Created: 4/1/1964

OCR scan of the original document, errors are possible

TITLE: Intelligence Cor Economic Defense

AUTHOR: Sherman R. Abrahamson




A wlfect.on ol arbdos on Ihe historical, operational, doclrinal. and Iheoreiical aspects ol intelligence.

Alof fact opin,on orxpressed in Studies in Intelligence are those of

the authors .hey do no. necessarily reflect official positions or views of the Central Intelhgence Agency or any other US Government entity, past or present. Nothing in the contents should be construed as asserting or implying US Government endorsement of anactual statements and interpretations!

The rote of intelligence in. and multilateral trade control programs.



Sherman R. Abraharnson

rjism. That it continues toherished goal of thecountries might seem questionable because the Bloc has increased rather than decreased Its Imports fromA closer look at the trade Information, however, reveals that much of the Increased Importation is of high-quality, latest-design machinery and equipment Such Imports are consonant with autarky because they bring savings In costly research and development effort. These savings, invested in the domestic manufacture of such equipment, accelerate Bloc economic growth and so hasten the day when even this kind of import Is both unnecessary and disadvantageous.

The Soviet program of quick-step economic growth and its methods have received widespread attention, but not so well publicized are the measures taken by the Western world in general and the United States In particular to prevent the Bloc from acquiring military equipment of advanced design and related Industrial technology. The Industrializedof the West have Joined togetherultilateral,trade control program for this purpose; andthe United States hasrogram with much more stringent controls over the export. goods and technical data.

To Illustrate how these programs operate we shall examine two recent cases. Within the past year the USSR ordered from the Japan Electron Opticsokyo firm, two electron-beam machlners valued atnd from the Finley-Moody Trading Corporation, an Illinoisof farm equipment, two forage harvesters and eight self-unloading farm wagons worth aboutlectron-beam rnachlncrs at the present time are used

almost exclusively In fields related to advanced militaryenergy, missile and Jet engines,United States, operating through thetrade control program, was Influential In preventing the shipment of the Japanese equipment to the USSR. Theofproduced farm machinery, on the other hand, was approved after the White House decided that our political and economic gain from the sale would exceed anyloss.

Although the United States had controlled exports to some degreeumber of years, the security aspect of Itswas not embodied in any peacetime legislation until the Export Control Acthis act. seeking to provide for "the necessary vigilance over exports from the standpoint of their significance to nationalonferred on the President very broad powers to restrict and control them. These powers have from the beginning been delegated to the Secretary of Commerce.

Even before tho act was passed, restrictions on exports of strategic goods from the United States to the Communist countries had become increasingly effective. The Blocmade greater efforts to get such exports byfrom third countries, and sometimes achieved amazing results. For example copper, which waa In critically short supply In the Soviet Bloc, was also In short supply In the West; and the United States, dominating the world copper market,nilateral embargo on Its export to the Bloc, The Bloc nevertheless succeeded In. copper fromajor recipient of Marshall Plan aid, showing the Ineffectiveness of unilateral controls. Moreover, Italygrain from the USSR In exchange for the copper when thereurplus of grain In the United States. This and other anomalies In tbe trade of West European countries brought the realization that multilateral controls were

Inultilateral discussions were held on theand inecret. Informal, voluntaryGroup was organized In Paris to formulate policy and guidelines for selecting materials to be embargoed mulUlat-

erally fromBloc. All NATO countries (except Iceland) Joined the organization,oordinating Committee. COCOM, was established to carry out day-to-day and item-by-item deliberations.

The Communist conquest of the Chinese mainland9 and the outbreak of the Korean War in0ew phase In the controls program which culminated In the passage of the Mutual Defense Assistance Control Acthis, commonly called the Battle Act. provides In effect for an embargo on the shipment of I'armsandjother materials of primary strategic significance to the USSR and nationsits domination.An item la considered to be of primary strategic significance if moreinimal quantity would contribute to Soviet war potential. The act also calls for termination of. aid to countries that knowingly ship embargoed materials to the Bloc except in "unusualwhen "the cessation of aid would clearly be detrimental to the security of the Unitedf the few actual shipments of embargoed goods made to Blocby COCOM countries, none have been consideredenough to require this retaliation.

Not long after the passage of the Battle Act.. effort to reduce the trade of other ncn-Communlst countries with Communist China led to the formationeparate China Committee under the Consultative Qroup. CHINCOMwere much broader than those Imposed on the Soviet Bloc through COCOM: in addition to military articles andstrategic material they covered most types of capital goods such as Industrial machinery and equipment, steel mil) products, and non-fabricated metals. The embargo was also broadened through the inclusion of more countries tn COCOM andat the time of the Korean War, Greece and Turkey$ -and strengthened by pledges offrom important neutral countries, notably Sweden and Switzerland.

The West European countries, however, although theywith the United States by embargoing the export of strategic goods to Cruna, continued even during the Korean War to ship such material as textiles, textile machinery,dyes, and drugs. The end of that war. together with

the emergenceew regime In the USSRecession In the United States that mighteclinef European goods, Increased the pressure from these countries and Japansubstantial relaxation oflimiting trade with the Bloc. In several reof the lists of embargoed goods the special differential controls for Communist China end North Korea wereCOCOM and CUINCOM became the same committee wearing two hats, and the number of Items on the COCOM list was reduced to about one-third*ot what It hadjbeon. .The new lints focused more sharply on Items embodying advanced technology or unique materials whose denial wouldelatively direct impact on Bloc military programs.

COCOM Is an Informal and almost amorphous organization, having no direct relationship to any of the multilateralor economic organizations In Europe such as NATO, OKCD. and GAIT. It has no charter and Is based on no treaty. Its agreements, accordingly, represent moral obligations rather than legal corrunltments. But it does fulfill Its major purpose, toommon policy on strategic tradeand thus assures the participating governments that they are according generally equal treatment to theirbusiness communities. The one exception in this respect Is the United States, which does not limit its controls to those agreed in COCOM and approaches more Inclusively theand vexing question of what constitutes strategic goods.

The United States does not consider the multilateralof export controls adequate.0 it has rrialnlalnod unilaterally an embargo on practically all goods toChina, Imposing both financial and shipping controls, and has since extended them to North Vletrjairt Even towards the European Satellites and the USSR, tbe US. policy Is to embargo more Items than any other member of COCOM. And the US. embargo consistently cuts deeper than the COCOM list into the field of general Industrial goods.

U.S. policy thustrange dichotomy, emphasizing on the one hand the necessity for continuing the rather liberal multilateralthe effectiveness of any limitation Imposed on exports Is dependent on support from othercapable of supplying similaron the other

the maintenance of the more stringent unilateral program. This ambivalence hasontinuing source of difficulty in the executive branch, especially between the Department of State, which has primary responsibility for administering the multilateral program, and the Department of Commerce with its Export Control Act responsibilities. Bothagree that the severer program should apply onlynilateral US. embargo is likely toecognizableon Bloc capabilities. But determining wheri^ojeriy and when,to approve sx>meUrries^generates trr^b'lesoHe^Tooeems. of Judgment and evaluation, and these problems are carried over Into COCOM when other countries are affected by US. unilateral actions.

. exporters, and perhaps others as well, areby what seems the useouble standard. Traders in some COCOM countries are permitted to sell some goods that VS. traders are prohibited from selling to countries of the Ccrnrnunist Bloc. Moreover, the standardppears to vary from time to time: the sameimilar commodity that has been approved for export to theBloc at one time may be denied at another, depending on how the request is presented and what conditions areto prevail then Ln thelassic example was an application of the Bryant Manufacturing Company to ship high-speed grinders used In the manufacture of bail bearings to the USSR. Deliberations on this case begannd successive decisions at intermediate levels in the US.oscillated between approval and denial for two yearsinal decision to deny was reached.

The Rot* of Intelligence: EDAC

Within the United States the machinery for coordinating activities concerned with the multilateral program is theDefense Advisory Committee. The Chairman of EDAC is the Battle Act Administrator, who also is the Assistantof State for Economic Affairs. Other member agencies are Defense, Commerce. Agriculture. Treasury. ABC, AID, and CIA, Tho Office of Emergency Planning has observer status. Representation on EDAC Is at the assistant secretary level, and the full committee Is called Into session only when lm-

portant poller recommendations must be made. Otherwise EDAC's Advisory function Is carried out by its Executivea smaller groupower level of representation. Two working groups concern themselves respectively with control policies and with problems of application and

With respect to the US. unilateralimilarthe Advisory Committee on Export Policy, assists the Secretary of Commerce. ACEP, chaired bythe ^ssistantof Commerce for Dorrsestte andionsTOi usinH Includes all members of KDAC except AID. plus FAA. Interior, and NASA. As In EDAC, routine matters are handled for ACEPower-level group, the Operating Committee.epresented el every level In both the EDAC and ACEP structures by personnel of Its Office of Research and Reports, and these representatives draw on the resources of the whole Intelligence community.

The neadquarters of the multilateral program has remained In Parts since Its Inception.esident delegationthe United States on the Consultative Group and COCOM works with the foreign policy delegates of the other member countries. When the State Department inIs apprised by Its Paris representatives of problemsto the program, It convenes the appropriate EDACto study them and render Its advice, which is generally Influential In determining the Instructions to be sent toIA representation on the EDAC groups guarantees that each case Is re viewed by economic Intelligence analysts in theconcerned, and their responses frequentlyivotal role? formulation of the Instructions.

They did so In the case of the Soviet order for Japanese electron-beam machlnera. For many years COCOM members have agreed that advanced equipment used In the production of war material should be embargoed, and the advertising brochure on these machines emphasized their use In nuclear energy and rnlcroclectronlc applications; but the COCOMprovides for exceptions, If no member objects, to this embargo. Here the Japanese had applied to COCOM for anon tbe grounds that, since the USSR alreadysimilar machines and hence was abreast of the tech-

nology Involved, no strategic risk was Involved in selling It the two Japanese models. If no COCOM member had objected. Japan would have been free to go ahead without risking the termination of US. aid for violation of the Battle Act.

The United States could, of course, object to any and allto the list of embargoed Items, since the list Itself is limited to Items agreed to be of strategic significance. But such systematic objection could conceivably Jeopardise the whole COCOM arrangerrtent; It would give substance to athat the entirelpngtam is designed mainly to axhieve' US. political objectives. Therefore the policy has been toiddle course, scrutinizing each exceptions request carefully In order to stop shipments that would be of really significant benefit to the Bloc military program. Which these are Is In nearly all cases determined In EDAC Workingfter analysis and discussion ln committee sessions.

When the Japanese request for exception of the electron-beam machiners was discussed at an EDAC Workingeeting, intelligence Information was produced to show that research and development work on such devices In the USSR was stillrimitive stage and that the Soviets had mounted, before turning successfully toultlpronged effort In the United States, the UK. and probably In France and Germany as well to acquire technology and equipment in this field. In their exceptions request the Japanese hadto broad Industrial applications for these devices but neglected to mention that such applications are onlythat at present the machiners are used exclusively in strategic applications. In view of this fact, together with the Intelligence finding that Soviet electron-beam technology is situ in Its infancy, as opposed to the Japanese contention that It Isar with that In the United States. EDACdenial, and the delegation ln Paris was Instructed to Interpose an objection. The Japanese governmentrefused to license the export of the equipment, and the USSR continues to lag behind In this Important field

Intelligence, broadly speaking, la central to the operations of EDAC Workinghe enforcement group. Its most active members are the departments of Treasury, State,and Defense. Each of these ln one way or another

Economic Dt/enxe

In checking on export activities. Treasury'sof Customs, for example, examines all export declarations and permits, and when necessary Its agents physicallyarticles to be exported. Foreign Service officersthe reliability of certain consignees before an export license Is granted, and they determine whether licensed goods were received and used in accordance with the license Issued.

During these Investigations much Information on theof many Arms is acqulied^SomeUmesof Ulegal'^xpTRs Is

quasi-Judicial action, which may lead to criminal proceedings against the offending firm or Individual. In other cases, when the evidence Is not conclusive enough to support litigation, it Is forwarded to EDAC Workingor possibleaction. If the Working Group agreesornr individual has violated the security trade control laws,agencies are authorized to take administrativethe withholding of various government privileges and facilities which generally serves to curtail significantly the business opportunities of an exporter.

The Investigations are aided by certain informationto CIA which must be screened and sanitized before being passed to the enforcement agencies. Frequently thisis the first indicationarticular Arm or individual may be conducting Illegal export activities. Occasionally It contains hard evidenceiolation of the laws has

The COCOM list of embargoed items Is periodicallyIn Parts In order to add new Items embodying the latest tectmology and remove those no longer consideredunder the agreed criteria. Before each suchreview, CIA economic analysts prepare an intelligence statement on each Item on the list, giving the lateston the situation In each Communist country withto thatand planned production, trade,use pattern, technology, costs. Each statement concludes with an assessment of the adequacy of the Bloc's supply for strategic and noo-strategic needs. These analyses are indispensable to the EDAC members responsible for recom-

mending changes In the embargo list and. policy In the multilateral program

Intelligence in ACEP

Under the unilateral US program, the Department ofhas developed an extensive system for licensing exports, both of commodities and of technical data, and allexports except to Canada are prohibited unless thehasgeneral license" covering them or has.validated illcenso" for particular shipirtetits. Theoercent). exports move to friendly countries under generaleneral Licensemall number of Items that can be exported to the Soviet Bloc without special application.

A detailed application must be submittedalidated license to ship any other exports to the Soviet Bloc (except Poland) or to export to any country except Canadahousand Items carriedositive List" Most of the latter are considered strategic or critical In some way to the Bloc's military-Industrial mobilization base. The remainder are Items in short supply whose export would contribute topressures In the United States.

Now the goods that the Bloc has shown the greatest Interest In buying are not on either the GLSA or the Positive List, in deciding whether to Issue licenses for them the Secretary of Commerce must determine in eachafterreview In the ACEPthe item falls under the control criteria of the Export Control Actnd particularly under Its criterion, as amendedf whether the "exportignificant contribution to the military or economic potential of such nation or nations which would prove detrimental to the national security and welfare at the United states "

The workings of the ACEP and its Operating Committee and the part played by Intelligence can be moat easily Illustrated by the case of the harvesters In2 the Flnley-Moody Trading Corporation appliedicense to export two self-propelled forage harvesters to the USSR Althoughare not considered strategic and therefore are not on the Positive List, the "economic criterion" cited above required


that It be detennlncd whether the export would contribute significantly to the economic potential of the Blocay detrimental to US. welfare. Thua the request was taken up by the Operating Committee, which had hitherto been most often concerned with exceptions to the Positive List.

In the Operating Committee the CIA representativeinformation developed by the Agriculture Branch ofeconomic research organisation. Thewas that thlseouLpment woofd-not produce afodder^tput. The USSR

had designed, constructed, and was currently testing aof the same type, and acquisition of the US. machines would be of benefit mainly by providing another design for testing purposes. In the United States, moreover, self-propelled forage harvesters have not been widely used despite the fact that our farms are organized to permit their use if they offered significantumber of companies. Including International Harvester, that build foragehave neverelf-propelled model because prospects for selling them are so poor. In the USSR, which has been traditionally short of harvesting machinery and where the collective and state farms hare chronic difficulty maintaining agricultural equipment Ln operating condition, the economic loss in the eventreakdown would be greaterelf-propelled machine than with atractor-drawn model: the tractor would still befor other work.umber, of recent articles In the press Soviet engineers have themselves questioned theof large-scale production of self-propelled agricultural equipment. Thus evenarge number of these newwere available to the USSR It Ls doubtful that they wouldotable Improvement In Soviet agriculture.

Several meetings of the Operating Committee were necessary to review evidence and hear different points of viewecision was reached to deny the license. The IDepeu-tments of State and Commerce voted In favor of licensing;and Defense opposed. Because of this disagreement the case was reviewed at the next higher level,EP proper. Evidence on the case was heard again here, and when CIA repeated lie presentation on the situation and prospects for

elded to approve, jthe shl this case. Just as

forage harvesters In the USSR the ACEP Chairman reversed the decision of the Operating Committee Chairman andthe export. This position was In turn reversed by the Secretary of Commerce, an action that sent the whole matter to the Export Control Review Board, which Is composed of the President and the Secretaries of State. Commerce, andand to which the Secretary of Agriculture waa invited this time because of the nature of the case. After theIn the Review Board the Secretary of Commerce de-

machlners, was clearly responsive to the Intelligencesupplied.

Although In these two typical cases the Intelligence support came from CIA's economic research organization, It should not be Inferred that this is the only intelligence componentthe export control prtigrums. While It provides the representation on the interagency committees and Is thus the channel through which intelligence Is brought to bear, the information Itself Is acquired and the analyses coordinated with the participation of other parts of CIA and otherThis procedure brings the entire IntelligenceInto contact with the EDAC and ACEP structures andtheir members that all relevant intelligenceIs made available on each case.

The security trade control program of the United States Is not and never has been directed at cutting off all trade with the Communist countries; the concensus Is that the national interest is better served by permitting some trade with them. Itrogram of selective embargo which requires judgments on what trade to allow and under what conditions. It Is these judgments that render the role of intelligence In thea primary one.

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