Washington, December 29, 1970.

SUBJECT
Need for Position on Trade Legislation for 1971

We must develop a position on trade legislation for 1971 by the time the Congress reconvenes, and earlier if possible because of the textile negotiations.

I have therefore prepared an options paper (Tab A) and circulated it to interested parties in the White House (Shultz, Flanigan and McCracken) with a recommendation that it be the first order of business of the new International Economic Policy Council,/2/ or be discussed at an ad hoc meeting called by one of them.

Procedurally, foreign economic policy is now a total mess--and this very important issue may suffer as a result. Our original trade legislation decisions were made via the NSC,/3/ and it remains the only mechanism now in place through which such decisions can be made in an orderly way. For all its shortcomings, our mechanism was reasonably effective in obtaining and implementing decisions during the first 18 months of the Administration.

Now, however, everybody is sitting around waiting for the new Council to start operating--while the months drag by and nothing happens. As a result, everybody is in the act to some extent, but nobody at a senior level is in charge. And I fear that, without an Executive Director or its own staff, the new Council is not going to solve the problem--it may even make things worse, by simply getting in the way.

As noted above, I continue to hope that the new Council will start in time to handle this issue. If not, I hope that Shultz or Flanigan will seize leadership on it. If they do not, I will have to recommend that you call a meeting in early January to get a decision.

TRADE LEGISLATION OPTIONS FOR 1971

We must make a decision on our trade legislation strategy for 1971 by the time that the Congress reconvenes, and earlier if possible in view of the continuing textile negotiations. That decision would be made in the context of our decision on where we want U.S. trade policy to go over the next several years, the options for which were outlined in my paper of December 8, but time may not permit us to do so. The immediate decisions should finally be made only after close consultations with the Congressional leadership, however, though we should of course decide first on what approach we prefer. This paper outlines the options for 1971 which appear feasible at this time, assuming:

--No negotiated solution to the textile problem;

--An effort to fulfill our international commitment to implement generalized tariff preferences "as early as possible in 1971";

--Receipt of the Williams Commission report on June 1, with legislative proposals based on it impossible before September 1 due to the time needed for internal staffing;

--No major trade liberalizing initiative is possible now, due both to domestic reasons (the unresolved textile problem; the need to first establish a tough Administration policy toward foreign restrictions; the need to establish an authoritative Administration spokesman on trade policy; the need to develop new constituencies to support a U.S. free trade policy) and international reasons (the preoccupation of the EC with its expansion negotiations; the continuing adverse impact of the textile problem on our economic relations with Japan).

Option 1: Submit a bill including only a textile quotas and tariff compensation authority early in the year, leaving all other trade proposals until we have the recommendations of the Williams Commission.

--The President's commitment stands and will have to be met; a textiles-only bill might have the best chance to do so.

--A textile solution is necessary to clear the way for any major trade legislation; a textiles-only bill could logically be presented as the first step in a two-step package, the second of which will be general trade legislation based on the Williams Commission proposals.

--Provides the best international justification for deferring submission of generalized preferences legislation.

--Inclusion of compensation authority would enhance the respectability of the legislation in some domestic and foreign eyes, since it would enable us to pay for the textile quotas; it would avoid retaliation in this case, and also increase our flexibility in taking escape clause actions.

--Such a bill would not have a high probability of success. The textile and shoe alliance is unlikely to be broken (though we might defuse the shoe pressure by taking restrictive action ourselves in response to the Tariff Commission finding, which will be in shortly). Byrnes is likely to insist upon his basket clause for "equity" reasons. Introduction of textile quotas alone may thus simply bring back the same battle we faced in 1970.

--An Administration quota bill with no free trade features, such as ASP repeal, will be seen at home and abroad as a major protectionist move. Characterizing it as the first of a two-step series, as mentioned above, would mitigate this effect to some extent; so would a strong statement that we would veto any protectionist additions to the bill.

--Holding off all other trade proposals until late this year would probably mean their consideration in the President's election year, which we may wish to avoid. But this would mean no new trade legislation at least until 1973, and (a) the longer we remain without adequate escape clause and adjustment assistance authority, the worse the legislative situation will become; and (b) the ASP deal will certainly expire if we do not even propose its repeal in 1971.

Option 2: Resubmit early in the session our modest November 1969 proposals (20% tariff-cutting authority; liberalization of the escape clause and adjustment assistance requirements; ASP repeal and possibly DISC plus textile quotas). Omit preferences at this time, holding it for the broader package which will result from the Williams Commission recommendations.

--All of the proposals would still be helpful in improving our trade policy and making it more flexible.

--Would provide a free-trade fig leaf for our textile quotas.

--It would be illogical to propose anything grander while we are still waiting for the Williams Commission report.

--As a resubmission of our current proposal, it would have no dramatic appeal and is likely to draw us into precisely the same committee legislation as in 1970--except that time would not kill it in 1971.

--Submission of modest legislation now could undermine the more substantial proposals which we might wish to base on the Williams Commission recommendations, since Congress is unlikely to act on two trade bills in one session and since it might not even act on the first proposals by the time we would be ready to submit the second set.

--Failure to include preferences would violate our international commitment on that issue, undermining both our credibility with the other industrialized countries (which will all implement their generalized preferences by mid-1971) and the major foreign policy initiative of this Administration toward the lower income countries.

Option 3: Add preferences to the Option 2 package, perhaps submitting the package in parallel with the President's legislative proposals for aid reform of which preferences are a key component.

--We are committed to submit preference legislation in 1971, and Mills has said in the past that he wished to consider all trade measures together.

--If Congress turns the general trade legislation in a protectionist direction, it may give us closer to what we want on preferences.

--Inclusion of preferences would give extra leverage to the Congress in avoiding a Presidential veto of the bill if it emerged as essentially protectionist. (However, a veto of such a bill would probably be justifiable to the countries which would benefit from preferences, and might even be the only way to avoid preferences without a serious foreign policy cost.)

--Tying preferences to general trade legislation will heighten awareness of their non-reciprocal nature, flying in the face of Congressional attitudes and thereby reducing our likelihood of getting preferences (or, perhaps worse, badly distorting their form) or of getting the overall trade legislation which we want.

Option 4: Submit no trade legislation now, announcing that we will await the report of the Williams Commission before doing so.

--This would give us time to launch a tough program of defending U.S. trade interests abroad and start developing some new constituencies to support free trade, thereby improving our chances of getting desirable legislation later.

--Unemployment should begin to decline by mid-year and the trade balance is likely to be better, reducing protectionist pressures to some extent.

--Gives us maximum flexibility. If the Williams report is too grandiose to submit immediately, we could still submit modest and/or preferences proposals in the early summer.

--If the Williams Commission recommendations are dramatic, they will lose some of their force if we had first submitted modest trade legislation and gone through a fight on it--especially if they were still pending before the Congress. (Against this lies the probability that, because of the 1972 elections, we may not wish to submit dramatic Williams recommendations to Congress immediately under any circumstances.)

--Might reduce the likelihood of reaching a negotiated settlement on textiles, thus further delaying fulfillment of the President's commitment--or letting someone else get the credit for doing so.

--The overhang of protectionist pressures in textile and other products is so heavy that someone else might seize the legislative initiative, and the Administration would have nothing on the table with which to counter.

--Even if the outlook for preferences legislation is not too good, it would look better abroad if the Administration submits them early and fails than if it submits them late and fails.

1. That an authoritative Administration spokesman shortly propose the following to Mills and the other leaders, and that we then pursue the following course if they agree with it.

2. That we submit a bill including only textile quotas and tariff compensation authority early in the session, provided that the leaders believe the legislative chances of passing such a bill are strong.

3. That we characterize this step as the first of a two-part program, indicating that we plan to submit major trade legislation (including preferences) after we get the Williams Commission report.

4. That we make it clear that the President will veto protectionist legislation affecting any products other than textiles in the interim.

During 1969 and 1970 trade policy was systematically considered at the highest levels in the Nixon administration, including NSC, NSC Review Group, and Senior Review Group meetings. There were no NSC and SRG meetings on general trade policy matters during 1971 and 1972, however, and no NSDMs on general trade policy issues. The newly-established CIEP replaced the NSC as a forum for high-level attention to trade issues.

By the beginning of 1971, a number of broad decisions on issues such as preferences and the general thrust of trade policy had already been taken. In addition, the Williams Commission on International Trade and Investment Policy was due to submit its report in mid-1971, and many items were on hold pending its recommendation. Trade negotiations were also linked closely to the international monetary policy negotiations that dominated much of the foreign economic policy agenda during the last half of 1971 and 1972. For documentation on U.S. international monetary policy, see Foreign Relations, 1969-1976, volume III, Documents 109 ff.

The trade policy agenda turned to developing legislation that would support far-reaching trade negotiations, an exercise that culminated in the Trade Reform Act of 1973, transmitted to Congress on April 10, 1973. See Department of State Bulletin, April 30, 1973, pages 513-522, and Public Papers of the Presidents of the United States: Richard Nixon, 1973, pages 258-270. This message proposed the enabling legislation that permitted the United States to participate in what became known as the Tokyo Round of trade negotiations under GATT auspices (the successor round to the Kennedy Round in the 1960s), and established a Generalized System of Preferences (GSP) for developing countries. Congress completed action on this legislation in December 1974, and President Ford signed the Trade Reform Act of 1974 on January 3, 1975. (P.L. 93-618; 88 Stat. 1978)

On textiles, bilateral textile discussions were underway with Japan and other Asian exporters, generally under the tutelage of Ambassador at Large David Kennedy. According to a September 21, 1971, memorandum from Peter Peterson to the President, on August 15, during the New Economic Policy discussions at Camp David August 13-15, the President had decided that if a voluntary textile agreement was not reached by October 15, he would impose a settlement under the Emergency Banking Act Amendment of the Trading with the Enemy Act. Pursuant to that decision, a "preparatory" Balance of Payments Emergency Proclamation was drawn up on August 16. (National Archives, Nixon Presidential Materials, NSC Files, Agency Files, Box 218, CIEP)

Responding to a question regarding the purported October 15 deadline during his press conference on October 8, 1971, President Nixon said that if there were no agreement or prospects for concluding one by October 15, the United States would act unilaterally. (Public Papers of the Presidents of the United States: Richard Nixon, 1971, page 1036) Kennedy did, in fact, conclude an agreement with Japan on October 15, as well as agreements with Korea, Taiwan, and Hong Kong on or about that date. These voluntary agreements were announced at a press briefing at the White House on October 15. (Weekly Compilation of Presidential Documents, October 19, 1971, pages 1408-1409) During the briefing Peterson said that the long-term solution to the problems in the apparel industry world-wide was negotiation of an international all-fiber agreement. The focus of the discussion in 1972 and beyond moved into a multilateral context, with renewal of the Long-Term Agreement (LTA) on cotton textiles and negotiation of a multi-fiber agreement.

On March 3, 1972, President Nixon issued a directive establishing a Special Working Group of the CIEP, chaired by Ambassador Kennedy, for textile trade policy. Among its duties the Special Working Group was to provide guidance to the Commerce-chaired Committee for the Implementation of Textile Agreements with respect to U.S. rights and obligations under the LTA regarding cotton textiles, and to develop policy proposals for negotiation of additional bilateral and multilateral textile agreements. (Department of State Bulletin, April 10, 1972, page 545)

Washington, January 2, 1971.

SUBJECT
Secretary Hardin's Report on His European Trip

Secretary Hardin has sent you an abbreviated report on the United Kingdom and European Community portions of his European trip (Tab A).

In speaking with the British and Community leaders, the Secretary emphasized that the import barriers of the Community's Common Agricultural Policy are contributing significantly to protectionism in the United States Congress. Recent Community agricultural policy moves have all been in the wrong direction, instead of encouraging an interdependence of trade that would sustain an open U.S. policy. We have been chagrined by recent EC moves on grain, citrus, and tobacco.

Grains are the most serious. A Community increase in its already high grain import levies, which is a real possibility, would further damage our exports; we would pay the price of an unsuccessful EC social program to increase Community farm income levels. Germany, which is the most insistent on high grain prices, claims that grain price reductions are politically impossible.

The Secretary believes that we must use all U.S. Government resources to reverse Germany on this question, even at the risk of interfering with the UK-EC negotiations or of creating difficulties for Brandt. Otherwise, the Administration will have serious political problems in Indiana, Illinois, Ohio and Missouri.

The Secretary did not believe his trip had the result he wished for a number of reasons:

--Authority in the Community is diffuse.

--The Community is hypersensitive to criticism of its institutions.

--The British dare not use their weight with the Community.

--The Community argues that it cannot attempt fundamental changes during its British negotiations.

I agree that these are extremely serious issues. They will require us, at some point, to make a tough tradeoff between our direct interests in the EC and UK, on the one hand, and our domestic political interests and interest in maintaining some base for a generally free trade policy, on the other. This should undoubtedly be one of the first issues to be tackled by the new International Economic Policy Committee./2/

Washington, December 16, 1970.

SUBJECT
Trip to European Community and United Kingdom

1. Purpose. I went to Europe to talk with European and U.K. leaders about the problems we are having because of the highly restrictive policies of the E.C.'s Common Agricultural Policy (CAP). We pointed out that the unreasonable protectionist features of the CAP have contributed to protectionist thinking in the Congress, that some new initiatives from the E.C. were needed and that all recent actions had been in the wrong direction. On the latter issue we pointed to:

a. The new citrus preference arrangements with Mediterranean areas (Spain, Israel, Morocco, and Tunisia).

b. A new "buying premium" for users of E.C. tobacco.

c. Recent discussions about additional increases in grain prices which will further reduce our trade volume.

We emphasized that these programs are harmful to the U.S. export position, and that our new farm law was built on a premise of expanding exports.

2. Difficulties. It is not easy to get through to the Europeans on these points because:

a. No one really speaks with authority for the EC. The Commission is an executive body not directly disciplined by budget or parliamentary control. Agricultural ministers of the member countries make the agricultural decisions.

b. The EC is unwilling to accept any criticism of its means or instruments. Any mention of the instruments of integration, such as the CAP, is interpreted as an attack on the system and the Commission itself. To some extent, this is tactical rather than real.

c. The U.K. continues to be timid with respect to its application for membership. In most of Europe, we found EC members willing and eager to have the U.K. come in. Still, the U.K. feels considerable lack of confidence, and is careful to avoid any action that might be seen as serving U.S. interests. It continues to fear another rebuff from the EC.

d. The CAP tries unsuccessfully to be an economic solution to political and social problems. The Europeans argue that change cannot be attempted during negotiations with the U.K.--an argument used in 1962 (when the CAP was harmonized) to our continuing sorrow.

3. Citrus and tobacco. We pushed hard the arguments that the newly initiated citrus and tobacco policies of the EC are harmful to U.S. producers. We insisted that we would make full use of our rights under the GATT, which we are doing. The Europeans argued that the U.S. would not be seriously hurt by their citrus and tobacco policies. They argued that their decisions on these commodities were political and could be justified in that way. Our response was that U.S. farmers should not be made to pay for the EC's special political arrangements with certain areas and certain countries.

4. Main Issues: Grains.

a. Our argument: We contended that the Europeans' effort to settle economic and social problems through fixed high prices is not working. We pointed out that high grain prices protected by variable levies are slowing the natural growth of livestock and poultry industries in Europe, keeping consumer prices high, and inhibiting consumption. (EC grain prices are about twice as high as those in the U.S.) We argued that lower internal grain prices in the EC would be beneficial to Europeans and traditional grain suppliers, including the U.S. Our exports to the EC of commodities subject to variable levies and high internal prices are down 47% since 1966. Furthermore, the use of large export subsidies to push surpluses created by artificially high prices into world trade, is disruptive of normal trade.

b. Germany is the key. When we raised the grain issue in other countries, the finger was pointed at Germany. When we raised the grain issue in Germany, the finger was pointed at Minister of Agriculture Ertl. The Minister wants to raise grain prices in the EC, not lower them. He contends it is not politically possible to lower grain prices.

We urged that he deal with his political problems by using direct payments.

5. Conclusions.

a. We should continue to press strongly for a reduction in grain prices in the European Community. This issue should not be postponed.

b. It appears to me that the only way possible to secure a grain price reduction will be to use all of the resources of our government to push the Germans into such an agreement. It is true that in doing this we may be accused of interfering with EC-U.K. negotiations. We also may find that we are creating difficulties for the Brandt government. But if we do not obtain a lower level of grain prices within the EC, and the UK, our Administration will have serious political problems in such farm states as Illinois, Indiana, Ohio, and Missouri.

c. We should avoid making any commitment to the U.K. at this time with respect to the changes they wish to make in their agricultural trade system because:

(1) To do so would undercut efforts to achieve lower grain prices in the European Community;

(2) We do not yet know what arrangements the U.K. will have with the Commonwealth countries under its probable new status as an EC member; and

(3) There has not been time to analyze the likely effects of these matters on U.S. agricultural experts.

d. In closing, may I state a strong conviction, which I also expressed abroad. The European Community is a strong, flourishing economy and a major trading power. It has a responsibility to help foster an expanding system of world trade in the interest of all nations.

The U.S. Tariff Commission issued a statement on January 15, 1971, concerning its report to the President on the results of its investigation of the effects of imports of non-rubber footwear on the domestic industry producing similar products. The vote of the Commission was divided (one Commissioner did not participate in the investigation), with two Commissioners finding that the increased quantities of imports as a result of the concessions granted under trade agreements threatened to cause serious injury to domestic industries. Two Commissioners found in the negative. According to the Tariff Commission statement, under the law, the President could consider the findings of either group of Commissioners as the findings of the Commission. (National Archives, RG 364, Office of the Special Representative for Trade Negotiations: Lot 71 B 1, Nonrubber Footwear--Options Papers, Office of the Secretary Press Release)

For Carl Gilbert's recommendation to the President, see Document 252.

Washington, April 2, 1971.

SUBJECT
Nonrubber Footwear Escape Clause Action

1. The Problem. On July 15, 1970, you directed the Tariff Commission to make an escape clause investigation of the effect of imports on the U.S. industry producing men's and women's leather footwear./2/ The Commission in its report to you of January 15, 1971,/3/ divided equally on the question of whether increased imports resulting in major part from trade agreement concessions are causing or threatening to cause serious injury.

Under the Tariff Act of 1930, you may, in case of a tie vote, consider the finding of either group as the finding of the Commission. If you accept the negative finding, no further action need be taken. If you accept the affirmative finding, you may, under the Trade Expansion Act of 1962, prescribe any one or a combination of the remedies provided in the statute. The remedies considered to be realistic choices in this case are described in the attached paper (Tab A)./4/

2. The Recommendation. I recommend that you accept the finding of those Commissioners who found that a threat of injury exists and that you prescribe as remedies adjustment assistance and a temporary tariff increase on imports of competitive footwear over current levels, technically called a "tariff quota'' (Option 2A of the attached paper). My recommendation has the support of the Departments of Commerce, Labor, Agriculture, and Defense, although Commerce and Labor differ on some terms of the tariff quota. Commerce would preface establishment of any tariff quota with an effort to negotiate voluntary agreements and Agriculture recommends advance consultations with the principal countries concerned.

Interior would initially recommend an import quota (rather than a tariff quota) at levels supplying countries would voluntarily accept and would support my recommendation only as a fall-back position.

The Departments of State and Treasury do not support my recommendations. State does not believe, among other things, the evidence supports a finding of threat of injury. If you choose to accept the affirmative finding, it recommends that only adjustment assistance be provided as a remedy.

Treasury believes that the statutory tests have not been met and recommends that you do nothing. If you choose to accept a finding of threat of injury, it recommends that you double the present tariff rates on selected categories of imports.

The Council of Economic Advisers was also invited to comment and it agrees with State that the attached paper should have included adjustment assistance as a realistic option. The reasons for not doing so are indicated under Option 2A.

All agencies commented in writing on the options paper and their views are attached (Tab B)./5/

3. Follow-up Action. If you accept the finding of threat of injury and choose to take some form of import-restricting action, it will be necessary to work out the exact details of the scheme. Consequently, I am not submitting a draft proclamation for your signature at this time. It may also be advisable to undertake consultations with other countries in the interim. I would urge, however, that any consultations be expedited. Congressional criticism of the delay in resolving this matter can only be expected to increase. Further, since the receipt of the Tariff Commission's report, imports have increased sharply. In January and February they were 33 percent above those of the same period of 1970.

This trend increases both the pressure on the domestic industry and the level of imports on which any future negotiations or tariff quota might be based. If 1970 is chosen as a base year for a restrictive action, our position that a tariff quota will not require immediate compensation (page 9 of the options paper) becomes weaker as time elapses. If we delay action for a considerable time, we may find ourselves in the position of having to adopt a tariff quota on the basis of imports of the most recent 12 months which promise to be much higher than 1970. Such a base might not be acceptable and the compensation problem would then become a major concern.

Carl J. Gilbert/6/

Washington, April 9, 1971.

SUBJECT
Generalized Tariff Preferences for Developing Countries

The Council of the European Communities approved its generalized tariff preference scheme on March 30 with a target date for implementation of July 1, 1971. The Japanese Diet has approved implementation of its scheme no later than October 1, 1971. Other developed countries are in advanced stages of preparation although some, including Canada, have indicated that they intend to withhold implementation until the United States acts.

If we are to maintain the position of leadership in this international effort that we have held since you announced our intentions in your Latin American policy address of October 31, 1969,/2/ it is essential that we promptly submit our own preference proposal to the Congress. I can expect to come under pressure at the OAS General Assembly beginning in San Jose, Costa Rica, on April 14 about the timing of our action and hope that I will be able to inform the Latin Americans about our plans in specific terms. Certain press comments have already appeared in Latin America and elsewhere expressing disappointment that whereas other countries have already taken steps to implement their preference systems the United States has not acted.

I suggest that we introduce draft tariff preference legislation simultaneously with or shortly after submission of the new foreign assistance legislation, since by so doing we would hope to associate generalized preferences with our policies toward the less developed world rather than with trade issues in general. The message covering the aid bill could refer to the preferences bill and point up its importance as a fundamental part of our new approach to economic development problems.

This approach would require preliminary Congressional consultations, and I would therefore propose to undertake to consult with Representatives Mills and Byrnes and Senators Russell Long and Wallace Bennett so as to lay the groundwork for the legislative proposal.

That, subject to satisfactory Congressional consultations, we introduce draft legislation for generalized tariff preferences simultaneously with or shortly after submission of the new foreign assistance legislation./3/

The drafting of our legislative proposal is well advanced. However, there are at least two problems which we are working to resolve at the agency level and which will have to be decided before our legislation can go forward./4/ These concern:

1. Reverse preferences. Some developing countries give so-called "reverse" tariff preferences to certain developed countries. We have taken the position that these developing countries would not be eligible for our preference system unless they agreed to phase out completely reverse preferences by 1975. This position has met with a great deal of resistance from the developing countries concerned. It has created a problem for the Commonwealth countries in general and, in particular, the Caribbean Commonwealth countries, which are now attempting to negotiate preferential treatment in the enlarged Community for such products as sugar and bananas for which they now enjoy special treatment in the British market. We also have problems with Spain and other Mediterranean countries which are moving toward fuller association with the EC, as well as with some African countries.

In order to give you flexibility in dealing with these difficult political problems, I believe we should modify our condition on reverse preferences to allow the developing countries involved to participate in our preference scheme from the outset, without requiring agreement in advance to phase out such preferences gradually, but with the understanding that we shall not continue to grant preferences after 1975 to those countries which extend reverse preferences beyond that date. This would relieve the immediate political problem of resistance to our proposal on the part of countries now granting reverse preferences and would allow time to work out transitional arrangements with the Commonwealth and African countries which find themselves in a particularly difficult situation. In drafting legislation, you should be given sufficient flexibility to meet unforeseen circumstances in carrying out this provision.

2. Hong Kong. We had earlier decided to exclude Hong Kong as a beneficiary of preferences because the EC and Japan were also apparently leaning toward exclusion of Hong Kong. We also agreed, however, to reconsider our position if other donor countries did decide to grant preferences to Hong Kong. Since both Japan and the European Communities have now decided to offer limited preferential treatment to Hong Kong, I believe we should also extend preferences to Hong Kong but on a limited basis.

William P. Rogers

Pursuant to Secretary of State Rogers' April 9, 1971, memorandum to the President (Document 253), on April 15 Peter Peterson sent CIEP Study Memorandum No. 4 to the Chairman of the CIEP Operations Group requesting a paper by May 5 that would provide the President with the full range of choices on reverse preferences and GSP eligibility for Hong Kong. (National Archives, RG 59, S/S Files: Lot 82 D 126, CIEP Study Memoranda) Nathaniel Samuels informed the principals of various departments and agencies of the tasking in an undated memorandum that indicated a meeting of the Operations Group would be required. (Washington National Records Center, Department of the Treasury, Files of Under Secretary Volcker: FRC 56 79 A 15, CIEP Study Memoranda)

The paper prepared in the Operations Group went to Peterson in May, and Ernest Johnston informed Henry Kissinger of its status in a May 20 memorandum, noting the sentiment to fall back from the liberal scheme approved in principle in 1970. Johnston recommended that he inform Peterson that Kissinger wanted the legislation submitted as soon as possible, accompanied by a strong Presidential endorsement for passage, and that Kissinger "adamantly" opposed any retreat from the established position. He also urged Kissinger to make these points when he met with Peterson on May 21. Kissinger checked his approval of these recommendations. (National Archives, Nixon Presidential Materials, NSC Files, Subject Files, Box 402, Trade, Volume III 12/70-6/71)

Johnston and Arnold Nachmanoff revisited the issue in a May 25 memorandum to Kissinger. They pointed out that Kissinger had not objected to Peterson's (and Samuels') suggestion that the CIEP/SRG take up preferences after Samuels returned from Europe in mid-June (following the OECD Ministerial). They recalled the President's strong public endorsements of a liberal preference scheme, said a late June SRG meeting to review the Operations Group recommendations to the President would delay submission of the legislation beyond the July 1 date when the EC preference scheme came into effect, and expressed their belief that delay only increased the chances that those agencies opposed to preferences would have time to bring pressure to undermine the program. Kissinger on May 27 initialed his approval to their recommendation that he call Peterson to persuade him to submit the Operations Group paper promptly to the President. (Ibid.) No record of Kissinger's actions or a Presidential decision was found.

In a June 28 memorandum to Kissinger with suggestions for topics to discuss during lunch with Peterson the next day, Richard Kennedy and Johnston included the following on preferences: "Peterson wishes to talk with Wilbur Mills before asking for Presidential decisions on the remaining details of our preferences legislation. Peterson is still very nervous about this, and would like to avoid the issue if possible. He gathered the impression from your last conversation that you see no need for rush. Unless you make it clear to Peterson that he should not delay in this exercise, it may well be put off until fall or be seriously crippled by agency attempts to back away from the present Administration proposal. You should urge Peterson to hold his conversation with Mills promptly, to hold together the present Administration scheme and to seek to present legislation to the Congress as soon as possible." (Ibid.)

On July 2 Johnston prepared a memorandum for Kissinger informing him that he (Johnston) had learned from Peterson's staff that during a meeting earlier in the week, the President told Peterson that preference legislation should be delayed because of the poor atmosphere in Congress. Peterson reportedly anticipated that the Williams Commission report that was expected shortly would not be helpful on preferences. (Ibid., White House Agency Files, Box 218, CIEP) No record of Peterson's June 29 meeting with the President was found, but on July 2 Johnston informed Alexander Haig in a memorandum that he had just learned the President had decided to delay submitting the preference legislation as a result of the conversation with Peterson. He suggested that Haig should inform Kissinger, who was traveling, so that he would be able to react before meeting with President Nixon in San Clemente. (Ibid.)

The President traveled to San Clemente on July 6. On July 13, at 7:14 a.m. PDT, he motored by golf cart to the helipad to greet Kissinger who was returning from a fact-finding mission to South Vietnam, Thailand, India, Pakistan, China, and Paris. (Ibid., White House Central Files, President's Daily Diary)

The preference legislation went to Congress in April 1973; see Document 249.

Washington, April 21, 1971.

SUBJECT
Proposed Action at June OECD Ministerial Meeting

I

On June 7 and 8 the Organization for Economic Cooperation and Development will have its tenth annual Ministerial meeting, which I will be the first American to chair.

You will recall that the OECD is the successor to the Organization for European Economic Cooperation set up to administer the Marshall Plan. It is now our principal forum for economic policy coordination among the industrialized countries of the free world.

The meeting comes at a time when differences on economic issues are troubling our relations with our major allies. A strong protectionist tide is running in the Congress. Business, labor, and farm groups are uneasy about the economic impact of enlargement of the European Community, and they fear the competitive strength of Japan. There is real danger that growing economic differences may impair the ability and the will of the major industrial countries to continue to cooperate effectively.

I think that it would be unwise to let matters drift.

The tenth OECD anniversary meeting offers an opportunity for the major countries to begin the process of dealing constructively with the world economy of the 70's.

I have in mind that the Ministers would have the Organization set up a Special Group of high-level government representatives to examine current and prospective international economic problems and to recommend methods and programs for dealing with them./2/

II

The OECD is the appropriate place for this effort. Its membership includes all the countries of Western Europe plus Japan and Canada. Australia will soon be a member. We have for over a decade been working together successfully in this forum on the entire range of international economic problems. Furthermore, the OECD gives us maximum flexibility--on composition, timing, publicity, and follow-through.

The Special Group would consist of representatives from the United States, the European Community, the United Kingdom, Japan and one or two others. Our representative could be a senior government official or a distinguished private citizen. The Special Group would make its report to a Ministerial meeting at the next regular session in the Spring of '72 or at a special session. We would give the initiative as much or as little publicity as we might think desirable. Our commitment would be limited: the Special Group would have a mandate to study and recommend, not to negotiate or decide.

The action would be timely. It would enable the Administration to demonstrate that it is not marking time in the face of profound changes in Europe and Japan, but is actively preparing for further future initiatives important to our economic interests.

III

Our overall objective is to have the Special Group develop an agreed international economic strategy for the '70's, tailored to the emerging economic power relationships among North America, Europe and Japan.

The Group would be expected to identify the major problem areas in the international economy and, after studying various feasible approaches, to recommend procedures and programs to cope with these problems.

For our part, we would have certain specific objectives:

1. Agriculture. To prepare the way for a negotiation on agriculture which would increase the opportunities for efficient farmers in the US, Canada, Argentina, and Australia to export their crops to commercial markets.

2. Tariffs. To find agreement on means to reduce the tariff discrimination against us that will follow from an enlarged European Community with special links to the European neutrals.

3. Non-tariff barriers. To reach a consensus on the non-tariff barriers the removal of which we can mutually and profitably negotiate.

4. Preferential trade arrangements. To check the proliferation of special preferential trade arrangements, like those of the European Community with some of the countries of Africa and the Near East; and to move toward a system in which all the rich countries grant all the poor countries the same benefits.

5. Japan. To bring the Japanese economy into a closer relationship with the other industrial powers, and thereby to reduce the unduly large degree to which Japan's commerce is linked to the United States.

6. Domestic policy coordination. To improve the coordination among the advanced countries of their domestic economic policies, especially with respect to the problem of inflation.

7. Aid. To expand the area of understanding and agreement concerning your initiative for a multilateral emphasis in foreign aid.

Obviously, other countries might have further ideas, as, for example, questions about multinational investments. I see no reason why we should not be ready and willing to entertain any serious suggestions from any quarter. The Special Group would be a forum in which we could have a responsible discussion on any important matter.

IV

The international examination by the Special Group would move in tandem with our internal study of these matters within the CIEP framework. Under Pete Peterson's direction, the CIEP would define our positions and provide guidance to our representative on the Special Group. He would then feed back into the CIEP process the constraints, concerns, and creative inputs of the Europeans and the Japanese.

This is exactly what we did in developing the allied defense strategy for the '70's, where studies in the NSC proceeded along with an examination of the same issues by the NATO.

The end result of the process would be an action program for the consideration of governments--a program consisting of guidelines for trade negotiations, procedures for policy coordination, and rules of international economic conduct. Governments would make the decisions, with complete flexibility on timing as well as substance throughout the process.

V

I propose that we begin consultations with our principal allies now so as to assure that the Ministers come to the June meeting prepared to set up the Special Group./3/ And because of rising Congressional concern over foreign economic relations, I intend to involve the Congress from the beginning.

I will be in Europe next week for SEATO and could begin the process of consultations at that time. Nat Samuels will be in Europe on other business at the same time. We would follow then with consultations with the Canadians, Japanese and others.

On my return from Europe I propose to consult with the Congressional leadership about taking a few key members from each House with me to the OECD.

William P. Rogers

At the end of July 1971 the Commission on International Trade and Investment Policy, chaired by Albert L. Williams, completed its 3-volume report to the President, entitled United States International Economic Policy in an Interdependent World (Washington: Government Printing Office, 1971). Unlike Governor Rockefeller's 1969 report on his mission to Latin America (released to the public in November) and the March 1970 Report of the Task Force on International Development (see Documents 122 and 128), no particular notice was given to the Williams Commission Report when it was completed. According to the President's Daily Diary for the last week of July and the month of August, the President met with neither Williams nor the members of his Commission. (National Archives, Nixon Presidential Materials, White House Central Files, President's Daily Diary)

Economic policymakers were preoccupied with other matters. Foreign exchange markets were in turmoil, and in early August the stage was set for the announcement on August 15 of the President's New Economic Policy, which, on the international economic front, suspended the convertibility of the dollar to gold and imposed a 10 percent surcharge on all dutiable imports, setting in process fundamental international monetary reform. See Foreign Relations, 1969-1976, volume III, Documents 109 ff.

According to an August 2 memorandum from Ernest Johnston to Henry Kissinger, there were reservations about the report itself. Johnston reported that Peter Peterson was considering whether it should be released, and how much publicity to give it. Johnston believed it would be futile to attempt to suppress the report, and he did not object to some publicity upon release, including a possible presentation to the President, provided there was no endorsement of its substance beyond a neutral statement that the administration would study its recommendations. Kissinger wrote "Agree" next to the suggestion in Johnston's memorandum that it would be best to down-play publicity and that the report be released as quietly as possible. No record of any White House publicity in connection with the Williams Commission Report was found.

On the substance of the 400-page report, Johnston indicated that it sought to bridge fundamental differences among the 28 members of the Commission, and thus contained a number of contradictions. The report recommended continuation of a liberal trade policy and greater exchange rate flexibility, but also contained a number of specific trade recommendations at variance with the liberal trade posture that Johnston feared would be seized upon by protectionists, e.g., greater resort to export restraint agreements under some circumstances, as was being done with shoes and textiles.

Johnston also reported that the Commission recommended, if other balance-of-payments measures failed, a temporary, across-the-board surcharge on imports and subsidy to exports as recommended by House Ways and Means Chairman Wilbur Mills. Next to this point Kissinger wrote: "Already done." Johnston added that the report favored tariff preference legislation that was more restrictive than the scheme the administration had under consideration. Johnston's memorandum bears the stamp "HAK has seen," above the handwritten date of August 25. (National Archives, Nixon Presidential Materials, NSC Files, Subject Files, Box 402, Trade, Volume IV 7-12/71)

Washington, August 9, 1971.

MEMORANDUM FOR
The Chairman of the Operations Group

SUBJECT
Generalized Tariff Preferences for Developing Countries

The President has directed that before generalized tariff preference legislation is submitted to Congress, the Operations Group should prepare a study reexamining the present proposal in light of the recommendations of the President's Commission on International Trade and Investment Policy (the Williams Commission)/2/ to determine whether there are modifications which should be made.

The study should focus on the following issues:

1. How the proposal could be modified to ensure that the distribution of benefits resulting from preferential access to the U.S. market reflects the differences among developing countries in their relative competitiveness and need for preferential treatment.

2. How the present safeguard provisions could be strengthened so that the U.S. is in a position to take appropriate action if the responsibility for markets for LDC products is not being equitably shared by the European Community and Japan.

3. What further modifications would ensure that the overall impact of the U.S. scheme, once in operation, will be comparable to the programs of the European Community and Japan, and that the U.S. scheme neither appears nor is in fact more generous than those of the European Community and Japan.

4. How withdrawal or withholding of tariff preferences can be used as leverage in expropriation cases.

5. An estimate of the trade impact of Generalized Tariff Preferences, including a separate breakout for Latin America.

In considering modifications, the study should analyze the advantages and drawbacks entailed by each change in the present scheme. Consideration should also be given to the method of handling each recommended change--whether through inclusion in the legislation itself or by request for additional executive authority to be used if it becomes apparent through trade monitoring that further constraints by product or by country are necessary.

The Operations Group's examination of these issues should be submitted by August 30, 1971./3/

Peter G. Peterson

Washington, November 22, 1971.

SUBJECT

European Community Trade Agreements with Spain and Israel

We need further guidance from you on how to proceed with respect to the Common Market's preferential trade agreements with Spain and Israel. Unless we proceed prudently, we probably will have a major row with the parties to these agreements that will be counterproductive from the point of view of protecting our trade interests and have undesirable political side effects.

In accordance with your decision (NSDM 45),/2/ we have stated our opposition to these agreements both in the GATT and to the parties. We have also made clear that we would accept any arrangements between the EC and Israel and between the EC and Spain consistent with the GATT rules such as one which provides a definite plan and schedule for the formation of a free trade area or customs union within a reasonable length of time.

We have also invoked the procedures of the GATT (Article XXIII:1) on complaints about nullification and impairment of benefits caused by these agreements. Briefly, these procedures provide for consultation by the interested parties on the basis of written proposals. If no satisfactory adjustment is effected, the matter may be referred to the contracting parties who may authorize the aggrieved party to retaliate by withdrawing trade concessions.

Spain and Israel resent this action. The Spanish Foreign Minister, upon learning of our action, sharply protested to our Embassy, calling it an "unfriendly act" and stressing that this procedure had never been invoked in the case of other EC agreements (Greece, Turkey, Morocco, Tunisia, Malta and twenty-one black African countries).

Spain aims at full EC membership as a fundamental long-term policy objective to promote modernization and to bring Spain into Europe. Israel seeks the closest possible integration with the Community as a means of breaking its isolation and as being important to its continued economic growth. In both cases the Common Market could not agree to commit itself at this stage to providing for full customs union or free trade area relations for political reasons--Belgian and Dutch opposition to France, and French policy towards Israel. Spain and Israel therefore feel the United States should not penalize them for the imperfect nature of their agreements with the Common Market, especially since we have in the past stood still or actually encouraged similar agreements for other countries. The strength of their reaction and that of the Common Market, however, will depend on how we press our case further.

The Departments of the Treasury, Commerce, and Agriculture want to use the GATT consultations to attack the agreements in principle, to press Spain, Israel, and the European Community to terminate the agreements, and, failing satisfaction, to demand compensation across the board for all the trade covered by the preferential agreements.

Such actions would be regarded as an overt attack on the fundamental foreign policy objectives of the countries concerned. We would immediately be at loggerheads with the EC, Spain and Israel on an issue of vital importance to them.

A confrontation on this issue would cause serious problems with the EC, Spain and Israel.

--It would worsen our relationship with Europe, already under strain. Rather then be seen as a tough-minded defense of U.S. trade interests, our action would be read as an attack on an important Community interest--its Mediterranean policy--and would coalesce European views against legitimate U.S. trade objectives. The French in particular would see this action as an attack on their vital interests.

--Spain would see the US action as an attack on its fundamental objective of Europeanization and contrary to the spirit of the recently signed Agreement of Friendship and Cooperation. Spain might move against specific US economic interests such as our oil companies and might take actions impairing the usefulness to us of our bases in Spain.

--The proposed course of action would put an additional strain on US-Israeli relations at a time when our intensive Middle East peace efforts make it essential that we seek to retain to the maximum extent possible Israeli confidence in US friendship and support. It does not make sense at a time when we are seeking Israeli policy changes to compound our problems.

If we were to follow the course advocated by the other agencies, the result would be predictable. We would have a nasty series of confrontations in the GATT that could end in a stalemate. Then we would have the worst of both worlds; we would have antagonized friendly countries without effectively having protected our export interests.

On the other hand, these agreements do violate the most-favored-nation principle and affect adversely the trade interests of the United States and other third countries although to a limited extent.

The State Department considers that the American purpose should be to protect our exports while forwarding our foreign policy objectives. We would do this best by seeking specific adjustments to protect American exports. We propose to do this by identifying those products where American exports are substantial, the preference is significant, and the price differential arising from the preference probably would have a significant impact on trade. With respect to such products, the United States would urge Spain, Israel, and the European Community to make adjustments to eliminate or reduce the discrimination against American exports. If the parties to the arrangements were unwilling to modify the preferences with respect to these products, the United States would seek compensation. Failing to obtain satisfactory compensation, we would have to consider whether to request authority from the GATT Contracting Parties to retaliate.

If we applied this formula in a reasonable fashion, making clear that we are protecting our trade interests and not trying to undermine the agreements, Spain, Israel, and the European Community probably would seriously examine our case. The Spaniards have previously told us that they were willing to consult on any specific problems we may have with their agreement with the EC. The Community has demonstrated--in the citrus case--that it is prepared to consider our case with respect to specific problems.

In addition to pressing our specific claims, we will be consulting with the Europeans both bilaterally and in the OECD on how we can move together towards a more sensible system of trade relationships with the developing countries.

I believe that if we follow this pragmatic course we will more effectively protect our trade interests and mitigate the adverse political consequences of our actions. To attack the agreements themselves by across-the-board demands for compensation or demands for wholesale revision will not succeed, will only aggravate the international economic climate, and will have the unfortunate political consequences mentioned.

That we pursue our nullification and impairment action against the EC/Spain and EC/Israel agreements by proposing adjustments or compensation in cases of actual or probable injury to specific American exports.

In the GATT Article XXIII:1 consultations with the European Community, Spain, and Israel we should claim that the agreements impair GATT benefits we paid for. We should then identify those products where American exports are substantial, the preference is significant, and the price differential arising from the preference probably would have a significant impact on trade. With respect to such products, the United States would urge Spain, Israel, and the European Community to make adjustments to eliminate or reduce the discrimination against American exports. If the parties to the arrangements were unwilling to modify the preferences with respect to these products, the United States would seek compensation.

William P. Rogers

Washington, December 10, 1971.

I have been advised by telephone that contents of the Commission's proposed mandate for the EC Council to consider tomorrow is very limited. I have been assured by Renato Ruggiero/2/ this is the best they can do and that we should not be too concerned because the important thing is to get the negotiations started so that they can go back for additional authority. Obviously there is extreme danger in this kind of a situation.

As I understand it, the proposed mandate to negotiate includes the following:

1. The overall negotiation must be balanced and reciprocal.

2. The items they want to discuss with the U.S. are:

a. Our anti-dumping position

b. Our agricultural quotas, particularly dairy

c. Tariff increase on certain bound items

d. Discriminatory prohibitions on products under the Sugar Act.

3. The mandate provides negotiation for stocking grains only for the '71-'72 season and not the next season.

4. Other provisions of the mandate are:

a. No authority to talk agriculture pricing but negotiation would be considered on limiting restitution payments and subsidy payments on wheat.

b. No authority to grant MFN on citrus, but to extend present provisions for the next season subject to U.S. discussing chicken and lard subsidies.

c. They see no issue on tobacco as it is not a problem at the present time (the proposed taxes are not imminent).

d. Preferences--no authority, but will comply with GATT.

e. Negotiation on solving distortions on present preferences--no authority.

f. Notification on enlargement--will discuss with Council and advise specifically when notification will be made.

g. '72 negotiations in GATT--authority to proceed.

h. Multi-lateral discussions in '73--authority to approve with some language changes.

France has agreed to the limited mandate, reluctantly. Some of these issues may be taken to the Pompidou meeting./3/

W. D. Eberle/4/

Washington, December 10, 1971.

SUBJECT
Progress Report--Trade Negotiations in Conjunction with Monetary Talks

I believe the US Government apparatus is operating well on this./2/ Treasury, State, Commerce, etc. are all up to date and seem in agreement on both the negotiating positions and the specific people to be involved. Both directly and through Paul Volcker, we have tried to be sure John Connally was fully consulted and informed.

Japan/3/

US-Japan trade negotiations are continuing with sessions to be held Saturday and Sunday in Honolulu, December 11-12. Both sides know the issues and have indicated a willingness to attempt to agree to a format for resolution at these meetings. The list of issues is long and resolution of all issues is unlikely but substantial progress is expected. It has been difficult getting the Japanese to start negotiating seriously but we are impressed with the quality and size of their Hawaiian delegation.

The Trudeau visit did two things for our trade negotiations with Canada:/4/ (1) reassured the Canadians on our objectives; and (2) conveyed our determination to get results. While clear progress has been made on most of our requirements, the critical agreement from Canada for complete removal of the important tariff on automobiles is lacking. Another negotiating session is anticipated early next week. I assume Trudeau's euphoric press conference was for the home audience and to set the stage better for tough trade negotiations and, we hope, concessions.

US-EC trade issues have been fully presented and the EC Commission has submitted to member nations a request for a formal "mandate" to negotiate. Favorable decision expected at Saturday, December 11 Ministerial Meeting, although French could hold up decision./5/ Hopefully, EC negotiations will begin early next week with Bill Eberle in charge. Agriculture issues are high priority, along with tangible evidence of willingness to negotiate certain other trade issues in 1972. These negotiations will be difficult on grain pricing, and on how to protect us against trade discrimination as a result of EFTA neutrals' association with EC. Also, latest input is that the Europeans have their own list of US discriminations they plan to talk about (sugar quota problems, dairy quotas, etc.). (See Tab A--Bill Eberle's memo)/6/ In short, it is very early to predict likely progress and there are some tough issues.

I've been taking some soundings on the Hill with Ways and Means Committee, Senate Finance Committee, and other international economic groups in an informal series of sessions.

Protectionist pressures--stimulated by the heavily restrictionist labor bill (Hartke-Burke Bill)--are strong and Labor is obviously hoping to trade off political support in 1972 for their support of this Bill. At the same time, there is enormous interest in the current monetary and trade negotiations--and an equally enormous lack of understanding, particularly of exchange rates, devaluation, etc. There is a vacuum here that we must all try to fill.

I've been experimenting with communicating the significance of the monetary negotiations in simple terms legislators are likely to understand, i.e., more US jobs. Here's how it translates: it is estimated that a 10%-11% exchange rate realignment and the trade concessions we hope to get might over a few years result in an $8-$10 billion favorable trade swing. Various experts estimate 60,000-80,000 jobs per billion dollars of trade, so we could expect a ballpark 500,000 to 750,000 more jobs to result from your actions. Moreover, I'm stressing you seek to solve the imbalance problem by negotiation--not by permanent restrictive measures (like the Hartke Bill) that would reduce trade, encourage retaliation, and could easily reduce US jobs and competitiveness. I've talked to John Connally about translating a lot of this whole negotiation into jobs and he seems favorably inclined. As soon as I confirm the estimates, I think he would be an obvious public spokesman on this point.

Also, we think we should give your whole new foreign economic legislative package a "More Jobs" orientation. Aside from our export promotion efforts (incentives, East-West trade, etc.), we think we can try to make clear the economic-political equation that with fair exchange rates and your new programs to make US more competitive, less barriers equals more trade and more trade equals more jobs, and better paying jobs.

Shortly, we will make a schedule request for a brief meeting of the Council on International Economic Policy to review your legislative-political strategy./7/ My current view is that when and if we get a good monetary settlement, and very importantly, when and if we get a good trade package, you and John Connally will have performed a miracle in converting the Administration's position from a position of very low credibility and even low awareness of the international economic facts of life to a position of a realistic no-nonsense thrust.

In that environment, hopefully by the time of your State of the Union Message, we could be in a position where you could not only point out fundamental negotiating accomplishments, but go on the offensive with your own bold, positive program--a program of trade, investment and US competitiveness (e.g. technology) measures.

With negotiating progress and some luck on the domestic economy and particularly the unemployment front--you might be able to go on the offensive and put Labor on the defensive--for supporting the self-serving, inward-looking, defeatist, and non-competitive program that the Hartke Bill is. Perhaps I'm having a fantasy in a Presidential election year, but with some things breaking for us and US voter attitudes turning anti-big union, we might turn the foreign economic issue into another major Nixon initiative and act of forward-looking statesmanship.

Brussels, December 12, 1971, 1600Z.

4126. Pass EUR-Hillenbrand for the Secretary. Pass Treasury for Secy Connally. White House pass Eberle.

Subject: EC-US Trade Negotiations. Ref: EC Brussels 4124./2/

1. Summary: Malfatti, President of the EC Commission, called Ambassador in on Sunday noon to give him report on yesterday's Council meeting. Also present were Ruggiero (Malfatti's Chef de Cabinet), Hijzen (Acting DG for Foreign Trade), and DCM. Malfatti stressed the political will to arrive at a trade package demonstrated by the Community in its declaration of intent (septel)./3/ The PermReps are scheduled to meet on Wednesday, December 15. Negotiations can start no earlier than December 16 and more probably the week of December 20. He advised that Eberle not come until the Commission sets a date. End Summary.

2. Malfatti described the declaration of intent (septel) and stressed the importance of paragraphs eight through twelve which underscore the political will of the Community to enter into negotiations with United States. He also emphasized the significance of the provision in the declaration of intent calling for a report before the end of January by the Commission to the Council on the negotiations. He stressed several times the importance of understanding Community procedures and the fact that the sort of timetable envisaged in the context of the Community denoted great speed and a determination to succeed. In this connection he said that he must frankly inform us that the great American pressure which has been brought to bear upon the Commission and upon the individual member states has been counterproductive. Hijzen added that there had been a unanimous desire not to lose time but an equally unanimous agreement that nobody was ready to negotiate within the time frame proposed by Eberle./4/

3. The PermReps have been charged to prepare a formal mandate and they will meet on Wednesday./5/ The Ambassador asked whether an earlier meeting date might not be possible in order to permit an early start of negotiations. Malfatti, seconded by this two associates, flatly stated that there would be no purpose served in attempting to move up the date of the PermReps meeting. The Commission paper has not yet had time to be digested by member countries and it will take at least Monday and Tuesday for member countries to review their positions and send instructions to their Ambassadors in Brussels. He frankly could not see what purpose a meeting of uninstructed PermReps would serve. The Ambassador nevertheless asked him to convey to Bombassei (Italian PermRep, current Chairman) the US desire to have as early a meeting as possible. Malfatti replied that Bombassei and the PermReps are fully informed of the US wishes in this respect but that he would convey the Ambassador's request.

4. The Ambassador inquired whether Malfatti had any idea how Schumann was likely to present the outcome of the Council at the Azores meeting./6/ Malfatti replied that Schumann would undoubtedly, as a member of the Council, report to President Nixon on the meeting but that he would not speak in the name of the Community. He repeated that Schumann had no mandate to present any Community view on this subject.

5. The Ambassador inquired on the likely contents of the mandate. Specifically he wondered whether there was any possibility that the mandate could go beyond the Commission report. Malfatti and his colleagues all agreed that the mandate could not possibly go beyond the proposals of the Commission. The Ambassador returned to the subject of the timetable and wondered when Eberle should be coming to Brussels. Malfatti replied that, in any case, a decision on this question must await the outcome of the PermReps meeting and that he would consider it inadvisable for Eberle to come before the Commission sets a date for the negotiations.

Schaetzel

During the Rome G-10 Ministerial November 30-December 1, 1971, the Finance Ministers agreed to an immediate launching of trade negotiations to complement the resolution of the international monetary crisis, which was emerging from the Rome discussions. Trade officials did not concur as readily. For late 1971 trade-related documentation in the context of the monetary negotiations, see Foreign Relations, 1969-1976, volume III.

U.S. and EC trade negotiators did meet in Brussels December 21-22 for an exchange of views on the outstanding issues. William Eberle was head of the U.S. delegation; Theodorus Hijzen headed the EC delegation. Eberle reported on the negotiations in telegram 4268 from Brussels, December 22. He set out the U.S. and EC positions on grain storage, citrus, tobacco, and grain trade. Regarding grain trade, the United States wanted the benefits of exchange rate realignments that the CAP variable levies denied. The EC maintained that the variable levies were the cornerstone of the CAP, but that it would negotiate elements of the CAP on a global basis provided the agricultural policies of its negotiating partners were also on the table. In the short term, within the limits of CAP rules, the EC would seek to price its grain exports above the price of U.S. exports to third country markets so as not to create trade diversion.

Paragraphs 7-9 of the telegram reported on the discussions of preferential agreements:

"7. Preferential agreements: US position--The US and the EC should agree to a mutual standstill on preferential arrangements during a specific time period in which longer term solutions could be negotiated. Membership agreements and generalized preferences would be exempt from the standstill. A special exception would be made for the EFTA neutrals whereby negotiation of the free trade agreements could continue by the EC and EFTA neutrals would agree to protect the US and other third countries from any trade distortions that would result from these arrangements. The EC would consult with us during these negotiations in order to protect the interest of third countries. These consultations would parallel but not impede or slow down the negotiations with the neutrals. This should help to resolve possible trade distortion problems. Any problems of trade distortion that remain upon completion of the EC negotiations with the neutrals would be taken up in subsequent negotiations. EC position--A standstill is out of the question. It would affect basic policies of the EC which are in the process of being carried out, e.g., Mediterranean policy and the construction of Europe. The EC cannot agree to go beyond the procedures of GATT which are adequate to safeguard the interests of third countries. The EC is engaged in negotiations with Cyprus, Egypt and Lebanon and has commitments to the UK Commonwealth countries in Africa and the Caribbean. The EC would hardly admit consultations about 'trade distortions,' but the question of consultations can be discussed further. EC refuses to undertake any commitments regarding trade 'distortion.'

"8. Second phase: 1972 commitment--US position--We reiterated our interest in negotiating promptly in 1972 on specific trade problems resulting from EC enlargement and in having US and EC agreement to support GATT negotiations to resolve all trade problems capable of resolution in 1972 including but not limited to the list of problems identified in GATT. EC position--The EC stated that in accordance with its declaration of December 12 it would notify the accession treaty to the GATT immediately upon signature. It was not in a position to agree to negotiations before ratification by the European parliaments concerned. (Commission officials indicated that preparatory work could begin earlier provided this was done informally and was not construed as 'negotiations.') The EC was prepared to negotiate in 1972 on matters now under consideration in GATT committees. The EC declaration of December 12 expresses willingness to negotiate.

"9. Third phase: 1973 trade negotiations--US position--The US and EC should agree to proceed in good faith during 1972 to begin to prepare for a full-scale review of the entire trading system, including measures which obstruct and distort agricultural, raw material and industrial trade. Such review would aim for negotiations beginning in early 1973 (subject to any necessary internal authorization). EC position--The EC stressed that on the basis of its declaration of December 12 it was prepared to enter into such a review aimed at preparing for negotiations."

Paragraphs 10-12 covered the discussion of reciprocity, an agreed press statement, and guidance regarding the telegram's use and follow-up reporting. (National Archives, Nixon Presidential Materials, NSC Files, Subject Files, Box 402, Trade, Volume IV 7-12/71, attached to a December 28 memorandum from Hormats to Kissinger)

The U.S.-EC trade discussions/negotiations continued in 1972, and on February 11 the two sides signed in Brussels a declaration averring their intention to undertake and actively support multilateral and comprehensive trade negotiations within the GATT framework beginning in 1973. See Department of State Bulletin, April 3, 1972, pages 515-517, for the declaration and the February 11 exchange of letters between Hijzen and Eberle regarding short-term agricultural trade commitments and other matters.

Washington, December 28, 1971.

MEMORANDUM FOR
The Secretary of State
The Secretary of Treasury
The Secretary of Defense
The Secretary of Agriculture
The Secretary of Commerce
The Secretary of Labor
Ambassador-at-Large David M. Kennedy
The Director, Office of Management & Budget
The Chairman, Council of Economic Advisers
The Special Representative of Trade Negotiation
The Assistant to the President for Domestic Affairs
The Assistant to the President for National Security Affairs

SUBJECT
Council on International Economic Policy Meeting Monday, January 3, 1972, 10:00 A.M.

The President has directed that a meeting of the Council on International Economic Policy be held on Monday, January 3, in the Cabinet Room.

At this meeting, we shall review trade and investment legislative strategy for 1972; the overall legislative climate; the priorities of other domestic legislation as well as the possible relationship of this other domestic legislation to trade and investment legislation; progress on our work programs that might lead to legislation; and the various substantive and timing options we may have before us.

A review group session of the Council on International Economic Policy was held on this subject earlier this month./2/

Prior to the meeting, an agenda discussing some of the issues and options will be sent to you.

The meeting will be convened at 10:00 A.M. and is expected to end at 11:00 A.M.

The President has directed that, in his absence,/3/ Secretary Rogers should chair the meeting.

P.P.

Washington, undated.

BACKGROUND PAPER--1972 LEGISLATIVE STRATEGY ON
INTERNATIONAL ECONOMIC ISSUES
COUNCIL ON INTERNATIONAL ECONOMIC POLICY
MONDAY, JANUARY 3, 1972

We have several options available as regards a trade and investment legislative program in 1972. Broadly, these are:

1) Defensive. No new Administration bill in 1972. Concentrate on heading off protectionist bills or amendments and continue international negotiations to decide the kind of bill to submit in 1973.

2) Partial. Submit bills on certain high priority issues (e.g., generalized preferences, adjustment assistance, and amendments to existing legislation in order to stop-gap pressure for more radical, protectionist measures in an election year (such as antidumping; tax policy on foreign income of multilateral corporations; amendments to Section 806.30/807.00 on border manufacturing, etc.). Under this option, we would request no new trade liberalizing negotiating authorities at this time.

3) Comprehensive. In addition to those in (2) above, submit a comprehensive bill which could include an export expansion program; a much broader adjustment assistance effort; "See America" tourism; generalized preferences; East-West trade; a comprehensive program to deal with issues involved in international investment and the multinational corporation; and new liberalizing negotiating authority on tariff and non-tariff barriers and agricultural trade in order to give ourselves international credibility and authority to try to open up the trading and investment world. It could be packaged with some of our other domestic initiatives to make America more competitive (e.g., technology incentives) and constructed around the themes of job creation and international prosperity in the '70's.

Under this last option, we can envisage two strategies: the first is to make it an essential part of the President's total program for 1972 and send it forward when it is ready, regardless of whether or not there is any likelihood of a vote in the 1972 session. Some argue that the fact that the bill was out in the open would give both the Administration and liberal trade supporters something concrete to use in Congressional and public education and could help in preparing for a vote in 1973. Others argue that an Administration bill would just serve to galvanize the opposition to redouble its efforts to push its own bill . . . particularly in an Election Year with Presidential aspirants striving to get Labor's support, and Labor, in turn, tying its support to reciprocal support for their protectionist Burke-Hartke Bill.

The second would be to prepare a comprehensive bill now, have the President outline his general intentions about its content in the State of the Union (and perhaps later statements). However, the decision to send it up would be made later as a function of progress on our other high priority domestic legislation, progress on our international trade negotiations, and, most important, only if it looked like hearings were about to begin on protectionist bills like the Burke-Hartke Labor Bill. In this event, we would consult with key Congressmen (including Wilbur Mills, who, it is assumed, prefers liberal trade policies rather than protectionism) to see if they would cooperate in introducing our bill (or something like it) as an alternative on which hearings would occur, and 2) the timing left to developments during the year, with the distant possibility that we not seek to have any bill reported out for a vote in 1972.

Both strategies have similar desirable public education aspects. However, the second makes introduction dependent mainly on the tactical situation on the Hill as it evolves during the year and puts a greater emphasis on close consultation with key legislators, recognizing the risks in an election year. It also retains a certain degree of flexibility vis-ˆ-vis our foreign partners, in that it permits us to factor into our bill more specific ideas about what kinds of negotiation may be acceptable to them as we move forward with international consultations.

The above options have been formulated after discussion within the government (e.g., an informal session of the CIEP Review Group on December 10) and with outsiders. (On December 20, a meeting attended by White House Congressional liaison people and representatives from various Departments was held with a group of knowledgeable people outside government, virtually all of them sympathetic to liberal trade legislation.)

The attached memorandum summarizes the session with outsiders (Tab A)/2/ most of whom were supporters of liberal trade policies. The main issue, as they saw it, was whether to submit a bold new bill in 1972 or wait until early 1973. The majority (roughly 7 out of 12) favored a delay on the grounds that an election year risked politicizing the debate excessively and that we should have a better idea about what kind of negotiation our foreign partners would accept before asking for an authority which, in the end, may not fit negotiating realities. The minority favored an Administration bill this year on the grounds that a trade debate was inevitable in 1972, and it was both better substantively that it take place on Administration terrain (rather than on the Burke-Hartke Labor Bill) and tactically necessary for Congressional and public supporters of liberal trade to have something concrete around which to rally.

Our tentative soundings on the Hill produced mixed advice, some for and some against an Administration initiative in 1972. Many of those we consulted emphasized their strong belief that there is an enormous potential for disaster to liberal trade policies from Administration trade initiatives in 1972, unless these initiatives are carefully orchestrated and timed.

Some believe that, with both Ways and Means and the Senate Finance committees subject to such strong protectionist pressure, "housekeeping" type bills (such as the 1969 bill) run a strong risk of protectionist amendments. Mills has told me earlier that it might be very difficult to insulate isolated proposals (e.g., generalized preferences) from a Christmas Tree approach. Others feel that certain specific bills (absent a comprehensive bill), designed mainly to win back labor support (e.g., new adjustment assistance, guidelines on US investment abroad and foreign taxation) might have a chance. These specific terms could include:

a. Generalized Preferences. If we submit only generalized preferences and/or do it at the wrong time, we could end up opening a political Pandora's box without a positive alternative of our own to the Burke-Hartke bill. Thus, the issue here is both one of timing and substance. When should we submit a request for generalized preferences?/3/ Should it be an independent bill, part of the gold-price request/4/ or part of a more comprehensive trade/investment package (or at least included with other "housekeeping" proposals)? Finally, what kind of preference legislation should we request? (We have two proposals in the mill: a modified version of the original idea and a preference arrangement with a tariff quota safeguard like that of the EC. Both need more staff work before a bill could be drafted and sent forward. We are having a CIEP Review Group session on January 7 on this particular subject./5/

b. Adjustment Assistance. Virtually everyone on the Hill and outside thinks we need to overhaul the present system. The rationale for an Adjustment Assistance priority is that it attempts to deal with the undesirable effects of import competition without introducing new trade restrictions--it is trade liberalizing, not trade restrictions. The options are:

(a) Submit an independent bill modeled on our CIEP study (or combine it with generalized preferences). This risks the Christmas Tree problem noted above.

(b) Work with key Congressmen to attach the more limited Mills Bill adjustment assistance reform to some other legislation, indicating our support but not proposing it outright. This may reduce the protectionist amendments risk, but precludes us from pushing a better bill. and reduces the political credit we might get from our own proposal.

(c) Include our version in a new comprehensive Administration package.

Timing. The enormous staff work involved in drafting a comprehensive bill means that we could not, in any case, be ready to submit our own legislation before early spring at best. To head off the protectionists in the interim, and to begin constructive public education, we could propose a statement in the State of the Union message in which the President could develop a theme along the following lines:

He could recount the recent international economic accomplishments, showing why we are now in a new ball game. Then, capitalizing on the momentum of the monetary settlement (and, perhaps by then, progress toward a settlement of short-term trade issues), the President could present the broad outlines of a comprehensive and outward-

looking foreign economic legislative program that would be submitted in the future. Also included would be domestic initiatives to stimulate productivity and competitiveness (technology programs, etc.) and, of course, more and better-paying jobs. In short, a New America in a New World.

The issue here is: should the reference to submission of a new trade legislation be specific (e.g., "later this year") or vague ("in the future")? The former, while not absolute, is at least an indication of intent to do something this year; the latter preserves the option of waiting until 1973 (or at least until after the November election).

Content. Regardless of when we decide to send new legislation forward, virtually everyone we have consulted believes that, to preserve all our options--including that of submitting new legislation next spring--it is essential that we have a bill ready soon. To do this, a very high priority on staff time within the concerned agencies will have to be assigned to the definition of issues involved in new proposals for decision and to the drafting of legislative proposals. Unless the Council believes it would be better to recommend to the President no legislative requests of any kind in 1972, it should, it seems to me, agree to communicate this sense of priority to staff personnel involved in his work.

Burke-Hartke Bill. Given the significant pressure on Congress to pass something like this bill, we would be well advised to study it carefully to see whether it contains some elements which we could incorporate in an alternative administration package. Tab B contains specific provisions and rationale as written by the Industrial Union Department of the AFL-CIO./6/ The principal features are:

1) New rules regarding the taxation of foreign income of US firms and the income from technology transfers to "remove special advantages." (In essence some of these are double taxation proposals.)

2) New controls on the outflow of foreign investment capital and technology transfers.

3) The imposition of mandatory quantitative restrictions on all imports at 1965-1969 average levels with certain specified exceptions.

4) Amendments to the Anti-dumping and Countervailing Duty Acts, setting time limits for making determinations and making these subject to the Administrative Procedures Act.

5) Organizational changes (mainly the creation of a tripartite "U.S. Foreign Trade and Investment Commission," made up of representatives from the public, industry and labor groups, abolishing the Tariff Commission and transferring from the President to the new Commission authority over most aspects of US trade policy.

6) Provisions to require that all products containing imported components be clearly labeled as the components and country of origin.

7) Repeals sections 806.30 and 807.00 of the Trade Expansion Act (which reduces the duty on imports if some of the components were made in the United States).

Though most of these would presumably, from the Administration's point of view, be undesirable, elements of some of them need further study. We should decide which of them will require specific counter proposals from the Administration and which we can (perhaps with minor adjustment) accept or build upon.

Relationship of Trade-Investment Legislation to Other Legislation. Assuming settlement of short-term trade negotiations in the reasonably near future, we are committed to submission of a bill to change the dollar price of gold. Though this bill need not include any trade issues as such, we should consider whether it should be coupled with any (e.g., generalized preferences). Some argue strongly that we are better able to fend off any trade amendments to this gold price legislation if we ourselves have a "clean bill," i.e., have not proposed any trade matters and indicate that we will propose such legislation later. Regardless of whether we decide to include such issues, it is virtually inevitable that some in Congress will try to add trade matters to it. We need to devise a strategy for dealing with this contingency, and to consider the relationship between this strategy and the timing and content aspects of a comprehensive Administration trade/investment initiative.

Another relationship we need to consider is that between the "external" package (trade, investment, et al.) and our new domestic initiatives (technology incentives, possible new tax proposals, etc.). It would, of course, be best if both programs could be presented as parts of a coherent whole, even if specific legislative proposals to implement them were sent up at different times. Finally, we need to set a system of priorities among any new initiatives and parts of the President's program still pending in Congress (e.g., revenue sharing, health, welfare reform, pension legislation, environment, etc.) which require Ways and Means Committee consideration. This Committee obviously has a very full plate of other domestic legislation.

Washington, January 5, 1972.

SUBJECT
Generalized Tariff Preferences for Developing Countries

The attached paper is in response to CIEP SM No. 8 of August 9, 1971./2/ It requests decisions on the two issues outlined below. We will also need decisions on the issues covered by the Operations Group's paper of May 17, 1971,/3/ before we can finish preparation of our legislative submission.

Particular consideration is given in the study to the conditions specified by the Williams Commission when it recommended that the President "request from Congress legislative authority to initiate a system of generalized preferences along the lines of the current U.S. proposal." The two conditions in brief are:

(1) developing countries which demonstrate competitiveness in particular products should not receive preferences on those products, and

(2) the responsibility for providing improved markets for LDCs should be shared equitably--both with respect to individual products and in overall terms--among the developed countries, especially the European Community and Japan.

In the course of considering how best to take account of the Williams Commission recommendations, two different approaches evolved. Guidance is needed on which of these will best serve our interests.

Option 1: Preserve the open system of generalized preferences without quotas as previously decided, but with the inclusion of legislative provisions to clarify the President's discretionary authority to take account of burden sharing, competitive need, and possible market disruption (supported by State, OMB, CEA, DOD, and AID; STR supports preserving the open system and would prefer to submit to Congress the proposal already announced internationally without the specific discretionary authority); or

Option 2: Adopt a tariff quota system which would permit limitations to be placed on the volume of preferential imports of individual commodities in any year at levels predetermined under provisions in the authorizing legislation (supported by Commerce, Treasury, Interior, Agriculture, and Labor).

In considering the possibility of using generalized preferences as leverage in expropriation cases as requested by CIEP SM No. 8, all agencies agreed that the general authority now in the bill to withdraw or suspend preferences would be sufficient for our purposes. However, Treasury and Commerce believe the bill would be improved if the authority were made explicit. Thus there are two options:

Option 1: Retain broad authority for the President to suspend or limit preferences for countries which expropriate American investments without compensation, but omit specific reference to this in the bill (supported by State, STR, OMB, CEA, DOD, AID, Interior, Agriculture, and Labor); or

Option 2: Make explicit the President's authority to suspend or limit preferences in expropriation cases (supported by Treasury and Commerce).

Nathaniel Samuels

Washington, January 11, 1972.

SUBJECT
EC Trade Agreements with Spain

I am concerned that the position the US recently took in the GATT Council with respect to the Spanish-EC preferential trade agreement may result in serious restriction on the freedom of US military operations in Spain if not moderated.

The Spanish consider the arrangements they have made with the Economic Community a step in the direction of economic integration with the rest of Europe. Article 24 of the 1970 US-Spanish Agreement makes specific reference to the Spanish aspiration for such integration and the US promises both "sympathetic understanding" and "close contact" in seeking mutually satisfactory solutions for any problems that may arise. I feel it is important that we give serious consideration to this portion of the Agreement, especially in view of Spanish sensitivity involved.

At the most recent meeting of the US-Spanish Joint Committee on Defense Matters, Foreign Minister Lopez Bravo called the US intention to request consultation under Article 23 of the GATT an unfriendly action. He has made no secret of his view that the degree of Spanish cooperation in implementing the 1970 agreement, which gives us our military rights, will directly reflect US cooperation with Spain.

Under the 1970 Agreement, Spain can apply a variety of counter pressures that would in effect tie us down to an essentially static position in Spain. For example, the Spanish could delay or deny approvals for any change in US force levels or in use of facilities in Spain.

In view of the potential for significant damage to US military interests in Spain, I feel we must exercise great care to avoid unduly provoking the Government of Spain in the course of our efforts to advance important US economic and trade interests under the GATT. Towards this end, I strongly support the approach recommended by the Secretary of State in his 22 November memorandum,/2/ which would limit our actions to those specific cases where we can demonstrate actual damage to our trade, and seek appropriate compensations if the parties declined to make suitable adjustments. Such a course would adequately protect our economic interests without subjecting our base rights to the risk of political reprisals that would result from a more sweeping, generalized move against the Spain-EC Agreement.

Melvin R. Laird

Washington, January 12, 1972.

SUBJECT
Status and Background on Footwear Issue

1. The key points in the chronology are the following:

June, 1970. Following receipt of a Task Force report organized and chaired by STR at White House direction (Tab A),/2/ the President requested an escape clause investigation for the first time. He also announced a domestic program to aid this industry from which literally nothing ever came.

January, 1971. Tariff Commission report received./3/ Two Commissioners found a threat of injury existed for certain types of footwear, while two found that the statutory causation factors did not exist.

April, 1971. In accord with TEA procedures, the Special Representative submitted his recommendations to the President (Tab B)./4/ They were at least implicitly premised on the assumption that there would be a White House political decision that it was necessary to do something. If so, STR favored the tariff quota device as standing the best chances of minimizing international consequences, including compensation, and of permitting liberal treatment. Tab B, in effect, asked for a decision in principle, with the detailed, time-consuming work elaborating such a scheme and balancing all interests to follow.

May, 1971. The President designated David Kennedy as his personal envoy to seek mutually satisfactory solutions for both textiles and shoes. Kennedy went to both Spain and Italy, but did not go to Brazil, the third country indicated in the initial announcement.

June, 1971. Don Webster/5/ and I followed up with more detailed discussion in Spain and Italy. Italy agreed to set up a visa system. Spain promised to be forthcoming soon.

August, 1971. The Spanish answer was negative.

October, 1971. I convened the ad hoc interagency group on footwear to review agency positions and re-appraise the situation in light of developments since the Spring. I then prepared a report, Tab C, which while it was not forwarded to CIEP is worth reading for its other contents. We generally agreed that during the surcharge no restrictive alternative should be pursued./6/

November, 1971. David Kennedy returned to Spain and generously sweetened the suggested terms of a voluntary restraint. He was subsequently told that Spain did not consider what the Italians were doing to constitute restraint and that they could not consider any agreement unless it includes other suppliers. Spain has never specified who else must be included. During my discussions there in June, only Brazil was mentioned. In November, they referred to virtually all other low-cost suppliers.

December, 1971. Commerce became restive. Nehmer/7/ was after me to re-convene the interagency group, and, it seemed apparent, was also stirring up the footwear industry. I held several meetings, largely to assert continued control over the issue and also to give Commerce and its Labor satellite a day in court. Kennedy's office and Treasury agreed with me that nothing should be pushed until the monetary negotiations were settled. Nehmer wanted to push ahead, develop the details of a tariff quota based on 1970 trade or, alternatively, develop the plans and strategy for a textile-type operation under the thin guise of a section 204 case./8/

I have heard nothing from Commerce in recent weeks and, in the absence of an opportunity to discuss it with you, have felt that my answer to any further pressure would necessarily be that until the bilateral trade negotiations were completed, it would remain inadvisable to begin active work (with the inevitable risk of leaks and rumors) on restrictive alternatives.

2. The Present Status.

A. I do not believe an adequate voluntary agreement is negotiable, certainly not without a great expenditure of further time and negotiating chips. Italy would have the looming problem of EC acceptance, there being a clear Council policy against both unilateral trade agreements by individual members as well as one against export quotas. Spain's terms would be exorbitant and any deal would take a long time to pin down. Although none of us have been to Brazil, our judgment is that it would be as difficult and as painful as Spain--and its present trade is a drop in the bucket. Imports from Japan and Taiwan are really not competitive with American production, and voluntary restraints coming on top of textiles seem to most of us out of the question.

B. If we have to take restrictive action, largely for political reasons, our only reasonable prospect continues to be some form of tariff quota. Since virtually everyone but Italy capitalized on our year of consulting, the base is now much higher. I stated at the last interagency meeting the personal view that our only realistic choice now was a 1971 base with a growth factor to be determined annually in the light of events. Most agencies seemed to agree. Commerce, or Nehmer, holds out for a rollback and restrictive other terms which undoubtedly involve real foreign problems. State believes the industry is not injured by imports and no action is required.

C. The real pending issue, which is the one on which I adjourned the last meeting, is whether in the context of the Administration's overall plans and problems for 1972, and especially in the context of meeting the Burke-Hartke menace, there is a political need to do something. Kennedy's man on my informal committee undertook to start this inquiry. His interim report from conversations with Harry Dent, Timmons, Colson, et al., is that there seem to be some areas where footwear could be an issue in 1972. He agrees, however, that we need more than generalities, and has gone back for more. Taking across-the-board action because of a few districts or States would be on the overkill side.

D. I still believe a non-restrictive, constructive solution could be developed. Politically, it may be risky. But from a trade policy and economic policy point of view, this is the only sensible thing to do. We should (1) somehow threaten the Commerce Department into putting life into the President's footwear program we so carefully worked out 18 months ago, (2) make the full case and stress the beneficial effects of currency adjustment (greater in significant instances than both present footwear tariff rates and the increases we could statutorily add on), (3) a serious effort to make adjustment assistance work, and (4) really coming to grips with the potentials that seem possible in the USM, high-technology approach (now being downgraded by Commerce from the requested meeting between USM's chairman and Stans to one with Nehmer!). Politically, we could also dig up things to do on a pin-point basis in those districts and States where the White House political experts foresee, but have yet to specify, trouble in 1972.

E. The final point that should trouble us is the possible consequences of continued delay and procrastination. Next Saturday the footwear decision will have been before the President for one full year. The decision last Spring was to try for an amicable solution. We cannot seem to obtain one.

Legally speaking, our lawyers are somewhat concerned that if the President does not act within one year of receiving a Tariff Commission report, his case for acting becomes progressively weaker--largely under the general principle of timeliness and due diligence. Politically, we are vulnerable for initiating an escape clause, then never deciding what to do about it while, as the attached statistics indicate, the situation has continued to deteriorate, at least on the surface.

However, politically we have always faced an undefined problem: most of us who have lived long with the problem are dubious that there is any substantial political force dedicated to footwear. Yet, in conjunction with other protectionist pressures, it is a further element and one we could take care of in non-restrictive ways.

The attachments have been hastily assembled and, unfortunately, time has not permitted any summary of their contents.

Ted

Washington, February 9, 1972.

JOINT STATEMENT ON INTERNATIONAL
ECONOMIC RELATIONS

Japan and the United States today made the following Declaration and agreed to communicate the declaration to the Director General of the GATT for transmittal to the contracting parties. Other contracting parties are invited to associate themselves with this declaration to the extent and at the time which they would deem appropriate./2/

Japan and the United States recognize the need for proceeding with a comprehensive review of international economic relations with a view to negotiating improvements in it in the light of structural changes which have taken place in recent years. The review shall cover inter alia all elements of trade, including measures which impede or distort agricultural, raw material and industrial trade. Special attention shall be given to the problems of developing countries.

Japan and the United States will seek to utilize every opportunity in the GATT for the settlement of trade problems, the removal of which would lessen current trade distortions, and will strive for further progress with respect to those matters now being discussed in the GATT Committee on Trade in Industrial Products and the GATT Agricultural Committee. Japan and the United States agree that progress in GATT in solving some problems in 1972 could facilitate the way in the GATT for a new major initiative for dealing with longer term trade problems. To this end, they also agree in 1972 to analyze and evaluate in the GATT alternative techniques and modalities for multilateral negotiation of long term problems affecting all elements of world trade.

Japan and the United States undertake to initiate and actively support multilateral and comprehensive negotiations in the framework of GATT beginning in 1973 (subject to such internal authorization as may be required) with a view to the expansion and liberalization of world trade, improvement in the international framework for the conduct of commercial relations, and improvements in the standard of living of the people of the world. These multilateral negotiations shall be conducted on the basis of mutual advantage and mutual commitment with overall reciprocity, and shall cover agricultural as well as industrial trade. The negotiations should involve active participation of as many countries as possible.

Washington, February 9, 1972.

Dear Mr. Ambassador:

This letter records the substance of the recent discussions between the Government of the United States and the Government of Japan with respect to those measures in the field of trade which Japan proposed be taken by the United States./2/

In response to the Japanese request that the Final List be eliminated, the United States stated that the Administration would be prepared to seek legislation to eliminate the Final List, subject to reciprocity within the multilateral framework of the GATT.

In response to the Japanese request that the ASP method of customs valuation on certain canned clams and wool knit gloves be eliminated, the United States stated, as agreed in the Kennedy Round of Tariff Negotiations, that it will seek legislative authorization to eliminate ASP on canned clams and wool knit gloves. The United States Government understands that Japan is prepared to carry out its reciprocal commitment.

The United States agreed to a Japanese proposal for consultation by a technical group composed of representatives from both countries on questions arising out of the Treasury Department's administration of the Antidumping Act, 1921.

In response to a Japanese complaint on "Buy American" laws and regulations, the United States stated that it was prepared, in the context of multilateral discussions on government procurement, to participate in an examination of the relevant laws, regulations and practices of all participating countries.

With regard to the question of the implementation of canned tuna from Japan, the United States Government recognizes that measures are being taken by Japan based on the results of discussions held so far by experts of both countries. The present inspection measures in the United States may be moderated as determined by the effectiveness of the Japanese measures in meeting a U.S. laws and regulations concerning decomposed canned tuna.

The United States Government is prepared to hold consultations with the Japanese Government on any matter concerning the importation of canned tuna from Japan.

The United States Government anticipates that discussions of trade issues with the Government of Japan during the year 1972 would be held within the GATT or other multilateral framework or through normal diplomatic channels.

The United States Government notes the requests of the Government of Japan that the United States reduce its tariffs on watches and clocks, projectors, light bulb sets and electric lamps for Christmas trees, portable electric lamps, trucks, and tubes for bicycles.

Sincerely,

William D. Eberle/3/