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

277. Airgram From the Mission to the European Office of the United Nations to the Department of State¹

Tagg A–375

Geneva, February 21, 1965.

SUBJECT

• Confrontation of the EEC Exceptions Submission

REF

• Tagg A–368²

Exoff. For Governor Herter from US Delegation to Sixth Round of GATT Trade Negotiations.

I. Summary Assessment

The multilateral confrontation of the European Economic Community’s exceptions submission, the last of the linear participants’ lists to be examined, took place from February 9 to February 12. Mr. Pierre Millet, Director General of the Internal Market Directorate of the EEC Commission, represented the Six throughout. Ambassador Blumenthal made the opening presentation for the United States,³ and Minister Evans, Mr. Gates (STR) and Mr. Pappano (Country Team Chairman) did the questioning in the subsequent six sessions. Addressees have already received copies of the initial statements (the only major ones) of Mr. Millet and Ambassador Blumenthal.

As reported earlier (Tagg A–368), it was decided at the conclusion of this phase that an interval of at least the next month will be devoted to bilateral contacts between delegations to clarify questions and explore problem areas. The Chairman would reconvene multilateral meetings at an appropriate time thereafter.

The entire confrontation phase was cordial, often marked by humor, but a general tone of dissatisfaction with the EEC list was clearly established, primarily by the U.S. and the Scandinavians. While the Community was “noting” the various arguments of others, it never indicated it was convinced by any of them, nor that it planned to improve its offers.

The questioning of the Community was severe and penetrating in the paper and pulp and metals fields. It was generally gentle in the textile and minor chapters, and hurried in the mechanical sector due to lack of time. The confrontation on chemicals was restricted by the Community’s refusal to discuss the two biggest chapters, 29 and 39.⁴ Throughout the process Mr. Millet responded energetically to questions, whether on broad policies, sectors, or particular items, usually echoing the themes he introduced in his opening statement. Again and again he returned to his major points: the difficult integration process that many of the Community’s industries are undergoing; their competitive disadvantages in such areas as technology, scale, financing, energy costs, and raw materials; the moderate protection of the CXT compared to other tariffs; the threat of low-priced imports; regional and social problems and adjustment difficulties; trade deficit with the U.S. in several sectors despite favorable global balance; and military and strategic considerations. Mr. Millet’s performance was tactically skillful and often buttressed with specific facts and statistics. His defense was least effective in the metals field, and he would probably have been hard pressed in the mechanical sector if there had been sufficient time and stamina.

The attitudes of the individual countries followed consistent patterns. The United States made the only substantive and forceful opening statement and did the most consistent questioning throughout the week. Comments were usually directed at sectors, although individual items were often used as illustrations. Statements or general comments were made on chemicals, paper and pulp, synthetic textiles, iron and steel, aluminum, and the mechanical sector. The United Kingdom was generally restrained in tone, often effective on specifics, and largely concerned with the impact of the EEC list on the smaller countries. It took the lead in asbestos, indicated a major interest in the mechanical sector, and supported others on chemicals, paper and pulp, ceramics, steel and aluminum. Japan did the main questioning on textiles, ceramics and some of the smaller chapters, and joined in the discussion of the mechanical sector. Switzerland was selectively forceful on chemicals, textiles, and machinery. The Scandinavians were sharply critical and extremely effective in paper and pulp and ferro-alloys, lent support in other sectors, and left the distinct impression that they would have to re-evaluate their own positions if the EEC could not improve its offers. Austria never mounted a general attack, only noting in each sector its own particular export items. Denmark hardly spoke at all, and then on specific commodities. Canada recorded its concern about paper and pulp and aluminum.

The Community’s position on the major ambiguities in its submission was neither surprising nor encouraging: Partial exceptions. The depth of the cuts on these items is not known in general or particular, and cannot be estimated on even a few items because of delicate internal considerations. It is better to wait until a decision on the entire range of partial offers has been made, and this is difficult both procedurely and economically. The maneuvering room left by these uncertainties might be a useful tool for the negotiations.

Conditional chemical offers. As already stated, the Six will withdraw all offers in Chapters 29, 32 and 39 if the difficulties of the American Selling Price and Standard of Strength are not “suppressed.” In the meantime, the EEC did not and will not subject to confrontation its exceptions in these Chapters (29 and 39). A U.S. challenge on the latter point went unanswered.

Conditional textile offers. The offers on cotton and cotton substitutes is conditional both on a meaningful extension of the LTA without serious modifications, and on the “correction” of tariff disparities in this sector between countries facing the same competitive situation.

Disparities. The only specific reference to this issue by Mr. Millet during the entire week was the above one on conditional textile offers. However, the theme of high U.S. and U.K. rates versus a moderate CXT was sounded in the opening statement and replayed as justification in sector after sector.

Base rates. No fixed rules for base rates and dates have been settled, and therefore each country is free to choose its own, subject to the comments and evaluation of its trading partners. In any event, it is premature to characterize others’ offers related to this question (e.g. steel and petroleum) as exceptions when the issue is still open.

Sector reciprocity. The word “reciprocity” may be ill-chosen, for the Six do not insist on exact sectoral balances. The Community is referring to particularly sensitive sectors where it would be difficult for one linear country to make offers while other important partners except the same products. No other sectors besides the automotive and aircraft ones already cited could be identified at this time, although chemicals clearly present related problems.

Paper and Pulp discussions. The Community repeated only that it wished to consult with its major trading partners (Scandinavians) about their pricing policies on raw materials which favored their own processors at the expense of EEC industries. Mr. Millet could not be more specific, but imagined that the discussions would take place within the GATT framework.

Size of exceptions lists. This is not the time to begin comparisons of the various exceptions lists which might be inaccurate and hamper the negotiations. Certainly to use volume of trade as the only yardstick would be dangerous and biased. Other factors must be considered, including heights of duties, dispersion of rates, and hidden elements in certain lists such as exclusions and the invocation of certain GATT provisions.

Statistics. Trade coverage of the exceptions, especially on ex-outs, will be supplied by the Community and should clarify their impact.

[Here follows Part II, “Discussion Summarized by Sectors,” which consists of 11 pages on the U.S. and other countries’ positions on specific items.]

Tubby

1. Source: Department of State, Central Files, FT 7 GATT. Confidential. Drafted by Winston Lord, cleared by Albert E. Pappano, and approved by James H. Lewis. Repeated to Paris, The Hague, Brussels for the Embassy and USEC, Rome, Bonn, and Luxembourg for the Embassy and USEC. A handwritten note under the subject line reads: “Report #3.”
2. Tagg A–368 from Geneva, February 16, reported on an examination of the EEC exceptions list by the linear participants in the sixth round of GATT trade negotiations and on the February 11 meeting of the heads of the principal delegations on the future conduct of the negotiations. (Ibid.)
3. Reference is to the February 9 opening statement by Blumenthal in the confrontation on EEC exceptions list; the text was transmitted as an enclosure to airgram A–368.
4. Reference is to Chapters 29 and 39 of the Brussels Tariff Nomenclature.