EAST-WEST TRADE CONTROLS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP61S00527A000100180167-4
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 20
• Document Creation Date: December 12, 2016
• Document Release Date: June 21, 2000
• Sequence Number: 167
• Publication Date: November 16, 1955
• Content Type: STATEMENT

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1%01 1%w
INTERNATIONAL COOPERATION ADMINISTRATION
Washington 25, D. C.
STATEMENT PREPARED FOR DELIVERY BY
VICE ADMIRAL WALTER S. DeLANY, USN (RET.)
DEPUTY DIRECTOR FOR MUTUAL DEFENSE ASSISTANCE CONTROL
BEFORE THE SUBCOMMITTEE ON FOREIGN ECONOMIC POLICY
OF THE JOINT COMMITTEE ON THE ECONOMIC REPORT
AT 2 P.M. E.S.T. November 16, 1955
EAST-WEST TRADE CONTROLS
State Dept. declassification & release instructions on file
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Mr. Chairman, Members of the Committee:
It seems especially timely to discuss the development of international
rules governing the shipment of strategic materials in East-West trade because
of recent efforts to equate security controls with the low level of East-West
trade. In actual fact the items controlled are very few indeed in comparison
with the wide range of commodities the Soviet Union and her European satellites
could buy from the free world if they had the desire and the means of payment.
In any discussion of strategic trade controls it is well to remember that
they came into being by an act of Congress as a result of the threatening gestures
and tensions created by the U.S.S.R. Trade controls were imposed as a defense
measure against those threats, as an economic defense which the free world
built side by side with its military defense. The controls on trade in strategic
material is intended to deny or limit shipments of goods which will significantly
contribute to the bloc's war potential. They do not apply to trade in peaceful
goods.
In the face of those threats, the policy on East-West trade has been
based on these principles:
1. The free nations should not furnish a potential aggressor with
goods which directly and materially aid its war industry and military buildup.
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2. Security export controls should be applied on a selective basis,
except in the case of military aggression when a policy of complete embargo
would be in order.
3. Mutual security can best be advanced by the continued increase in
the political, economic and military strength and cohesion of the free nations.
While controls are limited, selective and flexible against the European
Soviet bloc, they are far more comprehensive against Communist China and
North Korea who have been declared aggressors by the United Nations. Against
these regimes the United States embargoes all exports, prohibits all imports,
and prohibits our ships or aircraft from calling at their ports or carrying
commodities destined to them. We block all of their assets within our juris-
diction and exercise financial controls aimed at depriving them of dollar exchange.
The controls of the other free world nations are also more inclusive
against Mainland China and North Korea, although they do not generally match
the total embargo imposed by the United States. About 45 countries support
the selective embargo resolution adopted by the United Nations in 1951 which
applies specifically to arms, ammunition, and implements of war, atomic
energy materials, petroleum, transportation materials of strategic value, and
items useful in the production of arms, ammunition, and implements of war.
Half of these 45 countries apply an embargo on other strategic goods. as well,
and practically all the leading maritime nations have adopted controls on
shipping of varying degrees but of less severity than United States controls
on shipping.
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As you can see, the very essence and heart of these controls is their
dependence upon the cooperation of our principal allies. Relatively few items
can be controlled by one country. Trade controls pose important economic,
financial, and political problems in the countries cooperating with us. Foreign
trade is a far greater factor to the economic well-being of those other countries
than to the United States. It is well to remember that when we discuss trade
controls with the participating countries.we are.talking about their trade. We
must always respect their sovereign rights to deal with their own problems as
they see them within their own national interests and the security of the free
world.
Trade is not a "gift" to either party. Shipments to the bloc must be
paid for in Soviet goods or gold which the free world nations can use in their
own economies. The Soviet Union has, in fact, recently begun to sell gold
again and appears to be trying to utilize credit arrangements more widely.
Now I would like to discuss the administration of these complex con-
trols in the United States and internationally.
(Chart 1 - EDAC Structure)
As you know, one of the principal parts of our legislative framework
for the control of trade is the Mutual Defense Assistance Control Act of 1951,
usually known as the Battle Act. It is administered by the Director of the
International Cooperation Administration.
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EXECUTIVE
SECRETARIAT
Ffl~c? STRUCTURE
EGONOMic DEFENSE ADVISORY COMMITTEE
Chairman: f CA DEPT'( DIRECTOR FOR MDAC
STATET "TREASURY ?ODM ? EX-IM BANK
-? ?DEFENSE ?ICA ?AEC * USIA (Observer)
"? COMMERCE *CIA *AGRICULTURE
EXECUTIVE COMMITTEE
Chairman: ASSISTANT DEPUTY DIRECTOR
FOR MDAC
*STATE
*COMMERCE
*IC A
*DEFENSE
*TREASURY
?CIA
i
WORKING GROUPS
(Inter- Agency)
i CI TE Rt.ATI ONAL
EXPORT CONTROL SYSTEMS
FAR EASTERN ECONOMIC
DEFENSE PROBLEMS
S TANNING PANEL S
(Inter- Agcy
ECONOMIC DEFENSE
INTELLIGENCE COMMITTEE
ECONOMIC DEFENSE
POLICY & PLANNING
CHART 1
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RESEARCH PLANNING
Chairman: STATE
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In addition, there is the Export Control Act, which is administered by
the Department of Commerce; the Trading with the Enemy Act; administered
by the Treasury Department; the Atomic Energy Act, administered by the
? Atomic Energy Commission; and the Munitions Control Act, which is adminis-
tered by the Department of State. All activities under these legislative mandates
are coordinated by the Secretary of State insofar as they affect foreign policy.
The Mutual Defense Assistance Control Act, which has no termination
date, reinforces the international system of voluntary trade controls which
were already in existence before the act became fully operative in January 1952.
Among other things, the statute provides that United States aid should go only
to countries that cooperate in the control of strategic goods. It has been admin-
istered as intended by Congress, with awareness of other countries' problems,
the need for building up free world strength and unity, as well as to impede
the military buildup of the Sino-Soviet bloc.
The problems innate in security controls cut across so many respon-
sibilities here in Washington that, of necessity, the Mutual Defense Assistance
Control Act is administered with the advice of an Economic Defense Advisory
Committee which has ten government agencies represented. Each brings
the particular point of view of his agency to bear on the complexities of these
controls,
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: a s
INTERNATIONAL ORGANIZATION for STRATEG
BELGIUM
CANADA
DENMARK
FRANCE
FEDERAL REPUBLIC OF GERMANY
ITALY
JAPAN
CONSULTATIVE
GROUP
(CG)
COMMITTE E
(cocoa)
CONTROLS TOWARD
EUROPEAN SOVIET BLOC
CONTROLS TOWARD
COMMUNIST CHINA AND
FAR EAST COMMUNIST BLOC
C TRADE CONTROLS
GREECE
LUXEMBOURG
NORWAY
PORTUGAL
THE NETHERLANDS
TURKEY
UNITED KINGDOM
UNITED STATES
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The committee mobilizes all the resources of the United States Govern-
ment which can help with the problems involved. Meetings of the Executive
Committee are held at very frequent intervals to discuss new facets of those
problems. Working groups are constantly in action delving into the perplexities
involved in each new decision.
(Chart 2 - International Organization)
The international organization for security controls has its headquarters
in Paris. Fifteen major industrial nations carrying on 60 per cent of the free
world's trade are members of this informal organization which is-called the
Consultative Group. Their ministerial representatives meet when necessary
to discuss economic defense policy and to agree on changes.
Actual day-to-day coordination of the international security controls
rests upon two committees: the Coordinating Committee, known as COCOM,
which concerns itself with trade controls against the European Soviet bloc, and
the China Committee, known as CHINCOM, concerned with the special problem
of control over trade with Communist China.
I should emphasize that the Consultative Group has been in existence
voluntarily since 1949, several years before enactment of the Battle Act by
Congress. A small secretariat serves the year round.
Despite the traditional trade rivalries among these participating countries
and their constant search for new markets abroad, the governments have volunl-
tarily reached agreement on uniform lists of commodities to be denied the Sino-
Soviet bloc. They have agreed that they will not ship to the Soviet bloc in
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Europe any arms, ammunition, or implements of war, atomic energy materials.
and about 170 other items which would make a contribution to the war-making
potential of the bloc.
4
In addition to these items which are embargoed to the bloc, certain
other items of somewhat less strategic importance are denied to the European
Soviet bloc after a certain agreed quantity has been shipped. Still other goods
are listed for "surveillancet? so that shipments can be restricted promptly if
agreement is reached to do so. About 90 items fall into these two categories.
As to Communist China, there are no quantitative or surveillance controls.
Commodities in all of the categories I have just described are embargoed,
plus a number of other items.
Perhaps I can best illustrate how the functions of the American and
international organization interlock by describing the activities which .resulted
in a revision of these control lists in August 1954. At that time economic con-
ditions in the free world had improved considerably, a buyer?s market emerged,
and pressures for increased exports rapidly developed. Certain of the con-
trolled items had decreased in importance because of changes in technology
and science, or because new evidence had been, received as to the use being
made of the item by the bloc. There was also the need for gearing the inter-
national program for a long-haul concept. The threat of war appeared less
immediate than it had been when the control lists were first prepared.
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The Executive Branch of our government approved an economic defense
policy which, although still requiring continued controls, took cognizance of the
changed conditions by placing controls on a more selective basis. This policy,
I should emphasize, applied only to the European Soviet bloc. No change was
made in the China controls.
The various agencies in the Economic Defense Advisory Committee
systematically examined each of the then 400 items which were under embargo,
quantitative control, or surveillance. The other participating countries which
had come to the same conclusions about the need for an overhaul also reviewed
the lists and reached their own views.
In March 1954 a trilateral conference involving the United Kingdom,
France, and the United States agreed on criteria for determining the status of
each item under consideration. Soon afterwards COCOM in Paris began a
detailed review of these items. As a result of these negotiations, agreement
was reached generally on new and shorter lists. Certain items on which agree-
ment could not be achieved were left in their previous status of control. As of
now, 226 items are embargoed to the European bloc.
In addition to a review of the lists, agreement was reached on a sub-
stantial tightening of the machinery of controls. Transaction controls were
tightened among the 15 COCOM countries to prohibit the sale of embargoed
goods to any part of the Sino-Soviet bloc by residents of free world countries
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regardless of the source of the goods. More effective controls over transit
trade were introduced by the COCOM nations to prevent the diversion to the
bloc of embargoed items ostensibly bound from one free world country to
another.
Thus, while there were differences of opinion, the unity and voluntary
cooperation of the 15 nations continued.
The foregoing relates to what is known as the International Lists of
items under control to the bloc. The Battle Act requires that the Administrator,
after full and complete consideration of the views of the Departments of State,
Defense, and Commerce; the International Cooperation Administration and
other appropriate agencies, shall also determine and list the items which come
within separate provisions of the Act.
We therefore have, in addition to the International Lists of items, the
lists to which the Battle Act relates. We have a list known as Title I, Cate-
gory A, which contains atomic energy and munitions items.
By the provisions of the Act, if an aid-receiving country ships them
to the bloc, this aid must be terminated. No such items have been shipped.
We have the list known as Title I, Category B, which contains items of
primary strategic significance. This is the same as the international embargo
list.
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If an aid-receiving country knowingly and willingly ships any of these
items to the bloc, the President, after receiving advise from the Administrator
of the Act, and after taking into account the contribution of such country to the
mutual security of the free world, the importance of such assistance to the
United States, and the importance of imports received, may direct the con-
tinuance of aid to a country where unusual circumstances indicate that the
cessation of aid would clearly be detrimental of the security of the United States.
There have been shipments of these items by aid-recipient countries.
About 75 per cent of the dollar value of such shipments were made under an
accepted interpretation of prior commitments-, that is, commitments for ship-
ment made before publication of the Battle Act Lists. No aid has been terminated
incident to such shipments.
Finally, there is a list known as Title II which contains items of lesser
strategic significance. The items on this list are the same as those on the
International Lists II and III. The Act provides that aid to a recipient country
shall be terminated. whn ,ire President determines that it is not effectively
cooperating with the United States pursuant to thisTitle of the Act, or is failing
to furnish the United States information sufficient for the President to determine
that the recipient country is effectively cooperating. No aid has been terminated
under the provisions of this Title of the Act.
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 Bl/ons Of uS I2?llars
, U100, /947iY55
-
1--A DI % PL(JC1 \ \~\ e\ a\\~~ \`~? ~` ` "\~\\\~\~ \~\ \\\\\e\.O?`? \\\\\\\ \\..o ?~~\ ,~ ~: ~\
1.7 ~~18
20
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09
Figures unot/Justxd for pace
chPnges,donat acearatzly sixty
t Endin oky,isn/rv/ume.
* re/noble price i'idex s omilable.
,411 1955 figures are phe/rminary.
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-l+aLO 14!TIZ
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III
-,ra~rtrMoc s#494C
;n FREE t8OiLP TA APE
Billions of U.S. Dollars
.?
s110.2
$ 41.2
Trade k
Among L ,
Free World
Countri
es
192.8 %
'IIIIOIIIIIIIIIIII,IF~
Sino-Soviet
Bloc Trade
with Free World
7.2%
1938
USSR-__$ 0.7
Eastern
Europe__$1.5
Mainland
China ---- $1.0
3.98/
5
1948
0
USSR_____$I.0
Eastern
Europe-$1.9
Mainland
China__-- $1.0
$158.3
'aW1 ut n I
W, t
un m lun ' ,
I `~~n
'ii I
I , *
~~lJII',I IIIIN1rFa
$3.75/
2.3 %
USSR_--__ $1.0
Eastern
Europe___ $2.0
Mainland
China-___ $0.7
July 1954-June 1955
NOTE: Eastern Europe (Satellites): Albania, Bulgaria, Czechoslovakia, Hungary, Poland, Romania.
East Germany is included in 1948 and 1954-1955 but not in 1938.
SOURCE: Dept of Commerce.,.--Figures unadjusted for price changes.
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'~IIL111111111111'1...~
>~nununnnnlt__.
nmmnlll i
,
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The unity of action of the free world and its determination to retard
the war-potential buildup of the Sino-Soviet bloc become even more important
when we realize the extent of the effort being made to destroy security controls.
Each of the countries, including the United States, has been constantly subjected
to propaganda which blames export controls for the low level of Soviet trade.
This propaganda invariably presents the U.S.S.R. as a potential cornucopia
of profitable trade if only the free world nations will drop their strategic trade
controls. A study of the facts, however, shows that this horn of plenty has
unfortunately been little more than a loud speaker.
It is our belief, based on very comprehensive and continuing studies,
that a further reduction in strategic trade controls would have its effect primarily
in the composition rather than the overall dollar value of East-West trade.
believe that any further reduction in the controls would result mainly in a change
in the kinds of commodities imported by the bloc. The basic reasons for this
are the Sino-Soviet bloc's lack of marketable exports with which to pay for the
free world goods it needs and its strong desire to obtain complete independence
from the need to import.
(Chart 3 - Trade of Free World with the Bloc)
(Chart 4 - Soviet Bloc Share in Free World)
As you can see on Chart 3, the trade of the free world with the entire
Sino-Soviet bloc has been relatively low in volume. In 1947 and 1948, before
international security controls became effective, trade with those areas of the
world amounted to only about $2 billion in exports and somewhat less in imports?
It may reach the same amount this year.
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However, there has been a drastic drop in the SinomSoviet bloc share
of free world trade since World War II. In 1938, as you can see on Chart 4,
the countries now included within the bloc took for themselves 7. 2 per cent of
that trade. In 1948, before the first international security controls on strategic
goods became effective, that trade had already declined to 3. 5 per cent. In the
year preceding June 30, 1955, the bloc share was only 2. 3 per cent.
The U. S. S. R. individually has always had a minor role in the field of
foreign trade. Even in 1938 its proportion of world trade was only 1. 6 per cent.
In 1948, when the Soviet Union still had ready access to anything for which it
could pay, its share of free world trade declined to 0. 9 per cent. In the fiscal
year 195455, the proportion declined again to a mere 0.6 per cent.
The Eastern European countries in 1938, before they were forcibly
joined to the bloc, were a considerably greater factor in world trade than the
U. S. S. R. In that year they gained 3. 4 per cent of the world's foreign trade.
In 1948, when the U. S. S. R. had completed its conquest of the area, the pro-
portion of trade with the free world dropped to 1. 7 per cent. In the year 1954-55,
after the principal of self-sufficiency and construction of a "parallel," market
had been firmly established, their portion of free world trade had dropped to
1. 3 per cent.
In the midst of war in 1938, China had a larger share of the world?s
foreign trade than the U.S.S.R. It amounted to 2. 2 per cent. China's best
customer then was the United States. Again in the midst of war in 1948, with.
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I
100
>54347 TIAPE W/7# TIZE fiEE MiOiLO AND
/74/f4/ TME S/A'O - 3W/fT 00*
(In % of total external trade)
USSR trade with the
Communist Bloc A
`USSR
I~ F
trade with the
ree world
~
I
R
1938 1948 1949 1950 1951 1952 1953 1954
3E Sino-Soviet Bloc includes: USSR. European Satellites, Communist China. Does not include North Korea or Northern Vietnam.
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11
its economy thoroughly disrupted, the portion declined to 0. 9 per cent. In
the year 195455, the share of Communist China's trade with the free world
was only 0. 4 per cent.
It should be noted, also, that between 1938 and 1955 the free world?s
foreign trade skyrocketed from $41. Z billion to $158. 3 billion annually. The
trade of the Sino-Soviet bloc with the free world during the same period has
never exceeded three to four billions.
In fact, during the year preceding July 1955, imports from the free
world by the entire bloc were about one billion dollars less than imports by
the Netherlands.
The trade of the leading industrial'nations of the free world (all members
of COCOM), with the countries now composing the European Soviet bloc, has
never returned to its pre-war importance. In pre-war days Eastern Europe
was important particularly to the trade of Western Europe.
(Chart 5 m U. S. S. R. Trade)
The reason for this drop in importance of East-West trade can be traced
directly to Soviet policy. An example of this can be seen on Chart 5. This
illustrates the Soviet drive towards autarky within the bloc, to set up a market
which has been described by Soviet leaders as isolated from and parallel to
free world markets. The obvious aim is to make the entire Sino-Soviet bloc
independent economically from the remainder of the world. As a result of this
policy, the post-war expansion in U. S. S. R. foreign trade has occurred almost
exclusively with the countries comprising the Sino-Soviet bloc.
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Before 1940, the U. S. S. R. devoted less than 15 per cent of its external
trade to the areas now comprising the Eastern European satellites and Com-
munist China. By 1954 the proportion had risen to 82 per cent. Thus, only
18 per cent of the Soviet Union?s foreign trade was available to free world
l
merchants.
Conversely, the areas of the Eastern European satellites and Communist
China gave 10 to 15 per cent of their total foreign trade before 1940 to the U. S. S. R.
Last year these countries as a group devoted 53 per cent of their foreign trade
resources to the U. S. S. R. and another 24 per cent to trading with each other.
Thus, the satellites and Communist China limited their exchange of goods with
the free world to 23 per cent of their total.
We have seen no positive evidence that this policy of making the bloc
self-sufficient has changed recently. The free world has been regarded by the
bloc primarily as a source of equipment, technical knowledge, and commodities
which are in short supply within the bloc.
There are many other factors which inhibit trade with the bloc. Among
the most important, as I have said previously, is the lack of marketable exports
with which to pay for the bloc?s imports. The traditional exports of those coun-
tries have been products of the farm, forest and mine. Yet many of these are
now being imported as a result of the emphasis upon industrial production within
the bloc. Petroleum from the U. S. S.R. and Rumania seems to have become a
major export in 1954 to the free world. Some machinery has been shipped to
underdeveloped countries as part of the Soviet drive to increase political con-
tacts with those countries.
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In addition, the Soviet market is a highly unreliable one for merchants.
There is no certainty that a newly established production line, created to fill
Soviet orders, will not be interrupted.because of a change in Soviet demands.
American businessmen have in the past seen their products purchased and used
as prototypes for Soviet production although these products are protected by
United States patents which the Soviet Union refuses to recognize. Soviet
political decisions are reflected all too frequently in their own trade embargoes.
There is no need to recount the Soviet action in Yugoslavia in 1948.
These are only a few of the difficulties which, because of Soviet policies,
hinder trade with the free, world. These difficulties in trading with the Soviet
bloc have very little to do with the security controls. As I said earlier, the
Soviets have available to them. a vast and relatively untapped supermarket of
peaceful goods which they can buy at will, provided, of course, they are willing
to devote their resources to pay for these goods.
In summary, I would like to emphasize:
Strategic controls of a selective nature are important and necessary to
deprive the bloc of the kinds of goods it needs to build up its war potential industry,
Strategic controls have been only a minor factor in causing the low volume
of post-war East-West trade, This trade has always been low in relation to
total world trade.
The bloc's own policies have had a great effect in limiting East-West
trade.
If the bloc in Europe is in earnest about increasing trade in peaceful
goods, it has more than ample opportunity to do so.
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