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

291. Memorandum From the Special Representative for Trade Negotiations (Herter) to President Johnson⁰

Washington, November 27, 1963.

As you indicated in your conversations in Brussels several weeks ago, preparations for the Kennedy Round are going ahead on schedule. Public hearings on the tariff schedules begin on Monday, December 2. There are in addition, however, a number of problems relating to these negotiations that we would like to bring to your attention. Some of these are of immediate concern and some relate to future conversations you may have with European Heads of State. In order to bring you up to date on these matters, both immediate and longer range, we attach a progress report.

Should you have any question about any of these items, or should you wish to discuss negotiations in a more general way, I am available at your pleasure.

Christian A. Herter¹

Attachment²

THE TRADE NEGOTIATIONS

1. National and International Implications

The trade negotiations will be a test of the Atlantic Community’s will to cooperate in the economic field. Failure to negotiate a significant reduction in trade barriers could do incalculable harm to the unity and strength of the Free World. It could lead to a return to nationalistic protectionism both here and in Europe, tending to stifle the opportunities for expansion of our foreign trade and our economy.

For the European Economic Community it could be a crisis more serious than the one caused by the rejection of the U.K.’s application for membership. The French have shown considerable reluctance to enter into meaningful negotiations. The West German Government appears genuinely interested in having the negotiations succeed. It has taken the position that further progress on internal Common Market decisions must be synchronized with decisions of the European Economic Community in the Kennedy Round. The Germans thus hope to trade German approval of the remaining agricultural regulations, which the French want, for French cooperation in cutting tariffs in the Kennedy Round, which the Germans want.

There are many who believe that if these issues cannot be resolved in a manner that causes EEC cooperation in the Kennedy Round, centrifugal forces would set in which could in time destroy the Common Market.

2. Resolution of GATT Ministers, May 1963³

The first important step towards the negotiations took place at the Ministerial Meeting of the GATT in May 1963. This meeting brought to a head a disagreement between the U.S. and the EEC on the general plan of the negotiations. The U.S. stood for broad cuts of all tariffs by an equal percentage, with a minimum of exceptions. The EEC, largely at French initiative, argued that the objective should be harmonization of the tariff systems of the industrialized countries, which would require that high tariffs be reduced by a greater percentage than low ones. This approach would result in greater concessions by the U.S. than the EEC, since the U.S. has more high tariffs than the EEC, though our average tariff levels are about the same.

The Ministerial resolution which emerged from this meeting set the following guidelines for the negotiations:

a. The basic tariff cutting plan should be across-the-board, deep and equal cuts, with limited exceptions subject to confrontation and justification. Special rules, however, should be adopted to deal with disparities in tariff levels that are significant in trade terms.

b. Agricultural products were to be included with the object of developing access to world markets and expanding trade.

c. Non-tariff barriers to trade as well as tariffs should be covered in the negotiations.

d. It was recognized that barriers to exports of less-developed countries must be lowered wherever possible, though the LDC’s could not be expected to give full reciprocity in their own tariff cuts.

e. May 1964 was set as the date for opening the negotiating conference. A Trade Negotiating Committee was established to make preparations for that conference.

3. Negotiating Progress to date

The Trade Negotiating Committee and its subcommittees have held numerous meetings since the Ministerial meeting, but little progress has been made in agreeing upon negotiating rules. The main issues continue to be disparities, agriculture, and the less-developed countries.

a. Disparities

On disparities, the EEC continues to press for a rule which would encompass so many tariff items as to require the U.S. to make substantially larger cuts overall than the EEC and to result in a considerable erosion of the across-the-board reduction principle. The French have taken the most adamant position on this issue. The U.S. has strongly resisted this and has gained the support of practically all the other GATT Contracting Parties.

b. Agriculture

On agriculture, the EEC has not yet been prepared to work on meaningful preparations, insisting that it must wait until the regulations of its own Common Agricultural Policy (CAP) are established. The six EEC countries have not yet agreed on regulations for meats, rice and dairy products. For cereals (which constitutes the most important U.S. agricultural export to the EEC) no decision has been taken on the critical issue of the common price level. As a practical matter, these internal decisions also establish the level of protection against imports.

Since the EEC’s internal difficulties in securing agreement on agricultural policy are so great, there are grave doubts as to whether it can or will be willing to negotiate changes in its agricultural regulations even after they are adopted by the EEC Council. In fact, there have been signs for some time that the EEC would prefer to separate agriculture entirely from the general tariff cutting rules of the negotiations, which in effect is what happened in the previous Dillon Round. Most recently, Vice President Mansholt of the EEC Commission has put forward a proposal for general treatment of agricultural products in this round. Under the Mansholt negotiating plan the EEC would first agree on the remainder of its common agricultural policy. After this is done the EEC would offer to bind the then existing level of protection if all countries would do the same. Negotiation of reductions in levels of protection are specifically ruled out except in special circumstances. Further, under the proposal the EEC apparently would also withdraw without compensation all existing tariff bindings on agricultural products.

In our view this plan would effectively remove the possibility of significant relaxation of agricultural trade restrictions in the course of this negotiation. Our feeling is therefore that this plan is incompatible with the Ministerial decision of last May.

Perhaps the most important recent development relating to agriculture has been Mansholt’s proposal for settlement of the very sensitive question of EEC common grain prices. This has long been an issue particularly between France, whose grains prices are relatively low (though considerably higher than U.S. prices), and West Germany, whose prices are high. To date, the EEC has been a heavy importer of grains, many of them from the U.S. If the common EEC price were set much higher than the current French price, there is a very real danger that much extra production would be stimulated within France, and U.S. grain exports would consequently fall. The price level now proposed by the Commission, which is almost midway between the French and German prices, would in our opinion artificially stimulate such extra production.

A great deal of pressure has built up within the EEC to settle at least the rice, meats, and dairy regulations by the end of this year or early next. The Mansholt grains proposal has also won considerable support, though its chances for early implementation are lower. The Germans, to whom agreement on these arrangements would be a significant concession, appear to be willing to seek, as a quid pro quo for their agreement, France’s cooperation in the Kennedy Round.

We feel that the U.S. must at the earliest possible opportunity pre-sent to the EEC and its member governments, forcefully and tactfully, its view on both the Mansholt grains price proposal and agricultural negotiating plan. We also wish to encourage the Germans to use their adherence to agricultural regulations as a lever with which to secure France’s agreement to a reasonable approach on disparities and the linear cut. We hope that Chancellor Erhard’s visit to you later this month will give you an occasion to make these points, especially since the Chancellor apparently wishes to discuss agriculture and the Kennedy Round. A more complete paper on this subject will be ready for you shortly. In the meantime, our embassies have been instructed to impress upon the EEC governments and the Commission our desire for consultations before any decision on these points are taken.

c. Less Developed Countries

The GATT negotiations, as well as the U.N. Conference on Trade and Development which will begin a few months earlier, will also be focal points for the steadily mounting pressure from developing nations for more favorable treatment of their trade in industrialized countries. The GATT Ministers, recognizing the special problems of these nations, agreed in principle to reduce barriers to their exports and to demand less than full reciprocity from them in the negotiations.

While the deliberations since last May have explored a wide variety of measures to implement these principles, the developing nations have concentrated their demands upon new tariff preferences by the industrialized countries for their exports. They contend that such preferences are necessary to stimulate their export trade in manufactures upon which they feel they must rely for foreign earnings and domestic growth of their economies.

Even though the economic benefits of such preferences have yet to be clearly established, virtually every industrial nation except the United States now appears to be looking favorably on this request, primarily on political grounds. Our reluctance to join them has been conditioned largely by the fact that most preference proposals would require revisions in our law, since the Trade Expansion Act requires that U.S. tariff concessions be made on a most-favored-nation basis, and, further, that they would in all likelihood involve the products of certain domestic industries already sensitive to import competition. Thus far we have merely indicated a willingness to consider the many implications of these schemes.

On the more affirmative side, we have held that a broad and deep tariff cut, accompanied by concerted measures to remove other trade barriers by all industrial nations and supplemented by financial and other assistance, will go far toward improving trading prospects of these countries.

4. Domestic Preparations—Public Hearings

Formal domestic preparations for the negotiations began on December 2 with the opening of public hearings by both the Tariff Commission and the interagency Trade Information Committee, as required by the Trade Expansion Act. The Tariff Commission will report to you by April 21, 1964, its advice as to the probable economic effect of U.S. tariff reductions on the various domestic industries. The Trade Information Committee hearings, which are chaired by a member of the Special Representative’s Office, will concentrate on the foreign trade restrictions whose reduction would be of greatest benefit to U.S. exporting industries. Its report will be available to you at about the same time as the Tariff Commission’s.

5. Exceptions

The opening of the hearings will probably usher in a period of increasing pressure on you, your staff, and various executive departments to make commitments to withhold particular items from the general tariff reduction. As noted above, the GATT Ministers resolved that such exceptions should be kept to a bare minimum, subject to “confrontation and justification.” The Trade Expansion Act requires that any item on which special trade restrictions are in force under the “escape clause” or “national security” provisions of our laws must be excepted. Certain others involved in past escape-clause cases must be excepted under certain circumstances. The decision on excepting any items apart from these few mandatory ones rests, by law, in your hands, after taking into account the advice of the various agencies.

The Office of the Special Representative will gather information from sources within and without the Government, will weigh the advice of the Tariff Commission, and will present you with recommendations on this score, probably in the late spring of next year. A preliminary decision on exceptions may be made at that time, but in order to permit a meaningful process of “confrontation and justification,” we would recommend that no hard and fast decisions on exceptions be made until after this process is completed. We shall be able to negotiate changes that we want in other countries’ exceptions lists only by being prepared to make changes in our own. This course would have the additional benefit of enabling you and other members of your Administration to resist the inevitable pressure for advance commitments on exceptions.

We have drafted a directive (attached)⁴ from yourself to the heads of the agencies involved in the trade program which describes the procedure to be followed on exceptions and deals with the question of advance commitments.

6. Escape Clause Reviews

Another issue that will come before you for decision in the coming weeks is whether to have the Tariff Commission investigate the consequences of reduction or termination of the special “escape-clause” protection now in force. Other countries and our own importers look to us to conduct these investigations as a sign of our good faith in liberal trade. The domestic industries involved oppose such investigations as creating uncertainties which upset their business.

Decisions have now been made on two of the eight current escape-clause cases. President Kennedy last month decided not to alter the tariff on clinical thermometers on the basis of an investigation by the Tariff Commission, and this week you agreed that the Tariff Commission should make a further investigation of watches. Our office will make further recommendations to you on the remaining items over the next several months. Prior consultation with your staff, however, will enable us to be certain that political implications are taken into consideration in our recommendations.

7. Public and Congressional Advisors

The Trade Expansion Act requires the Special Representative to “seek information and advice with respect to each negotiation from representatives of industry, agriculture, and labor.” We propose that you should establish a Public Advisory Committee to the Special Representative composed of about 35 distinguished persons in these fields. They would meet with us periodically to express their views on the various issues that arise in the course of preparing for the negotiations. Once the negotiations begin next year, some of them may go to Geneva as public advisors to the delegation.

We have cleared with the various agencies a list of names proposed as members of this committee, and an order establishing the committee will be sent to you for approval very shortly.

The Act also stipulates that two members of the House Committee on Ways and Means and of the Senate Committee on Finance shall act as Congressional delegates to the negotiations and be members of the U.S. delegation.

The members of Congress who have been selected are:

• Honorable Cecil King, Democrat of California
• Honorable Thomas Curtis, Republican of Missouri
• Honorable Herman Talmadge, Democrat of Georgia
• Honorable John Williams, Republican of Delaware

We have consulted with these gentlemen on numerous occasions and plan to keep them informed of developments concerning the negotiations.

8. Office of the Special Representative

The position of Special Representative for Trade Negotiations was created by Congress in order to assign responsibility for directing the trade negotiations and their preparation to someone within the President’s own Office. By Executive Order, President Kennedy designated the Special Representative to advise and assist him in the administration of trade agreements carried out under the Trade Expansion Act and certain other authorities. He also delegated to the Special Representative the duty of seeking advice and information on proposed trade agreements from various executive departments and other sources. The Special Representative therefore acts as the channel to you of information and advice on the trade agreements program from the agencies within the Executive Branch.

Policy decisions in the field of trade agreements and the recommendations made to you by the Special Representative are, as a rule, based upon decisions taken by the Trade Executive Committee made up of senior representatives of seven agencies. The Special Representative has a small staff of his own, however, which constitutes a separate agency within the Executive Office of the President and which is of course at your call at all times.

0. Source: Kennedy Library, Herter Papers, Memoranda to the President, USTR. No classification marking. Lyndon B. Johnson became President following the assassination of President Kennedy in Dallas on November 22.
1. Printed from a copy that bears this typed signature.
2. Confidential.
3. See Document 282.
4. Not printed.