Docs 181-198
181. Report of the Task Force on Foreign Trade Policy/1/ Washington, January 31, 1969.
/1/Source: National Archives, Nixon Presidential Materials, NSC Files, Subject Files, Box 401, Trade General Volume I. No classification marking. Attached to a February 7 memorandum from Arthur F. Burns to Kissinger informing him that the report of the Task Force, chaired by Alan Greenspan, should be treated on a confidential basis. The Task Force has not been further identified, but it was presumably part of the Nixon transition team; see footnote 2, Document 185. A new administration wants to put its own stamp on things even if it wishes to continue the main lines of a previous administration's policy. Sometimes this fresh start makes it possible to pursue the goal more effectively because one can get rid of the mortgages and barnacles that any administration or policy accumulates. A "fresh approach" sounds better than "no change in policy." Unfortunately, a "fresh" approach in trade policy is likely to suggest to the rest of the world an abandonment of, or at least substantial departure from, the policy of trade liberalization. In spite of the fact that the United States has led the world in the reduction of trade barriers for a third of a century, there is still a tendency to regard us as a protectionist country. The post-Kennedy Round wave of proposals for quotas, plus our performance in certain fields, lends support to the stereotype. It is, therefore, very important to make clear that the main lines of policy have not changed. This is doubly important if there is to be some initial emphasis on exceptions to liberalization as in textiles and steel. The new administration will have to give close attention to how it conveys the essence of its policy and the combination of continuity and change. This is true not only of the initial statements by the President but of the way specific measures are explained and of the maintenance of a uniform tone in pronouncements by all members of the new administration.
The new administration will, of course, want to re-examine all, or many, aspects of foreign economic policy. It would be a mistake, though, to do this in a way that seriously delays the statement of policy, formulation of new approaches, or taking of action on matters that require it. Not the least of the disadvantages in mounting a large-scale formal re-examination is that the results will seem disappointing if they do not amount to a "grand design" of foreign economic policy (and therefore of the world economy), and it seems unlikely that a great new pattern is going to be found in the next year or so. Moreover, it is not a good idea for the United States to get up steam for a complex series of proposals and make the necessary domestic compromises to support them without having explored the field with other countries. We have done that often in the past, but that time is over. What is really called for is a continuing re-examination of foreign economic policy inside the government.
We have to recognize that this is a difficult period for further reducing impediments to trade and capital movement. This is partly because we lack a great new goal at the same time that domestic pressures for protection are strong. The balance of payments makes it difficult to be as liberal as would be desirable in the treatment of imports. Inflation here and in other countries builds up resistance to the removal of trade barriers. Domestic preoccupations all over the world lead to a lack of interest in foreign economic policy. At the same time, the problems with which trade policy has to deal are becoming more complex and difficult. As this report points out below, new issues confront us that cannot be dealt with by familiar techniques and trade policy has to be more closely linked than before with financial, monetary, and investment policy.
The combination of these factors results in not just a lack of drive to do great deeds but also the danger that short-run steps will be done in ways that create long-run damage. We have never known a world in which the United States was not taking a fairly strong lead in trade policy, and it may turn out to be a rather dangerous kind of world in which it is even difficult to retain the gains already made. It is not a bad thing to ask for European initiative in these matters, but that is no substitute for developing policies of our own.
Main Lines of Approach
In spite of these difficulties, there are opportunities to assert American leadership, take concrete initiatives, and pursue an active and constructive trade policy. But it will not be easy.
The five numbered points that follow give the main lines of a trade policy through which the new administration can actively pursue the aim of further removing barriers to international trade. A comment on some of their implications follows and then recommendations on specific issues.
(1) The need for an attack on nontariff barriers is widely accepted and gives a good base for both a general initiative and specific proposals. To embark on this road, one must understand that results are not likely to be rapid, many of them will be piecemeal, sooner or later awkward questions about "domestic" policy and behavior will arise, and we cannot get without giving.
(2) The tariffs that remain in this and other countries are not negligible and for some products constitute the chief barriers to trade. The application by stages of the reductions agreed on in the Kennedy Round gives time to consider how best to deal with tariffs in the future. Careful thought should be given to new approaches including further broad reductions by stages, the harmonization of tariff levels among countries, and concentration on specific industries. In many cases tariff reductions will have to be linked with the removal of nontariff barriers.
(3) In spite of the importance of the tariffs and other trade barriers that remain, a good case can be made for the view that the problems of trade among industrial countries are no longer those that we were used to in the past. National economies are more open to one another and more intermingled so that new kinds of trade policy problems arise and issues not normally thought of as falling into trade policy have to be considered part of it. National economies are involved in complex processes of adjustment to the new situation. Each must consider its own balance of payments, but they have to work together to find a satisfactory pattern of international adjustment, a process that involves trade as well as monetary and financial matters. Industries, too are involved in domestic adjustment and also a kind of international readjustment of their own. Specialization increasingly takes place within industries. The relation of investment to trade, the development of the multinational corporation, the impact of tax systems, and in general the problems of the coordination (or lack of it) between national economic policies are all further examples of issues that have to be looked at together under this approach.
(4) Trade policy toward the less developed countries is more talked about than acted on. If we are not seriously prepared to do something, we had better mind what we say. If we are prepared to do something, one line of approach would be to circumvent the crabbed discussion of preferences and look instead at products for which we and other developed countries could encourage larger imports from the LDCs by simply giving them freer access to our markets. This will sometimes require domestic adjustment which will not be easy to accept, though experience has shown that the United States can absorb increasing amounts of manufactured goods from LDCs without major domestic disturbance, for example, components for finished products made in this country. Special attention should be given to the removal of import barriers that hamper efforts by the LDCs to process their own raw materials and agricultural products. Although there are advantages in common action by the developed countries to help the less developed ones, a good bit of past stagnation has been related to the belief that developed countries all have to act together. Therefore, it would be desirable to devise ways of putting the United States in the position to remove barriers to imports from LDCs independently of what Europe or Japan does. Fuller consideration of trade policy toward the LDCs should be combined with an examination of policies affecting aid and private investment which are outside this task force's terms of reference.
(5) American trade policy should recognize the value of keeping GATT strong and effective. While changing conditions make revision of some GATT provisions desirable, support for its basic principles and procedures is advantageous to the United States and important to the building of open and orderly international trade relations.
By adopting the approach summarized above, the new administration can pursue an active policy concerning foreign trade barriers that stand in the way of American exports and foreign export practices that put imported goods in the American market on unfair terms. There is no need to have an international agreement on nontariff barriers to object to foreign barriers or other practices that impede American sales. One can even move without being sure that the practices involved are true trade barriers, for example, border taxes. On the import side the threat of countervailing duties can be used to raise questions about foreign export subsidies and tax practices that are in some respects the equivalent of subsidies. The new international antidumping code gives the opportunity to ventilate pricing practices that bring goods into this market at artificially low prices. All these things are examples of the problems of open societies living more closely together with lower trade barriers. While one must be careful about the use of the words "fair competition," the fact is we have to be more concerned than in the past with the conditions of competition. Activity of this sort would constitute government support for legitimate complaints and aspirations of American business and would have as a motif giving true competitiveness a chance to make itself felt.
It is hard to say how effective an approach of this sort would be in removing foreign trade barriers. It could curb imports and on that score one would have to be careful not to act in ways that would lead to foreign retaliation. Raising questions about foreign trade practices, pricing, taxes, export credit policies, etc., is bound to lead to extensive international discussions and negotiations. We should welcome this and press for such discussions and the understandings they can lead to on even rough rules of equity. It will often be a matter of nice judgment whether to postpone national protective action to see what the results of the international discussions are or to take the action in the expectation that it will improve the results of the discussion. We will have to be prepared to make changes in our own practices and remove some of our own nontariff barriers if useful agreements are to be reached. There is occasion here for American leadership of a very responsible sort.
In short, even without a grand design for a new trade policy, we can have a very active period during which some things might well be accomplished and certainly the groundwork would be laid for future international cooperation on a range of difficult and complicated problems. Among the advantages of this approach are: (a) It deals with real problems. (b) It gives time to think about how to deal with complicated issues. (c) The process of negotiating will itself be educational since the fact of the matter is that we are short of good workable ideas about how to deal with any number of nontariff barriers or practices that in one way or another distort trade. (d) It provides a basis for holding off domestic pressures for protection since the administration would manifestly be pursuing lines of action advantageous to American business which would be jeopardized by unilateral restraints. (e) The demonstrations of other peoples' iniquities may provide a temporary cover for some less than admirable measures of our own which may be forced on the administration by Congressional or business pressures. This last remark is, of course, also a warning of the danger that the kind of course we are suggesting can be abused.
The task force also considered one proposal for a "grand design" in trade policy that has been widely discussed, that for a North Atlantic Free Trade Association (NAFTA) or some variant of it. We recommend against making NAFTA an objective of American policy, at least at present. Affecting as it does American relations with Europe, Canada, and Japan, as well as Britain's relation to the Continent, NAFTA has to be judged basically in terms of foreign policy as a whole, not trade policy. On trade policy grounds alone it falls short of being the most desirable objective and entails a large number of difficulties--not least in relation to the less developed countries--which may be better dealt with by other means or which would not even arise if alternative courses of action are followed.
Specific Recommendations
We are concerned here with a number of concrete issues that will arise--or ought to be acted on--in the first six or eight months of the new administration.
(1) The President should soon make a strong statement of his determination to pursue a policy of removing barriers to international trade. This is a prerequisite for the other things we are recommending. It might well be accompanied by a general statement of some of the points made above about the growing scope and complexity of trade policy, the problems of managing adjustment, and the need to relate trade policy to other parts of foreign economic policy. In particular, there could be a recognition of the links between trade and investment and the desirability of freeing the international movement of capital as well as of goods; what can be said specifically on the latter point depends, of course, on what decisions are made about the future of existing American controls on investment as part of balance of payments policy.
(2) The administration should vigorously oppose the quota bills and similar proposals for trade restriction that will be put forward in the new Congress. Their enactment would result in prompt retaliation by our major trading partners to the detriment of our own exports and could lead to a spiraling of trade restrictions with serious consequences for world economic stability.
(3) The administration should press strongly for Congressional action to eliminate the American Selling Price method of customs valuations (ASP). Already agreed-on European reductions of barriers to American exports would follow. More important, elimination of ASP is an essential precondition to any meaningful negotiation for the further removal of nontariff barriers. ASP has become a symbol in European eyes of American protectionism going far beyond the real importance of the practice in trade terms. To the extent that any serious problems result for sections of the American economy, they should be dealt with by measures aimed at specific situations and not by trade restrictions.
(4) The President should have housekeeping authority to adjust tariffs; this could be obtained by extending the unused authority of the Trade Expansion Act for two years on the understanding that it would not be used for major new tariff reduction. Without such power it will be difficult to make adjustments except by increasing barriers. For example, if the United States had to raise a duty as a result of escape clause action and was not able to compensate foreign countries with some other kind of concession, the result would be an increase in foreign barriers to American exports. Without this authority it might also prove impossible to make bargains on some nontariff matters.
(5) To assist firms and workers in adjusting to changing competitive conditions, the Adjustment Assistance Act should be broadened so that its provisions are more readily applicable in cases of real injury. Failure to do this may increase the number of appeals for the use of the escape clause and reduce the administration's ability to prepare constructive alternatives. Although existing adjustment assistance legislation has proved unusable it rests on a sound principle. We should not go back to the earlier idea that tariffs should not be reduced if that might threaten to injure domestic producers; instead administrative changes in the adjustment law should be made that will give meaning to the principle that the burden of adjustment to new circumstances should be shared by the economy as a whole. The principle is particularly important since a liberalization of the terms of adjustment assistance is almost certain to be accompanied by a loosening of the definition of "injury" in the escape clause which might lead to its being revived as a serious impediment to imports and a source of uncertainty among foreigners about American intentions in trade policy. If any use is made of the escape clause it should be for a limited period during which adjustment takes place.
(6) While any important steps in East-West trade depend on foreign policy decisions, it would be desirable to have legislation giving the President more flexibility than he now has. Such a step would also help to resist Congressional efforts to manipulate trade with the Communist countries for political purposes in ways that would damage our long-run interests and policies.
(7) The United States should continue to discuss with European countries their border taxes and to take part in the re-examination of GATT rules about these matters. Decisions about a value-added tax in the United States should be made in terms of domestic economic requirements, not those of trade policy. The majority of the task force is not favorably disposed to the use of border taxes or comparable import surcharges for balance of payments purposes when compensation for domestic taxes is not involved, but some members felt that the subject merits more detailed exploration.
(8) There should be a vigorous attack on freight rate disparities which in effect serve as additional tariff barriers to the export of American goods.
Other Issues
The task force discussed the future of the Office of the Special Representative for Trade Negotiations but makes no recommendation about it on the ground that a decision should be based on a more general consideration of governmental arrangements for the handling of foreign economic policy.
Some members of the task force favor strong steps for improving American export credit arrangements, but the group as a whole makes no recommendation on this matter because time did not permit a thorough discussion and some members have reservations on a number of points. There is no doubt that the subject should be thoroughly examined.
Although the task force spent some time discussing oil, steel, textiles, and agriculture, it has decided to refrain from including in this report any recommendations on specific industries. It did not have adequate data before it to make a full appraisal of complex situations. It believes, however, that whenever possible adjustments should be made without the restriction of imports. If it is judged necessary to restrict imports in some fashion--either for political reasons or because there is real economic difficulty in an industry--the restriction should be temporary and should be accompanied by measures of adjustment in the industry that will make protection unnecessary in the future. Serious dangers to the long-run trade policy objectives of the United States are inherent in resort to such measures; within limits they can be reduced by international agreement, which is generally preferable to unilateral action. The prospect that some restrictions will be sought adds to the importance of an early strong and clear statement of the administration's trade policy aims. If, however, the only concrete action that accompanies the statement is restrictive, it will be difficult to get widespread acceptance of the administration's good faith. Consequently, action on a series of issues, all moving in a trade-liberalizing direction, may prove to be of decisive importance.
182. National Security Study Memorandum 16
Washington, February 5, 1969.
/1/Source: National Archives, RG 59, S/S Files: Lot 80 D 212, NSSM 16. Limited Official Use.
TO SUBJECT The President has directed the preparation of a paper on U.S. trade policy for consideration by the National Security Council. The paper should deal with over-all U.S. trade policy, including the need for new legislation this year, and specific issues such as East-West trade, trade preferences for less developed countries, regulation of oil imports, major industry problems such as textiles and steel and the future administration of U.S. trade policy. It should present all of the alternatives available to the United States and the costs and benefits of each. The paper should be submitted by March 31.
To prepare the paper, the President has directed the creation of a NSC Ad Hoc Group chaired by a representative of the Secretary of State.
The Secretary of State
The Secretary of Treasury
The Secretary of Interior
The Secretary of Agriculture
The Secretary of Commerce
The Secretary of Labor
The Director of the Bureau of the Budget
The Chairman of the Council of Economic Advisers
The Special Representative for Trade Negotiations
U.S. Trade Policy
183. Paper Prepared in the Department of Agriculture/1/
Washington, undated.
/1/Source: National Archives, Nixon Presidential Materials, NSC Files, Agency Files, Box 196, Agriculture Volume I 69-70. No classification marking. Attached to a February 13 memorandum from Secretary of Agriculture Clifford M. Hardin to Kissinger indicating the paper was for the President's information and use during discussions during his forthcoming trip to Europe (February 23-March 2). A 7-page paper of talking points on trade issues, prepared by the Office of the Special Representative for Trade Negotiations for the President's European trip, February 14, is ibid., RG 364, Transition Papers, 1968-1969, Box 1.
We are headed for a major confrontation with the European Community regarding its agricultural trade policy. This confrontation will certainly be ignited if the Community applies the proposed taxes on oilseed products. We have been building up to this confrontation for some time, and unless the Community agricultural policies change, these issues will flare into open trade warfare.
The root of the problem is that the Community has spent the last eight years perfecting an agricultural policy which is completely insular, and consequently incompatible with the objectives of expanding world trade. It is a policy which does not recognize the principle that the most efficient producers should be the dominant suppliers in international trade. On the contrary, it is a policy that has sought to solve the social and economic problems of its agriculture through high price supports, the encouragement of unlimited production of any product that can be cultivated in the Community and the reservation of its home market for domestic production to the exclusion of outside suppliers. In short, it is a policy of self-sufficiency. Not only that, but it also assumes the right to export their surpluses in world commerce through heavy subsidization.
Up to the present time, the Community has failed to take international trade interests into account in framing its policies and programs. On the contrary, it has sought to influence trading arrangements to accommodate their domestic policy. As a consequence, there were only very limited negotiations in agriculture between the EC and the U.S. and other countries in the Kennedy Round. Moreover, the influence of the highly protective variable levy scheme employed by the EC is spreading to other countries. Time and again where we have sought the removal of quota restrictions against U.S. exports, we succeeded only to have them replaced by equally protective variable levy systems. The U.K., a major market for U.S. agricultural exports, has already adopted a minimum import price scheme for grains and is currently discussing an extension of this system to other sectors of agriculture to replace its support system of deficiency payments.
The EC is the largest dollar market for U.S. farm products. In 1967 our exports were valued at $1,460 million. With some important exceptions, our agricultural exports have held up well despite the trade restrictive provisions of the Common Agricultural Policy. This was due primarily to an increase of our exports of oilseeds, protein meal, feedgrains, tobacco and fruits and vegetables. These products are normally in deficit supply in the Community and some of them such as oilseeds and oil cake are subject to duty-free treatment. This situation is not expected to continue. The outlook is particularly uncertain for oilseeds (soybeans and soybean products), feedgrains, tobacco and canned fruits. These products make up over 60% of our total agricultural exports to the EEC in 1967.
The Community has under active consideration a plan to place a tax of $60 per metric ton on vegetable and marine oils, and $30 per ton on meals. Oilseeds and high-protein meals now enter duty-free without restriction pursuant to the trade agreement between the U.S. and the EC. This trade concession is the one bright spot in the limited number of trade concessions in agriculture that we have been able to obtain in two major trade negotiations over the last ten years. Under this concession, we have built up a trade of nearly $500 million and it should expand. Impairment of this concession would have a serious impact on farm incomes and on the U.S. balance of payments.
We consider this proposed action to pose the most serious trade problem that has arisen in agriculture between the U.S. and the EC. If implemented, it could lead to a most serious trade policy confrontation between the Community and the U.S. with commercial and political implications extending beyond agriculture.
Our grain trade is constantly threatened under the EC system of varying the support levels and the corresponding import levies which already are subject to daily changes. The plain facts are that the EC grain price structure is too high and is encouraging uneconomic production in the Community. The adverse impact on imports, and especially on U.S. trade with the Community, are now beginning to appear more clearly.
The Community has successively increased its guaranteed price to its producers on grain, especially for corn and feedgrains. They have not only expanded their own production, thus reducing imports, but have given unusually heavy subsidies to their exports. Now the Community is talking about more protection on imported dehydrated alfalfa because its use has been increasing as a result of high feedgrain prices in the Community. Further, they have a subsidy on barley exports to Japan that is greater than our farmers get for producing barley. They have succeeded in knocking us out of the Japanese market.
The Commission is considering a proposal for a common agricultural policy for tobacco which includes market guarantees and price incentives for Community producers, export subsidies and advance deposit systems and provisions for the suspension of imports. If implemented, it could adversely affect U.S. tobacco exports to the Community valued at $149 million last year.
They are talking about a minimum import price system on fruit and vegetable products because apparently they do not get enough protection from fixed tariffs bound in the negotiations with the U.S. This will also hurt our exports.
In the process of extending and perfecting this self-centered system for agriculture, the Community has not only become self-sufficient, but has indiscriminately dumped its surpluses on world markets to the detriment of U.S. trade and trade interests of other major exporters of farm products.
The United States is the most efficient producer of broilers in the world. Yet, because of that self-sufficiency policy, we have not only lost our market for broilers in the EC, we have suffered severe damage to our trade interests in third markets because of Community subsidies. This has not only hurt us, but Denmark as well.
We used to have a large market in the Community, especially West Germany, for lard and pork bellies. Today, we have not only lost that market, but the Community is paying heavy subsidies on lard exports to our major historical market, the United Kingdom. Again we have suffered heavily in that third market.
We used to have a small but important commercial market for flour in Holland. That is now gone. And we are faced with the competition of heavily subsidized EC flour all over the world.
But that is only the beginning. Subsidy has been piled on top of subsidy as one bad action breeds another. The French and the Italians put export subsidies on tomato products into European and U.S. markets. Countervailing duty action was required by our Treasury Department.
The Community put heavy subsidies on canned ham exports to the United States. They did it not because the subsidies are needed to compete with U.S. production, but in order to compete with hams coming from other countries, like Denmark. Here again, countervailing duties may be necessary at some point.
They complain about the low price of edible oil in the world, but with their dumping of lard and butter on the world markets, they have led the way in depressing oil prices. At the same time the USDA is faced with cutting the support price on soybeans because the present level is too high.In order to shore up the weak parts of their highly protective trade system, they want to put taxes on oilseed products like soybean meal and soybean oil. They say they want to raise the price of meal to encourage the use of their own grain. They say they want to raise the price of oil in order to encourage the consumption of their own butter. Actually, they want to raise the price of oil to build up funds to support their own costly agricultural program, particularly for olive oil and rapeseed. What they are saying in total is, if the price of your soybeans were higher, we'd like it better. So would we. But the world market says the price of soybeans is already too high. It is only low in their eyes because all their prices are too high.
But this is how their crazyquilt system works. Beginning three years ago, the Community started to increase the internal price of corn in relation to other grains. This action has not only increased the Community production of corn, but it has discouraged the use of imported corn. Because the internal price of corn was sheltered from import competition by a variable levy while other feed materials were not so protected from import competition, the use of the unprotected feed materials tended to increase. Among these are such feed as sugar beet pulp, dehydrated alfalfa and soybean meal. We can export soybean meal to Europe and have it compete with and be substituted for corn in the feeding ration. This is a most distorted situation. In the U.S., soybean meal generally sells from 50% to 60% more per ton than corn. The Community would complete its crazy quilt by raising the price of meal through a tax. The rational solution would be to reduce the price of corn.
Neither the U.S. nor its trading partners can afford the economic price the Community is asking them to pay to support its agricultural policy. It is a policy which fails to recognize that Europe's advantage does not lie in agricultural expansion but in industrial expansion. It is a policy which says, if we produce a surplus, let's dump it on our neighbors at whatever price it will bring. It is policy which today is becoming bankrupt--even in European eyes. The United States has a tremendous advantage in the use of machinery in agriculture. It can produce feedgrains, soybeans, poultry, tobacco and rice at a much lower cost than the Community. We have tried to persuade our farmers that in the end, a market-oriented economy--that is, one where farmers produce at world market prices--will bring rewards in the way of increased trade. The Community policy rejects that thesis. If the acceptance of that thesis does not bring rewards to the American farmers, then we will have a massive confrontation. And in order to have the Europeans understand what it is all about, our target will have to be European industry which, in many areas, has an advantage over U.S. industry. In this way, the burden of supporting the present EC agricultural policy will be shifted from outside suppliers to the Community industries.
184. Editorial Note
During the 1968 Presidential campaign, Richard Nixon, the Republican Party nominee, on August 21, 1968, sent a telegram to some House and Senate Republicans. Nixon said in part: "As President, my policy will be . . . to assure prompt action to effectively administer the existing Long-Term International Cotton Textile Arrangement. Also, I will promptly take the steps necessary to extend the concept of international trade agreements to all other textile articles involving wool, man-made fibers and blends." (Attached to a February 21 memorandum from C. Fred Bergsten to Henry Kissinger; National Archives, Nixon Presidential Materials, NSC Files, Country Files-Far East, Japan Volume I)
At a press conference on February 6, 1969, President Nixon was asked about his campaign promise to limit the import of certain textiles. The President took a dim view of quotas and said the United States would best be served by moving toward freer trade, but that textiles were a special problem and that exploratory talks were underway with major countries to see if textiles could be handled on a voluntary basis rather than having to enact quota legislation that would turn back the objective of trying to achieve freer trade. (Public Papers of the Presidents of the United States: Richard Nixon, 1969, pages 74-75)
On February 19 President Nixon met with a number of his advisers in the Cabinet Room from 3:07 to 5:30 p.m. for a briefing on several aspects of his upcoming February 23-March 2 trip to Europe. The Vatican, France, and international trade were on the agenda. (National Archives, Nixon Presidential Materials, White House Central Files, President's Daily Diary) In his February 21 memorandum to Kissinger, Bergsten reported that during the briefing on trade, the President said he did not want to discuss textiles during his European trip. Regarding a proposed letter to Japanese Prime Minster Sato on textiles, he said he did not want his first communication with Sato to be a letter attempting to subsume the textile issue under the general trade policy review underway pursuant to NSSM 16 (Document 182).
185. Memorandum From President Nixon to Secretary of State Rogers
"To counter the political response to the new or impending limitation of steel and textile imports, it is important that you concurrently stress your commitment to a liberal trade policy. Without that, it will be extremely difficult to get other nations to enter into meaningful negotiations for the removal of existing obstacles to our exports."
The report then lists six policy initiatives to implement this objective, noting that the policy suggestions, "despite their reasonable ring, raise difficult political questions." For the State Department position, see Document 188. I would like to have from you by March 12, 1969, a memorandum expressing your reactions to this section of the report, as well as your recommendations for legislative or administrative action in this area.
I am sending a similar memorandum to the Secretary of Commerce.
When you send me your report, please submit a copy to Arthur Burns.
RN
186. Action Memorandum From C. Fred Bergsten of the National Security Council Staff to the President's Assistant for National Security Affairs (Kissinger)
U.S. Trade Policy
Arthur Burns has included, in his report to the President, proposals for new trade legislation.
/2/ He has asked the State and Commerce Departments to comment on them by March 12. The proposals are fine substantively, but raise jurisdictional questions in view of the NSC Trade Study which is due on March 31 (for an NSC meeting on April 16)./3/ /2/See Document 185./3/See Document 182. The NSC meeting was held on April 9; see Document 192.
I have talked to Dr. Burns about the conflict but he does not wish to relax his deadline. He also questions the appropriateness of NSC consideration of trade policy, but will make no effort to derail our present study. (I assured him that we by no means view the NSC as the decision-making body in this area, and that its discussions would be only one input to the President's final decisions.)The President has, however, specifically asked Dr. Burns for comments on Secretary Stans' proposal to move the Office of the Special Trade Representative from the White House to the Commerce Department.
/4/ Our NSC study includes the general question of the future management of trade policy, under which the Stans proposal is one option. Dr. Burns has therefore asked to be invited to participate in this phase of our study. (The President also asked Budget Director Mayo for his opinion on the Stans proposal. Mayo replied that the NSC was studying the matter and "strongly recommended" that any decision await our results.) Substantively, Dr. Burns leans towards giving STR to Commerce rather than State, if it is not continued as an independent office within the White House. /4/Stans' proposal was not found. In a March 21 memorandum to Robert Ellsworth, the President's Assistant, Secretary of the Treasury Kennedy expressed his strong opinion that the Office of the Special Representative for Trade Negotiations be maintained as a separate agency within the Executive Office of the President. (Washington National Records Center, Department of the Treasury, Secretary's Memos/Correspondence: FRC 56 74 A 7, White House Jan-Aug 1969) On March 22 Under Secretary of State Richardson sent a paper to Ellsworth that stated the State Department position of retaining the office in the White House. (National Archives, RG 59, S/S Files: Lot 73 D 288, NSC/Misc) Documentation on Secretary Stans' proposal to move the Office of the Special Trade Representative to the Department of Commerce is scheduled for publication in Foreign Relations, 1969-1976, Organization and Management of Foreign Policy, 1969-1972.Dr. Burns has thus raised fundamental questions about U.S. trade policy decision-making and hence about trade policy itself. The subject matter cuts across foreign policy and domestic grounds so a legitimate question is involved. The U.S. has traditionally viewed trade in a foreign policy framework, and hence State and the NSC staff, within the White House, have taken the lead. The creation of STR in 1962, however, was an effort--which has proved successful--to reconcile the foreign policy and domestic business viewpoints. Any further shift from our present organizational approach, especially toward Commerce Department control, would be interpreted abroad as a clear signal that the U.S. was going protectionist.
It is thus extremely important that the NSC continue to play a role, although by no means an exclusive one, in trade policy formulation. I recommend that you take any available opportunity to make that point to Dr. Burns. At the same time, it would be prudent to include him in at least the trade management aspect of our study and probably the rest of it as well. Despite the awkwardness of having two White House representatives appear at a single meeting, I recommend that you sign the attached invitation to Dr. Burns--unless you feel that the principle involved is sufficiently important to try personally to talk him out of it.
Recommendation:
That you sign the invitation at Tab A. It has been suggested that I go to Japan, either as an extension of my forthcoming trip to Europe, or shortly after my return from Europe. In addition, in Japan I wish to take up their stringent limitations on American private investment. According to James Linen of Time-Life, who recently headed up a businessman's mission to Japan, the Japanese at the highest levels of government now seem really concerned about the desirability of lowering their trade and investment barriers to counter the rising protectionist sentiment in the United States. Secretary Rogers and Mr. Ellsworth concur in the foregoing as do representatives of the Labor Department, the Council of Economic Advisers, and the National Security Council. They also feel that if a trip is made to Japan, I should also include brief stops in Korea and Taiwan.
If you concur, I would plan to return from Europe, spend approximately one week here, and then make a one-week trip to the Far East.
Maury As you requested, I am giving my reactions to Item XVIII-4 of Arthur Burns' report and my recommendations for action in this area. --to cast off the pall of protectionism that is enveloping international economic relations;
--to conserve the benefits of a 35-year effort to develop a more open trading system; and,
--to focus attention once again on forward economic movement in the western world.
The U.S. in the past has been virtually the sole source of initiative in foreign trade liberalization. It would be comfortable to think we can now relax and await initiatives from others but we cannot. This gives us an opportunity and imposes an obligation to reassert our leadership.
I am giving my recommendations first followed by specific comments keyed to the Burns Report.
Recommendations:
The ground has not been adequately prepared at home or abroad for a major push for bold new trade legislation this year. Further consultation is required--both internationally and domestically--to identify and analyze remaining trade barriers before any concerted attack on them can be planned. At least a year's intensive exploration of specific questions seems needed.
Nevertheless, some legislation is needed urgently, and not all of it is of the type which would be welcomed by foreigners. Changes in the escape clause may be regarded with some skepticism.
In this situation, the approach commending itself to us is a combination package involving a request to the Congress in the next few months for: (1) modest legislation restoring your authority to make small "housekeeping" cuts in tariffs needed to meet our obligations under various provisions of the General Agreement on Tariffs and Trade; (2) repeal of the American Selling Price (ASP); (3) liberalization of the escape clause and adjustment assistance; plus a simultaneous announcement, perhaps in a transmittal message, that you believe a major international effort must be made to further liberalize trade in the areas of non-tariff barriers (NTBs), tariffs, and agriculture and that you intend to submit such a proposal to a subsequent session of Congress after further consultations with American producers and consumers and our trading partners.
This Year's Legislation
1. Immediate Tariff Negotiating Authority
2. Repeal of ASP
3. Liberalization of Escape Clause and Adjustment Assistance
Tariff relief in the case of bound duties would require that the U.S. either (1) pay compensation of comparable trade value by reducing duties on other items or (2) accept foreign retaliation in the form of increased restrictions on U.S. exports. We should, therefore, retain a strong injury test.
At present, increased imports must be "the major factor" behind injury. This language has been interpreted by the Tariff Commission to mean the cause greater than all other causes combined and has thus constituted an impossible standard for applicants to meet. A workable test which would still be consistent with liberal trade policy objectives would be a showing that imports are the "primary" cause of serious injury. This should be defined as the cause greater than any other single significant factor.
(b) Adjustment Assistance
Present adjustment assistance provisions require that an entire firm be injured, whereas the injury from imports could be severe but not extend to all of its component establishments. This is an anomaly since individual establishments, rather than firms, are the units used for determining injury under the escape clause provisions. To make adjustment assistance directly available to those seriously harmed by stiffer import competition, the individual establishments should be allowed to petition for help under the same criteria as would be applied for firms.
187. Memorandum From Secretary of Commerce Stans to President Nixon/1/
Washington, March 20, 1969.
/1/Source: Washington National Records Center, Department of Commerce, Office of the Secretary of Commerce: FRC 40 77 A 84, White House (Misc.). No classification marking. The date is handwritten.
SUBJECT
Trade Policy Discussions in Japan
188. Memorandum From Secretary of State Rogers to President Nixon
Your Request for Comments on Item XVIII-4 of the Burns Report--Tariffs and Other Trade Barriers
Escape clause relief and adjustment assistance should be clearly understood as temporary measures to give industries or firms time to adjust to import competition. Therefore, there should be built-in time limitations and a requirement for action programs to make the special measures unnecessary.
4. Support for the Package
If it is to succeed, the foregoing package will need strong backing in the form of counter-pressures to offset the protectionist sentiment at large in the country. Consequently, you should direct your staff immediately to begin drafting the interim trade legislation and formulating plans for building support for it in the Congress and with the public. At the same time, your trade policy officials should continue working to develop a consensus on the next major step in trade liberalization through consultations with key public and Congressional figures at home and with our trading partners abroad.
Reaction to Item XVIII-4 of Arthur Burns' Report:
Section 4(a)--Non-Tariff Barrier Initiative
Non-tariff barriers must form part of our next major effort at trade liberalization. Public attention has focused on this area, and action is expected. The work presently underway in this field should continue. But it probably will not be possible to mount a negotiation on non-tariff barriers alone. Chances of success are better in the context of a broad negotiation which also includes tariffs and agricultural trade liberalization.
The principal non-tariff barriers effectively restricting U.S. exports are quotas and variable levies on agricultural products. We have just begun work seeking new approaches to agricultural trade liberalization with a series of special studies in the GATT, the establishment of a policy group in the OECD and the initiation of a series of high-level bilateral consultations with the European Community and others. The potential advantages to the U.S. from forward progress in this area are very high, but achieving this progress is likely to be one of our most difficult trade problems. In most countries the trade barriers are an integral part of domestic agricultural programs, which will not be easily changed.
Developed countries continue to maintain a few effective quotas on industrial products, particularly fuels. Developing countries make much wider use of quotas on the whole range of traded goods, but they are justified on balance-of-payments grounds. In addition, American companies have specifically singled out for complaint foreign countries' government procurement practices, border tax adjustments, heavy specific taxes on products such as large cars, motion picture screen time quotas and some sanitary and safety regulations.
To make progress in this field, we shall have to be willing to reduce our own non-tariff barriers, many of which will be difficult to put on the negotiating table. Most foreign complaints against our barriers have focused on: The American Selling Price system, our countervailing duty law, valuation provisions of the Tariff Act, U.S. marks of origin and labeling requirements, our wine gallon method of assessing taxes on whiskies, state and federal procurement regulations favoring domestic producers, and the manufacturing clause of the copyright law limiting the importation of English language books printed abroad.
Legislation would be required to change most if not all of these practices and they have long resisted all previous challenges. Congress would certainly not consent to amending them without receiving very rich plums in return from other countries, and it is far from certain that these plums can be obtained.
Section 4(b)--Tariff Negotiating Authority
Modest new authority is needed now in order to offer compensation should the U.S. increase a tariff rate bound under the GATT. This could happen because of an escape clause action, a customs court case or a law changing any particular tariff rate. In the absence of means to compensate, countries affected by the duty increase have the right to retaliate by raising their rates on U.S. exports.
This legislation could be an extension of the provisions of the Trade Expansion Act of 1962 which lapsed in 1967. However, there is not much tariff cutting authority left over in this Act. Most of it was used up in the Kennedy Round. What is left applies mainly to sensitive items, where we might wish to avoid making duty reductions, or to items supplied mainly by countries to which we have no tariff obligations.
Section 4(c)--Border Tax Adjustments
Border tax adjustments (BTAs) have become an important issue. A number of U.S. companies assert that the adjustments made by most European countries have the same effect as increased tariffs. This is a very complicated issue, and the impact of border tax adjustments remains unclear in spite of all the international work done on it. We have argued that the existence of full border adjustments for high European sales or value added taxes harms the trade of countries such as the U.S. that rely less heavily on such taxes. There is no agreement on this point. However, a stronger case can be made that increases in border adjustments do damage trade when not accompanied by equal increases in domestic taxation. The Europeans have been bringing their border taxes up to the level of their domestic rates. No matter how justified Europeans may claim these increases are on the basis of equity, they mean that our exports are competing on a less favorable basis than previously. However, there are knotty theoretical problems in quantifying any damage. The most significant increase, which was made by Germany a year ago, was more than reversed in a November change made for balance of payments purposes.
I do not agree, however, that the answer to this problem is for us to make a unilateral increase in our border adjustments. We now make full border adjustments for the direct effect of our own excise and state and local sales taxes. We could go slightly further on grounds that our adjustments do not fully provide for the secondary effects of these taxes, e.g. calculating and adjusting for the expense to our exporting firms of the gasoline tax they pay to keep their trucks running. If we should make such a case, which might allow our border adjustments to be some 2% higher than currently, some other countries could easily make similar higher adjustments based on the same grounds, with little or no net gain for us. The previous Administration considered such a move but decided against it on the ground that we would gain little from it in trade terms.
We are now well into a U.S. initiated GATT examination of BTA practices and their effects on trade. We are trying to persuade other countries that the present system is inequitable and that border adjustments must be more strictly controlled. So far we have not found much support even among countries with taxation systems similar to ours for changes in the rules, though some foreign officials have indicated we do have a point.
Should the GATT effort not improve the situation we will have to consider whether taking unilateral action is a satisfactory substitute. Such a move at this time, however, is premature.
Section 4(d)--American Selling Price
It is important that we make a vigorous effort to get legislation to permit the United States to eliminate the American Selling Price method of determining value for customs purposes. The Europeans, and to a lesser extent Japan, continue to place major importance on our removing this barrier, applied principally to certain chemical imports. These countries consider action on ASP a test of U.S. willingness to relax non-tariff barriers. Continued failure to implement the conditional agreement worked out on chemicals during the Kennedy Round will make it difficult to negotiate in the trade field.
In a Kennedy Round conditional agreement, the United States undertook to shift from ASP to the normal basis of valuation (export value) in exchange for significant concessions by the Europeans on chemicals duties and on some non-tariff barriers. These concessions would provide substantial export opportunities for U.S. industry. The new U.S. rates of duty on chemicals would still be substantially above those in other countries and would provide adequate protection for our producers who are a strong and efficient industry with a demonstrated record of international competitive ability.
Authorization to implement the U.S. undertaking on ASP was included in the principal trade bill submitted by the previous Administration to the last Congress. Hearings were held by the Ways and Means Committee but no further action was taken on any part of the bill. The domestic chemical industry is almost totally opposed to losing ASP protection and questions the value to it of lower duties abroad.
Section 4(e)--Escape Clause and Adjustment Assistance
The escape clause provisions of existing law do need liberalizing. U.S. trade legislation has for years incorporated the principle that the cost of injury resulting from our trade policy should be shared by the nation's economy as a whole. The existing provisions, however, have proven patently ineffective.
Under the escape clause, Title III of the Trade Expansion Act of 1962, not a single industry has been able to satisfy the eligibility criteria for tariff relief. Similarly, no firm or group of workers has succeeded in obtaining from the Tariff Commission an affirmative finding of existing or threatened serious injury, which is required before adjustment assistance can be given.
With Title III a dead letter, business and labor have turned to Congress for relief. Members of Congress who might otherwise be reluctant to support quota bills have found it difficult to resist the pressures in the absence of other meaningful alternatives.
There has been substantial public discussion of the need to liberalize both the escape clause and adjustment assistance criteria and, in principle, no serious opposition is apt to arise. Soundings taken last year when interim trade legislation was sent to Congress bear out this expectation.
The problem we may well face in this area is a protectionist end run to loosen the escape clause criteria to a degree that would damage rather than strengthen our ability to secure international cooperation in moving toward freer trade. Foreigners would have little incentive to negotiate with us if our concessions could be revoked under an easy test of injury, and relations would be strained by the ensuing retaliation.
With regard to adjustment assistance, generous criteria would not have an adverse impact in the trade field. Such criteria, however, will involve budgetary costs.
Liberalization of Title III criteria would bring back to the ranks some members of Congress who have recently supported restrictive bills because no administrative relief for injury from imports was in fact available. We also stand to win back some labor groups if adjustment assistance becomes workable.
We should not fool ourselves, however, that we will make serious inroads on hard-core protectionists, whose basic philosophy and objectives seek to contain foreign competition on a broad front, not merely to provide remedies for the occasional cases of real injury from an otherwise sound trade policy.
Section 4(f)--Quota Bills
I agree fully that there is real danger to our exports from enactment of quota legislation and that it should be strongly opposed. Despite strong domestic pressures for such controls, the U.S. record in avoiding new restrictions on imports has so far been good. We have, it is true, persuaded others to restrain their exports of cotton textiles and a few other minor products and more recently steel and meat. We have done this and so far managed to escape retaliation.
The situation would change drastically, however, if the threat of quota legislation should become a reality. A year and a half of keeping our partners on tenterhooks about the prospects of quotas has created a good deal of friction in the trade field. Uncertainty over the U.S. commitment to liberal trade has frayed their nerves and they would rapidly boil over if quota laws were enacted. It would be quite difficult to restrain a cycle of retaliation and counter-retaliation possibly leading to a trade war that could undercut our major political interests in Europe.
William P. Rogers
189. Paper Prepared in the National Security Council Staff
9 April 1969
Several decisions in the area of trade policy must be taken in the near future. These concern new legislation for 1969, the American Selling Price (ASP) method of customs valuation, textiles, and tariff preferences toward less developed countries. In all these cases domestic and foreign audiences are looking for indications of the Administration's tone in trade policy for both the short and longer runs, matters about which there is considerable speculation.
In addition, agricultural exports to Europe may well face serious difficulties as a result of forthcoming European decisions, and the question of border tax adjustments and non-tariff barriers continues to plague U.S. trading relations with other countries. Neither of these issues requires a Presidential decision at this time, and an interim report on our agricultural trade policy with Europe is on the agenda of the Cabinet Committee on Economic Policy for April 10. This summary therefore addresses only the four major issues for decision (page references are to pros and cons in the basic NSC paper).
/2/ /2/Reference is to an undated, 41-page paper entitled "NSSM-16 Trade Policy Issues," which was forwarded to Kissinger under cover of an April 7 memorandum from Greenwald that informed him the paper incorporated the comments at the April 4 NSC Review Group meeting. (Ibid.) An earlier, 36-page version had been sent to Kissinger under cover of a March 28 memorandum from Greenwald in his capacity as Chairman of the NSC Ad Hoc Group on U.S. Trade Policy, pursuant to the request in NSSM 16 (Document 182). (National Security Council, Secretariat, Box 90, 4/4/69 Review Group Meeting-NSSM 16-Trade Policy) New Legislation (pp. 7-10)Whether to introduce trade legislation in 1969 depends in part on the substantive decisions on ASP and textiles (see below). The Administration now lacks even modest tariff-reducing authority, such as would be necessary to compensate countries for any restrictions imposed on their textile exports by U.S. legislation or for other escape clause action. A modest trade bill for 1969 might include: (1) limited tariff-reducing authority for "housekeeping" purposes, (2) relaxation of the unduly stringent requirements for escape clause action and adjustment assistance presently in force, and (3) elimination of ASP.
The risk of even a modest Administration trade bill is that it may be laden with restrictive amendments by a protectionist-minded Congress. On the other hand, failure to attempt to remove ASP will be interpreted by our trading partners as lack of serious willingness to reduce "non-tariff barriers" to trade.
Thus the realistic options this year are:
--introduce new trade legislation with modest objectives;
--introduce no new legislation.
In the longer run, of course, more efforts are possible.
ASP (pp. 8-9)
The ASP technique of valuation requires U.S. market prices to be used as the basis for calculating import tariffs, and by so doing greatly increases the protection provided by tariffs on the limited range of goods, mostly benzenoid chemicals, to which ASP applies. The Europeans regard it as the most egregious symbol of U.S. "non-tariff barrier" to trade, and as such it has taken on in foreign eyes a symbolic importance with respect to U.S. willingness to negotiate seriously on non-tariff barriers to trade. Under the last round of trade negotiations, the U.S. Administration agreed to attempt to eliminate the ASP method of valuing imports in exchange for tariff cuts and reductions in non-tariff barriers by other major nations. A bill to that end was introduced but failed to pass Congress, partly because of protectionist opposition by the chemical industry and partly because the bill was introduced late in the session.
The options are:
--make no effort to repeal ASP;
--exert Presidential leadership to repeal the ASP method of valuation.
Textiles (pp. 12-13)
Here the question is how best to restrain the growth in imports of woolen and synthetic textiles into the United States, within the framework of a liberal trade policy and in accordance with previous Administration statements on the subject.
The options are:
--secure an agreement similar to the Long-Term Cotton Textile Arrangement, providing a multilateral framework under which restraints are negotiated bilaterally with exporting countries. This is the approach Secretary Stans proposes to take in his forthcoming trip.
--negotiate bilateral restraints with exporting countries without a multilateral framework.
--take administrative action on grounds of injury to domestic industry, and negotiate compensation bilaterally with the countries injured by U.S. action. To be effective in restraining textile imports, this would require some statutory relaxation of the present criteria for escape clause action and further tariff-cutting authority.
--take no Administration action on this issue at the present time.
Tariff Preferences (pp. 11-12, 31-34)
The less developed countries are pressing hard for improved access to the markets of the developed countries, and in particular for preferential tariff treatment for their semi-manufactured and manufactured products. The Johnson Administration agreed to explore generalized tariff preference arrangements sympathetically, subject to their being temporary (up to ten years) and to the elimination of preferred access of certain developed countries (e.g. Britain, France) to the markets of some less developed countries, mostly former colonies. Exploration by the major developed countries in the OECD has now reached an advanced state. The Administration must decide soon whether to continue in these discussions, and with what degree of implied willingness to adopt a tariff preference system. International work has been delayed six weeks, pending completion of the U.S. policy review.
The less developed countries have elevated the preference question to a major political issue between them and the developed countries, although they have not carefully examined the merits of any particular scheme. The U.S. has encouraged poor countries to industrialize, and this process will result in increasing efforts by developing countries to export their manufactured products. Most other developed countries seem willing to grant some form of trade preferences, and if the United States withdrew from the current discussions it would bear considerable political onus, at least in the short run. On the other hand, little is now known about the magnitude or distribution of benefits to the less developed countries arising from particular preference arrangements; and because the products of greatest interest to the less developed countries are among the most sensitive in terms of foreign competition, considerable domestic political resistance to a broadly based arrangement can be expected. Little consultation has been done with Congress on this issue.
Thus the options are:
--delay the ongoing international discussions for several months to provide the Administration time to (1) assess the real costs and benefits of alternative preference arrangements, and (2) sound out key Congressmen on the feasibility of such arrangements.
--continue participating in the present international discussions while at the same time (1) assessing the real costs and benefits of alternative schemes, and (2) sounding out key Congressmen. This option would require the early submission of an illustrative list (or lists) of commodities on which we could not give tariff preferences, thereby implying the particular products on which we would be willing to give preferences and a reaffirmation of our commitment which might prove difficult to abandon.
--decide that we are willing to grant tariff preferences and announce this, subject to the removal of reverse preferences and to satisfactory Congressional consultations.
--announce its rejection of a tariff preference as a matter of policy, perhaps coupling with the rejection an announcement of efforts to seek other trade measures of value to the developing countries.
The Future of Trade Policy (pp. 10-11)
Foreign and U.S. observers alike are watching for signals about the nature and tone of the Administration's trade policy. Every move will be read as a trend toward trade liberalization or protectionism. The Administration might forestall over-interpretation of its modest moves this year by announcing its intention to engage in early discussions with its major trading partners on future trade liberalization moves. Alternatively or in addition, it could form a blue-ribbon Presidential commission, with or without Congressional representation, to undertake a broad review of ways to expand world trade in the future and the types of negotiation and new trade legislation required to achieve this objective, postponing any major new initiative to a later date but simultaneously signaling its intent to move forward decisively toward freer trade. The documents for the National Security Council meeting April 9 on trade policy issues are a summary of major issues for decision (Tab A), and a basic paper (Tab B). That you seek the following decisions:
1. To move ahead with a modest trade bill this year. The legislation would include repeal of the American Selling Price (ASP) valuation system, "housekeeping" tariff cutting authority of 25%, relaxation of the escape clause and adjustment assistance criteria.
2. To ensure that our approach on textiles at the present time (Secretary Stans' trips) be cast in terms of exploration and consultation.
3. To continue working toward a generalized preference scheme with submission of our illustrative lists to the OECD as soon as possible.
To have a prompt Presidential announcement of our intention to engage in early trade liberalization talks with other countries at the same time as a "blue ribbon" commission is studying ways to expand world trade.
Discussion
1. New Trade Legislation
The adjustment assistance and escape clause provisions in the Trade Expansion Act are inoperative as now written. They should be liberalized. Domestic industries must have a chance to obtain relief if they demonstrate injury.
There may be proposals to add other items to the proposed legislative package. The job of considering the details of a bill should be done by an inter-agency task force, not by the NSC.
2. Textiles and Secretary Stans' Trips
The purpose in having a textile discussion at the NSC is to give Stans some guidance for his European and Asian trips. --fear of increased imports from LDCs (particularly Commerce and Agriculture), The answer to the first argument is that any scheme will have safeguards to protect domestic industry from injury (other developed countries will take the same position). Secondly, Congressional and industry resistance is present in any attempt to reduce protection. On the third point, a generalized preference scheme is designed to get us back closer to a true MFN world by stopping the proliferation of special arrangements, particularly with the European Communities.
The real risks and objections are:
--The Congress may look upon preferences as a substitute for, instead of a supplement to, aid; Against these risks, we must weigh the political costs of being the only industrial country not willing to go alone with generalized preferences. Also, the LDCs will be extremely unhappy about our textile initiative and our agreement to preferences (even if not as liberal as they might want) would help to offset the restrictive move.
The opponents may press for a decision against preferences as a matter of policy. Or they may settle for the delaying option involving an assessment of costs and Congressional sentiment before any further steps forward are taken. Our recommendation is that we continue to participate in the international discussions while we also proceed internally. This will avoid our taking the onus for holding things up internationally and still not leave us any more committed to an eventual scheme than we already are. Also, we need to get down to specifics of lists both internally and internationally in order to make any useful cost/benefit analyses or have intelligent consultations with the Congress.
4. The President's Announcement and the Blue Ribbon Commission
On February 15 [5] the President directed the preparation of a paper on U.S. trade policy for consideration by the National Security Council.
190. Briefing Memorandum From the Assistant Secretary of State for Economic Affairs (Greenwald) to Secretary of State Rogers and the Under Secretary of State (Richardson)
NSSM 16, Trade Policy Issues
--concern over Congressional and industry reaction, and
--dislike of departure from our traditional MFN policy.
--The safeguards (and exceptions) may be so broad as to make the preference scheme meaningless in trade terms and leave the LDCs sourer than ever; and
--The preference scheme may result in additional administrative complications (e.g. certificates of origin) contrary to our drive toward removal of such encumbrances.
191. Memorandum From the Director of the Office of International Economics, Department of the Treasury (Pelikan) to the Under Secretary of the Treasury for Monetary Affairs (Volcker)/1/
Washington, April 8, 1969.
/1/Source: Washington National Records Center, Department of the Treasury, Secretary's Memos/Correspondence: FRC 56 74 A 7, Memo to the Secretary March-April 1969. Limited Official Use. Drafted by Pelikan on April 8.
SUBJECT
Briefing for NSC Meeting on NSSM-16: U.S. Trade Policy
Date and Time: April 9, 1969; 10:30 a.m.
Place: Cabinet Room
/3/The paper was not attached, but see footnote 2, Document 189.
The NSC meeting of April 9 will be to review the trade policy paper. The group will, however, concentrate on the attached summary of the paper which reviews issues which require urgent decisions./4/ These are: (a) should the U.S. introduce a trade legislation package in 1969, if so, what kind and what should be included; (b) should the U.S. join in a multilateral scheme to grant trade preferences to the less-developed countries; and (c) how should we deal with the textile problem?
/4/The summary is printed as Document 189.
New Trade Legislation--Secretary Kennedy has already informed the President that he favors a limited trade legislation package for 1969 which would: grant authority to the President for modest housekeeping tariff reductions; eliminate the American selling price valuation technique for certain imports; relax the criteria for adjustments assistance and escape clause action./5/
/5/Secretary Kennedy's communication has not been identified.
All agencies appear to believe that if legislation is put forward it should be of the limited nature which Secretary Kennedy has advocated. The question is therefore not what kind of legislation but whether or not the political risks of fighting for new legislation in the trade field are too great. There are two dangers: (1) that the Congress would defeat any legislation of a liberal nature and (2) that it might tack on to such legislation restrictive measures which we would find unacceptable. Inclusion of easier criteria for adjustment assistance and escape clause relief should make the Congressional route much easier.
Preferences--The key question for NSC decision is whether or not the United States should, in concert with the other developed countries, grant temporary tariff preferences to the less-developed countries. The State Department is the outspoken and major advocate of such preferences. Treasury, Commerce, Agriculture and STR have not been enthusiastic supporters of the concept of preferences. We have gone along with the State Department as constructive critics with the aim of assuring that U.S. economic interests are kept in mind.
The State Department will argue that failure to go forward with preferences would be disastrous to the foreign policy of the United States; we would be isolated and the other developed countries would go forward without us. We believe these arguments are overdrawn, although we can expect that initially the LDC's will make very loud noises. If there is as little benefit from preferences as we suspect, the LDC's will be upset in any event. This disillusionment may be more disastrous for U.S. foreign policy in the long run than their short-term reaction.
We suggest that you take an initial position opposing preferences but agree to delaying definitive action until the fall, to allow time for an interagency study on the impact of preferences on the U.S. and the LDC's. There would also have to be an assessment of: Congressional reaction; and European willingness to give up existing selective preferential arrangements and reverse preferences. If there is a delay, you should oppose submission of lists since such action, even though labeled tentative or preliminary, raises the expectations of the LDC's and makes it more difficult to decide not to grant preferences.
Textiles--The President has publicly announced his intention to seek a multilateral agreement to restrain exports of wool and man-made fibers. Secretary Kennedy has advocated that we settle this issue quickly and effectively in order to proceed with other trade negotiations. He warned however against "paying a price in trade terms for a textile agreement."
Border Tax Adjustments--There is interagency agreement at the staff level that a change in the GATT rules concerning border tax adjustment should be pursued by the U.S. Government. There is disagreement on the nature of the change which will be necessary. The State Department is backing a soft approach which would cause the least problems for the EEC. They advocate a change in the GATT rules which would allow temporary border tax adjustments during times of balance of payments difficulties, i.e., the use of BTA's to assist the adjustment process. They do not want to push for substantive change in the GATT rules which would eliminate the discrimination against countries which rely more heavily on direct taxes than indirect taxes. The Treasury Department has been the major force within the U.S. Government advocating substantial changes in the GATT rules on border tax adjustments.
As no decision is being requested of the President at this time, the border tax adjustment problem may not be discussed.
Non-Tariff Barriers and EEC Protectionism for Agriculture--Both these issues are treated in the basic paper but as there are no pending decisions by the President they may not be taken up during the meeting.
Attached is: a talking point paper for your use during the meeting,
192. Paper Prepared in the National Security Council Staff/1/
Washington, undated.
/1/Source: National Security Council, Secretariat, Box 83, 4/9/69 NSC Meeting-US Trade Policy. Limited Official Use. Prepared by the NSC Staff for the President's use at the April 9 NSC meeting on trade policy. The meeting was held in the Cabinet Room from 10:08 to 11:53 a.m. Attendees were Nixon, Agnew, Laird, Lincoln, Richardson, Wheeler, Helms, Kissinger, Hardin, Stans, Volcker, Samuels, McCracken, Gates, Haig, Bergsten, and Cooper. (National Archives, Nixon Presidential Materials, White House Central Files, President's Daily Diary)
9 April 1969
The paper in the next section of the book, prepared by an interagency working group, describes and analyzes the Administration's trade policy options./2/ A summary of the major issues for decisions raised in the paper, also prepared by the working group, precedes it./3/ Their point of departure is your announced commitment to free trade and their main focus is how to turn that commitment into policy. After setting the trade policy context, the paper summarizes the major issues which need immediate attention, describes the alternative approaches to general trade liberalization, and discusses five key specific problems. This memorandum highlights the issues for decision; my recommendations follow in parentheses. My recommendations also appear in parentheses in each section of the summary paper which precedes the basic paper. /2/See footnote 2, Document 189.
/3/Document 189.
Present ContextFour major factors underlie the trade policy issues. First, protectionist forces at home have launched a major challenge to our historical policy of freer trade. Second, protectionist forces abroad, especially in Europe, are seriously threatening a significant volume of U.S. exports. Taken together, those forces raise the spectre of a possible trade war between major allies. Third, your decision to seek relief for U.S. textile imports has heightened foreign fears of U.S. protectionism and could well increase the strength of foreign protectionist action. Finally, each of these developments could spill over from the trade field and damage our over-all foreign policy since trade is a major foreign policy issue to virtually every country in the world.
New Legislation
The paper presents three trade policy packages. The first is for a major liberalizing initiative in this session of Congress covering tariffs, non-tariff barriers (NTBs), agriculture, safeguards and tariff preferences for less developed countries (LDCs). It would clearly demonstrate your commitment to freer trade, put our textile request in the best possible light (and maximize its chances for success), and minimize the possibility of a trade war and broader foreign policy difficulties arising from trade problems. But we (and the world) do not really know enough to launch the major parts of it (NTBs, agriculture) and it is hard to envisage sufficient domestic and foreign support developing for a new major push at this time.
The second package rejects the idea of new legislation and calls simply for continuation of the present GATT and OECD studies of the whole range of trade issues. It recognizes the go-slow mood both at home and abroad but in so doing would risk major protectionist successes in both places.
The third package is an intermediate approach which would include some or all of the following: legislation this year including limited tariff-cutting authority, elimination of ASP, and relaxation of the criteria for escape clause relief and adjustment assistance; announcement of an intent to submit broader legislation covering both tariffs and non-tariff barriers to a subsequent session; and commencement of intensive domestic and international efforts, including appointment of a blue-ribbon commission, to prepare for that broader approach. Depending on how much was included, this package could provide sufficient liberalizing initiative to effectively combat domestic protectionism and to assure foreign countries of our commitment to freer trade. On the con side, passage of its legislative component might not be easy--particularly in the context of an announced intent to do more in the future--and it would be criticized as both insufficient and too far reaching. It would be similar to the 1968 proposal of the Johnson Administration.
(My recommendations on each of the specific issues included in these packages are listed below. Taken together, they closely approximate the most complete version of the third package and include all of the elements suggested for possible inclusion in it.)
Tariffs
There are two broad areas of trade barriers: tariffs and non-tariff barriers (NTBs). The relative importance of NTBs has grown sharply as tariffs have been progressively reduced, although some significant tariff levels remain.
At present you have no legislative authority to reduce tariffs. This exposes us to retaliation if we were to raise any of our duties, as a result of escape clause action, for example, since we could not extend compensation by reducing tariffs on other products. The alternatives are:
(1) Simply accept the present situation and seek no new authority;
(2) Request modest "housekeeping" authority to permit compensation if necessary;
(3) Seek major authority with a view toward a major liberalization effort. Only this approach would represent a decisive liberalizing move but neither the bureaucracy, the Congress, nor our major trading partners are ready for it.
Issue for decision: What if any tariff-cutting legislative authority should we seek? (Seek modest "housekeeping" authority this year and announce your intention to seek major authority at a later time, when the tariff reductions of the Kennedy Round are nearer to completion.) NTBs are much more difficult conceptually and practically. They cover a wide range of practices including voluntary export restraints, border tax adjustments (BTAs), Government procurement policies, safety and health regulations, state trading monopolies, and a few remaining quantitative restrictions. Many NTBs are intimately tied to domestic policies, particularly in agriculture. We do not yet have any reliable analysis of their trade effects on us or on others, although a major effort to this end is now underway in GATT.
The U.S. NTB which attracts most foreign reaction is our American Selling Price system of customs valuation (ASP). Our Kennedy Round commitment to such legislative authority to eliminate it was met by the Johnson Administration but that commitment, and the European offer of tariff and non-tariff cuts to reciprocate for its implementation, were renewed late last year. Its repeal would provide us not only with the equal foreign concessions already negotiated but would remove the most egregious symbol of U.S. protectionism.
Our options are:
(1) Simply press forward on the present GATT work, to provide a factual and analytical basis for future negotiations;
(2) Attempt to force the elimination of other countries' barriers by threatening to retaliate against them;
(3) Negotiate reciprocal reductions--on individual barriers where international balancing is possible (e.g., Government procurement), on a variety of NTBs in order to achieve greater scope for reciprocity, or on a package deal including tariffs and perhaps agriculture to provide the maximum scope for reciprocity and hence coverage.
Issue for decision: What approach to take on NTBs generally and ASP specifically? (Press forward with the GATT study of NTBs and their effects. Launch an intensive U.S. Government study to pave the way for a later initiative to coincide with the major tariff-cutting initiative recommended above, and announce your intent to move in this direction. Ask Congress to eliminate ASP, to complete the Kennedy Round package and clearly signal our commitment to freer trade and interest in reducing NTBs in general.) The question here is how best to pursue your commitment to the industry, within the context of a liberal trade policy. The immediate issue is the approach to be taken by Secretary Stans on his forthcoming European and Far Eastern trips.
The options are:
--Seek a multilateral agreement in the GATT under which bilateral restraints are negotiated.
--Seek to negotiate bilateral restraints without a multilateral umbrella.
--Act administratively on grounds of domestic injury, after achieving relaxation of our escape clause legislation and renewed tariff-cutting authority, to restrict imports and compensate exporting countries bilaterally;
--Take no action at present, but consult with our trading partners on how best to proceed on the issue.
Issue for decision: Instruction to Secretary Stans concerning textiles for his forthcoming foreign trips. (Consult with the governments he visits concerning the best way to deal with the problem. I urge that he make no specific proposals on these visits because it would be his only specific proposal, because he will not be in a position to offer anything in return, and because we have not yet implemented your consultations pledge in this area, the first in which you are asking something concrete from the Europeans, Japanese, and several less developed countries.) Agriculture presents a special range of NTBs, all of them closely tied to domestic policies. It is the main area of current and pending EEC restrictions on U.S. exports. The U.S. has a major interest in freeing international agricultural trade in view of our tremendous comparative advantage in this area. U.S.-European agricultural trade is also being studied by a task force set up under Cabinet Committee on Economic Policy.
The options are:
(1) Intensify our present exhortations to others to liberalize;
(2) Seek a fundamental review by all major trading countries of all major agricultural policies, domestic and international, with a view toward bringing agricultural trade under GATT control and then to liberalize in accord with its rules; and/or
(3) Get all agricultural restrictions converted to tariffs.
No Presidential decision is required at this time. (My tentative view is that we are prepared only to seek international agreement to launch an intensified study of domestic and international agricultural policies. Specific recommendations on this subject will be developed by a Task Force of the Cabinet Committee on Economic Policy.)
Border Tax Adjustments
There are two aspects to the border tax issue and they are usually confused. First, there is a structural problem in the GATT rules: indirect taxes (such as excise taxes and taxes on value-added) can be rebated on exports and imposed on imports while direct taxes (such as corporate and personal income taxes) cannot. The trade balances of countries with relatively heavier use of indirect taxes are thus in principle favored. As with other NTBs, however, there is no agreed analysis of these effects in practice. The clearest effect occurs when countries increase their border adjustments without changing their internal tax rates, usually in connection with a shift in their method of taxation.
Second, there is the possibility of using uniform border taxes as a temporary device to help countries adjust their balance of payments positions. Such measures could be legalized without changing the structural rules. The import surcharges used by Canada in 1962 and the UK in 1964-1966 are examples. The Johnson Administration seriously considered such an approach last year.
We could address ourselves to either or both of these problems. The balance of payments aspect is best considered in that context, however, and this trade discussion should be limited to the structural aspects.
The options are:
(1) Increase our own border taxes unilaterally, either legally and in small amounts to adjust for U.S. indirect taxes not now rebated, or illegally and in larger amounts to cover some of our direct taxes;
(2) Apply countervailing duties against foreign rebates on their exports and subsidize our exports to countries which apply border taxes;
(3) Propose changes in the GATT rules to allow for border adjustment for direct taxes;
(4) Propose undercompensation of indirect taxes by countries which rely heavily on them;
(5) Seek agreement that countries will not increase their adjustments even when they change their domestic tax rates, without international consultation.
No Presidential decision is required at this time. (My tentative view is that we should seek agreement only on changes in adjustments as per last-mentioned option, since any of the unilateral approaches would probably generate foreign retaliation and launch a trade war, and intensify international and internal study of the effects of BTAs as part of the over-all effort on NTBs outlined above, with a view toward including them in a major trade negotiation in a year or so. We can gain very little from negotiating on BTAs alone since we have nothing to offer in return for foreign concessions.)
Trade Preferences for Less Developed Countries (LDCs)
At the UNCTAD meeting in 1968, the U.S. accepted a moral commitment to proceed toward the establishment of a system of trade preferences for the LDCs and to settle the details of the scheme in 1969. Discussions in the OECD have been held up for six weeks pending determination of the policy of your Administration.
There is tremendous interest in preferences throughout the underdeveloped world and our responsiveness carries important political implications. The fact is, however, that the economic gains for any LDC are likely to be small even under an ideal preference scheme--and any scheme which emerges from negotiations among the industrialized countries could be far from ideal. Furthermore, the LDC gains which do result are likely to be focused in a small number of the most developed of them such as Hong Kong, Israel, and Mexico. However, we do not yet have adequate analyses of any of these effects and little consultation with Congress has taken place.
Our options are to:
--Announce a decision to grant preferences, subject to certain conditions, through either a meaningful approach in which exceptions are kept to a minimum and unlimited access at a zero preference rate is accorded, or with a more circumscribed scheme;
--Continue the ongoing international discussions but reserve final judgment;
--Delay further participation until we can reach a definitive judgment on whether to support or abandon the approach.
--Abandon the approach.
A major trade issue is how to safeguard domestic industry and labor against the transitional effects of trade liberalization, when these effects cause justifiable difficulties. The basic principle is that the economy as a whole should share the cost of any such problem since trade liberalization promotes the general welfare. Safeguards have generally been limited to transitional problems and have not sought to provide ongoing protection. Effective devices are a necessary condition for defusing pressure for protectionist legislation.
The options are:
(1) Legislated quotas.
(2) Voluntary restraints by foreign suppliers.
(3) Improvement in the escape clause for industries, which has been inoperative since 1962 since its requirements are too rigid.
(4) Relaxation of the criteria for extension of adjustment assistance to individual firms and workers, which has also been inoperative for the same reasons.
Issue for decision: How to provide adequate but non-protectionist safeguards against damage from imports? (Seek legislation relaxing the criteria for escape clause relief and adjustment assistance.)7 We are concerned that the paper which went to the NSC Review Group on April 7 does not reflect the views on tariff preferences for LDCs which we have repeatedly stated and which were partly accommodated in the revised draft paper you circulated on March 28. As I noted in my memorandum of March 27, Attached are recommendations from Paul McCracken on U.S. Trade Policy, keyed to the paper prepared for yesterday's NSC discussion of the subject. His strongest views are in favor of seeking repeal of ASP this year and to delay making a final decision on tariff preferences for the less developed countries until we can take Congressional soundings and explore the possible alternative approaches in greater detail. Memorandum From the Chairman of the Council of Economic Advisers (McCracken) to President Nixon The basic issue before you is how strongly to push for further trade liberalization at this time. The strong protectionist sentiment in Congress indicates that a strong new legislative program for trade liberalization would face extremely tough going. On the other hand, it is extremely important to preserve the present forward momentum in trade liberalization around the world. This suggests that the best move may be to introduce limited trade liberalization legislation at the pres-ent time, coupled with an announcement of intention to engage in early discussion with our trading partners on future trade liberalization. This might be combined with the formation of a Presidential commission on this subject.
Two important decisions affecting the future of U.S. trade policy which must be made soon, and which are of considerable interest abroad, concern the American Selling Price (ASP) method of customs valuation and tariff preferences toward less developed countries. Each has taken on symbolic value to our trading partners which exceeds its actual economic importance.
During the Kennedy Round conditional agreement was reached that if the United States eliminated the American Selling Price provision, further reduction in the tariff on chemicals and in certain nontariff barriers would be undertaken by our trading partners. Failure to eliminate the ASP provision would not only kill these already negotiated benefits, but would also seriously dampen foreign willingness to seriously explore avenues for further reduction in tariff and nontariff barriers.
Thus, I strongly feel that repeal of the ASP provision should be an important component of any proposed legislative program for limited trade liberalization. This could well be combined with relaxation of the unduly stringent requirements for adjustment assistance which exist under our present legislation and, if Congressional opposition does not appear too great, with limited authority for tariff reduction to allow some maneuvering room for minor negotiations and compensatory tariff reductions in cases where U.S. actions impair our concessions to foreigners. It would be good to announce a positive decision on ASP legislation in time for Secretary Stans' trip to Europe, where it would add considerably to the credibility of his free trade posture.
On the second question, the less developed countries attach major political importance to obtaining access for their exports, particularly of semi-manufactured and manufactured products, in the markets of the developed countries. While it is not clear that the less developed countries would achieve as much benefit from trade preferences as they apparently believe, most other developed countries seem willing to grant some type of preferential treatment. International exploration of the question has progressed to an advanced state and has now paused, pending completion of the U.S. policy review. While the United States does have the option of announcing its rejection of tariff preferences as a matter of policy, such action would bear a considerable political stigma unless coupled with the announcement of important alternative measures to aid the less developed countries. On the other hand, there is almost certain to be strong domestic resistance to preferences and it is likely that preferences would prove a source of long-run disappointment to the less developed countries. If it can be done without making the U.S. stand out as a foot dragger in the eyes of other countries, we should delay the ongoing international discussions for a short period to sound out the feelings of key Congressmen and to explore the possibilities of various programs of market access for LDC's. It has long been our policy to aid the industrialization of the less developed countries, and they will feel cheated if we now deny them access to our markets. But we should not grant them something that may turn out to be of no value.
193. Memorandum From the Deputy Assistant Secretary of State for African Affairs (Westerfield) to the Assistant Secretary of State for Economic Affairs (Greenwald)
U.S. Trade Policy--NSSM 16: Tariff Preferences for LDCs
194. Information Memorandum From the President's Assistant for National Security Affairs (Kissinger) to President Nixon/1/
Washington, April 11, 1969.
/1/Source: National Archives, Nixon Presidential Materials, NSC Files, Agency Files, Box 215, CEA. No classification marking. The date is handwritten.
SUBJECT
CEA Views on Trade Policy
Attachment
Trade Policy (NSSM 16)
Paul W. McCracken/4/
/4/Houthakker signed for McCracken. At Tab A is a list of actions indicated during the NSC meeting of April 9 on U.S. Trade Policy. The list of actions has been coordinated on an "Eyes Only" basis with the principals and has been agreed to by them. It will be retained for record purposes.
At Tab B is an NSSM reflecting your decision to continue our internal study of trade. Recommendation
Recommend approval of: /5/Confidential; Eyes Only. The text is virtually identical to that circulated under cover of an April 10 memorandum from Kissinger to Laird, Stans, Hardin, Rogers, Wheeler, Helms, Lincoln, Volcker, McCracken, and Gates. (National Archives, RG 59, S/S Files: Lot 71 D 175, April 9 NSC Meeting)
195. Action Memorandum From the President's Special Assistant for National Security Affairs (Kissinger) to President Nixon/1/
Washington, April 15, 1969.
/1/Source: National Security Council, Secretariat, Box 83, 4/9/69 NSC Meeting-US Trade Policy. Confidential.
SUBJECT
Actions Resulting from National Security Council Meeting of April 9, 1969
2. the NSSM on the internal study of trade,
3. the NSSM providing for further study of the proposal for generalized tariff preferences for less developed countries.
Tab A/5/
The President reiterated his commitment to free trade and decided that new trade legislation in 1969 should provide him with limited authority to reduce tariffs, should liberalize the escape clause, should liberalize the conditions required for adjustment assistance to businesses and workers dislocated by imports, and should eliminate the American Selling Price (ASP) method of valuation for imposing tariffs. The legislation is to be ready for submission this Spring.
The President also decided that a commission would be created to review the entire range of trade and production relationships among countries. The terms of reference for the commission should be considerably broader than for any such study in the past. It should report its findings and policy recommendations six to twelve months after its appointment. The President indicated that the commission should have a strong staff and a prominent chairman who was not unduly identified with a particular point of view. The formation of the commission should be announced this spring, perhaps in conjunction with the announcement of the new legislative package.
In discussing the position Secretary Stans would take in his upcoming trip to Europe, the President assented to his raising in low key with the Europeans the possibility of convening a meeting in June, under GATT auspices, to discuss the problems of world trade in synthetic and woolen textiles and methods of restraining the growth of such textile imports into the United States. Secretary Stans should emphasize the political difficulties a sharp growth in textile imports is causing in the United States, and the threat it poses to the liberal trade policy the Administration wants to pursue. The President indicated the desirability of drawing public attention to the strong sentiments for protection now prevailing in Congress, either through featured articles or through a publicized meeting of Congressmen with Secretary Stans.
As an indication of his desire to move in the direction of more liberal trade, the President authorized Secretary Stans to assure the Europeans, without publicity, of the intention of the Administration soon after his return to submit new interim trade legislation and to create a blue-ribbon commission to review the future of U.S. trade and production relations with its major trading partners.
On the question of tariff preferences to developing countries, the President instructed Stans to indicate, when asked, that his Administration maintains an open-minded position although it will not be able to make any firm commitments until further study is completed. The scheme would appear to have a small effect on the U.S. but could mean a great deal in our political relations with the less developed countries. The Secretary should seek to avoid letting the Europeans reject the approach and should seek to keep it open.
The President also asked Secretary Stans to listen attentively to the European position on East-West trade and indicate that the U.S. is re-examining its position on the matter. His own disposition is that some of our present restrictions are outmoded but he wants to save any relaxation for possible bargaining with the Soviet Union in a broader political context.
The President indicated that the Administration should take greater cognizance of the problems of U.S. businessmen and their concerns abroad, even when ultimately they may have to be over-ridden by foreign policy considerations. The business community should be convinced that its interests are adequately represented by the Government.
196. Information Memorandum From Richard N. Cooper of the National Security Council Staff to the President's Assistant for National Security Affairs (Kissinger)
Tariff Preferences for Less Developed Countries
The tariff preferences issue will come to a head this year, and we do not want to be caught off guard. Earlier this week David Rockefeller came under heavy pressure on the question in Mexico.
/2/ Secretary General Perez Guerrero of the United Nations Conference on Trade and Development has been circulating in Washington during the past week and saying that tariff preferences are at the top of UNCTAD priorities. Nelson Rockefeller will hear a lot about preferences during his trip to Latin America next month./3/ At the NSC meeting on trade (April 9) the President indicated that he had an open mind on the question, and seemed sympathetic to tariff preferences as a gesture to the less developed countries--without, however, reaching a firm decision./4/ We have instructed the agencies to study the question quickly and thoroughly via NSSM. /2/Not further identified./3/Regarding the Rockefeller mission to Latin America, see Document 122.
/4/See Tab A to Document 195.
In the meantime, international discussions in the OECD have been stalled and everyone is waiting to see what the U.S. will do./5/ The European Community and all other major industrialized countries have in specific proposals, and the burden for further delay falls on the United States for so far failing to put in its hypothetical list of "exceptions" not to be covered by a tariff preference scheme. Fred Bergsten and I agree that we should go ahead and submit some hypothetical exceptions list. But the further we discuss the question of tariff preferences in detail, the more difficult it will be to retreat. /5/See footnote 3, Document 200. I have two major objections to the granting of tariff preferences, and I thought you should be made aware of them, particularly in view of the President's favorable disposition.First, the benefits accruing to the less developed countries in the best of circumstances will be both small and badly distributed among countries. Quantitative estimates are always difficult. But all of the reasonable ones show the stimulus to LDC exports at less than $1 billion. And most of this stimulus will go to Hong Kong, Mexico and a few other countries who are already in a position to market extensively.
Second, we cannot achieve the best of circumstances at a time when the pressure is very strong to restrict textile imports, especially those from low-wage countries. I find it inconceivable that we will turn around and give preferred access of precisely those products, which are the ones where the LDCs could best utilize preferences, to the U.S. market. Other commodities in which the less developed countries have potential export capabilities are also of special sensitivity in the U.S. market, e.g., leather products, plywood, etc. Therefore, I believe that if any proposed scheme were to emerge from Congress at all in the next few years, it would be badly cut up and largely devoid of real value to the LDCs.
The State Department is inclined to respond favorably to what is admittedly a very strong desire by the less developed countries for tariff preferences. They are in the process of making it a symbol of true U.S. and European intentions regarding their welfare and State would like to make a sympathetic political gesture. My view, given the two points mentioned above, is that such a gesture will backfire very strongly. Because the actual efforts even of a broadly based scheme are likely to be small, it will result in disappointment and induce cause for further special treatment--especially for those many countries not benefiting from the scheme. Because a broadly based scheme is not likely to pass through Congress, we will be charged with cutting the whole idea, and the bitterness will be all the greater. In short, the political gains from granting the tariff preferences will be short lived at best.
These are negative comments and do not help, and do not offer objective ways to maintain or improve our relations with the LDCs. But there are other ways to do that than tariff preferences, not least a forward-looking foreign assistance program and assured market access for their growing volume of manufacturers even at existing tariff levels.
197. Action Memorandum From C. Fred Bergsten of the National Security Council Staff to the President's Assistant for National Security Affairs (Kissinger)
The STR Decision--A Pyrrhic Victory?
I am still seriously concerned about the future administration of U.S. trade policy. The President's decision to retain the appearance of an independent STR
/2/ already appears to be undercut in substance by the way in which the decision was implemented and subsequent developments: /2/Additional documentation on the President's decision to keep the Office of the Special Trade Representative in the Executive Office of the President is scheduled for publication in Foreign Relations, 1969-1976, Organization and Management of Foreign Policy, 1969-1972. 1. The Secretary of Commerce, not the President, offered the position to Carl Gilbert.2. The President gave the Secretary of Commerce the option to locate STR physically within Commerce.
3. Gilbert accepted the position without any conditions concerning direct access to the President or his relationship with other agencies. His well-known eagerness for the position suggested in advance that this would be his response.
4. On the present trade mission to Europe, Gilbert has been excluded from private meetings between Stans and key foreigners such as Kiesinger and Strauss.
The result, particularly if STR is physically located within Commerce, will be a clear undermining of STR's leadership role in U.S. trade policy. Such a result would adversely affect the President in the following ways:
1. The widespread kudos he has received for retaining an independ-ent STR will disappear. Another massive campaign on the subject would probably develop since the groups involved are all interested in substance rather than appearance.
2. Our trade legislation, both this year and in the future, will face increased difficulty on the Hill because of the widespread desire in Congress (including such key people as Wilbur Mills and John Byrnes) for STR leadership. Our legislative proposals will face enough problems without adding this one.
3. The foreign policy consequences which were avoided for the moment by the decision to retain STR will appear all over again. They would be even worse now because the protectionist image of Commerce has been greatly intensified by the Stans approach on textiles.
4. STR will be severely handicapped in regaining the top-quality staff which is needed somewhere in the Government if we are to make substantive progress on trade policy generally and move toward a far reaching Nixon Round, the rationale for the appointment of our blue ribbon commission and intensified internal study per NSSM 49, during this Administration. Such a staff will never develop through the State system or be attracted by Commerce.
At least three things need to be done soon to give substance to the apparent STR decision. First, the President should invite Gilbert along with Stans to report to him on the European trip and to discuss plans for the coming Far East trip. This would enable Gilbert to meet the President and enhance his stature both internally and publicly, particularly if the White House announced their meeting.
Second, STR should remain physically in its present location. This will require either that Stans be convinced not to exercise his option to move STR into the Commerce building (essentially on the grounds that it would avoid major Congressional problems and keep the State and Agriculture Departments and foreign emissaries off his neck) or that the President instruct Stans that he has reconsidered his decision and prefers that STR remain in its present location.
/3/ /3/On May 19 Kissinger initialed a memorandum to the President with the recommendation: "That STR remain physically, as well as legally, within the Executive Office of the President." (National Archives, Nixon Presidential Materials, NSC Files, Subject Files, Box 404, Eberle) In a May 21 memorandum, Haldeman told Flanigan that "the President would like you to make clear to Secretary Stans that he does not want the office itself moved. As the Secretary knows, the President will look to Stans for overall supervision of this office, but he feels it should not be moved from its present location and that any attempt to do so would create serious problems on the Hill, among other things." (Ibid.) The May 19 memorandum is scheduled for publication in Foreign Relations, 1969-1976, Organization and Management of Foreign Policy, 1969-1972.Third, STR's substantive leadership needs to be asserted. Our NSSM which places STR in the chair of our long-term internal study accomplishes that. In addition, it would be desirable if the President could praise STR or Gilbert personally in a public statement, perhaps in his trade message to the Congress next month.
Recommendation:
I recommend that:
1. You urge the President to (a) invite Gilbert, along with Stans, to report to him on the European trip and on plans for the Far East trip in early May, with a White House announcement of their meeting; (b) inform Stans that he has decided that STR should remain physically in its present location; (c) take any opportunity that might arise to publicly praise STR and/or Gilbert personally and affirm their leadership of U.S. trade policy.
2. If you have not already done so, sign the proposed NSSM directing a far-reaching internal study of U.S. trade policy as agreed at the NSC meeting on April 9 to be chaired by STR.
/4/ /4/At the end of this paragraph Haig wrote: "Done" (see Document 199) and added the following decision paragraph with "yes" and "no" options: "Bergsten to do memo to Pres. along above lines." The "yes" option is checked, presumably by Kissinger. The May 19 memorandum to the President (see footnote 3 above) is apparently the memorandum.198. National Security Study Memorandum 48/1/ Washington, April 24, 1969. /1/Source: National Archives, RG 59, S/S Files: Lot 80 D 212, NSSM 48. Limited Official Use. TO
The Secretary of State
The Secretary of the Treasury
The Secretary of Agriculture
The Secretary of Commerce
The Secretary of Labor
The Director of the Bureau of the Budget
The Chairman of the Council of Economic Advisers
The Special Representative for Trade Negotiations
The Administrator of the Agency for International Development
SUBJECT
Tariff Preferences for Less Developed Countries
The President has directed the preparation of a paper on U.S. policy toward generalized tariff preferences for the less developed countries (LDCs). The paper should deal with their economic costs and benefits to the LDCs, their economic costs and benefits to the U.S. and to the other countries extending preferences, and to their effects on political relations among the U.S., the other industrialized countries, and the LDCs in both the short and longer terms. The economic analyses should take account of different durations of time during which preferences might be in effect and should also take account of the possible development of new export products in LDCs as well as increases in their exports of products already being sold abroad.
These analyses should be done in terms of various possible preference arrangements, ranging from a comprehensive scheme with no or few derogations from the basic principle to a quite restrictive package which would fully reflect the domestic sensitivity of various industries in both the U.S. and other industrialized countries. The economic and political analyses should also cover the effects on the LDCs, on the U.S., and on the other countries extending preferences of changes in present practices which the U.S. or others might insist upon in moving to a generalized preferences scheme, such as preferences extended by certain LDCs to certain industrialized countries (reverse preferences) and preferences extended selectively by certain industrialized countries to certain LDCs.
The President has directed that the paper be prepared by the NSC Ad Hoc Group created by NSSM 16.
/2/ It should be submitted by June 1. /2/Document 182. Henry A. KissingerThe Office of Electronic Information, Bureau of Public Affairs, manages this site as a portal for information from the U.S. State Department. External links to other Internet sites should not be construed as an endorsement of the views or privacy policies contained therein.