106. Memorandum From Secretary of State Herter to President Eisenhower0
SUBJECT
- European Economic Problems
I thought you would be interested in steps we have taken subsequent to
the economic meetings which Doug
Dillon attended in Paris in January. I therefore enclose
a summary and status report of each of the three general topics
considered at those meetings: Trade Problems, Re-constitution of the
OEEC, and the Development
Assistance Group.
Enclosure 12
EUROPEAN TRADE PROBLEMS
We have just completed preliminary consultations with a number of
European countries and Canada about the work of the Trade Committee
of 21, which was set up as a result of the Paris meetings on January
13 and 14, based on the special communiqué issued at the close of
the Western Summit Meeting on December 21, 1959.
As you recall, our purpose in proposing the establishment of the
Trade Committee was to help let out some of the political heat
engendered by the efforts of the UK,
Sweden, Switzerland and other countries belonging to the European
Free Trade Association (EFTA—the
Seven) to press the European Economic Community (Common Market—the
Six) to join in a European-wide Free Trade Area. The French, Germans
and Italians have felt that moves toward a European-wide Free Trade
Area at any early date would jeopardize both the movement for
economic unification of the Six and the overriding political
objective of achieving a permanent Franco-German rapprochement.
Therefore, the Six strongly oppose any action leading in this
direction.
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While the UK still hopes for a
European-wide Free Trade Area as an eventual solution, they are now
in agreement with us that it would not be advisable to press this
concept now, but rather to concentrate on practical action to ease
difficulties in trade between the two groupings and between both
groupings and countries who are not members of either group. We are
hopeful also that the British and ourselves will be able to restrain
the more extreme elements in the EFTA, represented by the Swedes and the Swiss, whose
natural desire is to press for perfect but impractical solutions as
rapidly as possible.
The immediate problem is to decide what actions will be taken by the
European Economic Community (EEC)
and the European Free Trade Association on July 1, 1960. On that
date the members of the EEC are
scheduled to reduce their tariffs among themselves by 10% (without
extending these reductions to others) and the members of the EFTA are scheduled to cut their
tariffs by 20% among themselves (also without extending these
reductions to others).
In our consultations we have sought to determine whether the six
EEC countries would be prepared
to reduce the over-all level of the common external tariff of the
EEC, thus assuring a more
liberal policy by the Common Market and opening up the prospect of
larger trading opportunities for the rest of the world. We have also
sought in our consultations to suggest that if the EEC should take such liberalizing
action at this time, those countries of the EFTA having relatively high tariffs, i.e., the UK and Austria, should make some
comparable reciprocal concessions. If these two groups do in fact
take liberalizing actions of this character on July 1, they will
expect the United States to take their action into account in
preparing its position for the forthcoming tariff negotiations under
GATT which are scheduled for
late 1960–61 pursuant to the Reciprocal Trade Agreements Act.
As a result of our consultations, we are encouraged to believe that
the EEC (the Six) will give serious
consideration to an across-the-board tariff reduction of Common
Market tariff rates subject to suitable reciprocity from the EFTA (the Seven). We are in
considerable doubt, however, as to how this liberalizing offer, if
made by the EEC, would be received
by the UK and other countries of the
EFTA so long as they continue
to hope for the eventual realization of a strictly European solution
such as the Europe-wide Free Trade Area.
It is important that if the EEC is
prepared to offer the world an across-the-board tariff cut of the
Common Market tariff by as much as 20% the US should be in a
position to promptly lend its support to such a proposal. During the
next few weeks, therefore, the Department of State will consult with
other agencies with a view to developing a responsive US position
consistent with our trade agreement procedures.
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Enclosure 23
RECONSTITUTION OF THE OEEC
The eighteen OEEC Governments,
Canada and the United States agreed on January 14, 1960 to appoint a
Group of Four to examine the reconstitution of the OEEC in the light of possible Canadian
and US membership in a new organization. The Group of Four, which
has been established in Paris with American, British, French and
Greek membership, plans to complete its hearings with the twenty
Governments and interested international organizations in February
and to make a report to the twenty Governments by early April. This
report will be considered by representatives of the twenty
Governments and the European Communities on April 21. Subsequently,
a ministerial meeting will be held in an attempt to obtain agreement
on a new charter before this summer. We hope to obtain agreement on
a charter which will enable the US and Canada to become full
members. This will require Congressional action, probably a majority
vote by both Houses of Congress. It is expected that time will not
permit the submission of the proposal to the current Congress and
that the first opportunity will be in January, 1961. Thus, the
organization will probably not be operative before mid-1961.
At the Paris meetings thus far most of the interested international
organizations have appeared plus representatives of Belgium, France
and Britain. It is clear that the enthusiastic first reaction to the
initiative of the US in mid-December is unchanged. The only major
concern on the part of the European members of the OEEC has been that we might be
proposing a relatively weak organization. This reaction is derived
from our stress on the consultative aspect of the new organization
and our initial view that the new organization’s powers should be
limited to making recommendations.
The present OEEC makes “decisions”
with three significant escape provisions: 1) decisions are reached
on the basis of unanimity; 2) any country can indicate that it is
“not interested” in a particular subject, in which case, such
country is not bound by the “decision” which becomes applicable only
to those member countries participating; and 3) the rules of
procedure provide that Governments shall implement “decisions” after
“appropriate constitutional procedure has been followed.” These
escape provisions were included in the charter of the OEEC in order to facilitate the
membership of the Swiss, Swedes and certain other European countries
who were reluctant to take on international obligations without
appropriate and definite escape provisions. The experience of the
past twelve years indicates that the correct balance was
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struck: the organization
has been effective and Governments have given up none of their
sovereignty.
It is our intention to consult with other interested agencies of the
government and with key members of the Congress in the immediate
future with a view towards obtaining agreement on some form of
“decision” making power for the new organization that would satisfy
the desires of the European countries and at the same time preserve
our freedom of action.
There has been general agreement during the hearings of the Group of
Four that the new organization should only have a limited role in
the field of trade because there is no longer the need or
justification for the regional discrimination which was permitted
during the early days of the Marshall Plan. One of its main
functions will be discussions of general matters of economic policy.
It is also generally agreed that the Development Assistance Group,
which will consult about questions of aid to the less-developed
countries, should become part of the new organization but should
have considerable de facto independence. It is our hope that Japan
will be associated in the development assistance and possibly
certain other activities of a reconstituted OEEC.
Enclosure 34
DEVELOPMENT ASSISTANCE GROUP
At the January meeting in Paris dealing with the proposed
reorganization of the OEEC, a
resolution was adopted providing that eight countries—Belgium,
Canada, France, Germany, Italy, Portugal, the UK and the US—and the Commission of the European
Economic Community should form an informal Development Assistance
Group to discuss among themselves an expansion of the flow of
long-term capital funds to under-developed areas, and means for
considering the efforts of the various leaders to improve the
usefulness of their funds to the recipient countries. In pursuance
of this resolution, the US has suggested that the first meeting of
the Group take place in Washington during the second week of March,
probably March 9–11. The US also has suggested that the Group should
meet privately and informally so that there could be a frank and
free exchange of views and ideas on how to increase the flow of
development assistance to less-developed areas and how to make
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such assistance more
effective. The suggested agenda for the first meeting concentrates
on the presentation by the IBRD of
its policies and practices, a discussion of the plans of each member
to expand its activities in this field, and a discussion of the
means for better coordination of country and international
programs.
The response by the other member countries to the US proposals has
been favorable and the meeting is expected to take place along the
lines suggested by the US. We hope that, before the first meeting,
agreement can be reached on a US proposal to add Japan to the Group.
We also hope that subsequent meetings may be held at intervals of
3–4 months in the capitals of countries with the greatest potential
for expanding their aid so that attention can be focused on the
adequacy of the plans of each of them in turn.
