DEPARTMENT OF STATE Memorandum of Conversation
July 21, 1949
SUBJECT: Export license for Yugoslav Blooming Mill
PARTICIPANTS: Secretary of Defense Johnson Lt. General Lutes Theodore Halaby - Office of Secretary of Defense
Secretary of State Acheson Mr. Llewellyn Thompson - Deputy Assistant Secretary for the Office of European Affairs E.M. Martin, Deputy Director, ITP Under Secretary of Commerce Whitney Assistant Secretary of Commerce Blaisdell
The Secretary of Defense opened the meeting by calling attention to a telegram of February, date not specified, sent by State and ECA to OSR, indicating that as a result of a National Security Council decision European countries desiring to ship 1A items to Yugoslavia should provide information with respect to such shipments on the basis of which the advisability of making them would be reviewed here, and also indicating that within normal amounts 1B items could be shipped freely. The Secretary of Defense objected to the failure to refer to the necessity for consultation with the NME on licenses to Yugoslavia and to the suggestion that 1B shipments were not a matter of concern. The Secretary of State referred to the NSC decision and had extracts read which in his judgment supported the position taken in the telegram. The Secretary of Defense indicted that if the NSC decision really meant what was in the telegram, he would have to take exception to the NSC decision.
The Secretary of Defense continued by referring to a draft letter to the Secretary of State on the proposal that a blooming mill be approved for export to Yugoslavia. He indicated that he did not propose to leave the letter now as he wanted to strengthen it at several points. Subsequently he indicated that, when revised, he would dispatch it to the Secretary of State on an informal basis with the hope that a settlement of the issue could be reached without having to formalize positions in writing or bother the President with the issues involved. The position of the NME, as contained in the letter and elaborated in the course of the discussion, was that the blooming mill represented a contribution to the military strength of the areas behind the iron curtain and that the NME was unalterably opposed to any such assistance for iron curtain countries. The Secretary of defense expressed his reluctance to discuss in detail the political situation in Yugoslavia or the diplomatic advantages of favorable treatment of the Tito government on such matters as the blooming mill, indicating that he thought the military risks involved far outweighed any considerations of this character.
In this connection, reference was made to the shipment of scrap to Japan in the late thirties as an analogous case. Reference was also made to a Joint Chiefs' decision in which opposition was expressed to shipping behind the iron curtain any equipment which would contribute directly or indirectly to the military or economic strength of iron curtain countries.
The Secretary of Defense also stated that if the matter should go to the President, he would feel compelled to state, although he would not put it in writing, that the approval of this blooming mill for Yugoslavia would set loose such a wave of public indignation as to seriously threaten the ability of the present administration to win the 1950 elections.
There was a discussion of certain technical aspects of the blooming mill project. The Secretary of Defense stated that it was his understanding that it would add 5 percent to the steel-making capacity of the Soviet area. He also took the view that the fact that the blooming mill could handle only carbon steel in no way detracted from its military significance.
Addressing himself to the representatives of the Department of Commerce, the Secretary of Defense took strong exception to approval of the blooming mill license when it was known that the NME objected to its approval and that the Secretary of Defense had the matter under consideration. He expressed a deep personal interest in all such cases and indicated his willingness to attend all meetings of the Advisory Committee on Requirements if necessary to insure that projects of this character were not approved without his personal OK.
The Secretary of State emphasized the importance of analyzing on a factual and unemotional basis considerations involved in the proposal to license the export of the blooming mill, with particular reference to the importance of maintaining Tito in power in Yugoslavia and in a position to continue to defy the Kremlin. He pointed out the importance of the Yugoslavia five-year plan in accentuating the breach between Tito and the Kremlin, and the importance of our giving some facilities to Tito would contribute to it. He pointed out the great importance which the Jugs had attached to this particular as symbolic of our attitude toward Yugoslavia, economically boycotted by most of the Eastern European countries and under severe economic pressure. He indicated also certain political benefits, not without interest to the military, which a Tito government, independent of the Kremlin had achieved, and could possibly achieve in the future, such as the cut-off of aid to the Greek guerillas. It was also pointed out that similar plants have been bought and partially paid for by Poland and Czechoslovakia and that we agreed fully in denying licenses for their export. To approve the blooming mill would be a difference in treatment accorded Yugoslavia, a government not under Kremlin orders, which could not but impress the Poles and the Czechs.
The suggestion that this represents a five percent increase in Soviet steel capacity was challenged, since the State Department figures had indicated an increase of only about 150 thousand tons which would be less than one percent.
The feasibility of a suggestion by the Secretary of Defense that we provide Yugoslavia with finished good rather than basic industrial capacity was questioned by State Department representatives on the grounds that Yugoslavia could not pay for such goods but must find the means of making international payments by exploiting her own natural resources which included such things as iron ore, non -ferrous minerals, etc. A general objection to providing goods which contributed even indirectly to the military or economic strength of Yugoslavia presents difficulties of definition and tends to be interpreted to cover nearly all classes of capital equipment. So interpreted, the economic collapse of Yugoslavia would be apt to take place in fairly short order.
The Department of Commerce representatives questioned some of the statements of the Secretary of Defense as to the procedure which had been followed, pointing out that a substantial period of time had elapsed between the meeting of the Advisory Committee at which Assistant Secretary Blaisdell had stated that he would recommend approval to the Secretary of Commerce and actual approval, without any request from the Department of National Defense to hold up the action.
It was agreed that the Secretary of Defense would revise his letter and accompany it with a memorandum of the facts as the NME understood them. On receipt of these documents the Secretary of State would prepare a letter setting forth the position of the Department of State and also accompanied by a factual document. If, with these documents in hand, the position was still disagreed, the matter would be presented to the President for decision. It was agreed also that in view of the fact that various interested parties had been informed that the license had been approved, and in view of certain political situations in Yugoslavia, particularly vis- à-vis Trieste, it was desirable to have a prompt decision.
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