224. Memorandum From Secretary of State Rusk to President Kennedy0
SUBJECT
- Need for Additional Bargaining Authority in Geneva Tariff Negotiations
1. When the Trade Agreements Act was extended in 19581 authority was sought to cut tariffs by an additional 20% over a four-year period. This authority was requested primarily in order to enable the United States Government to negotiate reciprocal concessions with the Common Market. This was necessary in order to minimize possible disadvantages to our trade as a result of the internal tariff reductions of the [Page 475] Common Market which under the Rome Treaty would have amounted to 30% over the same period.
2. Under the authority granted by the 1958 extension legislation, the United States initiated a round of tariff negotiations in Geneva. Unfortunately, in the bureaucratic process of developing bargaining offers for these negotiations, the Eisenhower Administration threw away most of its chips. First, it made the decision to restrict the commodities for possible negotiation to a very limited list. This list comprehended only 26.3% of our imports from the countries with which we plan to negotiate. Second, the Tariff Commission further limited the Administration’s bargaining authority by setting highly debatable peril points for a large number of commodities. The Tariff Commission’s action appears to have been taken without serious regard to economic data.
3. As a result of these two bureaucratic actions, the United States Delegation at the Geneva Conference was authorized to offer tariff concessions on only 18% of total US imports from the countries with which we were negotiating. In the case of several countries, the limit of our bargaining authority was reduced to around 1% or less of our imports from these countries.
4. Meanwhile, both the Common Market and the United Kingdom had approached the Geneva negotiations in an entirely different spirit. Both the Common Market countries and the United Kingdom had indicated that they were prepared to make 20% across-the-board reductions in their tariffs on industrial items, subject to certain specified exceptions.
5. They made it clear that they were prepared to go forward with these reductions (on a most-favored-nation basis) even though the United States did not make reciprocal concessions to the same extent. They recognized that the United States had put up with quantitative limitations on their part during the post-war years of the dollar shortage. They recognized also that the United States was having balance of payments difficulties. Finally, they wished to minimize discrimination against the United States resulting from the establishment of the Common Market and the European Free Trade Association.
6. But while adopting this flexible and statesmanlike view, they were reluctant to go forward with their 20% across-the-board offers if there was too great a disparity between their offers and those of the United States. In other words, while they did not insist that the United States reciprocate fully, they did feel that they must obtain at least partial reciprocity in order to withstand their own domestic political pressures.
7. Our present dilemma is, therefore, that we have so hamstrung our own negotiators that they do not have the authority to make the concessions needed to satisfy even the modest requirements of reciprocity [Page 476] which the European nations are expecting. As a result, there is grave danger that both the Common Market and the United Kingdom will withdraw from their initial, generous positions and reduce their offers substantially below the original 20% across-the-board proposals. If this occurs, we shall lose the chance to minimize the discrimination against our producers which the external tariffs of the Common Market will otherwise create.
8. I need not emphasize to you the difficulties that this will cause us in working toward an adequate modus vivendi with the Common Market. Nor need I emphasize the advantages that we would gain in the Trade Agreements fight next year if we could show that, by using the authority provided by the 1958 extension legislation, we had succeeded in obtaining a 20% across-the-board reduction in both the Common Market and the United Kingdom industrial tariffs.
9. The measure of our difficulty is shown by the fact that the Common Market’s offers to the United States in the industrial area alone cover more than $347 million, or 60% of our requests in this area, while our offers to the Common Market countries cover only $153 million, or less than one-fourth of their requests. Much the same situation prevails with the United Kingdom. Annex A provides further details.2
10. Faced with these disturbing facts, we requested our Delegation to the Geneva Conference to cull the list of peril point items on which concessions had been requested by the Common Market and the United Kingdom and to extract those items that might be included in additional offers at a minimum political risk. This operation has now been completed and our Delegation has produced a list of items with a total trade value of $130 million for the EEC and the UK, as indicated in the attached List I.2
11. In view of the gross inadequacy of our present offers and the critical importance of successfully concluding the Geneva negotiations, I strongly recommend that we authorize our negotiators at Geneva to increase the United States offers to cover the additional trade items indicated in List I, even though this involves disregarding peril point findings on these items. Our negotiators would use this authority only to the extent they feel it necessary in order to obtain the kind of concessions from our European friends that we require.
12. This action would be clearly within your authority. Under the terms of the law you are not bound by the peril points. The law merely requires that you notify Congress of the items with respect to which peril points have been disregarded. This notification does not have to be [Page 477] given, moreover, until thirty days after a trade agreement has been concluded. If we proceed with this course your report to the Congress would probably not be required until about the middle of December, since it is presently planned to complete the Geneva negotiations by about the middle of November.
13. I recommend one additional measure for increasing our offers to the EEC and the United Kingdom. At my request the United States Delegation had assembled a list of items on which the Tariff Commission found peril points which coincide exactly with existing tariff rates. On these items, as shown in the appended List II,3 the United States would be able to offer tariff bindings at present rates, without breaching peril points and without the necessity of reporting to the Congress. Offers for bindings on these commodities were not originally included in our offer lists, because they were thought to be of little value in obtaining reciprocal concessions. But I now feel that they should be included for whatever benefit they may bring, little as it may be.
14. By increasing our offers through the inclusion of all or part of the suggested list of peril point items we should, with good luck, be able to insure not only the 20 percent across-the-board reductions by the Common Market and the United Kingdom but also obtain reductions on certain specific items of special interest to American producers. In this way we could demonstrate to the Congress and the American people that by the extensive use of trade agreement authority we are able to minimize the discrimination resulting from the Common Market. We could then pave the way for future trade agreement authority in new legislation enabling us to bring about the further reductions in the external tariff of the Common Market as the Common Market moves progressively into effect. This is, of course, the fundamental basis upon which next Spring’s trade agreement fight must be founded.
Recommendation:
15. I recommend, therefore, that we move promptly to enlarge the bargaining authority of our negotiators. I suggest that you ask Secretary Hodges, as Chairman of the Trade Policy Committee, to convene a meeting of that Committee as quickly as possible to review the list of items on which it is proposed to make new offers. I suggest also that you make clear to the Trade Policy Committee that they should resolve doubtful cases in favor of granting our negotiators the necessary increased bargaining authority, with the understanding that the negotiators will use that authority only if they deem it necessary in order to achieve the results we need.
[Page 478]I recommend you also make clear that if any items are deleted, substitutions should be made covering a comparable amount of trade. Since there are compelling reasons for concluding the negotiations in Geneva by October 31, I suggest that the Trade Policy Committee be asked to report to you on this matter not later than September 22.