Foreign Relations of the United States, 1952–1954, General: Economic and Political Matters, Volume I, Part 1

GATT files, lot 59 D 563, “Foreign Economic Policy Paper—1954”

Memorandum by the Deputy Assistant Secretary of State for Economic Affairs (Kalijarvi) to the Secretary of State¹

confidential

[Washington,] March 18, 1954.

• Subject:
• Draft Presidential Message on Foreign Economic Policy

General Evaluation

The draft message, attached as Annex A,² strikes roughly the same pitch as the Randall Commission Report on which it is based. However, there are a few visible retreats from major recommendations contained in the Report; these are mentioned below and developed in more detail in the attached annexes. Our best judgment is that the policies will be regarded abroad as constructive but relatively cautious and lacking in boldness. The points at which the statement retreats from the Report proper will be especially highlighted abroad. Taken as a whole, the statement falls somewhat short of establishing a strong basis for United States assumption of leadership on the economic front.

The Department’s written comments on an earlier draft³ of this statement, sent to Mr. Randall last week, tried to retrieve some of the lost ground in the draft statement; these comments are attached as Annex B.⁴ At that time, however, we had not yet had the benefit of your recent expressions of concern that the United States must assume a strong position of leadership on the economic front. Accordingly, our comments were heavily conditioned by what we considered to be negotiable in the ordinary course with other agencies and with the White House.

Major Points Which Might Be Strengthened

If you wish to strengthen the policy statement measurably, the following points would be those on which to concentrate:

1. Request tariff-negotiating authority which would permit the United States to negotiate effectively with Japan. To do this, it will be necessary to go somewhat beyond the recommendations on this point in the Randall Commission Report. The proposed 15 per cent authority recommended in the Report and in the draft message, assuming it were fully exercised, would not afford meaningful tariff reductions for that country. This is particularly important because, in many cases, the depth of the tariff cuts which other nations would be willing to provide for Japanese products will depend on how far we can go. A specific proposal to carry out this suggestion is contained in Annex C, attached.

2. Adopt the principle of the Randall Commission recommendation that the 50–50 shipping clause in our aid legislation and in other statutes should be eliminated.⁵ These clauses, which provide in general that half of our Government-financed cargoes to foreign countries should be carried in American bottoms, have long been a source of serious friction with aid-recipient countries. The clauses add significantly to shipping costs and detract from the constructive value of our aid. They lead to retaliation and mutual recrimination. A specific proposal is developed in Annex D, attached.

3. Strengthen our policy regarding the avoidance of agricultural import restrictions. The weakest point in any effort to assume economic leadership is our inability to make commitments on the avoidance of agricultural import restrictions. Section 22 of the Agricultural Adjustment Act requires the President to impose import restrictions, despite any international agreement to the contrary, whenever he finds that imports are interfering with a domestic price-support program. This provision has compelled us to violate the GATT; it will compel us, on renegotiation of the instrument, substantially to weaken the existing commitments contained in it. This fact is strengthening the hands of agricultural protectionists throughout the world, especially Western Europe. It is likely to be one added deterrent to any efforts we may make toward agricultural integration in that area. And in any case it is likely to damage our own agricultural export markets in the long run. Annex E develops a relatively modest proposal which would strengthen our hand in this general field. This proposal is consistent with the general line of the Randall Commission Report though it is more specific than anything contained in the Report on the subject.

4. Strengthen our statement on minerals policy. The Randall Commission had recommended that where domestic minerals production must be stimulated for security purposes, it should be stimulated by means other than tariff increases or other import restrictions; the alternatives might be increased stockpiling, tax incentives, or direct subsidies out of the defense budget. The present draft conspicuously fails to endorse this principle, though it endorses others which the Commission had proposed on the same subject. The failure of the draft to endorse the principle is a clear retrogression from existing practice; tariff increases and other import restrictions are not now used to expand production. A special Cabinet Committee on Minerals Policy,⁶ which has been at work over the past few weeks, also has failed to endorse the principle, recommending rather “the best use of all of the various existing authorities of the Government”; the Cabinet Committee’s recommendations are attached as Annex F. This latter formulation resolves no issues; it simply leaves the Department free to urge at a later date that import restrictions are not the “best” of the “various existing authorities”. The point is likely to be noted at once, particularly in Canada and Latin America. The draft statement could be substantially strengthened by insisting upon a specific endorsement of the debated principle, carried in the last paragraph of page 11.

5. Make a more constructive statement as regards United States foreign aid policy. On April 16, 1953, the President stirred the world with his pledge that a portion of any savings from world disarmament might be used by the United States to help underdeveloped areas. This pledge, though very much in the minds of some foreign countries, was disregarded in the Randall Commission Report and in the draft message. The omission will be regarded as significant and disillusioning in many quarters. Annex G suggests a text for reaffirming the pledge.

6. Resist any proposals by other Cabinet members for weakening any present recommendations in the draft report. We are only aware of one such proposal which may be made, namely a proposal by Mr. Weeks that the President should not go as far in reducing the Buy American preference as the draft now indicates. This is elaborated in Annex H.

Points To Be Strengthened In Any Event

Apart from any major effort to strengthen the statement, we feel the following point must be improved:

At page 5, paragraph marked “(a)”, it is recommended that the President be empowered to reduce tariff rates “by not more than 5 per cent of present rates in each of the three years of the new act”. This is likely to mean that the 5 per cent reduction available in the first year would not be used, because tariff negotiations could not be completed in time; as a result, the available power would be limited to 5 per cent a year for two years. Other nations, including Japan, Canada, the United Kingdom and France, already have indicated their skepticism that any worthwhile tariff reductions would result, even if the full 15 per cent power were available. Indeed, there is a very substantial risk that if our own negotiating authority were limited in effect to 10 per cent by the formula in paragraph (a), we could not even persuade other nations that any tariff negotiations were worthwhile. Accordingly, to assure that the full 15 per cent authority is available, the words “in each of the three years of the new act” should be replaced by the words “in each successive year of a three-year period”.

Annex C

Added Tariff-Negotiations Authority

At page 5 of the draft, strike the first complete paragraph and substitute the following:

I consider it particularly important that this nation be in a position to take the leadership in negotiations between Japan and the other principal trading nations of the world for the mutual reduction of tariffs and other trade barriers. Japan needs market opportunities if she is to live. Our own security depends in part on her economic strength.

Accordingly, I recommend that the Congress go beyond the proposals of the Commission on Foreign Economic Policy in certain respects in order to provide the necessary authority to achieve this end. I recommend renewal of the Trade Agreements Act for a period of three years with necessary amendments to provide authority pursuant to trade agreements negotiations, to

a. Reduce existing tariff rates on commodities selected for such negotiations by not more than 5 per cent per year over a three-year period;

b. Reduce existing tariffs selected for negotiations to one-half their January 1, 1945 level over a three-year period; and

c. Reduce the rate of any tariff selected for negotiation which is in excess of 50 per cent ad valorem, or its equivalent, to 50 per cent ad valorem or its equivalent.

Annex D

Strengthening the Policy re Shipping

At page 12, third complete paragraph, second sentence, rewrite as follows (underlined portions are new language):⁷

“I subscribe to the principle that such support of our merchant fleet as is required for the purpose should be provided by direct means and that preferences in favor of American bottoms for the carriage of government-financed cargoes should be avoided to the greatest extent possible.”

At page 12, last complete paragraph, second sentence, rewrite as follows:

“Its findings will be further reviewed within the Executive Branch in the light of the principles stated above in order to develop etc.”

Annex E

Harmonization of Agricultural and Trade Policy

Insert the following after the third full paragraph on page 12:

“When we maintain in the interest of American agriculture a level of supports higher than the world price level, we must be careful not to resort to restrictive measures which in the long run will only react to our hurt and which are unfair to foreign countries. I fully endorse, therefore, the conclusion of the Commission’s Report that ‘In the application of import restrictions on foreign products, the level of those restrictions should be set with full regard for the effects on overseas buying power and the possibility that such restrictions may lead to retaliation and may be self-defeating.’ In order to accomplish this objective, I recommend that the Congress amend Section 22 of the Agricultural Adjustment Act of 1934, as amended, so as to provide that import restrictions designed to safeguard a domestic farm program shall not be established at such levels as would deprive the foreign countries affected of the share of the domestic market in the product concerned that they would have had in the absence of the domestic program.”

Annex F

Special Cabinet Committee Recommendations re Minerals Policy

The Cabinet Mineral Policy Committee recognizes that a strong, vigorous and efficient domestic mineral industry is essential to the national security and to the long-term economic development of the United States. The domestic mineral industry must contribute in varying degrees to the mineral raw material base for any future mobilization effort.

In addition to our need for domestic mineral production, it must be recognized that there are many important minerals where efficient domestic production is inadequate or entirely lacking to meet industrial defense needs and where, as a consequence, foreign sources and stockpiling must be relied upon.

The Cabinet Mineral Policy Committee recommends that the supply-demand situation for each of the metals and minerals be evaluated periodically on a case-by-case basis to establish the proper level of efficient domestic production required as an adequate component of the mobilization base. Where it is found that the level of such production in the case of any particular mineral is likely to become, or is now, insufficient to serve as such an adequate component of the mobilization base, then a comprehensive program involving the best use of all of the various existing authorities of the Government should be developed to maintain or to achieve that level of domestic production. In the event that the present authorities of the Government are inadequate to accomplish the desired objective, appropriate legislative recommendations should be prepared.

Annex G

Strengthening Our Policy on Foreign Aid

Insert on page 13, between the third and fourth paragraphs, the following new paragraph:

On April 16, 1953, I stated that “This Government is ready to ask its people to join with all nations in devoting a substantial percentage of the savings achieved by disarmament to a fund for world aid and reconstruction. The purposes of this great work would be to help other peoples to develop the underdeveloped areas of the world, to stimulate profitable and fair world trade, to assist all peoples to know the blessings of productive freedom.” I reaffirm this pledge today. But we know what prevents the carrying out of this promise. Therefore, we must consider how the extension of aid may best serve the interests of the United States in the circumstances as they exist today.

Insert on page 14, at the end of the eighth line, the following new sentences:

“But our security interests must be broadly conceived. Where these interests appear vitally involved, we should not hesitate to make appropriate grants in aid.”

Annex H

Possible Proposals by Other Cabinet Members To Weaken the Randall Commission’s Recommendations

Revision of Buy American Policy

The last two paragraphs of page 10 of the draft statement indicate a substantial liberalization of our existing Buy American policies, that is, policies which require government agencies in general to extend a 25 per cent price preference in favor of domestic sources of supply. Mr. Weeks may argue for retaining a 10 per cent preference rather than the proposed 5 per cent preference for domestic bidders. He feels that, in addition to special treatment for depressed employment areas, there should be special consideration for depressed industries. He may propose that, following the certification by some official (e.g. Secretary of Commerce) to the effect that certain industries are depressed, Government procurement officers would be authorized to accept only domestic bids for products supplied by such certified industry.

1. Drafted by Vernon.
2. Not found with the source text.
3. Not identified.
4. Not printed.
5. The so-called 50–50 provisions required 50 percent of all cargoes financed for the account of the U.S. Government to be shipped in U.S. bottoms.
6. Apparent reference to the Cabinet Committee on Minerals Policy appointed by President Eisenhower on Oct. 26, 1953. See the editorial notes, pp. 1116 and 1257.
7. Printed here as italics.