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FOREIGN RELATIONS OF THE UNITED STATES 1964-1968 Volume VIII International Monetary and Trade Policy DEPARTMENT OF STATE Washington, DC

General and Financial and Monetary Policy

301. Memorandum of Conversation/1/

Washington, December 15, 1965.

/1/Source: Kennedy Library, Herter Papers, Antidumping, Box 5. Limited Official Use. Drafted by Robert A. Burt on December 17. The source text bears Herter's handwritten initials.

SUBJECT
Kennedy Round discussions regarding antidumping

PARTICIPANTS

Treasury Department
Mr. Joseph Barr, Undersecretary
Mr. W. True Davis, Assistant Secretary
Mr. Merlyn Trued, Assistant Secretary for International Affairs
Mr. Joseph Bowman, Assistant to the Secretary for Congressional Relations
Mr. James Hendrick, Deputy Assistant Secretary
Mr. Ralph Hirschstritt, Deputy to the Assistant Secretary for International Affairs

Office of the Special Representative for Trade Negotiations
Mr. William Roth, Deputy Special Representative
Robert A. Burt, Assistant General Counsel

Mr. Roth stated that at a meeting on December 10, Secretary Fowler, Undersecretary Barr, Ambassador Blumenthal and he had discussed the question of the Kennedy Round discussions regarding dumping laws, and that he suggested the meeting today as a result of that earlier meeting./2/

/2/No record of this December 10 meeting has been found.

Mr. Roth explained that he believed an international agreement regarding dumping could be in the U.S. interest, since other countries, particularly the EEC, were now indicating greater interest in dumping laws, and since pressures for restrictive use of those laws could develop if, at the conclusion of a successful Kennedy Round, traditional trade barriers were substantially reduced. Serious international negotiation on dumping would also help persuade the Ways and Means Committee, particularly Chairman Mills, to postpone any action on the restrictive amendments to our dumping law./3/

/3/Regarding the antidumping law, see footnote 3, Document 231.

Mr. Barr asked the history of previous international discussions on dumping. Mr. Hirschstritt responded that over the past few years, several meetings have been held at which U.S. practices have been criticized. Mr. Roth stated that in the past other countries have insisted that we unilaterally change our dumping law, but that we have persuaded the U.K. in particular that the best possibility for U.S. action is a multilateral agreement to which a number of countries would be bound. The U.K. decision to submit a draft international code is therefore a significant change from the past.

In responding to this draft code, Mr. Roth continued, we have felt that all issues should be open for negotiation and that our discussions should not be limited to justifying our present dumping law. We are aware, of course, of the difficulties in getting Congress to change our present law. But these difficulties are no reason to refuse to discuss possible changes internationally. We have taken the same position regarding international discussion of other non-tariff barriers, such as American Selling Price. We can decide whether to accept any changes in our law when we arrive at a final negotiated package. For example, other countries have criticized our withholding of appraisement practices, and want these changed; whether we can agree to this should depend on the final terms of a proposed international agreement. But the only acceptable negotiating position at this stage is freely to discuss all issues. In this connection, we wanted to submit a paper at the next Working Group meeting raising fundamental questions regarding dumping without suggesting to the U.K. that we were ignoring their Draft Code.

Mr. Hirschritt stated that he had some difficulty with our proposed paper, because he felt that some of the questions appeared to prejudice the answers. Mr. Burt responded that we intended the questions to be wholly neutral, and that any apparent prejudgment was only a drafting problem.

Mr. Davis asked STR's view of the timing of the negotiations. Mr. Burt replied that we hoped other countries would respond positively to our suggestion regarding exploration of basic questions, and that, if such response was forthcoming, the next several meetings of the Working Group would be devoted to further exploration possibly on the basis of other countries' submissions in addition to ours. But there was a risk that the other countries would think we were merely stalling, and they might be reluctant to agree to such exploration. We must persuade them that we are serious.

Mr. Roth stated that we hoped at this meeting today to make sure that STR and the Treasury were on the same wave-length, and to reach mutual agreement that international discussions should be carried out as we proposed.

Mr. Barr stated that, in his view, Mr. Roth's position was reasonable, and he was sure that agreement could be reached on a paper such as Mr. Roth had in mind.

Mr. Hendrick asked why a paper raising questions about dumping shouldn't also include questions based on U.S. law. Mr. Roth replied that we didn't want our paper to appear as simply a justification for present U.S. law, but that we should certainly discuss U.S. law, as background to the fundamental questions we raise, at the Working Group meeting.

The question was then raised regarding the manner in which any change in U.S. law would be sent to Congress, whether by treaty or direct amendment. In the course of discussion, it was noted that the Ways and Means Committee and the Senate Finance Committee have more understanding of dumping questions than the Foreign Relations Committees, through which a treaty would go.

Mr. Barr asked whether White House clearance was necessary to submit the proposed paper and embark on these international discussions. Mr. Roth responded that STR had general White House approval to discuss internationally the entire area of non-tariff barriers. Further White House clearance was not necessary until we came close to an agreement.

Mr. Barr asked whether the U.S. paper would be made public. Mr. Roth responded that the paper would be a negotiating document restricted to GATT member governments, and that the record of confidentiality has been generally good. In addition, Mr. Roth stated, we don't give the texts of U.S. submissions to our Congressional delegates, but rather give them summaries of the status of negotiations in particular matters.

 

302. Letter From Director-General of the General Agreement on Tariffs and Trade Wyndham White to Participating Governments in the Kennedy Round/1/

CGT/801

/1/Source: Kennedy Library, Herter Papers, GATT Trade Negotiations, April 2, 1964-January 3, 1966, Box 9. No classification marking. A covering letter is addressed to Herter and bears the handwritten note, "CAH saw."

Geneva, January 3, 1966.

Sir,

In my capacity as Chairman of the Trade Negotiations Committee, I have the honour to submit herewith a report to participating governments on the present status of the negotiations.

The report sets out in some detail the main problems with which negotiators have been confronted. I have considered it my duty to draw the attention of governments to the decisions which must be taken in the near future in order to make possible a successful conclusion to the negotiations. The time-limits which I have indicated in the report are of particular significance in this connexion. I should also like to stress the necessity for all participants to have continuously present in Geneva negotiators with broad authority to negotiate in this crucial phase of the negotiations.

Accept, Sir, the assurance of my highest consideration.

E. Wyndham White

Attachment/2/

Geneva, January 3, 1966.

/2/Confidential.

THE GATT TRADE NEGOTIATIONS

Report by the Director-General

Introduction

1. In initiating the current trade negotiations the participants have embarked on two major ventures. The first is the launching of a negotiation designed to secure a degree of liberalization of the present barriers to international trade which is both deeper and more comprehensive in coverage than has been secured in previous negotiations, covering all classes of products and dealing with non-tariff as well as tariff barriers. The second is a series of activities to meet the urgent trade and economic development problems of less-developed countries. Special responsibil-lities rest on the shoulders of the more highly developed countries which have in the Ministerial Resolutions on which the trade negotiations are based committed themselves specifically to making use of the negotiations to contribute in a substantial way to the solution of these problems.

2. After much delay, agreement on procedures designed to secure that the maximum possible offers were tabled by each participant was complete only in July 1965, when procedures for the tabling of offers on tropical products were adopted by the Trade Negotiations Committee.

3. All major negotiators are not, however, in a position at the present time to table offers in accordance with the agreed procedures. In some cases offers, where tabled, are not sufficiently precise to form the basis of actual negotiation. In other important areas progress has not been made because participants have been unwilling to move from their initial negotiating positions.

4. Hitherto the negotiating timetable has permitted a certain degree of flexibility. This is no longer the case. The negotiating authority delegated by the United States Congress to the President expires on 1 July 1967, and I am informed by the United States Administration that it is politically unrealistic to envisage the extension of these powers if the negotiations were then uncompleted. Allowing for the necessary legal and administrative formalities required to give effect to the results of the negotiations, this means therefore, that the negotiations must be completed in the early weeks of 1967. To make this possible it is essential that delegations with broader authority to negotiate are present continuously in Geneva and that negotiations on all fronts be actively engaged and continuously pursued as from March/April 1966.

5. This report focuses attention on the main problems at present confronting negotiators, and sets out the points on which specific decisions must be taken by March/April if the timetable outlined above is to be met.

Negotiations on Industrial Products

General

6. In May 1964 the Trade Negotiations Committee meeting at ministerial level noted that the rate of 50 per cent had been agreed as a working hypothesis for the determination of the general rate of linear reduction and that the confirmation of this hypothesis was linked with the solution of other problems arising in the negotiations, for example, tariff disparities, agricultural problems, exceptions and non-tariff problems, and, in general, with the achievement of reciprocity.

7. Lists of exceptions from the linear reduction on industrial products were tabled on 16 November 1964. Precise initial offers have not yet, however, been tabled by certain participants for all industrial products on which they have indicated that they are prepared to negotiate. These offers should be tabled by March/April. The multilateral process of justification of exceptions lists is being followed by bilateral contacts between delegations. During these contacts negotiators have, for the most part, identified exactly what is on offer and where their trade interests are affected by the proposed exceptions.

8. During these bilateral contacts negotiators are also defining the desiderata which, if satisfied, would enable them to maintain their across-the-board offer of a 50 per cent reduction in duties. These contacts will enable negotiators to judge the extent to which their initial offers must be improved if their negotiating objectives are to be reached. It is already clear that participants having made linear offers with few or no exceptions will not maintain those offers unless the less comprehensive offers of other participants are substantially improved.

9. Although these bilateral contacts have been continuing for some months and while considerable progress has been made in some of these a large amount of work remains to be done before the principal negotiators can draw up the balance sheets which would form the basis of final negotiations. It is essential, therefore, that this work should be carried as far as possible in the time available between now and the opening of the decisive phase of the negotiations in March/April.

10. During the justification process and during subsequent bilateral contacts it has become clear that many specific problems exist for individual participants in cases where products of importance to their export trade are included in the exceptions lists of other participants.

11. To take an extreme case, one participant which has made an offer of a linear reduction in tariffs without exceptions finds that more than half of its industrial exports are included in the exceptions list presented by one of its major trading partners. If this situation is maintained the question arises to what extent that participant will be able to take part in the final phase of the negotiations.

12. Another factor which must be taken into account is the unresolved question of tariff disparities. The intention of a major participant to claim disparity treatment for certain items and to reduce its duties on these items by less than the rate of linear reduction has implications for the wider negotiations. To take once again an extreme case, a participant which has made a linear offer without exceptions estimates that two thirds of its exports of the items for which it is the principal supplier of the participant in question may be affected by claims for disparity treatment. If these claims are made this participant has indicated that it would have to make compensatory withdrawals from its own offer. As is shown later, an important part of the disparity problem must be brought into the sector negotiations if progress is to be made. This problem also raises questions of reciprocity for individual participants.

13. Countries other than those participating on the basis of a linear reduction in duties have presented offers and are participating in the process of bilateral contact referred to above. It is essential that these countries specify, where this has not already been done, the initial offers that they would make and that all the set countries become fully integrated into the negotiating process. The necessary technical work must be substantially completed before March/April.

14. A problem of a rather special nature and importance arises from the acceptance of Poland as a full participant in the negotiations on the basis of an offer which takes into account the nature of its economic system. If negotiations are to continue with Poland it is necessary that participants define their position with regard to this offer and to indicate by March/April the possibilities they see of negotiation with Poland. In the negotiations an analogous problem arises in the case of Czechoslovakia.

Participation of less-developed countries

15. As pointed out in paragraph 1 of this report, all highly developed countries have gone on record as saying that the current trade negotiations provide an opportunity for them to contribute in a substantial way to the solution of the trade and development problems of the less-developed countries. Twenty-three countries have pledged their participation under the procedures drawn up for the less-developed countries and by now twelve of these have taken steps to become full participants to the negotiations.

16. A meeting has been held to examine exceptions from the linear reduction which the industrialized countries proposed to make on products of export interest to less-developed countries. This is being followed by bilateral talks between delegations. It has been demonstrated that a number of items of particular interest to less-developed countries have been excepted from the linear cut, and that there is therefore a gap between the declared intentions of industrialized countries and their performance in this area. A number of ways limiting the impact of exceptions have been proposed, and to this end specific requests must be forthcoming from less-developed countries and the first phase of bilateral contacts completed by the end of February.

17. It follows a fortiori that less-developed countries which have indicated their intention to take part in the negotiations but which have not yet taken steps to become full participants should do so without delay so that they can make their negotiating requirements known in detail.

18. Assuming that the large amount of technical work which remains is carried out, it will also be necessary to take the political decisions, which would enable positive and far-reaching benefits in the present trade negotiations. It is essential that these decisions be taken before the final phase of the negotiations opens in March/April.

19. The statements of the offers which less-developed countries would make as their contribution to the objectives of the trade negotiations are for the most part general in nature and more precision is clearly necessary. Less-developed countries should therefore re-examine in detail the possibilities which are open to them. It would be of assistance to those countries if all participants were to make specific suggestions to them in this regard.

20. All countries taking part in the negotiations on the basis of the plan for the participation of the less-developed countries have indicated their readiness to study and negotiate measures designed to increase trade among themselves, but no specific offers or requests have yet been exchanged. Action in this important field must be accelerated if the negotiations in it are to be carried through to a successful conclusion. Specific offers and requests should be exchanged by the beginning of February so that bilateral negotiations may start in March/April.

Bilateral problems

21. It has become apparent that the negotiations on industrial products will, for the most part, best be carried forward bilaterally for the moment. The offers made have given rise to a large number of negotiating problems of a bilateral nature which should be dealt with in this way in the first instance, although clearly it will be necessary to assess the multilateral implications of the results of the bilateral negotiations.

22. Although it would be inappropriate to deal with bilateral problems on specific products in this report there are some cases where the products represent such a large percentage of the export trade of some participants, and in particular of relatively small countries, that the inclusion of individual products in exceptions lists presents a major negotiating problem for these countries. For example, it is of particular concern to one participant that most ferro-alloys have been totally excepted by one of its main trading partners. Another participant is concerned that watches have been included in the list of exceptions of one major country. It is of importance to this participant that the full 50 per cent reduction should be obtained on this product.

Sectoral problems

23. It became apparent that specific negotiating problems exist in certain important sectors and that some concerted effort should be made in order to secure the maximum degree of trade liberalization in those sectors. These sectors are chemicals, pulp and paper, steel, cotton textiles and aluminum.

24. The following paragraphs outline these problems and indicate where action by governments is necessary during the next few months.

Chemicals

25. In the chemical sector action by the United States with respect to the American Selling Price system of valuation has become a key issue in that other major participants have stated that unless such action is taken they would not themselves be prepared to reduce their tariffs on a wide range of chemical items since effective reciprocity would not then, in this opinion, be available from the United States. Action on the American Selling Price system has been made a precondition of the opening of negotiations.

26. The Community has also excepted a fairly extensive range of chemical products from its linear offer on grounds of overriding national interest. The Community has indicated that it is prepared to offer duty reductions of less than the linear rate of reduction on the bulk of these items but precise offers have not yet been tabled because progress has not yet been made on the American Selling Price problem referred to above. The Community also claims that significant tariff disparities exist on other products in this sector and intend consequently to apply a reduction of less than the linear cut of these products.

27. The United Kingdom has also excepted virtually all plastics materials from the linear cut on grounds of overriding national interest, essentially because for these products differences in the tariffs between the major producers are extreme.

28. The United States is offering the linear reduction in duties on virtually all items in this sector. This would halve the effective rate of duty on all items to which the offer applies, including those covered by the American Selling Price system of valuation. This is the maximum which the United States Administration can offer under their existing authority as they interpret it. The United States initial negotiating position is that this offer is in itself more than equivalent compensation for the Community's present maximum offer, which is subject to exceptions and claims for disparity treatment.

29. The resulting stalemate in this sector is of concern to other exporters of chemical products, particularly because the possibility that major participants would not make the full tariff reduction in this sector creates a specifically European problem. This is of major concern since trade between the European countries is very important.

30. Other problems exist in this sector. Japan's offer in this field is subject to a considerable number of exceptions although to no other conditions. Canada has not yet made an offer in this sector.

31. It will be necessary to treat all aspects of the problem, including the American Selling Price system and disparities in tariff levels in one set of negotiations on the sector. Progress must be made in this sector, or chemicals will be withdrawn entirely from the scope of the negotiations. Negotiations must be fully engaged by March/April. What is required is, on the other hand, an assurance by the United States of its willingness to negotiate towards an acceptable solution of problems connected with the American Selling Price system and, on the other, an assurance from the European Economic Community that, having obtained this, they would enter unreservedly into comprehensive negotiations on the whole range of chemical products. If the maximum result is to be achieved it will also be necessary for these participants to give renewed consideration to the rather complicated questions of reciprocity which arise. In the nature of things, mathematically full reciprocity may not be attainable within the sector and, as in other sectors, an agreement might leave debits and credits to be balanced off in the final stage of the negotiations. In so far as a satisfactory solution to the problem of the American Selling Price system would be an important contribution to the negotiations on non-tariff barriers, it would probably be matched by action by other participants on other non-tariff barriers.

Pulp and paper

32. It has also been suggested that the negotiations on pulp and paper should take place in a multilateral group. Several problems exist in this sector. For instance Japan has put certain basic pulp and paper items on its list of exceptions. Negotiations have not yet been fully engaged in this sector, however, because the position of the European Economic Community is that their initial offers in this sector can be tabled only after they have reached agreement bilaterally on certain trading problems with the Scandinavian countries, their principal suppliers of the majority of these items.

33. Other exporters, which are the principal suppliers of the Community for certain important items in this sector, are concerned in particular that final arrangements may be worked out on a European basis which may be unacceptable to them.

34. The problem here is perhaps not that multilateral negotiations should be opened, but that it has not been possible for bilateral negotiations to be opened between all participants with a major interest in this area. While the problem has other facets it is principally one of timing. It is clearly desirable, here as elsewhere, that all major participants be kept informed of events taking place in bilateral negotiations. Bearing in mind the timetable for the negotiations, it is essential that the initial negotiating positions of all interested parties be defined in time to permit negotiations to be fully opened by March/April.

Steel

35. Discussions have already started in a multilateral group on iron and steel products. The negotiating problem in this sector stems in particular from the nature of the offer by the European Community and the reservation by the United Kingdom that before implementing its offer of a 50 per cent cut it would have to have regard to the outcome in the sector as a whole (a standpoint which, in practice, is shared by several other countries). The Community is offering the linear reduction without exception on steel items within the competence of the European Coal and Steel Community (which account for about 85 per cent of the Community's steel imports), but is proposing to apply this not to the duties actually applied by the six member States (which are themselves higher than the rates in the tariff, as a result of a temporary increase made at the beginning of 1964), but to the average of higher rates which existed prior to the creation of the ECSC./3/ The Community is offering to make only partial reductions on the majority of other steel items since it wishes to maintain the internal logic of its tariff in the sector. Precise initial offers have not yet, however, been made.

/3/The Community had stated that the arithmetical average of these higher rates is 14.4 per cent ad valorem, that the average of the rates in the tariff is 6.7 per cent and the average of the rates currently applied is of the order of 9 per cent. [Footnote in the source text.]

36. The Community have also indicated that, in view of the particular characteristics of production and trade in this sector, a measure of harmonization should be achieved in the present negotiations in the tariffs protecting the major steel producing and exporting countries.

37. The United States and Austria are offering the full 50 per cent cut without exception. Japan is offering the 50 per cent cut with few exceptions and has made an improvement in the anti-dumping policy of the United States a condition of its willingness to accept the objective of tariff harmonization in this sector.

38. The other participants with a major interest in this sector regard the offer at present made on ECSC products as an exception from the linear rule. If the Community's offer remains unchanged the United Kingdom will presumably not maintain its linear offer in this sector. While similar conditions are not explicitly attached to the offers of other major participants, it would then become difficult for them to maintain their offers.

39. These participants have also stressed that, if the Community wish to carry out their intention of introducing a common external tariff for ECSC products this should be done in the present negotiations, rather than as a separate exercise.

40. Work has been undertaken in connexion with the preparation of a concordance of the tariffs of participants with a major trade interest in this sector so that a picture may be obtained of the relative levels of the tariffs in these countries. This work will be completed during the next few weeks.

41. If certain participants feel that the aim in this sector should be the harmonization of tariffs it is essential, however, that specific proposals with regard to the levels at which the tariffs of the participants concerned should be harmonized should be made soon enough to permit negotiations to start by March/April.

Cotton textiles

42. In the cotton textile sector the United Kingdom has stated that no reduction can be made in its tariff on cotton goods but has offered to reduce the existing mixed duties on goods containing cotton and man-made fibers to the basic rates for cotton goods. Before finally implementing this offer the United Kingdom would have to have regard to the outcome in the sector as a whole, but the offer is not conditional on the renewal of the Long-Term Arrangement Regarding Trade in Cotton Textiles. Canada has indicated that it is prepared to make offers on a large number of items in this sector but not its precise initial offers on these items. The offer is conditional in the sense that Canada "is prepared to reduce tariffs if other countries do so also".

43. The United States is offering the linear cut virtually without exceptions in this sector and is offering to negotiate on the application of the Long-Term Arrangement, on the understanding that the Long-Term Arrangement would be renewed in its present form for a further period. The European Economic Community has also tabled a list of conditional offers relating to thirty textile items, most of which are cotton textiles; they have indicated that any tariff reduction on these products is conditional on the extension of the Long-Term Arrangement or the adoption by the Contracting Parties of measures with the same effect as the Long-Term Arrangement. The Community have also excepted a number of textile items from the linear cut on grounds of overriding national interest and have tabled partial offers on these products.

44. The exporting countries wish to negotiate on tariffs and the improvement of access to their main export markets. Of these they regard access as much the most important.

45. I have concluded that, in order to permit negotiations to be opened in this sector, exporting countries should make known in as much detail as possible their desiderata with regard to tariffs, to quantitative restrictions imposed in accordance with the Long-Term Arrangement or otherwise and not to the administration of the Arrangement. Importing countries which have not specified the initial tariff offers which they would be prepared to make should do so as soon as possible. Importing countries should then, in response to the requests submitted to them, where necessary reconsider their tariff offers and indicate the improvements which should be made in quantitative restrictions and the administration of the Arrangement. These stages should be completed not later than the end of February.

Aluminum

46. The European Economic Community and Japan have included aluminum and aluminum products as partial exceptions in their lists. The Community has not yet defined its initial offer.

47. This is an example similar to those referred to earlier where a product accounts for a large percentage of the export trade of certain participants for whom a successful outcome of negotiations on the product is of great importance. It is not possible to engage in negotiations until all initial offers are tabled. Initial offers should therefore be tabled by March/April.

Non-tariff barriers

48. Participants have identified the particular non-tariff barriers on which they wish to negotiate. In view of the overall negotiating timetable it is essential that all governments should specify their desiderata in this field and respond to requests already made so that negotiations can be taken up by March/April.

49. Discussions are being held on a draft code of general applicability amplifying Article VI of the General Agreement in a Group on Anti-dumping Policies. It is essential that delegations should be given positive instructions on the proposal before the Group so that detailed discussions can take place in January.

Fish

50. Different participants are applying different procedures to fish and fish products. Some countries treat fish in the industrial sector while others consider it should be dealt with under the procedure established for the agricultural part of the negotiations. In order that this important sector be properly dealt with in the negotiations it is essential that concrete and specific offers on fish and fish products be tabled by all participants not already having done so, designed to create acceptable conditions of access to world markets for these products. In accordance with the overall timetable for the negotiations, such offers should be tabled not later than 30 April 1966.

Negotiations on Agricultural Products

General

51. In the field of the agricultural negotiations after nearly two years of preparatory work, agreement was reached in March 1965 on a procedure under which participating countries agreed to make specific offers on individual agricultural products designed to achieve the objectives set out by Ministers. I think it would be appropriate to examine the two terms of this agreement in turn.

52. With respect to the first point--specific offers on individual products--it is only on cereals that proposals were tabled last May in accordance with the timetable agreed upon. For all the other products--including meat and dairy products--on the other hand, for which it had been agreed that specific offers would be tabled on 16 September last, one of the major partners in the negotiations was not in a position to table offers for internal reasons. The result was that, in general, other participants decided to table only part of their offers, while in other sectors where the participation of the European Economic Community is recognized as being necessary the majority of participants purely and simply refrained from tabling offers.

53. This situation gives grounds for concern on more than one account. Indeed, it had always been agreed that agriculture constituted an essential part of the negotiations as a whole and that, particularly for a number of countries in which agriculture is the dominant activity, the negotiations as a whole were only of interest if they contributed to "the creation of acceptable conditions of access to world markets in agricultural products in furtherance of the significant development and expansion of world trade in such products."/4/ Furthermore, the imbalance which is developing between the negotiations in the industrial sector and the difficulties in the agricultural sector threatens to affect the negotiations as a whole. This indeed, is one of the most disquieting features in the whole picture since, unless an acceptable settlement can be arrived at on agriculture concurrently with an agreement on industry, the negotiations will fail.

/4/The quotation is from the GATT Ministerial resolution of May 21, 1963, on principles and procedures; see footnote 2, Document 228.

54. It is therefore absolutely essential in my view, in order to proceed effectively with the negotiations, that participating countries which have not or not fully tabled their offers on agricultural products should agree to do so in such a way that the negotiations can effectively commence well before the summer of 1966. To this end it is indispensable that the offers be tabled on a fixed date which should not be later than 30 April 1966.

55. In considering the offers, when tabled, it is understood that participating countries will inevitably keep in mind the overall balance of the ultimate result of the negotiations between offers and benefits in both the industrial and agricultural field. This brings me to the second point--offers designed to achieve the objectives set out by Ministers. A certain knowledge has been gained in the course of the discussions and of the preparatory work, of the various positions of the partners in the negotiations. It would, therefore, seem possible to identify certain areas, where progress is essential, and for which therefore, all delegations should have broader negotiating authority. These areas are identified below for the different sectors of the agricultural negotiations.

Group on Cereals

(a) Domestic policies and access

56. In the course of negotiations countries have expressed their willingness to negotiate on their domestic cereals policies or on certain commitments providing opportunities for access. However, partners in the negotiations are particularly concerned about the general tendency in nearly all countries of continuously increasing production. This may affect their commercial outlets to world markets and it will a priori make the possibility of achieving and maintaining acceptable conditions of access questionable. It would seem that a condition for a successful outcome of the negotiations would be that participating countries should be in a position to negotiate on a combination of undertakings, effective and acceptable to all parties concerned, with the ultimate objective of bringing some moderation in further production increases. Such undertakings might include the possibility of limiting support to a certain quantity of produce.

(b) International prices

57. Negotiations on an international price system applicable to wheat and coarse grains have not yet much advanced. An effective outcome of the negotiations would seem to be a price system including international minimum and maximum prices. These prices should be such as to provide a remunerative return to efficient producers. While the precise level of such prices is clearly a matter for detailed negotiation, participating countries should be prepared and should be in a position to enter into meaningful negotiations in this regard.

(c) Non-commercial disposals

58. This aspect of the negotiations has not yet received full attention of all delegations concerned. A co-ordinated organization of such disposals, complementary to normal commercial outlets, has been advocated by a number of countries as one of the corner-stones of an international arrangement on cereals. When resuming the negotiations delegations should be fully prepared to enter into more substantive negotiations in this regard.

59. Directives on these various points would be needed prior to the next meeting of the Cereals Group which, in accordance with the overall timetable of the negotiations, should be held in the March/April period.

Group on Meat/Group on Dairy Products

60. While the preparatory work in these Groups for the negotiations may be finalized by the end of April 1966, it is essential that offers as laid down in the agreed procedure be tabled not later than 30 April 1966 by all participating countries concerned. These offers should be so designed as to meet the objectives of the negotiations laid down by the Ministers and will indeed be appreciated against their ability to further a significant development and expansion in world trade. On the basis of the offers tabled, negotiations will then start without delay.

Other agricultural products

61. It is essential that to the extent that participating countries have not yet already done so, concrete and specific offers be tabled as set out in the agreed procedure, on individual products relating to all relevant elements of agricultural support or protection or to the total effect of these elements and designed to provide acceptable conditions of access to world markets as agreed by the Ministers. It is my understanding that an offer would only be considered a meaningful basis for the negotiations if it can be shown that it constituted an effective concession providing improved opportunities for access. It is also my understanding in cases where the tariff is presently bound the offer should in principle relate to the reduction of the tariff.

Tropical products

62. The offers will also relate to tropical products. In this connexion the Resolution of 6 May 1964 may be recalled according to which all participants are prepared to consider the possibility of taking such steps as are open to them to make cuts deeper than 50 per cent in, or to eliminate completely duties on products of special interest to less-developed countries./5/ The possibility of coming to some joint action by all developed participating countries in this regard should be given serious consideration. Such action might include the possibility of suspending duties on tropical products in advance of their being reduced or eliminated at the end of the negotiations.

/5/Reference is to the resolution adopted by the GATT Trade Negotiations Committee Ministerial meeting in Geneva on May 6, 1964; for text, see American Foreign Policy: Current Documents, 1964, pp. 1210-1213.

 

303. Airgram From the Mission to the European Office of the United Nations to the Department of State/1/

A-683

Geneva, January 6, 1966.

/1/Source: Department of State, Central Files, FT 7 GATT. Confidential; Air Priority. Drafted by Winston Lord (KR), and James H. Lewis (KR), and approved by Lewis. Received on January 10 and repeated to 18 diplomatic missions.

SUBJECT
ExOff--GATT Director General's Report of Kennedy Round/2/

/2/Attachment to Document 302.

REF
A. Tagg 3692;/3/
B. Depcirtels 1148, 1149;/4/

C. Tagg 3722 (not sent all posts)/5/

D. Depcirtels 1188, 1208/6/

/3/Dated December 15. (Department of State, Central Files, FT 13-2 US)

/4/Both dated December 15, 1965. (Ibid.)

/5/Dated December 21, 1965. (Ibid., FT 4 GATT)

/6/Dated December 21 and 23, 1965, respectively. (Both ibid., FT 13-2 US)

For Governor Herter from Blumenthal.

1. Enclosed is a copy of the Kennedy Round report by Eric Wyndham White, Director General of the GATT. This document went forward January 4, 1966, addressed to the appropriate Ministers of the countries participating in the negotiations so as to assure high level governmental attention. The report surveys the status of each of the principal negotiating areas and highlights the current barriers to forward movement. Its objective is to point up the necessary decisions to be taken by all governments in the coming weeks so that substantive negotiations can be launched in the spring of 1966 and the Kennedy Round completed by the following winter (Refs A and B).

2. In general we believe the report is well drawn and should be a constructive element in the current process of focussing on negotiating obstacles and the action required of the European Economic Community and other negotiators by March/April 1966. Wyndham White held a series of information meetings with the major Kennedy Round participants (Ref A) before writing the report and we, as well as the EEC, Japan, and the United Kingdom, had brief opportunities to comment individually on the first draft. Although some of our (and presumably other countries') suggested amendments were incorporated in the final version, the paper remains strictly the responsibility of the Director General. Although the report is therefore correctly "neutral" in tone, we will have the opportunity, where necessary, to sharpen up points of particular interest in our Brussels meeting with the EEC Commission on January 11. For background and guidance in conversation with officials dealing with this subject, we offer the following observations on the document.

3. General. The report taken as a whole clearly indicates that responsibility for the present impasse rests to a large extent with the EEC, and that if the impasse is to be broken, the Kennedy Round successfully concluded, action is required by the EEC in the following major areas:

(a) Agricultural products including meat and dairy products--the EEC must make offers, and in doing so must go beyond mere bindings of montants de soutien.

(b) In the nonagricultural area, offers must be made by the EEC, or made complete, on: Chemicals, steel, pulp and paper, aluminum, other items where the EEC "partial" offer remains imprecise or unspecified, and fish.

There appears to be rather widespread misunderstanding of the fact that the EEC must move not only in agricultural but nonagricultural areas (e.g. see The Hague's 522 to Dept.)./7/ Nonagricultural areas where no EEC offers have yet been made, or where so-called partial offers have not been made specific, or where unreasonable precondition has prevented EEC from negotiating (i.e. chemicals), account for a significant portion of EEC imports. (Further comment on specific problems is given below.)

/7/Dated January 4, 1966. (Department of State, Central Files, ECIN 3 EEC)

4. Specific Comments. The following notes cover the major problem areas and are keyed to the numbered paragraphs of the report.

Offers--Para. 3. This paragraph primarily refers to the EEC's failure to table agricultural offers (except for an unspecific proposal on grains), to define many of its partial offers on industrial products and to show any flexibility in its initial positions with respect to industrial offers. Other countries, largely because of the inaction of the Community, tabled imprecise and/or incomplete agricultural offers this fall, and no participant has been willing to modify its basic opening Kennedy Round stances in view of the EEC paralysis.

EEC Representations in Geneva--Para. 4. The Community still does not have a permanent negotiating team in Geneva, and this has seriously impeded progress.

Technical Discussion of Offers--Para. 7 to 9. Our view is that the technical phase of the negotiations is largely concluded and that remaining technical work should be subsumed in active negotiations. What is immediately needed is the specification of offers and the filling of gaps, and then, at least exploration without commitment of possibilities for improvement. We do not wish the EEC or others to delay substantive negotiations by lingering in the technical stages (Ref C).

Balance Sheet--Para. 9. Precise comparisons and balancing attempts between participants is not desirable at this point in the linear negotiations. However, those EFTA countries with no exceptions and the United Kingdom and the United States with moderate lists would clearly consider the offers of the EEC and Japan as "less comprehensive."

Exceptions--Para. 11. This refers to the impact of the Community's industrial exceptions on Norway.

Disparities--Para. 12. We should have preferred to see this issue given less prominence in the report. Only the EEC has indicated an intention to invoke disparities, and this intention appears to be still firm. Switzerland is the country whose interests would be so severely sideswiped by EEC disparity invocations against the U.S./U.K., but other countries' exports would also be substantially affected unless adequate safeguards can be worked out. We are willing to leave the disparities issue open until the late stages of the negotiations, when we hope it may have been reduced to more manageable proportions as a result of discussions between EEC and third countries like Sweden and Switzerland.

Non-Linear Participants--Para. 13. This reference seems most applicable to Australia among the developed countries.

Poland--Para. 14. Poland's participation in the KR is related to its GATT status. Most countries, including the United States, have not taken precise positions concerning the Polish "offer," which is to increase by a certain percentage its purchases abroad under its state-trading system.

LDC's--Para. 17. Those participating LDC's who have not yet tabled offers or statements of contribution are Argentina (only proposals on cereals, meat, and dairy products), Ceylon, Cyprus, Ghana, Ivory Coast, Malta, Nicaragua, Niger, Pakistan, Portugal (non-European territories), Togo, and Uganda.

Para. 19. In addition to our own individual "suggestion papers," we know that Canada, Japan, Sweden, and the United Kingdom have suggested at least some KR contributions by the LDC's. In this connection the U.S. Delegation has held 45 meetings with LDC Delegations in Geneva to explain our offers and suggestions. We understand the EEC has not met with any LDC's.

Bilateral Problems--Para. 22. Norway is interested in ferro-alloys, Switzerland in watches. The EEC has excepted most ferro-alloys. The United States has most but not all watches on its mandatory exceptions list.

Sectoral Problems--Para. 23 et seq. In all these industrial major sectors, the negotiations are stalled to a greater or lesser degree by reason of the EEC position.

Chemicals--Para. 25. Although all countries in the informal sector group on chemicals have emphasized the importance of U.S. action on ASP, only the Community has stressed the reciprocity element to the extent this paragraph suggests and only the EEC has made ASP movement a precondition for opening negotiations. The EEC has not only important exceptions in chemicals but has refused even to discuss its partial chemical offers unless the U.S. indicates it will eliminate ASP. The United States, however, has no obligation to eliminate ASP, and considers that its full 50% linear offer virtually without exceptions is more than equivalent to the EEC offer. Nevertheless, the United States is willing to negotiate on ASP, and to consider eliminating it provided something sufficiently attractive can be obtained in return. Other countries are ready to negotiate on this basis but the EEC is not--it still insists that unless the United States unilaterally eliminates ASP and makes a 50% reduction on chemicals, the EEC will not offer even the limited concessions it has so far tabled, and even these will be subject to disparity invocations. The Director General's report clearly states in para. 31 what is required:

By the United States--an assurance that it is willing to negotiate toward an acceptable solution (we have already given such an assurance--see Tagg 3669/8/--and will reiterate it, referring also to Governor Herter's letter to the Tariff Commission on ASP (Ref. D).

/8/Dated December 8, 1965. (Ibid., FT 7 EEC-US)

By the EEC--a willingness to enter into negotiations. (This will require not only removal of the pre-condition about ASP, but a willingness to consider what contribution the EEC can make to a possible package in which the United States undertakes to do something about ASP.)

Chemical Disparities--Para. 26. The EEC, in an informal meeting December 7, appeared to recognize that it could not agree to a sector solution on chemicals and subsequently introduce chemical rate disparities in a broader context.

Sector Balancing--Para. 31. The warning against seeking precise intra-sector balances in chemicals applies equally to other areas of the negotiations (see General Comments below).

Pulp and Paper--Para. 33-34. There are several pulp and paper items, other than those for which we are principal suppliers, in which we and Canada have substantial interests, and our exports of pulp and paper to the Community amount to over $130 million. No EEC offers have yet been made on any of these items, on the excuse that arrangements must first be worked out with the Scandinavians. In this connection, we are just concerned about possible final European arrangements which may be unacceptable, but rather we would oppose any EEC-Scandinavian bilateral drawing of negotiating perimeters which might prove inhibiting once we multilateralize the sector talks. We also have been informed by the Scandinavians that the EEC has made no specific proposals and apparently does not have any to make in the near future--therefore the outlook is for further indefinite delay.

Steel--Para. 41. The Communities, in a December 10 meeting, agreed to outline their ideas on harmonization in the steel sector in the latter half of January. We continue to have our doubts about harmonization in principle but we are willing to look to any proposal the EEC/ECSC makes and to see whether it results in any effective liberalization of trade. The important point is stated in para. 38--namely that we and others do not consider the ECSC offer to be a genuine linear offer because of the base rates used, and hence no progress can be made in the sector unless the Communities can discuss making effective reductions in rates.

Textiles--Para. 45. The United States and Japan have had several meetings along these lines and have reached bilateral agreement on how to carry forward cotton textile negotiations under Wyndham White's proposed package deal. The EEC has been asked by Japan to negotiate similarly, but it is clear that the EEC negotiator does not at present have any authority to discuss any "improvements" in QR's or the administration of the LTA.

Aluminum--Para. 46. As stated, the problem is that the EEC has not made any offer. This sector is of importance to Canada and Norway as well as the United States.

Fish--Para. 50. No EEC offers have been made in this important sector.

Agriculture--Para. 51 et seq. In general these are self-explanatory. There is recognition even by the EEC that there can be no progress until the EEC is in a position to make specific offers.

Para. 54. Wyndham White hopes the specific deadline will be useful in imparting a sense of urgency to the Member States of the Community.

Para. 56. We should have preferred some distinction between the situation regarding wheat and that of feed grains, where differentials would have to be negotiated, but the Director General believes this problem can be better dealt with in actual negotiations.

Para. 59. Because of the EEC failure to lay down meat and dairy proposals, most countries including the United States, have not tabled offers on these products. We are prepared to table our offers when the EEC does.

Para. 60. The lack of Community offers is of course the principal stumbling block here. We have held technical bilateral meetings on agriculture with several countries, but many partners' positions in this field remain incomplete and/or indefinite, pending action by the EEC. The last two sentences refer primarily to the present EEC position/intention of offering only to bind the MDS, even on products whose tariffs were previously bound.

Tropical Products--Para. 61. Sweden in particular has been urging joint action on tropical products, and the GATT Secretariat has compiled a list of all tropical products offers that have been submitted by developed countries. However, further progress in this field appears difficult without Community offers, which have not yet been made.

4. General Comments. There are a few other aspects of the report which should be noted. The U.S. exclusions policy has not been mentioned, but the Community on several occasions has stressed its objections to this approach and its intention to weigh such items as petroleum in the negotiating scales. One view that Wyndham White has repeatedly voiced, and with which we agree, is that precise intra-sector balances should not be sought. This point is mentioned in the chemicals section of the report, but it warrants further emphasis since it applies to all the special sectors and the negotiations in general. Countries must be willing to register debits and credits in individual areas and look for compensation within the total Kennedy Round package; otherwise, narrow, halting gestures will result in a series of sector deals leveled at the lowest common denominator. The reference to disparities is a reminder that all ambiguities, conditions, and gimmicks in countries' negotiating positions should be in the open by this spring. The Community's offers are the most murky--e.g., its unspecified partial reductions, its rather vague reciprocity demands in the automotive and aircraft fields, and its imprecise conditions for slicing cotton textile tariffs--but there are unknowns in other partners' initial positions as well. All relevant elements for a Kennedy Round package should be spelled out as substantive negotiations are joined in the coming months, in order to avoid last minute injections which might upset delicate deals and initiate unravelling.

5. The foregoing comments are intended solely to give addresses a more precise appreciation of the present status and major issues of the Kennedy Round negotiations, in conjunction with the Director General's account to the GATT Ministers. Detailed talks and bargaining, of course, must continue to be limited to Geneva.

For the Ambassador:
James J. Lewis
Counselor for Economic Affairs

 

304. Memorandum of Conversation Between U.S. and EEC Officials/1/

Brussels, January 11, 1966.

/1/Source: Department of State, Central Files, FT 7 GATT. Limited Official Use. Drafted by Stanley D. Schiff (USEC) and David E. Biltchik (EC) on January 28. Transmitted as an enclosure to airgram Ecbus A-350 from the Mission to the European Communities, February 1. The airgram was received February 10 and repeated to 17 diplomatic missions. The meeting was held at the EEC Commission.

SUBJECT
The Kennedy Round

[Here follows a list of 23 participants.]

Introduction

In opening the meeting, Commissioner Rey, after welcoming the American delegation, said that it was a good idea to have a meeting at that time for a number of reasons. The U.S. and the EEC were the principal partners in the Kennedy Round; the Wyndham White report had just been released;/2/ time was short and it was a common goal of the U.S. and the Community to complete the Kennedy Round by the end of 1966; and also because the meeting would be helpful in the preparation of the Commission's report for the Council concerning the Kennedy Round. Rey expressed reasonable optimism regarding the present political situation in the Community. He doubted, however, that the Luxembourg meeting would solve everything. Rey felt that there was a common will among the Six, not just the Five, to develop the EEC, which meant also a common desire to deal successfully with the Kennedy Round.

/2/Attachment to Document 302.

Ambassador Roth responded that the U.S. realized the difficulty of discussions on the Kennedy Round at the time and that it had had some hesitation about proposing the meeting. However, in light of Wyndham White's report and since the Commission was preparing a report on the Kennedy Round, a meeting seemed opportune. Interest in the Kennedy Round was a perennial concern of both parties but Ambassador Roth assured the EEC representatives that the U.S. continued to have a paramount interest in the negotiations.

Strong U.S. interest in the Kennedy Round for both political and economic reasons had been stressed in the good discussions with Chancellor Erhard in December. In recent weeks the President had given more attention to problems of world trade, including taking liberal decisions on certain escape clause actions. It was also the President who had decided that the question of "American selling price" should be studied. The President has a strong interest in the Kennedy Round. The U.S. knew that the Commission's feelings concerning the Kennedy Round were also strong.

Kennedy Round Timetable

Ambassador Roth said the U.S. felt that 1966 was the critical period for the Kennedy Round. Within the first six months of 1966 we would all know whether there could be a successful Kennedy Round. It would be necessary that the negotiations in Geneva be resumed, with EEC participation, by spring, so that before the summer vacation period one could see a package beginning to emerge. This would allow the negotiations to be completed by the end of 1966 and an agreement signed in early 1967. The schedule now was so very tight that, if it were not kept, the U.S. doubted that the Kennedy Round could be successfully concluded.

Ambassador Roth continued that the question was often raised whether, if the present time schedule were not met, it would be possible to get an extension of the Trade Expansion Act (TEA) through Congress. The Administration believed, Ambassador Roth stated, there was no substance to such hope. First, the President is determined that Congress should adjourn its current session in July, 1966 in view of the fall elections. Thus, there would be no time to introduce a bill. Second, in 1967 there would be only six months left for such action by Congress. It could perhaps be done, the Ambassador observed, but the Administration was very concerned over the likelihood of the TEA's liberal authority being, in the case of Congressional extension, whittled down by protectionistic amendments. Each year protectionistic amendments were attached to many acts. Often such acts could be vetoed. In the case of an extension of the TEA, however, such veto could not be used. Therefore, the judgment of the Administration is to stick to the TEA and make full use of the existing liberal authority.

Ambassador Roth added that the U.S. had another concern. Commercial policy seldom stood still. If the Kennedy Round did not succeed, there was the danger of a more protectionistic attitude in the U.S. and probably also in Europe.

Ambassador Roth outlined what actions were necessary to meet the timetable: 1) The EEC had to be in a position to negotiate again. This involves a matter on which the U.S. cannot comment because it is an internal Community affair; 2) If the negotiations continued, there would be a need for the EEC to maintain in Geneva a permanent negotiating delegation at a senior level. We are aware of the EEC's problem and especially the one for Mr. Hijzen is having to negotiate in Geneva and Brussels; however, the presence of such a team was particularly necessary in the critical period which was hopefully ahead, when the negotiating situation would require decision-making on a day-to-day basis; and 3) We would also hope that the 111 Committee, under a new negotiating mandate would have flexible authority for taking day-to-day decisions. The U.S. had a large negotiating team in Geneva which could make certain decisions very quickly. Ambassador Blumenthal had wide authority in this respect.

Rey indicated that he would report to the Council the dangers of a further delay in the Kennedy Round, noting that the Commission fully shared this view, and in fact was basing all its efforts to keep within the time limits of the TEA. Unfortunately, Rey observed, it does not depend on the Commission alone. The Commission's present difficulty was in getting decisions from the Council of Ministers. Rey hoped the crisis would be solved in the spring, but observed that, of course, the Commission just did not know when the Six would resume functioning. The Commission would, in its report, inform the Council of the U.S. delegation's emphasis on the dangers involved in getting new legislation. He remarked that the TEA had been a remarkable achievement over protectionist opposition that no one could be sure of repeating.

Turning to the problem of permanent Community representation in Geneva, Rey said that the Commission was very near a solution, hopefully within the next few weeks. He added that there need not be any fear that the EEC would not be fully represented when it was able to resume in Geneva.

He noted that the 111 Committee was a matter for the Council. Council decisions concerning the mandate were closely linked with the solution of the crisis. But the question of finding means to accelerate the decision-making process was one the Council would have to resolve when it meets. Rey added that he believed the Council should meet as often as necessary, not just once a month, to cope with Kennedy Round issues, once the need arose. The Council will have to devise procedures to accomplish this.

Agriculture

Ambassador Roth commented that in Washington the decision to table agricultural offers on September 16 had posed many problems and has been very difficult. The two major reasons why the U.S. finally tabled were: 1) the necessity of maintaining the momentum of the negotiations; and, 2) because of a desire to emphasize U.S. concern that agriculture be as much a part of the Kennedy Round as industry. The U.S. felt that there had to be coordinated industrial and agricultural movement. Unfortunately, the Ambassador said, the agricultural negotiations were now out of step with those in industry, a fact which has caused considerable concern in American agricultural circles and in Washington. Most concern was over the question of timing: when would the EEC be ready to put its offers on the table? Would it be able to keep the early spring dates Wyndham White suggested? Ambassador Roth asked if the Community could make offers in steps, beginning perhaps with the CAP products where regulations were complete.

Ambassador Blumenthal observed that the U.S. had tabled its agricultural offers in September, 1965, leaving aside for the moment products of interest to the EEC, including dairy and meat. The U.S. considered these concrete and specific offers very good indeed and hoped that others would match them. The quality of the offers made by other countries in Geneva was mixed; some concrete and specific, others of a more general nature, but all offers had been affected by the uncertainty as to what the EEC would do. This was particularly true for countries which had important markets in the Community. Countries whose main export interests were meat and dairy products were, of course, particularly disappointed.

Thus, Ambassador Blumenthal continued, the big question remained: when would the EEC be ready to make its offers? At that time, the U.S. and others could complete their offers. The Ambassador asked for the Commissioners' views regarding the timing of Community offers. The U.S. fully concurred with Wyndham White that April was the latest period for resumption of the negotiations. The U.S. realized, of course, the internal difficulties of the EEC. But the U.S. was sure the Commission realized that the EEC could not wait for the completion of all CAP regulations before making offers.

Ambassador Blumenthal concluded by saying that this was, of course, not the time to discuss such issues as the MDS or a grain agreement. But he did feel it was necessary to point out that the U.S. could not afford the luxury of waiting for new offers of a general nature which then would involve more delay in being made more specific. The U.S. would look at offers in terms of increased trading opportunities they provided. Moreover, a MDS binding in place of a current fixed tariff binding would be unacceptable.

Commissioner Mansholt agreed with the need for keeping the agricultural and industrial negotiations in parallel. The Community also wished to do so. Unfortunately, however, the fact had to be faced that agriculture was not only lagging behind, but that the agricultural negotiations had come to a complete standstill. The Commission recognized that because of agriculture the Kennedy Round is endangered, and recognizes equally that this situation depends on the Community and its ability to get agriculture moving.

As to the timetable, Mansholt continued, it was very difficult to predict anything in such a clouded situation. The following week, at Luxembourg, would indicate the future. Hopefully the political crisis would be resolved in February or March.

After the political solution, he felt that the first thing which would have to be dealt with was agricultural policy--which meant a package of agricultural decisions. Mansholt thought the package would cover: a) the financing of the Common Agricultural Policy; b) price decisions on dairy products, meat, fats and oils, and rice; and c) certain other regulations. It would not be too difficult to obtain agreement on the financial regulation, he thought. The toughest problem was, however, agricultural prices. The Commission hoped to submit to the Council price proposals by mid-February, whether or not the crisis was solved. The Council might begin to deal with these problems in March or April, if it were assumed, optimistically, that the political crisis were resolved the end of February or early March. At any rate, the Council would have to take decisions of fundamental importance on the elements of the package. Only after these decisions had been taken would it be possible to obtain a concrete mandate for the Kennedy Round. Wyndham White's deadline of April 30, Mansholt observed, seemed too optimistic. It would be better not to expect a concrete mandate by April 30 for all agricultural products. After the solution of the crisis, the only real deadline which could not be changed was the expiration of the TEA. The Commission and the Council had to do their utmost to meet this deadline. For this purpose the Council would have to reorganize its working methods, including the scheduling of special Council meetings only for the purpose of preparing a negotiating mandate. Should the Kennedy Round be in full swing in the latter part of spring or in early summer, the Council would have to devote a great deal of attention to it, using more flexible working methods than in the past and also giving more flexibility to the Commission.

It would be very hard to get a mandate for staged agricultural offers, Mansholt continued. The Council could not agree on a negotiating mandate for only certain products if there were still no Common Agricultural Policy regulations for other products. This would create an imbalance in the gains and losses to be expected by the Member States, and no Member State was willing to give away its bargaining power. Thus, in his personal opinion, all offers had to come at the same time. However, this did not mean that all CAP regulations had to be decided, but it did mean that at least the regulations for fruits and vegetables, fats and oils and sugar had to be completed before offers could be made. Price decisions would be the greatest concern. However, a Common Agricultural Policy regulation for tobacco was not necessary to make offers on this product.

Mansholt summed up by repeating that everything depended on the Council. In settling the political issues of the present crisis, it would be difficult for at least two or three Member States not to accept a solution without the Kennedy Round being of part of it./3/ After the solution of the crisis, the Community would have to move very fast on the Common Agricultural Policy and on the questions of the Kennedy Round. The deadline of April 30 was, however, premature.

/3/Clearly implied was a settlement of the purely political issues in Luxembourg and subsequent extraordinary sessions, followed by a package deal of which the Kennedy Round would be a part, in a later meeting of the Six in Brussels. [Footnote in the source text.]

Rey agreed with Mansholt that the Council would have to make decisions on tabling offers. He also conceived that the Kennedy Round brought both incentive and a pressure of time. The Ministers would have to make decisions. The Commission would have to tell them that time was pressing and decisions were necessary.

Ambassador Roth concurred in the hope that a specific Kennedy Round commitment would be part of such a deal.

Mansholt said he did not want to mention a date, but that the problem was time. Before the summer holidays there had to be a period of substantive negotiations. After the experience with September 16, however, he preferred to be cautious about mentioning a date. Mansholt hoped that the Community would be in a position to table by May or June.

Ambassador Blumenthal replied that the U.S. knew the political crisis had to be settled, but he wondered how all the agricultural regulations could be completed and offers made in time to permit negotiations before the summer vacation. Such pre-August negotiations were, of course, necessary to complete the Kennedy Round negotiations in time.

Turning to grains, the Ambassador indicated that all negotiating partners would have to re-examine their situation and positions. The EEC would have to make certain additional decisions on grains. Would it be able to make these decisions as something apart from the other decisions on offers?

Ambassador Blumenthal asked if, after the political crisis were settled, there were no chance that the Member States would face up to the necessity of getting started in cereals, non-CAP and completed CAP items and then, say, by June, get other offers on the table.

Mansholt replied that as for grains, he did not exclude the possibility of additional decisions being taken independently of the package, especially as grains had been treated in a different way. New Council decisions were needed so that the Community could continue, and the Commission would try to get these decisions.

As for the interdependence of the various decisions, it seemed very difficult, almost impossible, to Mansholt, to proceed when prices had not been decided. He had a feeling that price decisions would perhaps enable the Council to issue a Kennedy Round mandate--even if fats and oils regulations had not been completed. The difficulty was that in the past the Member States had refused to take price decisions without having regulations. An offer for sugar could not be made until the policy was decided. Mansholt observed he would not know what to propose to the Council as an offer if the policy had not been decided.

Mansholt's feeling was that as soon as the crisis was solved, agricultural decisions would be taken quickly. The Kennedy Round added pressure. The French had a political election not far off, which implied France would have some interest in getting the decisions.

Mansholt said he did not think August would be a holiday this year. If the EEC could make agricultural offers by the end of June, Mansholt thought there would still be time to conclude the Kennedy Round negotiations by the end of the year.

Ambassador Roth emphasized that it was most important to have offers on the table well before August in order to be able to discuss them in sufficient time.

Mansholt added that he did not think, insofar as the timetable was concerned, partial offers would do, but instead might produce a mess in the Council. The mandate was a process of give and take. Partial offers would take much more time.

Rey said he shared Mansholt's view that decisions would come quickly after the crisis was settled. He also wanted to clarify the point that Mansholt did not exclude the possibility, especially in grains, of partial decisions.

Industry

After Rey's brief opening remarks, Ambassador Roth began the afternoon discussions by drawing the Commission's attention to two recent Presidential decisions concerning the liberalization of earlier U.S. escape clause actions (stainless steel table flatware and clinical thermometers)./4/ Ambassador Blumenthal followed with a review of the state of the industrial negotiations.

/4/Not further identified.

Completion of Offers

Ambassador Blumenthal agreed with Wyndham White that full offers had to be the starting point for the negotiations and with his appeal for complete initial offers as soon as possible. The U.S. had on November 16, 1964 made a complete and precise statement of its industrial offers and exceptions.

The Community's industrial offer was still not complete; still lacking were offers on partial exceptions in the sectors:

a) certain chemicals (BTN Chapters 29 and 39)

b) pulp and paper

c) iron and steel

d) aluminum

e) ceramics

The U.S. agreed with the Director General's judgment that completion of offers for those sectors was needed by March or early April so that negotiations could begin.

Bilaterals

Ambassador Blumenthal noted that Wyndham White urged early completion of the bilateral examination of the initial offers. The U.S. considered that technical work of this nature was essentially finished and that the substantive phase of the negotiations could not get underway until offers were completed and sector discussions begun.

Improvement of Offers

There had apparently been some misunderstanding of the U.S. position regarding improvement of offers. The U.S. did not insist that any participant take unilateral action to reduce its exceptions list. The U.S. would, however, be prepared to explore without commitment possibilities for improvements in offers if the EEC could participate in such exploration. It was important for negotiations to be able to indicate when improvements might be possible. Only in that way could the outlines of a final package begin to appear. Further bilateral exploration, however, was of limited value until present gaps in offers were filled in.

Disparities

Ambassador Blumenthal cautioned about the need to avoid misunderstandings on this issue. Since no rules had ever been agreed upon, the U.S. considered that each participant was free to deal with these cases as seemed appropriate. The U.S. was prepared to consider any such cases claimed by the Community on a case-by-case basis, as less-than-50 percent offers. We were quite happy to allow the EEC to choose the time when it would indicate its disparity claims, since we felt many potential disparities might be taken care of in the EEC's bilaterals with other countries and in the sector work.

Ambassador Blumenthal agreed with the Director General of GATT that the disparities issue would inevitably arise in various sector negotiations, and in each such case we would have to know what the disparity claims were. The U.S. hoped that few disparities would be invoked; we did not intend invoking any.

Sectors

The key to the industrial negotiations may lie in the sectors. Active negotiation in the five sector groups was, in the U.S. view, one of the major areas in which the Kennedy Round negotiations had to make progress. Even the completion of initial offers and further bilateral discussions were apt to be unproductive unless we could make real progress in the special sectors.

[Here follows discussion of chemicals, tariff disparities and concordances, iron and steel, cotton textiles, non-tariff barriers, and LDC and tropical products.]

 

305. Memorandum From the Acting Special Representative for Trade Negotiations (Roth) to President Johnson/1/

Washington, February 4, 1966, 8 p.m.

/1/Source: Johnson Library, Bator Papers, Kennedy Round, CAH, May 4, 1964 [1 of 2], Box 11. Limited Official Use. The source text is attached to a February 11 explanatory memorandum from Bator to President Johnson recommending approval. A note on another copy of Bator's memorandum reads: "Hold for staff mtg. Thursday [February 14]. McGB." (Ibid., National Security File, Name File, Bator Memos [2 of 2], Box 1)

SUBJECT
Definite Acceptance of the GATT

For the reasons set out below, I recommend that you approve the definitive acceptance of the United States of the General Agreement on Tariffs and Trade (GATT)./2/

/2/For text of the General Agreement on Tariffs and Trade, signed at Geneva on October 30, 1947, see 61 Stat. A3.

Since 1948, when the GATT entered into force, United States application of the GATT, like that of most of the other countries concerned, has been based upon a Protocol of Provisional Application. By that Protocol the United States, in addition to undertaking to give full effect of the most-favored-nation principle and to tariff concessions granted to other countries, agreed to apply the other general trade rules of the GATT to the fullest extent not inconsistent with domestic legislation existing on October 30, 1947. By this means, the United States was able to apply the GATT as an executive agreement pursuant to the President's constitutional powers and his authority under trade agreements legislation.

Article XXVI of the GATT establishes the formal procedures for the definitive acceptance of the GATT and provides, in particular, that the Agreement shall not definitively come into force until accepted by countries which account for 85% of the trade of the major countries of the free world. In 1955, all the members of the GATT adopted a resolution which provides that definitive acceptance of the GATT pursuant to Article XXVI shall be valid even if accompanied by a formal reservation that the general trade rules of the GATT shall be applied to the fullest extent not inconsistent with domestic legislation which existed on October 30, 1947./3/ In other words, the members of the GATT agreed that any country choosing to accept definitively the GATT could do so with a reservation retaining the substance of the Protocol of Provisional Application.

/3/For text of the revised GATT text resulting from a review of the Agreement conducted by the ninth session of the contracting parties in Geneva, October 28, 1954-March 7, 1955, see American Foreign Policy: Basic Documents, 1950-1955, vol. II, pp. 2953-3013; see also 8 UST 1767.

Definitive acceptance of the GATT by the United States together with this permissible reservation, would involve the assumption of no greater legal obligation than the United States now has under the GATT. At the present time, there are two significant provisions of domestic legislation which were in existence on October 30, 1947, and which would be inconsistent with the GATT but for the Protocol of Provisional Application. They are section 303 of the Tariff Act of 1930,/4/ which provides for the imposition of countervailing duties without a showing of serious injury, as required by Article VI of the GATT, and Schedule 4 of the Tariff Schedules of the United States/5/ and section 336 of the Tariff Act of 1930, both of which provide for the use of American selling price as a basis of valuation for certain products, which is inconsistent with the provisions of Article VII of the GATT. By virtue of the reservation, definitive acceptance would not change the status of these domestic provisions under the GATT and could therefore be effected by Presidential, as opposed to Congressional, action.

/4/Approved June 17, 1930. (P.L. 361; 46 Stat. 590)

/5/Not further identified.

On his last trip to the United States, Mr. Eric Wyndham White, Director-General of the GATT, again emphasized the desirability of having the United States definitively accept the GATT. In Wyndham White's judgment, definitive acceptance by the United States, though essentially a symbolic action, would be followed by similar action on the part of the other major members of the GATT, who are looking to the United States to take the lead in this matter. He feels that such a combined action would serve in a particularly effective way to emphasize the importance of the GATT and its trade rules. We fully share these views, and especially at the present time when efforts are being made by less-developed countries to establish an international trade organization which would rival or supplant the GATT.

We have discussed the definitive acceptance of the GATT with both Democratic and Republican members of the House Ways and Means and Senate Finance Committees. In the Ways and Means Committee we have encountered no objection, and Chairman Mills, in particular, has asked us to communicate to you his full support for this action./6/ In addition, Congressman King of California (D.) and Curtis of Missouri (R.) have indicated their approval. Because of the fact that this matter is less known in the Senate Finance Committee, it has been difficult to obtain a clear expression of views from the members to whom we have spoken, including Senators Talmadge, Ribicoff, Williams (of Delaware), and Carlson. However no clear objection to the proposal has been made.

/6/No other record of Mills' communication has been found.

Accordingly, with the concurrence of the Departments of Agriculture, Commerce, Defense, Interior, Labor, State, and the Treasury, and the Council of Economic Advisers, I recommend that you sign the attached document,/7/ whereby the United States would definitively accept the GATT, subject to a reservation continuing the exception for inconsistent 1947 legislation contained in the Protocol of Provisional Application.

/7/Printed as Document 307.

William M. Roth/8/

/8/Printed from a copy that bears this typed signature.

 

306. Airgram From the Mission to the European Office of the United Nations to the Department of State/1/

Tagg A-727

Geneva, February 17, 1966.

/1/Source: Department of State, Central Files, FT 7 GATT. Confidential. Drafted by Winston Lord, Albert E. Pappano, cleared in draft by Blumenthal, J. Birkhead, W. Kelly, Ernest H. Preeg, and Courtenay P. Worthington, Jr. on February 14, and cleared by James H. Lewis. Received on February 19 and repeated to nine diplomatic missions

SUBJECT
Comments on EEC Commission's Report on KR

REF
A. Tagg 3799,/2/
B. Ecbus 646 to Dept./3/

/2/Dated February 4. (Ibid., EEC 3)

/3/Dated January 27. (Ibid.)

ExOff. For Governor Herter from Blumenthal.

1. Since USEC is preparing a summary of the Commission's report (Ref. B), the present message is limited to comment on points of particular significance contained in the report. These points include indications of Community positions not known (or fully known) to us before, cases of incomplete statements of the negotiating situation, or of inaccurate presentation of U.S. positions. These comments are intended primarily for the background information of the addressee posts, to provide additional clarification of the principal KR issues in relation to the Community. [5 lines of source text not declassified]

2. As indicated in Ref. A, we consider the report generally well-designed and constructive in approach. Although on a number of points it omits important nuances or fails to make clear the interests or positions of other major participants, it succeeds for the most part in focusing attention on specific actions or decisions needed to enable Community negotiators to negotiate. Specific comments follow.

Disparities

3. This issue is raised first and frequently, and quite evidently looms large in Community thinking. While the lack of agreed rules is mentioned, the report glosses over this aspect of the problem and fails to mention the important fact that the "rules" that the Commission speaks of were rejected by other participants unless accompanied by additional rules to protect the interests of others. Also, no mention is made of the fact that presently only the Six intend to invoke disparity claims. We learn for the first time explicitly that the Community plans to claim "free exceptions" (i.e., uncounted for reciprocity purposes) on those disparity items which a high-rate country excepts from its linear offer. In effect, this proposal would mean that, since the U.S. has watches and wool textiles on its exceptions list, and since the EEC plans to claim disparities on these items, the EEC would be entitled to exclude them fully from its linear offer without having them counted as exceptions. In practical terms, it seems highly unlikely that the exporters of these products would accept this action by the Community. The Commission appears confident that talks with European countries (which clearly have made little progress) and technical criteria will sufficiently reduce the number of disparity cases to make the issue manageable with us and others. We plan to continue to make our views known and fully reserve our position, but to steer clear of theoretical arguments. Through use of the "European clause" and pragmatic handling in key sectors we hope to see the issue greatly reduced in the course of the negotiations, and our response will be determined by the significance of the disparities ultimately claimed by the Community in the light of the negotiating situation at that time. But potentially the EEC position means that the disparity problem may give rise to further serious US-EEC difficulties.

Exceptions

4. Partial offers and ex-outs are the two most interesting topics in this section. The Commission acknowledges that on 60% of the partial exception items the proposed depth of the tariff cut to be offered has not been revealed to third countries. The emphasis for selecting the degree of duty reduction on these partials is arithmetic, not economic, and rests on the same sliding scale formula that the Community proposed for disparities. This formula, which no one has accepted, works out to about 22% cut on all 2:1/10 disparity candidates, and the average reduction on partial offers revealed to date is 21%. This approach seems clearly inconsist-ent with the intent of the agreed formula contained in the GATT Ministers' directive for the negotiations (a bare minimum of exceptions to be justified on grounds of overriding national interest), which appears to refer to economic factors. The Community appears receptive to ex-out suggestions, but the report never raises the prospect of improving offers on entire exception items by removing them from the list or by increasing the partial reductions offered. The U.S. is preparing to make known a number of ex-out proposals covering identifiable items of particular interest, but the problems of the length of the EEC list and breadth of American export interests will not be solved through the ex-out method alone, and the Commission itself notes the technical limitations of this method.

Nontariff Barriers

5. There is a general readiness to discuss NTB's but no focus on the procedural problem of who will negotiate for the Six, the Member States still being individually responsible for this aspect of commercial policy under the Rome Treaty. Our views on coal and road taxes were set forth in July 1964 papers presented to the Multilateral Group on NTB's,/4/ but the EEC has not been willing to schedule a bilateral meeting with us on nontariff obstacles. In this report our interest in road taxes is more than adequately reflected, while our complaints on coal (which cover state trading in France as well as the German tariff quota and licensing restrictions in the Netherlands and Belgium) and other barriers need more emphasis in Community consideration. We do not, as implied in the report, attach less importance to restrictions on coal than to road taxes. It should be borne in mind that when mention is made by the Community of such U.S. restrictions as the Wine-Gallon system and Buy American, there are a number of nontariff restrictions maintained by Member States of the Community that are of interest to us. Examples are government purchasing practices and the French prohibition against the advertising of whiskey.

/4/These papers have not been further identified.

Chemicals

6. We find this section somewhat confusing and ambiguous, but in its entirely not without hope. The U.S. position on ASP is at first (pages 20-21) fairly reflected, but then our willingness to negotiate on the system is clouded and questioned. There is much emphasis on the U.K. proposal, but only passing attention to what would be required of the Community (removal of its exceptions and disparities) in such an approach. An EEC quid-pro-quo for American movement on ASP is not discussed. Nevertheless, despite the steady theme that the U.S. position is restrictive and is stalling sector negotiations, the Commission urges that it be authorized to participate in discussions of an overall sector solution that would permit a softening of the American stance. We should continue to work for this development, in effect a dropping of the Community's "prealables" for negotiating in this field. We have stated that ASP is negotiable within the context of a chemicals sector package and overall KR reciprocity. Contrary to implications in the report, we have not precluded the possibility of elimination of ASP as a method of customs valuation, but have tried to make clear that our negotiating authority under the Trade Expansion Act limits us to a 50% reduction of the existing level of protection. We have said that the U.K. proposal can be discussed, although in its present form it is not sufficiently attractive to us, and have pointed out the reasons why it appears most unlikely that the U.S. could negotiate a greater-than-50% reduction in the protective incident of its chemical tariffs. The report suggests a belief by the Commission that our present position should be sufficient to permit the Council to authorize Community negotiators to begin exploring a possible package solution in the chemical sector. Additional missionary work, however, is needed to place the whole ASP question in proper perspective and to underline our willingness to bargain meaningfully, provided that others are also willing to make important contributions in the chemicals sector and elsewhere.

Pulp and Paper

7. Commission thinking in this sector is somewhat clarified. The prospect of a "European deal" seems dimmed because of the difficult demands for Scandinavian price data as a condition for agreement, and the emphasis appears to be a non-discriminatory consumption tax for paper products in order to support domestic pulp and newsprint production, reforestation and scientific research in the paper industry. The Commission offers to draw up specific proposals if the Council agrees in principle to this approach. Whether this latter device, coupled with lowering of tariffs, (eventual duty-free entry for pulp and a 50% cut for news-print is mentioned) would help or hinder imports depends, of course, on the details. In any event, its compatibility with GATT articles will have to be closely studied. The report also reveals that on four basic tariff positions the existing mandate permits a maximum cut of only two percentage points (or about 13% reduction). These four items, which include kraft paper and board, cover roughly two-thirds of U.S. exports of all paper and board to the Community. Kraft liner is the only American interest cited, although U.S. pulp exports to the Six ($66 million in 1964 and rising rapidly) almost tripled our kraft trade. The document blurs the precise internal and/or external prerequisites for beginning talks with the U.S. and Canada, still looking to an accord with the Nordics in the "first months of 1966," but certainly moves us no closer to this objective.

Cotton Textiles

8. We have no reason to believe that there has been a slackening of Community support for the extension of the LTA. However, the report reflects a greater uncertainty about the chances for renewal of the Arrangement than the facts seem to warrant, indicates serious Commission weighing of alternatives, and lays the uncertainty over the future of the LTA to US-LDC confrontation in the cotton textile issue. In our view the Wyndham White package approach for this sector, including LTA extension, has been tacitly accepted and the positions of the only holdouts, India and Pakistan, appear flexible. The report fails to make clear what actions (i.e., decisions authorizing the Commission to negotiate on Member States' quotas and on Community exceptions) are required by the Council in order to permit completion of the package deal.

Aluminum

9. The report confirms that two alternatives that the Six have been rumored to be weighing on unwrought aluminum: a partial reduction from 9% to 7% with the removal of the present 5% tariff quotas (resort to Rome Treaty Article 25 still being applicable), or a maintenance of the 9% tariff and a binding of a Community tariff quota at 5%. We are examining these possibilities to determine which is less unpromising. Norway's interest in this sector is singled out, while the very substantial North American concerns are not reflected. The major problem underlying the sector remains the virtual certainty that offers of other interested participants on aluminum will not remain on the table in the absence of action by the Community to liberalize conditions of access to its aluminum market.

Minerals and Metals

10. The U.S. position on base rates for petroleum is fairly presented, but it is clear that the related subjects of exclusions and reciprocity (see below) will be of crucial importance to the US-EEC negotiations. Community preference for bilateral handling of ferro-alloys is confirmed, while the suggestion of studies of the economic situation of the ferro-alloy industries in various countries hints at some possible movement in the present phalanx of total exceptions in this sector. The revelation that ferro-silico-manganese is slated for disparity treatment satisfies the curiosity of those who wondered why this ferro-alloy alone did not qualify for the Community's exceptions list. The situation for iron and steel is pre-sented weakly and the ECSC base-rate position is termed legally defensible on the ground that the majority of the negotiating partners are using bound rates as base rates. (See Tagg 3792 for our comments on this topic.)/5/ The action program refers only to EEC partial exceptions and not to the root problem of the ECSC "offers," which is the lack of ECSC offers to cut effective rates.

/5/Dated January 31. (Department of State, Central Files, FT 7 EEC-US)

Mechanical

11. There is particular emphasis on ex-out possibilities and principal suppliers, while the huge U.S. (and U.K.) trade interest in this sector, which has been repeatedly stressed, does not emerge from the report. A Community reciprocity requirement in agricultural machinery is revealed for the first time and parallels its demand for reciprocity in the automotive and aircraft fields.

Agriculture

12. In our view the section of the report devoted to agriculture falls short in three respects. First, it concentrates on decisions relating to domestic policies and regulations, so that the focus of attention seems to be on the achievement of the CAP rather than on the formulation of KR agricultural offers. Second, it ignores the unacceptability of the MDS concept as a basis for negotiation which has been expressed by the U.S. and others at every occasion. Third, it seems to look forward to further discussion of issues rather than tabling of concrete and specific agricultural offers. What is really required in order to permit the Community to participate meaningfully in the negotiations on agricultural products are decisions authorizing offers that go beyond the mere binding of MDS margins and afford genuine prospects of increased trading opportunities.

Cereals

13. The report makes clear the need for a new mandate that would provide authority to negotiate international reference prices and differentials and to negotiate commitments for food aid in terms of a formula for sharing. Reference is made to the interests of U.S. and Australia in some form of quantum or other arrangement for limitation of production but otherwise the access problem is not dealt with. The Community's internal price is recognized as an element of the problem but there is no real discussion or analysis of its relation to international arrangements or KR offers.

Dairy Products, Meats, Sugar, Fats and Oils

14. The main conclusion for each of these groups of products is that the Community will not be able to negotiate effectively until the Council decisions on common internal prices have been made. In the case of dairy products there is no recommendation for any international measures to deal with surplus production, as proposed by New Zealand in the case of butter. For meats, while referring to the technical discussions to be carried on in Geneva beginning in March, the report appears to postpone consideration of the sort of international arrangement that might be proposed. In the case of sugar, the report notes that the Community has reserved the right to call for a sector group, (although in fact it has not called for one up to this point). While noting the need for a general international sugar arrangement and the interest of the LDC's in a reorganization of the world sugar market, the report cites the reluctance of most other countries (attributed mainly to problems of internal policy) to negotiate such an arrangement. The fact is that the emphasis on sugar by the EEC is directly related to internal problems of sugar policy. The U.S. view is that sugar is of relatively little importance as an item of negotiation in the KR since it is unrealistic to expect that interested countries will be prepared to agree in the KR context to do what they are not prepared to do in the context of the International Sugar Agreement./6/ Noting that most of the negotiating partners do not accept the idea of an international fats and oils arrangement and the fact that the United States has expressed outright opposition, (attributed to reluctance to bind internal policies and apprehension of less favorable conditions in foreign markets), the report urges such an agreement on grounds of LDC interest and calls for rapid decision on the organization of the Community's fats and oils market in order to be able to submit concrete proposals at Geneva. (The U.S. is in fact opposed to attempting to negotiate an international agreement on fats and oils, chiefly because we believe such an arrangement would worsen opportunities for trade and would be unworkable. The number and variety of fats, oils and oilseeds entering into world trade would require provisions and regulations of unmanageable complexity.)

/6/Signed at London on December 1, 1958, and entered into force for the United States on October 5, 1959. (10 US 2189)

Other Agricultural Products

15. The report divides these products between those related to products (e.g., grains) provided for in international arrangements (grain-based products such as pork and poultry) and others, many of which are provided for in Community regulations and market organizations (e.g., fruits and vegetables, processed products, etc.). The report points out also that for certain products, i.e., those for which all decisions have been made or those which are subject only to fixed duty protection, it would be possible to make offers immediately, while for others, offers must await decisions of the Council as to market organization, etc. That there has been no movement in the Commission's negotiating position is shown by a statement that the Community has held to the approach laid down by the Council in December 1963, i.e., the pursuit of undertakings as to the total effect of direct supports, and nothing more. This is merely another way of formulating the MDS binding as a basis for negotiations on these products. In any event, decisions relative to specific offers on these products are subordinated to the adoption of definitive Community regulations.

Tropical Products

16. The report merely urges that the Community's offers on tropical products be tabled as soon as possible, after appropriate consultations with the AOC's, but gives no indication of Commission thinking as to the scope or nature of such offers. One point of interest in relation to U.S. authority under TEA Section 213 is reference to the view, evidently expressed in the Tropical Products Group, that measures taken to reduce or eliminate barriers to trade in tropical products should not be conditioned upon similar action by other industrialized countries.

U.S. Exclusions and Reciprocity

17. In a section devoted to negotiating problems between the Community and particular countries, the report singles out, for the U.S., the question of reciprocity and the role that our exclusions might play in redressing the manifest imbalance between the two exceptions lists. Recalling that the U.S. delegation had many times characterized the EEC exceptions list as much longer than that of the United States, the report argues that U.S. "exclusions" (mainly petroleum and products) should properly be classed as exceptions, in which case the two exceptions list would be "parfaitement comparables." The launching of this argument at one of the bilateral negotiating sessions last summer gave rise to a spirited debate in which U.S. representatives reminded the EEC team that no participant in the KR negotiations has a significant trade interest in U.S. imports of petroleum--indeed the Community's interest is virtually nil--and asked the question (unanswered) what the Community would be willing to pay for a U.S. concession on petroleum if it were available. It is clear from the treatment of this issue in the report that the Commission will make a major effort to have our exclusions counted as exceptions in order to write off some $1.5 billion of EEC exceptions and thus hopefully to avoid withdrawals by the U.S. at the balancing stage of negotiations.

Conclusions

18. The concluding section of the report underlines three points, all of which are sound and constructive. First, referring to the Wyndham White report and to the meeting of Ambassadors Roth and Blumenthal with members of the Commission in Brussels on January 11, the Commission emphasizes the urgency of moving into the active phase of negotiations and commends the timing problem to the most serious attention of the Council. Second, while recognizing that all important decisions must be made by the Council, the Commission calls upon the 111 Committee to play a more active role in providing guidance for the EEC delegation in questions of less crucial or technical nature and states the Commission's intention to maintain close contact with the permreps of the Member States in matters pertaining to the KR negotiations. Third, the Commission calls upon the Council to schedule a special session, with participation of both ministers and technicians, for detailed examination of the Commission's report with a view to adopting the decisions required for "fruitful pursuit" of the Geneva negotiations.

For the Ambassador
James H. Lewis
Counselor for Economic Affairs

 

307. Acceptance of the General Agreement on Tariffs and Trade by the United States/1/

Washington, February 18, 1966.

/1/Source: Johnson Library, Bator Papers, Kennedy Round, CAH, May 4, 1964 [1 of 2], Box 11. No classification marking. The source text is attached to a February 18 note from Bator to Solomon, Greenwald, and Roth that reads: "The President approved the attached this morning. STR has the signed letter of acceptance."

ACCEPTANCE ON THE PART OF THE UNITED STATES OF AMERICA

I, Lyndon B. Johnson, President of the United States of America, acting pursuant to the authority vested in me by the Constitution and the statutes of the United States of America, including section 350 of the Tariff Act of 1930, as amended, do hereby accept, on behalf of the United States of America, the General Agreement on Tariffs and Trade, dated at Geneva on October 30, 1947, as amended, with the reservation that Part II thereof will continue to be applied to the fullest extent not inconsistent with Federal legislation which existed on October 30, 1947.

Done at Washington this 18th day of February, 1966.

Lyndon B. Johnson

 

308. Report by the Chairman of the Trade Negotiations Committee (Wyndham White) to the 23d Session of the GATT Contracting Parties/1/

L/2624

Geneva, March 30, 1966.

/1/Source: Department of State, Central Files, FT 7 GATT. Unclassified. The source text is enclosure 1 to airgram Tagg A-776 from Geneva, April 7, which states that the report was released to the press. The airgram was repeated to 24 diplomatic missions.

TRADE NEGOTIATIONS COMMITTEE

Report by Chairman

It occurs to me as I begin to speak on this subject that we shall shortly be approaching the third anniversary of the launching of the trade negotiations, and as one surveys the state of progress which unfolds itself to our eyes, this indeed is a solemn thought.

In my last statement to the Contracting Parties on this subject I reported, perhaps with a certain professional optimism, that some progress had been made which I qualified as being perhaps slow and unspectacular, but nevertheless real./2/

/2/Not further identified.

Unhappily, looking back over the period since making that report to the Contracting Parties it is somewhat difficult even to apply a similar degree of cautious professional optimism. In fact, as events proceeded towards the end of 1965 I became so preoccupied with, so disturbed at, the lack of progress in the negotiations that I felt it necessary to take the somewhat unusual step of drawing up a report on the state of the negotiations for consideration by responsible Ministers of governments participating in them./3/ In this report I drew attention to the limitations of time which is still available to us to bring these negotiations to a successful conclusion, the difficult decisions which require to be made by governments to render this possible, and the very stringent programme of work which imposes itself now upon us.

/3/Attachment to Document 302.

In the preamble to that report I pointed out to governments that in initiating the current trade negotiations the participants had embarked upon two major ventures. First the launching of a negotiation designed to secure a degree of liberalization of the present barriers to international trade which is both deeper and more comprehensive in coverage than had been secured in previous negotiations, covering all classes of products and dealing with non-tariff as well as tariff barriers. The second, and at an equal level of importance, a series of activities to meet the urgent trade and economic development problems of less-developed countries. And I suggested that special responsibilities rested on the shoulders of the more highly developed countries which had, in ministerial resolutions on which the trade negotiations were based, committed themselves specifically to making use of the negotiations to contribute in a substantial way to the solution of these problems.

In all previous discussions I have counselled patience in considering the time-table. The operation in which we are engaged is a vast one. The stakes are very large. The consequences of both success and failure are extremely great and the time-table would naturally be somewhat proportionate to both the difficulties that such an ambitious negotiation involves and the magnitude of the issues involved.

But I felt at the end of 1965, and, naturally enough, feel even more greatly now that time is beginning to run out. It is true that in my report of 3 January I related this specifically to the expiration of the negotiating powers of the President of the United States under the Trade Expansion Act. We are told by the United States administration, and those of us who are familiar with the Washington scene I think have no difficulty in accepting this, that, in the context of uncompleted negotiations, the prospects of an extension of those negotiating powers must be regarded as non-existent. But I think it is perhaps wrong to think that time is running out only because of this factor. I think time is also running out only because there is a mounting degree of discouragement and disillusionment in other countries which have been preparing themselves for active negotiations over this extensive period. And I sense a growing scepticism, a growing doubt as to the credibility of this exercise, a growing difficulty for governments to maintain negotiating teams in the field, and of maintaining the interest of policy-making departments and Ministers, in an enterprise which appears to move with the velocity of a deeply submerged iceberg.

For all these reasons therefore it seemed to me then, and it seems to me even more so today, that unless governments can put themselves in a position whereby in a very short time in the future it will be possible to have delegations, with broad authority to negotiate, present continuously in Geneva and in a position to engage negotiations actively and continuously on all fronts, unless this happens we must begin to yield to a certain pessimism as to the possibilities of carrying this great enterprise forward to a successful conclusion. And, as I have said, the consequences of failure are hardly less impressive than the opportunities of success. It is, I think, no secret to anyone that in a number of important countries, a number of restrictive, protectionist, negative forces have been kept in check and control because governments have been able to point out in resisting such pressures that to yield to them would jeopardize their negotiating positions in the important trade negotiations proceeding in Geneva. I very much fear that if and when these inhibitions are lifted we may see a serious reversal of the trend of trade liberalization which has been such a profitable feature of the last decade both in terms of the international economy and in terms of national economy.

I think that I would therefore be failing in my duty to the Contracting Parties if I were to fail on this occasion to express a note of considerable and deep concern. Quite frankly, the condition which I described a few minutes ago of bringing the negotiations to a successful conclusion, seems to me, as I look at the scene now, far from being attained. It is true as I said before that some progress, perhaps even considerable progress, has been achieved in identifying the possible areas of agreement in relation to reduction of tariffs on industrial products. I am not, however, perhaps as deeply convinced as some others that even here the exploration of positions in bilateral discussions have really been carried to the point where the maximum possibilities of fruitful negotiation can be ascertained and be available by the autumn of this year.

If one looks at the vast and vital field of negotiations on agriculture the picture is frankly one inviting complete depression. It is true that as regards cereals there has been extensive discussion which has enabled us to identify the principal obstacles to an agreement on the Cereals Arrangement. In other important sectors in agricultural trade there has been a fruitful and instructive examination of existing material about the conditions of trade in these products. I refer particularly to dairy products and meat. But, except for some proposals made by some countries, there is no comprehensive set of offers on the table to form the basis for serious international negotiation, and we cannot see clearly at this time if and when such a situation will exist. As regards the rest of the whole range of agricultural products, whilst a number of countries have made some offers on some products, these are far from complete. Moreover, for reasons which are well-known, the prospect of getting practical concrete negotiating offers, even on the somewhat ambiguous negotiating rules which are the maximum which we have been able to agree on so far, seems at present impossible.

In the field of tropical products we are far from having any clear idea of the possibilities of obtaining a major advance in this field, which is of such great importance to so many of the developing countries and where one would have thought that it was not beyond ingenuity or the will of mankind to have found a more satisfactory basis for international trade, since this does not present a serious challenge to any vested interest in the industrial parts of the world.

I shall have an equally unpleasant task to present to the Contracting Parties in due course a report on conditions in the international trade in cotton textiles. I describe it as an unpleasant task. It is certainly one which I shall accomplish with little joy and not much satisfaction.

I apologise to the Contracting Parties for this somewhat gloomy statement. It is an aspect of my character to which I have not habituated the Contracting Parties in the course of the years, but I hope that perhaps if I depart on this occasion from my usual somewhat cheerful optimism the impact may be somewhat heightened on that account, rather than diminished. This then, Mr. Chairman, is the report which as Chairman of the Trade Negotiations Committee I feel bound to present to the Contracting Parties today.

In these circumstances it would be reasonable to anticipate that somebody would say: "What do you propose that we do about it?". I have put this question to myself and of course one of the obvious ideas that springs to mind is that, in view of the importance of this exercise, in view of the important political commitment to try and deal constructively with the urgent and economic and development problems of the less-developed countries which has been undertaken and in view of the fact that this enterprise is one which was launched by responsible Cabinet Ministers of the participating countries, the Contracting Parties should suggest the convening of these same Ministers to consider the present situation and to ascertain whether the possibilities still exist of activating the negotiations, of bringing about the necessary political decisions and of creating the conditions for success, or alternatively to draw the opposite conclusion. However, I have come to the conclusion that such a step at this time would not be fruitful and on the contrary might prove counter-productive at this time. It is clear, however, that if the present situation continues for very much longer, a period I would measure in terms of weeks rather than months, then this is a step to which we shall have to give careful consideration because this is clearly not the sort of enterprise which can be allowed to go by default. The decision to fail would be quite as important in another sense as a decision to succeed.

 

309. Letter From the Special Representative for Trade Negotiations (Herter) to Secretary of the Treasury Fowler/1/

Washington, April 1, 1966.

/1/Source: Johnson Library, Bator Papers, Balance of Payments, 1966 [2 of 2], Box 15. Secret. An attached covering letter from Herter to Bator, April 5, states that "at the last meeting of the Cabinet Balance of Payments," Herter "suggested a review of the possibility of imposing import controls for balance of payments reasons." In the attached copy of his letter to Fowler, Herter was "giving my conclusions after further study of the subject." Herter was referring to the March 25 meeting; see Document 88.

Dear Joe:

Since our last meeting of the principals of the Cabinet Balance of Payments Committee, I have given the question of import restraints for balance-of-payments reasons much serious thought.

It is clear that we could design an import quota or surcharge system which would have a major direct impact on the level of imports. However, the attached memorandum shows that existing legislation does not make this possible and that new legislative authority would be required. I am doubtful such legislation could be enacted quickly, and you of course recognize the problem of speculation during the time in which legislation would be pending. I have attached a memorandum setting forth the nature and limitations of our domestic authority.

Whether we would benefit substantially from the imposition of import restraints now seems very doubtful to me, at least under present circumstances. I believe we must first of all accept the almost unanimous judgment of economists that the imposition of broad import restraints would have an inflationary impact on the domestic economy. We are already in a period in which we are running at full capacity and such a move would therefore prove counter-productive.

I have considered the possible implementation of import restraints under the GATT and should like to make the following general observations. Under the GATT, the United States could impose quotas because of balance-of-payments problems upon its own unilateral determination that the preconditions prescribed by the GATT do in fact exist. It would not need to obtain any prior finding or authorization from any country or international organization, but a finding by the IMF on the need for quotas would be ultimately required and would be binding, in the sense of defining our rights under the GATT, and the rights of others to retaliate. We would, in other words, have to demonstrate to the IMF that our balance-of-payments problems were of the requisite severity.

Under the GATT, the United States could not impose tariff surcharges because of balance-of-payments problems. If it did so, a GATT country affected by the surcharges could bring an action under Article XXII and this could lead to retaliatory action against the United States. However, in theory at least, a waiver of the GATT could be sought.

Quotas could be limited to a selected list of imports without violating the GATT. Criteria which, for example, singled out "nonessential" or "luxury" products could provide a basis for selection. For domestic economic reasons it might be considered desirable to allow free access to raw materials and semi-finished products, so as to prevent bottlenecks at the early stages of manufacture. However, the curtailment of a broad list of "nonessential" or "luxury" imports alone would still provide domestic inflationary pressure.

I have also considered whether we might not select a product list which discriminated as among exporting countries, in order to focus the effects on those who give us most trouble in terms of gold flows. It is unlikely that this would help, since the GATT authority does not allow us to discriminate among suppliers without penalty of retaliation.

Import quotas or surcharges would probably trigger objections among many exporters to the U.S. who in turn might find ways to retaliate against our exports. It may, of course, be argued that foreign retaliation would be very limited if the import restraint action were seen to be a necessary condition for maintenance of the value of the dollar. If the dollar were under very heavy speculative attack, a drastic series of measures, including import controls, might be just what was required. But in situations short of an international crisis of dollar confidence, we should he hard put to gain general agreement among our trading partners that our situation was serious enough to warrant this type of action.

But, putting these problems aside, further reflection leads me to wonder whether the United States would gain any advantage from an improved trade account which resulted from the imposition of import restrictions. I recognize that one of our immediate objectives is to provide a stronger U.S. bargaining position for the negotiation of international monetary reform. But looking at this closely, I question whether our bargaining position would be much changed by the achievement of balance by means of direct controls on trade. For example, I noted in this regard the recent experience of the U.K. in its import surcharge consultations in Working Party III of the OECD, and elsewhere. The U.K. has been repeatedly informed by other nations that a return to equilibrium must be defined as a return to equilibrium without the surcharge.

Our long run basic objective is of course to maintain world confidence in the value of the dollar. I now question whether trade restraints would increase confidence in the dollar except under circumstances in which we were in real desperation, and unless coupled with stringent measures taken with respect to our domestic economy.

I must therefore conclude that the imposition of import quotas or surcharges involves many complications and appears more likely to boomerang than provide a useful aid in our present balance-of-payments difficulties.

Most sincerely yours,

Christian A. Herter/2/

/2/Printed from a copy that bears this typed signature.