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

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

A–683

Geneva, January 6, 1966.

SUBJECT

• ExOff—GATT Director General’s Report of Kennedy Round²

REF

A.

Tagg 3692;³

B.

Depcirtels 1148, 1149;⁴

C.

Tagg 3722 (not sent all posts)⁵

D.

Depcirtels 1188, 1208⁶

For Governor Herter from Blumenthal.

1. Enclosed is a copy of the Kennedy Round report by Eric Wyndham White, Director General of the GATT. This document went forward January 4, 1966, addressed to the appropriate Ministers of the countries participating in the negotiations so as to assure high level governmental attention. The report surveys the status of each of the principal negotiating areas and highlights the current barriers to forward movement. Its objective is to point up the necessary decisions to be taken by all governments in the coming weeks so that substantive negotiations can be launched in the spring of 1966 and the Kennedy Round completed by the following winter (Refs A and B).

2. In general we believe the report is well drawn and should be a constructive element in the current process of focussing on negotiating obstacles and the action required of the European Economic Community and other negotiators by March/April 1966. Wyndham White held a series of information meetings with the major Kennedy Round participants (Ref A) before writing the report and we, as well as the EEC, Japan, and the United Kingdom, had brief opportunities to comment individually on the first draft. Although some of our (and presumably other countries’) suggested amendments were incorporated in the final version, the paper remains strictly the responsibility of the Director General. Although the report is therefore correctly “neutral” in tone, we will have the opportunity, where necessary, to sharpen up points of particular interest in our Brussels meeting with the EEC Commission on January 11. For background and guidance in conversation with officials dealing with this subject, we offer the following observations on the document.

3. General. The report taken as a whole clearly indicates that responsibility for the present impasse rests to a large extent with the EEC, and that if the impasse is to be broken, the Kennedy Round successfully concluded, action is required by the EEC in the following major areas:

(a) Agricultural products including meat and dairy products—the EEC must make offers, and in doing so must go beyond mere bindings of montants de soutien.

(b) In the nonagricultural area, offers must be made by the EEC, or made complete, on: Chemicals, steel, pulp and paper, aluminum, other items where the EEC “partial” offer remains imprecise or unspecified, and fish.

There appears to be rather widespread misunderstanding of the fact that the EEC must move not only in agricultural but nonagricultural areas (e.g. see The Hague’s 522 to Dept.).⁷ Nonagricultural areas where no EEC offers have yet been made, or where so-called partial offers have not been made specific, or where unreasonable precondition has prevented EEC from negotiating (i.e. chemicals), account for a significant portion of EEC imports. (Further comment on specific problems is given below.)

4. Specific Comments. The following notes cover the major problem areas and are keyed to the numbered paragraphs of the report.

Offers—Para. 3. This paragraph primarily refers to the EEC’s failure to table agricultural offers (except for an unspecific proposal on grains), to define many of its partial offers on industrial products and to show any flexibility in its initial positions with respect to industrial offers. Other countries, largely because of the inaction of the Community, tabled imprecise and/or incomplete agricultural offers this fall, and no participant has been willing to modify its basic opening Kennedy Round stances in view of the EEC paralysis.

EEC Representations in Geneva—Para. 4. The Community still does not have a permanent negotiating team in Geneva, and this has seriously impeded progress.

Technical Discussion of Offers—Para. 7 to 9. Our view is that the technical phase of the negotiations is largely concluded and that remaining technical work should be subsumed in active negotiations. What is immediately needed is the specification of offers and the filling of gaps, and then, at least exploration without commitment of possibilities for improvement. We do not wish the EEC or others to delay substantive negotiations by lingering in the technical stages (Ref C).

Balance Sheet—Para. 9. Precise comparisons and balancing attempts between participants is not desirable at this point in the linear negotiations. However, those EFTA countries with no exceptions and the United Kingdom and the United States with moderate lists would clearly consider the offers of the EEC and Japan as “less comprehensive.”

Exceptions—Para. 11. This refers to the impact of the Community’s industrial exceptions on Norway.

Disparities—Para. 12. We should have preferred to see this issue given less prominence in the report. Only the EEC has indicated an intention to invoke disparities, and this intention appears to be still firm. Switzerland is the country whose interests would be so severely sideswiped by EEC disparity invocations against the U.S./U.K., but other countries’ exports would also be substantially affected unless adequate safeguards can be worked out. We are willing to leave the disparities issue open until the late stages of the negotiations, when we hope it may have been reduced to more manageable proportions as a result of discussions between EEC and third countries like Sweden and Switzerland.

Non-Linear Participants—Para. 13. This reference seems most applicable to Australia among the developed countries.

Poland—Para. 14. Poland’s participation in the KR is related to its GATT status. Most countries, including the United States, have not taken precise positions concerning the Polish “offer,” which is to increase by a certain percentage its purchases abroad under its state-trading system.

LDC’s—Para. 17. Those participating LDC’s who have not yet tabled offers or statements of contribution are Argentina (only proposals on cereals, meat, and dairy products), Ceylon, Cyprus, Ghana, Ivory Coast, Malta, Nicaragua, Niger, Pakistan, Portugal (non-European territories), Togo, and Uganda.

Para. 19. In addition to our own individual “suggestion papers,” we know that Canada, Japan, Sweden, and the United Kingdom have suggested at least some KR contributions by the LDC’s. In this connection the U.S. Delegation has held 45 meetings with LDC Delegations in Geneva to explain our offers and suggestions. We understand the EEC has not met with any LDC’s.

Bilateral Problems—Para. 22. Norway is interested in ferro-alloys, Switzerland in watches. The EEC has excepted most ferro-alloys. The United States has most but not all watches on its mandatory exceptions list.

Sectoral Problems—Para. 23 et seq. In all these industrial major sectors, the negotiations are stalled to a greater or lesser degree by reason of the EEC position.

Chemicals—Para. 25. Although all countries in the informal sector group on chemicals have emphasized the importance of U.S. action on ASP, only the Community has stressed the reciprocity element to the extent this paragraph suggests and only the EEC has made ASP movement a precondition for opening negotiations. The EEC has not only important exceptions in chemicals but has refused even to discuss its partial chemical offers unless the U.S. indicates it will eliminate ASP. The United States, however, has no obligation to eliminate ASP, and considers that its full 50% linear offer virtually without exceptions is more than equivalent to the EEC offer. Nevertheless, the United States is willing to negotiate on ASP, and to consider eliminating it provided something sufficiently attractive can be obtained in return. Other countries are ready to negotiate on this basis but the EEC is not—it still insists that unless the United States unilaterally eliminates ASP and makes a 50% reduction on chemicals, the EEC will not offer even the limited concessions it has so far tabled, and even these will be subject to disparity invocations. The Director General’s report clearly states in para. 31 what is required:

By the United States—an assurance that it is willing to negotiate toward an acceptable solution (we have already given such an assurance—see Tagg 3669⁸—and will reiterate it, referring also to Governor Herter’s letter to the Tariff Commission on ASP (Ref. D).

By the EEC—a willingness to enter into negotiations. (This will require not only removal of the pre-condition about ASP, but a willingness to consider what contribution the EEC can make to a possible package in which the United States undertakes to do something about ASP.)

Chemical Disparities—Para. 26. The EEC, in an informal meeting December 7, appeared to recognize that it could not agree to a sector solution on chemicals and subsequently introduce chemical rate disparities in a broader context.

Sector Balancing—Para. 31. The warning against seeking precise intra-sector balances in chemicals applies equally to other areas of the negotiations (see General Comments below).

Pulp and Paper—Para. 33–34. There are several pulp and paper items, other than those for which we are principal suppliers, in which we and Canada have substantial interests, and our exports of pulp and paper to the Community amount to over $130 million. No EEC offers have yet been made on any of these items, on the excuse that arrangements must first be worked out with the Scandinavians. In this connection, we are just concerned about possible final European arrangements which may be unacceptable, but rather we would oppose any EEC-Scandinavian bilateral drawing of negotiating perimeters which might prove inhibiting once we multilateralize the sector talks. We also have been informed by the Scandinavians that the EEC has made no specific proposals and apparently does not have any to make in the near future—therefore the outlook is for further indefinite delay.

Steel—Para. 41. The Communities, in a December 10 meeting, agreed to outline their ideas on harmonization in the steel sector in the latter half of January. We continue to have our doubts about harmonization in principle but we are willing to look to any proposal the EEC/ECSC makes and to see whether it results in any effective liberalization of trade. The important point is stated in para. 38—namely that we and others do not consider the ECSC offer to be a genuine linear offer because of the base rates used, and hence no progress can be made in the sector unless the Communities can discuss making effective reductions in rates.

Textiles—Para. 45. The United States and Japan have had several meetings along these lines and have reached bilateral agreement on how to carry forward cotton textile negotiations under Wyndham White’s proposed package deal. The EEC has been asked by Japan to negotiate similarly, but it is clear that the EEC negotiator does not at present have any authority to discuss any “improvements” in QR’s or the administration of the LTA.

Aluminum—Para. 46. As stated, the problem is that the EEC has not made any offer. This sector is of importance to Canada and Norway as well as the United States.

Fish—Para. 50. No EEC offers have been made in this important sector.

Agriculture—Para. 51 et seq. In general these are self-explanatory. There is recognition even by the EEC that there can be no progress until the EEC is in a position to make specific offers.

Para. 54. Wyndham White hopes the specific deadline will be useful in imparting a sense of urgency to the Member States of the Community.

Para. 56. We should have preferred some distinction between the situation regarding wheat and that of feed grains, where differentials would have to be negotiated, but the Director General believes this problem can be better dealt with in actual negotiations.

Para. 59. Because of the EEC failure to lay down meat and dairy proposals, most countries including the United States, have not tabled offers on these products. We are prepared to table our offers when the EEC does.

Para. 60. The lack of Community offers is of course the principal stumbling block here. We have held technical bilateral meetings on agriculture with several countries, but many partners’ positions in this field remain incomplete and/or indefinite, pending action by the EEC. The last two sentences refer primarily to the present EEC position/intention of offering only to bind the MDS, even on products whose tariffs were previously bound.

Tropical Products—Para. 61. Sweden in particular has been urging joint action on tropical products, and the GATT Secretariat has compiled a list of all tropical products offers that have been submitted by developed countries. However, further progress in this field appears difficult without Community offers, which have not yet been made.

4. General Comments. There are a few other aspects of the report which should be noted. The U.S. exclusions policy has not been mentioned, but the Community on several occasions has stressed its objections to this approach and its intention to weigh such items as petroleum in the negotiating scales. One view that Wyndham White has repeatedly voiced, and with which we agree, is that precise intra-sector balances should not be sought. This point is mentioned in the chemicals section of the report, but it warrants further emphasis since it applies to all the special sectors and the negotiations in general. Countries must be willing to register debits and credits in individual areas and look for compensation within the total Kennedy Round package; otherwise, narrow, halting gestures will result in a series of sector deals leveled at the lowest common denominator. The reference to disparities is a reminder that all ambiguities, conditions, and gimmicks in countries’ negotiating positions should be in the open by this spring. The Community’s offers are the most murky—e.g., its unspecified partial reductions, its rather vague reciprocity demands in the automotive and aircraft fields, and its imprecise conditions for slicing cotton textile tariffs—but there are unknowns in other partners’ initial positions as well. All relevant elements for a Kennedy Round package should be spelled out as substantive negotiations are joined in the coming months, in order to avoid last minute injections which might upset delicate deals and initiate unravelling.

5. The foregoing comments are intended solely to give addresses a more precise appreciation of the present status and major issues of the Kennedy Round negotiations, in conjunction with the Director General’s account to the GATT Ministers. Detailed talks and bargaining, of course, must continue to be limited to Geneva.

For the Ambassador:

James J. Lewis ”
Counselor for Economic Affairs

1. Source: Department of State, Central Files, FT 7 GATT. Confidential; Air Priority. Drafted by Winston Lord (KR), and James H. Lewis (KR), and approved by Lewis. Received on January 10 and repeated to 18 diplomatic missions.
2. Attachment to Document 302.
3. Dated December 15. (Department of State, Central Files, FT 13–2 US)
4. Both dated December 15, 1965. (Ibid.)
5. Dated December 21, 1965. (Ibid., FT 4 GATT)
6. Dated December 21 and 23, 1965, respectively. (Both ibid., FT 13–2 US)
7. Dated January 4, 1966. (Department of State, Central Files, ECIN 3 EEC)
8. Dated December 8, 1965. (Ibid., FT 7 EEC-US)