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

192. Letter From the Under Secretary of State (Katzenbach) to Secretary of the Treasury Fowler¹

Washington, March 26, 1968.

Dear Joe:

I understand Bill Roth has written you on the GATT problems raised by our tourism proposals.² The Department of State shares this concern. We are convinced that some of these proposals—specifically, the mandatory flat rate on certain tourist and other noncommercial imports and the preferential treatment for Canada, Mexico and the Caribbean—will lead to a confrontation in the GATT.

We have already received representations of concern by a delegation representing the five Scandinavian countries and by the German Embassy.³ If we persist in these proposals, we may seriously jeopardize our chances of receiving international cooperation in areas of major importance to the balance of payments, such as possible advance Kennedy Round implementation and directional air fares.

The mandatory flat rate customs proposal is, in our view, a clear violation of recently negotiated tariff concessions in the GATT. We would agree with Bill Roth that an option should be given to returning residents to pay the rates in the tariff schedules, in lieu of the proposed flat rate. We understand that the Bureau of Customs has objected on the grounds of the difficulty of administering such an option. This argument would not be convincing to GATT members in Europe, many of whom in fact offer similar options. (If the Bureau of Customs includes rates for common imports in its customs pamphlet and requires each returning resident to figure out his own option, the administrative problem could be largely eliminated.)

At the same time, we expect various nations to point out that a preferential treatment for Canada, Mexico and the Caribbean runs directly counter to our most-favored-nation obligations in the GATT and other commercial treaties. Our ability to mollify adverse reaction would be greatly enhanced if these provisions were made temporary, as is the case with the excise tax on travel.

I would much appreciate your further consideration of these proposals. I am afraid that adverse reactions to them by other countries could well outweigh the balance of payments benefits which might accrue. My staff will be happy to work with Treasury officials to obtain a mutually satisfactory resolution of these problems.

Sincerely,

Nicholas deB. Katzenbach

1. Source: Johnson Library, Fowler Papers, International Balance of Payments: 1968 B of P—Tourism, Box 7. No classification marking. Another copy of the letter indicates that it was drafted by Donald Herr (U.). A March 25 covering memorandum from Solomon to Katzenbach, attached to that copy, explained that the administration’s tourism proposal raised several GATT problems that needed to be discussed with Fowler. Although Department of State and STR officials had met with Treasury people on these GATT problems, Fowler had rejected their proposals “(he has agreed to a small reduction in the level of the flat rate, which is not particularly helpful for our GATT problems).” Solomon worried that if Congress approved these measures as they then stood, “they would cause us GATT trade problems—far in excess of their significance in anticipated balance of payments gains—and could adversely affect European cooperation in other areas much more important to us.” (Department of State, Central Files, FT 7 GATT)
2. Document 186.
3. These representations have not been found.