Foreign Relations of the United States, 1961–1963, Volume XIII, Western Europe and Canada

89. Memorandum of Conversation⁰

LBJ Ranch, Texas, December 28, 1963, 3:15 p.m.

SUBJECT

• Brussels Negotiations—Kennedy Round

[Here follows a list of participants including President Johnson, Secretary of State Rusk, Under Secretary Ball, and 9 other U.S. officials, and Chancellor Erhard, Foreign Minister Schroeder, Ambassador Knappstein, and 11 other German officials.]

The meeting opened at 3:15 p.m. At the President’s request, Secretary Rusk started the discussion by asking the Chancellor¹ and Foreign Minister Schroeder for their evaluation of the recent EEC talks at Brussels.²

Foreign Minister Schroeder described the situation that existed at the time of the Brussels meeting. It had been agreed on May 9 that there would be a synchronized program of negotiations. For the Federal Republic that meant that there would be not only internal development within the Common Market, especially agriculture, but also outward development looking toward the Kennedy Round. This situation culminated in the Brussels negotiations.

Mr. Schroeder went on to say that difficulties existed at Brussels because the interest of France and some other participants related more to agriculture than to the Kennedy Round, and also because it was obviously impossible to lay down specific positions regarding the Kennedy Round at this early point. There was therefore a danger that the negotiations could fall apart before any decisions were reached.

The French had come to recognize, however, that the Federal Republic was serious about the importance of the Kennedy Round. As a result, the French position has become somewhat better. Reasonable compromises were achieved, Mr. Schroeder felt, both in agriculture and in the Kennedy Round position.

The change in the French viewpoint, the Foreign Minister continued, was illustrated by the latest meeting between General de Gaulle and the German Ambassador in Paris. De Gaulle said to the Ambassador that the Kennedy Round was an Anglo-Saxon matter but because of the German attitude France would take a different view than before.

Secretary Rusk asked when that conversation had taken place. The Foreign Minister said that it had occurred a few days before the recent Brussels talks.

The Foreign Minister continued that the Rome treaty and its implementing regulations provide not only for internal development within the Common Market but also for consideration of its external aspects. World trade and external conditions must also be considered by the Common Market nations.

Disparities had been the most difficult question to resolve at Brussels, Mr. Schroeder said. The Germans were able to bring about agreement on a new two-to-ohe formula. This would mean, according to German experts, a reduction in the number of disparities: previously the number would have been twelve hundred US items and a few for the Europeans, whereas now the ratio would be about four-to-one—eight hundred US to two hundred European. This is the conclusion of German experts.

The Foreign Minister emphasized that there are a number of details which are not yet clear. The EEC Commission directive is not yet available. When this is available more detailed discussion can be useful. Nevertheless, German experts believe that sufficient agreement was reached at Brussels to enable the Commission to formulate a position for the Kennedy Round. The French position is definitely more favorable than before.

The Foreign Minister repeated that Chancellor Erhard had succeeded in convincing de Gaulle in November that the Kennedy Round was as important or more important to Germany than the agricultural regulations. The French now clearly recognize this, as illustrated by recent statements by Pompidou and Giscard.

In summary the Foreign Minister expressed the belief that the Brussels compromise had been fairly good in balancing Community and Kennedy Round interests.

Foreign Minister Schroeder said he would like to add one thought. No decision was taken on cereal prices. This is to be done in April 1964. The Mansholt Plan will be the basis of consideration but it will not be accepted without change in the establishment of Common Market cereal prices. Mr. Schroeder noted that the French and other Community members object to some portions of the Mansholt Plan. Mr. Schroeder also said that the Germans had got a clause inserted in the agreement on this subject which would make agricultural policy more negotiable; this had not been easy to do in view of the Common Market agricultural regulations on the one hand and the preparations for the Kennedy Round on the other.

Governor Herter said that the US had followed the Brussels negotiations closely, had realized the difficulties faced by the Federal Republic both in its own agricultural problems and in the French position, and was most appreciative of the efforts made by the Federal Republic at Brussels to insure consideration of the position of third parties. Governor Herter noted that the US is handicapped by not having the text of the arrangements agreed to at Brussels.

Governor Herter went on to say that what was most satisfying in Foreign Minister Schroeder’s comments was the point that agricultural matters would be subject to negotiation. It would have been most difficult for the US had it been presented with a fait accompli.

As regards disparities the initial analysis by the US indicates that the new formula presents many complications. The new formula would by this analysis add 250 items to the US list of disparities and nearly 500 to the European list; this complicates rather than simplifies the problem. Governor Herter expressed the view that US experts should meet with Common Market experts and attempt to reach agreement on the facts. The problem of disparities could then be worked out. Governor Herter stressed the difficulty of this problem for the United States and said that it would be difficult to say that the US is pleased by the new formula.

Under Secretary Ball agreed that it is highly desirable for experts on both sides to get together and agree on the facts. A common understanding could thereafter be developed. Mr. Ball added that if the German analysis is correct, the Brussels agreements represent a step forward.

Foreign Minister Schroeder said it is unfortunate Mr. Lahr, one of the senior experts of the Foreign Office, was not present for these discussions. The Foreign Minister said he could only sum up the results as he understood them but he could not of course prove his points.

Governor Herter noted that the EFTA countries consider the Brussels formula unacceptable. Their reasons are not clear but they obviously feel that there are very many complexities to be worked out.

Chancellor Erhard said that he has a great interest in this problem. Governor Herter and he in a sense had baptized the child at the GATT conference earlier this year. The Chancellor added that he wants the Kennedy Round to be a success. The Chancellor went on to say that the Federal Republic had relatively little interest in the Common Market regulations but was highly interested in expanding trade as much as possible. Nevertheless it must take its partners into consideration. The Federal Republic feels that it has succeeded in getting adequate agreement in preparation for the Kennedy Round. It has also succeeded in getting the interests of EFTA, Commonwealth nations and other third parties taken into account in the agricultural regulations. The Chancellor noted that less developed countries are also concerned by the EEC agricultural regulations. The Chancellor commented that the GATT negotiations will bring forth some solid opposition to the EEC regulations. The Chancellor said that he is not afraid of this opposition and that he believes positive results can be achieved.

Chancellor Erhard went on to say that it is possible to get lost in details. Foodstuffs which affect the entire world raise larger and more general problems; worldwide agreements are called for. This however is contrary to the thinking of the EEC. Nevertheless this is a worldwide problem and the EEC is not the only factor.

Regarding disparities the Chancellor said that the point is not their number. Again there is a danger of being lost in detail, especially at the GATT conference. The Federal Republic will pursue this problem in Brussels and with the United States, on the basis of factual criteria. Then there will be a sound basis for proceeding.

The Chancellor commented that there is not only the matter of the number of items involved but also a difference of trade value. Dr. Westrick noted that economic criteria had also been discussed at Brussels; complete information on the criteria adopted at Brussels is not available and this information may explain the difference in the number of disparities mentioned earlier in the conversation.

Chancellor Erhard said that the Kennedy Round will raise questions going to the future of the Common Market. The Common Market could even drift apart. The Chancellor said that he is concerned by other difficulties which may create genuine disturbances in the European economic structure. Although price stability is desirable, the Germans alone cannot maintain discipline. If price difficulties continue to develop all over the world, we will have drastic changes. For example, prices in France and Italy are rising; tariffs will not correct the situation. These price rises will cause trouble.

Mr. Ball said that he would like to make several observations. Momentum toward European integration has recently been slowed down if not reversed. The danger is growing of a divided Europe. Failure at Brussels would have been unfortunate. On the other hand, agreements at Brussels to the detriment of third countries would not have been a good thing. The US has the impression that a new counter-force showed itself at Brussels. This has restored some balance to the Common Market and some momentum to the European idea. This is to the good.

Mr. Ball said that US support of the Rome treaty and the Common Market always recognized that there would be economic problems for the US. The US, however, expected two things to happen: first, economic expansion in Europe would expand world trade; since the trade-creating effects would be greater than the trade-diverting effects. Second, it was expected that the Common Market would build upon the principle of liberal trade embodied in the Rome treaty. As regards the first point, the trend has been toward expansion of trade in Europe. It can be argued whether or not this expansion is due to the Common Market. Nevertheless, US trade with the Common Market has gone up markedly in certain areas. On the second point, the Trade Expansion Act was intended to assist liberal elements in the Common Market to move toward greater liberalism. It was thought that the TEA would contribute not only to the prosperity of the US but to that of all nations involved.

Mr. Ball continued that as the US looks at the Brussels negotiations, however, it is concerned particularly by the problem of disparities and agriculture. US exports of agricultural items are particularly important in two categories: the US is anxious to preserve its level of export of those items subject to variable levies; those items where the binding has been fixed at a zero duty, as for example cotton, the US hopes will not be disturbed. There are also other items subject to a low duty where the US would like to see quantitative restrictions eliminated. US exports of oil seeds to the Common Market has been a large and expanding item; a European tax on oleomargarine, which would subsidize European producers, would have an adverse effect on these US exports. The Common Market tax here is a threat. Another problem is presented by rice: a basing price fixed on North Germany would be harmful to US rice exports. The fixing of a cereal price is a key matter to US wheat and grain exports to Europe. The US therefore hopes to keep the problem of grain pricing in clear focus.

Quantitative restrictions, Mr. Ball continued, may be against the theology of the Common Market, as the Chancellor just said. But, theologically speaking, we may all be sinners in agriculture. In any event the US is appreciative of the strong and helpful line taken by the German representatives in agricultural matters at Brussels. Because of the worldwide effects of Common Market agricultural decisions, the US would like to have a feeling of participation in the decisions being taken. If a liberal trading world is to be created, the US should participate.

Mr. Ball summarized by saying that the developments in Brussels seem to represent an advance from a political point of view. From a trading point of view, the US must reserve judgment until it sees the results. But the US is grateful for the position taken by the German representatives.

Chancellor Erhard said that the Federal Republic must of course act within the framework of the Six Common Market nations. Nevertheless, there will be an extension of the Common Market. The Federal Republic has not given up the idea of UK entry into the Common Market. If the UK had become a member, this would have changed the picture. There is no one to talk to in the UK now, but this will change after the UK elections in 1964. The Chancellor also noted that Norway has applied for admission into the Common Market. The stage may be thus reached again when the entry of new members into the EEC may be considered.

The Chancellor said that when he had seen de Gaulle in November he had said that the Europeans are giving away their sovereignty to an administrative body, not to a parliamentary European organization. The Chancellor said that he questions whether it is possible to continue European integration exclusively in the economic field; this would mean union of economic interests but no unifying political ideas. A political concept is also needed. The Chancellor said that he believes de Gaulle is now favorable to such a political approach. Nevertheless, the Federal Republic feels it is difficult to make progress so long as the UK is not a member, and it is not possible to have positive negotiations at this time with the UK.

Chancellor Erhard continued by saying that the Federal Republic is pleased that internal Common Market trade is increasing, as Mr. Ball indicated. Nevertheless, the Federal Republic is only half-glad; its trade with EFTA is not so favorable. There are distortions in the trade pattern. The Common Market should not be considered as the end of a process where there will automatically be produced a political solution like a ripe fruit dropping off a tree. What is needed is a basic political will. Once that is achieved, the Common Market will no longer be thought of as narrow and discriminatory. If political and economic aspects are combined the total picture will be better. Chancellor Erhard said that his personal desire is to see the problem of the German cereal price resolved along this line of thinking. Likewise, world trade arrangements must be looked at in terms of political as well as economic aspects.

The Chancellor went on to say that in his opinion the Common Market will always require cereal imports, in a volume from 10 to 13 million tons per year. Feed grains will be required as meat production increases. If the Common Market could give a quantitative guarantee to cereal-exporting nations, this would go a long way toward solution of the problem.

The Chancellor said that if he tried to look at Europe through American eyes, he would want to see a large political community created. A large European economic community would be interested in large American investment. This in turn would be beneficial to the US balance of payments problem. Therefore it would be desirable for Europe to be unified as rapidly and on as wide a scale as possible. The larger the economic area, the more open it must be. If Europe remains small, it will be compartmentalized. The Chancellor added that he was not sure that all Europeans see the problem in the same way as he does.

Secretary Rusk said that there are clearly many problems remaining for solution. Americans and Europeans have very large reciprocal economic interests, and both have large worldwide economic interest. The immediate question is where we now find ourselves. The Secretary asked how soon it would be before the Federal Republic would have a clear statement of the results at Brussels so that there can be consultation in detail with the US. And then what would be the next step?

Governor Herter commented that the EEC Commission will have to put together the necessary documents and these will then have to be interpreted. The French and other members may have differing interpretations. Governor Herter said that the paper which Mr. Lahr of the German Foreign Office is developing would be helpful. Foreign Minister Schroeder said that the German paper should be completed by mid-January at the latest.

0. Source: Department of State, Central Files, ECIN 6 EEC. Confidential. Drafted by Finn, approved in S and U on January 1, 1964, and in the White House on January 8.
1. Chancellor Erhard visited the United States December 28–29. Memoranda of his conversations with Secretary Rusk at 12:40 p.m. on December 28 and of a brief conversation with President Johnson later in the day on European political unity are ibid.
2. The meeting at Brussels, primarily devoted to drafting a common agricultural policy, had concluded on December 23.