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December 9, 2016
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June 12, 1955
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4 Approved For Release 200 08/23 : CIA-RDP63-00084AO00100080004-4 Office Memorandrn _ KITED STATES GOVERNMENT 25X1A9a 12 June 1955 suBjacT: Comments on CEP Staff Study #7, "Uniformity of Participation in Free 'horld Controls" (Draft of 6 June 55) 1. My comments are a f ollows. Over-all I think we can go along with this paper as being generally satisfactory and correct in .:its conclusion. i 4 2. In saying this I am conscious that the paper could be improved by a deeper analysis in spots, and possibly by a somewhat different emphasis in choice of words here and there. however, I think it gets tot he right answer and its shortcomings do not appear serious then it is remembered that its purpose is to provide an "on balance" conclusion for a broader study. 3. I think that in addition to expressing general CIA concurrence in the paper, I would suggest a change in the paragraph entitled "G. Conclusions", p. 10. The paper now concludes that special latitude can eea o~ w' -under special circumstances because it has existed in certain cituations without critical injury or danger ... I would delete the words r'or danger". I would add a sentence, following, expressing the warning that the frequent reoccurrence of special exceptions ultimately tends to create de facto precedents and inconsistencies which tend to db-sett the clear lines of the control scheme and to en- gender a spirit of asking 'or concessions just because it doesnbt hurt to ask. Consequently special latitude must be recognized as containing; the potentiality of weakening controls. (You may believe that this thought is adequately expressed in the top paragraph page 1l.) 4. In addition to the suggestions in paragraph 3, I think we should recommend a more meaningful analysis of the comments on west Germany (bottom para. p. 11, top para. p. 12) in view of the Soviet invitation to A(lenauer. The second sentence("In swat the U. I vi:--w ... ") doesn't seem to have internal consistency: I an not certain at all that the first thou;_nt "overrides" the second. At any rate State should be asked for a better evaluation of this situation and statement of its conclusion. The last sentence ("Therefore we believe the U.' .. , ") is only a truism as long as the drafter does not provide an indication as to where he draws the line re our possibly "jeopardizing;" good relationships. 25X1A9a State Dept. declassification & release instructions on file Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100080004-4 / l ,d/g .Approved For Release 2000/08/23 : CIA-RDP63-00084A00010008000!43e O 7) .27rj SF~.R CFEP DRAFTING GROUP ECONGIIEC DEFENSE POLICY REVIEW Staff Studr No. 7 Revised Pages of June 23, 1955 UniformitI of Participation in Free World Controls The following revised pages to Staff Study No. 7. "Uniformity of Participation in Free World Controls", are attached. These pages Draft of June 6, 19550 replace those presently in Staff Study No, 7, Pages 2. 4, 6, 7, 89 109 119 129 13, and 14 In addition, please make the following changes on the existing copies of Staff Study No. 7s Page 19 Paragraph B. L, Second Line- insert "and" between "procedures, criter?i.a" a Page 3, Line 1., insert "future" between words "the Page 5, Line 7-, substitute words "there is believe" for words "it appears probab1 f1-,- - eason to Irving I. Kramer Executive Secretary D istribution? CFEP Drafting Group Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100080004-4 ? Approved For Release 2000/08/23 : ?DP63-00084A000100080004-4 2. a. The notable examples of PCas exercising special latitude have been West Germany and Portugal. (1) West Germany. (a) West Germany has exercised special latitude in terns of exports to Soviet-occupied East Germany in these respectsg (i) Items under quantitative control have been exported to East Germany without reference to global quotas or to control procedures established by COCOM. (ii) West Germany has not supplied statistics to COCOM concerning the delivery of strategic commodities in interzonal trade and does not notify nor does it consult COCOM with respect to interzonal trade agreements. (b) The West Germans have defended this special latitude on the political grounds that East Germany should be regarded as part of Ger- many. It follows that the West Germans feel that they must consider interzonal trade not international but internal trade, and look at the East German economy in terms of eventual reintegration with their own. However, principally under U.S. prodding, West Germany is reexamining its COCOM position on interzonal trade, and has assured the U.S. that she will apply the International Lists to East Ger- many and intends to live up to the spirit of COCOM agreements. (2) Portugal. The Portuguese government permits exports from and/or through Macao of China-embargoed goods of types and in quantities inconsistent with CH?NCOM policies and procedures regarding exceptions for Communist China. The Portuguese argue that discontinuance of current practice would cause a real military threat to Macao by the Chinese Communists or refusal by the Chinese Com- munists to ship to Macao the goods on which Macao's existence dependse b. Consideration might well also be given., in this fundamental review of our economic defense program, to the possibility (perhaps real, perhaps Approved For Release 2000/08/23 : 2DP63-00084A000100080004-4 .Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100080004-4 SECRET to note the ways in which the control arrangements and systems of non-aid- recipient non PC's differ from those of other countries. In terms of this discussion, the notable non-aid-recipient non-PC's have been Sweden, Switzerland, Austria, and Finland. (Note separate treatment of Ceylon, p. 6.) a. Sweden and Switzerland, as major "neutrals" and non-aid- recipients, are careful to avoid identification with any activity directed against the Soviet bloc. Nevertheless, from the inception of COCOM until the present time, both countries have cooperated, on a most informal and confi- dential basis, by effecting restrictions safeguarding against frustration of C000M controls. Early in 19559 however, Switzerland informed the U.S. that she would hereafter restrict her exports only to the level of a base period, i.e., to a "normal" pattern, so as to refrain from taking unfairly traditional business of the PC's. Sweden's cooperation remains unchanged, the only problem having been exceptions for COCOM-embargoed bearings, which have not in fact involved greater latitude than have bearings exceptions for Italy, a COCOM member. With respect to Switzerland, it is not yet clear that her "return to normalcy" will in fact result in a substantially greater volume of strategic exports than there has been. b. The recent treaty restoring Austria to the sovereign status she had prior to World War II places Austria in a formal position of neutrality akin to that of Switzerland and Sweden insofar as relations with both the West and the Soviet world are concerned. One of the articles in the treaty provides specifically that Austria will not show preferential consideration to any country or countries in the conduct of her trade relations. Moreover, under Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100080004-4 ? Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100080004-4 SECRET serious concern in terms of frustration of COCOM controls, or of contribution to the Soviet bloc war potential. With respect to ships and shipping, however, the U. S. has considered exports significant enough to warrant vigorous approaches to the Finns. d. Thus, we see that in the cases of Sweden and Switzerland, the basic defense of special latitude is their neutral position and the fact that their people expect them to permit exports in a way consistent with the neutral positions of their governments. Economic pressures, undeniably important as they are, are not so serious that they could not be surmounted were it not for the political atmospheres and courses of these countries. The Austrian and Finnish positions with respect to Western trade controls are necessary conse- quences of their basic relationship with the USSR. 3. a. There is one country, Ceylon, to which U.S. aid has not been extended because of inadequate cooperation under the Battle Act. Although avowedly anti-Communist, as strongly reflected at the recent Bandung Conference, in 1952 Ceylon signed a five-year contract to ship 50,000 tons of rubber to China annually in return for 270,000 tons of rice annually. Because the major rubber=producing countries embargo rubber to China under the U. N. Resolution, Ceylon has been considered ineligible for aid, even though in all other regards she has observed strategic trade control principles. Ceylon is not a member of the U. N.J. having been blackballed by the Soviet Union, but this has not, in the eyes of the U.S., modified the requirements of the Battle Act in terms of the problem of extending aid to Ceylon. Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100080004-4 ? Approved For Release 2000/08/23: CIA-RDP63-00084AO00100080004-4 SECRET D. Injurious effects of special latitude. The conditions under which special latitude has arisen and the arguments offered in defense or justification of special latitude have been described above. The injurious effects of special latitude may be summarized as follows- First, and most obvious, one injurious effect of special latitude such as that described or, in the case of Japan, hypothesized, above, is that it mitigates, and has the potential of frustrating, the effects of various controls exercised by other countries. Second, the existence of areas of special latitude makes it more difficult to negotiate the adoption or maintenance of strict controls on the part of other countries. Third, the exercise of special latitude by any country may lead others to desire corresponding latitude with respect to certain commodities or destinations. Fourth, the exercise of special latitude connotes, or may by other countries be construed to connote, a more relaxed assessment of the importance of security trade controls than the system is founded upon and may therefore lead to a general diminution of interest in the control system, or, fifth, could lead to a more relaxed posture vis-a-vis the European bloc-and/or Communist China in other fields as well. E. Criteria for special latitude? Special latitude seems inherently disruptive to a multilateral control system, but some attention might conceivably be given to the possibility of developing agreed criteria, or agreeing on special circumstances, under which individual PCes would be free to exercise special latitude. Difficulties so serious as to make the attempt fruitless would, however, Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100080004-4 Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100080004-4 SECRET -8- be encountered, In the first place, the circumstances or considerations involved do not lend themselves to measurement or clear definition, falling as they do in the realm of long-range political, economic, and security problems. Secondly (and partly for the above reason), multilateral agreement on criteria could probably be reached only under terms so broad as to enable any government to make a case for special latitude should it desire to do so. A practical consideration for the Executive Branch of the U.S. Government is that the Battle Act is predicated on uniform cooperation, and to achieve revision of the Act in such a way as to recognize special latitude would be a formidable, perhaps impossible, task. Under the Battle Act (Title I), the President may-direct the continuation of aid even in the event of "knowingly permitted" shipment by a foreign country of items included on the Battle Act embargo list (unless the country knowingly permits the shipment of arms, ammuni- tion, and implements of war, i.e. Title I, Category A goods) on the grounds that termination of aid would clearly be detrimental to U.S. security interests, but this provision was intended to allow for over-all consideration of U.S. security interests after the fact of shipment; it was by no means intended to SECRET Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100080004-4 - Approved ForRelease 2000/08/23 : CIA-RDP63-00084AO00100080004-4 SECRET or predominantly to certain Free World countries, or, rather than distributing COCOM quotas among the PC's, assigning each global quota to that COCOM country which most warrants it on the basis of its historical production and export pattern. The possible advantages conceived of for such a system would be that it would, by preventing competition among PC's for Soviet bloc business, reduce the flow of strategic goods to. the Soviet bloc. Always, however, this possi- bility has been discarded at an early stage of consideration on the grounds that, aside from the difficulty which would be found in erecting such a system, it would create or accentuate economic rigidities in Free World economies, and would engender excessive reliance on imports from the Soviet bloc, in which situations the Soviet bloc could easily cause serious disturbance to Free World economies. G. Conclusions. The pragmatic answer to our question would seem to be that special latitude can "be allowed" under special circumstances because it has existed in certain situations without critical injury or danger to the objectives and philosophy of the multilateral control system. Such exercise of special latitude, however, has clearly reduced the scope and effectiveness of the system. A further question requires considerations whether special latitude should "be allowed". In answering this question, we interpret "be allowed" to mean "be condoned" in order to avoid having to answer the question what kind of action "not allowing" may involve, which is the subject of another Staff Study (that on inducements and pressures). Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100080004-4 Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100080004-4 SECRET ~11= Our general answer to this question will probably be clearest if we first offer some fief comments on the cases of special latitude cited aboves 1. In the case of West Germany, as we have seen, the basic motivation is political. In the U.S. view the desirability of seeing West Germany in a position of participation in Western world leadership decidedly overrides the political importance of having West Germany seek to maintain a facade of a single Germany in terms of the ultimate objective of unification or in terms of alleviating domestic political pressures in West Germany. Therefore we believe the U.S. should work as actively as possible without jeopardizing good relationships with Germany to eliminate West Germany's exercise of special latitude. 2. With respect to Portugal, although we doubt the possibility of economic or military retaliation by China if Macao shipments cease, no objective answer to the question whether the Communist Chinese would retaliate -- economically or militarily -- can be given, and the Portuguese may very well be right. Secondly, goods moving from or through Macao to Communist China, when considered in rela- tionship to the goods denied Communist China by the Free World controls, do not constitute a serious danger to Free World security. Therefore, although we should continue our attempts to eliminate Portuguese special latitude, our efforts in this direction should not be strenuous ones unless the latitude sought becomes unreasonably great or the psychological danger which Portuguese special latitude represents to maintenance of strict Free World controls to China becomes acute and a high-level decision is made that the maintenance of such controls overrides all other factors. Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100080004-4 Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100080004-4 SECRET 3. With respect to the hypothetical possibility of Japanese special latitude in terms of exports to Communist China, the situation is different from that which involves Macao. Japan is a large and industrialized country which, although desperately hungry for expanded trade everywhere, does not depend exclusively on trade with Communist China for its existence as does the small unindustrialized Macao. More importantly, any Japanese special latitude which involved a large flow of strategic goods to Communist China would not by itself solve Japan's economic problems. It would make a substantial contribution to Chinese war potential and would modify out of all recognition the posture the U.S. wishes to see the tree World maintain with respect to Communist China as an unrepentant aggressor and a continuing threat to the peace and stability of the Far East. While it is not certain that Japan desires or would press for such special latitude, she is highly sensitive toward what she regards as discrimina- tion against her in the implementation of international controls, of which the COCOM CHINCOM differential is one aspect. If Japan is assured that her routine, innocuous exception requests are handled with the same sympathetic consideration as those of other countries, critical pressures for a relaxation of the CHINCOM controls to the COCOM levels may be postponed, at least for a time, 4. With respect to Sweden, Switzerland, Austria, and Finland., it would seem that the U.S. has every reason to hope for, but little right to demand (although, in the case of Switzerland, some right to expect), more effective cooperation than we are now receiving, and that the prospect of achieving more effective cooperation lies more in the field of offering inducements than in pressures or in simple persuasion on the basis of arguments used time and time Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100080004-4 Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100080004-4 SECRET m13- again. Should the U.S. move in the direction of favoring a "neutral bloc", a high-level decision would have to be made as to whether and to what extent strategic exports by neutrals to the Soviet bloc should be considered simply one of the inevitable costs of such a bloc, taking into account also the effect of such exports on maintenance of the existing multilateral control system. 5. It should be our ultimate objective to maintain the Free World embargo of strategic goods to Communist China. This effort extends to Ceylon, as to all sources. However, our immediate course of action toward that goal should be conditioned by these considerations& a. Rubber is recognized by the COCOM countries. as only of "sur- veillance" importance (International List III) in terms of exports to the Soviet bloc in Europe. b. Rubber is on the Title II List of the Battle Act rather than the Title I List, so that, legally, adequate cooperation even in terms of exports to Communist China need not require embargo. Thus, our general answer to the question whether special latitude should be condoned is that special latitude can never be condoned in terms of the U.S. concept of the objectives of the control system, but that there are circumstances in which the U.S. must-accept or even concur in action that is injurious to the control system on the basis of economic or political considerations overriding the actual or potential injury to the control system. We are working, even in the CG structure, under an informal system of cooperation, with nations whose attitudes and problems differ from our own and also from each other's. In order to make the control system as effective as possible, it should constantly be our Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100080004-4 Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100080004-4 SECRET mom objective to eliminate special latitude, but our action toward this objective, or whether we take action toward this objective at any given time, should be decided on an ad hoc basis after full evaluation of such considerations as the nature and intensity of resistance of the country concerned, the which other countries are willing to join us in opposing special latitude, and the economic and political facts, implications, and exigencies of the situation. We can reasonably expect more of PC's and of aid-recipient non-PC's than of non-aid-recipient non-PC's. With respect to the latter, we and all other COCOM nations have a reason to press for cooperative action, but we must, at the same time, recognize their different status. Approved For Release 2000/08/23 : CIA-RDP63-00084AO00100080004-4