276. Memorandum for the Record0

The President met in his office on May 2 at 10:30 with Messrs. Robert Marjolin and Jean Rey of the EEC Commission. They were accompanied by Governor Herter and Secretary Ball. After an exchange of greetings the President opened the discussion by observing that the Trade Expansion Act had represented a fairly radical step. It was a departure from our past method of doing things and it had taken a great deal of effort to persuade Congress that this was a worthwhile thing to do. The President realized we all would have particular problems with applying this method but he hoped for sufficient give and take on both sides so we could have a successful and beneficial negotiation. Mr. Marjolin agreed that the principles of the Act were good and that we would make something out of it. There were important problems of detail that remained to be dealt with but he was confident that they could be dealt with successfully. The President remarked on the importance of unanimity among the Six in their approach to the problem and hoped that there could be unanimity. He thought on both sides we should commit ourselves to as large-scale reductions as possible and be prepared to face the domestic complaints as they arose. He observed that it was a curious fact that harm [Page 596] to business that arose from domestic competition was more or less accepted while harm from import competition was viewed as something that had to be defended against. This, of course, was contrary to the economic logic of competition. On our own part, we are prepared to go as far as our legal authority allows in the trade negotiations. We have made that position clear; the President said he knew that Chris Herter would not have accepted the appointment if he was not convinced that we were prepared to go to the limit of our power in this negotiation. Commissioner Rey observed that there had been very good cooperation between the U.S. and the Commission. This was true at the level of relations between the Commissioner and Governor Herter and it was true at the working level. The Commission staff had lively discussions with Blumenthal and technical discussions were going ahead well.

The President turned to the question of the international monetary mechanism and whether it was equal to the needs of world trade. He observed that he had just received the other day a minister from Guinea. Like most of the less-developed countries Guinea was practically bankrupt. In fact Latin America, Africa, and Asia were essentially in this position and the U.S. balance of payments position was poor as well. This raised the question of whether too many countries were striving after surplus and whether this was not dangerous. Was not the West as a whole in danger of letting money master national purposes instead of letting broader purposes determine the monetary mechanism?

Commissioner Marjolin responded that the surplus of the Six was declining. Their trade balance was moving toward a better equilibrium than that of the U.S. Wages in these countries were rising some ten per cent per year and this rate of rise was still continuing in France, Germany and Italy and perhaps to only a slightly less extent in Holland. M. Marjolin expressed his confidence that in two years or so more the dollar will be in a sound position.

The President agreed that so far as trade went, Marjolin’s observations were sound. On the other hand, one had to look not only to trade but other items. We expected our net loss on tourist account alone to be $1.5 billion next year. When the military burdens were considered, in addition, it was clear that we had to earn a bigger trade surplus to account for them. He did not mention investment because this was something he thought we ourselves had to deal with. In these balance of payments matters our loss was Europe’s gain. Everybody can’t have a surplus, yet if the U.S. responded by taking restrictive measures this could bring in Europe and the rest of the world the kind of desperate situation we had in the 20’s and 30’s, which would be disastrous.

Marjolin responded that Europe was not fighting to keep its surplus. It did not want a deficit indeed, but that is as far as it went. The U.S. basic deficit including short-term capital movements was not so big. In [Page 597] the face of rate of expansion, of demand in the EEC, the increasingly good economic conditions in the U.S., and the effect they would have on capital movements, Marjolin was confident the problem would be met. However, he agreed with the President that the international monetary system needed reform. The gold exchange standard was a fragile mechanism and it could not withstand any serious shock. While he was not an outright advocate of Triffin, he thought there was a good deal of merit in Triffin’s ideas. He admired the accomplishments of Messrs. Dillon and Roosa in defending the dollar, but he thought we must go beyond what they have done. It is clear that we must have a situation in which the monetary system is the servant of the economy and not vice versa.

The President returned to the question of trade as a means toward other goals. For us it clearly had to earn enough for tourists and defense. It cost us about $3.5 billion annually on balance of payments account. M. Rey asked whether U.S. investment in Europe should be stopped. The President responded that he would be glad to see the Europeans do it. D’Estaing has threatened several times to do this and the President rather wondered when he would. Marjolin warned the President not to count on d’Estaing doing it and Rey added that the Commission would not do it.

The President asked what the present state of the poultry problem was and Marjolin referred to the Commission proposal of the Council of Ministers and described it as a good proposal for which the Commission would have to fight hard. The President responded that he would describe it as at best a moderately good proposal. He thought that the Europeans would by now be willing to do what we asked in respect to poultry in order that they would not have to listen to us talk about it any more.

There was a certain amount of further discussion of poultry and the conversation turned to the Italian elections. The President indicated that he thought that they might have no effect on the Community but feared they might have some effect on NATO.

  1. Source: Kennedy Library, National Security Files, Kaysen Series, Trade Policy, Trade Expansion Act, 5/1/63-5/15/63. No classification marking. The source text, labeled “Draft,” bears no drafting information.