REPORT OF THE ECONOMIC COUNTERMEASURES WORKING GROUP

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP64-00014A000100090001-2
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 45
• Document Creation Date: December 9, 2016
• Document Release Date: July 11, 2000
• Sequence Number: 1
• Publication Date: July 11, 1951
• Content Type: REPORT

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Summary
Ile
*DOC Exempt Letter On File*
Introduction:
Terms of Reference
Lessons from the Soviet Blockade of 1948-1949
Criteria in Planning Possible Countermeasures
Countermeasures in the Trade Field
Import Controls
The Consular Invoice Technique
Direct Import Restrictions
Export Controls
Delay Issuance of Licenses for all
International List III Commodities
Reduction of Actual Licensing by Some
Arbitrary Percentage of aBase Period
for Some or All of International List III
Commodities
Extension of Embargo Treatment to Some-or
All Parts-of International List II
Total Embargo of International Lists I,
II and III, and Possibly Non-rated Items
Countermeasures. i.n the Field of Finance
Extension of United States Foreign Assets Control
Regulations
Parallel Financial Controls by Western Europe
Countermeasures
".14~ MM
1L311
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Countermeasures in the Transport. Field
'Bunkering ConntrQlss
Restrictions ion. Repair and, Overhaul :o.f Vessels
Restrictions on Use of International Waterways
Restrictions on Rail Cargo Movements
Controls Over Ship Chartering
Restrictions on Carriage of Strategic Goods
and on Movements-of Western Vessels to Bloc Port
Restrictions on Overflight and Landing Rights
Other..: Measures in the, Fconem c Field
?, ra
Effeet oa "T'Pst of Cessation :of East-West Trade
Dollar Cost of Replacing Western Imports of
Soviet Bloc
.''Internal Western Impact of Cessation of East-
West Trade
Conclusions
Appendix: Estimated Net Additional Dollar Cost?to
Western Eu.7rpe of a Cessation . of East-West
Trade
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REPORT OF THE ECONOIIIIC COUNTERPIIEA.SURES'''ORKING GROUP
VIROD C. ON
The Working Group'was established upon the approval
of.NSC 132/1 of June li,,1952 to deve]..op plans for economic
countermeasures to possible Soviet action against Berlin.
This report represents the results 'of approximately a
month's study of this problem. While Soviet harassment
of Berlin appears to-have" subsided for the present, a
very real possibility exists that such action will be
,intensified later this year when the Cpntractural Agree-
ments, and the- EDC Agreement' come up for ratification in
Western Germany.
Terms of RReference
This report. is not concerned with ''pos iti.ve measures
for the support of Berlin in the event of Soviet blockade
or .other form of intensified action against the city. Plans
to support or strengthen Berlin' such as stockpiling,
airlift or,psychological',act?or1, 'lie beyond the scope of
the present Working.=Group's assignment:
This report deals with'.-countermeasures in the economic
field designed to put pressure on the Soviet, bloc for the
purp.p.se o,f. induci-.ng- the lifting of Soviet restrictions
which. ,. may.. be directed at Berlin.-- It `should be' note&,
however, that while :plans' are b`eing' develo}led""in' response
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to the Berlin situation, they consist by and large of
measures which could be applied in any similar situation
in which the western Allies wish to apply economic pressure
to achieve a specific' objective or to counter certain
specific actions on the part of the Soviets. In a sense,
therefore,' the report represents a survey of the economic
weapons available to the Allies in situations short of war.
It'is assumed that Western countermeasures would be
lifted when our particular objectives in Berlin are
obtained. Such countermeasures should therefore be'of a
...
temporary and reversible character distinct from the
related field of multilateral trade security controls
developed over the last three years through the Paris
Consultative Group and Coordinating Committee, The Working
Group is convinced that a program of countermeasures would
encounter the strongest opposition from Western European
Governments if they suspected that it was being proposed
by the United States partly with anieye to bringing'about
further long-run restrictions on East-West trade.
Lessons from the Soviet BlockceBen 1248-1942
Severe Soviet restrictions over trade, travel, and
communications between Berlin and Weist Germany were in
effect from late June 1948 until May 12, 1949. Eventual
retaliatory measures were limited to a counter-blockade
by
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by western Germany and western Berlin against the Soviet
Zone of Germany.
The blockade against Berlin was precipitated by the
West German currency reform of June. 1948 which itself
resulted in a sharp reduction of Interzonal trade. Prohi-
bition of shipments t o: the Soviet Zone from Western Germany
did not take place until September 1948, after extensive
discussions in Berlin and Moscow on the.currency reform
problem had broken down. This prohibition stopped all
legal commodity movements, but did not apply to mail, news-
papers, gift pa.r. cels, or intern tiona U42tsit traffic.
International transit traffic originating in or destined
for the Soviet Zone was, however, prohibited beginning in
February 1949 from passing through Western Germany.
The economic impact of the "'est German counter.-
blockade upon the Soviet Zone and the effect. of,that impact
upon Soviet policy.are extremely d,iffi.cult .to.as.se.ss. A
Department of State intelligence report at that time
stated that although certain sectors of the, economy, notably
the investment program, were affected more severely than
others, the general stagnation of the Soviet Zone economy
during the blockade period resulted primarily from Soviet
economic exploitation and political failure. It was
generally thought that the success of the Allied airlift
and the adverse reaction in public opinion over much of
the
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the world were larger factors in the' Soviet decision to
lift the blockade than the state of'the East German economy.
On-the other hand, a report of the US Military Attache in
Moscow suggests that it maybe significant that less than
two weeks elapsed between the stoppage of international
trans:~t traffic' across 1''estern Germany and the beginning
of :discussions in. New York which led a few weeks later to
the simultaneous lifting of all restrictions on transport
betteeh=:Eastern and Western Germany.
No counter-measures against the Soviet Zone or other
Soviet-dominated areas were applied outside of Germany.
In fact, imports into the Soviet Zone from'Western countries
other than T'-esterri Germany increased during the blockade.
Imports from Western Germany, including goods illegally
procured directly from that source and goods moving indirect"
from Western Germany through third countries to the Soviet
Zone, remained an important source of supply for scarce
industrial items. The third country pattern of trade with
Western Germany developed by the Soviet bloc since that
time appears to have been perfected to the point where
action by Western Germany alone, even if politically
acceptable to the German Governments would without doubt
be less effective, than it was in 49.
In the light of this situation, and in view also of
the Federal Republic's virtual sovereignty under the
contractual
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contractual' arrangements with the Western occupying powers,
it would seem unlikely that Western Germany would take
action alone in the trade field as it did in 1948 and 1949.
Criteria _In Plana Ling 2X,sible Countemea_ s r s
The Working Group has surveyed a fairly wide range
of measures in the fields of trade, finance, transport
communications and related areas, which might be taken by
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the United States alone, and measures which would require
joint or3 ction by other countries. Although the
interrelations of various measures are indicated, no recom-
mendations are made as to the'timing or sequence of their
application. Such determinations can be made only in the
light of actual but unpredictable future circumstances
and political realities.
Mcas.ur,es- considered were assessed against the follow-
ing criteria.
1. Thep estimated off eQ_t2Lea2h.._meLagurg_2n the
Sov e_t b1.oc both in terms of economic impact and of polit-
ical, psychological or propaganda impact. Care has been
taken in applying this criterion to make no pretentions of
knowledge where the facts are not available for an
educated estimate . This'point-is particularly relevant
to the question of economic impact...
2 T1e_'estimated. economic and Political effect of
each measure on thee countries of 'p stern Europ e. Naturally,
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the Working Group has beenbetter able to estimate these
?effects than those on Soviet bloc countries. This is
particularly true of the economic impact. The political
or psychological impact will in any ';event be conditioned
by,previous actions of the Soviets directed against Berlin.
3. The feasibility or ease ofj application of the
measure from an administrative, statutory, and political
standpoint. The element might well be a crucial one in
.any situation short of overt Soviet tnilftary action
-against Berlin even including a total land blockade.
4. The reversibility of the measure or the ease
with which it might be relaxed or withdrawn.
~. The c centability of the measure by other countries
A .good deal is known about the attitudes of other govern-
ments from our three years of..experience in the Consultative
Group--Coordinating Committee. Each country of 'Postern.
Europe, of course, has its peculiar economic and political
.problems,, and the extent to. which attitudes-stemming from
these problems will be mitigated by ever-riding considera-
tions of''the ?-es tern stake in: Berlin' can only be defini-
tively"ascert.ained by consultation with these governments.
All'the above criteria are obviously related and
interacting. Their order of.,importance is not necessarily
that indicated in the above listing, particularly as they
are applicable to individual countries.
COUNTERIMMIEASURES
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COUNTERMEAASSURPS IN THE TRADE ?FIELD
Further direct restrictions on East-West trade would
be the most effective method of applying economic pressure
against'the Soviet bloc. Many of the measures later dis-
cussed under the topics of finance, transport and commun-
ications are ancillary to direct trade controls. All of
the work and a'greemen'ts completed in the past four years
by way of developing the International Security Lists and
supplemental measures constitute a broad and sound base
for such countermeasures as might be multilaterally agreed
in connection with'a new Berlin crisis.
It is pos'si ble that at any' stage in the application
by 'Western European countries of trade oo ntrols more
restrictive than those now in effect, the Soviet bloc
might take action to bring about a com lete .ahupt.
cessation of East-West trade. For this.reason the Working
Group at the outset estimated the net dollar cost of
replacing the supplies of coal, grain, timber and certain
other products now obtained in bhe Bloc. This estimate
is presented later in this report with a discussion of
the supply 'and marketing problems involved, but without
reference to the foreseeable highly-complex and varying
economic, poli?tieal, and psychological'"difficulties in
individual Western European'countries.
%TION
D R I L
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Trade measures open to the United States are limited
to restrictions on,imports since thi''s country already
maintains virtually a complete embargo on exports to the
Soviet bloc. Such imports as the United States now
receives from the Bloc ar.e of no significance to our
national economy. 'Festern" Europe, on the other hand,
relies on the Soviet bloc for important supplies of fuel,
...food') timber and other essential materials. In fact, the
limited amount of strategic goods which Western European
countries permit to be'exported'eastward r epresents the
:main-bargaining element making it'possible for them to
receive essential imports from the Soviet bloc. In view
:of the foregoing, import controls are discussed as a
possible measure for the United States to apply, whereas
an intensification ofexport controls could only be made
effective by our Western European allies..
IMPORT CONTROLS
1. The Consular Invoice Technique!,
Delays or denials in processing consular invoices
constitute?a measure which, for reasons cited above, would
be appropriate only for the United States to apply. This
device, Fvhifch'now 'being employed against imports from
Czecho.sl'ovakia as' a method of bring pressure for the release
Hof' Mr. Oatis, could be readily~'extended to apply against
the rest of the European`Soviet bloc.''At present, this
measure
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measure would afffectononly those imports subject to
ad, loren:duties.~ However, the requirements for consular
invoices,cotld be'extended perhaps with some administra-
in_.Ea tern European countries' that no consular invoices
:.were to.:be processed, the effect would be a virtual
..;te:rminatio i of im orts from the rest of the European
f ? Pthe,.,-4next ~.xdeaaure. The political and propaganda impact,
judged :on .,the b',;'si's 'of "the present Czechoslovak case,
wo.i1.d :not=. be spe ta:cular,` '"
Irittic~.i~t,'PItri.,~4i nInc
r D.i.rect iipt~rt restrictions are likewise appropriate
Q ly~;,fo the tin ted States. The Treasury Department has
the;:authori'ty under Section 5'(b) of the Trading with the
Enemy Act of 1917 to restrict or embargo imports from the
EuropeanSoviet bloc. This could be done of itself or as
part of a more drastic and sweeping blocking action. It
would.be accomplished by means of a licensing system, and
would
EC ,T SECURITY INFORMATION
tive ?,difficulty, to8'oods subject to specific duties as
well, thus affecting most imports from the entire Bloc.
If that: were done:'arid'instructions given to our missions
Soviet ,bloc,,
Assessed against' the established criteria, this
devi;ce: re'commonds- itself because of its ease of application
a :,reversibilit Its'' economic impact would .not be very
great, but'wouc be'felt as indicated in the discussion
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40 per cent of 1951 fur shipments will 'be eliminated in 1952.
Imports from Czechoslovakia,. which in 1951 amouunted to
$22 million., 1oi&i!.ngon y' ic...'.:1
on s~ek~~~ie'gt~opt9o~i cif trols
:b~r;:~tkier " rfchdly' ecsli itrie`s rthg Wor . 'Wei t '..t1j i ii`'ted States
,r.madei.- orb :effi rt ?'t ` obt+ i i"? the, 'ad pt? on ` i idly foreign
ab~tu ter ~`s ' paz't hii arly' h` 'vatiri : `Aei ea bf ` bon 'ro :s sim# `tar to' our
wartime Foreign Funds Control. (In Europe the problem'wA` ,s'tlie .
~ " h? non-
,. ?;exi ttr ` n .., h+~' nit d Xi iggom` hi'c` a smpa~ &orit ft10: ualready
>.:i'~~ex'stics' ait':.the i?b'i' bei:greirts~adro' a:s~ei~,Y" o'ocupoc:) r''
.i Eo hh` 'i;..meais o#` itiia%`er.l`?; ifieti'ngs ` at~r' `batatalk' nfogt~tatioris,
t,the::l3tecl;' States'i5dsvoed=o~scqusi'nt th~'tii''iineriieiUlics
F.witI the'%ntttuke 0df o r on rb ' , " " n c 1 to'ut'g them t i'`take p a1i i
a ?tir~ny =Ui ited'3tatesi.Ouccess*4'iii`'d;ching'1s''oojeotfve in"?this
ibld``ranged,~from ' 4 3nsY deraYile' ii t the-oase' of?',~om 'countries` to
negligible in the case of others. :' >?' ...';, ~r:' . ?. - ' si=.
;. ,.t. ~.t. ?, .1. ...%:) ,.t 7.:4~J '.i.l.'.. t~f'"/ .)i, 4`.:~;?C 4`, `T , ?.{i .~rS~~ .`,.-~, .r _,
COUNTERMEASURES IN THE TRANSPORT FIELD
}.i '.. Tr? L.. ,~.~l ..:i.. .i `d~.~;. ... .')~'r ,4'1 ~..?}r.i ~..Y ... .. .. '.1. .. +. 1.:... ~. x. i~ _ .n
fIn. t a':tf3eld `'off ? 'tr~frisport ,";oi1~t~ o c'onsi'derably '1atr' er x fl L er
; ~rieasaa ee '~"r ff :2 vte t"beeii eX ne'd, ?' the 'W`orldiiig 'lro 'has. odhotided
that e : tl'3 a e'sarie i erg 'aria ' ura rant' ca'r4fu7 'obns'ideratidrn At., s .ich
: t ~te't a c i r s measur s~'~agai sst ' re'Scvtet i lbc'' Because
.,s:?c~f t h ^ ~ a h r e ' thesediag~i`t c h Z ` i l rat a''i`ted ^Ys; ;a `sate sf`actorr `pro-
geito,'1'~sitsh` ~"o's tl::c?-~th `ar"e' :pus 6etti7 e1 t ''arsrying -severity of
.s lios' 30 '` c3 S'de i` ~frbm tYe genera. pei~spsetiVe-`df 3rioi6asi ng
dif2ciuty~6 '#i'gatiati`e3#~ srid:::igre~eznerit wwth''ather 'a",''however,
;thr+''#na b~ 8'te'`5'03047 f".. ,
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l: I ~j2 ; T1. estriC` ins
This:. measure:. would: be largely implemented by: private, oil and
coal oompanies,and:wound not require formal.governmental action.,
An extremely flexible measure, since only a relatively small number
of :companiescare-involved,?it could, range, in. severity from a delay
in providing bunkers or ships stores to..Soviet bloc-owned or
operated..:vess.els . to om fete, denial of bunkers.. Although, European
governmonta.might be unwilling to request oil or coal companies to
`coopers to in severe measures- of.. this type unless the situation in
Betli.n became very critical,; they-would possibly agree to requests
,:. for.'less 'severe measures - or "spot" denials of a temporary nature,.
F he- estrictio 2_M th, e?R air and Overhaul oT sell
As with the denial of bunkering faoilities,.restrictions on the
general-repairand overhaul (00C0M_restrictions already cover certain
types of repairs , arid, installations) of Soviet bloc-owned. oar operated
vessels:could vary..considerably in severity and, could presumably be
carried out: l.rgely without open governmental, participation. Since
Western shipyards repair an estimated annual total of 150-200,000.GRT
of `Soviet:.bioe:owned.:vesseis, severe restrictions,would have a sub-
stantial effect upon bloc slipping. Suchrestrictions would, however,
have:, a.. hsraafial,?economie -effect in Western shipyards.
Any restrictions agreed upon should include "modernization4'
installations : as well as general repair work.
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The attitudes of European governments to restrictions of this
type will probeby,depend upon the extent to which open responsibility
Qn?theirypart,can,be avoided.. This should not be difficult in the
lessspere:.stages,
Restrictions, Over 'the Use_ of-th Pe.nanie Suez
W? ? -f -tz .. -,cOwne or 4Vor gesgl~ . .
J21 Canals
e,. xatcrnational status of and the internaziona.L colive1JkOJ-Vzi
mentioned above would prevent closure to
re~eting to, each weterray.
,y,Saviet poc vesel It, is believed possible, however, that irritat-
.n..eetript ,o over the use.of. these waterways by bloc vessels. could
ii.' !.! ; . !?., -.,., .:... .. . ., is ... st ..
ibe; ;effected w.thout. great difficulty. Rigid interpretation of regula-
t~ on-, earef4,.-tnppection of ca ;go, ,and "administrative" delays would
be..z~asure .of:sa ,}irritation to Soviet bloovessels, or if carried
far enough. of economic impact as well,
s Th s of egntrol Would. be implemented by the Governmental
:. , , .~e lox ties gqncerned, In the_ . ce.s of the Ps,rama Canal, the consent
Qf ?no. tkex..oun~x'y woulde required, while in the Suez or Kiel
anals,..eoticn Would have to be taken by?the Bxitish or German
,,.over~ents , ;
. .,~ e Norki Group,doe6t. not believe that any action of this nature
sYpu=l~l,;,. be,cosdered in the Dardenelles.
,t.: ? Tai a or R CA tiion 3
es
This .ty~?a Qf peasure is, similar to the one immediately above in
that it would be suiable for certain harassing or slow-down tactics
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at,a :rail;.ccros 9i.ng po nt to the bloc, but would be suitable for
complete denial. It is also weakened by the fact that-sidings
..t facilities.near!1hoet border' crossing points probably.would .not
ermit.any extensive holding of bloc-bound cargoes. Governmental
agreements, not only with countries with border crossing, points to
,the Soviet bloc;...b).t "also`with"countries originating ;shipments to
lac would ? heJ:rtl? ulied
t e l
i
5.}rs~d,,~nrg~a 0.~ime: ~~rebost'nc,~ Vayae Ch resters
t ;;,~5ovi t BJ-0c
.:eaaare would be' considerably more effective tha~}ose
listed p c viously in denyi n shipping and shipping fact l3 ties.. to the
,Soviet,,ibloc. t:., 'itbias been" d'scussed at some length in COCOM, where
i
t; h ,beenr:opposed by iueny countries as a rather r extreme measp.re.
It,? i,s,?be eved:'that suffictef t legislative authority ?for sug .s,
;sUN : already existis? in most countries, and that reluctance stems
s
f r.,om ;eptgal> rpol1cy `diff x'en'ces It is doubtful whether, the European
s ooUntr es will gree tic an ''extension of such controls in the. absence
of :a severe, Beriin criis,; , , ........ :. .
# iN. Den3ia - i st' oiie'sn 'P`ry, Port F_U t es to tnee Phl
Vii oo plete. denial of free port facilities probably would be,
e. e tab anly in the event of a aprRrplete
Vie;: to West ,'- Eiiro ? can countries '
i tfi&d ? embatgdi : k le s-than-complete denial of such facilities; would,
hawever,,r:;be: an'" a t?re iy c .i'f"icuit measure. to administer, and would
require.:e, ;intrrsdiz`ctoi cf 'coritrois in an area which until now ,k
been relatively free of restraint. Such controls, for commercial and
other
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other...reasonsT,': would 6--strongly opposed by many of the local
interests in. airy free port city,
Thee. free ports' are, -however, most important sections in the
Soviet illegal' trafle `cha"nne1. Stiiccsssful controls' over these areas
wou .d>do m c'h t?' eurtail` llegal East-West trade.
7. : ,imitatii .orbiohit on of C ria~*e of "~trat;eaic Goods to the
Bloc hZ-Western Vessels and of thl-NOof T extern Vessels to
Bloc , Pte; `.;<
Such measures are now already in effect for the` Carriage of
goods?.-by, United-,tats vessels in violation of established export
regulations :and for' the. zrioveinent of United States carriers to Commu-
nist: China.,? This' field' ie` therefore?'one 'for action by' the Western
European.-.:countries aloes: ; They have riot` agreed hat measures of this
nature,,..; on:.%their partare ?advisable although such measures would
decidedly: >improi.re the eff?cienc~ of`'present Western export controls.
;The:prohibition-7of ~ca,rriage ' of ? certain strategic goods to the
bloc -by :Western vessels'-has been advocated in COCOA in support of
general trade restrictions. Efforts to obtain;agreement 'on this
point shots d..be:continue as a device for' enforcing existing trade
restric."tions`rsther`than in the context of the Berlin situation.. The
prohibition "of hi6vement of Western vessels to Soviet bloc ports is a
moasure which Western: iope`an; oountries 'would be likely'to agree to
e
only;. iri..: thek e?yent; of. a`: fu7;l trade 'emberg " d . &gainst the"" Soft F- are
In that'.. event' Such', ii 'prohibitioncould'" serve 'aA " an additional means
of ; enforcing the'; trade embargo
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8. Restriction
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li hP aid
$,.. Restriction, _oZ, ,an
endn.-RisinWetor Z=Df
Under the policy established by NSC 15, soviet and satellite
aviation'operations to Western Europe have been progressively cur
t,d during the past few years and are now limited to the Polish
carrier LOT flights to Brussels and Paris(now flown twice weekly)
and the Czechoslovak carrier CSA flights to Copenhagen said Stockholm
(thrice weekly).
LOT has been granted overflight and landing rights
to Copenhagen and Stockholm, but these are not exercised at present.
The Belgian carrier SABENA, the Dutch KLM and SWISSAIR now fly to
Prague; in addition Soviet permission is granted for Scandinaviats SAS,
Israel's EL AL and Dutch KIM flights to Vienna.. No Western carriers
other than the occupying powers fly into Berlin.
Although it would appear likely, it cannot be stated with cer-
tainty that rescission of Soviet bloc carrier rights in Western Europe
would result in retaliatory action stopping the larger number of
Western flights into Prague and Vienna. Withdrawal of the remaining
bloc rights would have little economic effect upon the bloc countries
concerned; the political and psychological effects probably depend
upon the extent to which they are related in the minds of the bloc
authorities to the situation in Berlin.
A possible Soviet reaction to the rescission of landing and
overflight rights might be increased harassment of an Allied airlift
in Berlin. It is believed more likely, however, that other factors
will
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will determine the.Soviet .attitude, towards the airlift.. Aircraft
of the nationality of the Occupying..Powers have the right to fly
over, the Soviet Zone. to. and from Berlin. This right. is in no way
related to satellite. landing and overflight' rights in. Western.
Europe, Zn,any event, relating Western .pressure on satellite
aviation, to Soviet interference with a possible Berlin airlift
is strictly conjectural.
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Other Measures in the Economic Field
Beyond the measures discussed above, the Working Group has
considered briefly the following: (a) prohibiting US nationals
resident abroad from engaging in business with the Soviet bloc;
(b) terminating all postal and communications .utilities between the
United States and the bloc; (a) the. denial of fishing or similar
privileges in Western territorial waters; and (d) further,reatrictions
on the movements of American and Soviet bloc personnel.
The question of preventing US nationals resident abroad from
engaging in business with the bloc is an aspect of the broader-question
of blocking controls, It poses vexing legal problems, and is a
marginal. type of action, the effects of which are immeasurable and
probably insignificanto The Working G roup has therefore discarded
this as a possible counter-measure,.
As to (b) above, the informal view of the Postmaster General
.is that, although an order cutting off mail service to Soviet bloc
countries. might be issued under existing statutory authority, there
is no precedent for such action. The Post Office Department would
regard such a course as undosirablo since it is difficult to see what
benefits'.could be gained by the United States that would outweigh the
disadvantages. It is the consensus of the Working Group that, in view
of the difficulty of administering such an order, and the formidable
administrative apparatus that would bo needed, as wall as the possibility
of easy
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-32-
of easy circumvention through third countries, this measure is not
feasible. Similarly, in the field of telecommunications it is the
considered judgment of the State Department technicians that there
are no opportunities for retaliatory measures that would injure the
Soviet bloc more than the western nations.::
Regarding (c), it is the opinion'bf the Working Group, based
on consultation with the State Department's adviser on Fish and Wild
Life, that.there is nothing that the US alone or in concert with other
Western countries could do by way of bringing pressue on the Soviet
bloc in this field. Soviet bloc countrjes,exercise virtually no fish-
ing or similar rights in the territorial waters of the United States
or other Western countries, except in the Spitzberfen area, where they
are w?Ll protected by treaty to which both the USSR and the US adhere.
(d) above is definitely not a feasible measure for the United
States to take. The main argument against the United States taking
such action is the fact that the Soviet bloc, by the very nature of
its police states, can do this type of thing so much more effectively
than can the Free Nations. Further, there, are definite constitutional
limitations on the United States Government which make the enforcement
of this type measure most difficult if not impossible. Finally, the
existence of United Nations headquarters in New York City offers a wide
loophole through which Soviet bloc countries could avoid the effects
of such action.
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EFFECT ON WEST OF CES`ATION OF EAST4 EST T1UJ)E.DOLLAB COST
OF REPLACING WESTERN IHP(RTS FROM SOVIET BLOC.
At. any stage in the application of economic measures more re-,
strictive than those now in effedt, it is possible that the Soviets
would take corresponding or much more severe measures in retali-
ation. There is$ of course, no point in conjecturing as to which
countermeasures by the West would bring about any particular act of
Soviet retaliation. It is necessary, however, that the West be
prepared for the extreme situation of a complete cessation of Soviet
bloc exports to We stern Europe*
Before undertaking measures which might produce this re-ult.,
Western European countries would undoubtedly want assurances that
the United States was ready to replace or to finance the replace-
ment from other Free World sources of the supply of coal, grain,
timbex and other esreritial products now obtained from the East.
Its estimated thit in the first oar the total dollar cost
of roplaci ig ,these supplies would be approximately $525. As an
offset to this, it is estimatod'that approximately 1190 million
worth of goods now marketed by Western Europe in the Soviet bloc
could be diverted to dollar markets or used to replace dollar imports.
The not additional dollar cost' therefore, would be in the neighbor-
hood .....:,._w._~...y. ,..~ ~......,.__ ._v . ..
of 0335 million in the first yovr. The assumptions and deriva-
tion of this estimate are set forth in the Appendix.
The.aa.bove type of oxerciso cannot begin to take account of
the impact-of a complete cessation of East-West trade on individual
We stern
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Western European countries. While it is true, for instance, that
the combined receipts of Pol-'...sh coal by Norway, Denmark, Sweden,
Austria, Italy and Switzerland total only some 7 or 8 million
tons -- a little better than one percent of total Western European
consumption requirements -- the degree of dependence of each of these
countries individually is very great,
In the case of Nay, imports of bread grains from the Soviet
bloc are of sufficient importance in terms of total supply (one
quarter of Norway's consumption) to constitute a problem, but the
quantity involved, namely 100,000 tons, is not large. On the other
hand in the case of Italy the quantity of bread grains received from
the Soviet bloc has been fairly large (250,000 tons), but is small
in terms of total consumpti.ori (2-3- percent), With respect to coarse
grains, only the United Kingdom is in a vulnerable position in terms
of its dependence on the Soviet bloc (UK in orts have been running
at about 10 percent of consumption requiremonts),but there the cutting
of meat rations, if replacements were not readily forthcoming, might
well have serious political repercussions. Similarly only the UK
is so dependent on Soviet bloc supplies of lumber (imports from the
bloc in 1950 accounted for 13 percent of consumption) as to consti-
tute a serious immediate problem if that source were suddenly closed.
A major problem which must be dealt with imiiodiately is how the
additional net dollar cost of imports from the Soviet bloc would be
financed. It is especially necessary to have at least tentative and
general agreement within the United States government on this subject
prior
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