Foreign Relations of the United States, 1964–1968, Volume VIII, International Monetary and Trade Policy

112. Memorandum From the Under Secretary of State for Political Affairs (Rostow) to President Johnson¹

Washington, January 10, 1967.

SUBJECT

• Proposal to Reduce the U.S. Customs Exemption

The Department of State is strongly opposed to the Cabinet Committee on Balance of Payments’ recommendation that the customs exemption for returning travelers be reduced from $100 to $50. All members of the Committee agree that the savings from such a reduction would be very small. The $25–50 million (on a gross basis) suggested by Treasury is high, and, of course, the net or real balance of payments saving would be much less.

This small measure would not generate important psychological gains. The similar reduction in the allowance in 1965 certainly did not. In fact, the psychological effect might be negative since we would have to portray the travel gap as a serious problem but would be proposing only a de minimis measure in response. Chairman Martin and other Federal Reserve Governors think that the proposal could hurt confidence in the dollar by arousing expectations of possible future restrictions on other types of current account expenditures.²

The proposal would create serious political problems. The economies of many of our Caribbean neighbors are dependent upon expenditures by U.S. tourists and many other less developed countries would also be affected seriously. It would hurt our efforts to expand U.S.-Mexican trade, which you discussed recently with President Diaz Ordaz³ and would provoke a Mexican protest. The measure would run counter to programs to increase inter-American travel undertaken in the context of the Alliance for Progress and would provide an unfortunate backdrop for the Inter-American Summit Meeting. It would cause concern in Canada because of Expo 67.

We do not believe the minor savings are worth these costs, and recommend that the exemption not be reduced. If you decide to approve a reduction, we urge that it be applied only outside the Western Hemisphere. An alternative, but distinctly less preferable arrangement, would be to exempt countries contiguous to the United States and neighboring islands.

Eugene V. Rostow

1. Source: Johnson Library, National Security File, Subject File, Balance of Payments, Vol. IV, January 1967 [1 of 2], Box 3. Confidential.
2. Reference is to an undated statement from Martin, attached to Document 107, but not printed.
3. President Johnson met with Mexican President Diaz Ordaz at Amistad Dam on the Rio Grande on December 3, 1966.