Docs 222-247
222. Paper Prepared in the National Security Council Staff/1/
Washington, undated.
/1/Source: National Security Council, Secretariat, Box 92, 1/16/70 Review Group Meeting-Spain. Secret. The text printed here comprises pages 9-15 of the Analytical Summary of the NSSM 46 Response paper, prepared as part of the briefing material for Kissinger's use at the January 16 NSC Review Group Meeting. The paper is attached to a January 5, 1970, covering memorandum from Sonnenfeldt which informs Kissinger that Lynn, Bergsten, and Kennedy collaborated in assembling the briefing book. See Document 224.
[Omitted here are Parts I and II of the Analytical Summary, with prefatory material and discussion of the military bases issues.]
III. Issue: What posture should the U.S. adopt with respect to the forthcoming Spain-EC negotiations?
The European Communities Council of Ministers has agreed to negotiate with Spain for reciprocal trade preferences (both industrial and agricultural goods). Spain is willing to accept such an arrangement as advancing its objective of closer ties with Europe and an agreement is possible by mid-1970. At present, the EC has offered a weighted average tariff reduction of about 60 percent to Spain, and Spain has offered a reduction of about 21 percent to the Community (whereas the Community has asked for 40 percent). Spain might see our objection to such preferential arrangements as a block to closer Spanish relations with Europe. Our objections could adversely affect US-Spain relations possibly jeopardizing our base rights and resulting in Spanish retaliation against US economic interests.
Our objections, however, are based on our established policy seeking to develop a multilateral system of trade and payments based on non-discrimination. This is the basic element of the General Agreement on Tariffs and Trade (GATT). A preferential agreement between the EC and Spain would encourage proliferation of such agreements which would be inimical to our economic interests and would severely damage the multilateral system of trade which has been built up. The proposed Spain-EC agreement would be contrary to the GATT (Article 24) which provides for an exception only for arrangements leading, under a definite time schedule, to a free trade area or custom union covering substantially all trade between the participants.
The options are:
Option I--Remain silent.
--This would eliminate the major irritant in US-Spanish relations, but would (a) encourage proliferation of such agreements possibly leading to a vast preferential trading bloc, (2) by condoning a clear violation of the GATT make it impossible for us to oppose other such arrangements.
Option 2--Raise proforma objection; reserve right to take the matter to the GATT.
--This might avoid prejudicing our economic and other interests in Spain and would avoid condoning a violation of GATT, but would not deter Spain-EC agreement or subsequent proliferation of such agreements against our interests.
Option 3--Oppose the arrangement making clear our intention to challenge in GATT and consider US action against the EC to restore trade balance.
--This might dissuade the EC (but not Spain) from making the arrangement and give us a basis to argue that our action is directed at EC and not at Spain, but Spain probably still will consider our action as interference with their attempt at closer European ties and retaliate against our interests in Spain. Moreover, any US action against the EC alone not authorized by GATT would risk EC retaliation.
Option 4--Do not object to EC granting preference to Spain but ask the EC either (1) to forego preferences for EC goods in Spain or (2) to compensate US and others by tariff reductions; selectively retaliate against the EC if it does not agree.
--This would (1) strengthen our argument that our action is directed at the EC violation of GATT and not at Spain, thereby lessening danger of Spanish retaliation against us and (2) generate some support from other GATT members who would benefit from lower tariffs; but the EC is unlikely to accept our proposal and Spain may still see our action as interference; moreover, some US exports (e.g. citrus) to the EC would be adversely affected.
Option 5--Seek EC modification of agreement with Spain to make it consistent with GATT (Article 24).
--This would maintain integrity of GATT and--even if unsuccessful--support our argument that the EC, not the US, is the barrier to full Spanish integration and provide basis for US counter action against the EC; but (1) might result in an agreement not genuinely consistent with GATT but which others will accept, (2) could be interpreted as US willingness to agree to any EC agreement consistent with Article 24 whether leading to full membership in the EC or not, and (3) effects on our trade would be uncertain.
The United States has historically championed the most-favored-nation (MFN) principle as a guiding principle to govern international trade. We have done so because our global political interests (a) make it difficult for us to favor one nation over another in our own trading relationships, and (b) prompt us to discourage regional blocs elsewhere. Because we have avoided giving preferential treatment, most non-MFN deals are likely to develop among other countries--and thus hurt US trade. Our economic and foreign policy interests thus have dovetailed to convince administrations of both parties and the Congress to adhere strongly to MFN. The MFN rule is the basis of the GATT structure which has governed international trading relationships in the postwar period. The one permissible exception to the MFN rule is for customs unions or free trade areas, on the grounds that countries which wish to harmonize their economic policies extensively should be permitted to do so.
The MFN principle has come under great stress in the past few years, however, mainly due to the spate of preferential arrangements already developed by the EC. All of them so far have been with LDCs--the former French and Belgian colonies, Nigeria, the former British colonies in East Africa, Tunisia and Morocco. (Greece and Turkey also have gotten preferences but they are first steps in eventual full membership after a 22-year transition period.) The arrangements obviously help their economic development and the trade effects on outsiders have been small, so it has been both difficult and relatively unimportant to oppose them.
Now, however, the Community is negotiating preferential arrangements with several much more important countries--not only Spain but Israel, Austria, Yugoslavia, the UAR, Lebanon, and even Argentina. Many other non-EC members, including Switzerland and Sweden, seek preferences as well. And it is quite possible that the United Kingdom and other applicants for full membership in the EC will seek "associate status" and hence trade preferences if their bids for full membership bog down.
The United States is not completely clean when it comes to implementation of the MFN rule. We do not extend such treatment to the Communist countries, except for Yugoslavia and Poland, but this departure has a security rationale. We continue to give special preferences to the Philippines, although these are being phased out. Our most important departure is that we have now joined the other industrialized countries in offering trade preferences to all LDCs; however, a major reason for doing so is to redefine the MFN rule rationally by retaining it for trade among the industrialized countries and apply similar preferences on all LDC exports to all industrialized countries.
Options 1 and 2 in effect acquiesce in the agreement. But there are strong reasons why the United States should not acquiesce and should continue to champion the MFN principle, redefined to include generalized preferences for the LDCs:
--A continuing series of EC preferential arrangements will significantly hurt our trade--by hundreds of millions of dollars if they were eventually to cover all of the countries cited above.
--No single preferential deal will damage our trade severely but it is already clear that one deal begets many more, often because any given deal hurts the legitimate interests of other countries.
--Congressional criticism of both our overall policy toward Europe and our generally liberal trade policy will clearly intensify if we do not vigorously oppose the proliferation of special preferences by the EC. They will rightly point to the complete illegality of such arrangements under the GATT and claim that we have failed to defend our legitimate interests.
--It therefore will become increasingly difficult to maintain a political basis for our support for expansion of the EC.
--A degeneration of international trading relationships between the United States and Europe will also poison our political relations in due time.
The Spanish deal alone would probably not have all of these dire effects if we could hold the line on further deals. But it would be virtually impossible to do so in the future if we do not do so now. Israel is the next case and it will be difficult enough to oppose anyway. Austria feels that it cannot seek full membership in the EC because of the State Treaty. We want to help Yugoslavia move westward and it would even be difficult to oppose UK association.
US opposition to the EC-Spain deal (Option 3) probably would succeed. We just succeeded in blocking EC preferences to Spain and Israel on citrus fruits alone and it is doubtful that the EC wants to help Spain so badly that it would jeopardize its trade with the United States and other GATT members to do so. But Spain probably would see our opposition as a block to closer Spain-EC relationships with resulting adverse effects on our political, security and economic relationships.
We obviously need to reconcile our overall trade policy with our overall interests in Spain in this case. If the EC relationship issue cannot be dissociated from our political and security relationships, the two considerations could be reconciled if we:
--Inform the EC and Spain that we cannot condone their present plans and will retaliate against both if they pursue them. The preferential arrangement they are considering is illegal under GATT. It would jeopardize our trade. It would set an unacceptable precedent and its political effects are uncertain.
--However, we could condone a more ambitious scheme which would amount to a "free trade area" between the EC and Spain and hence be legal under GATT. (Option 5.) (This would mean freeing the bulk of industrial and agricultural trade between EC and Spain rather than partial tariff cutting on industrial products only as presently contemplated.) Such an arrangement might have economic advantages for us--such as an attraction for US investment and greater economic growth leading to increased Spanish imports from us--which might even offset the economic drawbacks over time. More importantly, it would imply a much greater political association between the EC and Spain, which we support. And it would not represent an unfortunate precedent because there are obviously fewer candidates for such an arrangement than for ad-hoc preferential deals.
It would be difficult for either Spain or the EC to oppose such a US position. We would appear to be promoting Spain's desire to "enter Europe" which they have repeatedly asked us to do. It would have the rules of GATT on its side and would therefore be difficult for the EC to oppose--this is particularly true because the main EC opponents of full Spanish membership are the Dutch and Belgians, who are generally the staunchest defenders of GATT (for good reasons, given their economic reliance on international trade). And if the EC and Spain could not agree to go this route, it would be much easier for us to oppose (as per Option 3) the more limited type of arrangement they are contemplating. In short, it would be a positive position which would provide the basis for a negative one if it failed.
There are two additional steps we could take, either in addition to the foregoing or as alternatives in case we decided to be completely negative toward the preferential agreement at the outset:
--We could inform Spain that we would support its eligibility for tariff preferences under the generalized preferences scheme now being negotiated. Spain wants badly to be treated as an LDC for this purpose but we have never indicated that we agree. In fact, Spain would not be eligible under the conditions we have announced if it extended "reverse preferences" to the EC, as it now plans. Spain would probably come out about as well economically from the global preferences (which would of course include some preferences in the EC) as from the special deal with the EC. However, this would eliminate any "special" move toward Europe and would not have the political benefits envisaged by the Spanish government. (This is probably the overriding drawback to Option 4, which would have us condone EC preferences to Spain now as an "advance" on the generalized scheme but oppose Spain's preferences to EC goods. State, however, probably supports Option 4.)
--We could give Spain better treatment under our program for controlling foreign direct investment by US firms--which they have repeatedly sought. (Spain is now treated like the rest of Western Europe.) It is undesirable to let political considerations affect this program, and Treasury will vigorously oppose doing so. But the program is being phased out anyway and the damage would be limited.
Treasury and Commerce strongly oppose acquiescence in the preferential agreement or the granting of relief from restraints on US foreign investment for Spain (Annex D, NSSM 46). They support Option 3.
223. Memorandum From Secretary of Commerce Stans to the President's Assistant for National Security Affairs (Kissinger)/1/
Washington, January 16, 1970.
/1/Source: National Archives, Nixon Presidential Materials, NSC Agency Files, Box 213, Commerce, Volume I 1970. Secret. A January 16 transmittal memorandum from Bergsten to Kissinger highlighted the main points.
SUBJECT
U.S. Policy Towards a Preferential Trading Arrangement Between the European Community and Spain
I am deeply concerned that the NSC, at its forthcoming meeting on NSSM 46,/2/ may reach a decision on Spain's proposed preferential trading arrangement with the European Community (EC) which will make it all but impossible for us to oppose successfully preferential arrangements between the EC and other countries.
/2/The NSC Review Group met on January 16; see Document 224.
In this connection, we sent Under Secretary of State Richardson a memorandum on January 6,/3/ urging that a decision on the Spain-EC Association Agreement be deferred until an overall assessment is made of our global policy towards preferential trading arrangements rather than solely in the context of NSSM 46. Under Secretary of State Johnson has now advised us that for pressing political reasons a decision can not be delayed and the issue will be considered by the NSC on January 16./4/ He suggested, however, that we might wish to express our concern directly to you.
/3/Reference is to a memorandum from Acting Secretary of Commerce Siciliano on which Richardson highlighted: "Commerce believes that the U.S. decision about the specific Spanish-EC problem should be deferred until a general review of U.S. global policy toward preferential trading arrangements can be made." (National Archives, RG 59, S/S Files: Lot 80 D 212, NSSM 46)
/4/Johnson's recommendation was not further identified.
Commerce has reviewed the coverage of our trade with both Spain and the EC which would be affected by the proposed preferential agreement. We conclude that it would adversely affect a substantial part of our exports to Spain, and have some adverse impact on our trade with the EC. If this were the only damage to our trade that would result from acquiescing in the EC-Spanish arrangement, we could possibly balance it against the political gain. Unfortunately, the EC is already discussing preferential arrangements with Israel and Austria, and a number of other countries are seeking to negotiate with the EC in order to improve their terms of trade with the EC.
I am convinced that we cannot afford to have these preferential trading arrangements proliferate, and that it will not be possible to oppose proliferation successfully if we acquiesce in the EC-Spanish arrangement. It was for this reason that we proposed several weeks ago, through the interagency trade organization, that the European Community, Spain and Israel be notified that the United States strongly opposes preferential trade arrangements and, should they enter into such arrangements, the U.S. would take action to restore the balance of GATT benefits and tariff concessions with them (preferably by compensation, but by retaliation if necessary). While there was strong interagency support for some action to reverse the trend towards preferential trading arrangements, agreement has not yet been reached on the specific steps to be taken to that end. A current proposal, which we support, calls for a high-level meeting with the European Community to express our serious concern and seek a solution to the problem posed by the EC policy on preferential trading arrangements, such as the agreement with Spain, which fall well short of full scale association agreements./5/
/5/In his transmittal memorandum to Kissinger, Bergsten wrote: "The Secretary also implies, however, that he could support 'full scale association agreements' between the EC and other countries. He could therefore presumably accept Option 5 in the NSSM 46 paper, under which we would indicate our opposition to the present proposal but our acquiescence in a more ambitious 'free trade area' approach which would be legal under GATT and thereby minimize the political costs with Spain of the complete (albeit justified) negativism of Option 3." The options are set out in Document 222.
If the European Community concludes a preferential trade agreement with Spain, and with United States acquiescence or with only token U.S. opposition, the most-favored-nation principle of GATT--the cornerstone of our trade policy--will have suffered very significant and possibly irreparable damage. We can then look towards increasing numbers of preferential trade agreements, and the United States, in defense of its trade interests, will be forced to participate actively or seek alternatives in the trade field. One such alternative would be for the U.S. to discriminate on the import side against countries which discriminate against our exports. I would prefer that we not be faced with that alternative.
Thus I believe that our fundamental trade policy interests are at stake and urge that we oppose this arrangement. Acquiescence would tie our hands, and make far more difficult any effective resistance to the dangerous trend toward a preferential trading world. However, if the European Community elects to conclude a preferential arrangement in the face of clear United States opposition, damage to the MFN principle may be moderated and we will have done what we can to protect our legitimate trade interests.
Maurice H. Stans
224. Editorial Note
NSSM 46, "U.S. Policy Toward Spain," dated April 21, 1969, called for a study of policy toward Spain that would look beyond the negotiation of the renewal of the agreement on U.S. military bases in Spain. In addition to the issue of military assistance to Spain were the issues of the Spanish desire to be accorded developing country status to qualify for whatever tariff preferences the United States accorded developing countries, and the preferential trading arrangement Spain was negotiating with the European Community (see also Documents 221-223). These issues, often considered as a quid pro quo for the base renewal negotiations, were highlighted in a December 29, 1969, memorandum from Martin Hillenbrand to Elliot Richardson. Hillenbrand noted that there were two issues on which early decisions were needed: the future of the U.S. military presence in Spain, and U.S. policy on Spanish association with the Community. (National Archives, RG 59, S/S Files: Lot 80 D 212, NSSM 46)
On January 20, 1970, William I. Cargo (S/PC) sent a memorandum to Richardson informing him of the results of the January 16 NSC Review Group meeting on Spain. Cargo reported that the State Department, in cooperation with the Defense Department, would prepare an issues paper for use by the President in setting policy regarding the base negotiations and the impending preferential trade arrangement. (Ibid.) Hillenbrand forwarded the joint State-Defense paper to Secretary of State Rogers on January 26, and Rogers sent the President the State Department's views on January 27. (Both ibid.)
On February 20 Kissinger issued NSDM 43 with the President's decision to seek to retain as many of existing military rights and facilities in Spain "as are possible within the limits of a sustainable quid pro quo" and to reach "prompt agreement . . . within the Government on a quid pro quo that can be offered in the negotiations, sustained over the term of the agreement, and which will avoid an impasse with Congress." (Ibid., S/S Files: Lot 83 D 305, NSDM 43)
Regarding the Spanish preferential trade agreement with the European Community, see Document 227.
225. Editorial Note
President Nixon met with Senator Strom Thurmond and Deputy Counsel Henry Dent from 10:21 to 10:49 a.m. on February 19, 1970. (National Archives, Nixon Presidential Materials, White House Central Files, President's Daily Diary) Fred Bergsten reported on the meeting in a February 23 memorandum to Henry Kissinger. Reportedly, Thurmond said that at the American Textile Association convention that would begin on March 17 the producers, perhaps in alliance with the shoe and other interests, would press for quota legislation if a solution had not been worked out by that time. Dent thought the producers would not back off after such a decision, and the President would have to support quota legislation to uphold his campaign commitment (see Document 184). The President reportedly reaffirmed his commitment and wondered if Stans should go immediately to Tokyo.
Bergsten added a paragraph at the end of his memorandum reporting that on February 18 Japanese Prime Minister Sato had told the Diet, in what was his first public indication he had given a commitment to the President, that at their November summit (see Document 219), he and the President had agreed to solve the textile question as soon as possible to avoid damage to bilateral relations. Sato reportedly said there had been no agreement on how to solve the problem. (National Archives, Nixon Presidential Materials, NSC Files, Subject Files, Box 399, Textiles Volume I)
Bergsten revisited the quota question in a March 12 memorandum to Kissinger, noting that unless there were shortly to be a textile agreement with Japan, the President would come under "tremendous pressure" to support or lead an effort for quota legislation. Bergsten cautioned that foreigners could retaliate against a like value of U.S exports, that foreign governments would have difficulty holding their own protectionists at bay, and that many other U.S. industries, in greater difficulty than textiles, would also seek quotas. A full-scale trade war was possible, and Bergsten expressed the opinion that the President would have to take the lead to protect the free trade principle and the administration's new focus on trade with the LDCs, especially in Latin America, to supplement aid.
Following his return from the Asian Development Bank annual meeting in Sydney, Secretary Kennedy sent a brief memorandum to the President reporting on the meeting and several bilateral stops in the region. Kennedy reported that "Prime Minister Sato asked me to convey to you his deep regrets at not having been able to resolve the textile issue during the time span he had pledged, and he reiterated his determination to achieve a solution that would be helpful to you." (Washington National Records Center, Department of the Treasury, Secretary's Memos/Correspondence: FRC 56 74 A 7, Memo to the President Jan-Feb 1970)
226. Memorandum From the Under Secretary of State (Richardson) to the President's Assistant for National Security Affairs (Kissinger)/1/
Washington, undated.
/1/Source: National Archives, RG 59, S/S Files: Lot 80 D 212, NSSM 48. Confidential. A typed note on the memorandum reads: "UnSec handed original to WH/Kissinger at luncheon 2/26/70 per Mel Levitsky." It was forwarded to Richardson under cover of a February 25 memorandum from Trezise, Hillenbrand, and Sisco. (Ibid.)
SUBJECT
EC Preferential Trade Arrangements
The European Community is on the verge of concluding preferential trade arrangements with Israel and Spain. It has completed agreements with Morocco and Tunisia and it will soon be discussing an agreement with Austria. It also intends to negotiate trade deals with Lebanon, the United Arab Republic, and Malta. With the possible exception of Austria none of these agreements is in accordance with GATT rules and, in the aggregate, they would have a significant adverse impact on our trade.
We limited ourselves to opposing in principle the Community's earlier preferential trade agreements--the Yaounde Convention, signed with 18 former French and Belgian African colonies, and the association agreements with Greece and Turkey--because of political considerations. Where we tried to oppose such arrangements more actively, as in the case of the EC-Nigerian agreement, we were unsuccessful in marshaling support (the Nigerian and East African agreements were never ratified for other reasons). The current crop of Community arrangements is more clearly in violation of the GATT than these earlier arrangements and several of them are much more important in trade terms.
It is disturbing that the Community appears to have no clear overall idea on what it wants to achieve. Each agreement is negotiated for its own political/economic reasons and represents a compromise among the member countries at the expense of the world trading rules. We expect that once the Community is enlarged to include the UK, then the African and possibly the Caribbean Commonwealth countries and dependencies will most likely come in under the enlarged Community's association scheme. And if Israel and the UAR, why not Iraq, Iran and all of the countries of the Middle East and South Asia?
Our concern with these preferential arrangements is twofold. If, as is true in most cases, these arrangements do not qualify under Article XXIV of the GATT as legitimate customs unions or free trade areas, the principle of non-discrimination, which is fundamental to the GATT system, is further eroded.
Secondly, our trade interests may be adversely affected by these preferential arrangements. While there is no way to measure the trade impact accurately, it is clear that preferences cause some diversion of trade at the expense of third parties and that, as the volume and variety of goods available within the preferential trading bloc increases, the diversion also increases. In the case of the Israel-EC arrangement, for example, the preference to be given to Israeli citrus will almost certainly cause some reduction in our citrus sales to the Community. The same is true of the Spanish arrangement.
You will recall that as part of NSSM 46, we submitted to the President a number of policy options dealing with Spain's impending agreement with the European Community. Israel-EC relations are touched on in the study on U.S. Economic Assistance Policy toward Israel (NSSM 82)./2/ Israel-EC relations pose for U.S. policy the same dilemmas which Spain-EC relations pose, i.e., a conflict between our political interests and our trade and commercial policy. The two agreements are also linked economically since Spain and Israel are competitors in providing citrus to the EC. For both countries citrus exports are the largest single export commodity to the EC.
/2/Regarding NSSM 46, see Document 224. NSSM 82 is dated November 6, 1969.
Ambassador Schaetzel has suggested that both France and The Netherlands, for differing reasons, consider the Spain and Israel agreements linked.
A decision on Spain, therefore, undoubtedly has implications for Israel and vice versa. It is therefore important that our posture towards both be roughly comparable. We must also take into account the agreements with Morocco and Tunisia which are in effect and to which we have objected in the GATT. Both these countries as well as France have resented our stand. The Tunisian Foreign Minister complained to the Secretary about our position. The Community has also begun negotiations with Lebanon, and intends to begin talking to the UAR.
We are not sanguine about getting the Community at this stage in their negotiations with the various countries to disown their agreements. This could only be done by threatening massive trade retaliation which is politically undesirable and economically difficult. It seems to us the only practical course we have is quietly to explore the possibilities of making these agreements somewhat more palatable to us by suggesting a variety of alternatives as set forth below.
EC Commissioner Deniau will be here on March 2 and 3. Shortly after this visit, we propose to send Deputy Under Secretary Samuels to Western Europe, possibly accompanied by Ambassador Gilbert, to discuss this problem with senior officials of the Commission and EC governments./3/ During the Deniau visit and in the course of Mr. Samuels' tour he would like to explore the following possibilities for dealing with the problem:
/3/In a March 27 memorandum Kissinger responded to Richardson's memorandum. Referring to the proposed travel of Samuels and Gilbert to Europe, Kissinger indicated he had discussed the matter with the President, who fully shared Richardson's concerns but did not want any such travel until the administration had adopted a position on the proposed preferential arrangements. (Ibid., S/S Files: Lot 83 D 305, NSDM 29)
--by bringing the agreements into accord with the GATT, i.e., by providing a plan and schedule leading to free trade areas or customs unions;
--by agreeing on an interim basis to treat the countries as beneficiaries under the generalized preference scheme and not demand reverse preferences from them;
--by obtaining adjustments or compensation in those sectors where our trade interests would be significantly affected.
He would explore with the Community their intentions with respect to future agreements in the hope of getting them to impose a limit on their proliferation.
In the course of Mr. Samuels' visit on the above subject, he will also carry out his original intention in visiting Europe at this time; namely, to discuss the U.S. generalized preference proposal for the less developed countries with the EC Commission and the member governments. His intention is to explore fully various possible ways of bridging the differences between the U.S. and the EC on the generalized preference question.
Elliot L. Richardson/4/
/4/Printed from a copy that bears this typed signature.
227. National Security Decision Memorandum 45/1/
Washington, March 2, 1970.
/1/Source: National Archives, RG 59, S/S Files: Lot 83 D 305, NSDM 45. Secret.
TO
The Secretary of State
The Secretary of the Treasury
The Secretary of Defense
The Secretary of Commerce
The Secretary of Agriculture
The Special Representative for Trade Negotiations
SUBJECT
U.S. Policy Toward Spain: Proposed Spanish Trade Agreement with the European Community
The President has decided that the United States will oppose the Spain-European Community trade agreement as presently proposed, in the context of opposition to all preferential arrangements illegal under the international trading rules of the GATT. We would, however, indicate our acceptance of any arrangement consistent with the GATT rules which Spain and the EC might work out, such as one which provides a definite plan and schedule for the formation of a free trade area within a reasonable length of time. The United States would not seek compensation in return for accepting such a legal arrangement, nor would it seek exception of particular items from the arrangement.
The President also decided that there was no need for any decision on a fallback position at this time.
Henry A. Kissinger
228. Action Memorandum From C. Fred Bergsten of the National Security Council Staff to the President's Assistant for National Security Affairs (Kissinger)/1/
Washington, March 11, 1970.
/1/Source: National Archives, Nixon Presidential Materials, NSC Files, Subject Files, Box 338, HAK/ELR Meetings 1/70-3/70. Secret. Drafted by Bergsten and concurred in by Sonnenfeldt. This memorandum and its attachments form Tab A to a March 13 memorandum from Haig to Kissinger, regarding his lunch with Richardson that day. No record of the luncheon discussion was found.
SUBJECT
Possible Reversal of Decision on EC-Spain Preferential Trade Arrangement; And Broader Issue of U.S. Policy on All Such Arrangements
Spain-EC Arrangement
Per our discussion of this morning, at Tab I is a memorandum for the President on the Spain-EC trade arrangement./2/
/2/Drafted by Bergsten on March 11; not printed. No evidence has been found that the memorandum went to the President. It reported a State Department proposal for reconsideration of NSDM 45 (Document 227), specifically to give Spain and the EC a 3-year window to bring their preferential trade agreement into conformity with GATT rules.
Before you sign it, I think you should know fully the sequence of events on the issue.
After the President decided over the weekend to reverse his earlier decision, to give Spain and the EC time to bring their arrangement into conformity with the international trading rules of GATT,/3/ State decided to soften the effects of its end-run by clearing the new position with the bureaucracy. Two major problems resulted from the whole affair.
/3/March 7-8. Reference is to NSDM 45.
First, the bureaucratic. STR Gilbert, Commerce, Treasury, and Agriculture were initially extremely unhappy with the change: substantively (see next paragraph), because they had no role in it, and because their clearly expressed views were completely overridden. They could not understand how the President made one decision when presented the full range of options and agency views but then, despite no change in the situation and on the basis of one agency's informal advice, reversed himself and chose a course that had previously been almost unanimously rejected by the agencies, including State.
Second, the substantive. The revised decision was originally interpreted by our trade policy community as a complete reversal of the earlier position, and they were right. A three-year moratorium on adverse U.S. reaction to the deal, while it technically reserves our rights, in practice permits the arrangement to get so far along that it will be impossible to stop it. The decision was thus Option 1 of the original Review Group paper: only pro forma U.S. opposition to the deal./4/ This option was rejected by all agencies, except Defense, in the decision-making process.
/4/See Document 222.
However, State then added two caveats to pacify the trade people: their proposed cable would have allowed us to seek specific changes in the deal to mitigate the trade impact on the United States, and they would require Spain and the EC to get a GATT waiver to proceed with the illegal deal in the interim period. This combination gives the trade agencies a hunting license to nitpick Spain and the EC to death, and even to try to gut the substance of the deal--which they could do, for example, by trying to reduce or even eliminate any EC preference on Spanish citrus. Except for Agriculture, they are thus now willing to buy the modified State position.
Their acquiescence reflects precisely the resultant problem which we now face. Originally, we were to stand on principle and bar haggling on specifics. Now, State would have us cave on principle but permit haggling on specifics. It is by no means clear that we would get more points with Spain with the change.
But the main result is confusion. Treasury and Agriculture have raised legitimate questions about what the decision means in practice. It would certainly be interpreted differently by different agencies. At a minimum, this approach should be examined much more carefully before we sally forth with it as the U.S. position. (Samuels told me that the three-year moratorium, which was his idea, was completely spontaneous and he has not yet thought it through.)
Even more basically, this decision is being made through negotiation of cable language--precisely the way which our system was designed to eliminate. It would be impossible to retain the credibility of the NSC process in the eyes of the economic agencies if we proceed that way. State now realizes this, and suggests--after you passed on my appraisal of their present position to Richardson today/5/--that we overrule the economic agencies by issuing a NSDM which guts the caveats negotiated by State!
/5/Not further identified.
I would personally prefer a reaffirmation of the President's original decision, both substantively, and to maintain the integrity of our process. However, I gather that the President may prefer a softer position. To achieve that end in the best way and to re-regularize the process, I therefore recommend that you recommend that the President defer any decision on Spain now, rolling the issue into a general review of our policy on EC preferential trade arrangements./6/ Such a review should be triggered in any event, as I indicate below, and could be done in about two weeks:
/6/NSDM 68, "Policy Towards the Economic Community," July 3, 1970, is in the National Archives, RG 59, S/S Files: Lot 83 D 305. See also Foreign Relations, 1969-1976, vol. III, Documents 42-47.
--The delay would get everybody operating on one wave length and, at the same time, preserve our process.
--The ultimate decision for a softer position could then still come out precisely as you worked out over the weekend.
--Promulgation now of the decision reached over the weekend would doubly incense the economic agencies, not only bypassing them in the first place but overriding the changes which subsequently pacified them--and we would be blamed for overriding the caveats accepted by State.
--There is no real urgency in conveying a soft U.S. position, since it will not affect the EC-Spain outcome. (In fact, Alex Johnson thinks it would be better for the base talks to hold off any softening of our position on the EC arrangement.)
--The one problem is that we would not be able to discuss our position with Lopez Bravo when he is here next week, and he has indicated that he wishes to talk about the EC deal with us; however, there are plenty of other things to talk about and we can justify such a stance by noting that we only learned the details of his proposed arrangement a few days earlier (probably March 12 or 13).
Proposed Samuels/Gilbert Trip to Europe
Under Secretary Richardson, almost simultaneously, has proposed a Samuels/Gilbert trip to Europe to discuss the overall issue of EC preferential deals (and to try to line up European support for our generalized preferences plan) (Tab II)./7/
/7/Document 226.
The Under Secretary correctly notes that we will face the Spain-EC problem all over again on a host of other deals: Israel, Austria, UAR, Lebanon, etc. In each case, our political and commercial interests will cut in opposite ways. In addition, it will be extremely difficult to dissuade the Community from proceeding on each. The Under Secretary therefore proposes Samuels and Gilbert explore, with the Community, three possibilities for dealing with the problem:
--Making the deals consistent with GATT;
--Having the EC treat the countries as "advance'' beneficiaries under the generalized preferences plan, not demanding reverse preferences from them;
--Seeking to obtain adjustments in the specifics of the arrangements to minimize adverse trade effects on the United States.
I think it would be a serious mistake to let Samuels and Gilbert go to Europe on such a mission without clear policy guidance. Neither of them, particularly Gilbert, is sensitive to the President's overall European policy. They even disagree with each other on the issues. We have no general policy on EC preferential deals. And Samuels also wants to discuss a modified position on generalized preferences, which has not yet been mentioned to the agencies and would require Presidential decision. (Samuels is now preparing a paper, on which he will seek agency approval for his changes and then submit to the President.)/8/
/8/Not further identified.
I therefore recommend that you recommend to the President that any such trip be deferred. If he approves, you could sign the memorandum for Richardson at Tab III,/9/ indicating that the President does not think the time is right for a Samuels/Gilbert mission on these trade issues, and issue a new NSSM (Tab IV), calling for options in the preferential deals to supplement the NSSM 79 (Tab V) work on UK accession./10/ (Both Tabs III and IV assume that you approve my proposal on deferring any decision on Spain. If you reject my proposal, I will need to do a slight rewrite of them.)
/9/Not printed. A memorandum with much the same substance was sent on March 27; see footnote 2, Document 226.
/10/Neither printed.
Recommendations:
1. That you sign the memorandum for the President at Tab I, recommending (a) that he defer any decision on the Spain-EC preferential trade arrangement until it can be considered, along with all such proposed preferential arrangements, in about two weeks and (b) that there be no mission to Europe before we reach a policy decision on the overall issue.
2. That, if the President approves, you inform Under Secretary Richardson that the President does not think the time is right for a Samuels/Gilbert trip to Europe on the issue of these preferential arrangements, partly because we have no overall position on them, by signing the memorandum at Tab III and the new NSSM (to get a position) at Tab IV.
229. Editorial Note
At the NSC meeting on April 9, 1969, the President had decided to establish a Commission to "review the entire range of trade and production relationships among countries" (see Tab A to Document 195). In his November 18, 1969, trade message to Congress the President publicly announced that intent (see footnote 2, Document 213).
On March 4, 1970, Henry Kissinger sent the President a memorandum informing him that the Commerce Department, the Office of the Special Trade Representative, and other agencies, including the State Department, favored Honeywell Board Chairman James Binger as Chairman of the Commission. Kissinger added that they recommended former IBM President Albert Williams if Binger could not accept. (National Archives, Nixon Presidential Materials, NSC Files, Subject Files, Box 401, Trade General Volume I) On March 9 the President initialed his approval of Binger as Chairman and Williams as a back-up candidate.
Williams and Bergsten met with the President from 11:48 a.m. to 12:07 p.m. on April 6. (Ibid., White House Central Files, President's Daily Diary) In an April 8 memorandum, Fred Bergsten provided Kissinger with a memorandum of the President's April 6 conversation with Albert Williams, whose appointment as Chairman of the Trade Commission had been announced on April 7. Bergsten included a roster of possible members of the Commission. (Ibid.) For the April 7 announcement of Williams' appointment as Chairman of the President's Commission on International Trade and Investment Policy see Weekly Compilation of Presidential Documents, 1970, page 500, and Department of State Bulletin, June 1, 1970, page 699. Regarding the membership of the Commission see ibid., June 15, 1970, pages 752-753.
230. Editorial Note
On May 11, 1970, Chairman Wilbur Mills of the House Ways and Means Committee began hearings on foreign trade. Among the matters before the Committee were the administration's trade proposals sent to Congress November 18, 1969 (see Public Papers of the Presidents of the United States: Richard Nixon, 1969, pages 940-946), and proposals for shoe and textile quotas, the Mills Bill. Six administration witnesses were scheduled for the first week, beginning with Gilbert on May 11 and Stans on May 12. A series of memoranda dated from May 6 to 12, from Fred Bergsten to Henry Kissinger, some with attachments from the principals setting forth their positions, briefed Kissinger and reminded him of the need for decisions. (All in National Archives, Nixon Presidential Materials, NSC Files, Subject Files, Box 399, Textiles Volume II)
On May 7 Bergsten reported to Kissinger that Paul McCracken had convened a meeting that day at which all agencies agreed that the administration should oppose shoe quotas. The unresolved issue was textile quotas, and Peter Flanigan and Bergsten were preparing an options paper for the President. The Commerce and possibly Agriculture Departments recommended against opposing textile quotas on the grounds that opposition would undercut the ongoing negotiations with Japan, but other agencies, including the State and Labor Departments, favored opposing textile quotas at that time, stressing the preference for a voluntary solution, which they expected to achieve.
On May 6 Bergsten had reminded Kissinger that he had agreed to develop a position on shoes, and set out four options: 1) support the Mills Bill, with sharp cutbacks on imports, which the Commerce Department supported to maintain pressure on the Japanese negotiations, but which the State Department opposed on foreign policy grounds, believing that Sato's commitment and not the fear of legislation was the only hope of agreement with the Japanese; 2) submit the administration's own quota bill with more moderate restraints; 3) take no position pending the outcome of the Japanese negotiations; and 4) oppose quotas, as proposed by the State Department.
On May 11 Bergsten informed Kissinger that Under Secretary Richardson would be calling him shortly to protest an addition to the textile quota position Kissinger had worked out with Flanigan and Stans: the President would not veto a textile quota bill if Congress passed one. The Department of State feared that a Commerce Department amendment that would limit quotas only to Asian countries would be doubly damaging to relations with Japan. Bergsten informed Kissinger that Richardson would recommend that Secretary Rogers call the President if Kissinger would not agree to a change. (Ibid.)
The President did call Richardson the morning of May 11. He had earlier called and talked briefly to Deputy Assistant Secretary of State for East Asian Affairs William Sullivan; no record of those discussions has been found. Kissinger did not see the President until later that morning. (Ibid., White House Central Files, President's Daily Diary)
On May 12 Bergsten reported to Kissinger that Stans had read to the House Ways and Means Committee the statement that Kissinger and Flanigan had agreed on: "Recent action, which I cannot detail, leads us to believe more strongly than ever that such agreements can be successfully concluded in the next several weeks. Therefore, the Administration requests the Congress to defer consideration of the textile portion of the Mills bill for several weeks. If at the end of this period our expectations prove to be wrong and we are unsuccessful in negotiating voluntary agreements, we will at that time consider the matter with Congress." Stans told the Committee he expected at least one successful agreement by the second week of June when the hearings were scheduled to end, and Bergsten expressed his opinion that that was the deadline for getting at least a voluntary agreement with the Japanese. He also informed Kissinger that both Gilbert and Stans had stated the administration would oppose shoe quotas and would propose a domestic action program for that industry instead.
231. 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, Subject Files, Box 399, Textiles Volume II. No classification marking. A handwritten note by Butterfield reads: "K--The President signed the letter to Mills (Tab C)--& letter taken to Hill at 9:50 am May 11." See Public Papers of the Presidents of the United States: Richard Nixon, 1970, pp. 427-430, for the text of the letter, which outlines the President's trade plans but does not address the textile quota issue. A June 5 memorandum from Bergsten to Kissinger concerning an industry-Congressional meeting with the President on June 8 regarding textiles is attached. Regarding the meeting, see Document 233.
SUBJECT
Trade Hearings and Textiles Quota Legislation
Textile Quota Legislation: Background
Administration witnesses will testify next week before the Ways and Means Committee on trade legislation./2/ Their main effort will be in support of the trade bill which you submitted last November.
/2/The Congressional hearings began on May 11; see Document 230.
However, they will also have to take positions on the bill submitted by Chairman Mills. The agencies have agreed positions on all aspects of the Mills bill except one: its provision for immediate implementation of quotas on imports of woolen and synthetic textiles.
Under the Mills bill the quota for 1970 would equal the average of 1967-68 imports, which would reduce imports from current levels by an annual rate of about $330 million. The quota, however, would be superseded by any voluntary agreements which might subsequently be negotiated.
All agencies continue to prefer voluntary agreements. The difference between the three options is essentially tactical. However, there are significant differences between the policy implications of the three options.
Option 1. Oppose the mandatory textile quotas included in the Mills bill at this time, indicating a clear preference for voluntary agreements and indicating that we expect our negotiations to be successful. If voluntary agreements cannot be negotiated, we will consult with the Congress on appropriate means to deal with the textile problem. This position is supported by State, Labor, Budget, CEA and STR Gilbert.
PROS:
--Avoids basic reversal of your (and traditional U.S.) trade policy, which has consistently opposed quota restrictions.
--Thereby avoids major foreign policy problems, especially with Europe and Japan.
--Since a quota bill will probably pass if the Administration supports it, foreigners could legally cut off up to $330 million of U.S. exports if all countries chose to retaliate instead of negotiate. It could thereby cause us major political problems with our exporters (especially in agriculture, since the Europeans would welcome an excuse to restrict our soybean exports and the Japanese could easily cut off our wheat sales to them).
--Administration support for textile quotas risks Congressional passage of quota bills for additional industries, which would be politically difficult for us to oppose because some have stronger economic cases than does the textile industry. (This would be particularly true for shoes, which are included for quota protection in the Mills bill but which all agencies have agreed to oppose.)
--Textile quotas would diminish our chances for reductions in Japanese barriers against U.S. exports.
--Administration has other levers to use in negotiations for voluntary agreements.
CONS:
--Will provide charges of bad faith from the textile and apparel industry in view of your commitments to them and the failure thus far of our negotiating efforts.
--Will therefore hurt the Administration in some areas in the coming campaign.
--Commerce argues that it would virtually eliminate our leverage in our efforts to seek voluntary restraint agreements. State argues that it would not significantly reduce our leverage, because we would indicate explicitly that we will consult with Congress on a solution to the textile problem if our negotiations fail.
--Risks losing Administration leverage to influence specifics of the legislation if Congress were to proceed anyway.
Option 2. Defer at this time consideration of the mandatory textile quotas in the Mills bill, indicating a clear preference for voluntary agreements and indicating that we expect our negotiations to be successful. If voluntary agreements cannot be negotiated in the next few months, we will consider this matter with the Congress. This position is supported by Treasury and Agriculture.
PROS and CONS are similar to Option 1 with the exception that the language will provide somewhat more leverage on the Japanese to negotiate a solution and also provide somewhat more reassurance to the textile industry as to the Administration's intentions. In addition, it conforms to your commitment to support legislation if negotiations fail.
Option 3. While reaffirming our preference for voluntary agreements and indicating that we continue to believe that a negotiated solution may be possible, note that such a solution cannot now be assured and that the Administration therefore does not oppose the textile quota legislation proposed by Mills, which authorizes voluntary agreements to supersede mandatory quotas. We would seek inclusion of an amendment to give us flexibility to waive quotas on non-disruptive imports, which would permit us to exempt imports from Canada and Europe. Commerce, Attorney General Mitchell, Bryce Harlow, Harry Dent, and Bill Timmons support this position. Separate memoranda from Secretary Stans and Harry Dent, supporting Option 3 and elaborating on the political consequences of not choosing it, are attached at Tabs A and B./3/
/3/Not attached.
PROS:
--Would satisfy the textile and apparel industry, cotton and wool growers, and labor unions in the industry.
--Maximizes our negotiating leverage with the foreigners to get voluntary agreements, increasing our chance to avoid quotas.
--Administration might well be able to stop the bill, later in the legislative process, when voluntary agreements are concluded.
--Proposed amendment would permit limiting the quotas to countries with whom we are now negotiating, thereby reducing the retaliation problem. (Japan would be the main possibility, but it also is subject to retaliation by us due to its many illegal quota restrictions.)
[CONS?]
--Causes major foreign policy problems, which would be greatly magnified in Asia by actual application of quotas only against Asian countries.
--Risks domestic political problems with U.S. exporters fearing harm from foreign retaliation.
--Gives us little defense against efforts by additional industries to get quota protection, which is likely to ensue in Congressional deliberations.
--Could lead to your facing a "Christmas tree" bill including quotas on shoes, electronics, and numerous other items.
--The 1967-1968 base for quotas in the Mills bill runs counter to our stated objective of limiting the growth of, but not rolling back, textile imports.
--Quotas would make the fight against domestic inflation more difficult.
Recommendation:
That you choose Option 2. The Administration's preference is to defer at this time consideration of the mandatory textile quota provision of the Mills bill, but with a clear commitment to consider this matter with the Congress if voluntary agreements cannot be negotiated in the next few months. Peter Flanigan joins me in this recommendation, as do Treasury and Agriculture. State, Labor, Budget, CEA and STR Gilbert recommend Option 1. You should note that Secretary Stans, Attorney General Mitchell, Bryce Harlow, Harry Dent, and Bill Timmons strongly recommend Option 3.
Approve Option 1
Approve Option 2/4/
Approve Option 3/5/
/4/The President initialed this option, and the date of May 11 is handwritten next to it.
/5/Another copy of this memorandum is attached to an undated, handwritten note from Butterfield to Haldeman that reads: "This is a 2-part action paper. The President saw and acted on the 1st part--but missed the page bearing 'clip'. Flanigan needs signed letter to Wilbur Mills by 10 AM." At the bottom is typed: "The letter should bear the date of: May 11, 1970 and returned to C.F. Bergsten (NSC) for hand delivery." (National Archives, Nixon Presidential Materials, NSC Files, Subject Files, Box 399, Textiles, Volume II) See footnote 1 above.
232. Memorandum From the Chairman of the National Security Council Under Secretaries Committee (Richardson) to President Nixon/1/
Washington, May 14, 1970.
/1/Source: National Archives, RG 59, S/S Files: Lot 73 D 288, Box 837, NSC/USC Memos. Confidential. Drafted by Leary (E/ITP), and cleared in E, S/PC, and D and in Commerce, Treasury, CEA, Interior, Labor, STR, and USDA. The memorandum was forwarded to Kissinger under cover of a May 14 memorandum from Richardson informing him it pertained to the OECD Ministerial of May 20-22, at which the Secretary General would press for a resolution of the issue. Richardson urged Kissinger to obtain a Presidential decision by May 20.
SUBJECT
Tariff Preferences for Less Developed Countries--Chairman's Report
NSDM 29 of October 31, 1969/2/ recorded your decision that the U.S. participate in a system of tariff preferences for developing countries, subject to Congressional approval.
/2/Document 218.
The decision in NSDM 29 set forth the following conditions to govern U.S. participation:
1. The scheme should be liberal, conferring the maximum range of benefits on the developing countries. Preferential duties should be set at zero.
2. For manufactured and semi-manufactured products, the scheme should except from preferential treatment only textiles, shoes, and petroleum and petroleum products.
3. The scheme should be simple, relying on the standard escape clause and adjustment assistance as safeguards for domestic industry.
4. All major developed countries must adopt a common scheme.
5. If duty-free treatment cannot be achieved, we should exclude from our preferences countries which receive selective preferences in developed country markets for products covered by the scheme.
6. Developing countries should eliminate reverse preferences which discriminate against the United States to become beneficiaries of U.S. preferences.
In your speech on Latin America last October 31,/3/ you announced your support for granting generalized preferences to the less developed countries. Subsequently, we have engaged in discussions with the European Community (EC) and other major developed countries in an effort to persuade them to adopt a common scheme incorporating the major elements of our proposal. We have concentrated our effort largely on the EC, since what we and they do is likely to set the pattern for the other donor countries.
/3/Reference is to the President's speech to the annual meeting of the Inter-American Press Association. See Public Papers of the Presidents of the United States: Richard Nixon, 1969, pp. 893-901.
The EC has proposed a tariff-quota (or "preferential ceiling") scheme providing for duty-free treatment of manufactured and semi-manufactured products without exceptions but with an annual ceiling on the quantity of any item that may be imported at the preferential rates. Beyond the ceilings MFN rates would apply. The EC has told us informally that it intends to administer its system flexibly, i.e., the ceilings would be applied from the outset only on a list of sensitive products and would be applied on other products only when preferential imports cause or threaten injury to domestic producers. It is unwilling, however, to consider changing the basic framework of its scheme and adopting a non-ceiling type approach--on the grounds that in the circumstances of the Community, its scheme is the one best calculated to be administered in a liberal fashion. Japan has adopted a more rigid ceiling-type approach and seems firmly committed to it. We have concluded, therefore, that we will be unable to achieve our goal of adoption by all major donors of a common scheme along the lines of the U.S. proposal.
The LDCs tend to favor our non-ceiling approach but are not inclined to oppose openly the EC proposal. In general, the LDCs are urging donors to liberalize their respective proposals, to implement them promptly, and to rely on review procedures to determine any desired modifications in the light of operating experience. This appears to be the view of some of the major developed countries as well.
In view of this situation, a working group under Deputy Under Secretary Samuels' chairmanship has reviewed possible courses of action./4/ The agencies differ as to the course we should follow. The two basic options are:
/4/A draft of a paper prepared pursuant to this review had been circulated to members of the Working Group under cover of a May 8 memorandum from Samuels informing them he planned to submit it to the President on May 12. (National Archives, RG 59, S/S Files: Lot 83 D 305, NSSM 29)
Option 1. Obtain agreement among the donors to permit those who wish to do so to proceed with their individual schemes and simultaneously to set up review machinery in the OECD which will ascertain whether the various schemes are achieving in practice an equitable sharing of burdens. Under this option, we would maintain the essential elements of our present proposal, except for commonality, as the basis for an approach to the Congress. (State, STR, and CEA favor this option.)
Option 2. Seek adoption by all major donors of a liberalized version of the EC scheme through a more generous formula for calculation of the preferential ceilings. Our basic exceptions list would be retained but its contents might be reduced because of the safeguard provided by the availability of the preferential ceilings. These ceilings would be invoked automatically only on sensitive products, with the escape clause being used to invoke the ceilings on other commodities. If it were not possible to secure a liberalized ceiling formula, we would nevertheless accept the EC's basic preferential ceiling approach. (Treasury, Interior, Commerce, and Labor favor this option.)
In supporting Option 1, State, STR, and CEA believe that you should adhere to your previous decision to adopt a liberal scheme without ceilings but should give up the requirement for adoption of a common scheme by all major donors--a position strongly supported by the Peterson Task Force. In the view of these agencies:
--There is a serious risk of dissipating the good will of the LDCs if we hold up the implementation of a generalized preference system by continuing to insist on commonality.
--A common scheme is not attainable in any event. The U.S. could not accept the EC scheme and it is unlikely the Japanese would liberalize their scheme sufficiently to meet the criterion of commonality. Some of the other donors have serious reservations about the tariff quota approach.
--The Administration is effectively barred by domestic political considerations from abandoning our exceptions list and escape clause procedures. Thus, the only realistic alternative we have to maintaining our present non-ceiling proposal is to add quantitative ceilings to our other safeguards (our exceptions list and escape clause procedures)--thereby moving from our present proposal to a position more restrictive than that of the EC.
--If we should now move to a more restrictive position, we would have no leverage to persuade other donors such as the EC and Japan to liberalize their schemes. We would also risk bearing the onus for a generally more restrictive preference system if the EC should use the U.S. action as an excuse to add an exceptions list to its present scheme.
--For the United States to move to a more restrictive scheme by embracing tariff quotas would cause sharp disappointment among LDCs, notably in Latin America, and would be viewed as a retreat from our role of leadership on this issue.
--The arguments that were put forward against the tariff quota approach last fall are still persuasive. In particular, it would be dangerous for the Administration to lend support to the concept of tariff quotas as a useful trade policy device by advocating a preference system based on them.
--The U.S. scheme will require Congressional approval and the Administration is therefore unable to give other donors assurances that any commitments we might enter into will be carried out. Furthermore, Congress would undoubtedly be extremely critical of any international agreement negotiated in advance without Congressional authorization.
--Adoption of Option 1 would not preclude the possibility of reconsidering Option 2 at a later date if this were essential to securing Congressional approval of a generalized preference scheme.
--Congress is likely to look closely at the question of burden sharing. In this connection, a common approach may have presentational value but it would not ensure equitable burden sharing. It is not possible to estimate with any precision in advance the actual trade impact on individual donors. The EC scheme, if administered flexibly, as EC officials indicate they intend, may well yield results roughly comparable to our own. The proposed OECD review procedures would enable us to observe over time the strengths and weaknesses of each system and to draw conclusions about the desirability of continuing in this framework.
--The Ministerial Council of the Organization for Economic Cooperation and Development (OECD) will meet in Paris on May 20-22 and preferences will be one of the major topics on the agenda. The Secretary-General and some of the LDCs are urging the donors to announce a policy decision on implementation of generalized preferences at this meeting. It would be highly desirable for our representative to announce at that meeting (a) that we are prepared to support the idea of early implementation of individual schemes and do not insist on commonality, and (b) that we intend to consult with Congress at the earliest appropriate time on a legislative proposal based on our present non-ceiling approach.
In supporting Option 2, Treasury, Interior, Commerce, and Labor believe that we should now strive for adoption by all major donors of a liberalized version of the EC preferential ceiling approach. They would indicate to the EC and other OECD countries that the United States is prepared to consider adopting the EC scheme. In so doing, they would favor exploring the possibilities of agreement with the EC and Japan to liberalize the formula for determining the preferential ceiling.
Under this plan it is proposed that ceilings on preferential imports would be automatically invoked only for a limited number of sensitive U.S. commodities; the escape clause would be used to invoke the ceilings on the other commodities. However, it should be noted that the EC method of merely accepting any EC country's claim of injury in imposing a ceiling is not so rigorous as the U.S. escape clause.
With respect to exceptions, they believe that although we cannot allow unlimited preferential access for textiles, shoes, petroleum and petroleum products, it may be possible to reduce the contents of our present exceptions list through application of the ceiling safeguard. In the case of textiles many items will have to be excepted from a U.S. scheme. On the other hand, crude petroleum could be excluded from the scheme as a primary product, and shoes and petroleum products, as well as certain textile items, might be handled by placement on the sensitive list. There are also other possibilities for liberalizing within the context of an EC-type scheme so as to offset the need for an extensive exceptions list. In any event, the EC is unlikely under any circumstance to add an exceptions list to its proposal.
In the view of these agencies:
--A common scheme along these lines is attainable. There is little doubt that if the United States were to adopt the EC scheme or some variation on it, the other major donor countries would quickly go along.
--A decision to adopt this approach would improve the prospects for persuading the EC and Japan to liberalize their schemes. Total benefits to the LDC would be greater from universal adoption of a liberalized EC scheme than from adoption of the individual schemes currently contemplated by major donors. While the LDCs would undoubtedly have preferred adoption of a common scheme based on the U.S. proposal, you would nevertheless be applauded by the LDCs for achieving liberalization of the EC scheme.
--Reduction of the contents of our basic exceptions list would also be acclaimed by the LDCs.
--A common scheme is essential to alleviate Congressional and public concern about burden sharing. The Administration would be accused of playing a "numbers game" if we tried to justify equitable burden sharing under two completely different types of schemes by references to trade impact data.
--Congressional rejection or substantial modification of an individual U.S. scheme would create significant LDC disappointment and embarrassment--a risk not worth taking.
--The availability of a mechanism to trigger preferential ceilings automatically on sensitive products would substantially improve the changes of favorable Congressional action with a minimum of delay.
--Ceilings on preferential imports of sensitive items would avoid, to a large extent, difficult political decisions required in ad hoc escape clause cases.
--Once different national schemes are put into effect, there will be little real chance of obtaining changes necessary to equalize burden sharing.
Agriculture does not feel called upon to take a position on these options since, in general, agricultural commodities would be given separate and special treatment under all schemes.
All agencies agree that we should continue to insist on the elimination of reverse preferences but, if necessary, we could agree to the phasing out of these preferences over the life of the Yaounde Convention, which terminates in 1975. (Our preferential arrangements with the Philippines under the Laurel-Langley Agreement terminates in 1974.)
Action Requested/5/
/5/None of the options is checked, but a cover note indicates that Davis informed R.L. Brown that on May 20 the President approved Option I under A. Basic Approach and B. Reverse Preferences. She noted that appropriate White House documentation would follow; see Document 234.
A. Basic Approach:
Approve Option 1
Approve Option 2
B. Reverse Preferences:
May U.S. negotiators, while continuing to insist on the elimination of reverse preferences, concede reasonable phase-out periods not to extend beyond 1975 to achieve this goal?
Approve
Disapprove
ELR
233. Memorandum From the President's Assistant for Congressional Relations (Timmons) and the President's Special Counsel (Dent) to President Nixon/1/
Washington, June 4, 1970.
/1/Source: National Archives, Nixon Presidential Materials, NSC Files, Subject Files, Box 335, Items to Discuss with the President 5/1/70-6/15/70. No classification marking.
SUBJECT
Textile Meeting
Monday, June 8, 1970
11:00 a.m. to 12:00 noon, Cabinet Room/2/
/2/The meeting was held in the Cabinet Room from 11:12 a.m. to 12:38 p.m. (Ibid., White House Central Files, President's Daily Diary) No record of this meeting has been found.
Political Background
A. In August 1968, the President met with key textile leaders at Mission Bay and agreed, in a subsequently published telegram,/3/ to better enforce the long-term cotton textile agreement brought about under President Kennedy's Administration and to extend the same concept of voluntary agreements with foreign countries to man-made and woolen textile product imports. We have enforced the cotton agreement very well and just negotiated a three-year extension of the cotton agreement.
/3/Not further identified.
B. Textile industry leaders raised a considerable sum which was used to run a special operation in key Southern states, all of which were carried except Georgia.
C. This Administration has held approximately 150 conferences with foreign officials seeking a solution. In the meantime, Congressman Mills has introduced a textile-apparel-footwear trade bill to limit imports of textiles and shoes. The bill has 250 House sponsors. Sixteen of the 21 Chairmen of the House Standing Committees are sponsors, as are 14 of the 24 members of the Ways and Means Committee. Hearings are now being held, and Secretary Stans is scheduled to return by the middle of June to complete the testimony for the Administration. The industry is committed to stick with the legislation./4/
/4/See Document 230.
D. The legislation places emphasis on encouraging negotiated agreements by imposing specific import limitations only on those nations which do not enter into negotiated agreements with the U.S. Present agreements and any negotiated before and after the bill is passed will be honored. So, the negotiating job we do will determine, in effect, what kind of limitations the textile people have.
E. All of the people present for the meeting are supporters of this Administration. Speaking principally for the industry will be Roger Milliken, the foremost Republican among them.
F. The textile question is important in the Northeastern states, the wool-growing states of the West, and particularly in the Southeast (Virginia, Tennessee, North Carolina, South Carolina, Georgia, and Alabama). From a political standpoint, the lack of concrete results is being used by the Democrats against the Administration and GOP candidates./5/
/5/In a June 8 memorandum for the President's use in the meeting, Kissinger noted that Stans would again testify on June 18, and Timmons and Dent believed he should say that if no agreement were reached by that date, he should "testify then that the Administration would not oppose quota legislation and it would not be vetoed under certain circumstances." Kissinger suggested that the President, if pressed, follow this guidance: "if we are not able to reach a suitable agreement in the very near future, the Administration would not oppose such legislation. By June 18 we should either have an agreement or know definitively if one is about to be concluded. If neither is the case, Secretary Stans would testify that the Administration no longer opposes quota legislation providing it is strictly limited to textiles." "The President has seen" is stamped on this memorandum. (National Archives, Nixon Presidential Materials, NSC Files, Subject Files, Box 399, Textiles, Volume II)
William E. Timmons
Harry S. Dent/6/
/6/Printed from a copy that bears these typed signatures.
234. National Security Decision Memorandum 65/1/
Washington, June 12, 1970.
/1/Source: National Archives, RG 59, S/S Files: Lot 83 D 305, NSDM 65. Confidential. Copies were sent to the Special Representative for Trade Negotiations, the CEA Chairman, the AID Administrator, and the Budget Director. On May 21 the Department of State sent a telegram to Samuels at the OECD informing him of the substance of the soon-to-be-issued NSDM. AID Deputy Administrator Poats sent a copy of the telegram to Bergsten under cover of a May 22 note: "Cheers! You deserve a medal, which your anonymous role will deny you, for this." (Telegram 77562 to USOECD; Washington National Records Center, Agency for International Development, Executive Secretariat Files: FRC 286 73 A 518, ECF 4 International Trade FY 1970 October 1969-April 1970)
TO
The Secretary of State
The Secretary of Treasury
The Secretary of Agriculture
The Secretary of Commerce
The Secretary of Labor
SUBJECT
Tariff Preferences for Developing Countries
The President has decided to amend NSDM 29 as follows:/2/
/2/Document 218. The amendments are pursuant to recommendations in Document 232.
1. The United States will no longer insist that all major developed countries adopt a common scheme as a condition of U.S. participation in a system of generalized tariff preferences for the developing countries, subject to Congressional approval. This decision amends numbered paragraph 4 of NSDM 29. We will, of course, continue to insist on equitable burden sharing among the donor countries.
2. The elimination of reverse preferences which the U.S. will require of developing countries in order for them to benefit from U.S. tariff preferences may be phased out over a reasonable period of time, not to extend beyond 1975. This amends numbered paragraph 6 of NSDM 29.
Henry A. Kissinger
235. Editorial Note
The Japanese Foreign and Trade Ministers were in Washington June 22-24, 1970, to review a number of items of mutual concern with their U.S. counterparts, including textiles. As reported in the June 24 joint statement at the conclusion of the talks, they were unable to reach agreement on textile imports to the United States. The principals recognized the importance of the issue, and expressed a desire to continue the discussions at an appropriate time in an effort to resolve the problem. (Department of State Bulletin, July 13, 1970, page 34) On that day the President also announced a program for assistance to the footwear industry, pursuant to Gilbert's and Stans' testimony on May 11 and May 12. (Ibid., July 20, 1970, pages 91-93) Regarding their testimony, see Document 230.
On June 24, June 29, and July 2 Fred Bergsten sent memoranda to Henry Kissinger warning him of the dangers of a protectionist outcome, and suggesting that the President meet with Congressmen Mills and Byrnes to limit the bill that the House Ways and Means Committee would report out. On July 2 he also informed Kissinger that Mills had recently adjourned the hearings until July 7. The June 24 memorandum is in the National Archives, Nixon Presidential Materials, NSC Files, Subject Files, Box 399, Textiles Volume II; the other two are ibid., Box 401, Trade General, Volume II 4/70-12/70.
On July 2 Bergsten sent a separate memorandum to Kissinger informing him that senior European Community officials had visited Washington July 1-2 to consult on trade legislation. The EC officials were concerned about quota legislation on textiles and possibly other items, which they feared, as quoted by Bergsten, "could lead to a new trend in world trade policy." The Community requested and the U.S. side agreed to unofficial quadripartite consultations with Great Britain and Japan under GATT auspices in Geneva, a proposal the United States had rejected 3 weeks earlier in order not to jeopardize negotiations with Japan. Bergsten added that Mills had concurred when informed of the forthcoming consultations, and the EC had agreed the agenda was open for U.S. grievances against other participants as well. (Ibid., Box 401, Trade General, Volume II 4/70-12/70)
In a July 2 memorandum to President Nixon, Kissinger requested a decision on resolving agency differences on textile quota legislation: "The agencies agree that we should seek an amendment to the pending textile quota legislation, which we support, to give the President flexibility to waive the quotas for imports which are not disruptive. However, they differ on how the amendment should read. Commerce wants authority to waive quotas both by product category and country, while State wants to limit the authority to product categories in order to avoid pressures to use a broader authority for country discrimination." Kissinger was particularly concerned about retaliatory steps and a trade war if quotas were applied against Europe. Kissinger recommended (and indicated Flanigan and Timmons concurred) the Commerce Department approach, and he initialed the President's approval on the memorandum. (Ibid., Box 399, Textiles, Volume II)
236. Statement Issued by the White House/1/
Washington, June 24, 1970.
/1/Source: National Archives, RG 364, Office of the Special Representative for Trade Negotiations: Lot 78 B 1, Nonrubber Footwear-White House Press Release, June 24, 1970. No classification marking. Issued by the Office of the White House Press Secretary.
The President today announced a program of assistance to non-rubber footwear firms and workers in the United States. The program has three major components:
--Initiation by the President of an investigation by the Tariff Commission, under the escape clause provision of the Trade Expansion Act, of the impact of increased imports on the men's and women's leather footwear industry./2/
/2/See Document 212.
--A series of domestic Government measures to deal directly with the various problems faced by some footwear firms and workers.
--Authority for the Secretary of Labor and the Secretary of Commerce to proceed on each of the six adjustment assistance cases on which the Tariff Commission recently completed investigations.
The President's program was developed from the findings of an inter-agency task force organized to make an extensive study of the footwear problem with particular attention to the impact of import competition. The study is being released today./3/
/3/The study has not been found. Documentation on the work of this task force is in the National Archives, RG 364, Office of the Special Representative for Trade Negotiations: Lot 78 B 1, Nonrubber Footwear, Financial Data.
This study concludes that many producers are able to meet competition but that some face problems from a number of sources. One of these has been the recent, rising volume of imported footwear. Other problems were found to include technological, organizational and marketing changes, shifts in the location of production away from traditional manufacturing areas, and rapid changes in the demand for footwear, with increasing emphasis upon style.
Some firms, the task force found, now need to modernize, rationalize their production, possibly change their product lines, and otherwise improve their competitive ability. It reported that such firms would be in difficulty from existing domestic competition regardless of the level of imports.
The task force reported that the facts and information available to it did not demonstrate a case of overall import injury. However, the task force also noted its concern that, if all the necessary information were available, there might well be injury to the men's and women's leather footwear industry which has experienced a sharp increase in import competition. It pointed out that an investigation such as the Tariff Commission is authorized to conduct--with powers of subpoena, access to confidential business data, and public hearings--would provide a more comprehensive basis for judgment than was available to the task force.
On the basis of the findings of the task force, the President has decided that import restraints are not the answer to the footwear problem. The Administration has therefore opposed legislated quotas on shoe imports. However, an investigation by the Tariff Commission under section 301(b) of the Trade Expansion Act of 1962 could provide a more comprehensive basis for judging the extent of any injury. The President is therefore requesting that the Commission investigate whether imports are causing or threatening to cause serious injury to the domestic men's and women's leather footwear industry. He hopes that the Tariff Commission, in light of the information assembled by the task force and its own two earlier section 332 investigations of non-rubber footwear, will expedite its report with a view to an early finding.
This is the first occasion on which any President has asked for an escape clause investigation since the beginning of the trade agreements program in 1934. An affirmative finding under section 301 could make available to men's and women's leather footwear industry, its firms, and its workers the variety of forms of relief and assistance prescribed by the Congress in the 1962 Act. If the President's proposed Trade Bill of 1969 is enacted by the Congress during the Tariff Commission's investigation, its more liberal escape clause and adjustment assistance criteria will apply in this instance.
The President also concluded that, notwithstanding the Tariff Commission investigation, Government measures are necessary to help certain footwear producers and workers, and the communities where footwear is an important source of income and employment. The President has accordingly directed the Secretary of Commerce to assume responsibility for a footwear program, in coordination with the other Cabinet officers who are members of the Adjustment Assistance Advisory Board or whose departments will be involved in this program.
The President has directed that these federal agencies take action to improve the employability of footwear workers, to develop jobs for those displaced by the many changes now occurring within the domestic industry, to assist in the revitalization of the communities adversely affected, and to provide special assistance for affected firms. Among the programs to be undertaken will be the following:
1. The Department of Labor and the Department of Health, Education, and Welfare will develop and provide special footwear programs within the framework of existing manpower retraining and development legislation, and will urge the individual States concerned to provide special attention in their own manpower programs. These efforts will seek to meet the special problems of footwear workers, taking into account the composition of the labor force in terms of age, sex, skill levels, and mobility. In areas where the problem is primarily one of shortages of skilled footwear workers, the objective will be to provide additional training opportunities; where unemployment is the primary problem, the objective will be retraining and adjustment to other jobs.
2. The Economic Development Administration of the Department of Commerce will develop programs to attract other industries to the communities heavily dependent upon shoe production. These programs will be developed in cooperation with the affected communities. The Economic Development Administration will also give consideration to requests for financing necessary public services to support new or expanding industries and to make loans directly to new businesses in these areas.
3. The Department of Transportation, when local authorities request its assistance, will provide financial assistance in establishing the commuter facilities authorized by the urban mass transportation program to provide or improve transportation facilities between areas of substantial unemployment and neighboring areas where job opportunities exist.
4. The Small Business Administration will expedite consideration of loan and other assistance requests from small shoe firms to help them in their adjustment problems.
5. The Secretary of Commerce, with the assistance of other members of the Adjustment Assistance Advisory Board, will undertake consultations with the footwear industry to develop any further measures of assistance found to be necessary.
On the advice of the Department of Justice, the President has also concluded that he has the authority in the case of split decisions by the Tariff Commission in adjustment assistance cases to act on the findings of either group of Commissioners. He is, therefore, informing the Secretaries of Labor and Commerce that the decisions of the Tariff Commission in six recent cases are affirmative findings and that the Secretaries are authorized to consider certifications of the firms and workers involved under the terms of section 302(c) of the Trade Expansion Act of 1962.
237. Action Memorandum From the President's Assistant for National Security Affairs (Kissinger) to President Nixon/1/
Washington, July 8, 1970.
/1/Source: National Archives, Nixon Presidential Materials, NSC Files, Subject Files, Box 401, Trade General, Volume II 4/70-12/70. Confidential. A note by the President, written under the date, reads: "Right after vote."
SUBJECT
Possible Crisis in Trade Policy
Paul McCracken indicates at Tab B/2/ that he fears we may be on the verge of a trade war with Europe and Japan, as a result of our decision to impose quotas on textile imports./3/ He notes that the Common Market has already implied the possibility of retaliation against our soybean exports, and that our wheat sales to Japan are also extremely vulnerable.
/2/McCracken's July 2 memorandum is not printed.
/3/Reference is to pending legislation that the administration decided not to veto; see footnote 3, Document 233 and Document 235.
Dr. McCracken also suggests that we make a concerted effort to set out a clear course for our foreign economic policy in view of the imminent trade problem, and expresses the hope that he will be able to discuss that suggestion with you shortly. (The Ash Council will shortly be making recommendations to you on our organization of foreign economic policy. I suggest that you defer any discussions on this topic until you receive their views.)/4/
/4/Regarding the Ash Council, see footnote 9, Document 134.
I fully agree with the substance of Dr. McCracken' s memorandum. Textile quotas alone will cause us serious foreign policy problems, and may lead to retaliation. If we can limit the quota legislation to textiles, however, we will sharply limit these risks.
But there are strong Congressional pressures for broader protection. This is partly due to the normal protectionist effort, heightened in an election year; partly due to widespread feelings that other countries are cheating on the international trading rules; partly due to the slowdown of the domestic economy and the effects of inflation in stimulating imports; and partly due to feelings that textiles should not be singled out for favored treatment.
The strongest candidate for quota protection beyond textiles is shoes, the only industry besides textiles in the Mills quota bill. We have opposed shoe quotas vigorously and announced an alternative program, but Mills has just reaffirmed that his bill will include them. The result would be:
--A major confrontation with the European Community, which would probably retaliate on over $200 million of U.S. exports (probably in agriculture) even if we offered to provide compensation through other tariff reductions.
--A possible blowup of our base negotiations with Spain, since shoes are Spain' s leading export to the U.S. and the Mills quotas would roll them back by about sixty percent.
--New gains for the Communists in Italy, since shoe (and textile) production is centered in the "red belt" and our quotas (which would roll back Italian shoe exports to us by thirty percent) would clearly create serious new unemployment there--which would be blamed on the U.S.
It is uncertain at this point whether the Ways and Means Committee will report out a bill including quotas on other industries, and/or an "orderly marketing" bill which would place limits on any imports which met certain statistical tests (growth rate of imports, imports as a percentage of domestic consumption, etc.). It is highly likely that the Senate will vote such a bill. Since the Ways and Means bill can only become more protectionist later in the legislative process, it is vital that it do a minimum amount of damage--to provide a basis for an acceptable compromise in conference.
Broad-scale protectionist legislation would effectively destroy the free trade presumption of both U.S. policy and the international trading system. We would undoubtedly suffer massive retaliation in return. More importantly, the rest of the world would regard such a step as the most concrete possible sign of U.S. isolationism, replicating our policies of the 1930s. Its impact on our overall foreign policy would be devastating--in Europe, Japan and the less developed world.
It is therefore essential to minimize the restrictiveness of the legislation which emerges from the Ways and Means Committee. Wilbur Mills and John Byrnes have been extremely cooperative with all previous Administrations on this score, but they need assurance that the Administration will play an active role in heading off restrictions. I therefore believe that the time has come for you to intervene personally with them, to try to limit the Ways and Means bill to textile quotas plus the Administration's own trade proposals.
Recommendation:
That you invite Mills and Byrnes to call on you, to urge them to limit the pending trade bill to textile quotas and the Administration's own proposals. They will consider the shoe quotas tomorrow, so the call or meeting should come immediately. Bryce Harlow, Peter Flanigan, Bill Timmons, Paul McCracken, and Special Trade Representative Gilbert concur. Talking points are at Tab A./5/
/5/Not printed. The Approve option is checked, and the President wrote below it: "incl S & K only & T."
238. Memorandum of Conversation/1/
Washington, July 9, 1970.
/1/Source: National Archives, Nixon Presidential Materials, NSC Files, Subject Files, Box 401, Trade General Volume II 4/70-12/70. Confidential. Drafted by Bergsten on July 11. The meeting was held in the Oval Office from 4:40 to 6:02 p.m. (Ibid., White House Central Files, President's Daily Diary)
President's Meeting Thursday, July 9, 1970
ATTENDED BY
The President
Congressman Wilbur Mills
Congressman John Byrnes
Mr. Harlow
Mr. Shultz
Mr. McCracken
Mr. Timmons
Mr. Bergsten
The President opened the discussion of pending trade legislation by indicating that he could not accept shoe quotas. They would cause major problems in our relations with Italy and Spain, and trigger retaliation.
Chairman Mills replied that the President would have discretionary authority to apply the quotas, depending on whether there was market disruption. He still did not know whether shoes would be in the bill--but Congressman Byrnes interjected that he was sure they would be. Mills added there would also be an effort to legislate steel quotas, which would take effect if the present voluntary restraint agreements were not extended.
Mills and Byrnes indicated that the emerging bill would give the President great flexibility. They had accepted every amendment proposed by the Administration. Mills would insist on a time limit for the quotas. Mills said he could pass a bill including textile quotas, shoe quotas, and a general authority to restrict imports in other industries in cases of market disruption. He expressed confidence that the bill would help obtain voluntary agreements on textiles, but admitted that shoe agreements would be difficult--here, though, the President could use the waiver authority to exclude a large portion of the imports.
Mills added that he needed help from the Administration in getting rid of ASP and passing DISC, but that he wanted to do so--and in fact wanted to give the President everything he asked for. The President replied that he did want both ASP removal and DISC in the bill. In response, Mills noted that former Assistant Secretary of State Solomon had recommended that Congress send the ASP deal back to the President, and ask for a better package in return.
Mr. Harlow asked whether it would be possible to limit the bill's restrictions to a general authority to limit imports. Mills thought this was not a live option. The President indicated, however, that he would prefer such an approach, which would give him the desired bargaining position with the Japanese, and that the legislative history could indicate that the general authority was to be used within a certain period to deal with textile and shoe imports. He agreed with the Congressmen that Tariff Commission action often took too long to be of help.
Mills indicated that there was a problem, since textiles could only show injury in limited areas. (In an aside, he remarked to the President that they had both been fooled by the textile industry, which had no case for overall protection.) Nevertheless, he could get seven or eight Democrats to support the general authority as a substitute for specific quotas. Byrnes indicated, however, that the Republicans would insist on adding the authority to specific quotas for shoes and textiles. Mills added that the law should include a rather restrictive base period for the quotas to help our negotiating position for voluntary agreements.
Turning to the specifics of the proposed general authority, Mr. Shultz suggested that restrictions be generally authorized when the growth of imports exceeded some fixed rate, in lieu of any quotas on specific times. In response, Mills indicated his opposition to mathematical formulae and argued that the President should have the widest possible discretion. The Chairman expressed his confidence in the President, in contrast to his feeling that President Johnson would never have used such authority even in legitimate cases.
Mills concluded that his Committee would make its decisions in the following week and get the bill out shortly thereafter. He assured the President that he would send up a bill which the President could sign.
The President reiterated that he would prefer a general authority to quotas on shoes, textiles or any other specific industries. He noted that the authority must be credible to the domestic industry and the foreigners, but provide him with sufficient flexibility. The President pledged that, if given a general authority to implement quotas by the Committee, the Administration would negotiate extremely hard to get textile restraints and therefore fulfill the commitments made to that industry. At Mills' request, the President also suggested that Dr. McCracken take part in the hearings on the following day.
For the longer term, Mills concluded that we must assess whether traditional U.S. trade policy will work in the future, or indeed has been working since the mid-1960s. The President suggested that the new Productivity Commission might look at the issue. Mr. Bergsten added that the Williams Commission on International Trade and Investment Policy was already doing so.
239. Information Memorandum From C. Fred Bergsten of the National Security Council Staff to the President's Assistant for National Security Affairs (Kissinger)/1/
Washington, July 14, 1970.
/1/Source: National Archives, Nixon Presidential Materials, NSC Files, Subject Files, Box 401, Trade General, Volume II 4/70-12/70. Secret; Exdis.
SUBJECT
Next Steps to Deal with Trade Situation
Decisions
After you left the meeting last night,/2/ the group decided to adopt your proposal--to let the trade bill become a "Christmas tree" and veto it. The group also made the necessary corollary decision to take all steps necessary to try to avoid an override of the veto.
/2/Not further identified.
It was unanimously agreed that there was no real alternative:
--It would be impossible to avoid getting any legislation, since the Congressional momentum has gone so far.
--No "deal" which we might possibly be able to make, such as accepting a "basket clause," would be any good, even in place of mandatory quotas on particular items: it would catch too many items and would place the burden completely on the President.
--As you said, it would not be possible to delay by starting up the negotiations again./3/
/3/
Presumably a reference to the failed Japanese bilaterals; see Document 235.To begin to implement the strategy adopted, the following steps were decided:
--A delegation (Stans, Flanigan, McCracken, Bergsten) will visit Congressman Byrnes today to reaffirm the President's statement of last Thursday/4/ that the bill courted veto even before yesterday's action on ASP; the ASP step moved it closer to veto;/5/ and that any additional protectionist amendments to the bill would continue the move in that direction.
/4/July 9; see Document 238.
/5/The Committee apparently dropped repeal of ASP from the legislation, voiding a Kennedy Round commitment; see Document 243.
--Someone (probably Stans) will inform the textile industry that we are shocked by its failure to support our trade position in return for our support for textile quotas, and warn them that unless quota legislation is limited to textiles that they may wind up with no protection at all because of a veto.
--Harlow, Flanigan and others will begin immediately to mobilize the free trade groups, retailers, etc. to publicize the disastrous implications of the pending legislation.
--At Harlow's suggestion, we should seek an early occasion for a Presidential statement on the issue: partly to try to head off the bill, but even more to begin preparing the public for a veto./6/
/6/During his press conference on July 20, the President said quotas were not in the interest of the United States as an exporting nation, but in view of the breakdown of talks with Japan and others on a voluntary textile quota agreement textile quotas would be acceptable; he said he would veto a bill, however, that applied to other sectors as well. (Public Papers of the Presidents of the United States: Richard Nixon, 1970, p. 606)
Harlow made two interesting comments after you left: that in his judgment this was the "most Presidential issue" which we now face, and that the eventual Presidential veto should be carried to the nation by television a la the veto of the HEW appropriations bill last January.
Comments
From the standpoint of U.S. foreign policy, successful implementation of this strategy would undoubtedly be the best outcome. Any bill that passes the present Congress at this time is bound to set back our trade and foreign policy severely. No bill--either by delay or by veto--would clearly be preferable.
There are three significant risks to this strategy:
--The bill may come in just lacking sufficient protection to justify a veto.
--The politics of the situation will make the veto extremely difficult at the moment of decision, however many the items in it, because of textiles and the November election.
--The veto may be overridden.
You will thus probably have to make a major contribution to the effort to carry out the strategy. Needless to say, the enormous foreign policy implications of the issue justify your doing so.
240. Editorial Note
In his July 29, 1970, Evening Report to the President, Secretary of State Rogers reported that Carl Gilbert and Nathaniel Samuels would lead a small delegation to "confidential" quadripartite trade talks in Geneva July 31-August 1. Rogers noted that the meeting would not be a negotiation but a "frank exploration of a wide range of troublesome trade issues." He also reported that Congressman Mills was fully informed and had no objection. (National Archives, RG 59, S/S Files: Lot 74 D 64, Box 410, July 29, 1970) See also Document 235.
In his August 4 Evening Report, Rogers reported that Gilbert, Samuels, and Trezise "had unusually frank discussions with representatives of the EC, UK and Japan on a broad range of trade problems. . . . all the major issues were raised: U.S. legislation, European agricultural policies, Japanese trade and investment restrictions, and the spread of European Community preferential trading agreements. . . . Plenary discussion of the textile issue was limited, but GATT Director General Long did suggest, with broad support, establishment of a GATT working party to explore possibilities for a multilateral approach to cover all fibers after 1973." Rogers believed the talks were probably the first in a continuing series of high-level, informal discussions. (National Archives, RG 59, S/S Files: Lot 74 D 64, Box 410, August 4, 1970)
241. Telegram From the Embassy in Germany to the Department of State/1/
Bonn, August 3, 1970, 1710Z.
/1/Source: National Archives, Nixon Presidential Materials, NSC Files, Country Files-Europe, Box 684, Germany, Volume VII 8/1/70-11/70. Confidential. Repeated to Brussels, The Hague, London, Luxembourg, Ottawa, Rome, Tokyo, and Geneva and to the Missions to the EC, OECD, and NATO.
8885. Subj: US Trade Policy.
1. Summary. The present atmosphere of protectionism at home and abroad threatens to lead the West into a serious crisis in trade relations, and thus poses grave dangers for our political and economic objectives in Europe and elsewhere in the world. Moreover, in the absence of new departures in policy, protectionism threatens to increase in intensity. In addition to the wave of protectionism in the US reflected in the House Ways and Means Committee, Japan continues to avoid its trade obligations, and the European Community remains steeped in its highly protective agricultural policies. The Community is pressing ahead with its proliferating system of preferences. The enlargement of the Community, which we favor, will involve trade diversion and also raises the issue of the Community's trade relations with countries now linked to the applicant countries via preferences.
In this context, I am convinced that we can only harm US commercial interests, as well as our broader political and economic interests, by protectionist action. In my view, the policy best designed to protect our interests should include a strong defense of our GATT rights, a renewed commitment to our GATT obligations and the early proposal of a Nixon Round of comprehensive trade negotiations.
2. The President's reassuring statement regarding US trade policy/2/ has been a source of considerable satisfaction in Germany. The Germans, and Europeans generally, hope that the President will be successful in stemming the tide of protectionism. For, as seen from Bonn, the dangers of a marked shift by the United States toward protectionism are of such a magnitude that it is difficult to exaggerate them.
/2/Reference is to the President's remarks during his news conference on July 20; see footnote 6, Document 239.
3. German officials have made it clear that the Community would react initially to American quotas on its exports by retaliation, at a heavy cost to US domestic economic and political interests, particularly agriculture. They fear that retaliatory action may not be confined to one or two rounds and that a trade war may result. The adverse economic consequences of a trade war, including the impairment in the efficiency of world production, the reduction in economic growth and employment and the distortion of international trade patterns, need not be dwelt upon. But the adverse effects would not be limited to the economic front. Our political objectives within the Atlantic Alliance and elsewhere would be seriously threatened.
4. For Germany a trade confrontation in the West of such a magnitude would have serious implications for its Eastern policy and for political and security relations in Europe. Greater accommodation of Soviet entreaties would be a possible outcome. The Soviet Union is already pressing its case. As Pravda said on July 25: "Little Europe will be perhaps unable to break free from the American trap if it acts separately from other European countries. It would be quite different if all-European economic cooperation on the scale of the entire continent reached such proportions that would counterbalance the present 'Atlantic' orientation of Common Market countries."
5. A trade confrontation would obviously hurt those dimensions of Atlantic interdependence that have been developed over the past 20 years based on mutual trust and cooperation. The Germans recognize these interdependencies, and over several years have assisted us in dealing with mutual problems. Without German cooperation, several international monetary crises in the recent past could have meant disaster for all. Moreover, protectionism in trade policy would not be without its nationalistic repercussions in industrial policy, balance of payments programs, and policies towards foreign investment.
6. In attempting, from Bonn, to assess the trade situation in which we find ourselves and to recommend courses of action, I hope I do not seem unmindful of the exceedingly difficult pressures in Washington. There is a confluence of forces in America today that provides a stronger impetus, and a seemingly more persuasive logic, to protectionism than we have seen for a long time. Among other factors, evidence of stubborn protectionism abroad has lead many to the conclusion that we should respond with protectionism of our own.
7. There are many present and prospective developments that will seem to support this conclusion. Japan is clearly not carrying its weight in international trade and investment. Canadian tariffs remain high. The EEC is bogged down in a massively expensive, highly protective agricultural system that greatly erodes its own and others' abilities to take liberal trade policy initiatives. Additionally, the EEC continues to develop a system of preferential trade arrangements in Western Europe and around the Mediterranean basin. The enlargement of the Community, which we favor, will have trade diverting effects and also opens up questions about the nature of the trade relations between the enlarged Community and countries with preferential trade links to the applicant countries.
8. We face therefore an intensification of trade policy problems that will provide aid and comfort to protectionist forces in the United States. The question for US trade policy is how to protect US commercial interests and, thereby, the broader political and economic interests of the United States. I do not see that the answer lies in protectionism.
9. In my view the policy best designed to protect our interests should combine several elements, including the following:
A. strong defense of our GATT rights;
B. renewed commitment to GATT obligations by ourselves and others; and
C. an effort to launch a Nixon Round of trade negotiations encompassing tariffs, non tariff barriers, and specifically agricultural policies.
10. Strong Defense of GATT Rights: Protectionism, and the proliferation of preferential arrangements that impair our GATT rights should continue to be countered by strong reactions by the United States. I favor the use of all legal means at our disposal to maintain, and when appropriate to redress, the balance of concessions in our reciprocal trade arrangements. I have Japan specifically in mind, for I believe that we should have a show-down in the GATT, if necessary, to press the Japanese to live up to their obligations. Similarly, I think we should move against patently discriminatory EC arrangements with, for example, Lebanon, UAR, and Israel. I recognize that the EEC may have sufficient votes to deny us a GATT finding that such arrangements are illegal under GATT Article XXIV. But I think that we must have the courage to press an issue such as this to the point where we would act under GATT Article XXIII to seek satisfaction. We might again try the arbitration panel approach used to settle the "chicken war." Obviously, political arguments can be made against this general approach and against its application in specific cases. It seems to me, however, that the political disadvantages we now have in the current atmosphere of protectionism and neo-isolationism at home require us to take the political risks of an aggressive defense of our commercial interests.
11. Renewed Commitment to GATT: As a corollary to the above approach we must live up to our own liberal trade commitments. In this connection perhaps the first case to be cited is ASP, which has become a symbol of US protectionism in the eyes of our trading partners; repeal is essential to show our good faith commitment to a liberal trade policy. Above all, we would have to forego actions such as the mandatory, unilateral quotas that the House Ways and Means Committee seeks to impose on our imports.
12. A Nixon Round of Trade Negotiations: An integral, and essential part of any successful program to protect our commercial interests in the environment I have attempted to describe is a judicious, balanced trade policy approach noteworthy for its liberal direction. Otherwise, our efforts to achieve liberal solutions by our trading partners will come to naught. We should begin now to prepare a Nixon Round of trade negotiations. There will be cries that proposals by us for trade negotiations put forward in the course of negotiations for the enlargement of the Community might endanger the latter. We will certainly want to take soundings at the highest level before putting forward our proposal formally. There are other aspects of timing that require consideration. We will have to resolve the immediate textile problem. However, while my proposal is not tied to an immediate initiative on our part, I do not think it should come any later than early 1971. What we are witnessing in the United States today is proof of the thesis that we cannot stand still in US trade policy without substantial backsliding and political cost. Moreover, we cannot expect that any other country will provide the initiative that is required to maintain, on a global scale, the momentum toward international, as opposed to regional, economic integration.
13. I believe that the benefits of such a new initiative would be very substantial in terms of longstanding political and economic objectives we have had vis-a-vis Western Europe. We could look forward to a phased introduction of trade free of customs duties across certain industrial sectors and greatly liberalized trade generally among the developed nations of the Western world. Hopefully, the trading problems of the neutrals and of the countries in the Mediterranean basin could thereby be eased in a worldwide rather than in an exclusively regional context. The resultant enlarged Community would enjoy improved prospects for political integration. I believe the negotiation would reduce the danger that rival, antagonistic trading blocs might develop across the Atlantic. Such a negotiation could provide further benefits to the developing countries and put North-South relations in an improved multilateral context. The resultant trade links would bind us more closely to Western Europe, where our security interests are so intensely engaged. I believe that this is the right course for us to take, and I urge that we begin immediately to turn toward it.
Rush
242. Editorial Note
During the late summer and fall of 1970, telegrams such as Document 241, similar messages from other posts, Department of State replies, and trade-related messages pertaining to the Mills Bill, possible trade wars, EC preferences, and agricultural policy, were regularly summarized for Department of State principals in the Daily and Evening Summaries of significant messages. (National Archives, RG 59, S/S Files: Lot 73 D 153)
Secretary of State Rogers also informed the President of significant developments from time to time in his Evening Reports. (Ibid., S/S Files: Lot 74 D 164)
243. Information Memorandum From C. Fred Bergsten of the National Security Council Staff to the President's Assistant for National Security Affairs (Kissinger)/1/
Washington, August 7, 1970.
/1/Source: National Archives, Nixon Presidential Materials, NSC Files, Subject Files, Box 401, Trade General, Volume II 4/70-12/70. Secret; Limdis. A stamped notation, dated August 11, reads: "HAK has seen."
SUBJECT
Trade Situation: Next Steps
1. Following yesterday's meeting here at the White House,/2/ which you attended, Harlow and Flanigan raised again with the President the issue of our posture on the trade bill./3/ The President reaffirmed that he would veto any bill which forced him to apply quotas on shoes or any other product beyond textiles. However, he did authorize efforts to improve the bill on the possibility that he might sign it if his hand was not forced on quotas.
/2/Not further identified.
/3/Harlow and Flanigan met with the President from 3:42 to 4:04 p.m. (National Archives, Nixon Presidential Materials, White House Central Files, President's Daily Diary)
2. Harlow is thus working on the ASP deal which we discussed yesterday, to try to get it back into the bill. George Shultz is doing the same with Labor. Flanigan and Secretary Stans are working on the textile people. The Ways and Means Committee will act on ASP on Monday.
3. On textile negotiations, State is committing GATT Director General Long's proposal to paper./4/ They will then check it with him, to see if it accurately conveys his ideas. Commerce, State, and we in the White House will then get together to see if it represents a proposal we could accept. Finally, we could then check with the Japanese on the possibility of new talks based on the Long proposals, and decide whether to start negotiations with Korea, Taiwan, and Hong Kong.
/4/Presumably a reference to Long's proposal at the July 31-August 1 quadripartite talks in Geneva; see Document 240.
244. Memorandum From the Acting Chairman of the National Security Council Under Secretaries Committee (Samuels) to President Nixon/1/
Washington, August 28, 1970.
/1/Source: National Archives, RG 59, S/S Files: Lot 83 D 305, NSDM 29. Confidential.
SUBJECT
Tariff Preferences for Less Developed Countries (LDCs)--Chairman's Report
1. The Problem
In the next few weeks a series of international meetings will take place to present and discuss the "final" donor country proposals for extending generalized tariff preferences to developing countries. The OECD countries will meet September 7-9 to prepare a report to UNCTAD which will include the "final" offers of the donor countries. The UNCTAD Special Committee on Preferences will meet on September 21 to discuss the proposals and to prepare its final report to be submitted to a special session of the UNCTAD Trade and Development Board. The UNCTAD Board plans to submit a report to the United Nations General Assembly before the launching of the UN Second Development Decade in connection with the UN's 25th anniversary celebrations in October.
Before the United States can present its definitive proposals at these meetings, several decisions need to be made. The Under Secretaries Committee, under Deputy Under Secretary Samuels' chairmanship, has reviewed the issues and presents the following recommendations and options for your decision.
2. Beneficiary Countries
NSDM-29 of October 31, 1969/2/ did not deal with question of which countries would be offered preferences except to specify two conditions whereby otherwise eligible countries would lose the opportunity to benefit from preferences in our market: LDCs that grant reverse preferences or LDCs which benefit from special preferences on products covered by the generalized preference system at other than a duty free rate would be excluded from preferences.
/2/Document 218.
In international discussions the United States has joined other developed countries (DCs) in stating that, in general, we accept the "self-election" formula originally developed by the OECD Group of Four in 1967. Under this formula donor countries would in general--subject to an exception for compelling reasons--grant preferences to any country, territory, or area that puts forward a bona fide claim to LDC status. This DC position has sufficient qualifications with respect to any particular LDC. The donors have, by mutual agreement, refrained from discussing the specifics of the question in the OECD meetings and even informal comments have been carefully hedged.
There are three "problem areas": (1) borderline countries such as Cyprus, Greece, Israel, Malta, Portugal, Spain, Turkey, Kuwait and Yugoslavia; (2) dependent and trust territories (the principal question here is Hong Kong); and (3) communist countries (other than Yugoslavia)./3/
/3/The issues involved in country eligibility for tariff preferences were discussed in a May 21 memorandum from Trezise to Samuels. On that memorandum the Approve option is checked to exclude Communist countries other than Yugoslavia; the Approve option is checked to include Israel (and by extension Kuwait); and the Exclude option is checked regarding Hong Kong. (National Archives, RG 59, S/S Files: Lot 83 D 305, NSDM 29)
--Borderline Countries
Although there was reluctance on the part of several agencies to continue to support the self-election principle, all agencies agreed that all the borderline countries indicated above should be considered eligible for beneficiary status, subject to the conditions on reverse and special preferences. (Agriculture stated its agreement was based on the assumption that no additional items would be added to the positive list of agriculture items for which preferences would be offered.)/4/
/4/None of the Approve/Disapprove or other options in the memorandum is checked. For the President's decisions, see footnote 5 below and Document 245.
--Dependent Territories (Hong Kong)
All agencies agreed that we should announce that the United States will exclude Hong Kong from beneficiary status because other major donor countries are not granting Hong Kong beneficiary status. For us to grant preferences to Hong Kong unilaterally would be inconsistent with the burden sharing principle. We would also announce that if the situation should change, i.e. if other major donor countries grant generalized preferences to Hong Kong, we would reconsider our position. (The Commerce Department, although voting for this resolution of the Hong Kong problem, wanted it recorded that it could not conceive of any circumstances under which Hong Kong could be given preferences in the U.S. market. This view was based on the obvious ability of Hong Kong to compete in our market at present tariff levels.) We would grant beneficiary status to other dependent territories on the assumption that other major donors do likewise.
--Communist Countries (other than Yugoslavia)
All agencies agreed that we should not grant preferences to communist countries, other than Yugoslavia, at the outset. However, this position would be subject to review if additional communist countries are eventually granted MFN treatment by the United States.
All agencies agreed that the subject of beneficiaries should be reviewed from time to time and consideration given to the removal from our approved list countries which have reached developed status. In that event, efforts would be made to get such countries to join the donor group.
3. Special Preferences
NSDM-29 contains the following condition concerning LDC participation in the U.S. preference system.
"If duty free treatment cannot be achieved, we should exclude from our preferences countries which receive selective (special) preferences in developed country markets for products covered by the scheme."
The question is, given the various offers which are now proposed by the prospective donors, does this condition need to be invoked against any LDC?
The State Department, AID, and the Council of Economic Advisers, while opposed to special preferences in principle, agree that since the major donors are moving to zero duty on almost all items included in the preference system, the condition quoted above has for all practical purposes been met. State, AID, and CEA believe that if we were to insist on this condition for the very small amount of trade involved we would make the elimination of "reverse preferences" much less likely and might cause some LDCs to opt out of our preference system. It could also cause the European Communities (EC) to reduce the extent of its offer by the elimination of the items in question from its product list. State, AID, and CEA therefore recommend that we not exclude any LDC because of our special preference condition on the understanding that this applies solely to existing special preferences. Alternatively, they would support the recommendation of other agencies that special preferences be phased out, but would recommend in addition that our representatives be authorized to drop the condition if it becomes clear that our insistence on it would jeopardize our objective of eliminating reverse preferences or could cause a reduction in the coverage of preferences of other donors.
On the other hand, Commerce, Labor, Treasury, Agriculture, STR, and Interior believe that we should continue to insist on the elimination of special preferences before a country can participate in preferences in our market. Special preferences work not only against our economic interests but those of Latin America in particular. All LDCs should have equal access to developed country markets for products included in the generalized preference system. The mere moving to zero duties would not eliminate special preferences; tariff quotas applicable to some LDCs (including the Latin Americans) but not to others would be discriminatory. In addition, these agencies believe that yielding on the principle of special preferences would make an already difficult task of obtaining Congressional approval of the generalized system even more difficult. We should therefore maintain the position that we will exclude from United States preferences countries which receive any form of special preferential treatment on products covered by any of the various generalized preference systems. It would be acceptable to these agencies to instruct our representatives to make every effort to obtain agreement on the elimination of special preferences on products covered by the generalized preference system, but if it appeared certain that this agreement could not be reached, to suggest the following compromise. The United States would agree to include developing countries now receiving special preferences on products covered by various generalized preference systems from the outset as recipients of United States preferences, provided the countries concerned would agree to the phasing out of these special preferences by 1975; otherwise your original condition would prevail. (This position would parallel your decision on reverse preferences.)/5/
/5/See Document 234.
1. Supported by State, AID and CEA
a. Special preference condition has been met
b. Seek phasing-out of special preferences, but withdraw condition if necessary
2. Supported by other agencies
a. Insist on elimination of all special preferences
b. Continue to require elimination but accept phase-out if necessary/6/
/6/On September 24 Davis sent Executive Secretary Eliot a memorandum informing him the President had disapproved inclusion of countries that still received special preferences. The memorandum indicated that the President wanted their elimination but would permit a 5-year phase-out. (National Archives, RG 59, S/S Files: Lot 73 D 288, NSC/Misc.)
4. Special Measures for the Least Developed of the Developing Countries
There is intense pressure in international organizations (UNGA, UNCTAD, IA-ECOSOC) for the adoption of special measures to benefit the least developed among the developing countries.
In NSDM-37 (January 28, 1970),/7/ you authorized the U.S. Delegate to the IA-ECOSOC meeting ". . . to indicate that we are studying various possibilities for special treatment for 'least developed countries' under a generalized preference scheme. . . ." Based on the report of the interagency study group formed to consider the question, the Under Secretaries Committee agreed that there was little that could be done to assist the least developed countries through generalized preferences. This matter is complicated by the lack of any generally accepted definition of "least developed countries." Thus, it is difficult to consider special measures when the potential beneficiaries are not determined.
/7/Entitled "U.S. Position for Special Meetings of the Inter-American Economic and Social Council." (Ibid., S/S Files: Lot 83 D 305, NSDM 37)
All agencies agreed the United States should announce that the different proposals put forward by the LDCs were studied and that, while the United States is sympathetic to the problems of the least developed countries, we concluded that the opportunities for assisting them within a system of generalized preferences are very limited. However, in recognition of their special problems and as an indication of our good faith, (1) the USG is adding to its list of products on which preferences will be granted a limited number of products of special interest to the least developed countries (a number of such items are included in the options contained in the IA-ECOSOC memorandum), and (2) the USG will give priority attention to requests by least developed countries for technical assistance in export promotion and in developing new or improved products for export within the system of generalized preferences.
5. Product Coverage
A. Definition of Excepted Petroleum and Petroleum Products
The decision to except "petroleum and petroleum products" from our preference submission was intended to cover crude and refinery products subject to import control for national security reasons. We deferred notifying the OECD and UNCTAD of the items included in this exception because the review of oil import policy had not been completed and it was uncertain what changes, if any, might be made in our control list. We now must clarify our position.
--In light of the decision on oil import policy, all agencies agreed that our definition of excepted petroleum and petroleum products should include all items under import control.
--Benzenoid chemicals (TSUS items 403.02-409.00 inclusive) are petroleum products in that they are based on hydrocarbon molecules found in crude oil but they are not under import control. They are subject to protection by the American Selling Price (ASP) system of customs valuation. If the ASP system is repealed, as the Trade Bill (H.R. 18970) reported out by the House Ways and Means Committee would provide, benzenoid chemicals would lose this protection. Were the Administration to indicate that benzenoid chemicals are to be included in the U.S. preference offer, State, Labor, Interior, Commerce, Treasury, and STR believe the prospect of ASP repeal or the chances for favorable Congressional reaction to an Administration proposal for generalized preferences would be jeopardized. Accordingly, State, Labor, Interior, Commerce, STR, and Treasury recommend that these items also be excepted from the U.S. preference offer as "petroleum and petroleum products."
B. Definition of Primary Products in BTN Chapters 25-99
An interagency working group has drawn up a list of primary products in BTN Chapters 25-99. The list (Annex A)/8/ contains a total of 454 items. All agencies agree that this list constitutes an appropriate and defensible definition of primary products. (Note: All other items in BTN Chapters 25-99, except for the items on our exceptions list, would be granted preferences.)
/8/Neither Annex is printed.
C. Positive List of Primary Products in BTN Chapters 25-99
There is no consensus in the OECD on how to treat primary products in BTN Chapters 25-99. Japan will not limit its preference offer to manufactures and semi-manufactures but will grant preferences on all products in BTN Chapters 25-99 except petroleum. The UK and the Nordic countries seem to be leaning in the same direction. The EC has not committed itself. The United States has stated that its proposal does not automatically cover primary products, but that it would consider tabling a positive list of such products on which it would be prepared to grant preferences.
The agencies have agreed that, of the 290 dutiable items on the list at Annex A, the 95 items denoted by a double asterisk should be included in a "positive list" for which preferences would be offered. These items are not particularly sensitive domestically and, in many cases, their inclusion on the positive list is considered necessary to offset the disadvantage domestic producers, who use the primary products in their manufacturing process, might face in competing with LDC producers benefiting from our preferences on finished products. Of the 95 items, 14 items are of special interest to the Latin Americans.
D. Additions to Positive List Agriculture and Fishery Products in BTN Chapters 1-24
The Latin Americans and other LDCs have requested a substantial number of additions to the positive lists of agriculture and fishery products tabled by the United States and other donor countries last November. The agencies have reviewed these requests to determine those products on which it would be desirable and/or feasible for the United States to respond affirmatively. Recommendations and options on these items are included in the IA-ECOSOC memorandum.
In addition to the items of special interest to Latin America, there are 18 items requested by other LDCs. A list of these 18 items is attached at Annex B. No agency objects to adding these items to the positive list if it is decided that the list should be extended.
While Agriculture does not take issue with the additional items to be added to our positive list, it does believe that such action is inconsistent with the principle of burden sharing as applied to agriculture. The current U.S. offer is much better than those made by other donors in product coverage and depth of cut. Adding to our list widens the disparity.
NS
245. National Security Decision Memorandum 86/1/
Washington, October 14, 1970.
/1/Source: National Archives, RG 59, S/S Files: Lot 83 D 305, NSDM 86. Confidential.
TO
The Secretary of State
The Secretary of Treasury
The Secretary of Agriculture
The Secretary of Commerce
The Secretary of Labor
The Secretary of Interior
The Director, Office of Management and Budget
The Administrator, Agency for International Development
The Chairman, Council of Economic Advisers
The Special Trade Representative
SUBJECT
Tariff Preferences for Developing Countries
The President has reviewed the recommendations of the Under Secretaries Committee in its memorandum of August 28/2/ for elaboration of the U.S. position on generalized tariff preferences.
/2/Document 244.
The President concurs in the points on which the Under Secretaries made joint recommendations, relating to:
--borderline beneficiary countries;
--exclusion of Hong Kong;
--exclusion of Communist countries except Yugoslavia;
--special measures for least developed countries;
--definition of excepted petroleum products;
--definition and scope of coverage of primary products included in our preference scheme;
--addition of eighteen items of interest to the developing countries outside the Western Hemisphere.
The President has decided that we should no longer insist that special preferences be fully eliminated over a five-year period for countries to be eligible to receive generalized preferences from the United States. We should make clear that we continue to oppose special preferences, however, and that we will develop criteria which would still render countries ineligible under our generalized preferences if trade under the special preferences on items covered by the scheme grows and assumes significant trade proportions. In addition, if special preferences are maintained by others, we reserve the right to extend special preferences ourselves to the same extent. However, in view of the reaction to our original proposal, and subject to the above, we will permit countries now receiving special preferences to be included as original beneficiaries under our scheme (assuming of course that they otherwise qualify).
The President has directed that the Under Secretaries Committee, within two weeks, determine the criteria which would provide for the elimination from our generalized preferences of countries whose special preference trade is significant and growing in items subject to generalized preference schemes. If the issue cannot be resolved by the Committee, a paper presenting alternative possibilities should be submitted within two weeks.
Henry A. Kissinger
246. Memorandum From the Chairman of the National Security Council Under Secretaries Committee (Irwin) to President Nixon/1/
Washington, October 28, 1970.
/1/Source: National Archives, RG 59, S/S Files: Lot 83 D 305, NSDM 86. Confidential. Drafted by E. M. Cronk (E/ITP) and J. R. Matz (E/OT/GCP) on October 27.
SUBJECT
Generalized Tariff Preferences: Special Preference Condition--Chairman's Report
Recommendation:
The Under Secretaries Committee recommends that you approve the criteria outlined in the enclosure which would provide for the elimination from our generalized preferences of countries whose special preference trade is significant and growing in items subject to generalized preference schemes./2/
/2/Neither the Approve nor Disapprove option is checked, but an attached November 27 memorandum from Kissinger to Irwin informed Irwin that the President approved the recommendation. Following Bergsten's assurances to Kissinger in a November 16 memorandum that no country would be eliminated from the preference scheme unless it met all three criteria set out by the Under Secretaries Committee, Kissinger approved the recommendation for the President. (Ibid., Nixon Presidential Materials, NSC Files, Subject Files, Box 401, Trade General Volume II 4/70-2/70)
Background:
NSDM-86/3/ directed the Under Secretaries Committee to determine criteria which would provide for the elimination from our generalized preferences of countries whose special preference trade is significant and growing in items subject to generalized preference schemes. The Under Secretaries Committee believes that the enclosed proposed criteria will accomplish our objective of reemphasizing our opposition to special preferences without jeopardizing the prospects for a meaningful system of generalized preferences. The criteria were developed after analyzing as completely as possible the trade data available for the countries concerned. While we would not announce the details of these criteria at international meetings, we would discuss, as appropriate, the criteria in general terms with the countries concerned.
/3/Document 245.
For the purposes of dealing with this economic issue, the Under Secretaries Committee did not include representatives from the Department of Defense, Joint Chiefs of Staff and Central Intelligence Agency.
John N. Irwin II
Attachment
TARIFF PREFERENCES FOR DEVELOPING COUNTRIES:
SPECIAL PREFERENCE CRITERIA
The President decided that the United States will not insist that special tariff preferences be fully eliminated over a five-year period for countries to be eligible initially to receive generalized preferences. He directed the Under Secretaries Committee to determine criteria which would "provide for the elimination from our generalized preferences of countries whose special preference trade is significant and growing in items subject to generalized preference schemes."
It is proposed that the following criteria be used in carrying out the President's decision:
First, we would interpret "special preference trade . . . in items subject to generalized preference schemes" to mean trade in:
(1) Items included in the generalized preference scheme of the developed country or group of countries (viz. the European Community) for which special preference margins are extended to particular LDCs; and
(2) Any items included in the generalized preference scheme which are subject to preference quota ceilings on which over-quota duties are imposed on imports from countries not enjoying special preferences. (In such cases, total trade in such items in any given year would be counted, not only trade which occurs after the over-quota duties are imposed.)
Second, we would consider trade of the special preference recipient in products receiving both special and generalized preferences to be "significant" if it totaled more than $10 million per year and constituted ten percent or more of the developed country's imports of such products from all countries receiving generalized, but not special, preferences.
Third, we would interpret the word "growing" to mean that trade of the special preference recipient with the developed country in products subject to special and generalized preferences grows for two consecutive years in total value and as a percent of the developed country's imports of these products from all countries receiving generalized, but not special, preferences.
247. Editorial Note
The President met with the Republican Congressional Leadership in the Cabinet Room from 8:10 to 10:07 a.m. on December 1, 1970. (National Archives, Nixon Presidential Materials, White House Central Files, President's Daily Diary) According to a December 1 memorandum from Fred Bergsten to Henry Kissinger, among the topics discussed were an aid supplemental and the trade bill.
The President reportedly wanted a Social Security, family assistance, and trade bill during the current session, but there was agreement that an omnibus bill that included trade was unlikely to be passed. The President strongly indicated the administration could not be appearing to support separating the trade from the Social Security legislation, as this would kill the trade bill and undercut the Japanese negotiations and create political difficulties in view of his textile commitment. The President's priority was textile quotas and he would "swallow a lot" to get them, but the leadership should not assume there would be no agreement with the Japanese. Removal of shoe quotas by the Senate Finance Committee the previous day made the bill much more acceptable, but Bergsten added parenthetically that it had been added back in that day, and that, added to the absence of DISC and repeal of ASP, made the bill "very bad." The President reportedly agreed with Senator Scott that the death of the trade bill by attaching it to Social Security would not be nearly as damaging in terms of negotiations as killing the bill through separation. (Ibid., NSC Files, Subject Files, Box 401, Trade General, Volume II 4/70-12/70)
On December 8 Bergsten forwarded to Kissinger a draft letter from the President to Senator Scott, which included particulars on the features of the bill the administration found most objectionable. Bergsten noted that it was now quite clear there would be no trade legislation in the final days of the Congressional session, but believed that the President's position should be clearly on the record. Kissinger disapproved sending the letter to Scott and wrote: "Fred--is this still needed?" (Ibid.) Despite Kissinger's disapproval, on December 10 the President sent Majority Leader Mike Mansfield and Minority Leader Scott identical letters, the text of which is unchanged from the draft Bergsten gave to Kissinger on December 8. See Public Papers of the Presidents of the United States: Richard Nixon, 1970, page 1112.
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