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EAST-WEST TRADE
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DOCUMENT WITHDRAWAL RECORD [NIXON PROJECT]
DOCUMENT
DOCUMENT
NUMBER
TYPE
SUBJECT/TITLE OR CORRESPONDENTS
DATE
RESTRICTION
OA
From. Smith
to HAK
12/12/68
B
memo
FILE GROUP TITLE
BOX NUMBER
TAK Office Files
1
FOLDER TITLE
8
RESTRICTION CODES
A. Release would violate a Federal statute or Agency Policy.
E. Release would disclose trade secrets or confidential commercial or
B. National security classified information.
financial information.
C. Pending or approved claim that release would violate an individual's
F. Release would disclose investigatory information compiled for law
rights
enforcement purposes.
D. Release would constitute a clearly unwarranted invasion of privacy
G. Withdrawn and return private and personal material.
or a libel of a living person.
H. Withdrawn and returned non-historical material.
NATIONAL ARCHIVES AND RECORDS ADMINISTRATION at the Richard Nixon
NA 14021 (4-85)
Lauy L acknowledge
John McClaughry
with Nixon Agnew
Special Assistant to Mr. Nixon
in Community Affairs
delay.
Campaign Committee
Staff of Richard M. Nixon
450 Park Avenue
New York, N.Y. 10022
12/3
(212) 661-6400
mo Reply
Henry ---
Congratulations on your appointment!
The President-elect has made a wise
choice.
Enclosed, a venerable memo on East West
trade I am convinced it makes good
sense. Bob Ellsworth bought it big 4
years ago. There is a speech that goes
with it, which you can have if you're
intersted.
Also RN quote on world law, which I
think should be the central theme of
our foreign policy in the long view.
I'm on the domestic thing at the moment,
and whatever expertise I had in foreign
affairs has been largely disspiated. But
call. if you want to chew any of this over please
John McClaughy
Reproduced at the Richard Nixon Presidential Library
Easf-Weshn
61
12/4
TO:
Issues Review Board
FROM:
J. McClaughry
6/29/66
SUBJECT: East-West Trade
DEC
1
mea
Background: Since the beginning of the Cold War it has been U.S. practice,
under four presidents, to maintain a large "positive list" of items that
cannot be exported to communist-ruled nations. Legislation in effect prohibits
the granting of most-favored-nation treatment to communist controlled coun-
tries with the exception of Poland and Yugoslavia, which were differentiated
by Congressional action in 1963. Over the past decade the other industrialized
nations of the West have made drastic reductions in their "positive lists"
and have expanded trade manyfold with the East. Realizing that their West
European colleagues were obtaining large economic benefits from East-Wests
trade, the American business community has become overwhelmingly in favor of
expanding such trade in all but the most obvious military items. While such
official policy, since 1956, has been that East-West trade is acceptable,
except in the prohibited items, the regulations have been so vague and the
administration so uncertain that the mere process of getting export licenses
has become an almost insuperable obstacle. It is apparent to all observers
that present U.S. trade policy is a shambles; that we are completely out of
step with our Allies with no prospect of an agreement on our terms; that for-
eign businessmen are getting profits that Americans could be getting; and that
increased trade between the industrialized nations of East and West is probably
inevitable.
Theories: There are essentially two classes of theories on the question. The
first class has only one principal variety--the restrictive theory. This holds
that East-West trade is per se undesirable and should be opposed insofar as
possible. A variant of this theory is that East-West trade is basically un-
desirable, but that government should not actively oppose what private business
wants to do except where security is clearly involved. This variant, despite
the intentions of the present Administration, constitutes the effective theory
behind government policy today.
In the second class are theories which see expanded East-West trade as
desirable; each, of course, makes exceptions for items obviously related to
military needs.
A) The economic only theory: This theory is based on the Law of Compara-
tive Advantage--mutual trade is mutually beneficial. Increasing East-West
trade will help both sides and, if U.S. exports exceed imports (as they would
almost certainly do), the U.S. balance of payments problem would be eased.
Profits now flowing to our allies would start to flow here.
B) The economics plus politics theory: This theory comes in two forms.
The first, resembling the economics only theory, suggests that East-Mest trade
will not only produce mutual economic benefits, but will also gradually exert
a subtle influence that will mellow relations between East and West, ameliorate
Reproduced at the Richard Nixon Presidential Library
East-West Trade
June 29, 1966
-2-
the harshness of the communist regimes, promote travel and cultural exchange,
and in general have a pervasive, beneficial effect on international relations.
This generally does not see increased trade as a political weapon in any overt
sense, but relies on insidious side effects to produce bonus benefits.
The other form of this theory sees increased trade as a reward to be given
in return for a political concession, such as tearing down the Berlin Wall,
acquiescing in 2 blockade of North Vietnam, and the like. It sees trade as a
part of a strategy for obtaining political benefits not directly related to
the trade issue.
The "passive" form of the economics plus politics theory is the one now
being formulated by the Johnson Administration under the slogan "building
bridges with the East. 11 The "active" form has been espoused by Senators
Javits and Mundt, to name two.
c) The economics plus law theory: This theory accepts as a premise that
by and large, wherever possible, international trade should be kept separate
from international politics. Instead, its goal is to bring the communist na-
tions into the legal institutions that have made "capitalistic" trade possible
between Western nations: impartial third party adjudication of disputes, anti-
dumping agreements, currency convertibility, patent and copyright protection,
decentralized contracting authority within state trading systems, waiver of
sovereign immunity for state trading corporations, etc. Like the "active" form
of the economics plus politics theory, however, the economics plus law theory
sees trade as a part of a strategy, but with this important distinction: where
the economics plus politics advocates envision expanding trade in return for
some concession--a zero-sum interaction whereby the other side must pay poli-
tically for the privilege of obtaining the economic benefits--the economics
plus law advocates envision expanding trade as a means of building international
order by causing the communist nations to accept the Western notions of orderly
legal behavior in the international arena--a non-zero-sum interaction where the
benefits of the interaction accrue to both parties at a higher level than the
mere exchange of ephemeral concessions. One strength of the economics plus law
theory is that it is consonant with the strong American aversion to state
trading, which the economics plus politics theory, carried to its logical con-
clusion, will produce.
This theory offers advantages, too, over the economics only theory. Busi-
nessmen are troubled about "trading with the devil" for mere material benefit.
By envisioning such trade as part of a strategy for order and freedom, these
guilt feelings may be assuaged, without at the same time moving down the road to
federal control over the export economy.
But perhaps the most attractive feature of the economics plus law theory is
that it can make a substantial contribution to the construction of a world of
law and order--an ancient American dream. The communists have steadfastly
rejected almost every attempt to institutionalize the rule of law and impartial
third party adjudication, claiming that existing international law is a product
of the capitalist exploiters and that there can be no such thing, given the
nature of the class struggle, as a truly impartial judge. The Soviet Union,
Reproduced at the Richard Nixon Presidential Library
East-West Trade
6/29/66
-3-
however, has now adhered to the International Patent Convention, despite
Marxist doctrine that the fruits of invention belong to the entire proletariat
and not to just the inventor. This concession is obviously an attempt to pro-
mote a more favorable climate for the expansion of trade with the West. The
Soviet Union has on at least one recent occasion permitted a state trading cor-
poration to submit to arbitration, waiving sovereign immunity, with the Stock-
holm Board of Trade--another milestone. If advancing the economics plus law
theory can produce progress toward communist acceptance of the Western idea of
the rule of law and the legal institutions through which law is applied, this
would be a development of great benefit to all mankind.
Current developments: On February 16, 1965, President Johnson appointed a special
committee on U.S. Trade Relations with Eastern European Countries and the
Soviet Union, chaired by J. Irwin Miller. On April 29, 1965, the Committee
recommended that the President be given discretionary authority to negotiate
commercial agreements with individual Communist countries when he determines any
such agreement to be in the national interest and to grant them in such agree-
ments the "most favored nation" treatment according to all our other trading
partners. 11
In his 1966 State of the Union Message, the President asked Congress to
give him most-favored-nation authority, as recommended by the Miller Committee.
On May 11, Secretary Rusk transmitted a draft bill (S 3363) to achieve this
objective. Immediate opposition arose from Rep. Wilbur Mills (D. Ark.), Chair-
man of the House Ways and Means Committee to which the bill was referred. It is
not expected that the Administration will press for action on the bill during the
89th Congress, but some hearings may be held in the Senate. The subject will
undoubtedly be a major issue of the 90th Congress.
Advantages of advocating the economics plus law theory:
1. The emphasis on the separation of trade and politics will enlist the
support of "conservative" economists, like the University of Chicago school.
2. This theory views increased East-West trade as a strategy for advancing
the American objectives of liberty, law, and order in the world, as opposed to
the Administration's Pollyanna notions of gradual sodality.
3. This theory provides businessmen eager to expand trade with a rationale
for so doing, calming their doubts over "trading with the devil. 11
4. This theory can tap the American idealism on behalf of a world of law
and order--a strain which runs deep in the Anglo-Saxon nature.
5. The theory recognizes the fact of life that trade is going to expand
with the East in any case.
Reproduced at the Richard Nixon Presidential Library
QUOTES ON WORLD LAW
Richard M. Nixon,
Academy of Political Science
April 14, 1959
"More and more the leaders of the West have come to the
conclusion that the rule of law must somehow be established to
provide a way of settling disputes among nations as it does
among individuals
I am now convinced, and in this I reflect
the steadfast purpose of the President and the wholehearted
support of the Secretary of State and the Attorney General,
that the time has now come to take the initiative in the right
direction of establishment of the rule of law in the world to
replace the rule of force We should be prepared to show the
world by our example that the rule of law, even in the most
trying circumstances, is the one system which all free men of
good will must support.
"
Dwight D. Eisenhower
State of the Union Message
January 1959
"It is my purpose to intensify efforts during the coming
two
years to the end that the rule of law may replace the
obsolete rule of force in the affairs of nations. 11
Reproduced at the Richard Nixon Presidential Library