The Mack plant in Russia that wasn’t

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At the same time that Mack Trucks was achieving major sales success in Europe, the Middle East and Iran, the opening up of the Soviet Union presented a major opportunity for the company.

And in June 1971, legendary Mack Trucks President and CEO Zenon C.R. Hansen made national news when he announced the biggest truck deal in history. Zenon had negotiated a tentative US$725 million agreement with the Soviet Union to help in equipping the world’s largest truck factory, the Kama River Complex. Construction on the facility had already begun, on December 13, 1969.

Under the agreement, Mack Trucks and other U.S. companies would supply machinery and technology valued at US$700 million to the new plant, plus 100 Mack off-highway M-Series mining trucks valued at US$25 million.

To elaborate, Mack was being contracted to design the plant, decide on systems operations and equipment, arrange for procurement and provide production assistance.

President Richard M. Nixon in 1971 had launched his détente campaign, seeking to ease tensions between the Soviet Union and the United States by normalizing diplomatic relations and increasing trade.

The deal initially had the Nixon Adminstration’s full backing. But conservatives against the deal caused Nixon to worry about his upcoming re-election campaign.

Zenon Hansen argued that trading was the best way to improve relations. Both Zenon and Nixon saw the deal as a vast opportunity that could lead to many other things. Sadly, the visionaries lost to the political tides anchored in the past, and the cold war went on for another 20 years.    

Summary

The Kama River (KamAZ) truck plant was built.

The project was financed by Chase Manhattan Bank and U.S. government loans.

The modern plant, automated by IBM model 370 computers, was built to produce 150,000 trucks and 250,000 diesel engines annually.

Awarded Contracts:

Principal engineering contractor - Swindell-Dressler Co. (Pittsburgh, PA) - $50 million

C.E. Cast Equipment (Cleveland, OH) - $35 million

Holcroft & Co. (Livonia, MI) - $20 million

Ingersoll-Rand (Rockford, IL) - $20 million

National Engineering Co. (Chicago, IL) - $15 million

Other KamAZ plant equipment suppliers:

Ex-Cello (U.S.A.)

Hueller-Hille (West Germany)

Liebherr (West Germany)

Morando (Italy)

Fata (Italy)

Renault (France)

Sandvik (Sweden)

Komatsu (Japan)

Hitachi (Japan)

The irony of the event is, while politics prevented Mack Trucks from cooperating with Russia on the huge KamAZ truck plant project, many other U.S. companies were in the end allowed to participate, bringing them vast profits while giving the Russians their first state-of-the-art commercial truck production facility.

Despite the defense department’s desire not to supply Russia with modern truck technology (Mack or other) and improve their truck production capability, the project went ahead anyway financed by Chase Manhattan Bank and U.S. government loans. KamAZ was up and running in 1976, building civilian and military trucks.

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Mack Trucks Signs Pact with Russia

Business Week Magazine / June 18, 1971

The Soviet Union and Mack Trucks, Inc. have signed a $700 million preliminary agreement for the U.S. company to supply machinery and technology for a huge Russian truck manufacturing plant.

The agreement is subject to approval by the U.S. government.

It was signed by Zenon C.R. Hansen, chairman and president of Mack Trucks, and N.D. Komarov, Russian deputy foreign trade minister, May 18 at the company’s Allentown, PA headquarters.

Hansen, commenting in a telephone interview, said he would describe the result of the talks with the Russians as a “letter of intent” rather than as a preliminary agreement.

Hansen said that “with the changing attitudes on east-west trade,” he was enthusiastic about the prospects of government approval.

The proposed deal could have a skyrocketing effect on U.S.-Russian trade. Total U.S. exports to Russia amounted to only $118 million in 1970.

The Russians were reported to be clearing land for the $1.3 billion project near Naberezhnle Chelney, 600 miles east of Moscow in the Tartar Republic.The project was said to include housing for an eventual 300,000 people.

The plant may require an estimated $1 billion worth of machinery and technology before it is completed.

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Export of Mack Trucks To Russia May Be Near

SAN ANTONIO EXPRESS / August 10, 1971

(WASHINGTON) The Nixon administration approved licenses Monday for export of million worth of foundry equipment to the Soviet Union, apparently clearing the way for a massive trade deal involving Mack Trucks Inc.

Although the two licenses approved went to a company other than Mack, a Commerce Department spokesman said the action was “related to the project on the Kama river” where the Allentown, Pa. firm proposes to build what is billed as the world's largest truck plant.

Commerce officials said privately the action would be a first step in approval of the Mack Truck deal but said It should not be construed as meaning a final decision has been made.

The department approved three licenses altogether, including one for export of technical data for iron and steel foundries. Equipment for automotive castings was among items listed. The firm went unidentified, in line with department policy.

Roger Mullin, executive vice president of Mack Trucks, said the export licenses approved were “definitely not for us. Our application is for machine tools.” But he said foundry equipment would be necessary before a truck plant could be built.

Mack Trucks signed an agreement with the Soviet government this spring to build the Kama River project. The Mack Trucks spokesman said the cost is just a guess, but he said estimates have run between $1 billion and $2 billion.

Mack Trucks, as a result of the agreement, is seeking authority to export an estimated $700 million worth of machinery and technology to the Soviet Union.

The company spokesman, asked whether the government’s action indicated the administration will act favorably on the entire deal, said he would not speculate on what would happen next. He said “your question would lead logically” to the conclusion the administration is looking on the application favorably.

Mullin said in reference to the foundry equipment: “It is an essential part. We would have to have a foundry.”

The government refuses to name the companies for which it approves export licenses. A spokesman said it only referred to the Kama River project because it had been previously announced by the parties involved. Officials said a step-by-step approval process may be used in granting licenses for the project.

The Commerce Department’s Office of Export Control passes on specific export licenses for export of equipment forbidden under government regulations. Such high-technology items as foundry equipment are prohibited from being exported, unless a specific license is granted by the government.

About a year ago, Henry Ford II went to Moscow in an attempt, later abandoned, to complete a similar agreement.

At that time, Secretary of Defense Melvin R. Laird commented: “Before giving away the technology to construct trucks in the Soviet Union, and establishing plants for them, there should be some indication on the part of the Soviet Union that they are not going to continue sending trucks to North Vietnam by the shiploads for use on the Ho Chi Minh Trail.”

There was no Defense Department comment on Monday’s action by the Commerce Department.

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Mack cancels Soviet Plant

The Miami News / Sept 16, 1971

Mack Trucks, Inc. has cancelled plans to build the world’s largest truck plant in the Soviet Union. Mack said it has not received U.S. approval.

Mack signed a preliminary agreement with Soviet officials last May 18, providing that the Allentown, Pa. firm would design and supply a major part of the Soviet Union’s $1.4 billion Kama River truck plant.

The deal, Mack said, hinged on whether the White House was willing to ease its policy on exports to communist countries sufficiently to grant the necessary approval.

The deadline for government approval under the tentative agreement was initially June 25, but the date had been extended to September 15.

In a terse message to Soviet officials yesterday, Mack said, “Since approval from the U.S. government has not been received and the second extension....expired with the close of business today, we feel that to our mutual interest.....to consider said protocol terminated.”

There has been no official statement from administration sources on the proposed deal.

Defense Secretary Melvin Laird, however, has in the past decried the fact that the Russians are supplying trucks to North Vietnam.

Mack countered the charge with the argument that a final agreement would have stipulated that the trucks be used only for industrial and agricultural purposes within the Soviet Union.

The Kama River plant, about 600 miles east of Moscow, was scheduled to begin production in 1975, with a planned capacity of 150,000 heavy diesel trucks and 100,000 diesel engines annually.

Mack Truck President Zenon C.R. Hansen was unavailable for comment on cancellation of the project.

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Mack Trucks Drops Soviet Union Truck Plant, Cites U.S. Slowness

United Press International (UPI)  /  September 17, 1971

Mack Trucks Inc. announced Thursday it has dropped plans to help the Soviet Union construct a giant US$1.4 billion truck plant because the U.S. government had not approved the agreement.

An administration official said in Washington, however, that “the government did not stand in the way of the deal.” He said government officials “were considering, and indeed, will consider in a positive way,” Mack’s application to build the plant.

“They (Mack) are aware of this, and so were the Soviets,” he said.

The official, who asked not to be identified by name, said the Commerce Department, which was considering Mack’s request for permission to export needed equipment to the Soviet Union, “had asked for some more information and Mack did not provide it.”

Mack said it had signed a “letter of intent” last May 18 with Soviet officials, agreeing to provide engineering consultants and 100 heavy-duty vehicles for construction of the plant on the Kama River in Russia.

The “letter of intent” was extended past its expiration deadlines of June 25 and July 25 , pending U.S. consideration of the proposal.

When it expired for the third time Wednesday, Mack told the Soviet Union it was pulling out because the Soviet Union had told the truck company last August 4 that time was an important factor in the plant planning.

When Mack signed the letter of intent after working out plans with a Soviet trade delegation, it was with the understanding the aid would have to be approved by the U.S. government, a Mack spokesman said.

 The agreement to help the Soviets build the plant had met some criticism from the conservative Young Americans for Freedom (YAF) which announced it was beginning a nationwide campaign against the agreement.

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Kama River Export Licenses Approved

The Chicago Tribune  /  October 21, 1971

The Commerce Department approved export licenses totaling US$280 million for foundry equipment at the proposed Kama River truck factory in the Soviet Union, Dow Jones news service learned today.

The e x port licenses for foundry equipment were cleared for about 10 United States companies.

The Commerce Department didn't identify any of the applications, but confirmed that if the equipment is sold to the Soviet Union, it would be used at the Kama River factory where the Soviet Union plans to produce about 150,000 heavy-duty trucks annually by 1975.

In August, the department cleared three other licenses for foundry equipment and technology valued in excess of US$162 million for the same project.

Nixon administration officials said that while the foundry equipment export licenses now total about US$442 million, the Soviet Union's purchases of such equipment in the U. S. may amount to little more than 10 percent of that total.

The approval of the export licenses in effect puts a number of U. S. manufacturers in a position to seek contracts to supply this equipment with assurances that if contracts were completed, the items could be exported.

U. S. intelligence sources estimate that U. S. manufacturers may receive orders totaling about US$300 million for a wide variety of equipment and technology that the Soviet Union is seeking in the U. S. to build the Kama River plant.

Commerce Department officials said that other applications for licenses are pending. It is understood these include machine tools and other equipment that would be used to produce trucks and components.

The Soviet Union originally planned to clear their orders for U. S. equipment thru Mack Trucks, Inc., a unit of Signal Companies, Inc.

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U.S. Department of State Archives

Foreign Relations, 1969-1976, Volume IV, Foreign Assistance, International Development, Trade Policies, 1969-1972

 

334. Information Memorandum From Ernest Johnston of the National Security Council Staff to the President's Assistant for National Security Affairs (Kissinger)/1/

Washington, June 18, 1971.

Source: National Archives, Nixon Presidential Materials, NSC Files, Subject Files, Box 402, Trade, Volume IV 7-12/71. No classification marking. A copy was sent to Sonnenfeldt. At the top of the page Haig wrote: "Houdek--Tell Jon Huntsman again," and Houdek wrote: "Done 6/28/71."

SUBJECT
Your Conversation with Peter Peterson on East-West Trade, June 16

Pete Peterson has informed his staff of his conversation with you at lunch on June 16 in which you notified him that you did not wish to send to the President Peterson's memorandum proposing a telephone call to Henry Ford on possible government considerations of the Kama River project./2/

In a June 15 memorandum to Kissinger briefing him for a June 16 lunch with Peterson, Johnston wrote: "Peterson wished to send a memorandum to the President asking permission to inform Henry Ford in advance that we may shortly reconsider American participation in the Soviet Kama River truck project. You indicated that you did not wish to do this at this time, and that future East-West trade questions should be handled by you. Peterson is sure to ask about your reaction to his memorandum." Johnston's memorandum continued: "You should discuss with him the timing which you anticipate on future East-West trade moves, and also get his agreement on the mechanism for submitting these issues to the President, i.e. joint memoranda or personal clearance by you of all his memoranda on this subject. Peterson believes that American commercial interests have heretofore been neglected in the East-West trade issues; and he is unlikely to welcome the idea that political considerations be governing."

In addition, Peterson informed his staff that you and he agreed that his small working group on East-West trade should begin preparation of a paper to put to the President specific options for a piecemeal approach to the Kama River project. Peterson has also called for consideration of an alternative approach whereby we might use U.S. approval of the Kama River project as a lever on subsequent Russian purchases from the United States.

The Peterson task force will not have a draft until next week. Subsequently, the paper will need ample technical staffing by Commerce and State as well as Defense before it can go to the President.

Peterson may also shortly propose to you a cable to go to Moscow in answer to the request put to Peterson in April by Soviet Deputy Minister of Foreign Trade Komarov for an answer before June 25 on U.S. participation in the Kama River project. That cable will merely inform the Soviets that the U.S. has not come to a decision on this issue./4/ Peterson says that you had decided to convey the same message to Ambassador Dobrynin.

Komarov visited Washington in May; see Document 332.

A draft message, prepared by R. B Wright (who had also participated in Peterson's May 17 meeting with Komarov) on June 7, is attached to Johnston's June 15 briefing paper for the Peterson luncheon.

In the margin next to this and the following paragraph, Kissinger wrote: "There is to be no separate Peterson communication to Soviets. Al, please make sure--The memo must go through me."

Peterson's task force will also have shortly a proposed memorandum from you and Peterson, as you jointly agreed previously, outlining a list of the actions which the United States could take should we wish to move on the East-West trade front. As I envision it, and Peterson's staff is in accord, this would merely list for the President a sequence of actions for future decision on which we would ask the agencies to submit issues papers according to a timing worked out subsequently by you and Peterson. Peterson might wish the scenario memorandum to be a vehicle to forward the recent interagency study on East-West trade potential, or he might wish to send the latter separately.

 

335. Editorial Note

Peter Peterson and Ambassador Dobrynin met on June 26, 1971. A handwritten note from Peterson to Kissinger regarding the meeting reads as follows: "June 29--I saw Dobrynin Saturday nite as I am sure Al Haig consulted with you. I decided to say nothing unless he said something. At the very end of the meeting on the way out, he grabbed me rather intensely and said 'It is very important that you (Peterson) and I get together soon so this trade deal does not blow up because of something you and I do not do.' I said you would be calling him today and he said 'that's fine, but it is still very important that you (Peterson) and I meet soon.' I said nothing."

The memorandum of Kissinger's June 28 conversation with Dobrynin reads in part as follows: "I told Dobrynin that I would give him a preliminary reply to the Kama River Project on Wednesday evening, particularly the stages at which it could be accomplished. I told him there was no sense bringing public pressure on us and that we would appreciate it if this pressure would stop. We were moving as fast as possible." The memorandum of conversation is attached to an undated memorandum from Kissinger to the President informing him of the meeting with Dobrynin. Regarding the Kama River project, Kissinger wrote: "I promised Dobrynin a reply on the Kama River Project in a couple of days and cautioned him not to try to pressure us."

 

336. Memorandum From Ernest Johnston of the National Security Council Staff to the President's Assistant for National Security Affairs (Kissinger)/1/

Washington, June 30, 1971.

/1/Source: National Archives, Nixon Presidential Materials, NSC Files, President's Trip Files, Box 491, Dobrynin/HAK 1971, Volume 6, Part 1. Confidential. Kissinger wrote "Port Security" at the top of the page. Documentation on access of Soviet ships to American ports (and reciprocal access of American ships to Soviet ports) and security procedures to be followed when Soviet ships were in U.S. ports is ibid.

SUBJECT
Incremental Approach to the Kama River Project

The Soviets plan that the Kama River Truck Project will consist of six main production shops, described in the table below. The table also indicates the degree of technological complexity of each segment as well as Mack Truck Company estimates of costs.

Segments of the Project	Degree of Technological	Mack Trucks Estimates of Complexity Cost ($ millions)
Forging Plant	relatively simple	$20
Stamping Plant	relatively simple	42
Tooling and Repair Plant	Generally not complex, but needs some complex tools	20
Foundry Plant	More complex	450
Assembly Plant	More complex	250
Engine, gear and transmission plant	Most technologically complex	600

At present three U.S. companies have filed applications for licenses and one company has indicated that it will file shortly:

Mack Trucks--general technical services and equipment--$750
Swindell-Dressler--Foundry design--$13.5 million
C.E. Cast--Foundry equipment--$37 million (competitive with the above)
Bliss--Forging shop equipment--$23.4 million (application has not yet been filed)

It is possible to grant export licenses on an incremental basis, though very difficult to justify. We could for example indicate that we would now grant licenses for specific segments of the project, i.e. those of less technological complexity, but that we would consider later applications relating to the more complex elements. We could not under this approach grant the license for which the Mack Truck Company has now applied, since it covers the entire operation. We could, however, indicate to Mack that we would approve segments of its application relating to the approved parts of the project.

The advantages of such an approach would be that it permits a low silhouette for the U.S., allows us to graduate the extent of U.S. participation as the public becomes accustomed, and clearly shows we will at first restrain our cooperation to the less advanced parts of the project.

The disadvantages of the piecemeal approach are that: U.S. companies would be hindered from presenting bids for some segments until too late in the Russian plan; the legal national security justification for U.S. participation in one part of this massive truck factory but not in other parts would be weak; and the approach will discriminate against companies interested in the delayed segments.

 

337. Memorandum From the President's Assistant for International Economic Affairs (Peterson) and the President's Assistant for National Security Affairs (Kissinger) to President Nixon/1/

Washington, undated.

Source: National Archives, Nixon Presidential Materials, NSC Files, President's Trip Files, Box 491, Dobrynin/HAK 1971, Volume 6, Part 1. Confidential. The memorandum is Tab B to a June 30 memorandum from Johnston to Kissinger. Tab A is a June 30 memorandum from Hinton (acting for Peterson) to Kissinger providing talking points for Kissinger's meeting with Dobrynin that evening.

Hinton noted that Peterson had told Kissinger the previous day that "the object of the exercise would be to work toward a situation in which U.S. participation in the Kama River truck plant might be linked to Soviet purchase from us of consumer goods and equipment to manufacture consumer goods." In suggested talking points Hinton pointed out that Komarov had recognized that such a linkage would help the President fend off criticism from political conservatives. In his covering memorandum, Johnston called Hinton's talking points "excessively positive" in the absence of a firm decision and took exception to the possible linkage of Kama with additional purchases of non-strategic imports from the United States, which would hinder U.S. firms' participation in the Kama project because they would face additional obligations not imposed on Western European competitors. Johnston noted that "such an approach would hinder the U.S. commercial opportunities, be less forthcoming with the Soviets, and would open the possibility of a comprehensive trade negotiation with the Russians, which would expose us to exceptional demands and might prove fruitless." In a June 30 note transmitting the package to Kissinger, Haig noted that "no one was acquainted with your specific requirements as conveyed privately to Peterson" and added that he did not "see anything for your use tonight [with Dobrynin] except for the more general considerations outlined in the strategy paper at Tab B."

SUBJECT
Scenario for State East-West Trade Decisions

For the past two years the Administration has generally, with a few exceptions, refrained from significant liberalization in our trade relations with the USSR and Eastern Europe. The exceptions have been:

--A gradual but relatively unimportant decrease in our export control lists under the review procedure called for by the Export Administration Act of 1969.

--A few favorable decisions in the COCOM allowing European countries to ship marginal items to Eastern Europe.

--Granting of export licenses in May for the shipment of $86 million of truck manufacturing machinery, including the Gleason application.

--Elimination of 50% American shipping requirement on grain sales in the context of our China policy.

Now, however, there has been a gradual increase in commercial and Congressional pressure for us to take further steps. In addition over the rest of the year there may be developments in our general relations with the Soviet Union and Eastern Europe justifying further moves. We should now examine what these moves might be and how we can prepare the technical staffing for decisions. Such preparation does not imply approval of these moves, but merely prepares the way for decisions. We already have in hand an interagency study of the trade potential involved in these measures.

Because of the variety of our controls on East-West trade, we have a number of fields in which we can take action:

--a decrease in the differentiation between the U.S. export controls and those of other Western countries;

--a decrease in the level of the international controls;

--credits for the Soviet Union;

--a decrease in our discrimination against imports from the European Communist countries.

This gives us a range of greater or lesser actions we could take in logical sequence. The first actions would be those of least consequence or those in which a time factor is important. As the technical staffing is completed on each of these issues, you could approve the actions, delay decisions, or disapprove the proposals. The agencies would prepare individual papers discussing the domestic, foreign and commercial issues involved in each step.

The sequence is as follows:

1. Reconsideration of pending applications by U.S. companies for export licenses to sell U.S. petroleum catalytic cracking refinery plants to Eastern Europe. These are small cases, involving about $8 million, for permission to send primarily to Poland the same type of equipment which we sent to Romania in 1965. You decided to delay issuing these licenses in August 1970,/2/ but the American companies claim that time is running out since the Poles can buy this equipment elsewhere. Commerce is now preparing an interagency paper for submission on this issue.

/2/See footnote 5, Document 319.

2. Consideration of whether to allow U.S. companies to participate in the Russian construction of a huge new truck factory on the Kama River. A number of U.S. companies have been approached. Henry Ford turned down the project after a negative public statement by Secretary Laird. The Mack Truck Company has pending a $700 million export license application and several other companies have made smaller applications. There are several options available on approaching this question including:

--continued delay;

--approval of piecemeal U.S. participation only in segments of the proposal;

--approval of U.S. participation in all aspects of the proposal;

--approval of U.S. participation provided the Russians agree to other commercial purchases from the U.S.

Most of the equipment for this project can be obtained from Western Europe and there are no export controls hindering shipment from there. The U.S. still demands specific export licenses for this type of equipment despite the fact that other nations do not do so. The magnitude of the project, well over $1 billion, and the necessity that the Soviets decide quickly argue for your being able to make a decision on this issue shortly should you wish to do so. The agencies are preparing an options paper.

3. A general reduction in unilateral U.S. export controls down to the level prevailing in Western European countries under the International Coordinating Committee (COCOM). The U.S. requires specific export licenses, and sometimes refuses them, on a number of items which other western countries freely ship to Eastern Europe. By reducing our controls to the international level we would place our firms on a level equal to that of Western European firms and no longer need make decisions in specific cases such as the Kama River project. In so doing we might reduce European eagerness to relax the COCOM restrictions, since they would know we could then compete.

4. Extension of Export-Import Bank loans guarantees and insurance should Congress eliminate the Fino Amendment. The Fino Amendment prohibits Export-Import Bank transactions in countries trading with North Vietnam, i.e. Eastern Europe and the Soviet Union. Despite Administration opposition, the Senate has already passed a bill repealing the amendment and the House may follow. This would give you the discretion of allowing Export-Import Bank transactions in Eastern Europe and the Soviet Union. Should Congress pass this legislation early this summer, you would need to decide whether to exercise this discretion. (We could also drop our opposition to the legislation.) The Eastern European Governments have constantly claimed that lack of Export-Import Bank guarantees, insurance and loans have inhibited our sales in those markets.

5. A relaxation of the U.S. veto on requests by other Western European countries to export items to Eastern Europe as exceptions to the international COCOM lists. Many Western European countries, as well as the United States, request COCOM to grant exceptions on specific transactions. The United States, however, is the most frequent vetoer of such requests. We could adopt a somewhat less negative posture generally and ourselves seek more exceptions for U.S. exports.

6. A reduction in the international COCOM lists. The COCOM will review its lists in October. Many Western European countries will propose that hitherto forbidden items be allowed to be exported freely to Eastern Europe. The United States will probably be the principal resister to such requests. We could decide to be less negative. In any case, the United States will need a position well before October.

7. Request for, or support of, legislation allowing most-favored-nation treatment for the Eastern European countries. Legislation now requires that we collect Smoot-Hawley tariff rates on imports from most Communist countries. Bills have been introduced in the Congress giving you discretion to reduce those rates to most-favored-nation levels in connection with reciprocal trade agreements with those countries. We oppose those bills, but you have decided that we would not oppose such legislation directed solely at Romania. We could also indicate a more favorable Administration position toward legislation affecting other Eastern European countries.

8. Proposal of legislation to repeal the Johnson Act. The Johnson Act forbids certain kinds of credits to countries which have defaulted on debts due the United States. The effect of the Act is ambiguous, since interpretations now exempt commercial export and Export-Import Bank credits from its restrictions. State is currently preparing a request for a ruling by the Attorney General that would clear up some of these ambiguities, since many businessmen see the Act as a serious obstacle to normal financial and commercial relations. Eventually, however, these ambiguities can only be totally eliminated by repeal of the Act.

It may not be possible to follow this sequence completely, but it is a general indication of the order in which steps might be taken. We would not necessarily always use the same bureaucratic mechanism in presenting issues for your decisions, since some of these actions, particularly on unilateral U.S. export controls, would generally come through the Secretary of Commerce and include comments of other agencies, while other issues might be better handled through the Under Secretaries Committee or other mechanism. To avoid a leak about a massive reconsideration of U.S. policy, we propose initiating these papers over a period of time, rather than all at once.

The agencies are already preparing issues papers on Steps 1 and 2; and we will shortly send them to you. We would propose initiation of an options paper on some of the next steps shortly, with the others to follow later.

Recommendation:

That we gradually instruct the agencies over a period of time to prepare options papers on these issues more or less in the order listed above, so that we shall be in a position for decisions should we wish to take action in this field./3/

/3/Neither the Approve nor Disapprove option is checked.

 

338. Information Memorandum From Ernest Johnston of the National Security Council Staff to the President's Assistant for National Security Affairs (Kissinger)/1/

Washington, July 1, 1971.

/1/Source: National Archives, Nixon Presidential Materials, NSC Files, Subject Files, Box 402, Trade, Volume IV 7-12/71. Confidential.

SUBJECT
Future East-West Trade Measures

After the flurry and confusion last night in preparing information we needed for your conversation with Ambassador Dobrynin, I fear there may be some misunderstanding between you and Peterson over what he is to do to prepare for future decisions on East-West trade relaxation.

You and he have had several conversations. My sole source of information on what went on in those conversations is from Peterson's staff. Consequently, I hope it will be helpful if I outline to you where the Peterson operation now stands on this subject.

Peterson understands that you are in charge of this field. He is now considering the draft of a joint memorandum from you and him to the President which would outline a scenario of future moves. This scenario would merely list the possible actions we could take and would propose that over a period of time you and Peterson would ask the agencies to prepare separate options memoranda on each issue for submission to the President. I had hoped that Peterson would have this draft to you last week, but I presume he will send it forward now shortly. I sent a copy of it to you last night and another copy is at Tab A./2/

/2/Document 337.

On the Kama River Project, Peterson believes that you agreed that Commerce is now to prepare a paper for submission to the President, incorporating the views of State and Defense and listing the precise options that we would have. These options would be as follows:

--Denial of U.S. company participation or continued delay in any decision.

--A piecemeal approach with several variants similar to the one I outlined in my memorandum of June 30 at Tab B./3/ Any of these piecemeal solutions would indicate some U.S. participation but not blanket acceptance of the entire proposal at this time.

/3/See footnote 1, Document 337.

--A blanket approval for U.S. company participation in all aspects of the Kama River Project.

--A blanket authorization for U.S. participation in the entire project provided the Russians agree to additional commercial purchases from the United States. (The Soviet Trade Delegation under Deputy Trade Minister Komarov had proposed the purchase of pencil sharpener factories, furniture factories, etc. if we agree to Kama.)/4/

/4/See Document 332.

I am hopeful that Peterson will send a draft of the scenario memorandum to you in the next few days. Commerce will try to submit the memorandum on the Kama River Project by the end of next week. It would be difficult for them to do this earlier if they are to incorporate the views of Defense, although the Commerce draft worked out by Peterson's ad hoc group is in fairly good shape. After Secretary Laird's memorandum to the President on June 22, 1971,/5/ I do not think that we should go to the President for a decision on this project without incorporating Laird's views, especially since he took such a strong stand when Henry Ford was involved.

/5/Not found.

I intend to continue cooperating with Peterson's staff along the lines mentioned above, unless I hear from you that these conflict with your understanding.

 

339. Information Memorandum From the President's Assistant for International Economic Affairs (Peterson) to President Nixon/1/

Washington, July 7, 1971.

/1/Source: National Archives, Nixon Presidential Materials, NSC Files, Agency Files, Box 218, CIEP. Confidential. Attached to a July 12 memorandum from Howe to Haig bringing to his attention this memorandum as well as two others from Peterson. On July 27 Huntsman sent Kissinger a memorandum informing him that the President had read this memorandum "with interest" and had requested that a copy be sent to Kissinger for his information. Johnston brought Peterson's memoranda to Kissinger's attention under cover of a July 28 memorandum. (Ibid., Subject Files, Box 402, Trade, Volume IV 7-12/71)

SUBJECT
East-West Trade--Between Western Industrialized Countries and Eastern Europe and the Soviet Union

Our interagency CIEP study assessing potential economic gains for the United States were we to make specified changes in our East-West trade policies is now completed./2/ CIA played an important role in developing these estimates which were agreed on, at staff level, by all agencies that participated. (Chaired by Commerce, with CIA, Defense, State, Labor, Treasury, NSC, FRB, Interior, Ex-Im Bank, Agriculture and OMB.)

/2/The study was requested in Document 327.

It is perhaps surprising that the Defense representative, who is opposed on security grounds to relaxing our restrictions on trade with the USSR and Eastern Europe, agreed.

The main points made by the study follow:

East-West trade in goods grew faster during the sixties than either world or U.S. trade, reaching $15 billion in 1970./3/ At less than $600 million of exports and imports, the U.S. level and share in East-West trade of about 4 percent remained relatively insignificant. Expansion of the U.S. share in East-West trade depends largely on the removal of U.S. legal and administrative restrictions consonant with overall U.S. policy goals.

/3/This becomes $17.2 billion if we include trade between Eastern European countries and less developed countries. [Footnote in the source text.]

It is estimated that the following effects on U.S. trade by 1975 would result under varying assumptions.

(1) The United States continues its present restrictions. Total annual trade of goods would reach $800 million, U.S. exports of $440 million and U.S. imports of $360 million. U.S. trade surplus of $80 million. In addition, a gain of $75 million from sales of technology but a loss of $35 million from tourism would result in a positive balance of payments of $120 million.

(2) The U.S. removes the 50/50 shipping requirement on grains. U.S. exports would increase by some $62 million. (This has been done.)

(3) The U.S. reduces export controls to the COCOM level. U.S. exports would increase by $260 million.

(4) The U.S. removes the embargo on Soviet furs and the prohibition on the use of Federal funds for buying goods from Eastern Europe. U.S. imports of furs could rise to $50 million annually. No benefit to U.S. exports by 1975 of lifting the prohibition on the use of Federal funds; however, possible gains by the East in bidding on some U.S. Government contracts.

(5) The U.S. removes the prohibitions on Government credits and credit guarantees (Ex-Im Bank). U.S. exports would further increase by about $100 million.

(6) The U.S. grants Most Favored Nation tariff treatment to all Eastern European countries. U.S. imports would increase by about $90 million. U.S. exports would grow considerably less.

(7) The United States removes all unilateral restrictions on trade by the end of 1971; i.e. steps 2-6 made all at once rather than gradually. Total trade of goods would reach $1.6 billion. U.S. exports would reach $1 billion and U.S. imports some $600 million by 1975. Secretary Stans feels these numbers are conservative and the actual U.S. exports would amount to $2.5 billion.

To sum up the effect on trade of goods:

	1975 Present Level Restriction	1975 If U.S. removes all unilateral trade restrictions by end of 1971
	(millions of dollars)
Total Trade of Goods	$800	1,600
Total Exports	440	1,000
Total Imports	360	600
Surplus or Balance of Trade	80	400

The attached table shows the estimated composition of this $1 billion worth of U.S. exports in 1975. (Tab I)/4/

/4/The one-page table, disaggregated with estimates on food and tobacco ($235 million), crude materials ($150 million), mineral fuels ($50 million), chemicals ($50 million), machinery and equipment ($465 million), and miscellaneous manufactured goods ($50 million), is not printed.

In addition, a gain of $150 million from sales of technology but a loss of $50 million from tourism would result in a total increase in U.S. exports of $950 million and a total positive U.S. balance of payments surplus of $500 million--or about four times the estimated amount under status quo conditions.

Thus, for ease of remembering, you might say that more or less complete liberalization would add by 1975 about $1 billion to exports and something like $400 million to our balance of trade as compared to leaving the restrictions where they now stand.

The agencies agree that the principal limitation on the overall level of East-West trade in 1975 is the ability of the Eastern countries to earn hard currency foreign exchange. It was assumed that these countries would not expand substantially their credit buying in Western countries. If this assumption is wrong, i.e., if the USSR for example, were to depart from its traditional conservative policy on credit, then total exports from the West would be very considerably higher, as would exports from the United States.

You know I'm sure that [sentiment in?] the U.S. business community and the Hill is growing daily to liberalize East-West trade, and our second successive month of trade deficits is being used as another reason.

As you know, I am working closely with Henry Kissinger on this whole matter, starting with the Kama River project. My input is essentially that of the economic possibilities. Henry, of course, is handling the contacts with Dobrynin and the linkage to other negotiations with the Russians.

Thus, I fully understand the primacy of demonstrated progress on the other negotiations. Accordingly, I am doing what I can to restrain any premature Administration enthusiasm on this subject of East-West trade.

 

340. Memorandum From Ernest Johnston of the National Security Council Staff to the President's Assistant for National Security Affairs (Kissinger)/1/

Washington, July 13, 1971.

/1/Source: National Archives, Nixon Presidential Materials, NSC Files, Agency Files, Box 213, Commerce Volume II 1971. Confidential. At the top of the page, a note by Kissinger reads: "Why can't we do nothing"; another by Haig reads: "Ernie call me." Kissinger arrived in San Clemente the morning of July 13 from a trip to Asia and Paris that had included a trip to Peking. (Ibid., White House Central Files, President's Daily Diary)

SUBJECT
Removal of Fino Amendment from Export-Import Bank Legislation

Secretary Stans proposes in a memorandum of July 13 (Tab A) that the Administration indicate privately to several key Congressmen that it would accept an Export-Import Bank bill which drops the Fino Amendment.

The Fino [Amendment] prohibits Export-Import Bank credits to nations trading with North Vietnam and effectively eliminates Ex-Im transactions with Eastern Europe. Senate and House conferees will meet in the next few days, probably early next week, to reconcile differences in the Export-Import Bank bill. The Senate version dropped the Fino Amendment, the House retained it. (Both versions meet the President's goal of eliminating Ex-Im from budget constraints.)/2/ Secretary Stans maintains that the only reason the House retained the Fino Amendment was because many members had the impression that the Administration was adamantly opposed to deleting it. (The record of the debate indicates a more neutral Administration position.) Bill Widnall, the House Republican conferee, told Secretary Stans that he expects the conference committee to delete Fino, and he wants an indication of how the Administration will react.

/2/Congress approved the Export-Import Bank bill without the Fino Amendment, and President Nixon signed it into law on August 17, 1971. (P.L. 92-126; 85 Stat. 345)

NSDM 99/3/ states that the Administration would oppose Congressional initiatives in the East-West trade field, though "only in a very low key way". Subsequently you directed that Administration witnesses testify that if the amendment were dropped, over our low key opposition, the Administration would use its authority under the present circumstances only to extend credit to Romania.

/3/Document 325.

Stans' suggestion is that Commerce inform Senate and House conferees as well as the House Republican leadership that the Administration would support a conference bill containing a repeal of Fino. He believes this indication can be given privately and would not contradict the earlier policy but would erase the previous misunderstanding in the House.

It is not clear that any Administration action is necessary at this point. The Senate may well prevail over the House, eliminate the Fino Amendment from the conference report; and the House may accept this version. However, there is some risk in a "hands-off" approach. Secretary Stans' proposal would probably insure repeal of the amendment, but it would also effectively constitute a reversal of the Administration policy. Timmons' staff thinks we may need to be even clearer against Fino.

I do not know your plans for a series of East-West trade moves later this year. If you do expect broad liberalizing changes, we should act now to be able to use Export-Import Bank credits in future dealings with Eastern Europe. Elimination of the Fino Amendment would preserve that option, and the Administration would then be able to extend these credits should it wish to do so. Should it wish not to do so, it would still have the power to withhold these credits. On the other hand, should the House conferees hold firm and the Senate accept retention of the amendment, then the Administration would have lost the option of including Export-Import Bank credits in a package of East-West economic measures. The basic Ex-Im legislation will be renewed at least until 1974, so that repeal of Fino would not be considered before then, except as special legislation.

If you do wish to take advantage of this opportunity, I suggest that Secretary Stans' memorandum be forwarded to the President with a concurring recommendation. Pete Peterson would also concur. However, if the President agrees, rather than leaving the matter wholly in the exuberant hands of the Department of Commerce, I would suggest that you cable the memorandum at Tab B to Secretary Stans and Clark MacGregor jointly.

Recommendation:

1. That, if you expect the need for a series of East-West trade moves, you approve preparation of a memo for the President with a positive recommendation./4/

/4/Neither the Approve nor Disapprove option is checked.

2. That if the President concurs, you send the memorandum at Tab B to Secretary Stans and Clark MacGregor./5/

/5/Not found.

 

Tab A

Memorandum From Secretary of Commerce Stans to President Nixon/6/

Washington, July 13, 1971.

/6/No classification marking. Copies were sent to Ehrlichman, Peterson, and Kearns.

SUBJECT
Removal of Fino Amendment from Export-Import Bank Legislation

The Fino Amendment (1968) to the Export-Import Bank Act of 1945 precludes the use of Eximbank credit facilities in transactions involving exports to any country which engages in armed conflict with the United States; or to any other country which furnishes goods, supplies, military assistance or advisers to a country which engages in armed conflict with the United States.

The position of the Administration, as stated in NSDM 99 and an Under Secretaries Committee Memorandum (March 1971),/7/ is to oppose in low key any modification of the Fino Amendment. The Memorandum further prescribes that if the Congress should nevertheless enact a repeal, then the President would consider authorizing Eximbank credit facilities for our trade with Romania.

/7/Presumably a reference to a March 10 memorandum from Staff Director Arthur Hartman to members of the Under Secretaries Committee regarding U.S. economic relations with Romania. Hartman reported the President's decisions with respect to a December 15, 1970, memorandum from Acting Chairman Samuels. (National Archives, RG 59, S/S Files: Lot 83 D 276, NSC-U/DM 14B) The first of the President's decisions is the substance of NSDM 99. The second was that if the Fino Amendment were repealed over Nixon administration opposition, administration witnesses should testify that Romania was the only country currently covered by the amendment to which Export-Import Bank loans would be extended at that time. Finally, the Commerce Department was instructed to set up a new export control category for Romania to accord it the same status as Yugoslavia on exports of U.S. goods. (Ibid., NSC-U/DM 14A)

The Interdepartmental Study for CIEP, "U.S. Stake in East-West Trade," demonstrates the need for export credit facilities for Eastern Europe if the United States is to obtain its appropriate share of this market./8/

/8/See Document 339.

In April 1971 the Senate passed, by 66-1, a bill which, among other provisions, would repeal the Fino Amendment. The House Banking Committee in June 1971 reported out a bill similar to the Senate version. However, when the bill was considered on the House Floor, Representative Chalmers P. Wylie (R-Ohio) proposed an amendment to preserve the Fino Amendment, and this was adopted on July 8 by a vote of 207 to 153. Indications are that the Wylie Amendment was passed because it was believed that the Administration was adamantly opposed to the removal of the Fino Amendment. The House and Senate bills now go to Conference shortly, but possibly Wednesday, July 14.

The Commerce Department's testimony on the House bill is in accord with NSDM 99, and its legislative comments on both House and Senate bills mildly opposed removal of the Fino Amendment. Assistant Secretary of State Trezise's testimony on the House bill reflected in addition the Under Secretaries Memorandum which indicated the possibility of extending credit facilities for our trade with Romania. Eximbank President Kearns testified that his agency did not make policy and had no position on the Fino Amendment.

Subject to White House agreement, Commerce proposes discussions with the Senate and House Conferees and the House Republican leadership, to give assurances that the Administration would support the Conference bill if the Fino repeal is included.

Commerce believes that given the early misunderstanding in the House and the importance of retaining for the President the option of extending Eximbank credit to Communist Countries at his discretion, this action is not only desirable but also, given its low key and private nature, does not contradict earlier policy as set forth in NSDM 99. Henry Kearns, President of Eximbank, concurs with this recommendation.

 

341. Memorandum From the President's Assistant for International Economic Affairs (Peterson) to the President's Assistant for National Security Affairs (Kissinger)/1/

Washington, July 19, 1971.

/1/Source: National Archives, Nixon Presidential Materials, NSC Files, President's Trip Files, Box 492, Dobrynin/HAK 1971, Volume 7, Part 2. Top Secret.

SUBJECT
Economic Items for Use in Dobrynin Discussions

At San Clemente you asked for alternative piecemeal approaches that might be used in your meeting today with Dobrynin./2/

/2/Kissinger was in San Clemente July 13-18 and returned to Washington with the President. He met with Dobrynin on July 19; in his July 27 memorandum to the President reporting on the conversation, Kissinger noted that he informed Dobrynin that "we might be able to do the foundry part of the Kama River Project ($175 million worth)." (Ibid.)

1. Kama River

I have pressed very hard again to find a separable item and I think the best possibility we have come up with is the Foundry portion (see Tab A)./3/

/3/None of the tabs is printed.

It is a reasonably discrete element of the total Kama River project. One could argue whether a decision on our part to authorize participation of a foundry is similarly discrete in the minds of U.S. business. In other words, U.S. businessmen would probably have trouble understanding why the foundry was cleared but nothing else. It may be that we should even consider at some point saying that it is mixed in with other non-economic considerations and we don't therefore expect it to make economic sense. I am presuming the Russians know the linkage in any event.

We now have three foundry applications that have an aggregate value of $175 million but there is undoubtedly redundancy here. Thus, in actual practice if all three were accepted, we would probably find the total volume significantly less than this.

Even so, if this kind of number bothers you, you can always try getting some Russian purchases of consumer goods and consumer goods manufacturing equipment. You will remember the argument to them might be that anything that appears to U.S. critics to result in a diminution in defense effort (as consumer goods spending might) helps assuage concerns of segments of U.S. public who might feel the Kama River project by itself has too much potential defense content.

In case you have any time for more reading, I show in Tab B the current status of the Kama River inter-agency draft you and I agreed we should try to get done soon, including Defense.

Also, included is the latest Mack Truck wire to the Soviets which went out Friday indicating the particular questions they have but keeping it open (Tab C).

2. Control Data Computer

The other significant pending application is by Control Data Corporation for a Model 6400 computer (quite advanced) for the Institute of High Energy Physics at Yerevan.

This involves COCOM clearance and if you decided to go ahead with it, I would assume you would want to impose the same kind of safeguards we imposed on the British on their recent computer deal with Russia (ICL computers)./4/

/4/See Documents 332, 373, and 374.

Also, you should know that this is not too far along in the inter-agency process but I suppose this could be speeded up.

This strikes me, Henry, as the kind of item you could offer (a) if you were looking for something quite symbolic in the aftermath of the China move, and/or (b) something you could talk about conditionally (i.e. it would take time for example to work out safeguards) in the event you wanted something positive with stalling potential if later it did not seem appropriate.

I have talked to Ed David about this and he has written a very brief memo in Tab D that summarizes the situation. Please read it and note he emphasizes inspection safeguards are required but, on balance, he feels it is a reasonable possibility.

3. Petroleum-Hydro-Cracker Technology

While we have no specific applications on this, we do know there has been general Soviet interest in U.S. technology in this field in the past.

On your desk somewhere, you will probably find a letter for your signature to the President on similar technology to Poland.

It might even fit your negotiating plans to offer this to the Russians at the same time or even first, indicating you did not want to appear to be discriminating in favor of the Poles. The difference here, of course, is that the Poles have expressed very specific interest in this technology (to me directly and to Dr. Edward David) whereas the Russian interest has been more general. Thus, its leverage potential with the Russians is conjectural.

I hope one or more of these is helpful to you.

 

342. Memorandum From Ernest Johnston of the National Security Council Staff to the President's Assistant for National Security Affairs (Kissinger)/1/

Washington, July 23, 1971.

/1/Source: National Archives, Nixon Presidential Materials, NSC Files, Agency Files, Box 213, Commerce Volume II 1971. Limited Official Use.

SUBJECT
Your Meeting with Secretary Stans at 9:45 a.m.

Secretary Stans has asked to speak with you for ten minutes.

I am not sure what he wishes to raise, but he may wish to talk about:

The Fino Amendment

Stans wrote to the President on July 13 asking that he be allowed to inform key Senate and House conferees that the President would soften his already low-key opposition to elimination of the Fino Amendment from the Export-Import Bank Bill./2/ (The Fino Amendment forbids Ex-Im credits to countries trading with North Vietnam.)

/2/Tab A to Document 340.

You correctly foresaw that no Administration change was necessary, but we have not responded to Stans' memorandum. The conferees voted yesterday to eliminate the amendment. This should answer Stans' question, but he may still feel that the Administration needs to soften its position to avoid having the House restore the amendment on the floor. He would argue that we now have the opportunity to restore Presidential flexibility with little chance of public exposure. Ex-Im Bank legislation will not come up for consideration again for another four or five years.

You might state that you do not wish the Administration to take any action that the Soviets would recognize and interpret as a change of signals on the Vietnam war or in our general relations.

The Kama River Project

Stans wants the Administration to approve U.S. industrial participation in the Soviet construction of a huge truck factory, the Kama River truck factory. Stans is preparing an options paper to go to the President, but Defense is holding the paper up by not sending him its comments. The Soviets have notified the U.S. firms that the previous June 25 deadline for U.S. Government approval has been extended to July 25. There is no chance that the President will make a decision by that time.

Stans may wish to ask that we inform the Russians that they should not hold fast to any deadline since we are still considering the project actively.

You might tell Stans that we have so far not found that the Russians have been very serious about these deadlines, particularly on a project so important as Kama River. Though you may not wish to tell Stans any of the details of your conversations with Ambassador Dobrynin,/3/ you could tell Stans that the Soviets are perfectly aware that we are still examining the project. In addition, their bargaining leverage has somewhat diminished now that Mack Truck has told them that it wishes to renegotiate the terms of its contract.

/3/See Document 332.

 

343. Action Memorandum From the President's Assistant for National Security Affairs (Kissinger) to President Nixon/1/

Washington, undated.

/1/Source: National Archives, Nixon Presidential Materials, NSC Files, Agency Files, Box 218, CIEP. Confidential. This memorandum is part of Tab A to Document 345. Tab A also includes other memoranda concerning the Mack Truck application: July 27, 28, and 29 memoranda from Johnston to Haig and a draft memorandum from Kissinger to Stans (prepared by Johnston) that is substantively the same as Document 346.

SUBJECT
Kama River Project--Applications to Participate in the Foundry

Secretary Stans has proposed that you authorize him to approve now three pending applications for U.S. participation in the foundry plant of the Soviet Kama River truck factory (Tab A)./2/

/2/In his July 26 memorandum to Kissinger, not printed, Stans noted that it supplemented his July 23 memorandum to the President, which has not been found.

The Kama River factory is expected to produce 150,000 three-axle diesel trucks annually by the late 1970s. CIA states that three-axle trucks are not tactical military vehicles, though some could end up in military motor pools. CIA estimates that the Russian expenditures on the entire Kama River project will approximate $3 billion, much of which however will be used to erect factory buildings, workers' housing, etc. CIA estimates that perhaps $1 billion of the total will be used to procure foreign machinery and technology, of which $200 million might be spent in the United States if we granted blanket permission for U.S. participation. The CIA analysis is at Tab B./3/

/3/Not found.

The Kama complex will consist of six discrete elements:

1. Foundry plant
2. Forging plant
3. Stamping and pressing plant
4. Engine, gear and transmission plant
5. Assembly plant
6. Tooling and repairing plant

Commerce now holds four formal U.S. export applications. The application by Mack Trucks, Inc., of Allentown, Pennsylvania, for $750 million of technical services and equipment is not active, since Mack is re-negotiating its arrangement with Russia. In any case, Secretary Stans doubts that the Mack Truck application is a realistic estimate of what the Soviets would procure from that company.

The other three applications are for technology and equipment for only the foundry, one of the first phases of the Kama complex. Stans estimates that the total Russian expenditure on the foundry will be $450 million, only a fraction of which would come from the U.S. The three applications are by:

--The Swindell/Dressler Company for $13.5 million of technical services. The company claims it has a firm offer from the Soviets, and it expects a follow-on order for $20 million of equipment. Swindell/Dressler is at Pittsburgh.

--The C.E. Cast Division of Combustion Engineering, Inc. for $37 million of automatic molding equipment and core making machines. The Cast Division is at Pittsburgh but Combustion Engineering has plants in Mass., N.J., Texas, Conn., N.Y., Ohio, Kansas, Illinois, Florida, R.I. and Oklahoma.

--The Jervis B. Webb Company for $125 million of conveyors and other foundry equipment. Webb is at Detroit, but it also has plants at Avon Lake, Ohio, Cohasset, Mass., and Boyne City, Michigan.

These applications are all partially competitive with each other, and consequently if approved would result in exports of less than their total combined value.

The applications have been pending for some time. Secretary Stans argues that even if we are not ready to approve U.S. participation in all aspects of the Kama River Project, we should go ahead with these now before the Soviets go elsewhere.

I agree with Secretary Stans. The companies have already been unable to meet two deadlines given by the Russians. Though any approval of U.S. participation will be seen as a major signal by the Russians, we can reduce the effect of this if we indicate that we are only approving three specific licenses at this time but are not now giving approval for U.S. participation in all aspects of the project. To keep this matter firmly under the control of the White House I plan to ask Secretary Stans to submit all future Kama applications for your consideration.

Recommendation:

That you approve Secretary Stans' request to authorize issuance of the three pending licenses: Swindell/Dressler for $13.5 million, C. E. Cast for $37 million and Jervis B. Webb for $125 million./4/

/4/Neither the Approve nor Disapprove option is checked.

 

344. Editorial Note

Henry Kissinger met with Soviet Ambassador Dobrynin on July 29, 1971, in the White House. The memorandum of conversation reads in part:

"I opened the meeting by informing Dobrynin of the decisions with respect to the foundry for the Kama River Project. I told him that the decision had been favorable and amounted to about $170 million. Dobrynin asked what that meant for the rest of the Kama River Project, and I replied that we needed another four to six weeks to make up our mind. Dobrynin then said, in the usual ungenerous Soviet way, that he hoped we realized the foundry had already been taken for granted in Moscow. I said that that was their problem; my problem was to inform them of the decisions we had made, and considering that it was a unilateral American gesture for which we didn't ask reciprocity, it didn't make any difference whether it had been taken for granted or not. Dobrynin then changed tack and rather effusively thanked us for the very positive steps that had been taken on trade since the SALT agreement."

Kissinger forwarded the memorandum of his July 29 conversation to the President under cover of an August 9 memorandum. (National Archives, Nixon Presidential Materials, NSC Files, President's Trip Files, Box 492, Dobrynin/HAK 1971, Volume 7, Part 2)

 

345. Action Memorandum From Richard T. Kennedy and Robert Hormats of the National Security Council Staff to the President's Assistant for National Security Affairs (Kissinger)/1/

Washington, August 3, 1971.

/1/Source: National Archives, Nixon Presidential Materials, NSC Files, Agency Files, Box 218, CIEP. Secret.

SUBJECT
Your Luncheon Meeting with Peterson--Additional Items

We have been advised that Peterson may wish to discuss with you:

--The Kama River Project
--East-West Trade
--Japan

1. Kama River

You have a memorandum for the President on the subject (copy attached at Tab A)./2/ Secretary Stans has proposed that the President authorize approval of three pending applications for participation in the Foundry Plant in addition to the application of Mack Trucks for participation in the Production Facility.

/2/See Document 343 and footnote 1 thereto.

Mack Trucks has informed Commerce that it hopes the US Government will give early favorable consideration to its application ($750 million technical services and equipment). The other three applications for participation in the foundry are:

--The Swindell/Dressler Company for $13.5 million of technical services. The company claims it has a firm offer from the Soviets, and it expects a follow-on order for $20 million of equipment. Swindell/

Dressler is at Pittsburgh.

--The C.E. Cast Division of Combustion Engineering, Inc. for $37 million of automatic molding equipment and core making machines. The Cast Division is at Pittsburgh but Combustion Engineering has plants in Massachusetts, New Jersey, Texas, Connecticut, New York, Ohio, Kansas, Illinois, Florida, Rhode Island and Oklahoma.

--The Jervis B. Webb Company for $125 million of conveyors and other foundry equipment. Webb is at Detroit, but it also has plants at Avon Lake, Ohio, Cohasset, Mass., and Boyne City, Michigan. These applications are all partially competitive with each other, and consequently if approved would result in exports of less than their total combined value.

If we approve the three licenses for the foundry and not for Mack Truck we will have a public relations problem of "divisional company treatment." The question is how much can we go ahead and authorize in terms of its effect as a "signal" to the Russians?

2. East-West Trade

Peterson may propose asking Commerce to prepare a paper on this subject concerning bringing our unilateral control list down to the international COCOM levels. A talker on this subject is at Tab B./3/

[Omitted here is section 3 with two paragraphs on Japan. The first deals with textiles and possible complications flowing from the China initiative. The second pertains to the August 6 SRG meeting on Japan.]

/3/Not printed. The paper at Tab B is based on Document 337 and concludes with a long paragraph on COCOM parity and COCOM lists.

 

346. Memorandum From the President's Assistant for National Security Affairs (Kissinger) to Secretary of Commerce Stans/1/

Washington, August 5, 1971.

/1/Source: National Archives, Nixon Presidential Materials, NSC Files, Agency Files, Box 213, Commerce, Volume II 1971. Confidential. Copies were sent to the Secretaries of State and Defense. A typewritten note at the bottom of the page indicates the memorandum was sent to the outside recipients on August 5 and that copies went to Davis, Kennedy, Hormats, and Sonnenfeldt at the NSC.

The President has decided that you should grant the three pending applications by U.S. firms for participation in the construction of the Kama River truck foundry: Swindell-Dressler for $13.5 million; C.E. Cast for $37 million; and Jervis B. Webb for $125 million. Announcement of the approvals should be made in the usual routine fashion without special fanfare.

Questions may be asked on why we have not approved the Mack Truck application, or whether approval of these three foundry licenses signifies blanket government approval of U.S. participation in all aspects of the Kama River project. Government spokesmen should respond that today's decision does not signify blanket approval of U.S. participation. The decision was made after considering the national security and commercial aspects of each detailed application. Future applications will be considered on the same detailed basis. We have not yet reached a decision on the Mack Truck application, which involves a broader participation in the Kama River project than the three foundry applications approved today.

Future U.S. applications for participation in the Kama River proj-ect, including the foundry plant, should be referred to the White House./2/

/2/In the July 28 draft of this memorandum by Johnston (see footnote 1, Document 343), this read "President" instead of "White House." In his July 28 memorandum to Haig transmitting his draft, Johnston wrote: "By asking that the President approve each application, we are not just adopting a piecemeal approach but an individual company approach. As soon as our general relations with the USSR allow us to adopt some more abstract definition of our participation, i.e., the foundry, we should do so to reduce the awkwardness of having the President decide on specific firms in particular locations."

Henry A. Kissinger

 

347. Editorial Note

Soviet Foreign Minister Gromyko met with President Nixon in the Oval Office from 3 to 4:30 p.m. on September 29, 1971. The President was accompanied by Secretary of State Rogers and Henry Kissinger; Gromyko by Ambassador Dobrynin. During their discussion the principals touched on trade-related matters. During his opening discussion of bilateral relations, Gromyko said there were certain signs, some barely discernible, that bilateral economic ties were developing favorably. Gromyko said the position of the U.S. Government in this regard was not clear to the Soviet side, and requested the President's comments on the subject, "being aware, Mr. Gromyko hoped, of its full significance for the relations between our two countries."

In his reply the President said: "With reference to trade, the Foreign Minister would recall that last year the President had said this was an area where there were great possibilities for progress. Just this week he had approved the $200 million Kama River project, a sum that brought the total up to $400 million. It was his view that trade was in the interests of both our countries and when we made efforts to expand it, we were really acting in our own selfish interest. American businessmen were interested in greater trade between us and indeed, this was an area where reduced tensions between us would pay the greatest dividends. It was something the Soviet side wanted and so did we. The Minister would find us receptive to any initiative in this respect."

As the meeting concluded, Gromyko returned to economic relations, noted the President's remarks, and said he "wanted to propose that the President send some representative he considers appropriate to Moscow for the purpose of exchanging views on this subject." The President said he had this in mind; there were several officials who wanted to go and he would have to select the right person. The President concluded by saying that one of the obstacles to expanding trade was the war in Southeast Asia, which was winding down. "As it ended, some of the technical and political objections to expanded trade with the Soviet Union which were being raised in this country would be removed. Once the war ended, all sorts of doors would be opened. He did not expect Mr. Gromyko to comment at this time, but wanted him to know the U.S. position." The 12-page memorandum of their conversation is in the National Archives, Nixon Presidential Materials, NSC Files, President's Trip Files, Box 492, Dobrynin/HAK 1971, Volume 7, Part 1.

Henry Kissinger met with Soviet Ambassador Dobrynin on October 4 at 3 p.m. in the White House Map Room. His memorandum of the conversation reads in part: "Dobrynin remarked that the Soviet Union was very eager to start the trade negotiations that Gromyko had mentioned to the President. I said we had not yet decided whether to send Secretary Stans or Peter Peterson, but in any event we would send somebody with a very wide charter and with a constructive attitude. It was not clear, however, what the Soviet Union was prepared to discuss. Dobrynin said the Soviet Union was prepared to discuss all the issues, that is, long-range economic policy including possibly Most-Favored-Nation status, and it was prepared to settle some of the outstanding American claims including some going back to World War II. I said we would be in touch with the Soviet Union by the end of October." (Ibid.)

 

348. Editorial Note

Pursuant to the President's September 29, 1971, meeting with Foreign Minister Gromyko (see Document 347), Secretary of Commerce Stans traveled to the Soviet Union in late November 1971, to discuss trade-related matters with Soviet officials. He stopped in Stockholm en route to Moscow and in Warsaw during his return travel to Washington.

In preparation for Stans' trip, on November 11 Helmut Sonnenfeldt sent Henry Kissinger a memorandum regarding Kissinger's scheduled meeting with Stans the next day, and on November 15 Kissinger sent the President a shorter version and talking points for his meeting with Stans that day. Both Sonnenfeldt's and Kissinger's memoranda noted that the purpose of Stans' visit was to explore the expansion of commercial relations but not to make specific commitments. Concerning Stans' desire to have approval of pending export license applications related to the Kama River project before departing for the Soviet Union, Sonnenfeldt called Kissinger's attention to the fact that the Defense Department and the AEC were not objecting to approval.

Sonnenfeldt also commented on Stans' desire to carry Presidential letters to the heads of state in the countries he would visit. Letters for Stans' visits were prepared, and in his November 15 memorandum to the President, Kissinger characterized the letter to Kosygin as "warm and positive." Letters for Stans' visits to Moscow and Warsaw were signed by the President. A letter for Swedish Prime Minister Olaf Palme was not approved, and the talking point Kissinger provided the President for Stans' Stockholm stopover noted that "he should avoid political subjects and confine any public statements strictly to economic relations." The talking point for Warsaw noted: "He can hold out prospect of gradually improving economic relations; Romania should stay well ahead of Poland in our initiatives." Both memoranda are in the National Archives, Nixon Presidential Materials, NSC Files, Agency Files, Box 213, Commerce Volume II 1971. The President met with Stans, Secretary Rogers, and Alexander Haig from 5:20 to 5:55 p.m. on November 15. The meeting included a brief photo opportunity. (Ibid., White House Central Files, President's Daily Diary) A transcript of a tape recording of this meeting is scheduled publication in Foreign Relations, 1969-1976, Moscow Summit, 1971-1972.

On November 15 Kissinger sent Stans a memorandum regarding export license applications for the Kama River project. Kissinger indicated that the President had approved the Commerce recommendations, subject to the conditions governing the actual export. Kissinger reminded Stans that for foreign policy reasons future export license applications for the Kama River project should continue to be referred to the White House. (Ibid., NSC Files, Agency Files, Box 213, Commerce Volume II 1971)