295. Letter From the Special Representative for Trade Negotiations (Herter) to the Deputy Special Representative for Trade Negotiations (Blumenthal)0

Dear Mike: First of all, let me thank you for your extremely kind Christmas letter, which I appreciated deeply. Certainly insofar as you [Page 644] and your family are concerned, I want to reciprocate every good wish for the New Year and to express the hope that working together we can make real progress in the field to which we are now devoting ourselves.

I have just returned from the meetings with Erhard at the LBJ Ranch in Texas. My own participation in those meetings was limited to a short morning session with Schroeder, Westrick and Carstens,1 and then the full afternoon meeting with Erhard, et al., at which there was considerable discussion with regard to the progress of the Kennedy Round as well as the importance of what had taken place in Brussels in relation to further political reunification in Europe.

In the morning session, I had made it clear that the principal question which we had to ask related to the German interpretation as to what had taken place in Brussels, and whether or not the agricultural agreements, as well as the disparity agreement which had been reached, were subject to negotiation. In regard to the former, Westrick said he wished he could give us a firm answer, but that this could not be done until the Germans had themselves studied what had actually been decided upon in Brussels. This they were unable to do because even Lahr (who was not with the delegation) did not himself possess the text of their agreements. For instance, Westrick cited the fact that during the last hour of the conference, the Germans had offered some twelve amendments to the mandate for the Commission, all of which he believed had been accepted, but none of which were yet incorporated in any document. In other words, it was very difficult for us even to approach any detail since neither side was confident enough of the validity of what had been reported to them to be able to discuss from texts. One very astounding thing did develop, however. It was obvious (and this was confirmed in the afternoon session) that the Germans were really very pleased at the outcome of the Brussels meeting. They thought that the agreement on disparities was a great step forward, with which we ought to be delighted. It turned out, however, that they had been led to believe that the new disparity formula would apply to only some 800 items for the U.S. and 200 items for the EEC, whereas the 30-10 formula applied to over 1100 U.S. items and only a handful of EEC items. They did not know how these figures had been arrived at, nor whether the calculation was made after the four trade criteria to be applied to the disparity formula had been agreed to. Here we quickly found that there was no use discussing the matter, since from our initial information these figures made no sense whatever, and it would be impossible to discuss disparities until agreement had been reached as to what we were talking about. Furthermore, the Germans had no idea whatever that Switzerland and other EFTA countries were unhappy [Page 645] about the new formula. In fact, our bringing out what seemed to be some obvious objections caused a real dent in the euphoria which seemed to pervade the Germans as to the over-all success at Brussels.

The afternoon session began with a long summary by Schroeder as to what, in his opinion, had been accomplished. This, I am sure, will be going forward to you as soon as it has been written up by the State Department note takers. I commented quite briefly on Schroeder’s summary, saying that we had been rather shaken in the accuracy of the reports we had received as to what had been agreed upon when we found ourselves differing so widely with the German delegation on the matter of disparities. I also commented on how greatly we appreciated the position which the Germans had taken on almost every issue, even though they had not always been successful in carrying their point. I then referred to my real gratification at Shroeder’s remark that the agricultural decisions reached with regard to rice, dairy products and meat were most certainly subject to negotiating at Geneva, although as a practical matter I was sure that the Commission would feel that it had no mandate to go any distance beyond the preliminary agreement reached and the recommendations which would later be adopted to implement those agreements. Schroeder then pointed out the importance which the Germans attached to the so-called escape clause whereby a review of the regulations became practically mandatory should third nation import interests be seriously affected. None of us were too clear as to just what that escape clause meant or how it would be interpreted by the Commission, and it is obvious we will have to get some real clarification on this point before too long.

After George Ball had commented at some length on the political implications of the Brussels agreements, and expressed our satisfaction that they seemed to constitute a real step forward toward unification, he then expressed our reservations on detailed matters which could not be clearly expressed at this time because of our inability to work from accurate knowledge as to what had taken place. Then Erhard expressed himself at considerable length, not alone on the political implications, but on the general principals which had been adopted. He expressed some doubt as to how far agreement will have been reached on grain prices by April 15th. However, with regard to some of the matters on which we obviously had serious reservations, he stated he was sure that other nations would have similar reservations, mentioning in fact Great Britain and the other Commonwealth countries and the EFTA nations, and said that it would not hurt his feelings if in Geneva there appeared concerted opposition to some of those matters which the Germans themselves did not like which would force a reconsideration by the Ministers of these agreements. This was practically an open invitation to try to organize opposition to some of the decisions of the EEC, and my own [Page 646] interpretation of what he said, confirmed by George Ball, was that this would also apply to possible agreement on grain prices which might be fixed in April. This was, in my opinion, an extremely important statement of his. I might add that when I was saying goodbye to Erhard, he said that if, as he thought probable, we would have some very difficult problems to resolve at a political level later on in Geneva, he would himself be perfectly willing to come to Geneva again, and while not taking part in official negotiations, sit in a back room and try once again to play the role he played at the May Ministerial meeting in Geneva.2

In most of the above, there is not too much substance, except an indication of a degree of flexibility with regard to the negotiations which is, I think, really encouraging. However, throughout the whole discussion De Gaulle’s attitude was referred to several times and I am certain that the Germans do not feel that the agreements reached in Brussels have necessarily off-set the possibility of a disruptive attitude by De Gaulle at a later date.

With regard to the knotty problem of agriculture, one thing emerged which I hope you will give some thought to. Erhard himself referred to his own conviction that in grains the outside world would continue to ship from 10 to 13 million tons to the EEC in the future regardless of any increase of any grain production in France. He based this on the continuing need for feed grains as the demand for meat continued to increase. It occurred to me, although I have not mentioned this to anyone except Roth and Hedges here, who both concur, that we might be able to solve the access problem by linking the escape clause adopted to a specific figure such as 10-13 million tons, so that action would become mandatory by the Commission and the Council if the import of grains fell below that figure. This, to my mind, would be infinitely preferable to any effort to secure specific access quota, which as we know would meet serious opposition on the part of the Commission, as well as the French.

Before too long you will be hearing more from us on the subject of agriculture, but we are having real difficulty in reconciling the positions of Agriculture, State, and ourselves in order that we may have a clear-cut Government line to follow.

There are two random thoughts which deserve some consideration on our part. If, as now seems probable, the whole disparities issue becomes more and more involved and unmanageable, we should be giving consideration to the original Swedish proposal which, as I understand it, would mean cuts of 50% in all tariffs of 30% or above, and would then move down one percentage point with each point below 30, at which tariffs now stand, ending up with a 25% cut at 5% or a 21% cut at [Page 647] 1%. According to our computations, this would end up with a 39% over-all cut by the United States and 35% by the EEC. It would, of course, mean a smaller cut for the low tariff countries, but as between ourselves and the EEC would, I think, be soluble politically in this country. Whether or not any of the trade criterias could be applied to such a formula, I do not know, but its very simplicity has a great appeal.

The second thought follows on top of the first. If we had a bottom cut off of 5% a la ecretement and this were agreed to as a general rule, except where perhaps a principal supplier wished to receive further reductions below this level, we could then solve our oil problem. The bright ideas which we advanced from the point of view of listing oil and so getting it out of the exceptions category is not taking too well with the Interior Department or the OEP. Insofar as the principal supplier is concerned, this is clearly Venezuela, which is not apt to join the GATT negotiations. Canada supplies only 1/8th of our imports.

Both of the above may be disturbing thoughts, but I think we ought to give them a good going over.

You will undoubtedly have received a good deal more information than this letter contains by cable before you receive it. However, it carries with it all sorts of good wishes for your Japan trip as well as good luck in the very important negotiations which will be taking place in Geneva very soon thereafter. I doubt whether anything of profit could come out of meetings in Geneva until after the Ministerial meeting in Brussels, which I think is on January 15th, at which point there may be a good deal of hassling as to what was really agreed to under the pressures of last week.

If there is to be anything like a Ministerial meeting, please be sure to set it after the last two weeks in February, since I have made a solemn promise to take those two weeks off with my wife and this, as you know, constitutes a much stronger obligation than any that might appertain to the success of the Kennedy Round. I am sure you understand.

With my warmest regards,

As ever,

Christian A. Herter3
  1. Source: Kennedy Library, Herter Papers, Subject File, Michael Blumenthal, Box 7. Personal and Confidential
  2. A memorandum of this conversation is in Department of State, Conference Files: Lot 66 D 110, CF 2354.
  3. See Document 282.
  4. Printed from a copy that bears this typed signature.