Part 6

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).

=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.