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DEPARTMENT OF STATE1964-1968 Volume VIII International Monetary and Trade Policy |
General and Financial and Monetary Policy
320. Statement by the Deputy Special Representative for Trade Negotiations (Blumenthal)/1/
Geneva, September 14, 1966.
/1/Source: Department of State, Central Files, FT 7 GATT. Confidential. The source text is enclosure 1 to Tagg A-56 from Geneva, September 25. The date of the statement is taken from this airgram. Five tables, which further defined the U.S. offer, were additional enclosures. They are not printed.
UNITED STATES OPENING STATEMENT ON AGRICULTURAL OFFERS IN GATT KENNEDY ROUND, GENEVA
Committee on Agriculture
Mr. Chairman, I would like to say some general words about the offer on agricultural products presented by the United States. I shall be brief since we fully agree that the work that now has to be done is of a negotiating nature and involves individual and specific negotiations on the different commodities which these countries have placed on the table in terms of offers.
May I say at the beginning that my delegation is, of course, gratified that we have finally reached that stage where we can begin this process and where the actual negotiations can start. It is no secret that this is a stage of the negotiations that we have long and anxiously awaited. As we see it, the next stage is to bring our agricultural negotiations, as quickly as possible, at least to the same point in which our industrial negotiations have progressed. Towards the end of the year we must be in a position to make the kind of over-all assessment that will be necessary in order to judge the adjustments required to achieve balance in the Kennedy Round.
I should like now to refer to a few figures in order to illustrate what the United States has done.
Total United States agricultural imports in the year 1964 amounted to $4.1 billion. Out of that $4.1 billion, $2.1 billion, or slightly more than half, already entered the United States free of duty in 1964. In virtually all cases, except one, for all major items these zero duties are bound. So, of course, there is no further offer on these. Let me just say that that large group of over $2 billion worth of commodities already entering free of duty into the United States are heavily concentrated in the tropical products area. The single largest item is coffee, with $1.2 billion; and such other commodities as rubber, cocoa beans, bananas, certain types of wool, and tea make up the rest.
Some of the countries represented around this table have an interest in these products, but as far as the others are concerned, I take it that there is no particular problem with those since they already come in free of duty.
Out of the remaining $1.9 billion in items which are dutiable and available for concessions, there are some commodities which are going to be discussed in the Cereals, Meats and Dairy Groups. They amount to $331 million of imports. I shall not be commenting on the offers on those commodities here since I understand that we will be dealing very shortly with the offers that have been placed on the table in the Dairy Group. The same thing applies to the Meat Group, and, of course, in cereals we are already engaged in our negotiations.
There is another group of items, comprising $61 million, on which we have not made offers. These are commodities for which, quite frankly, we have economic exceptions. They are commodities where, on the basis of a very careful judgment, we feel that it is not possible to offer concessions. That $61 million, of course, represents a very, very small proportion of the over-all volume of imports into the United States. These items, moreover, come in a very high proportion from countries which are not participants in the negotiations.
The largest single item, involving $21 million, is in tobaccos, of which the principal suppliers are the Dominican Republic, Colombia, and Brazil. There are some other items, such as mushrooms, which come, primarily, from China and, to the small extent of about $1 million, from the European Economic Community. There are three or four other items in this group of exceptions. These are frozen strawberries, dates, figs and fig paste, pepper and lemon juices. Cotton is also included. The United States holds very large stocks of cotton and is the only world producer in that position. Liberalization is therefore not possible.
That leaves us, Mr. Chairman, with another category of $740 million of items on which we are not making offers. These are in commodities which, to a very large extent, are supplied to us by countries who are not participating in this negotiation. The largest part of that $756 [$740?] million represents sugar ($458 million). In the case of sugar, the United States reserves a very sizeable portion of its protected internal market at the same premium prices to foreign suppliers as it guarantees to domestic producers. It is well known that we--as well as many other major consuming countries--have a rather clear sugar import program and sugar policy, under which we allocate quotas. These quotas are valuable and constitute considerable sources of income for many exporting countries.
We have, of course, made no further offer in this area, because the Sugar Act and the sugar policy that we follow is a matter of separate determination. All of the countries who supply to us are constantly in touch with us on those matters.
The main items in the group of $740 million, which are supplied primarily by non-participants, are the following:
Coconut oil--which comes from the Philippines, not participating in this negotiation.
Copra--totally coming from the Philippines, not in this negotiation.
Coconut meat--Philippines, not in this negotiation.
There are certain items, such as non-edible molasses, which account for $34 million, and which very heavily come from countries not in this negotiation. One other important item, fresh tomatoes, is in its totality supplied to the United States by Mexico, another country not participating in this negotiation.
This brings us to the United States offers being examined this week. These cover about $750 million worth of items where the U.S. offer is of real relevance; and it is these $750 million worth of imports to which I wish to address myself at this time.
Our offer is a very simple one. For these imports, after considerable deliberation and soul-searching, and in spite of some difficulty and pressures which, I am sure, will be readily understood around this table, and in spite of the fact that this is a difficult undertaking for us, we have placed a full 50 percent offer on the table. In fact, for all items, other than those covered in the special commodity groups, for which countries represented around this table have a principal export interest to the United States, we are offering to cut our tariff by 50 percent. This is significant because in virtually all of these cases there is no other import protection, no other protective device, in existence in the United States. So that an offer to cut these tariffs by 50 percent represents, in fact, an offer to reduce the total import protection by that amount, and these offers are therefore not impaired or nullified in any way.
Let me very quickly run through some of the major items which we have offered for a 50 percent cut in this group.
The largest single item is canned pork ($106 million). We have offered a full 50 percent cut. The major suppliers are Denmark, the EEC and Poland. It is clear that this is a precise offer on an item in which these countries have a major export interest to the United States. This item is now unbound.
The second item is wool ($101 million), supplied to us by Australia, the largest single supplier, South Africa and New Zealand. This, too, is a full 50 percent cut.
The next item is tobacco ($83 million), supplied by Turkey, Greece and Yugoslavia, for a full 50 percent cut.
The next item is wine ($61 million), supplied largely by the EEC, which exports $50 million to the United States. We have no other protective device. We have offered a full 50 percent cut in the duty.
The next item is cashew nuts ($33 million), supplied to us by India and Mozambique. That is also on the table for a 50 percent reduction. Certain beef and veal products supplied by Argentina, Uruguay and Brazil are all subject to full 50 percent offers.
There are many more, Mr. Chairman, up to a total of just about all the commodities of export interest to the countries around this table; and for all of these we have placed the 50 percent offer on the table.
We are now anxious to move at the earliest possible date to individual discussions with our various negotiating partners on these offers, to listen to their comments and to answer any questions that they may have. We believe that our offer is by its very nature a simple one, easily understood; but we are, of course, prepared to deal with any questions or comments which may arise and to negotiate seriously on these commod-ities. And, Mr. Chairman, we want to discuss the offers of other countries with them, as well as the offers which they have not made. I do not propose to make any particular comments at this time as regards the individual offers that have been placed on the table by other countries. It is clear that we have many questions, comments and suggestions with regard to these offers; but again, by their very nature, we think that what is required is the sort of thing that you suggested a moment ago, Mr. Chairman: real negotiation on each of the specific problems and commodities involved, either bilaterally or perhaps in groups of three or four countries which have a particular interest, as the case may be. I do wish to say, however, that, looked at globally, the sum total of the offers in agriculture placed on the table by other countries, if examined by us in the light of commodities in which we have an export interest, gives us considerable cause for concern. Last year, after multilateral discussions in this Committee, we presented to the fourteen countries who are our most important agricultural export markets, requests for 50 percent reductions in their tariffs on about $1.2 billion of our exports. If we look at the offers made by others on the totality of these items, we find that there are offers for a 50 percent cut on $267 million of that U.S. $1.2 billion, in other words less than 25 percent. That is a misleading figure, moreover, because virtually three-quarters of that $267 million on which we have offers for 50 percent cuts is accounted for by one offer on one commodity from one country and is a rather special case. If you subtract that item from the total, we have really only about $50 or $60 million worth of offers of interest to us and which are offered for a 50 percent cut. On the rest, about a billion dollars in which we have an export interest, the offers are more modest or there are no offers at all. That is obviously no secret to anyone who has looked at these offers. In many cases they are considerably more modest and in some cases the offers are of a nature which, it appears to us, is indeed of really very questionable value. We look forward to exploring the offers of other countries with them in our individual discussions and to exploring the possibility of improving them. We sincerely hope that it may be possible to do so, because it is clear that if it were to prove not possible to do so the implications for the entire United States offer in agriculture and industry as well could be serious. It is clear that our offer for 50 percent cuts in agriculture and elsewhere will have to be reviewed very seriously in the light of what improvements we are able to negotiate--or cannot negotiate--through the discussions we are having here. With that comment, Mr. Chairman, I would like to conclude my opening remarks and say again that we are ready with a full team to go into detailed negotiation on a case-by-case basis without delay.
321. Memorandum of Conversation/1/
Washington, September 20, 1966, 3 p.m.
/1/Source: Department of State, Central Files, FT 7 GATT. Unclassified. Drafted by Joseph G. Simanis (STR) and Bernard Norwood (STR) on September 26 and approved by Herter. The meeting was held in the Office of the Special Representative for Trade Negotiations. The source text is an attachment to CA-2653 to Brussels (USEC) and five other posts, October 5.
PARTICIPANTS
Fruit Growers--(See Enclosure 1)/2//2/The list of 23 representatives of fruit growers is not printed.
STR--
Christian A. Herter, Special Representative
Bernard Norwood, Chairman, Trade Staff Committee
Joseph G. Simanis, Assistant to the Chairman, Trade Staff CommitteeSUBJECT
U.S. Fruit Export Problems: Kennedy Round and Country ProblemsMr. Falk,/3/ speaking for the Council, outlined the attitude of the fruit exporters regarding U.S. trade and the Kennedy Round. He said that they wished to obtain fair access to export markets. In this connection, they had supported passage of the Trade Expansion Act. He said that U.S. fruit producers were gratified by the removal of some barriers to sales of U.S. fruit that had resulted from GATT Article XXIII consultations with France. (This comment was repeated several times during the meeting by other members of the group.) Falk said that the EEC agricultural offer seemed, from the information that had been made public, to be extremely poor and was perhaps a step in the direction of greater protectionism rather than a move toward liberalization.
/3/Ernest Falk, Northwest Horticultural Council, Yakima, Washington.
Governor Herter expressed his continuing sympathy for the problems of the fruit growers and canners. He agreed that the EEC's agricultural offer was not encouraging and, noting particularly the extension of reference prices to a new range of products, was regressive in some respects. Lack of provision in the CAP for production controls, he added, detracted further from the offer. We had informed the EEC, he said, that their offer, if not a trading position from which they were willing to retreat, was valueless.
In commenting on a statement by Falk that "no agreement was better than a poor agreement," he said that an agreement could be considered poor if it were extremely limited but that it seemed to him to be wise in such a case to accept the agreement as long as adequate reciprocity was involved. In this connection, he noted that the American Farm Bureau had recommended immediate withdrawal of all U.S. offers of interest to the EEC until they improved their agricultural offers. As a matter of timing and tactics, Governor Herter disagreed. If the EEC does not eventually offer adequate concessions, withdrawals would be made; but for the time being, we should allow what we have tabled to remain as our offer.
Falk agreed that reciprocity was the crucial factor. He pointed out that the Fruit Exporters' Council had prepared a statement to be presented to a group of Senators which included a recommendation similar to the cited proposal of the American Farm Bureau. However, in order not to create difficulties for the United States in the negotiations, he suggested that a change might be made in the Council's wording. Governor Herter agreed that a few changes in the wording could make it acceptable. (Immediately after the meeting, the Council approved changes in the last paragraph of the statement so that it would recommend withdrawal of U.S. offers, but not necessarily "immediately," and "unless" rather than "until" the EEC improved its offers. See Enclosure 2.)
Further reference to the Council's meeting with a group of Senators scheduled for the following day was made in a statement read by Mr. Elliott./4/ After cataloguing the import restrictions encountered by U.S. fruit exporters in Latin America, he proposed that a Senate body be requested to hold hearings on these trade barriers.
/4/Frank Elliott, California Canners and Growers, San Francisco, California. The statement has not been found.
In response to Governor Herter's questions regarding the basic objective to be sought by the Council in its discussions with the Senators, Falk said that they would emphasize the importance of reciprocity and would urge Congressional support for the views expressed by the Governor. Falk suggested to his associates that the Council give further consideration to how such a request for hearings should be presented in the light of Governor Herter's comment that Congressional hearings, if conducted in the next few weeks, would interfere with efforts of his limited staff to bring the Kennedy Round to a successful conclusion. The hearings, it turned out, were envisaged by the Council as a means of putting pressure on the Executive branch, particularly the State Department, to abandon its policy of favoring regional arrangements.
It was generally acknowledged that the positions of the Council and of the Executive branch were in accord insofar as Kennedy Round objectives were concerned and that the Council was intervening--helpfully, it intended--into the area of negotiating tactics, which Governor Herter believed had to be left to his discretion.
Mr. Miller/5/ asked clarification of our policy toward Mexico to which we extend MFN treatment despite numerous restrictions in places on entry of our products. Norwood described the representations that the U.S. Government often makes to the Mexicans concerning arbitrary and harmful trade actions. He also stated that we had been prepared to negotiate a new bilateral trade agreement to replace the one which Mexico denounced about 15 years ago and to negotiate with Mexico in the Kennedy Round with a view to its becoming a GATT member. We wish to avoid retaliatory action which might evoke counter-measurers. Mexico, he observed, constitutes a growing market despite difficulties raised for the United States in exporting some products. U.S. imports from Mexico, contrary to Mr. Miller's understanding, are not completely unrestricted, cotton textiles being an area in which the United States has considered quotas to be warranted. U.S. withdrawal of MFN treatment would invite several possible forms of retaliation by Mexico, possibly including Mexican export control materials vital to our economy.
/5/Henry W. Miller, Consolidated Orchard Company, Paw Paw, West Virginia.
Governor Herter added that, in our trade negotiations, we do not generally offer concessions on items which are supplied primarily by countries that are not members of GATT.
Mr. Reter/6/ referred to problems in gaining access to the Venezuelan market for U.S. apples. Norwood replied that this problem has been discussed with the Venezuelans and that we had achieved a modest, but transitory benefit, in getting an understanding on apple quotas for the current year. He observed that the Venezuelans are able to counter our complaints by citing our restrictions on petroleum imports, which cover trade many times that represented by fruit.
/6/Ray R. Reter, Northwest Horticultural Council, Medford, Oregon.
Governor Herter commented that our trade relations with the less-developed countries are complicated by a growing feeling in the poorer parts of the world that the world's wealth should be more equitably distributed. The arguments presented are similar to those which were raised a century ago in our country against the tremendous gap between the mass of the poor and the great wealth concentrated in the hands of a few.
In closing, spokesmen for the Council expressed their continued support for the manner in which trade negotiations are being conducted.
Enclosure/7/
/7/No classification marking.
U.S. NATIONAL FRUIT EXPORT COUNCIL
Statement of Position
The U.S. National Fruit Export Council, representing non-price-supported perennial fruit crops and their products, has from its inception supported the principle of reciprocal trade agreement negotiations and specifically the Trade Expansion Act of 1962. Since the passage of that Act we have supported the U.S. hopes and efforts for achieving meaningful trade negotiations with balanced and reciprocal concessions.
The U.S. position in the initial stages of preparing for negotiations under the Trade Expansion Act was that it "would not take part" in the exchange of exceptions lists for nonagricultural products unless there had first been some agreement on how agricultural products were to be handled.
In November, 1964, the U.S. policy position was modified when the U.S. agreed to table offers on industrial products separately from agricultural products.
That action was followed by a modified policy statement that the United States would not "conclude" any agreement that did not provide for acceptable conditions of access for U. S. agricultural exports into foreign markets./8/
/8/Not further identified.
In 1964 the United States had advised the EEC that its proposal to negotiate support levels was not acceptable. That proposal was the essential element of the EEC's reference price and compensatory levy system of agricultural protectionism.
It is now clear from published reports from Europe that the EEC agricultural offers do not provide a basis for meaningful negotiations for trade liberalization. In fact, they embody and perpetuate the restrictions on agricultural imports which the United States had already rejected as a basis for negotiations.
Governor Herter has stated (before the Subcommittee on Foreign Economic Policy of the House Committee on Foreign Affairs, on August 10, 1966):
"In regard to agriculture the United States has made it clear that its offers have been put forward in the expectation that the other major participants will make comparable concessions, and has warned that if this proves not to be the case these offers will be withdrawn or modified to the extent it deems necessary. It has also warned that both its agricultural and industrial offers will be withdrawn to the extent required to achieve reciprocity in the over-all negotiations."/9/
/9/The quotation is from an undated background paper that Herter submitted to the subcommittee at the outset of his testimony on August 10. (The Foreign Policy Aspects of the Kennedy Round: Hearings Before the Subcommittee on Foreign Economic Policy of the Committee on Foreign Affairs, House of Representatives, Eighty-ninth Congress, Second Session (Washington, 1966), pp. 25-26)
The statement from Governor Herter's Office recognizes that reductions in U.S. industrial tariffs are the purchase price with which the U. S. will buy improved conditions of access for U. S. agricultural exports. This has been the U. S. position since the start of the Kennedy Round, and its soundness is based on the importance of U. S. agricultural exports to the domestic economic well-being of the U.S. and the contribution of agricultural exports to the U. S. balance of payments. It would be unthinkable for the U. S. to lower its tariffs on industrial products from the EEC without achieving its objectives with respect to agricultural trade liberalization. To do so would preclude hopes for future improvement in conditions of access for U.S. agricultural exports or even for the maintenance of our present level of agricultural exports.
In line with previous U.S. Government policy statements, we insist that the EEC reference price and variable levy system, if implemented, is incompatible with trade liberalization.
Notwithstanding the steadfast support that the U. S. National Fruit Export Council has given the U.S. efforts at trade liberalization, we can come to no other conclusion but that no trade agreement at all is better than a bad trade agreement.
In view of the course of events which is outlined herein, it is the conclusion of the U.S. National Fruit Export Council that the United States should immediately withdraw all offers, industrial and agricultural, on articles of interest to the EEC until the EEC submits agricultural offers that represent trade liberalization, rather than protection.
Adopted by the U. S. National Fruit Export Council September 20, 1966, at its annual meeting in Washington, D.C.
322. Telegram From the Mission to the European Office of the United Nations to the Department of State/1/
/1/Source: Department of State, Central Files, FT 7 GATT. Limited Official Use. Repeated to Bonn, Brussels, The Hague, Luxembourg, Paris, and Rome and passed to the White House.
Geneva, September 23, 1966, 1711Z.
1118. GATT. For Governor Herter from Blumenthal. BUSEC. Ref: Geneva 1103./2/
/2/Dated September 22. (Ibid.)
Subject: Opening of US-EEC bilateral discussion of KR agricultural offers, September 23./3/
/3/Tagg A-81 from Geneva, October 13, which provided a detailed account of this first bilateral meeting with the EEC on agricultural offers, offered this general conclusion: "the tone of the meeting was good; both sides professed a willingness to discuss their offers and the points at issue between them in a specific and comprehensive manner." (Ibid., FT 7 GATT)
1. After brief discussion procedures for remainder of series, first meeting devoted to exchange general preliminary reactions each other's offers and indications general emphasis each plans give in forthcoming meetings.
2. U.S. opening statement said we would seek clarification and improvement of present EEC offer on specific, case-by-case basis, using criterion of expanded trade opportunities. Emphasized willingness approach with open minds and examine all means achieving real trade liberalization. Recognized Community's achievement in tabling offers and difficulties involved, but stressed disappointment with present offers, as we understand them, and concern that expanded trade opportunities which they would produce seem extremely modest and in some cases nonexistent. Concluded that if improvements not possible, consequences for maintenance present US offer in both agricultural and industrial areas could be serious. Hoped that bilaterals would put both parties in position to assess what each needed and what each needed to do to make negotiation success.
3. EEC (Rabot) agreed that real trade liberalization goal of negotiation, and that US-EEC bilaterals of extreme importance for negotiations as a whole. EEC would discuss all its offers and examine gaps in constructive manner. After noting EEC interest in relatively unimportant list US exceptions affecting EEC exports, EEC expressed disappointment that US offers limited to tariff reduction. Said it would wish explain value of comprehensive character its own offers and discuss internal US policies affecting trade opportunities which not included in present US offer. In EEC view, inclusion in negotiation of all elements support and protection of a necessity if real trade liberalization to be achieved. Reserved right to request bilateral discussion of products now reserved for group treatment including cereals and dairy, and to require multilateral discussion of commodities which in EEC view might require such treatment. Said primary EEC emphasis would be on present and future condition of world markets in addition to expansion of export interest.
4. Tone of meeting frank and constructive. Both sides agreed no publicity desirable and that press and public have no part to play in present discussions.
5. Detailed examination will begin with bilateral meeting scheduled for September 30.
6. US opening statement follows by airgram.
Brodie
323. Editorial Note
The second through the sixth U.S.-EEC bilateral meetings on agricultural offers in the Kennedy Round at Geneva, September 30-October 14, 1966, were devoted to discussions of offers on a case-by-case basis. For text of Blumenthal's opening statement at the first of these meetings on September 14, see Document 320. In the second through the fourth meetings, which examined EEC offers on fruits and vegetables, the United States requested deeper tariff cuts; asked for discussions with third countries on the EEC reference price system (protection to maintain the price received by domestic producers); and strongly opposed the variable levy on the added-sugar content of canned fruits and juices. The fifth and sixth meetings concerned among other things the EEC offer on rice, which, the United States claimed, increased protection. Regarding manufactured tobacco, the two sides agreed to treat the Kennedy Round and Article XXIV:6 negotiations in parallel fashion. (Article XXIV:6 refers to that part of the General Agreement on Tariffs and Trade that provides for compensation to a GATT Contracting Party by a customs union which raises tariffs to a nonparticipant in the customs union above those existing before formation of the customs union, while taking into account tariff reductions to the members of the customs union; see 4 Bevans 721.) The United States expressed its interest in a substantial reduction of protection of manufactured tobacco. (Tagg A-82, October 13, Tagg A-83 and Tagg A-88, October 15, Tagg A-114, October 30, and Tagg A-132, November 8, from Geneva; Department of State, Central Files, FT 7 GATT)
324. Letter From Thirteen Senators to President Johnson/1/
Washington, October 3, 1966.
/1/Source: Department of State, Central Files, FT 7 GATT. Unclassified. The letter is an enclosure to CA-2992 to 22 diplomatic missions, October 17, which informed the posts they could use "the letter informally to illustrate the scope of United States domestic pressures to assure continued access to Community markets."
Dear Mr. President:
We are writing you to express our concern about the current status of the GATT negotiations as they relate to U.S. agriculture. We are especially concerned by reports in the European press that the EEC is attempting to incorporate support levels, reference prices, and compensatory levies for agricultural products into the GATT tariff structure. These measures are restrictive of trade; they are protectionist in essence, not trade liberalization.
The U.S. National Fruit Export Council has forcefully called this situation to our attention in the attached statement of the Council's position./2/ Also attached are data compiled by the Foreign Agricultural Service (1960-1965) showing the importance to the United States of fruit and vegetable exports to the EEC countries totalling about $91 million in 1965./3/ The export market is an integral and essential part of the industry's market. All sales of such products currently are for dollars, thereby contributing materially to the U.S. balance of payments position.
/2/See Document 321.
/3/Not printed.
We have been gratified by the repeated assurances from your office and from Governor Herter during the course of these negotiations that the United States would not enter into any agreement which does not provide satisfactory conditions of access for U. S. farm products to these traditional markets. However, we are frankly concerned over reports that "overriding political considerations" may be put forward as justification for entering into an agreement which would damage the legitimate economic interests of the United States.
We believe the proposals of the EEC are in direct conflict with the philosophy of the Trade Expansion Act, and particularly section 252, wherein our opposition to "non-tariff trade restrictions", "variable import fees" and other "unjustifiable foreign import restrictions" is clearly stated. The EEC proposals represent "policies unjustifiably restricting United States commerce."
We urge that the United States remain steadfast in its adherence to the publicly announced policy that we must achieve reciprocity in these negotiations which must include access for United States agricultural products to foreign markets on an equitable basis as stated in section 252(a)(3) of the Act.
The purpose and principle of the Trade Expansion Act must not be sacrificed to achieve an unmeaningful agreement which will not ". . . maintain and enlarge foreign markets for the products of United States agriculture, industry, mining and commerce;".
With kind regards, we remain,
Yours truly,
George D. Aiken/4/
Wayne Morse
Thomas H. Kuchel
Jennings Randolph
Milton R. Young
George Smathers
Spessard L. Holland
George Murphy
Warren G. Magnuson
Leverett Saltonstall
Daniel K. Inouye
Maurine B. Neuberger
Robert C. Byrd/4/Printed from a copy that bears these typed signatures.
325. Circular Airgram From the Department of State to Certain Posts/1/
CA-2863
Washington, October 12, 1966, 2:18 p.m.
/1/Source: Department of State, Central Files, FT 7 GATT. Limited Official Use. Drafted by James Johnson (EUR/RPE) on October 11; cleared by Leonard U. Wilson (STR), Julius L. Katz (E/OT), Thomas W. Fina (EUR/RPE); and approved by Deane R. Hinton (EUR/RPE). Sent to 22 diplomatic missions.
SUBJECT
Statements US Farm Groups--Kennedy RoundREF
Deptel 62827, Oct. 10, 1966;/2/ CA-2653, Oct. 5, 1966/3/
/2/Telegram 62827 to 19 diplomatic missions, October 10, transmitted the text of the press release by the Office of the Special Representative for Trade Negotiations responding to farm organizations' proposals to withdraw U.S. Kennedy Round agricultural offers unless EEC offers were substantially improved. (Ibid., FT 13 2 US)
/3/See footnote 1, Document 321.
Statement of the three US farm groups referred to in the referenced telegram and, where pertinent, STR replies thereto are enclosed in single copies for all addressee posts./4/
/4/The five enclosures, none printed, are as follows: 1) letter from B. H. Jones (National Livestock Feeders Association), September 26, and Herter's reply, October 4; 2) letter from Charles B. Shuman (American Farm Bureau Federation) to Herter, September 14, and Her-ter's reply, September 27; 3) letter from Kenneth D. Naden (National Council of Farmer Cooperatives) to Herter, September 29, and Herter's reply, October 4; 4) letter from James G. Patton (National Farmers Union) to Herter, October 5; and 5) statement by three wheat associations, September 9.
To date, three national agricultural bodies--The National Council of Farmer Cooperatives, the American Farm Bureau Federation and the US National Fruit Export Council--have demanded complete withdrawal of American offers from the Kennedy Round negotiations (for text of Fruit Council Statement see CA-2653). Three farm groups--The National Grange (no statement available), the National Farmers Union and the National Livestock Feeders Association) have suggested that the time has arrived either for withdrawal of US agricultural offers or reassessment of the direction in which the talks are headed. Great Plains Wheat, Western Wheat Associates, and the National Association of Wheat Growers have focused on the KR cereals negotiations urging assured access to EEC markets and that industrial and agricultural sectors be negotiated jointly.
As suggested in the reftel, posts should use statements informally to illustrate the buildup of domestic pressures urging US withdrawal from the Kennedy Round should the EEC fail to improve significantly its agricultural offers as appropriate. The measured replies of Governor Herter should also be drawn upon.
Rusk
326. Telegram From the Mission to the European Office of the United Nations to the Department of State/1/
Geneva, December 5, 1966, 1736Z.
/1/Source: Department of State, Central Files, FT 7 GATT. Confidential. Repeated to Bonn, Brussels, The Hague, Luxembourg, Paris, and Rome and passed to the White House.
1777. GATT--For Governor Herter from Blumenthal. BUSEC-CEDTO. Subject: Assembly of Kennedy Round offers--U.S. and EEC. Ref: Geneva 1758./2/
/2/Telegram 1758 from Geneva, December 2 (misdated November 2). (Ibid.)
1. We met Dec. 1 with EEC del., chaired by Hijzen and including Rabot, Schlosser Braun and Malve, to explain U.S. assessment and transmit bilateral list priority requests for improved offers. Member states observers present also.
2. We noted assessment showed overall imbalance present offers in favor other countries and imbalance with EEC. On industrial side, we pointed out that by any standard of comparison, EEC offers fall short of U.S. offers and that EEC exceptions bear heavily on sectors of greatest U.S. interest. Re agriculture, situation even more critical and room for improved EEC offers even greater.
3. In describing requests and possible modifications, U.S. noted that trade coverage of modifications much smaller than trade coverage of requests to allow EEC flexibility in improving offers and because of unknowns in crucial sectors. Emphasized that moment not yet come make withdrawals and that no offer being pulled back: lists indicated improvements needed, and modifications U.S. might have to have if improvements not forthcoming
4. Noting that our assessment omitted consideration of disparities, we restated position that in absence of agreed rule we would examine any disparity claims on case-by-case basis to see if disparity element significant in trade terms. Noting also that in introduction to list of U.S. exceptions of Community export interest received Nov. 30, EEC claimed right to "free exceptions" on CXT items corresponding to disparities excepted by other countries, we said we do not accept argument, and would take any such "free exception" claims into account in assessing balance.
5. Hijzen made following comments on points raised in our assessments:
A. Re conditional offers, said requirement of reciprocity in automotive sector attached to EEC offers satisfied by offers of U.S. and UK but others would have to match.
B. Re disparities, admitted no agreed rule; said EEC going on basis of 2:1/10 formula;/3/ regretted slow pace concordance work has prevented EEC submission of definite list of disparity items but hoped submit list soon; reaffirmed EEC thesis that Community entitled free exceptions on products in disparity which excepted by others.
/3/See footnote 2, Document 235.
C. Re statistical basis of assessment, deprecated use of figures and said solution of problems presented by trade negotiation of this importance depends on appreciation qualitative rather than quantitative elements.
D. Re balance, said preliminary EEC assessment shows U.S. and EEC close to bilateral balance and stated that in EEC view withdrawals by U.S. would be indefensible. (Note that he did not say EEC offers equal to or better than U.S.).
6. Copies our talking paper on bilateral assessment being pouched addressee posts./4/
Tubby
/4/Not found.
327. Letter From Secretary of Commerce Connor to President Johnson/1/
Washington, December 5, 1966.
/1/Source: Kennedy Library, Herter Papers, Memoranda to the President, August 11, 1964-August 8, 1966, Box 10. Confidential.
Dear Mr. President:
The Special Representative for Trade Negotiations is recommending that you terminate the escape clause action on watch movements. Pursuant to section 351(c)(1)(A) of the Trade Expansion Act of 1962, I have been requested to furnish you with advice as to whether such a termination would be in the national interest. Accordingly, I wish to concur with the recommendations of the Special Representative to terminate the escape clause action, and I further believe that this would be in the national interest.
The recommendation is the result of an investigation instituted by the Tariff Commission in accordance with section 351(d)(2) of the Trade Expansion Act. The Tariff Commission was to report on the probable economic effect on the industry concerned at the reduction or termination of the increase in duties which was imposed on watch movements in 1954. The report, submitted by the Tariff Commission on March 5, 1965,/2/ was studied by a special interagency task force created under the Office of the Special Representative for Trade Negotiations and was reviewed by the Office of the Special Representative.
/2/See footnote 5, Document 278.
I believe the following factors are significant to the determination as to whether the termination of this escape clause action would be in the national interest.
The probable effect of the recommended action of our national security was of serious concern to me. In this regard, at the request of the Office of Emergency Planning, the Department of Commerce conducted an extensive survey on the capacity of the domestic watch industry to produce goods for civilian and military uses in time of national emergency. The results of this survey were reported to the Office of Emergency Planning and were reviewed by that Office and by the Department of Defense. On the basis of their review and the current and planned activities of the Department of Defense, I am assured that the possible idling of productive facilities due to a further shift to imports by domestic watch manufacturers does not pose a significant problem and that increased imports of watch movements do not now or in the future threaten to impair the national security.
From the economic standpoint, it appears that termination of the escape clause rates of duty would not have a serious adverse effect on the domestic producers. The domestic industry producing watch movements is composed of two segments: a pin-lever segment and a jeweled-lever segment.
The U.S. Time Corporation is the only producer of pin-lever wrist watch movements in this country. The firm has successfully developed the market for inexpensive, quality watches and has become the sole domestic producer of pin-lever wrist watches. Through extensive advertising and aggressive sales promotion, the company has achieved a strong hold on the market for its Timex brand. It has enjoyed a good record of consistently rising sales and excellent earnings.
The Bulova, Hamilton, and Elgin watch companies constitute the jeweled-lever segment of the industry. During the period of escape clause protection, these firms have not increased their production of jeweled-lever movements. On the contrary, they have shifted to increased imports of 17 jewel movements, principally in the men's sizes and have concentrated their domestic production on the more profitable lines, notably women's watches and electric-powered watches. All three firms now import far more than they produce in the United States, and their rate of profit from imports exceeds that from their domestic production.
During the period of escape clause protection, these firms have been unable to increase their domestic production of jeweled-lever movements. They have adjusted to import competition principally by increasing their overseas investments. Bulova, for example, is the largest single manufacturer of watches in Switzerland.
While domestic output of jeweled-lever movements has remained fairly stable in recent years, the U.S. market has been expanding. Despite the escape clause rates, imports of watch movements have increased over the past twelve years. Since 1958, the domestic producers themselves have accounted for most of the increase in imports of jeweled-lever movements.
It is extremely unlikely that further continuance of the escape clause action would enable the jeweled-lever segment of the industry to increase domestic output to pre-1954 levels.
The companies have asserted that if the escape clause rates were terminated they would be compelled to abandon their domestic watch manufacturing facilities and shift entirely to imports from foreign plants. In the event that the companies do resort to such action, they could suffer short-run capital losses and a number of production workers in their watch manufacturing establishments could be laid off. According to statements of officials of the companies, however, the long-run profitability of the companies likely would be improved. Furthermore, under the present level of economic activity in the affected areas, reemployment prospects appear good for the workers who may become unemployed.
Given the strong competitive position of the pin-lever producer and the fact that domestic jeweled-lever production already is concentrated in movements other than those subject to escape clause protection, it does not appear at all clear to me that all domestic production of watch movements would be discontinued if the rates of duty were rolled back.
The escape clause action in 1954 resulted in negotiation of compensatory concessions with Switzerland, the principal supplying country. In this regard, your acceptance of the recommendation will enable us to withdraw the compensatory concessions or to negotiate equivalent concessions for the benefit of U.S. exports. Acceptance of the recommendation would enable the Swiss to maintain current offers in the Kennedy Round of interest to United States exporters. The Swiss on many occasions have indicated that without termination of the escape clause action on watch movements, it would be necessary to withdraw substantial tariff reduction offers of direct interest to this country.
At the time relief was granted to the domestic industry it was understood that the escape clause action was temporary and would be terminated when conditions warranted. A rollback in these rates, which have been in existence longer than any other escape clause measure, would remove a long-standing irritant in our otherwise excellent relations with Switzerland.
Based on the above facts together with the findings and data submitted by the Special Representative it is my opinion that the national interest would best be served by termination of the escape clause action on watch movements. Accordingly, I concur with the recommendation for termination of the escape clause rates of duty and restoration of the 1936 trade agreement rates.
Respectfully yours,
John T. Connor
328. Telgram From the Mission to the European Office of the United Nations to the Department of State/1/
Geneva, December 19, 1966, 1807Z.
/1/Source: Department of State, Central Files, FT 7 GATT. Confidential. Repeated to Tokyo and passed to the White House for Herter.
1893. GATT--For Governor Herter from Blumenthal. Subject: Exoff--Assessment of US and Japanese KR offers. Ref: Geneva 1752./2/
/2/Telegram 1752 from Geneva summarized Blumenthal's negative assessment of Japan's Kennedy Round offers, which "fall considerably short of matching US offers" at their November 29 meeting, and the response of the Japanese delegate. It also noted that Japan submitted its assessment of Kennedy Round offers to the GATT Secretariat on November 30, including specific requests of the United States. (Ibid.)
1. On December 19 we met with Ambassador Aoki who had just returned to Geneva from Tokyo following consultations on KR matters with Prime Minister Sato, members of new Cabinet and industrial leaders. Said he was without instructions but wished to provide impressions concerning GOJ views of assessment of bilateral offers:
A. Prime Minister expressed view KR is reaching "eleventh hour" and Japan should endeavor to arrive at fair agreement which takes full cognizance of problems and views of each participant.
B. Ministry of Agriculture is unable understand why US has not made an assessment of Japanese offer on cereals agreement; moreover, in light poor EEC agricultural offer it is difficult for Japan to maintain present agricultural offers. Aoki said he urged his Minister to keep offer on table until the end and latter agreed to study.
C. Ministry of International Trade is very much disturbed by fact "modification list" in US assessment paper to GATT Nov. 30/3/ affects Japanese industrial products to greater extent than products of interest to EEC; also, the large amount of trade affecting Japan can only mean "US is taking orthodox approach in assessing offers and is not buying Japanese view that zero binding offers are of value." For textile Bureau of MITI, inclusion in modification list of large amount of commodities under jurisdiction this Bureau has given rise to difficulties, particularly since Japan has endeavored in past to cooperate on textile matters.
/3/Not found.
D. Aoki expressed view that if US is unable to move on NTB's (Section 402A of Tariff Act) and should withdraw offers on steel (on which US has reserved its position), the Japanese Government would be forced to make modifications in its offers. Aoki reiterated several times that impact of US modification list against Japan was too great and asked the US delegation to study other approaches in assessing offers. In this connection, he thought Japanese offer was comparable to that tabled by US depending on assumptions used.
2. We made following comments:
A. US delegation did not use any one method of assessment, contrary to Aoki view we used only "orthodox method of assessment:" every measure shows Japanese offer does not match US offer. This is true even if credit were given to Japan's zero binding offers which in many cases are of dubious trade value. We would welcome opportunity to discuss in greater detail our bilateral offers to establish fact there is an imbalance.
B. Concerning proposed grains agreement, the US would be prepared ascribe appropriate negotiating credit. This was left out of US assessment of Nov. 30 because of indefiniteness final outcome, particularly on questions such as price and food aid.
C. Concerning the impact of US modification list on Japan as against the EEC, consideration should be given to three points: 1) EEC industrial offer is relatively better than that tabled by Japan; 2) listed agricultural items affect the EEC more than Japan; and 3) US reservations on chemicals, aluminum and steel should be considered as part of our modification list.
D. We urged that Japan not use EEC's poor offer on agricultural products as an excuse for not improving Japan's agricultural offers.
E. In conclusion we agreed to study any assessment calculations the Japanese may have to support view there is not an imbalance in offers to degree suggested in US assessment paper.
Mace
329. Memorandum From the President's Deputy Special Assistant for National Security Affairs (Bator) to President Johnson/1/
Washington, January 3, 1967, 3:45 p.m.
/1/Source: Johnson Library, National Security File, Name File, Bator Memos [2 of 2], Box 1. The source text bears the handwritten notation, "Eyes Only--Mr. Rostow."
SUBJECT
Replacement for Governor HerterNegotiations in Geneva will be reaching a climax during the next two or three months. It seems to me important to avoid any appearance of a vacuum in the Herter office during the hard bargaining to come./2/ I think it is important that you make clear who will be in charge.
/2/Herter died December 30, 1966.
The choices are:
1. Elevate Governor Herter's deputy, William Roth, who now has the title of Deputy Special Representative (with the rank of Ambassador).
2. Let Roth act as Special Representative, but without your appointing him. (The TEA empowers the Deputy to act in these circumstances.)
3. Appoint someone else to succeed Herter.
As you know, I have kept a close eye on the Kennedy Round during the past 3 years, and have come to know well the people, and the workings of the Herter staff. This experience leads me strongly to recommend choice No. 1: appointment of Bill Roth as your Special Representative.
During the past year and a half--ever since the Governor's health deteriorated--Bill has been the effective day-to-day chief of the organization. He has done a superb job, both in managing the organization and in handling relations with the business community and the Congress. He has good and close relations with Wilbur Mills and others on the Hill who have shown an interest in the negotiations.
Appointing someone from the outside--just six months before the windup of the negotiations--could be damaging in terms of the continued effectiveness of a good, tightly knit organization. It would be difficult for an outsider to acquire the intimate knowledge of the details of the negotiations which will be needed during the February-March period in Geneva. In any case, I know of no one who would be competent to take on this job on short notice who could give you the political protection with protectionist Republicans you got from Herter.
Appointing Bill--rather than letting him serve as acting Special Representative--would not limit your choice beyond the end of the Kennedy Round in June. Bill is determined to get out of the trade negotiation business, and would not be prepared to stay in the Herter job beyond June. There are strong pressures on him to leave Government--personal business as well as the University of California, where he is a key member of the Board of Regents. (I think he might stay in Washington if an attractive offer were available outside of the trade field. He has clearly had enough of chicken wars, hassles over safety-pin duties, etc.)
I think it is very important that we move on this quickly, and give a clear signal of Presidential support for Roth, his organization, and the U.S. team in Geneva. I am confident that Rusk, Connor and Freeman would support the promotion of Roth. If you wish, I can check. I did not want to restrict your choices by telephoning around before a signal from you.
Francis M. Bator/3/
/3/Printed from a copy that bears this typed signature.
330. Memorandum From Secretary of State Rusk to President Johnson/1/
Washington, February 11, 1967.
/1/Source: Johnson Library, National Security File, Name File, Bator Memos, Box 1-2. Confidential; Exdis. Another copy indicates that this memorandum was drafted in the Office of International Trade on February 9. (Ibid., Bator Papers, Post Kennedy Round and Trade Policy Study, June 1967, Box 13)
SUBJECT
A New Trade Policy for the United StatesRecommendation
Last August George Ball sent you a memorandum outlining a new trade strategy designed to reverse current trends not in the United States interest and to maintain our leadership in free world trade policy in the post-Kennedy Round era./2/ In accordance with your instruction, a small group led by Tony Solomon has examined these ideas further within the Executive Branch. We have consulted with Secretary Connor (and Acting Secretary Trowbridge) and with senior officers of Agriculture, Labor and Treasury. Ambassador Roth and Francis Bator also have taken part in the discussions. The result: unanimous agreement both on the need for a new United States trade policy and on the broad outlines of the policy itself.
/2/Document 318.
We do not envisage a request for major new trade legislation before 1969. It is important, however, to consult informally with key Members of Congress now if we are to adopt a positive posture at several important international meetings over the next 12 months, including your meeting with the other Presidents of the Inter-American system. We must know soon whether the new policy direction--described below--can command the support of the Congress. If it does, the new policy should be taken up as the first order of business of a blue-ribbon public committee which Ambassador Roth will recommend be established to assist him in developing recommendations for trade legislation after the Trade Expansion Act expires on June 30.
You could then announce at the Latin American meeting in April that a major re-examination of our trade policy is under way with a view to improving the trade position of developing countries in ways that will further the historic United States objective of liberalizing world trade. This statement would be warmly welcomed by the Latin Americans and would, Linc Gordon feels, be a critically important contribution to a successful summit meeting. A careful statement along these lines would not arouse serious protectionist opposition, since only a general approach would be outlined at that time. Recently, Congressional leaders as diverse in their trade views as Senators Dirksen and Fulbright have comments on the unresponsiveness of the United States Government to the problem of the poor countries' declining share in world trade.
I recommend, therefore, that you approve informal soundings with key Congressional leaders.
Approve Congressional Consultations
Disapprove/3/
/3/Neither option is checked.
Discussion
The Need for a New United States Trade Policy
For the next few months our primary effort must be devoted to a successful conclusion of the Kennedy Round trade negotiations. At the same time, however, we must address ourselves to future United States policy--to new problems which have arisen and to old problems which have acquired new dimensions. To meet these and to maintain our leadership in the field of trade policy, we must take into account:
--the vital importance of maintaining our own export surplus;
--the strong likelihood that the European Economic Community will be enlarged over the coming years, forming the largest market in the world with free trade among its members, but retaining substantial barriers against the United States and other outsiders;
--the danger of further proliferation of special trade arrangements which discriminate:
--among developing countries,
--against Latin America, and
--against the United States;
--and, above all, the passionate and persistent appeal of the developing nations of the world for preferred tariff treatment for their exports. At the present time, the willingness of other industrialized countries to respond to the appeal leaves the United States virtually isolated in its opposition to preferences. For this we are paying significant political costs.
The challenge presented by these developments coincides with our need to obtain new trade legislation. After the Trade Expansion Act expires at the end of June, we will need a period of reflection and discussion with our trading partners. Thus, a simple extension of the Act for two years seems appropriate. But to exercise leadership and attract international support for a policy designed to meet these new circumstances, we need a new and flexible Congressional mandate.
Basic Elements of a New Trade Policy
1. To meet the objective of keeping open our commercial markets in developed countries, we propose:
--That we seek legislation in 1969 which will enable us to urge the Europeans and other industrialized countries to join in a policy of progressive reduction and, where possible, elimination of trade barriers. Where agreements can be reached on specific products or groups of products, tariffs might be phased out over a period of five to twenty years.
2. To meet the twin problems of growing discrimination among poor countries and their appeal for tariff treatment more in keeping with their competitive abilities, we propose:
--That the legislation enable us to offer the poor countries of the world a "head start" in the movement toward tariff disarmament among the advanced countries. The benefits of tariff reductions would be given to poor countries in advance of reductions among industrialized countries which would be phased over a longer period.
3. To meet the growing problem of regional bloc discrimination against United States exports, we propose:
--That this approach be conditioned on agreement by the advanced countries to give up the preferential treatment they enjoy in the markets of associated developing countries.
4. To meet the problem of possible injury to United States industry and labor arising from increased imports from low-wage countries, we propose:
--That the adjustment assistance provision be improved.
--That there be an additional escape clause applicable to the special tariff treatment for the developing countries. Should difficulties arise, the advance cut might have to be withdrawn or, alternatively, a tariff quota might be established.
Dean Rusk
331. Memorandum From the Acting Special Representative for Trade Negotiations (Roth) to President Johnson/1/
Washington, February 13, 1967, 10 a.m.
/1/Source: Johnson Library, National Security File, Subject File, Trade Negotiations, Kennedy Round, "Potatoes," [2 of 2], Box 47. Confidential.
SUBJECT
Supplemental Authority to Offer Tariff Concessions in the Kennedy RoundRequest for Negotiating Authority
This memorandum requests that you authorize me, under the Trade Expansion Act of 1962 (TEA), to offer in the Kennedy Round the tariff concessions specified herein as supplements to those previously offered with your approval. All legal requirements of the TEA for such offers have been met.
Offering these concessions will: (1) dispel the legal cloud which was cast over a substantial portion of our previous offers by tariff legislation enacted after those offers were made; (2) improve our negotiating prospects by responding to other delegations' requests for U. S. concessions previously withheld with your concurrence; and (3) permit us to offer, for the benefit of developing countries, the elimination of duties on tropical hardwoods without staging.
Any trade agreement which is negotiated on the basis of offers for which I now seek your authorization will be concluded subject to your final approval. During the negotiation, we may find it appropriate or necessary to hold back, reduce, or withdraw certain of these offers. On the other hand, it may again become necessary for me to seek your authorization to offer specific additional concessions in return for foreign concessions of particular importance to U. S. exporters.
Discussion:
(1) Confirmation of Previous Offers--Changes in tariff rates and tariff classifications made by the Tariff Schedules Technical Amendments Act (TAA),/2/ which corrected "errors and inadvertencies" in the Tariff Schedules of the United States (TSUS), and by a few other acts cast a legal cloud over a substantial portion of the articles that you authorized us to offer for concessions in the Kennedy Round, and that we had in most cases actually offered. On August 16, 1966, you issued a list of the articles affected by such legislation, and thus initiated the steps required by the TEA for reconsideration of such articles for trade agreement concessions. The Trade Information Committee (TIC) and the Tariff Commission held hearings to receive information and views on these products. The advice of the Tariff Commission and the summaries of the TIC hearings have been made available to you in accordance with section 224 of the TEA and, together with other material, have been carefully reviewed by this Office and other agencies concerned with the trade agreements program.
/2/The Tariff Schedules Technical Amendments Act of 1965, P.L. 89-241 (79 Stat. 933) signed by President Johnson on October 7, 1965, corrected oversights and errors in the Tariff Classification Act of 1962 (P.L. 87-456; 76 Stat. 72).
(2) New Offers on Articles Previously Withheld--On November 10, 1964, you authorized Governor Herter to offer concessions on most articles in the TSUS and agreed to withhold certain dutiable articles from offers of tariff concessions. In the course of the Kennedy Round negotiations, other delegations have urged us to make offers on certain of these excepted articles, and our delegation advises that our negotiating prospects could be enhanced by responding to some of these requests. We have accordingly re-examined the situation with respect to articles withheld and have concluded that, in a limited number of cases, it would not be consistent with the standards and purposes of the TEA to offer concessions in the Kennedy Round in such cases.
(3) New Offers on Tropical Hardwoods--On November 10, 1964, you authorized Governor Herter to offer the elimination of duties on certain tropical hardwoods under section 202 of the TEA, which permits the elimination, in five annual stages, of the duty on any product dutiable at 5 percent or less. An offer on these tropical hardwoods under section 202 has already been made in the Kennedy Round.
Section 213 of the TEA, which authorizes the elimination of duties applicable to certain tropical agricultural and forestry products, is not subject to the staging requirement. In order to maximize our negotiating position with respect to the less-developed countries, we required the Tariff Commission to determine those tropical hardwoods which satisfy the requirements of section 213.
On February 18, 1965, you issued a public list of the tropical hardwoods with respect to which the elimination of duties under section 213 was to be considered. The TIC and the Tariff Commission provided an opportunity to interested parties to appear at public hearings or submit written statements concerning the public list.
The advice of the Tariff Commission concerning the tropical hardwoods has been made available to you in accordance with section 224 of the TEA. Since no views of any kind were presented to the TIC, there is no summary of hearings to submit pursuant to section 224.
Recommendation:
With the concurrence of the other agencies concerned, I recommend that you authorize me, as your Acting Special Representative for Trade Negotiations:
1. With respect to articles listed in the public notice of August 16, 1966 (Annex 1A),/3/ to make the following offers in substitution for or confirmation of offers previously made in the Kennedy Round:
/3/The annexes are as follows:
Annex 1, "Confirmation of Previous Offices: A. Public Notice of August 16, 1966; B. List of Exceptions to Offers to Reduce Duties by 50 Percent; C. Tariff Commission Advice, November 1966; D. Summary of TIC Hearings;" Annex 2, "New Offers on Articles Previously Withheld;" Annex 3, "New Offers of Tropical Hardwoods: A. Public Notice of February 18, 1965; B. Tariff Commission Advice, May 1965." None is printed.
A. To offer, under TEA section 201, the full 50 percent reduction in duties on all dutiable articles so listed except those specified in Annex 1B.
B. To offer the elimination of duties on articles which so qualify under TEA sections 202 or 212.
C. Where the reduction or elimination of duties is not proposed, to offer under TEA section 201 not to increase existing duties on dutiable articles on such list and not impose duties on articles now duty-free.
2. With respect to certain other articles, previously withheld from offer with your concurrence, to offer, under TEA section 201, duty reductions as specified in Annex 2 to augment offers previously made in the Kennedy Round.
3. With respect to the tropical hardwoods listed in the public notice of February 18, 1965 (Annex 3A) to offer the elimination of duties under TEA section 213.
William M. Roth
332. Memorandum From the Acting Special Representative for Trade Negotiations (Roth) to President Johnson/1/
Washington, February 15, 1967, 4:30 p.m.
/1/Source: Johnson Library, White House Central Files, Confidential File, TA, Bator to President, 2/21/67, Tab A. Confidential.
SUBJECT
American Selling Price System of Customs ValuationRecommendation
For the reasons given below, I recommend that you authorize me, as the Acting Special Representative for Trade Negotiations, to offer in the Kennedy Round of trade negotiations the elimination of all the present ad valorem rates of duty subject to the American selling price (ASP) system of customs valuation and the substitution of those new ad valorem rates of duty based on normal methods of customs valuation which are set out in the last column of the table attached at Tab A./2/ This offer would apply to the four categories of products now subject to ASP--benzenoid chemicals, rubber-soled footwear, canned clams, and wool-knit gloves.
/2/Not found.
Such an offer would be subject to the following basic conditions: (1) any agreement involving such an elimination of the ASP system must be entirely separate from the overall Kennedy Round agreement; (2) such an agreement must contain reciprocal benefits for the United States, including concessions on tariffs and, if at all possible, non-tariff barriers; and (3) such an agreement will be subject to your express approval before signature and, if signed, will require enactment by the Congress of implementing legislation before it can enter into force.
The Departments of Agriculture, Commerce, Defense, Interior, Labor, State, and Treasury all concur in this recommendation.
Statement of Reasons
1. Undesirability of ASP. ASP--whatever its original justification--is, in our judgment, not a legitimate system of customs valuation. It subjects an exporter to a two-fold uncertainty. He does not know at the time of exportation whether his product will be subject to duty according to its own value or according to the value of a domestic competing product. In addition, if his product is found to be dutiable on the latter basis, he does not know what the price of the domestic product will be and hence what amount of duty he must pay--a duty which is usually very high and often prohibitive. The ASP system has long been criticized by other countries and would be illegal under the General Agreement on Tariffs and Trade (GATT) but for an exception for certain legislation in existence at the time the GATT was negotiated. It is especially damaging to our liberal trade position since it has considerable similarity to the variable levy system which the EEC has imposed on a number of agricultural imports and to which we have made strenuous objections over the last several years.
2. Need to Make Offer on ASP in Kennedy Round. As we enter the critical phase of the Kennedy Round, one issue dominates the industrial sector of the negotiations--ASP as it relates to benzenoid chemicals. The Europeans, and especially the EEC, U.K., and Switzerland, regard ASP as a serious obstacle to their exports of benzenoid chemicals to the United States, as well as a symbol of American protectionism. As a result, these countries have made the elimination of the ASP system an express condition of any reduction in their tariffs on most of our chemical exports, as well as an implied condition of liberalizing trade generally throughout the industrial sector. Failure to offer the elimination of ASP would, in our judgment, seriously jeopardize the entire Kennedy Round and could be used as a pretext for placing the blame for its collapse on the United States.
3. Nature of Proposed Offer on ASP. The proposed offer is designed to eliminate the ASP system and yet retain adequate tariff protection for the benzenoid chemical industry and the other industries which benefit from that system. Drawing upon the advice and data furnished by the Tariff Commission after extensive hearings, as well as our own sources of information, we have made an intensive inquiry into the economic conditions of the industries concerned and the probable impact of eliminating the ASP system. In the case of the benzenoid chemical industry, viewed in its entirety as well as in terms of its basic subdivisions, we have concluded that the proposed ad valorem components of the duties, which range from 4% to 40%, should give both the large and small firms sufficient tariff protection to avoid any serious dislocation. With respect to the rubber footwear industry, we believe that the high rate of 47-1/2% which we are proposing should permit that industry to cope with imports from Japan and several other Far Eastern countries. In the case of canned clams and wool-knit gloves, we are proposing that the same amount of duty protection now afforded to the domestic industries under the ASP system be continued under the new rates.
4. Congressional Views on Elimination of ASP. The ASP issue is not only critical to the successful conclusion of the Kennedy Round, it is also the trickiest political issue we face in the negotiations.
Committee Views on ASP
In the House Ways and Means Committee, there appears to be no general support for the ASP system and a willingness to consider an agreement eliminating ASP on its merits. This was confirmed with Chairman Mills on February 13. Moreover, conversations with most of the senior Democratic and Republican members indicate either outright approval of, or at least no objection to, the manner in which we would propose to eliminate ASP. This is true, in particular, of King, Byrnes, and Curtis.
In the Senate Finance Committee, there seems to be no strong feelings that the ASP system should be retained for its own sake. During Senate consideration in 1965 of a bill to eliminate ASP on protective rubber footwear,/3/ Smathers, Hartke, and Ribicoff stated that they were opposed to the ASP system. Moreover, Smathers said that he believed that Long, Gore, and Carlson were also against ASP.
/3/See footnote 5, Document 295.
However, there is considerable opposition in the Finance Committee to the signature of a trade agreement ad referendum to the Congress. The opposition stems largely from the fear that such an agreement would present the Committee and the Senate with a fait accompli. Last year, the Finance Committee reported out and the Senate passed (with only a handful of Senators on the floor) S. Con. Res. 100./4/ This resolution, which died in the House, expressed the sense of the Congress that no agreement should be concluded in the Kennedy Round which could not be implemented pursuant to the TEA. We believe we can allay this fear by continuing to make clear in the Congress and in Geneva that any ASP agreement must be totally unrelated to the Kennedy Round agreement.
/4/Reference is to S. Con. Res. 100, 89th Cong., introduced by Senator Russell B. Long on June 28, 1966.
Among the interested members in both Committees--and the Congress as a whole--there is a widespread concern that elimination of the ASP system might result in serious economic dislocation. It is our impression that most of these Congressmen are not necessarily wedded to ASP but will insist that sufficient tariff protection be maintained--as we think our proposals will do.
Congressional Support for Rubber Footwear
About 40 members of Congress from 12 states have written letters generally urging the retention of ASP on rubber footwear. Twenty-one are from the four New England states--Connecticut, Maine, Massachusetts, and Rhode Island--which together have the greatest interest in rubber footwear.
The leader of the New England bloc, as well as the rubber-footwear association, is Ribicoff. On the basis of a conversation with him on February 9, we believe that he might agree to the elimination of ASP and the substitution of a fairly high rate.
In the Finance Committee, only Hartke, Talmadge, and Dirksen, in addition to Ribicoff, have expressed concern over the elimination of ASP on rubber footwear. We are reasonably sure, however, that if we can reach agreement with Ribicoff, the rest of the Finance Committee will come along.
Congressional Support for Benzenoid Chemicals
About 140 members of Congress from 12 states have written letters generally opposing the elimination of ASP on benzenoid chemicals. The benzenoid chemical industry is significant in 10 of these states--Alabama, Illinois, New Jersey, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Texas, and West Virginia.
In many of these states, however, a substantial number of workers are engaged in the production of non-controversial chemicals or chemicals like low-value intermediates which are the least vulnerable to import competition. This is true, for example, of Illinois, North Carolina, Pennsylvania, Texas, and West Virginia. Moreover, we have reason to believe that many of the Senators and Congressmen who have signed letters are prepared to consider an ASP agreement on its merits. For example, Congressman Rodino, dean of the New Jersey Delegation, told us this was his position in a conversation on January 31, although New Jersey is the leading producer of benzenoid chemicals.
Most Senators on the Finance Committee have some benzenoid chemical production in their states, but in only two states--Georgia and Illinois--is there any portion of production at all involved in the controversial areas. This may explain why only Talmadge and Dirksen have written letters opposing the elimination of ASP, although when we saw Dirksen this afternoon and raised ASP, he did not seem concerned. Dirksen has no more than 1300 intermediate and dye workers in Illinois, and Talmadge about 200 dye and other benzenoid chemical workers in his state. Just today, in a conversation with Joe Bowman of Treasury, Long indicated he was not committed to ASP. However, because of large chemical firms in Louisiana which may have an interest in ASP in other states, Long may not be easy to bring around, and we intend to meet with him early next week.
Conclusions
This discussion leads me to the following conclusions:
1. We must make an offer on ASP in the Kennedy Round. Otherwise, there is a serious risk that the negotiations will collapse.
2. Any separate ASP agreement we negotiate must contain important export concessions for the chemical industry, which exports over $2 billion worth a year. This should make it harder for the benzenoid chemical segment to oppose the agreement.
3. The ASP agreement must also contain reductions in European non-tariff barriers that are of interest to other American industries. This would help bring into play interests outside the chemical area.
4. Such an ASP agreement--if it contains substantial benefits for American industry--would not, we believe, encounter serious problems in the Ways and Means Committee or the House.
5. There would still remain a difficult problem in the Senate but not an unsurmountable one, depending principally on Long's position. If the rubber footwear industry is largely taken care of, this would leave only the benzenoid chemical industry, whose strength in terms of consistent interest in the Finance Committee is not great.
6. We would make it quite clear to the Europeans that in offering to take a negotiated agreement back to the Congress, we are not guaranteeing that the Congress will approve it. The offer to do so, however, is an essential ingredient to a successful conclusion of the negotiations.
There is attached at Tab B a background memorandum which deals with all the principal aspects of the ASP issue./5/
/5/Not found.
William M. Roth
333. Memorandum From the President's Deputy Special Assistant for National Security Affairs (Bator) to President Johnson/1/
Washington, March 8, 1967, 5 p.m.
/1/Source: Johnson Library, National Security File, Name File, Bator Memoranda, Box 1-2. Confidential.
SUBJECT
Trade PolicyAt Tab A, Secretary Rusk sketches a post-Kennedy Round trade policy--assuming that things turn out well in Geneva./2/ The work was done by a small committee consisting of Bill Roth, Tony Solomon, Sandy Trowbridge and myself. It has been approved by Rusk, Connor (before he left) and the appropriate Assistant Secretaries of Agriculture, Labor and Treasury.
/2/Document 330.
The basic recommended strategy is that we not go for major trade legislation until 1969. Rather, we would:
--Seek a simple two-year extension of the TEA (now scheduled to expire in June). This would not give us much new tariff-cutting authority, but it would allow us to do the necessary housekeeping and keep the trade agreements program alive.
--Establish a blue-ribbon public committee to help Roth (and his successor) develop recommendations for the next big trade bill, to be proposed in 1969.
Neither of these steps requires immediate Presidential action (you have already tentatively approved the TEA extension). But it would be most useful at the Latin American Summit and elsewhere if we could mention some of the policy ideas we would propose to take up with the blue-ribbon committee. It makes no sense to talk in public about these ideas, however, until we have some notion of how they would be greeted on the Hill.
Therefore, Rusk recommends that you authorize quiet soundings with key people on the Hill about the steps summarized below. If we could get positive reactions, you would have a sweetner at Punta Del Este, and we would be less vulnerable to the barrage of complaints we now get from the less-developed countries about trade policy. If the Congress reacted badly, we would know to move slowly.
New Policy Directions
The major initiatives recommended are as follows:
--Major new trade legislation in 1969 authorizing us to propose phased reduction and elimination of all trade barriers throughout the industrialized world. (Full elimination would take a long time--perhaps 10-15 years.)
--A "head start" advanced cut for poor countries. (We would keep an escape clause in case of serious damage to domestic producers.)
--Insistence, as a condition of the elimination of trade barriers, that some rich countries give up the regional preferential treatment they now receive from their former colonies, etc.
--More liberal adjustment assistance for domestic industry affected by changes in import patterns.
These steps are designated to head off the present trend toward special trade arrangements which exclude us and threaten future U.S. exports. They would provide a liberal trade alternative which makes more economic and political sense for all nations. They would also include special benefits for the poor countries who feel that current trade arrangements are designed only to keep them poor.
You may want a fuller discussion of this strategy before authorizing talks on the Hill. If so, I could spell out the proposals for you in more detail, and/or set up a small meeting of the relevant people. In either case, we need to move as soon as possible if you are to have this in your pocket for the Summit. (At Tab B is a sample of the points you might make at Punta Del Este if we can be ready by then.)/3/
/3/Not printed.
FMB
Tell Rusk and Roth to go ahead with quiet talks on the Hill/4/
/4/This option is checked, and the handwritten notation "fully with large representative number--L" was written next to it by President Johnson.
Set up meeting
Speak to me
334. Memorandum From the Acting Special Representative for Trade Negotiations (Roth) to the President's Deputy Special Assistant for National Security Affairs (Bator)/1/
Washington, March 13, 1967.
/1/Source: Johnson Library, National Security File, Subject File, Trade Negotiations, Kennedy Round, "Potatoes," Box 47. Confidential. An attached memorandum from Bator to President Johnson, March 22, stated among other things that Roth's "recommendation was supported by all relevant agencies." Bator recommended that Johnson approve it. The "approve" line on Bator's memorandum is checked.
SUBJECT
Kennedy Round: Supplemental U.S. OffersSummary
This memorandum (a) supplements my memorandum to the President of February 13/2/ by commenting on probable Congressional interest in the supplemental Kennedy Round offers that I have asked the President to approve and (b) amends that memorandum by deleting a request concerning one commodity category.
/2/Document 331.
February 13 Memorandum
In response to the request that Ed Hamilton made of Bernie Norwood earlier this month, we have reviewed the articles for which, in my February 13 memorandum, I requested the President's authority to offer concessions at Geneva.
You will recall that that memorandum requested authority: (a) to reaffirm well over 100 existing offers for which our negotiating authority became "clouded" because of the enactment of legislation correcting or otherwise amending the TSUS; (b) to offer a few minor improvements in offers by "exing-out" subitems that previously had been excepted; and (c) to offer duty eliminations without staging (under section 213 authority) on certain tropical hardwood to improve the existing offer of duty eliminations subject to staging (under section 202).
One reason for early Presidential action on the request is to permit us rapidly at Geneva to exchange with other delegations a "positive" list of current offers. The delegation is planning to do this during the current week--incorporating the supplemental offers if they are approved in time. This exchange is an important element in our pushing other lethargic participants.
Congressional Interest
Of the items covered in my request, our review of files indicates that there would be significant Congressional interest in only a handful of cases. I shall comment on these.
TSUS 182.70--Wild Rice
Congressional interest seems to have been confined to ex-Senator Hubert Humphrey. Wild rice is grown in Minnesota by Indians. They like it so much that they eat all of it and do not market it. Our proposal does not call for a duty reduction, but only for a binding of the existing tariff treatment.
TSUS 609.40, -.41, -.43--Round Wire
The only expression of Congressional interest seems to have been Mr. Chenoweth (R., Colo.). He is no longer in the Congress.
TSUS 700.51, - .52, - .53--Protective Rubber Footwear
Congress removed the requirement for ASP valuation, subdivided the item into three categories, and established a separate rate for each subitem. The only item of significant interest is rubber boots and galoshes. Although Senator Ribicoff wanted a rather high rate of duty for this item, a rate of 37-1/2% was established. Wilbur Mills knocked the rate down to that level from a rate that emerged from previous discussions. We are seeking authority for only a "partial" (that is, less than 50%) reduction on this item to a level of 30% ad valorem.
TSUS 745.40--Button Blanks
Reductions have been opposed by Dow (D., N.Y.); Schmidhauser (D., Iowa); Hungate (D., Mo.); and Duncan (R., Tenn.). We had not offered concessions on this item in November 1964 because we wanted to await legislation which would close a loophole that led to the importation of virtually finished buttons under a low tariff rate for button blanks. This loophole has been closed. We are offering buttons for a full reduction and should offer button blanks also for a full reduction in order to maintain the existing relationship between the rate of duty on the finished product and the lower rate of duty on the intermediate product. With the loophole closed, we doubt there would be any serious opposition to the proposed rate reduction.
TSUS 745.65, -.68--Snap Fasteners
In connection with the issuance of the August 1966 public notice,/3/ we heard from Senators Ribicoff (D. Conn.); Talmadge (D., Ga.); Pell (D., R.I.); and Congressmen McCormack (D., Mass.); Fogarty (D., R.I.) and Curtis (R., Mo.). In connection with the 1963 public notice,/4/ we heard from Senator Hartke (D., Ind.). Our judgment--which reflected a complete absence of requests for exception in our interagency deliberations--was that there would be no adverse effect on the domestic industry as a whole although some small producers might be affected. Incidentally, when we were considering whether to recommend termination of the safety pin escape-clause case, we received some Congressional representations against the decrease--in particular from some of the Connecticut delegation on behalf of the highly diversified and healthy Scovill Manufacturing Company. Scovill is also an important producer of snap fasteners. The elimination of the escape-clause duty seems to have had no adverse effect on the economy of Connecticut or on Scovill. Indeed, the company is doing markedly better than ever.
/3/31 Federal Register 10949, August 16, 1966.
/4/28 Federal Register 11251, October 21, 1963.
Modification of February 13 Memorandum
Among the items for which, in my February 13 memorandum, I sought authority for a full reduction was brooms (750.26 through -.32). Because of a negotiating decision, we are withdrawing fully our original 50% reduction offer on this item. Accordingly, we do not believe it useful to request authority for reduction and propose expressly excepting this item from the general authorization requested in my February 13 memorandum. To accomplish this change in my request, I attach some revised pages to Annex 1B that is a part of the memorandum./5/ Please (a) substitute the attached pages (each of which for easy identification) is marked with an "r" at the lower left corner of the page for page 2 of the original text and (b) renumber the old page 3 as the new page 4.
/5/Not printed.
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