ECONOMIC DEFENSE POLICY REVIEW

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP64-00014A000100140016-0
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 15
• Document Creation Date: December 12, 2016
• Document Release Date: January 5, 2001
• Sequence Number: 16
• Publication Date: June 7, 1955
• Content Type: REPORT

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ECONOMIC DEFENSE POLICY REVIEW
Staff Study No.
(Draft of June 7, 1955)
Contributed by Defence
NATO, SEATO and the Economic Defense Program
OSD DECLASSIFICATION/RELEASE INSTRUCTIONS ON FILE
I. Principles and Objectives of NATO, Related to the Economic
e ense ogram.
Just over six years ago the North Atlantic Treaty was aigned.l/ This
event signified the beginning of a new and constructive experiment in inter-
national relations* ftTwelve independent sovereign states later to be joined
by others - undertook pledges which called for immediate and continuous
collective action, not only in the military,, butt also in the political,
economic and social fields."2/
NATO had its origin in the conviction., on the part of the nations in-
volved, that the U.S.S.R.,had embarked on an aggressive program the objec-
tive of which was domination of the whole world. The U.S,S.R. had already
drawn the nations of Poland., Czechoslovakia., Hungary, Romania., Bulgaria
and Albania behind the iron curtain. Soviet forces controlled Eastern
Germany and a sector of Austria. The threat to the countries of Western
Europe was obvious. Moreover, there was abundant evidence that Russia was
modernizing and maintaining her military forces at top strength, was
rapidly rebuilding the industrial facilities destroyed by the wars and was
The o g na s gnatories of the Treaty were Belgium, Canada,, Denmark,
France, Iceland,Italy, Luxembourg., The Netherlands., Norway, Portigal,
the U.K. and the U.S. Greece and Turkey acceeded to the alliance on
February 18, 1952 and W. Germany on May 69. 1955.
Lord Ismay,, NATO., the First Five Years, 1949-1954s p.ix.
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consolidating the Satellites into an economic system geared to maximum support
of the Soviet military machine. Most of the free nations of the North Atlantic
area were fully convinced. that collective action was necessary to maintain
the security of the free world and to discourage the Soviets from starting
a new world war.
Even in the U.S,,, with its tremendous economic., scientific and tech-
nological power, there was an increasing awareness that we need alliei'as
much as our allies need us. Expanses of ocean are no longer the shield that
they once were to our continent. More and more we look to other areas of
the free world for many of the raw materials needed to supply our industry.
Our superiority in long-range aircraft and nuclear weapons depends in no
small measure on strategically located and well equipped bases in the allied
countries.
The basic principle of the NATO is that it is a collective defense
effort. The core of its significance lies in Article 5 of the Treaty- which
says in park "The Parties agree that an armed attack against one or more
of them in Europe or North America shall be considered an attack against them
all." This Article makes clear tq any would-be aggressor that his attack
would meet the combined resistance of the member states. It means that
the U.S. ,has departed from its tr^aditi,onal peacetime isolationism and that
some Eur^oan countries have abandoned their reluctance to commit themselves
in advance to joint defense policies.
NATO.. however. is much more than an exclusive military alliance.
The Preamble and the first two Articles of the treaty show that the
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members realize the vital importance of cooperation not only for military
defense but in other fields as well, Article 1 affirms the intention of
the Parties to abide by the principles of the United Nation, Article 2,
which forms the basis for the economic objectives of NATO., is quoted herewith
in fulla "The Parties will contribute toward, the further development of
peaceful and friendly international relations by strengthening their free
institutions, by brim about a better understanding of the principles
upon which these institutions are founded., and by promoting conditions of
stability and well-being. They will seek to eliminate conflict in their
international economic policies and will encourage economic collaboration
between any or all of them." NATO's interest in economic matters ? both
the economic well being of the NATO countries and the economic structure
of the Soviet bloc (as support for the bloc8s military potential) is in-
dicated in the extensive coverage of these factors in the Annual Review
and in Standing Group papers.
To make possible the fulfillment of their obligations under the treaty.,
the treaty powers set up a rather elaborate collective machinery,, which
has undergone reorganization and "streamlininggWin the course of its ex-
perienceo Originally the North Atlantic Council was composed of the For-
eign Ministers of the member countries, Two principal committees were
set ups the Defense Committee (Defense Ministers) and the Defense Financial
and Economic Committee (Finance Ministers), In 1951 it was decided that
the Council would be composed of Foreign, Defense or Finance Ministers as
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governments saw fit. "'It would be a Council of governments,, not one of
individual ministers.ff2 The Council Deputies,, later designated as Permanent
Representatives,, became the permanent working organization of the North
Atlantic Council, In April, 1952 NATO Headquarters was moved from London
to the Palais de Chaillot in Paris.
Late in 19 .9s only a few months after NATO was established,, another
organization was set up in Paris the Consultative Group. In 1918 the
U'S 's unilaterally,, had decided to put into effect security controls over
exports to the Soviet bloc. During 1948 and early 1949 the U.S. carried
on discussions in the effort to obtain parallel action by European countries..
In multilateral discussions in Paris, October ? November,, 1949, attended
by delegates of the U.S-.0 U.K.# France., Italy,, Netherlands and Belgium., with
Norway and Denmark as observers,, the Consultative Group (CG) was formed.
At this meeting a report was prepared which recommended that an Advisory
Group at the Ministerial level continue to meet,, and that its future work
be. To consider matters arising from the implementation of an agreed
policy for the control of exports on grounds of security with the object
of achieving the greatest possible uniformity and efficiency of action
among the governments which adopt this agreed policy.ff This report was
accepted by all except the Netherlands delegate. At this meeting the Inter-
national Lists Is II and III were established. At a subsequent meeting
of the CG,, in'January, 19508 the Coordinating Committee (COCOM) was set
up,, to be a continuing committee which would insure adequate review of
Lord Ismay~ TOE the First Five yearsg 19 9-1954, pgl.l
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problems of security export control.v Thereafter COCOM became the permanent
working coinm4ttee on security trade control matters, and the CG us function
is to hold a periodic review of COCONas activities., the consideration of.
general or policy matters arising out of COCOMQs work, and the establish-
ment of a general frame of reference for COCO ias activities,
The point in juxtaposing brief sketches of the origin of these two
international. organizations is to emphasize the similarity of the overall
objectives of the two bodies. Though NATO covers a broader field9 while
CG/COCOM is concerned primarily with the problem of preventing the acquisi-
tion by the Soviet bloc of materials which aid its war potential, both organ-
izations had their origin in a recognition of the threat posed by the Soviet
bloc and a recognition of the need for unity and collective action to maintain and enhance the defensive strength of the free world. In a sense,
CG/COC0M9 in attacking the economic defense aspect of security trade controls,
promotes one important phase of the overall political/military/economic defense
objectives of NAT0, particularly in relation to the objectives set forth
in Article C of the NATO charters.
Having noted the similarity in principles and objectives of the two
bodies, we must recognize the dissimilarity in their methods of organiza-
tion and operatic 9 and in the implementation of their objectives
In the first place,. NATO has a highly formalized organizational structure
headed by the North Atlantic Council, The Permanent Representatives, the
Secretary General., the International Staff Secretariat., and several com-
mittees and subcommittees covering every phase of NATO's responsibilities,
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work in close collaboration in Paris. On the other hand., CG/COCOM is a
very informal organization. COCOM and its Secretariat are in continuous
session in Paris. The CG meets occasionally on call. In late 1952 the
China Committee (CHINCOM) was set up to administer the stricter level of
controls against Communist. Chi2.a and North Korea. Theoretically CHINCOM
was to be a separate committee., on a par with COCOM". A few CG countries
designated separate representatives to CHINCOM upon its organizations but
for the past year and more the membership of the two committees has been
practically-the same.
In the second place., the existence and general objectives of NATO
.have always been public knowledge, though much of its work and publications
are classified. Conversely, the CG/COCOM was set up in secret., and up until
1952 its very existence was supposed to be a carefully gua?ded secrete The
primary reason for this secrecy and informality was to avoid the United
Nations obligation to register international agreements. This explains in
part why the scope and terms of reference of the organization were not
carefully worked out at its beginnings An additional reason for secrecy
was that general publicity would have created internal and external political
problems for certain participating countries
In the third place., NATO operations have been characterized by a rela-
tively high degree of cooperation. Patience and give-and, takes however,
are often required, since final decisions must be unanimous. The rule of
unanimity holds in CG/0000M just as in NATO. But the achievement of una-
nimity in CG/COCOMhas occasioned a more or less continuous series of
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wrangles over a variety of issues- the secrecy question, the type of prob-
lems to come within the competency of CG/C00011.9 the criteria for placing
items on the International Lists, the size of quotas for items under quanti-
tative control., controls over shipping., and. many others, . In such circumstances
unanimity can usually be achieved only on the basis of a "lowest common
denominator, The result is an economic defense program which, in the view
of the U.S. and a few other CG members, falls short of fulfilling free world
security objectives,,
This raises the question, since a considerable number of free nations
have achieved a reasonably high degree of cooperative accomplishment in
building up the defensive strength of the free world in NATO.,, why has prac-
tically the same group of nations had so much difficulty in achieving the
objectives of the security trade control program through CG/C0COM? There
may be many answers to the question., but it is clear that the key to the
answer lies largely in a conflict between security interests and commercial
interests. Certainly it is agreed by most nations of the free world, whether
or not members of NATO and 0G, that in the security interest of the fre
world the bloc ought not to be furnished with those materials and services
which enable it to build up its aggressive machine and the economic and
industrial base to support that machine. But when it comes to actual trade
deals, the prospective profit in selling to the Soviet bloc (often enhanced
by premium prices offered by the bloc) is too tempting to the traders 4 Thus
the commercial interests exert pressure., through Ministries of Trade., upon
Foreign Offices and upon CG/C0COM delegates, with the result that free world
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pressure on the economic and military potential of the bloc is far less ef-
fective than it could be Another contributing factor to a certain amount
of dissension is no doubt the fact that a legislative act of one participating
country - the USA m is interpreted by some countries as dictating the basic
premises for the existence and functioning of the GG/COCOM/CHINCOM structured
II, Problems Involved in Relating the Consultative Group More Closely to
NXTO
The question which gave rise to the foregoing comparison of the prin-
ciples and objectives of NATO and the CG was s ffHow should the U.S. attempt
to advance the degree of unity my and the effectiveness of9 the multilateral
organization concerned with security controls?" Given the high degree of
similarity -in objectives of the two organizations9 it would seem appropriate
to examine the reasons why a closer associati
n has not heretofore developed9
and to give serious consideration to the advantages which might result from
such association.
This is by-no means the first time that this question has arisen.
July, 1952, a Five-Power Conference was held in Washington on %Organizational
Arrangements for Far Eastern Economic Security Measures90 principally con-
cerned with the matter of bringing Japan into the economic defense structure.
At that conference the U.S. proposed the establishment of a Far Eastern
CG/C0COM'9 somewhat paralleling the Paris structure. One of the stated
advantages of such a separate Far Eastern organization was that it would
leave the European CG free to develop closer ties with NATO, without the
complications which would result from membership of Far Eastern countries
T
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in the European-oriented group. The U.S. view was not accepted by the other
participants- in the conference, Japan was invited to join the Paris CG, and
the separate China Committee (CHINCOM) under the CG was established. In
March, 1953 the NATO Council considered a memorandum from the Turkish Delega-
tions proposing that the Council give consideration to problems of East-
West trade, particularly in view of a forthcoming ECE meeting. The NATO
Secretariat prepared a memo on the subject LC_M(53)86.9 2' Jufe, 19537. During
this period NATO and CG/COCOM representatives held several informal discus-
sions,., exploring the desirability of a suitable forum for consideration of
East=West trade problems on a broad and continuing basis. These and other
discussions have brought out many of the problems involved in the NATO-CG
relationship. These problems appear to fall into two principal categories,
and will be discussed under the headings below.
A. Problems of Competence
As was noted early in this papers NATO at its beginning was chiefly
concerned with political/military matters. Despite the existence of Article
2 of the NATO charter, there appears to hav
the part of some NATO members to become involved in the problem of economic
defense. In the Secretariat Memorandum referred to above CM(53)87 it is
stateds "NATO, as such, has not hitherto been directly concerned with deny-
ing commodities to the Russians and their satellites. In 1951 and early
1952s however, a study was conducted. in the Financial and Economic Board,
at the request of the Council Deputies, into the question of the availability
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for NATO defense production of certain commodities listed by the Defense
Production Board as essential. The conclusion reached was that the neces-
ary action to conserve these commodities was already being taken with
somewhat varying objectives by the International Materials Conference in
Washington,, by the OEEC,, and by the Committees referred to above,, and that
no action by NATO as such was needed,'' In the same memorandum it is further
stated,, under Practical Possibilities,, "The policy of NATO countries should
be,, on the one hand,, to derive what economic and other advantages they can
from trade with the East, and,, on the other,, to prevent the Soviet Union
and her allies from drawing strategic advantage from the trade. NATO is
not,, however,, equipped to deal with the daymto?day implementation of this
policy and with the technical problems in the various fields of East/West
trade,' It concludes that the CG/COCOM "appear to be the only suitable
international forum in which the day-to-day implications of East/West trade,,
and particularly its strategic aspects 9 can be kept under review,"
Nevertheless,, in this memorandums and in other discussions at the
time,, it was brought out that,, if CG/COCOM were to be the forum for con-
sideration of the broader aspects of East/test trade,, then its terms of
reference and its secretariat would need to be enlarged,, and its stature
enhanced, It would have to consider such things,, among others,, as cor-
relation of non-strategic trade policy and action with strategic trade
policy and action (eagm,q preparing common lines for international con
ferenceea, considering trade agreements,, exceptions and Mid q'o)9
economic and political problems claimed to bear on proposed exceptions
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efforts to find alternative markets for goods which are prevented from
going to the East. Certain of the CCU countries, the U.K, in particular,
have generally taken the view that the activities of that organization
should be limited to the negative policy of denying strategic commodities
(liberally interpreted) to the blocs In such an atmosphere a broadening
of the range of problems handled by CG/CCCCM would more likely result in
providing further excuses for exporting strategic goods to the bloc,
Let us look back at Article 2 of the North Atlantic Treaty, which
empowers the signatories to find means of creating more effective economic
and cultural ties with one another. As long ago as September.. 1951, th
Council set up a Ministerial Committee to consider the further strengthening
of the NATO) community and especially the implementation of Article 2. The
Committee was directed to make recommendations, among others, on "closer
economic, financial and social. cooperation, designed to promote conditions
f economic stability and wellbeing, both during and after the present
period of the defense effort, within the North Atlantic Treaty Organiza-
tion or through other Agencies.." Lord Ismay had this to say, in 1951u
Can NATO then continue t
concentrate almost exclusively on defense?
Council communiques and government statements have stressed that NATO
should be used increasingly as an instrument of cooperation outside the
military sphere, and that the provisions of the Treaty for gself?help
and mutual aide should be applied not only to the military build-up but
also to the peacetime problems of the Atlantic Community"
More recently the NATO has indicated a more positive interest in
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its responsibilities relating to Article 2. This is evidenced in the cur
rent series of economic studies which were initiated by the NATO International
Staff during November m December 1954. These studies will attempt to assess
and compare the economies of the Soviet bloc on the one .hand and of the
NATO countries on the others in order to expose the relative strength
weaknesses of the two. A Working Group has been established to carry on
these studies in cooperation with the International Staff.
B. Problems of Membership
In the past., when the relationship of the CG to NATO has been con?
sidered'9 membership problems have been a stumbling block. On the onne ha
was Iceland, vh ich is a member of NATO but not of CG on the other were
West Germany and Japan,, which were members of CG but not of NATO. Other-
wise the membership of both bodies was identical.
The first of these presents no serious problem. There is no real
reason why Iceland should not be a member of CG/COCOM. Indeed, in vi
of her problem of disposing of her fish products in Soviet markets, and
being pressured by the Soviets to become dependent on supplie
petroleum products.. there are good reasons why Iceland should be associated
with the CG structure.
The more serious problem was the second. But that problem has been
out in half within the past two months by the accession of the German
Republic to NATO. This leaves Japan as the only CG member not eligible
for NATO membership. Admittedly this is a difficult problem, but the
solution may well be found through another development which has occurre
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since this problem was considered., namely, the establishment of the South
East Asia Treaty Organization (SEATO).V Japan is not presently a member
of SEATO., and there may be many political problems., both iLternal and
external to Japan, in achieving her membership.
C. Possible Organizational Arrangements
NATO and the CO might be brought into closer relationship in several
different ways., ranging from complete amalgamation of the CO structure in
NATO to a continuance of the separate structures with improved liaison
arrangements,
Plan A
Serious consideration should be given to the feasibility of UeS,
initiation of organizational improvements along the following lines R
1. Attempt to obtain Japanas accession to SEATO;
2. Encourage other free world countries to associate themselve
with either NATO or SEATO, (or other similar regional organizations when
appropriately developed)
3 Abolish the CG, and establish COCOB as a Committee under the
North Atlantic Council,, to be called the Committee on Economic Defense, or
a similar title;
4. Establish a similar Committee with similar functions under SEATO
The , was signed September 8, 19.4, the signatories being
Australia., France., New Zealand.,, Pakistan, the Philippines. Thailand.,
U.K., U.S. Its objectives are similar to those of NATO, but its
organizational apparatus is not yet so highly developed.
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other regional groups when appropriate;
5. Establish a joint policy staff between the NATO Council and th
SEATO Council.;
6, Provide for periodic joint meetings of NATO and SEATO Council
representatives to review security trade control policy and problem;,:
related to the objectives stated and Implied in Article 2 of the NATO
Charter.
Plan B
If Plan A be considered impracticable at the present time., and it is
concluded that the present CG structure should be continued., then at least
the following steps should be undertakexau
1. Establish a joint policy staff between the NATO Council and the
Consultative Group-
2. Facilitate a close working relationship between the NATO Interna-
tional Staff/Secretariat and the CG/CGOOK Secretariatg
3, Provide NATO technical and intelligence support to CG/C OO.
, Provide for NATO Council review of matters which cannot be re-
solved in CG;
5. Provide for periodic joint meetings of the NATO Council and the
CO to consider security trade control problems as related to the objec-
tives of Article 2 of the NATO Charter,
III. Evaluation of a Closer Relationship Between NATO and the CO
^uot ?
On balance it is believed that the advantages of the NATO forum for
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the consideration of the security trade control programs sufficiently out-
weigh the difficulties involved to justify that the U0S,. seek to utilize
NATO as the body for multilateral consideration of these problems. Plan
A has the superior advantage in that it would provide for a similarity of
control measures in all. or most., areas of the free world. It would be
in keeping with an already expressed and agreed NATO views "The problems
of Eastmest,trade are not confined to NATO countries . o It is there-
fore considered unrealistic to confine the present study to Russia and her
European satellites., on the one hand., and European NATO countries, on th
other , C [(53)86J. In either plan suggested above., bringing the
security trade control plan under the aegis of NATO would have the following
advantage
A, It would bring security trade controls into their proper context$
as one element contributing to the overall security objective of the free
worlds
B. It would provide a better means for solution of the problems of
those countries who claim that economic hardship results from their observ-
ance of trade controls.
C, With trade controls in the proper security context., there would
be less opportunity for the commercial motive to work at cross purposes
with the security motive;
D The tie-in of the organizations and the more intimate working
relationships of their staffs would increase the mutual undetanding
of the overall security effort of the free world,
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