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

302. Letter From Director-General of the General Agreement on Tariffs and Trade Wyndham White to Participating Governments in the Kennedy Round¹

CGT/801

Geneva, January 3, 1966.

Sir,

In my capacity as Chairman of the Trade Negotiations Committee, I have the honour to submit herewith a report to participating governments on the present status of the negotiations.

The report sets out in some detail the main problems with which negotiators have been confronted. I have considered it my duty to draw the attention of governments to the decisions which must be taken in the near future in order to make possible a successful conclusion to the negotiations. The time-limits which I have indicated in the report are of particular significance in this connexion. I should also like to stress the necessity for all participants to have continuously present in Geneva negotiators with broad authority to negotiate in this crucial phase of the negotiations.

Accept, Sir, the assurance of my highest consideration.

E. Wyndham White

Attachment²

Geneva, January 3, 1966.

THE GATT TRADE NEGOTIATIONS
Report by the Director-General

Introduction

1. In initiating the current trade negotiations the participants have embarked on two major ventures. The first is the launching of a negotiation designed to secure a degree of liberalization of the present barriers to international trade which is both deeper and more comprehensive in coverage than has been secured in previous negotiations, covering all classes of products and dealing with non-tariff as well as tariff barriers. The second is a series of activities to meet the urgent trade and economic development problems of less-developed countries. Special responsibil-lities rest on the shoulders of the more highly developed countries which have in the Ministerial Resolutions on which the trade negotiations are based committed themselves specifically to making use of the negotiations to contribute in a substantial way to the solution of these problems.

2. After much delay, agreement on procedures designed to secure that the maximum possible offers were tabled by each participant was complete only in July 1965, when procedures for the tabling of offers on tropical products were adopted by the Trade Negotiations Committee.

3. All major negotiators are not, however, in a position at the present time to table offers in accordance with the agreed procedures. In some cases offers, where tabled, are not sufficiently precise to form the basis of actual negotiation. In other important areas progress has not been made because participants have been unwilling to move from their initial negotiating positions.

4. Hitherto the negotiating timetable has permitted a certain degree of flexibility. This is no longer the case. The negotiating authority delegated by the United States Congress to the President expires on 1 July 1967, and I am informed by the United States Administration that it is politically unrealistic to envisage the extension of these powers if the negotiations were then uncompleted. Allowing for the necessary legal and administrative formalities required to give effect to the results of the negotiations, this means therefore, that the negotiations must be completed in the early weeks of 1967. To make this possible it is essential that delegations with broader authority to negotiate are present continuously in Geneva and that negotiations on all fronts be actively engaged and continuously pursued as from March/April 1966.

5. This report focuses attention on the main problems at present confronting negotiators, and sets out the points on which specific decisions must be taken by March/April if the timetable outlined above is to be met.

Negotiations on Industrial Products

General

6. In May 1964 the Trade Negotiations Committee meeting at ministerial level noted that the rate of 50 per cent had been agreed as a working hypothesis for the determination of the general rate of linear reduction and that the confirmation of this hypothesis was linked with the solution of other problems arising in the negotiations, for example, tariff disparities, agricultural problems, exceptions and non-tariff problems, and, in general, with the achievement of reciprocity.

7. Lists of exceptions from the linear reduction on industrial products were tabled on 16 November 1964. Precise initial offers have not yet, however, been tabled by certain participants for all industrial products on which they have indicated that they are prepared to negotiate. These offers should be tabled by March/April. The multilateral process of justification of exceptions lists is being followed by bilateral contacts between delegations. During these contacts negotiators have, for the most part, identified exactly what is on offer and where their trade interests are affected by the proposed exceptions.

8. During these bilateral contacts negotiators are also defining the desiderata which, if satisfied, would enable them to maintain their across-the-board offer of a 50 per cent reduction in duties. These contacts will enable negotiators to judge the extent to which their initial offers must be improved if their negotiating objectives are to be reached. It is already clear that participants having made linear offers with few or no exceptions will not maintain those offers unless the less comprehensive offers of other participants are substantially improved.

9. Although these bilateral contacts have been continuing for some months and while considerable progress has been made in some of these a large amount of work remains to be done before the principal negotiators can draw up the balance sheets which would form the basis of final negotiations. It is essential, therefore, that this work should be carried as far as possible in the time available between now and the opening of the decisive phase of the negotiations in March/April.

10. During the justification process and during subsequent bilateral contacts it has become clear that many specific problems exist for individual participants in cases where products of importance to their export trade are included in the exceptions lists of other participants.

11. To take an extreme case, one participant which has made an offer of a linear reduction in tariffs without exceptions finds that more than half of its industrial exports are included in the exceptions list presented by one of its major trading partners. If this situation is maintained the question arises to what extent that participant will be able to take part in the final phase of the negotiations.

12. Another factor which must be taken into account is the unresolved question of tariff disparities. The intention of a major participant to claim disparity treatment for certain items and to reduce its duties on these items by less than the rate of linear reduction has implications for the wider negotiations. To take once again an extreme case, a participant which has made a linear offer without exceptions estimates that two thirds of its exports of the items for which it is the principal supplier of the participant in question may be affected by claims for disparity treatment. If these claims are made this participant has indicated that it would have to make compensatory withdrawals from its own offer. As is shown later, an important part of the disparity problem must be brought into the sector negotiations if progress is to be made. This problem also raises questions of reciprocity for individual participants.

13. Countries other than those participating on the basis of a linear reduction in duties have presented offers and are participating in the process of bilateral contact referred to above. It is essential that these countries specify, where this has not already been done, the initial offers that they would make and that all the set countries become fully integrated into the negotiating process. The necessary technical work must be substantially completed before March/April.

14. A problem of a rather special nature and importance arises from the acceptance of Poland as a full participant in the negotiations on the basis of an offer which takes into account the nature of its economic system. If negotiations are to continue with Poland it is necessary that participants define their position with regard to this offer and to indicate by March/April the possibilities they see of negotiation with Poland. In the negotiations an analogous problem arises in the case of Czechoslovakia.

Participation of less-developed countries

15. As pointed out in paragraph 1 of this report, all highly developed countries have gone on record as saying that the current trade negotiations provide an opportunity for them to contribute in a substantial way to the solution of the trade and development problems of the less-developed countries. Twenty-three countries have pledged their participation under the procedures drawn up for the less-developed countries and by now twelve of these have taken steps to become full participants to the negotiations.

16. A meeting has been held to examine exceptions from the linear reduction which the industrialized countries proposed to make on products of export interest to less-developed countries. This is being followed by bilateral talks between delegations. It has been demonstrated that a number of items of particular interest to less-developed countries have been excepted from the linear cut, and that there is therefore a gap between the declared intentions of industrialized countries and their performance in this area. number of ways limiting the impact of exceptions have been proposed, and to this end specific requests must be forthcoming from less-developed countries and the first phase of bilateral contacts completed by the end of February.

17. It follows a fortiori that less-developed countries which have indicated their intention to take part in the negotiations but which have not yet taken steps to become full participants should do so without delay so that they can make their negotiating requirements known in detail.

18. Assuming that the large amount of technical work which remains is carried out, it will also be necessary to take the political decisions, which would enable positive and far-reaching benefits in the present trade negotiations. It is essential that these decisions be taken before the final phase of the negotiations opens in March/April.

19. The statements of the offers which less-developed countries would make as their contribution to the objectives of the trade negotiations are for the most part general in nature and more precision is clearly necessary. Less-developed countries should therefore re-examine in detail the possibilities which are open to them. It would be of assistance to those countries if all participants were to make specific suggestions to them in this regard.

20. All countries taking part in the negotiations on the basis of the plan for the participation of the less-developed countries have indicated their readiness to study and negotiate measures designed to increase trade among themselves, but no specific offers or requests have yet been exchanged. Action in this important field must be accelerated if the negotiations in it are to be carried through to a successful conclusion. Specific offers and requests should be exchanged by the beginning of February so that bilateral negotiations may start in March/April.

Bilateral problems

21. It has become apparent that the negotiations on industrial products will, for the most part, best be carried forward bilaterally for the moment. The offers made have given rise to a large number of negotiating problems of a bilateral nature which should be dealt with in this way in the first instance, although clearly it will be necessary to assess the multilateral implications of the results of the bilateral negotiations.

22. Although it would be inappropriate to deal with bilateral problems on specific products in this report there are some cases where the products represent such a large percentage of the export trade of some participants, and in particular of relatively small countries, that the inclusion of individual products in exceptions lists presents a major negotiating problem for these countries. For example, it is of particular concern to one participant that most ferro-alloys have been totally excepted by one of its main trading partners. Another participant is concerned that watches have been included in the list of exceptions of one major country. It is of importance to this participant that the full 50 per cent reduction should be obtained on this product.

Sectoral problems

23. It became apparent that specific negotiating problems exist in certain important sectors and that some concerted effort should be made in order to secure the maximum degree of trade liberalization in those sectors. These sectors are chemicals, pulp and paper, steel, cotton textiles and aluminum.

24. The following paragraphs outline these problems and indicate where action by governments is necessary during the next few months.

Chemicals

25. In the chemical sector action by the United States with respect to the American Selling Price system of valuation has become a key issue in that other major participants have stated that unless such action is taken they would not themselves be prepared to reduce their tariffs on a wide range of chemical items since effective reciprocity would not then, in this opinion, be available from the United States. Action on the American Selling Price system has been made a precondition of the opening of negotiations.

26. The Community has also excepted a fairly extensive range of chemical products from its linear offer on grounds of overriding national interest. The Community has indicated that it is prepared to offer duty reductions of less than the linear rate of reduction on the bulk of these items but precise offers have not yet been tabled because progress has not yet been made on the American Selling Price problem referred to above. The Community also claims that significant tariff disparities exist on other products in this sector and intend consequently to apply a reduction of less than the linear cut of these products.

27. The United Kingdom has also excepted virtually all plastics materials from the linear cut on grounds of overriding national interest, essentially because for these products differences in the tariffs between the major producers are extreme.

28. The United States is offering the linear reduction in duties on virtually all items in this sector. This would halve the effective rate of duty on all items to which the offer applies, including those covered by the American Selling Price system of valuation. This is the maximum which the United States Administration can offer under their existing authority as they interpret it. The United States initial negotiating position is that this offer is in itself more than equivalent compensation for the Community’s present maximum offer, which is subject to exceptions and claims for disparity treatment.

29. The resulting stalemate in this sector is of concern to other exporters of chemical products, particularly because the possibility that major participants would not make the full tariff reduction in this sector creates a specifically European problem. This is of major concern since trade between the European countries is very important.

30. Other problems exist in this sector. Japan’s offer in this field is subject to a considerable number of exceptions although to no other conditions. Canada has not yet made an offer in this sector.

31. It will be necessary to treat all aspects of the problem, including the American Selling Price system and disparities in tariff levels in one set of negotiations on the sector. Progress must be made in this sector, or chemicals will be withdrawn entirely from the scope of the negotiations. Negotiations must be fully engaged by March/April. What is required is, on the other hand, an assurance by the United States of its willingness to negotiate towards an acceptable solution of problems connected with the American Selling Price system and, on the other, an assurance from the European Economic Community that, having obtained this, they would enter unreservedly into comprehensive negotiations on the whole range of chemical products. If the maximum result is to be achieved it will also be necessary for these participants to give renewed consideration to the rather complicated questions of reciprocity which arise. In the nature of things, mathematically full reciprocity may not be attainable within the sector and, as in other sectors, an agreement might leave debits and credits to be balanced off in the final stage of the negotiations. In so far as a satisfactory solution to the problem of the American Selling Price system would be an important contribution to the negotiations on non-tariff barriers, it would probably be matched by action by other participants on other non-tariff barriers.

Pulp and paper

32. It has also been suggested that the negotiations on pulp and paper should take place in a multilateral group. Several problems exist in this sector. For instance Japan has put certain basic pulp and paper items on its list of exceptions. Negotiations have not yet been fully engaged in this sector, however, because the position of the European Economic Community is that their initial offers in this sector can be tabled only after they have reached agreement bilaterally on certain trading problems with the Scandinavian countries, their principal suppliers of the majority of these items.

33. Other exporters, which are the principal suppliers of the Community for certain important items in this sector, are concerned in particular that final arrangements may be worked out on a European basis which may be unacceptable to them.

34. The problem here is perhaps not that multilateral negotiations should be opened, but that it has not been possible for bilateral negotiations to be opened between all participants with a major interest in this area. While the problem has other facets it is principally one of timing. It is clearly desirable, here as elsewhere, that all major participants be kept informed of events taking place in bilateral negotiations. Bearing in mind the timetable for the negotiations, it is essential that the initial negotiating positions of all interested parties be defined in time to permit negotiations to be fully opened by March/April.

Steel

35. Discussions have already started in a multilateral group on iron and steel products. The negotiating problem in this sector stems in particular from the nature of the offer by the European Community and the reservation by the United Kingdom that before implementing its offer of a 50 per cent cut it would have to have regard to the outcome in the sector as a whole (a standpoint which, in practice, is shared by several other countries). The Community is offering the linear reduction without exception on steel items within the competence of the European Coal and Steel Community (which account for about 85 per cent of the Community’s steel imports), but is proposing to apply this not to the duties actually applied by the six member States (which are themselves higher than the rates in the tariff, as a result of a temporary increase made at the beginning of 1964), but to the average of higher rates which existed prior to the creation of the ECSC.³ The Community is offering to make only partial reductions on the majority of other steel items since it wishes to maintain the internal logic of its tariff in the sector. Precise initial offers have not yet, however, been made.

36. The Community have also indicated that, in view of the particular characteristics of production and trade in this sector, a measure of harmonization should be achieved in the present negotiations in the tariffs protecting the major steel producing and exporting countries.

37. The United States and Austria are offering the full 50 per cent cut without exception. Japan is offering the 50 per cent cut with few exceptions and has made an improvement in the anti-dumping policy of the United States a condition of its willingness to accept the objective of tariff harmonization in this sector.

38. The other participants with a major interest in this sector regard the offer at present made on ECSC products as an exception from the linear rule. If the Community’s offer remains unchanged the United Kingdom will presumably not maintain its linear offer in this sector. While similar conditions are not explicitly attached to the offers of other major participants, it would then become difficult for them to maintain their offers.

39. These participants have also stressed that, if the Community wish to carry out their intention of introducing a common external tariff for ECSC products this should be done in the present negotiations, rather than as a separate exercise.

40. Work has been undertaken in connexion with the preparation of a concordance of the tariffs of participants with a major trade interest in this sector so that a picture may be obtained of the relative levels of the tariffs in these countries. This work will be completed during the next few weeks.

41. If certain participants feel that the aim in this sector should be the harmonization of tariffs it is essential, however, that specific proposals with regard to the levels at which the tariffs of the participants concerned should be harmonized should be made soon enough to permit negotiations to start by March/April.

Cotton textiles

42. In the cotton textile sector the United Kingdom has stated that no reduction can be made in its tariff on cotton goods but has offered to reduce the existing mixed duties on goods containing cotton and man-made fibers to the basic rates for cotton goods. Before finally implementing this offer the United Kingdom would have to have regard to the outcome in the sector as a whole, but the offer is not conditional on the renewal of the Long-Term Arrangement Regarding Trade in Cotton Textiles. Canada has indicated that it is prepared to make offers on a large number of items in this sector but not its precise initial offers on these items. The offer is conditional in the sense that Canada “is prepared to reduce tariffs if other countries do so also”.

43. The United States is offering the linear cut virtually without exceptions in this sector and is offering to negotiate on the application of the Long-Term Arrangement, on the understanding that the Long-Term Arrangement would be renewed in its present form for a further period. The European Economic Community has also tabled a list of conditional offers relating to thirty textile items, most of which are cotton textiles; they have indicated that any tariff reduction on these products is conditional on the extension of the Long-Term Arrangement or the adoption by the Contracting Parties of measures with the same effect as the Long-Term Arrangement. The Community have also excepted a number of textile items from the linear cut on grounds of overriding national interest and have tabled partial offers on these products.

44. The exporting countries wish to negotiate on tariffs and the improvement of access to their main export markets. Of these they regard access as much the most important.

45. I have concluded that, in order to permit negotiations to be opened in this sector, exporting countries should make known in as much detail as possible their desiderata with regard to tariffs, to quantitative restrictions imposed in accordance with the Long-Term Arrangement or otherwise and not to the administration of the Arrangement. Importing countries which have not specified the initial tariff offers which they would be prepared to make should do so as soon as possible. Importing countries should then, in response to the requests submitted to them, where necessary reconsider their tariff offers and indicate the improvements which should be made in quantitative restrictions and the administration of the Arrangement. These stages should be completed not later than the end of February.

Aluminum

46. The European Economic Community and Japan have included aluminum and aluminum products as partial exceptions in their lists. The Community has not yet defined its initial offer.

47. This is an example similar to those referred to earlier where a product accounts for a large percentage of the export trade of certain participants for whom a successful outcome of negotiations on the product is of great importance. It is not possible to engage in negotiations until all initial offers are tabled. Initial offers should therefore be tabled by March/April.

Non-tariff barriers

48. Participants have identified the particular non-tariff barriers on which they wish to negotiate. In view of the overall negotiating timetable it is essential that all governments should specify their desiderata in this field and respond to requests already made so that negotiations can be taken up by March/April.

49. Discussions are being held on a draft code of general applicability amplifying Article VI of the General Agreement in a Group on Anti-dumping Policies. It is essential that delegations should be given positive instructions on the proposal before the Group so that detailed discussions can take place in January.

Fish

50. Different participants are applying different procedures to fish and fish products. Some countries treat fish in the industrial sector while others consider it should be dealt with under the procedure established for the agricultural part of the negotiations. In order that this important sector be properly dealt with in the negotiations it is essential that concrete and specific offers on fish and fish products be tabled by all participants not already having done so, designed to create acceptable conditions of access to world markets for these products. In accordance with the overall timetable for the negotiations, such offers should be tabled not later than 30 April 1966.

Negotiations on Agricultural Products

General

51. In the field of the agricultural negotiations after nearly two years of preparatory work, agreement was reached in March 1965 on a procedure under which participating countries agreed to make specific offers on individual agricultural products designed to achieve the objectives set out by Ministers. I think it would be appropriate to examine the two terms of this agreement in turn.

52. With respect to the first point—specific offers on individual products—it is only on cereals that proposals were tabled last May in accordance with the timetable agreed upon. For all the other products—including meat and dairy products—on the other hand, for which it had been agreed that specific offers would be tabled on 16 September last, one of the major partners in the negotiations was not in a position to table offers for internal reasons. The result was that, in general, other participants decided to table only part of their offers, while in other sectors where the participation of the European Economic Community is recognized as being necessary the majority of participants purely and simply refrained from tabling offers.

53. This situation gives grounds for concern on more than one account. Indeed, it had always been agreed that agriculture constituted an essential part of the negotiations as a whole and that, particularly for a number of countries in which agriculture is the dominant activity, the negotiations as a whole were only of interest if they contributed to “the creation of acceptable conditions of access to world markets in agricultural products in furtherance of the significant development and expansion of world trade in such products.”⁴ Furthermore, the imbalance which is developing between the negotiations in the industrial sector and the difficulties in the agricultural sector threatens to affect the negotiations as a whole. This indeed, is one of the most disquieting features in the whole picture since, unless an acceptable settlement can be arrived at on agriculture concurrently with an agreement on industry, the negotiations will fail.

54. It is therefore absolutely essential in my view, in order to proceed effectively with the negotiations, that participating countries which have not or not fully tabled their offers on agricultural products should agree to do so in such a way that the negotiations can effectively commence well before the summer of 1966. To this end it is indispensable that the offers be tabled on a fixed date which should not be later than 30 April 1966.

55. In considering the offers, when tabled, it is understood that participating countries will inevitably keep in mind the overall balance of the ultimate result of the negotiations between offers and benefits in both the industrial and agricultural field. This brings me to the second point—offers designed to achieve the objectives set out by Ministers. A certain knowledge has been gained in the course of the discussions and of the preparatory work, of the various positions of the partners in the negotiations. It would, therefore, seem possible to identify certain areas, where progress is essential, and for which therefore, all delegations should have broader negotiating authority. These areas are identified below for the different sectors of the agricultural negotiations.

Group on Cereals

(a) Domestic policies and access

56. In the course of negotiations countries have expressed their willingness to negotiate on their domestic cereals policies or on certain commitments providing opportunities for access. However, partners in the negotiations are particularly concerned about the general tendency in nearly all countries of continuously increasing production. This may affect their commercial outlets to world markets and it will a priori make the possibility of achieving and maintaining acceptable conditions of access questionable. It would seem that a condition for a successful outcome of the negotiations would be that participating countries should be in a position to negotiate on a combination of undertakings, effective and acceptable to all parties concerned, with the ultimate objective of bringing some moderation in further production increases. Such undertakings might include the possibility of limiting support to a certain quantity of produce.

(b) International prices

57. Negotiations on an international price system applicable to wheat and coarse grains have not yet much advanced. An effective outcome of the negotiations would seem to be a price system including international minimum and maximum prices. These prices should be such as to provide a remunerative return to efficient producers. While the precise level of such prices is clearly a matter for detailed negotiation, participating countries should be prepared and should be in a position to enter into meaningful negotiations in this regard.

(c) Non-commercial disposals

58. This aspect of the negotiations has not yet received full attention of all delegations concerned. A co-ordinated organization of such disposals, complementary to normal commercial outlets, has been advocated by a number of countries as one of the corner-stones of an international arrangement on cereals. When resuming the negotiations delegations should be fully prepared to enter into more substantive negotiations in this regard.

59. Directives on these various points would be needed prior to the next meeting of the Cereals Group which, in accordance with the overall timetable of the negotiations, should be held in the March/April period.

Group on Meat/Group on Dairy Products

60. While the preparatory work in these Groups for the negotiations may be finalized by the end of April 1966, it is essential that offers as laid down in the agreed procedure be tabled not later than 30 April 1966 by all participating countries concerned. These offers should be so designed as to meet the objectives of the negotiations laid down by the Ministers and will indeed be appreciated against their ability to further a significant development and expansion in world trade. On the basis of the offers tabled, negotiations will then start without delay.

Other agricultural products

61. It is essential that to the extent that participating countries have not yet already done so, concrete and specific offers be tabled as set out in the agreed procedure, on individual products relating to all relevant elements of agricultural support or protection or to the total effect of these elements and designed to provide acceptable conditions of access to world markets as agreed by the Ministers. It is my understanding that an offer would only be considered a meaningful basis for the negotiations if it can be shown that it constituted an effective concession providing improved opportunities for access. It is also my understanding in cases where the tariff is presently bound the offer should in principle relate to the reduction of the tariff.

Tropical products

62. The offers will also relate to tropical products. In this connexion the Resolution of 6 May 1964 may be recalled according to which all participants are prepared to consider the possibility of taking such steps as are open to them to make cuts deeper than 50 per cent in, or to eliminate completely duties on products of special interest to less-developed countries.⁵ The possibility of coming to some joint action by all developed participating countries in this regard should be given serious consideration. Such action might include the possibility of suspending duties on tropical products in advance of their being reduced or eliminated at the end of the negotiations.

1. Source: Kennedy Library, Herter Papers, GATT Trade Negotiations, April 2, 1964–January 3, 1966, Box 9. No classification marking. A covering letter is addressed to Herter and bears the handwritten note, “CAH saw.”
2. Confidential.
3. The Community had stated that the arithmetical average of these higher rates is 14.4 per cent ad valorem, that the average of the rates in the tariff is 6.7 per cent and the average of the rates currently applied is of the order of 9 per cent. [Footnote in the source text.]
4. The quotation is from the GATT Ministerial resolution of May 21, 1963, on principles and procedures; see footnote 2, Document 228.
5. Reference is to the resolution adopted by the GATT Trade Negotiations Committee Ministerial meeting in Geneva on May 6, 1964; for text, see American Foreign Policy: Current Documents, 1964, pp. 1210–1213.