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

315. Memorandum From Secretary of Agriculture Freeman to President Johnson¹

Washington, August 1, 1966.

SUBJECT

• Kennedy Round Negotiations—Tabling Offers, Agriculture Department exception

I take this occasion to call to the President’s attention a decision which apparently has been made subject to final Presidential approval to table U.S. agricultural offers of interest to the EEC in the Kennedy Round negotiations regardless of the fact that the EEC will not make any real offers. The Department of Agriculture has expressed its reservations to this procedure and has recommended that instead of tabling our generous offers, we table an offer roughly commensurate with what the EEC will offer.

Basically, this is a question of strategy. The strategy has been reviewed in detail with the Herter Office and the State Department who carry the negotiating responsibility. The Trade Expansion Act Advisory Committee has also considered it. Other Departments, including Commerce and Interior, expressed certain reservations at the proposed strategy. Nonetheless, the decision has been made to go forward, subject to the President’s final approval, by the Herter Office. Because this is a strategy question, I am prepared to acquiesce in the course of action recommended. I have not asked for a meeting with the President. I did want him, however, to be apprised of my reservations.

Agriculture’s reservation in this matter is based on the following facts:

1. The United States agricultural offer to the EEC is a very generous one, encompassing a 50 percent cut in tariff on some $315 million of U.S. agricultural imports in 1965. The items covered include some that are very sensitive politically, such as tobacco. At the same time we are being called on to make offers on dairy and meat products, specifically beef. (An offer to cut the duty on canned pork was tabled last September.) If it should become known that such offers are being considered, particularly in the absence of anything even remotely commensurate by the EEC, there would be swift and serious political repercussions in the United States, and there is every reason to expect that they will become known through the EEC.

2. The EEC will make no meaningful offer. From advance information we have, it seems likely that their offer, rather than representing progress, would result in a more protectionist rather than more liberal trade position. It is argued that we have made progress in the negotiation because the EEC has on some few items abandoned its completely unrealistic Montant de Soutien position, which would have only frozen high EEC support levels and which would not have liberalized trade. Initially the EEC insisted this system cover all products. The fact that the EEC will now offer shallow duty cuts on a few items does not represent any real progress in my judgment. Their offers, overall, still do not constitute a basis for negotiating anything but increased protection in the EEC market. It appears that all the EEC is trying to do is legalize internationally its notorious variable levy and gate price system, which relegates third countries to a residual supplier position. The EEC has just finished setting its internal agricultural support prices. The EEC internal price levels on many products are now at least half again as high as the United States price levels, and considerably higher than was previously the case. Such an uneconomic high level of internal pricing can have only one effect. It will certainly increase domestic production within the EEC. With the application of the notorious variable fee system which protects the most inefficient internal producer from any outside competition, it will limit trade possibilities. Moreover, the process of setting these prices is difficult, time-consuming and both economically and politically hazardous. This being the case, it is impossible to conceive the EEC Ministers will now turn around and reverse these decisions.

3. This latest tabling of offers increases the necessity for withdrawals. This offer comes on top of an already imbalanced industrial offer and a seriously imbalanced U.S. agricultural offer to countries other than the EEC, which was tabled a year ago. Thus we are widening the offers gap and increasing sharply the degree to which U.S. withdrawals will have to be made.

4. We do not believe that full withdrawal of these imbalanced offers will be feasible. It is argued that if the EEC and others do not improve their offers, we can at the end of the negotiations withdraw as many of ours as necessary. But once an offer is laid on the table for each country to see, it becomes very difficult to withdraw that offer. For example, our offer on tobacco, involving $100 million worth of trade, is a generous one. Greece and Turkey will find it very attractive. If at the end of the negotiation we try to withdraw it, they will protest strongly. Yet there is a strong likelihood that we would want to withdraw it. The EEC will not even tell us until November whether it will make an offer on tobacco.

There are many other similar examples.

The United States has repeatedly told the less developed countries who complain bitterly about the lack of preferential access to our markets for their raw materials, that rather than seeking the establishment of bilateral quotas and such systems, they should put their confidence in the Kennedy Round and in world-trade agreements. We have told them that they will come out much better through international trade liberalization. If we table offers they find very attractive, and then proceed to withdraw them because we are unable to reach any commensurate arrangement with our commercial equals, these countries will react bitterly. The positions taken and the arguments made which we have had great difficulty meeting at the UNCTAD will come swiftly to the front, aided and abetted by such withdrawals on our part at the Kennedy Round.

Further there will be a great temptation to hold U.S. agricultural offers on the table for the benefit of other agricultural exporters like Australia and New Zealand. This temptation will be sharpened by the fact that other agricultural exporting nations will argue strongly and with some merit that they, as substantial importers of U.S. industrial items, are entitled to this improved access to our market for their agriculture. Withdrawals of U.S. offers from these countries, and even from the EEC, could start a chain reaction of withdrawals which could threaten the unravelling of the whole trade negotiation.

It would, therefore, seem much sounder strategy on our part now only to match the EEC offers, to indicate to the EEC privately but clearly that we are prepared to go a long way if they indicate their willingness to change, and to hold that position rather than exposing our whole hand first.

Orville L. Freeman

1. Source: Johnson Library, Bator Papers, Kennedy Round (GATT) (May 4, 1964) [1 of 2], Box 11. No classification marking.