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

22. Memorandum From Secretary of the Treasury Dillon, the Under Secretary of State (Ball), and the President’s Special Assistant for National Security Affairs (Bundy) to President Johnson¹

Washington, December 11, 1964.

SUBJECT

• Task Force Report on Foreign Economic Policy

We have analyzed the Task Force Report on Foreign Economic Policy, which covers aid, trade, and money.² Our analysis of the sections on trade and money follows. A separate report on the aid section will be submitted by David Bell.

I. Recommendations of the Task Force

The Task Force Report makes the following important recommendations—and we concur in them, except as noted:

1. The United States should continue its present efforts to reduce tariffs as quickly as possible, and to hold strongly to the most-favored-nation principle.

2. The United States should, as a matter of basic policy, resist all attempts to impose non-tariff restrictions on imports.

3. The United States should encourage easy access to our markets for imports from the less-developed countries. In particular, the United States should offer freer access for their less sophisticated manufactures.

4. To avoid serious domestic repercussions from rising imports, the United States needs not only fiscal and monetary measures to maintain full employment, but also a comprehensive program of mobility assist-ance to facilitate the adjustment of labor and capital to economic change, whether caused by import competition, technological advance, changes in consumers tastes, government policies, or other factors.

5. The United States should encourage trade with the Soviet Union and Eastern European countries. Competitive but not concessional credit arrangements should be extended to these countries and the United States should negotiate with them bilateral agreements that would provide, among other things, for most-favored-nation tariff treatment on an individual country basis.

6. The United States should continue our present policies for dealing with our balance of payments problems. If additional measures are required, first priority should be given to further restrictions on private capital movements. The Report suggests the following sequence of measures: Extending the interest equalization tax to bank loans over one year; further measures to tax or control bank lending to foreign borrowers; temporarily limiting direct corporate investment in developed countries. (We are unanimous in the view that widening the application of the IET should have first priority if additional measures are required, and that no decision on the priority or nature of other steps need be taken at this time.)

7. The United States must seek two essential improvements in the international monetary system: first, a more orderly process of reserve creation; and second, a more automatic mechanism for making international credit available to countries in balance of payments difficulties, on terms that correspond to the realities of the adjustment process. (The Treasury would emphasize the need to continue to proceed in an evolutionary way, over a period of time, and to relate these improvements to the realities of international financial relations and the need for effective adjustment policies. There is a difference of view between the Treasury and the Task Force on the nature of these realities, and in particular on the strength of the United States bargaining position.)

8. During the interim period, while the improvements described in paragraph 7 are being put into effect, the United States should try to fund that portion of the United States short-term debt that is held by official holders through long-term loans from countries in a surplus position. The United States should also encourage European long-term lending to the United Kingdom, even if it somewhat reduces the amounts available to the United States. (We are unanimous in giving first priority to exploring longer-term loans to the United Kingdom by countries in a surplus position; but this should not be pushed and is not likely to be accomplished until the United Kingdom has demonstrated a willingness to adopt policies that will achieve fundamental improvement in its balance of payments position. We are also agreed that funding of an appropriate portion of our existing short-term obligations at some point would be useful. We see great practical difficulties, however, in achieving such funding in the near future. Therefore, we believe that it is important to press countries in a surplus position to accept more of the special securities of longer maturity that the United States has introduced into the monetary system.)

(The Task Force Report emphasizes that recommendations 7 and 8 are inter-related in the sense that early achievement of either diminishes somewhat the urgency of the other, but it emphasizes that there is no time to lose in pursuing the general objectives that underlie recommendations 7 and 8.)

II. Proposed Presidential Statements

We do not, at this stage, recommend a separate Presidential Message to Congress concerning foreign economic policy. We do, however, recommend that you include in your Inaugural Address, and more fully in your State of the Union Message the following points from the Task Force Report:

1. A reaffirmation of our general commitment and determination to expand world trade and of our specific undertakings: to lower tariff barriers through the Kennedy Round negotiations and other measures; to resist domestic pressures to increase tariffs and impose other protectionist restrictions on free trade; to insure less developed countries increased opportunities for exports to the United States; to cooperate in measures to stabilize prices of selected international commodities; and to carry out your instructions for developing further contacts with Eastern European countries.

2. Strong support for “economic mobility” assistance for those sectors of our economy that must adjust to increasing imports, base closings or other changes in the economic environment. This could be an important part of your general remarks about meeting human needs in the quest for the Great Society.

3. A reaffirmation of your intention to bring our balance of payments into equilibrium, and at the same time to achieve agreement with our friends on further substantial improvements in the international monetary system.

At an appropriate time, it may also be advisable for you to send a Special Message to the Congress concerning the balance of payments.

III. Proposed Legislation

We recommend the following legislative proposals to give effect to the Task Force proposals:

1. A general program to facilitate “economic mobility.” As noted above, this would not be peculiarly related to foreign economic policy. It would replace, or at least supplement, the existing adjustment assistance provisions of the Trade Expansion Act.³

2. Legislation to eliminate the 25 percent gold reserve requirement; or if, as the Treasury feels, this is not feasible, legislation to limit the applicability of this requirement to Federal Reserve note liabilities. (See Annex A)⁴

3. An “East-West Trade Act” authorizing you to negotiate with Communist countries for trade agreements that would include most-favored-nation treatment, whenever you find such agreements to be in the public interest.

4. Enabling legislation under the International Coffee Agreement,⁵ legislation to correct the revised tariff schedule, and the repeal of the Saylor Amendment to the Mass Transportation Bill.⁶

• Douglas Dillon
• George W. Ball
• McGeorge Bundy

⁷

1. Source: Department of State, Central Files, E 1 US. Secret.
2. Document 18.
3. The Trade Expansion Act of 1962 was approved on October 11, 1962. (76 Stat. 872) For excerpts, see American Foreign Policy: Current Documents, 1962, pp. 1383–1396.
4. Not printed.
5. For a summary of the provisions of the International Coffee Agreement, 1962, signed at U.N. Headquarters in New York on September 28, 1962, and entered into force provisionally on July 1, definitively on December 27, 1963, see American Foreign Policy: Current Documents, 1962, pp. 1140–1142. For complete text of Agreement, see 14 UST 1911.
6. Not further identified.
7. Printed from a copy that bears these typed signatures.