Complete embargo would be the conventional answer in military conflict.
But to urge complete embargo in the present situation is to ignore
the fact that the present trade situation offers opportunities to
the free world. The free world, with its enormous production, can
benefit from trade; the test is what goods are traded and on what
terms. The free nations are stronger economically than they have ever
been. Collectively they are far stronger than the Soviet bloc. They
possess tremendous resources. On the whole they have solid and healthy
competitive systems. Their businessmen have behind them centuries
of experience in bargaining, merchandising, and servicing. With
these factors creating for the free world a currently strong trading
position, the free-world nations should be able to take advantage of
the needs of the Soviet bloc and by hard bargaining gain benefits from
East-West trade.
Completely normal and unrestricted commercial relations with the bloc
seem to be equally unsuitable as a course of action.
If the free world should abandon the controls it has imposed in the
interest of national security, drop its guard and permit unrestricted
trade in _all_ its raw materials, industrial goods, and advanced
technology--the free world would be the loser. In view of the Communist
objectives and methods, unrestricted trade would permit the bloc to
increase its war potential--and specifically the all-important economic
base of its war potential--faster than it otherwise could. The goods
received by the free world would bring no commensurate return.
If such trade encouraged a general relaxation of the free world
military defense, it would be that much more damaging to the free
world. In any event, unrestricted trade would permit the Soviet traders
to compete freely in Western markets for important strategic goods
needed for Western military defense, thus making that defense more
costly and difficult for many free-world nations.
Employing the monopoly power of the Soviet states, individually or
collectively, the bloc would be able to extract economic advantages and
unwarranted concessions from the weaker individual traders and nations
to the net detriment of the free world.
Finally, unrestricted commercial relations, in which commercial gain
is the overriding criterion, would weaken the free world insofar as
they increased the economic reliance of certain free areas upon the
bloc. This could be harmful by increasing the vulnerability of these
areas to Soviet pressure. It could also have the effect of diverting
the attention of the free world from its compelling general economic
tasks such as developing bigger, better, and more accessible markets
and making international financial and trade arrangements that will
diminish the difficulties of sharing the free world's vast resources
and production among the nations.
=The Challenge=
Thus, the problem and the challenge is to find and to steer a course
midstream--to trade with the Soviet bloc on terms which bring to the
free world a net advantage. This is no simple matter.
There are two sharp dangers for the free-world nations.
One is the danger of being divided in purpose, split apart on policies
requiring concerted action, and forced into competing among themselves
in circumstances which call for unified action.
The other is the danger of being deceived about what is going on in
East-West trade and what's behind it. This danger grows partly out
of the complexity of economic relations and the fact that the Soviet
system and approaches to economic relations and peace in general are so
different from ours. It grows partly out of the fact that deception is
intentionally practiced by the Soviet Communists.
On the other hand, the Soviet-bloc governments have limitations in
trying to accomplish their purposes. The free world, aware of its own
strengths, can meet a great part of the challenge by working together
not only to understand the Soviet bloc's general objectives and goals,
but also to identify the specific actions which the bloc chooses at
any given time to accomplish them. In this way the free world has the
opportunity of segregating the harmful from the helpful.
We of the free world will neither be deceived nor divided if we keep
ourselves armed with facts and work as a team.
_CHAPTER V_
=U. S. Policy on Strategic Trade Controls=
The economic and trading activities of the Soviet empire require close
and continual study by free governments, but Soviet actions alone do
not determine free-world policies.
Let us be perfectly clear on this point. The theme of the early
chapters of this report has been the Soviet "trade offensive" and
its background, just as the theme of the third semiannual Battle Act
report was the enforcement of free-world strategic trade controls.
The selection of the theme, however, should not be taken to mean that
Soviet trading activities are the only factor that free-world nations
must take into account when they consider what economic defense
policies to maintain in the interest of their security.
In 1953 certain other considerations were demanding the careful
attention of the agencies of the United States Government that are
responsible for economic defense.
=The Background=
One of these considerations was the probability that the world faced
a long period of tension short of general war, though with the
ever-present risk of war. In such a period, no matter how long it might
last, it would be essential for the free nations to remain strong and
alert, to move together in whatever steps were necessary for military
or economic defense, and at the same time to keep open the paths that
might lead to a sounder basis for peace.
Another factor of historic significance was the massive upswing in the
strength of the free world. Western Europe, especially, had moved into
a far stronger position, both militarily and economically, than it had
occupied a few years earlier. This gave the West greater bargaining
power and it reduced the dangers of undue economic dependence on
Soviet-bloc trading partners.
As Western Europe grew stronger the need for economic assistance from
the United States declined. Although military aid continued in a big
way, economic aid began to taper off.
Accompanying the increase in Western economic strength was a general
shift in the free world from a "seller's market," in which goods were
scarce and sellers had a relatively easy time finding buyers, to a
"buyer's market," in which buyers generally could pick and choose. Some
of the free countries had produced themselves into surpluses of some
commodities--or had built up surplus capacity and needed additional
markets in order to keep their industries prosperous.
This change brought more and more pressure from people in free
countries to carry on increased trade with the Soviet bloc. Some groups
had been clamoring for this all along, and had helped spread the
time-worn Communist propaganda that a friendly and peace-loving "big
brother" in Moscow was ready and waiting with an unlimited paradise
of peaceful trade and that the only obstacle to its attainment was
the strategic trade controls of the West. But now large numbers of
_anti_-Communist businessmen, even though many of them were aware that
the Communist propaganda was false and that Soviet policies had always
been the prime deterrent to a large and peaceful commerce, felt that
some increase in East-West trade would be beneficial as a supplement
to their much greater trade in the free world. They recognized the
limitations of the Soviet bloc as a stable, long-term trading partner,
yet saw no reason why an expansion should not be sought.
This attitude was stimulated by the Korean truce of July 27, 1953. It
was also stimulated by the gestures that the Soviet Union began making
in the direction of livelier East-West trade.
Governments in the free world tended increasingly to the view that
some revisions in Western controls might be made without sacrifice of
security interests.
=Basic Policy Reaffirmed=
The new administration in Washington, taking account of such
considerations as those, and wishing to be sure that United States
policy was the most effective that could be devised, began a thorough
review of the economic defense policy of the United States in the
spring of 1953.
This policy review was completed around the beginning of August.
The third semiannual Battle Act report, which was published last
September 28 and which covered the first half of 1953, stated that the
conclusions of the review "will be reflected in the economic defense
actions of this Government during the months to come." In the present
report, which covers the second half of 1953, it is possible to give
more information about those conclusions.
As a result of the policy review _the basic economic defense policy
of the United States was reaffirmed_. There were, however, some
shifts of emphasis--with respect to trade with the Soviet bloc in
Europe--designed to make the basic policy more effective. We shall
discuss those shifts presently, but first let's summarize the basic
policy as it has existed throughout the 6 months covered by this report.
This basic policy of the United States on East-West trade rested on the
following principles:
1. Mutual security can best be advanced by continued increase in
the political, economic and military strength and cohesion of the
free nations relative to that of the Soviet bloc.
2. The free nations should not furnish a potential aggressor with
goods which directly and materially aid its war industry and
military buildup.
3. The free world may derive a net security advantage out of some
East-West trade.
4. Security export controls should be applied on a selective
basis, except in the case of military aggression, when a policy of
complete embargo may be in order.
In accordance with those principles the United States has long been
exercising certain controls over its own trade. Here is a short
description of those controls:
=United States exports to Soviet bloc in Europe=: Not prohibited
entirely, but limited to clearly nonstrategic goods.
=United States imports from Soviet bloc in Europe=: Not prohibited,
except for certain types of furs.
=United States shipping to Soviet bloc in Europe=: Not prohibited, if
carrying properly licensed goods.
=United States exports to Communist China and North Korea=: Prohibited.
=United States imports from Communist China and North Korea=:
Prohibited. (Some licenses were issued, though not recently, for goods
needed in United States military stockpiles and in special hardship
cases.)
=United States shipping to Communist China and North Korea=: Prohibited.
As for the trade of the rest of the free world with the Soviet bloc,
the policy of the United States was set forth in the Battle Act (the
text of which is at the end of this report) and in certain executive
directives. The policy was not to prevent all East-West trade but to
cooperate with other free-world countries in a system of _selective_
and flexible controls. The aim was to prevent Soviet-bloc countries
from obtaining items that would contribute significantly to their
warmaking power, and to insure that the trade which did go on served
the real economic and security interests of the West.
Ever since the Communist aggression in Korea in 1950, the Far East has
presented a policy problem different from the problem of controlling
shipments to the bloc in Europe. The official position of the United
States Government--both before and after the 1953 policy review--was
that the current levels of controls by the United States and free world
over shipments to Communist China and North Korea should be maintained.
Later on in this chapter we shall report on what happened in the China
trade during the last half of 1953.
=The New Direction of Policy=
So much for the basic policy. Now for the shifts in emphasis that took
place in United States economic defense policy toward the Soviet bloc
in Europe during the 6 months covered by this report.
It was determined that the system of the free-world controls that
had been developed during the last 4 years substantially satisfied
the objectives of retarding the buildup of Soviet warmaking power
and strengthening the free world relative to the Soviet bloc. The
effort to extend the control lists appeared to be reaching the point
of diminishing returns. It was decided not to pursue an extension of
the lists to many other items--though items would always be added
occasionally because of changed conditions or new information.
On the other hand the Government recognized a need for simplifying
the lists and removing or downgrading items, which, in the light of
current information, were no longer deemed to be so important. The
Government believed that much could be done in the months to come, if
done carefully and with due regard for security, to adjust the controls
to a "long-haul" basis. (Developments in the first half of 1954 will be
reported in the next Battle Act report.)
In general, it was decided to concentrate on seeking more effective
control of those items which, if shipped, would make a significant
contribution to Soviet warmaking power.
The main thrust from the United States toward improvement of the
control system, it was decided, would be in the field of implementation
and enforcement of controls. Notable deficiencies existed in that
field. To overcome them the free nations would need to keep improving
their techniques, and would need closer international collaboration and
pooling of information.
The new direction also took into account, even more than ever, the
economic and political problems of free-world countries. Free-world
unity was so vital, and the economic health of free nations so
important to the defense of free institutions, that problems of our
allies deserved to be given great weight in determining the actions
of this Government in the East-West trade field. This was not a new
concept, but this Government felt that such problems needed to be
discussed among the free countries more than in the past.
In setting the new direction the Government recognized:
(1) that maintaining commercial ties between the free world
and the Soviet bloc--compatible with the security requirements
of the free world--may have positive advantages during the
present period of tension;
(2) that there are, however, risks that trade may in some cases
lead to undue reliance on the Soviet bloc as a trading partner;
(3) that it is important to encourage trade within the free
world, including the entry of commodities into the United States,
by reducing trade barriers, especially when the effect of such
action would be to decrease the reliance of the free world on the
Soviet bloc.
Those were among the highlights of the new direction. As explained
before, the basic economic defense policy was not altered.
=Reviewing the Control Lists=
In the light of this basic policy, and its new direction, the
Government agencies responsible for economic defense were engaged in
certain projects during the period covered by this report.
One of the most important of these projects was the review of the
control lists. This review was a complex and time-consuming operation,
which continued into 1954.
It is easy for the public to become confused about control lists, not
only because of their necessarily secret nature, but also because there
are so many lists, serving different purposes.
The United States has had three main lists for its own exports:
The munitions list, compiled and administered by the Department of
State; the atomic energy list, compiled and administered by the
Atomic Energy Commission; and a much longer list, covering all other
controlled items, which is compiled and administered by the Department
of Commerce.
In addition there are the Battle Act lists. They relate to potential
exports from other countries to the Soviet bloc. They include those
primary strategic items which we believe the other free-world countries
should embargo in the interest of mutual security.
Then there are lists consisting of those items--at varying levels of
control--which the cooperating free-world nations have accepted as a
part of their informal coordination of controls.
All of these lists are subject to a continual process of review. But as
a part of the new direction in United States policy, this continuing
review process was broadened into an intensive reappraisal. Specialists
from several Government agencies were reevaluating all our listings in
terms of sharper and more meaningful criteria, and in the light of all
the new relevant technical and intelligence information that could be
assembled.
This review would furnish the basis for appropriate adjustments and for
United States discussions with other governments in 1954 concerning the
coverage of export controls.
=East-West Trade: Road to Peace=
It is a part of the economic defense policy of the United States never
to lose sight of the vital need to keep open all paths that might lead
to a sounder basis for peace in the world.
We not only recognize the economic benefits that free-world nations
can get from an expanding East-West trade in peaceful goods; we also
bear in mind the possibility that trade contacts can help to improve
relations among peoples.
But in hoping for and working toward that end, we are not thereby
accepting the belief that international trade inevitably and
automatically leads toward peace. Hitler's Germany expanded its foreign
trade right up to the outbreak of World War II. We must view with
skepticism the Communist propaganda line on trade and peace, for we
know what their trading objectives and methods are. East-West trade
as now constituted is carried on not with private individuals in the
Soviet bloc but with agencies of Soviet-bloc governments.
International trade in general can be a broad highway toward better
living standards and more peaceful relations. It has served humanity
well. There should be more of it. But it takes two to trade, and trade
is not necessarily a road to peace unless both parties wish to make it
so.
=Trade Within the Free World=
Toward the close of the 6-month period under review, the President's
Commission on Foreign Economic Policy (Randall Commission) was hard at
work. There was a great amount of public discussion, continuing into
1954, concerning ways in which the United States and other free-world
countries could eliminate or reduce the obstacles that hinder the
international exchange of goods.
The Commission, issuing its report in January, had much to say on the
reduction of trade obstacles.
The Commission also included a section on East-West trade, recommending
that the United States not object to more trade in peaceful goods
between Western Europe and the European bloc.
These two subjects, trade liberalization and East-West trade, are
connected with each other. When businessmen in free-world countries are
hindered--either by trade barriers or other artificial causes--from
selling products in other free-world countries, they are more prone to
seek markets in the Soviet bloc.
To a certain extent this aggravates the problem of maintaining adequate
strategic trade controls and the problem that some free-world countries
have of avoiding undue dependence on the Soviet bloc.
It would be impractical to seek the elimination of all trade
restrictions within the free world but it is important to reduce
unjustifiable barriers and it is also important to take whatever other
steps are possible to develop new markets and new sources of supply.
To bring alternative markets and supplies into being is not an
overnight task but it must be done. It means the reduction of many
restrictions in the United States, thus allowing more goods to come
in from our friends and allies. It means a similar loosening of
restrictions by other free nations. It means more and better economic
integration among the European countries. It means steady advancement
in the economic development of the underdeveloped areas of the world.
All those things are important for many reasons. East-West trade is
one aspect of the matter. The United States Government recognizes that
hindrances to the exchange of goods within the free world do have a
definite relationship to the international system of strategic trade
controls.
=The China Trade Falls Off=
This report so far has concerned itself almost entirely with trade
between the free world and the Soviet bloc in Europe. Now it is time to
shift our attention to the China trade.
During the 6 months under review, free-world trade with Communist
China fell far below the first half of the year. Free-world exports to
Communist China from July through December are estimated to have been
$111.1 million, as compared with $158.9 million in the first half of
1953. This meant that shipments in the report-period fell below even
the extremely low level of the first half of 1952.
The result of this decline in shipments to Communist China was that
the estimated total for all of 1953 was $270 million, only a slight
rise in value from the 1952 exports of $256.5 million.[1] A larger rise
had been foreseen. The last Battle Act report to Congress, _World-Wide
Enforcement of Strategic Trade Controls_, pointed out: "If free-world
exports continued at the same rate as that of the first 3 or 4 months
of the year--and that is not at all certain--the 1953 total would be
around $375 million." It actually seems to have been about $100 million
short of that.
Free-world imports from Communist China also dropped in the second half
of 1953, though not so sharply as exports. They amounted to $198.4
million in the second half, according to a preliminary estimate,
compared with $226.6 million in the first half of the year. This
brought the estimated annual total of imports to $425 million in 1953,
as compared with $365.8 million in 1952.
It was true that in spite of the decline in the latter part of the
year, some countries were able to sell more goods to the Chinese
Communists in 1953 than they had in 1952. For example, exports of
Western Germany rose from $2.8 million in 1952 to $25 million in 1953,
in line with the general rebirth of German foreign trade. Exports of
France rose from $3.3 million to $12.4 million, and Japan from half a
million dollars to $4.5 million. Exports from the United Kingdom rose
from $12.8 million to $17.5 million. On the other hand exports from
the British Colony of Hong Kong, the traditional gateway of commerce
to and from the mainland of China, fell so drastically in the second
half of 1953 that the Hong Kong total for _all_ of 1953 was only $94.6
million, or little more than the $91 million of the previous year. And
the Communists slashed their buying of Pakistan cotton, which had come
to about $84 million in 1952, down to about $7 million in 1953.
[1] These 1952 and 1953 figures are adjusted to exclude Swiss watches,
which appear in Swiss official statistics as exports to China, but
which actually went to the British Crown Colony of Hong Kong and were
reexported to other free-world countries. Switzerland, in reporting
its "China" trade, lumps together its trade with Communist China,
Nationalist China, and Hong Kong. The watches in question are believed
to amount to approximately $1 million a month, on the average.
=They Play by Their Own Rules=
Clearly the glittering prospect of a vast and lucrative trade with the
Chinese Communists which had captured the imagination of many Western
traders was not materializing.
The China Association, a British trade organization, said in December:
"There is no doubt but that the potentialities have been greatly
exaggerated in the public mind, partly as a result of the superficial
successes of the various unofficial trade missions which have paid
visits to Peking this year. This overeagerness has unfortunately been
reflected in an increasing severity of the terms which China now
demands."
Information about the increasing severity of the trade requirements
which Communist China was trying to impose upon the free world came
from all sides in the last half of 1953. Those terms would hardly
suggest a genuine interest in normal and expanding trade relations.
When the Chinese Communists sell, they demand a confirmed letter of
credit in the hands of their own bank before they will ship the goods.
They collect payment as soon as they have loaded the goods on a ship.
They present a Communist Chinese Government certificate of inspection
against which the buyer has no recourse if he finds--weeks or months
later--that the quality of the goods is below specification.
One who sells to Communist China is asked to follow a very different
set of rules. He ships his goods and waits until they have arrived in
Communist China, have been inspected by Communist Chinese Government
inspectors, and are in the hands of the buyers, before he can collect
his money. In the meantime he extends credit without interest,
immobilizing the capital he had invested in the cargo, freight, and
insurance, and is forced to accept claims resulting from inspection of
his goods in Communist China.
No doubt exceptions to these rules are still being granted to some
Western traders, for the rules are so remote from long-recognized
international trading practices that many firms would naturally balk
at them. But there is no doubt that the unconventional and frustrating
practices of the Chinese Communists have interfered seriously with
the amount of commerce and have disillusioned many who saw an almost
unlimited market in China's multitudes.
=United States Policy on the China Trade=
As mentioned before, the policy of the United States throughout
the 6 months under review was to continue its total embargo on all
exports--strategic or nonstrategic--to Communist China and North Korea,
which were aggressors, and labeled as such by the United Nations.
Rumors heard from time to time in various countries, to the effect
that the United States had decided to relax its embargo or was under
irresistible pressure to do so, and that American cars were reaching
the Chinese mainland by way of Japan, were completely untrue.
The position of the United States throughout the review period was
also that the free-world embargo on strategic goods to Communist
China--an embargo much more sweeping than that applying to the European
bloc--should be maintained. Other free governments took the same
position, and the embargo continued in force. Such relaxations as took
place in controls were changes that did not affect the multilateral
embargo. One example was the change in the control of antibiotics
and sulfonamides. The nations which carry on trade with Communist
China had been controlling those drugs, while hostilities continued
in Korea, by limiting the quantities shipped; the quotas assumed by
the various nations were scheduled to expire on December 31, 1953,
and were permitted to expire on schedule. Another example was the
relaxation by Japan on certain items that had been under embargo by
that country--but these were items that the other countries were not
embargoing. The same was true of the United Kingdom's decision to
permit the shipment of light passenger automobiles.
Though the policies of other major free governments regarding trade
with Communist China have not been identical with our own, the United
States has not attempted--and will not attempt--to bring about
conformity through coercion.
This is true of all of our relations with other countries, not merely
our relations with them on the issue of Communist China.
Leaders of this Government forcefully reaffirmed that principle during
the period we are reviewing.
Secretary of State John Foster Dulles said in a statement on December 1:
"The tide of events has made our Nation more powerful but I
believe that it should not make us less loyal to our great
American traditions; and that it should not blur our dedication to
the truths, expressed in our Declaration of Independence, that we
owe a respect to the opinions of others.
"Today it is to our interest to assist certain countries. But that
does not give us the right to try to take them over, to dictate
their trade policies and to make them our satellites.
"Indeed, we do not want weak or subservient allies. Our friends
and allies are dependable just because they are unwilling to be
anyone's satellites. They will freely sacrifice much in a common
effort. But they will no more be subservient to the United States
than they will be subservient to Soviet Russia.
"Let us be thankful that they are that way, and that there still
survives so much rugged determination to be free."
On December 2, President Eisenhower endorsed the declaration of the
Secretary of State and said this:
"The easiest thing to do with great power is to abuse it--to
use it to excess. This most powerful of the free nations must
not permit itself to grow weary of the processes of negotiation
and adjustment that are fundamental to freedom. If it should
turn impatiently to coercion of other free nations, our brand of
coercion, so far as our friends are concerned, would be a mark of
the imperialist rather than of the leader.
"What America is doing abroad in the way of military and economic
assistance is as much a part of our own security program as
our military efforts at home. We hope to be able to maintain
these overseas elements of our security program as long as our
enlightened self-interest requires, even though we may, and
probably we always will, have various differences of opinion with
the nations receiving our aid."
On that same day, Admiral Arthur Radford, Chairman of the Joint Chiefs
of Staff, speaking in general of America's leadership role in the
world, said in a speech at West Point:
"Relationships between members of coalitions are never simple,
particularly in coalitions as large as ours of the free world.
The smaller nations expect, and are entitled, to exercise their
sovereignty and independence. Our leadership therefore involves
self-restraint if our objectives are to be achieved by consent,
rather than through the pressure techniques imposed by the Soviet
on her satellites."
There is one commodity that is not on any list but is more important
than all others, and that is the cement that binds the free world
together.
_CHAPTER VI_
=The Battle Act and Economic Defense=
The Mutual Defense Assistance Control Act of 1951, usually known as
the Battle Act after Representative Battle of Alabama, established a
general framework of policy within which the executive branch takes
actions that meet current conditions.
This law reinforced the system of international strategic trade
controls that was in existence prior to its enactment. It maintains
a close link between United States foreign aid and strategic trade
controls. It also recognizes the necessity of international cooperation
in the control effort, and it aims toward strengthening the free world
as well as impeding the military ability of nations threatening our
security.
=Battle Act Functions=
Administering the Battle Act is one of the responsibilities of the
Director of the Foreign Operations Administration, with the help of
a Deputy Director for Mutual Defense Assistance Control (MDAC). The
Director's responsibilities under the Act include the following:
1. Determining which commodities should be embargoed in
order to effectuate the purposes of the Act.
2. Continually adjusting the embargo lists to current conditions.
3. Advising the President on whether or not United States
aid should be continued to a country that has knowingly permitted
the shipment of embargo-list items to the Soviet bloc.
4. Making a continuing study of the administration of export
control measures undertaken by foreign governments and reporting
to Congress at least every 6 months.
5. Making available technical advice and assistance on export
control procedures to any nation desiring such cooperation.
6. Coordinating United States Government activities which
are concerned with security controls over exports from other
countries.
=The Money and the Manpower=
The budget of Mutual Defense Assistance Control (MDAC) for the present
fiscal year is $1,078,000. As of December 31, 1953, the MDAC staff
consisted of 29 persons, including clerical employees. In addition,
there were 111 persons on other United States Government agency
staffs, both in Washington and overseas, who were performing Battle
Act functions and were paid out of MDAC funds. These 111 were in the
following agencies:
Commerce Department 32
State Department 43
Defense Department 13
FOA (other than MDAC) 23
----
Total 111
This brought the total personnel on the MDAC payroll to 140, as
compared with 115 on June 30, 1953.
Besides these 140 people, the four agencies listed above had still
others, paid from the agencies' own funds, who were working at least
part of their time on similar functions (and generally were engaged in
such activities even before the Battle Act became law).
[Illustration: EDAC STRUCTURE]
=Meshing the Gears=
The Battle Act is a part of the economic defense program of the
Government. The economic defense program involves at least 10 agencies
whose activities and interests have to be coordinated. The coordination
is accomplished through the Economic Defense Advisory Committee (EDAC).
The chairman of EDAC is the FOA Deputy Director for MDAC. The chart
opposite this page shows what agencies are members and how the EDAC
structure is set up. In addition the United States Information Agency
has an observer on EDAC, and economic defense matters are closely
coordinated with USIA for overseas information purposes.
The chart also shows that EDAC has an Executive Committee; it
handles the day-to-day operating and policy problems of the economic
defense program. EDAC advises the Director of the Foreign Operations
Administration and the Secretary of State who are charged with
coordinating the implementation of the program of economic defense
matters including the control of strategic shipments from the free
world to the Soviet bloc.
Each agency that has a part in the economic defense program brings its
own particular point of view to the discussions which constantly go
on in the EDAC structure. For example, the Department of State is the
agency that coordinates the overall foreign policy of the Government
and deals directly with other countries; hence, that Department is
able to speak authoritatively about the vital problems involved in
maintaining good relations and close cooperation among the free
nations, and concerning the most feasible and effective means of
exerting United States influence in the implementation of United
States policies. The Department of Defense, being the agency primarily
concerned with military defense, brings to the discussions its own
expert knowledge of military matters and contributes valuable advice
on the military aspects of the problems that come up. The Department
of Commerce brings its specialized knowledge of commodities and its
experience in the administration of controls over the exportation of
goods from the United States. The Foreign Operations Administration,
besides administering the Battle Act, brings the point of view of
the program of foreign assistance and the economic factors which
must be taken into account. The Treasury Department is the authority
on foreign-assets control, the Atomic Energy Commission on the
significance and control of all atomic-energy materials, and so on
through the list.
All these viewpoints and all these special areas of expert knowledge
and experience are necessary to a well-rounded economic defense
program. Each agency, while discharging its obligation to make its
own special contribution to policy, is perfectly well aware that it
is only one of the participants, and that the other agencies have
legitimate points of view and valuable contributions to make. It
is natural and inevitable that these agencies should not approach
every problem of economic defense with identical views. But when the
problem has been thoroughly considered, and all viewpoints taken into
account, a decision is made on the basis of the overriding security
interest of the country, and that decision then becomes the policy of
the Government as a whole, respected by each agency regardless of the
specialized views which it might have expressed in the discussions.
=Improving the Machinery=
Organizational changes made in the United States economic defense
program during the 6 months under review included the following:
1. _Establishment of a Security Trade Controls unit within the
United States Regional Organization at Paris._ This unit represents
the United States in the informal international committee known as
the Consultative Group (CG) and its subordinate working bodies, the
Coordinating Committee (COCOM) and the China Committee (CHINCOM).[2] It
also performs certain Battle Act duties in Europe. These two functions
had previously been handled by separate staffs. The head of the new
amalgamated office is responsible jointly to the Department of State
and the Director of the Foreign Operations Administration.
2. _Establishment of a Joint Operating Committee (JOC) in Washington._
This development grew out of the fact that while EDAC is advisory
on Battle Act matters and on economic defense in general, another
interagency structure known as the Advisory Committee on Export Policy
(ACEP) advises the Secretary of Commerce on controls on exports from
the United States. EDAC and ACEP rely on basically similar information
and upon the same general body of experts throughout the Government.
Accordingly, JOC was created to analyze and recommend the strategic
rating of commodities and the levels of control which might be
exercised by the United States and advocated by the United States in
international discussions. JOC is thus the central point of United
States commodity review activities in this field, and there are no
overlapping or competing activities of this nature. The chairman of JOC
is a Commerce Department representative who is also a regular member of
the EDAC Executive Committee. The membership of JOC is made up of the
principal agencies which sit on both ACEP and EDAC. The new arrangement
has proved itself in practice.
[2] See Third Semiannual Battle Act Report, ch. II.
=The Termination-of-Aid Provision=
The Battle Act forbids United States military, economic, and financial
assistance to any country that knowingly permits the shipment to the
Soviet bloc of items listed for embargo under the Act, except that if
the items are not munitions nor atomic energy materials the President
may direct the continuance of aid "when unusual circumstances indicate
that the cessation of aid would clearly be detrimental to the security
of the United States."
On August 1, 1953, the President notified the Congress that he had
directed the continuance of aid to France, the Federal Republic of
Germany, Norway, and the United Kingdom, because the cessation of aid
would have clearly been detrimental to United States security. Even
though this presidential action took place in the second half of 1953
it was covered in the last Battle Act report, entitled _World-Wide
Enforcement of Strategic Trade Controls_, and the texts of the letters
that went to the Congress were reprinted as appendix B of that
document, pages 73-77.
There were no further Battle Act determinations to continue aid
during the 6 months covered by the present report. (Another group of
determinations went to the Congress on March 5, 1954, and the texts of
those letters will be reprinted in the next Battle Act report.)
During 1952 and 1953, the first 2 years in which the Battle Act was
in force, the total amount of shipments of Battle Act embargo items
knowingly permitted by countries receiving United States aid was in
the neighborhood of $15 million. Of this amount, 74 percent consisted
of "prior commitments"--that is, commitments made before the Battle
Act embargo lists went into effect on January 24, 1952. None of the
shipments were arms, ammunition, implements of war, or atomic energy
materials. Only $98 of the total went to Communist China, all the rest
to the European bloc. The $15 million may be compared with a total of
$2.7 _billion_ of exports of all descriptions from the entire free
world to the Soviet bloc during the same 2 years.
=Miscellaneous Activities=
As usual, a wide range of activities relating to the Battle Act and
economic defense was carried on during the last half of 1953.
The intensive United States review of the control lists has been
mentioned in chapter V.
The United States Government continued to increase its emphasis
on seeking improvements in the free-world systems for preventing
illegal diversions of strategic goods. This problem involves goods
of free-world origin which start out to friendly destinations but
are illegally diverted en route to destinations behind the Iron
Curtain. Our Government: (1) set up improved machinery in Washington
for collection and coordination of information, in order to increase
the effectiveness of our participation with other countries
in the enforcement program, and (2) sought to work out better
intergovernmental machinery to deal with diversions.
Our Government also intensified its efforts to analyze current trade
patterns between East and West, including the large number of trade
agreements concluded between free-world nations and Soviet bloc nations.
* * * * *
=Summary of the Report=
This leads us back to the earlier chapters of this report, which may be
summarized as follows:
In chapter I, Stalin's Lopsided Economy, we looked at the basic
economic structure of the Soviet Union. Beginning in the 1920's, the
Bolsheviks deliberately concentrated on an industrial-military buildup,
at great cost to their peoples. After the war, the same pattern was
forced upon the European satellite countries. Trade was reoriented away
from the West. That did not mean that the bloc could do without Western
goods, but the goal was to obtain those imports that would help the
bloc become more powerful and less dependent on the free world. The
Kremlin also sought to use trade to divide the Western powers and to
increase the reliance of free-world nations on the bloc. These Soviet
policies--not Western strategic controls--were the main causes of the
low level of East-West trade as compared with prewar. Stalin, shortly
before his death, made it clear that he welcomed the establishment of a
divided trade world--he saw it as a boon to communism and a blow to the
non-Communist nations.
In chapter II, The New Regime and the Consumer, we described the
new economic courses announced by the Soviet bloc governments after
Stalin's death. They made a great fanfare about providing more consumer
goods to the people and improving the neglected agricultural sectors.
But their steps did not go very far, and the purpose was to benefit
the state and not the people. They apparently were trying to ease
internal pressures--especially in the satellites--by opening the
valves a little, as they had done before. But they did not alter the
basic war orientation of their economies and they pressed on with the
industrial-military buildup.
In chapter III, The Kremlin's Recent Trading Activities, we reviewed
the so-called trade offensive--the various Soviet activities of 1953
and the early part of 1954 which seemed to show a livelier interest
in East-West trade. The U.S.S.R. concluded more trade agreements,
ordered consumer goods at a somewhat brisker rate, but also expanded
its efforts to buy ships and showed plainly that its principal
interest was still centered on the kind of materials that would foster
industrial expansion. To help pay for imports, the Communist planners
put manganese, oil and gold on the market in larger quantities than in
recent years, though history showed that they had done the same thing
in the past when it served their purposes. They also tried to increase
their influence in Latin America and Asia.
In chapter IV, What's Behind It All, we examined the motives and the
goals of the Soviet planners in all these recent trading activities.
Oversimplified explanations should be avoided. Their actions are not
motivated by a pursuit of peace--at least not peace as the West knows
the term. Their motives are mixed. In changing circumstances they are
seeking effective ways of accomplishing the same traditional objectives
of feeding the economy--especially the heavy industrial base--and of
weakening the free world. The free world is strong, and if free nations
refuse to be divided or deceived--if they work shoulder to shoulder to
prevent the Soviet bloc from getting the advantage--they can trade with
the Soviet bloc on terms that bring benefits to the free world.
In chapter V, U.S. Policy on Strategic Trade Controls, we outlined
the factors involved in setting policy. Not merely because of Soviet
activities but also because of the vast upsurge of free-world
production and other considerations, 1953 brought a thorough review of
United States policy. The basic policy was reaffirmed, but shifts in
emphasis were made to meet current conditions and establish controls
on a long-haul basis. Policy on the China trade did not change at all
during the 6 months under review. Free-world trade with Communist China
dropped sharply in that period, partly because of unequal trading terms
that the Chinese Communists were trying to impose upon free-world
traders. Finally, the United States reaffirmed its traditional policy
of treating its friends and allies with respect. In the words of
President Eisenhower, "this most powerful of the free nations must
not permit itself to grow weary of the processes of negotiation and
adjustment that are fundamental to freedom."
_APPENDIX A_
=Trade Controls of Free World Countries=
This appendix summarizes, in accordance with section 302 (b) of the
Battle Act, the trade control measures of most of the important
mercantile countries of the free world, as well as of several others
for which there is new information to report. These descriptions
supplement the main text of this report and similar appendices
contained in previous Battle Act reports.
The main features of the trade-control systems of most free-world
countries were originally established to deal with such problems as
foreign-exchange control, conservation of goods in short supply,
and directing foreign trade to particular currency areas. For most
countries security trade controls have been inlaid in these general
economic controls and are exercised through them, using the same
basic techniques of export licensing and customs inspection as in
export control for other purposes. Thus they are closely connected
administratively with them.
The details of security trade controls of almost all countries have
a security classification. Thus these descriptions must, in a public
report, be presented in somewhat general terms.
To avoid duplication, this appendix does not include countries which
were included in the appendix of previous Battle Act reports and
for which there is no substantial new information on security trade
controls which can be reported publicly. Summaries of export controls
employed by Thailand and Yugoslavia are given on pages 64 and 69,
respectively, of the third Battle Act report. The second Battle Act
report contains summaries pertaining to Bolivia, Colombia, Ecuador,
Panama and Peru on pages 64-66, and to Indo-China, The Philippines and
Lebanon on pages 66, 68 and 71, respectively. Summaries concerning
Argentina, Brazil, Chile, Mexico and Venezuela are contained in pages
62-66 of the first Battle Act report, as well as Austria (p. 66),
Iceland (p. 70), Afghanistan (p. 75), Burma (p. 76), China (Formosa)
(p. 76), Federation of Malaya (p. 81), Iraq (p. 87), colonial
Africa (pp. 91-97). All of the summaries mentioned above are still
substantially up to date.
Covered in this appendix, in alphabetical order, are the following:
_Country_ _Page_
Belgium-Luxembourg 66
Canada 67
Denmark 67
Egypt 68
France 69
Germany (Federal Republic) and Western Berlin 70
Greece 71
Hong Kong 72
Iran 72
Israel 74
Italy 74
Japan 76
The Republic of Korea 77
The Netherlands 77
Norway 78
Pakistan 79
Portugal 79
Singapore 80
Turkey 80
United Kingdom 81
United States of America 83