the priorities are the same or that the
justification for particular economic defense measures is clear. They have
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adopted a highly selective attitude toward controls and lately have resisted
hard restrictions on goods which they consider to have a marginal strategic
character and have opposed the imposition of embargoes on individual items
like shipping of certain tonnage and speeds9 copper wire, rolling mills, some
types of generators, and other commodities. Other reasons for this position
undoubtedly arise from the tough, pragmatic line the British have customarily
adopted, regardless of the party in power, toward international trade, and
from domestic economic and political pressures which every British Government
must somehow attempt to:reconcile with both the national self-interest and
British international commitments.
US-UK Differences over Control Policies. The record of US-UK co-
operation on the establishment and enforcement of international control
policies'i?s far more impressive than the differences in outlook and detail
which have divided the two countries. This fact is overwhelmingly true at
the governmental and technical levels, although it is often obscured by
public and partisan controversies in both countries over particular cases of
alleged violation of the system of controls or differing interpretations of
what the system calls fora
Some differences have already been referred to, both substantive and
procedural, and need not be stressed again. Broadly speaking, the British
believe that elements in the US administration and Congress think of CCICCM
in terms of a comprehensive, quasi-permanent, rigid system of controls, while
the British tend to think of CQC?YM as a means of applying a series of ad hoc ant
JM_Ao means necessarily permanent set of restrictions on particular commodities
designed to reduce the offensive threat of the Soviet-Communist world.
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Because the US and the USSR are so deeply polarized in basic political
and economic philosophy and so deeply opposed in strategic aims, the British
believe that little disposition exists in the US for compromise or flexibility
in dealing with international Communism on the trade front. Yet., because the
British Government and most responsible political leaders appreciate the
danger of Soviet-Chinese expansionism, heherydo,not disagree fundamentally on
the need for some controls; they nevertheless are disposed to more f ar-
xesgh-Ing compromises than the US in various economic and political situations.-
The spirit of this approach reflects amore prevalent public view in the UK
than 4n the US of the possibility of peaceful coexistence with world Communism
under certain circumstances. It reflects a softer and more accommodating
type of diplomacy and a nesp to live with situations of stalemate or
hal.feasures.
The British attitude is., of course, directly related to a heightening
sells. of-fear of war and the vulnerability of the British Isles. If economic
defense measures deter Communist aggression, they serve a major purpose., the
British agrees if.9 on the other hand., they exacerbate tensions without effect-
ively deterring, they have little justification. All too often, British critics
of US foreign economic defense policies believe, the US appears willing to
follow an inflexible trade policy toward international Communism that leaves
little room for Western maneuver. Their case is also often based on an
indictment of general US economic foreign policies which they would like to
see liberalized and freed from controls that allegedly impede British exports.
This merging of criticisms about specific East-West trade controls with those
relating to the general posture of free world economic foreign policies
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reflects the permanent concern of all British Governments with international
The divergent recognition policies of the US and UK toward Communist
China have also raised special problems. The Conservative government has
resisted various Labor attempts to dramatize the potential value of the
Chinese trade and to secure the lifting of the UN embargo. Labor and
businessmen's junkets to Communist China during 1954 and much fanfare on
Peiping's side about the possibility of reviving and expanding Sino-British
trade have been coupled with criticisms of the "hard'' US policy toward Com-
munist China and US support of the Chinese Nationalist regime on Formosa.
The British business community, several individual firms of which
have suffered heavily from nee confiscatory Communist Chinese actions, has
probably few illusions about building up a secure Chinese market for British
goods on an effective reciprocal basis. Yet, almost as a matter of principle,
these business elements and doctrinaire political groups in the Labor Party,
who want Communist China to be admitted to the UN and recognized as a great
new revolutionary force in Asia, will c ntinue,tp insist that trade between
the Communists and the UK is the key to better political relations between
Peiping and the West. Although the Communist Chinese trade front is a soft
area in British thinking and policy, the estimates of its possibilities are
far more sober than they were before Korea, Indochina, and the recent Formosa
Straits disputes. The British recognized that trade with China must be a two-
way street, and the most critical of them fear that Peiping may continue to
control or adversely influence the main Asian avenues of trade, including
Hong Kong, and deny it any real meaning,
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British Attitudes toward Sanctions. Them.Br .ti-sh regard COCOM as a
ms'l,ateral effort based on voluntary cooperation and would like to keep it
that way. They would almost certainly resist US attempts to e policies
,yn COCOM members which were thought to violate the voluntary principle or to
ignore the special needs of individual countries. There is already some of
that feeling in the UK. Although the more sophisticated British officials
and public observers recognize that certain sanctions are implied in any
donor-recipient relationship and are explicit in provisions of the Battle Act,
they would react sharply against a US move to tighten or broaden existing
sanctions as applied to the UK. Not only would such a move create serious
political problems for the British Government in dealing with an always latent
ants:-Americanism on the left(and, in foreign trade matters,, on the right as
well), but it would also be interpreted as an indication of US lack of con-
fidence in the British will and effectiveness in carrying out COMM policies.
The British are convinced that their record in this respect is good, both in
fulfilling agreed international trade policies and in containing those dom-
'estic elements which favor increased trade at-almost any price. The Im
embargo on trade with Comnnist China, for example, contains no sanctions,
yet the UK has thus farlabide by the policy despite often intense pressure
to relax or abandon it. Responsible British opinion in government and the
press does not believe that the controls agreed upon in the UN and in COCOM
are the result of US dzetation. They would almost certainly hold that view,
if the US sought to apply sanctions which they regarded as inappropriate and
demeaning to their national self-respect. Rather than accept such conditions
(whatever they might be) they would be strongly inclined to refuse aid. If
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that .the tier ,e,$.--b,he.,whale eel"borate structure of voluntary
cooperation built up in CO OM would be in danger of collapse..
II. FRANCE
Poltticali?consi'derations strongly influence French attitudes toward
ecunumie, defensee -including control of East-West trade. MNst ak' enchmen view
,hie'-1atrgthening -of trade bonds as a means of lessening international
.tio and-of-promoting a general detente between the Soviet orbit and the
Free Wo?ldfl Mox?eover9 the expanded trade relations can benefit
"-~' 3tr ;,potially is far more widespread than in the US For example,
r Fx?enc nen feel that Soviet absorption of its satellites can be delayed
" 'N s`k l1fulmanipulation of commercial ties. This view was clearly
"state byT. the Frenchdurin.g their attempt at "co-existence" with the govern
-
-7ffe Yt -.crf Northern Vietnam; French retention of its economic interests was
-Important not only for financial reasons but also to prevent the extension
,of Chinese- Communist influence over the Ho Chi Minh government.
The?nfluence of purely economic considerations on French attitudes
mss' .ch less important today than at any time in the past few yeare. As
l g.ass Frencheeconomic position remained precarious., the hope of expanded
'trade with Eastern Europe and China served to keep France and the US apart
on this issue. Furthermore, the heavy scale of US financial assistance made
it-Appear that French governments were being forced to adopt a position
against the national interest. With the_ general improvement in the French
ecorromio situation -and particularly in the foreign exchange situation,
French trade with the USSR and its satellites has become a much less opting
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oenmeritt pr~ic ou-t Thai; is ?e ~sroznrt:s Go less tban.
t ~ x~f the total9--mid-that, the -difficulties: of de?a]4ng with Soviet
tT?ste3lite Mate trading enterprises make it an even less attractive
prospect. Moreover, the Soviet Union itself is held primarily responsible
far. e.current in trade following its unilateral restriction of ship=
ments after French ratification of the Paris accords.
]3ifferences bgtV en&ht. U
an d France on the subject of East-West
trade now arg Arno-, and the French who with the US and the UK founded
COCOM, have come more and more to share in leadership of the Consultative
Group. In the first years of controls, the French insisted on secrecy of
COC f commitments and took the view that the Battle Act was a unilaterally
imposed US statute not legally binding on France. At present, most import-
ant measures are discussed trilaterally (France, US, and UK), France
chairs the CG and relations are smoother than at any time in the past.
Propaganda against control measures in the press has diminished markedly
in e?tent and effectiveness.
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III. GERMANY
The question of controls on trade with Ccxnmunist dominated countries
has recently received relatively little attention in West Germany, either
among official or business circles. This stems directly from the eneral
la~., k o jntere t, -.4-Em t -7 at trade. The Germans see little economic
necessity for a greatly expanded volume of trade with the East since there
Hs, ?
are abundant western markets for,germanexports.
The business community feels that the US has overemphasized the need
for trade restrictions and exaggerated the strategic benefits which might
accrue to the East from expanded economic intercourse. A number of business
spokesmen have hailed recent indications of a partial relaxation of restraints
on trade with the East and have pointed out that West Germany must keep
abreast of other western states, particularly the UK, in regard to corms
areal ,t ee with ,the Connunist bloc. Pressure for relaxed controls has
come from certa,n,,vocal industries such as shipbuilding (for Eastern Europe)
and chemicals (for export to Red China). However, neither the Bonn
authorities nor any important segment of public opinion has expressed any
serious opposition to the basic concepts of embargoes, export quotas and
sanctions for violation of such strategic controls.
An exception to this situation that has caused marked difficulty
between the Federal Republic and CCCC +I has been the question of interzonal
trade -? i.e., between East and West Germany. West German authorities
recognize that CCCC4 restrictions apply technically to exchange with the
Soviet Zone as well as with other Communist-dominated areas. Nevertheless,
h the government and public opinion feel that in practice special
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cQeptions must be made for interzonal trade. They assert that West Germans
have a special tfty_Lo.maintain close economic ties with the East German area
;and to assist its population by the export of goods to raise the standard of
living*
Latest information indicates that such difficulties have been at
least partially resolved and that on the whole the Federal Republic is at
present carrying out its COCCM and CHINO'! obligations. There has been a
noticeable diminution of complaints over West Germany's being subjected to
more stringent trade controls with the East than other western states. The
Bonn authorities used to be resentful because of the traditional position of
leadership of the US, UK, and France within COCCM.
The US in the past year has generally endeavored to keep the Federal
Republic informed on tripartite discussions., and., during this time,, the Bonn
authorities have recognized the desirability of the US solving its disagree-
ments with the.UK and France on a bilateral or trilateral basis rather than
airing them publically in COCCM. German also appears convinced of the need
to strengthen ties with this organizati and are.. ,eager to develop it into a
general clearinghouse for exchange of information and coordination of policies
in regard to East-West trade.
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IV. ITALY
IMMMOMMOM"
While Italy has _generally followed the US lead in_ Q.Qc, it has
occasionally played a positive role. On many.occasions it has been willing
to accept broader and stricter controls than either the US or the UK were
advocating,
Several reasons have been advanced for Italy' a fainn.gMaass.tione
First, Itay, not been a major exporter of many strategic or potentially
strategic items, Second, somtJ ians ve.profited through illegal trade
in strategic goods, Were this trade to be kegitimatized, higher Italian
costs of production would make it difficult for the country to compete
successfully in Eastern Europe, The positive and forceful role played by
L,,, ,,, who until recently was Chairman of COCCNI, must be mentioned.
Finally,, the Italians continue to receive large amounts of US economic and
military aid and may, therefore, follow the US lead somewhat more closely
than they would if this were not the case.
A large body of Italians in private and public life do not consider
export controls to be an important weapon in the cold war. They no longer
regard war as a possibility for the foreseeable future and they consider the
contribution of those items which Italy might export to the Soviet bloc to
be of relatively minor importance to the Bloc's potential for war. The
Italians are concerned about their serious unemployment and have occasionally
asked for exceptions from the Battle Act provisions on those grounds,
The ?,,e ,;non-Communist press has in general an unfavorable view
toward East-West trade controls, particularly since Italy's main newspapers
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are owned by some of the countryas largest industrial concerns., which are
interested in exporting their goods to the Soviet and China bloc. In
general., developments concerning East-West trade control,, such as those
summarized in annual Battle Act reports, receive little publicity,
V.
Sweden stands in a special relationship to COCCH. Although it
regards membership in this body as incompatible with'its policy of freedom
from great power military alliances, it reVertheJggs cooperateP__.w,th 3.t
secretively in denying to the Communist-dominated states those item
s,in
their trade included on the international prohibited lists. This cooperation
in COCOM strategic controls is effected principally through informal discus-
sions carried on between Sweden on the one hand and the US, UK, and France as
the major COCOM members on the other. In the past the US has taken the
initiative in securing Swedish cooperation on internationally embargoed items
Sureden?s views on the issue of East-West trade controls have dif-
fered to some degree from those of the COCOM members. Since the Battle Act
was pa.ssedf, Sweden has accepted no direct aid from the US?and., therefore., was
not exposed to the threat of sanctions included in that law. Government
leaders as a result were not confronted with the political problem of
appearing to bow to the public threat of foreign duress. This charge has
been made in the Swedish Carnmunist press,, nevertheless,, but has not caused
serious embarrassment to the government which is not bound by public agree-
ments to maintain trade controls.
Aside from these special circumstances., the Swedish Government and
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people have tended to share in large measure the attitudes of the continental
COCOM members toward the US on the issue of strategic trade controls. These
attitudes may be summarized as followsa
1) den accepts in principle the importance and necessity of not
building up the military strength of a potential enemy. Where it tends to
ffer with the US is on the? definition of strategic, preferring a restrict-
ive interpretation. It is opposed to what may be called economic warfare as
carrying with it the risk of military conflict. It refused., for example, to
support economic sanctions by the UN against Communist China, and even
abstained on the resolution to embargo strategic items alone. Sweden also
tends, to regard the free flow of the maximum amount of international trade
as not only essential to its own economic prosperity., but also as constituting
aaftor for peace by holding open channels of communication and by retaining
the tie. of economic inter-dependency. These views are strongly influenced by
Sweden's exposed position as a small country vis-a-vis the Soviet Union in the
Baltic, and by the experience of having had to live with more powerful
neighbors. Like the other continental countries, Sweden also has tended at
different times to regard the US as inexperienced and impetuous in dealing
with the Communist-dominated states., and as overstressing the Communist
military threat.
2) Swedish business circles in particular have tended to regard inter-
national economic controls on strategic goods, and the Swedish government?s
cooperation in applying these, asJbe r ssult primarily of US initiative and
pressure. This attitude stems in large part from the leading role taken by
the US in Stockholm in the past in winning Swedish government support for
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COC?+I measures. During the past year a multilateral approach has been
utilized in which the UK and France have joined with the US in taking up
with the Swedish Government trade control problems? Disappointments in
trading with the USSR and lessened dependence on Polish coal have also'served
to soften Swedish criticisms of the US.
Sweden has been critical of the sanctions contained in the Battle Act
even though its provisions have not been applicable to Sweden. Swedish sym
pathies were clearly on the side of Denmark, for example, at the time of US
objections to the delivery of Danish built tankers to the Soviet Union in
1952 and 1953.
Denmark accepts in principle the concept of restricting the sale of
strategic goods to the Communis t-dominated world., but wishes to have the term
ver ,,narrowly defined. Eton mic controls as such are not regarded as having
as signi.3.c,s,nt effect on the war potential of the Soviet bloc. Beyond this,
Denmark looks upon EastWest trade as something which should be eagerly pursued
as economically and politically desirable. Nevertheless, Denmark has refused
to sign a trade agreement with the USSR because the latter insists on the
inclusion of tankers in the list of goods to be traded.
Denmark0s attitude is strongly influenced by regard for the count Is
specialized economy which_is dependent upon a relatively high level of foreign
tra1440. To achieve optimum stability and volume in their trade, the Danes
want extensive international markets. They do not see very favorable pros-
pects for increased and stable trade with the US which they consider a highly
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restrictive and unpredictable trading partner. Moreover, for the past 18
months a serious deterioration in the nation's reserves of EPU currencies
has enhanced the already strong desire to seek more trade with the Eft. A
chz?on. c,yment problem has worked to the same end. The Danes also feel
that the CCCCM limitations on East-West trade have not only lost them some
traditional business without providing alternatives, a Communist theme to
which the government is sensitive, but have put Denmark with its specialized
exports in an especially unfavorable bargaining position vis-a-vis the
Communist bloc which has shown a particular interest in shy The Danes
want as much flexibility as possible in their current efforts to renew trade
talks with the Soviet Union which were broken off in the summer of 1951 over
Danish refusal to deliver additional tankers. As a result., on shipbuilding
the Danes have strongly insisted on concessions to their views on quantita-
tive controls and speed limitations on several classes of commercial shipping.
There is also a. ere& conviction in Denmark that trade with the
soviet orbit will have a salutary effect on the relaxation of world tensions.
Tn ,addition to avoiding the feared specter of economic warfare,, it is also
looked upon as a device for maintaining the economic dependence of the Com-
munist bloc st.tes on the West. Co-existence is looked upon by government
and people alike. as a vital necessity. This view is a product of Denmerk? s
military weakness in the. face of a pronounced strategic vulnerability. and a
legacy of pacifism, anti-militarism and neutralism that still influences
important segments of the population.
Denmark has tended to regard strategic controls as primarily a product
of unilateral efforts by the United States, a view strongly influenced by
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Danish experience, It was the US alone, for example, that attempted publicly
under the terms of the Battle Act to dissuade Denmark from making delivery of
two 13,000 ton tankers to the Soviet Union. This effort was indignantly
denounced as unwarranted interference in Danish affairs on the ground that
Denmark was morally and legally bound by its contract with the USSR and that
COCOM regulations took specific cognizance of exceptions for such prior
coimnitments.
VII0 GREECE AND TURKEY
On the whole, controls on trade with the Communist countries are
accepted uncr3,,tcally in Greece and Turkey. Such controls do not call for
a significant sacrifice on the part of either country. Neither has any
important quantity of strategic commodities to offer the Soviet bloc or
aiiy possibility of conducting an extensive trade with the Communist Far East,
Moreover, both countries have closely associated themselves with the US in
the cold war and are inclined to regard adherence to the US concept of economic
defense as an inevitable element in that association. Greece and Turkey look
to the US as the prime source of the assistance they require in building
military strength and in economic development objectives to which they attach
the first importance and which they believe are far more likely to be served
by a close relationship to the US than by unrestricted trade with the
Communist countries,
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VIII JAPAN
la Japanese Attitudes toward Economic Defense
In Japan there has been r em velylittle understanding of or
sympathy for the economic defense program on the part of the general
public and little positive support for the maintenance of export controls
within businee circles and certain agencies of the government itself.
At least three broad factors appear to shape Japanese attitudes in this
regard: uncertainty as to the present necessity for or effectiveness
of export controls, the high priority given to the expansion of trade in
order to achieve economic self-support, and the national drive to achieve
increasing independence in the realm of foreign policy.
(a) ncertaint as to the necessity for or effectiveness of e ort
a?-- There is present in Japan little sense of imminent war or
fear of direct Communist military threat, a fact in part attested by the
slow pace of Japanese rearmament efforts. The attitude of successive
Japanese governments increasingly has reflected the ready response of
the public to signs of a relaxation of international, tensions, and it is
the announced policy of the Hatoyama administration to encourage such
a tendency by promoting closer relations between Japan and the bloc,
Despite an increasing awareness of the political objectives underlying
Communist trade offers, most Japanese apparently are confident that their
national security will not be endangered by an acceptance thereof.
In addition, the,vi.ew is not uncommon in government and business
circle ,that export controls have not in fact weakened._.,?n n st China's
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military atentialabut thex',1?a-ye forcPqd_Peiping to depend upon the
USSR no o.y for its war materiel but for its industrial development,
Tnevitabl G,ollary of this view is that freer trade between the
mainland and the non-communist world may in fact. weaken the Sino-Soviet
axis by providing an alternative to that dependence.
(b) The xressures to expand trade - Few,, if any, national policies
are given a higher priority in Japan than the expansion of international
trade in order to achieve economic self-support, Despite the admitted
importance of expanding Japan's markets in Southeast Asia and other areas
of the free world, history and geographical proximity have combined to
sustain'the notion. that mainland China is a natural market of prime
importance.
The widespread acceptance of this view has lent credence to
left,rwing criticism that export controls are largely responsible for
Japan's economic ills - a view assiduously cultivated by domestic and
foreign communist propaganda. Among the most vigorous exponents of
this view have been small businessmen and the Japanese trade unions.,
whose members are confronted with the growing threat of unemployment.
Moreover,, little effort has been made by the press or the government to
counter the false impression that export controls are the principal
cause for the small volume of trade with Communist China, This impression
has persisted despite the fact that a substantial reduction in those
controls during 1954 apparently had little effect on trade levels,
Many Japanese trade experts and representatives of major industrial
concerns acknowledge the unlikeli food that trade with . k~e uzaa~ and could
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again reach prewar levels. Even if controls were completely eliminated.,
procedural and financial difficulties, the relat3,vely high price of many
Japanese commodities, and the inability or unwillingness of Communist
china truly the exports desired by Japan would continue to limit an
expansion of trade. Nonetheless it is argued that Japan cannot afford
permanently the sacrifice of such a_ .natural market, however limited. The
ancillary point frequently is made that Japan's present difficulty in
maintaining trade controls is increased by the failure of the free world to
assist Japan in finding alternative markets and sources of raw materials,
(c) The impact of nationalistic sentiment m- As in other aspects of
its foreign policy, Japanese attitudes"toward participation in a program
of economic defense increasingly have been influenced by the desire to
achieve a position of equality with other nations and greater independence
of action in the conduct of its foreign policy. It is significant in this
respect that Japan was initially committed to the economic defense program
during the period of Occupation. This circumstance may account for the
fact that Japanese criticism of continued participation in that program
appears to stem, at least in part, from a sense that Japan has not been
free to exercise an independent power of decision in an area vitally
affecting its national interests.
The operation of such nationalistic sentiments was clearly evident in
Japanese efforts to obtain cancellation of the bilateral agreement concluded.
with the US in September 1952 by which Japan maintained a higher level of
controls on its China. trade than any other COCOM country except the US a:rld.
Canada, Prior to its cancellation in April 1954, Japan argued that the obli?
gationgpAr6 d I rReie ante ~4D.9 0iStf ec~ A- r O OQ ~ ,0@1 a
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derogation of Japanese sovereignty. Similar sentiments also have
motivated Japanese efforts to obtain a reduction of CHINCOM controls to
COCOM levels, In this case, Japan has insisted that the differential in
controls enables West European countries to engage in indirect trade with
Communist China through the East European satellites, This, it is pointed
out, not only discriminates against Japan but defeats the purposes of the
economic defense program. Even more significant, however, is the
ubstantial Japanese concern that West European countries will have
established themselves strongly enough to exclude Japanese competition
when and if controls on mainland trade are removed.
The adverse impact of nationalistic sentiments upon Japanese
attitudes toward the economic defense program is heightened by the
prominent role played therein by the United States. In large measure,
Japanese attitudes in this respect mirror the resentments arising from the
c6nflict between Japan's necessary economic dependence upon the US and its
drive for greater independence of action in the realm of foreign policy.
Experience with the bilateral agreement suggests that Japan's
co-operation can be more readily obtained if an economic defense program
is undertaken as a. multilateral program in which Japan regards itself as
occupying a position equal with all other members, To date, however,
COCOM does not appear to have satisfied completely this need, Although
the government has demonstrated an increasingly independent attitude towards
the US in its activities within COCOM, the Japanese public tends to regard
US policy as the major determinant of the decisions of that organization
and of Japan's role in that organization,
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2. Japan's Observance of Trade Controls
The Japanese government has for the most part faithfully observed
,tg_i??terrjational commitments in matters of economic defense and has
effectively administered its export controls on trade with the Communist
bloc, To date, the threat of sanctions has not been necessary to obtain
such cooperation and the government itself has taken effective action
against individual firms suspected of violations,
In the final. analysis, however, the hesitation to flout US opinion
and the fear pf the loss of vital support and protection probably hav
been the chief factors in insuring Japan's effective participation in the
economic defense program, Only less important in this regard is the
sensitivity of both government and business to the possibility of
counteraction by Nationalist China, one of Japan's major trading partners
in Asia.
It is not likely, therefore, that Japan will unilaterally abrogate
its obligations to the economic defense program, Domestic political
pressures, however, will continue to require the government to facilitate
the extension of trade with mainland China within the limits of the present
export controls...,wh1e at the same time seeking a reduction of those
controls at least to COCOM levels, Inability of the government to make
some progress in this direction seems certain to arouse resentment and
weaken its ability to continue effective participation in the economic
defense program,
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IX. SOUTHEAST ASIA
Inene.~ ..tries in Southeast Asia have adhered to the STN
embargo on the export of strategic commodities t1_kT unist China, the
measure of Western economic defense principally at issue in the area, Only
minorshipments of rubber have been made and most well-informed officials
in Southeast Asia recognize that.potential trade with Communist countries
~.s x~robably limited, Never there is considerable pressure for
nde,,trade9 notably with Communist China, in the expectation that such
trade would ameliorate serious economic problems and satisfy basic political
objectives.
Because of their policies of political neutrality, Burma and Indonesia
are particularly anxious to free exports of restriction and are unlikely to
find any control arrangements satisfactory so long as, in-principle,
participants in controls are committed to sanctions against the Communist
Bloc, More than other countries in the area, Burma and Indonesia can
also be expected to react adversely to the threat of punitive action for
noncompliance with export controls, These countries most recently
expressed their disapproval of the control system at the Bandung Conference
in April 1955 when they seriously questioned the UN embargo,
The considerable and growing gap between US and Burmese attitudes
toward trade controls stems from Burma's o is of neutrality and
from its current desire to expand trade with any country able to assist in
a solution of Burma's surplus rice problems As a matter of policy, therefore,
Burma is prepared to conclude trade or economic assistance agreements with
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any nation., providing no restrictive political requirements are included,
In the Burmese view, US economic policies are insufficiently oriented
towards relaxation of tension in the Far East at a time when wars in the
area have been terminated. Friendly relations with Communist China are
believed to be especially important, given Burma's exposed strategic
position. In these circumstances, the government has negotiated a general
trade agreement with Communist China; however, no embargoed items have as
yet been shipped under this agreement and there are no indications that
comriiitments for such shipments have been made.
The Government of Indonesia favors an expansion of trade with the
Sino-Soviet Bloc, particularly with Communist China, This policy is
chiefly intended to demonstrate Indonesia's "independent's foreign policy,,
but there is also some belief that Communist China would be a valuable
market for Indonesian rubber and thus provide some relief for Indonesia's
difficult economic position. There is, therefore, persistent pressure
within the country for a relaxation or termination of controls, which is
particularly exploited by the important Indonesian Communist Party and
its numerous front organizations. In practice, however,, Indonesia has
deliberately avoided a sharp break with the export controls system, and
trade agreements executed with most Communist areas omit firm Indonesian
commitments for delivery of strategic commoditiesa And the immediate
importance of the export control issue to Indonesia has been somewhat
reduced by the recent rise in world rubber and tin, prices.
Other a manix1es in the area are in-basic accord, with U$ ,egpA9mic
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defer, e...._pt?_ ies, They closely restrict trade with the Bloc, which, in
any event, would probably be small, The anti-Communist orientation of
the ~~ penes, its foreign policy alignment with the US and the close
economic ties of the two countries are the primary basis for Philippine
adherence to East-West trade controls. Ts policies stem from a
basic political decision to support the US and the free world in return
for assistance in developing a capacity to resist Communist expansion,
Since the US supports strong trade controls and these restrictions impose
little hardship especially when compared with the foreign aid received,
the Thai virtually embargo all trade with the Communists, including
non-strategic items. Trade restrictions have not been a major issue in
South Vietnam, Cambodia or _Qp, ,,mere they are accepted as a condition of
US aid that entails only minor economic losses.
Although policies on trade controls are set for L4alUa in London
there has been ageneral willingness in 1Kalaya to accede to these controls,,
However, some local business interests, particularly among the Chinese,
have exerted pressure on UK officials for a relaxation of controls with
a view to the possible expansion of the rubber trade and to enhancement of
Singapore's position in entrepot trade,
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X, SOUTH ASIA
nd CVlon lack sympathy with, the US concept of economic defense.
PZ,;L-,j.JgD is at-best lukewarm. That concept appears to many Indians, and
in some degree to Ceylonese, to be an extension of the US emphasis on
military defense m- an emphasis which they 'believe increases tensions in
the cold war and makes hostilities more likely. Moreover, they have some
confidence that increased East-West trade in itself contributes to the
reduction of tensions. They also believe that restrictions on trade are
self-defeating in that they penalize peoples - in non-Communist as well
as Communist countries - striving to raise their living standards,
"Economic defense" thus delays increased prosperity that hinders the
spread of Communism,
South Asians resent the threat of withholding US aid to countries that
do not conform to the provisions of the Battle Act, Positive offers to
induce compliance with the Act would probably encounter no less resentment
in India; in Ceylon, such offers, provided they involved substantial aid,
might be acceptable, The South Asian countries were unwilling firmly and
publicly to commit themselves to support the UN Additional Measures
Resolution of 1951. That unwillingness is as strong in India in 1955 as
it was four years ago, based on reluctance to take any position that might
compromise its independent foreign policy, Unwillingness has declined
somewhat in Ceylon. In Pakistan it has been, largely submerged in the current
orientation of the countries foreign policy toward the US0
In fact, however, only Ceylon presents a serious obstacle to the
..
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implementation_ of US economic defense policies in the area. I&dja with few
exceptions does not export its strategic commodities and in any case,
its trade with Communist countries is very small. Pakig ttan's exportable
commodities include no items on the US list of strategic goods; if that
were not the case, the country's understandings with the US would
dictate caution in circumventing US controls, Ceylon whose present
anti-Communist government might be favorably disposed to the US control
system, disregards it in practice on the basis of economic necessity,
Though In ,have paid more attention than any other South Asians
to the issues involved in US economic defense policies., they also recognize
that Communist, propaganda overestimates the value of Communist trade with
non-Communist countries. Accordingly, though increased economic intercourse
with the USSR is approved in part for its psychological value in under-
lining the country's independent foreign policy, there is a wait-and-see
attitude regarding the practical benefits to India. Pressure from
Communists in Parliament and elsewhere may force the government publicly
to seem more unquestioningly receptive to Soviet trade offers than it
actually is. In some business quarters, increased trade with Communist
countries may be viewed as a healthy development tending to force complacent,
established shippers to India to become more aggressive in their salesmanship
and to offer more competitive prices,
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