Foreign Relations of the United States, 1961–1963, Volume IX, Foreign Economic Policy

278. Circular Telegram From the Department of State to Certain Diplomatic Missions⁰

Washington, May 4, 1963, 5:32 p.m.

1891. As Missions aware, Administration’s position is that negotiating plan for proposed GATT trade negotiations should provide for substantial and equal linear tariff reductions by advanced countries on industrial products and on those agricultural products subject to fixed tariffs, with limited exceptions. Reductions would be made in no less than five annual stages.

At April 22-27 meeting of GATT Working Party on Tariff Reductions (WP), EEC pressed for alternative formula (termed “ecretement” plan) which they claim more suitable because of differing structures of U.S. and EEC tariffs (see below). This plan unacceptable to U.S. and meeting ended without decision on negotiating plan. Issue remains to be resolved at GATT Ministerial (May 16-22)¹ or later.

In WP discussion, we took position we cannot accept ecretement as basic plan though prepared consider on their merits special cases in which wide disparities in tariff may create special problems. We do not believe, however, problem of high and low tariffs is of great consequence.

Our opposition to ecretement is based on conviction it not in interest of industrial countries generally as well as not in U.S. interest. To ensure this fully understood by governments concerned, missions addressed requested explain U.S. position to responsible officials, drawing on following, which summarizes U.S. statement at WP meeting:

1. Apparent for some years to all participating countries that old item-by-item tariff bargaining no longer adequate. Limited results reached in lengthy 1961 tariff negotiations provided confirmation that new technique of across-the-board, linear reduction required. This not practicable for U.S. under previous legislation. GATT Ministerial meeting November 1961 endorsed linear principle. TEA legislation 1962 designed provide President with powers necessary to enable him to negotiate on broad basis necessary for substantial trade liberalization. U.S. intention to use new authority for linear reductions was widely known through 1962 and was widely endorsed by other countries. At March 1963 WP meeting U.S. proposal for equal linear reductions received wide support.

2. Although no precise details proposed by EEC, under ecretement proposal aim would be to reach arbitrarily set targets, e.g. zero duties for raw materials, 5 percent for semi-manufactures, and 10 percent for finished products. Rates in excess these levels would be reduced by half the difference between present and target levels. Result overall would be considerably less tariff reduction than under U.S. proposal since there would be no reduction of any industrial rate which is 10 percent or less and even a 100 percent ad valorem rate would be reduced by only 45 percent. On 25 percent ad valorem rate, reduction would be only 30 percent. Since almost all EEC tariffs and large majority of U.S. tariffs are at or below 25 percent, the benefits to other countries would range from 0 to 30 percent for the largest part of their manufactured exports compared to 50 percent proposed by U.S.

3. Rationale for ecretement is apparently that while average levels of CXT and U.S. tariff roughly equivalent, most CXT rates are in 15 to 25 percent range (because most highs and lows eliminated in averaging process which established CXT) whereas U.S. tariff has greater spread of rates. Following summary shows frequency distribution of U.S. and EEC rates on dutiable goods:

Tariff Range (Percent)	1	Percentage Distribution by Count of Tariff Rates		Percentage Distribution by Volume of Trade
1	US	EEC	US	EEC
.1 to 10.0	22	21	54	38
10.1 to 20.0	37	65	29	57
20.1 to 30.0	19	14	10	5
Above 30.0	22	1	7	-

Since this count covers raw materials and semi-manufactures as well as finished goods, above table does not permit any definite conclusion as to amount of U.S. or EEC trade in industrial products that would be excluded from negotiations under ecretement proposal requiring no reduction of rates now 10 percent or less on such products. However, we believe reasonable conclude substantial amount of trade would be unaffected under ecretement plan whereas linear formula would result in reductions throughout. Also note that in 10.1 to 20.0 percent range, negotiations under ecretement plan would result in rates of 10 to 15 percent for industrial goods whereas U.S. linear formula would reduce rates to 5 to 10 percent. In higher rate brackets as well, rates under ecretement plan would be higher than under linear formula.

4. Ecretement plan is unacceptable to U.S. for following reasons:

(a) Since basic objective of negotiations is to increase trade, formula chosen should be designed accomplish this end. As generally confirmed by examination results earlier negotiations, greater tariff reductions result in greater trade increases than do smaller tariff decreases. Therefore greater trade stimulation can be expected from U.S. linear formula than from ecretement plan.

(b) If establishment of uniform competitive conditions, which ecretement plan presumes, were basic objective of negotiations, harmonization of all factors, including wages, social charges, etc., would be necessary.

(c) In past, some high U.S. rates were peril-pointed, and therefore not reduced, precisely because imports were large despite high rates or were affecting sensitive industries. The larger the reduction of these rates, the greater should be the interest from viewpoint countries desiring expand their exports.

(d) Under ecretement plan bulk of reductions by both U.S. and EEC would be substantially less than 50 percent linear reductions proposed by U.S. (see paras 2 and 3 above).

(e) “Low” rates which would not be reduced under ecretement plan can be highly trade restrictive, e.g. U.S. exporters consider EEC 9 percent rate on precious metal jewelry highly protective.

(f) Country cutting high tariff may well be at greater disadvantage, i.e. making greater concessions, under linear approach, than low tariff country.

(g) Ecretement plan would lead to pressures to increase to target levels rates already below those levels, e.g. U.S. 6-1/2 percent rate on automobiles.

(h) Ecretement plan negates basic philosophy of linear approach to reciprocity.

(i) Arbitrary levels for various categories of products have no logical basis. Why limit plan to industrial products? Why not include agricultural products in zero group with other primary products?

(j) Provisions of TEA and Congressional intent as defined in legislative history of Act preclude negotiations on basis ecretement plan. Act requires us obtain mutual trade benefits. Ecretement plan would not yield mutual benefits to U.S. On industrial products, U.S. (and many other countries) would do more tariff cutting than EEC.

(k) Our basic authority is limited to 50 percent reductions for rates above 5 percent. We could not seem to commit ourselves to greater reductions which would be required to meet ultimate ecretement “targets”. Also we cannot commit ourselves as to what authority we might have under future legislation.

5. Conclusion: For practical and substantive reasons cited, U.S. sees no possibility negotiating on ecretement basis or other generalized plan based on unequal tariff reductions. Thus we consider basic plan should provide for substantial equilinear reductions with minimum exceptions. In course of negotiations on this basis, U.S. prepared consider on merits case where it is asserted reciprocity can only be achieved by uneven reductions. Any country disadvantaged in exchange of reductions should be entitled to appropriate credit. Depending on facts this might be U.S. or another country.

Ball

0. Source: Department of State, Central Files, FT7 GaTT. Limited Official Use. Drafted by Selma G. Kallis (E/OT) on May 3; cleared by James H. Lewis (TA), W. Michael Blumenthal (E), Richard D. Vine (EUR/RPE) in substance, and Herter; and approved by Leonard Weiss (OT). Repeated to all NATO capitals except Reykjavik, Athens, and Ankara, and to Bern, Canberra, Stockholm, Tokyo, Vienna, Wellington, Cairo, Helsinki, Karachi, Lima, Montevideo, New Delhi, Pretoria, and Rio de Janeiro.
1. The GATT Ministerial meeting was held in Geneva.