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

318. Memorandum From the Under Secretary of State (Ball) to President Johnson¹

Washington, August 15, 1966.

SUBJECT

• Trade Policy—A Proposed Strategy for the United States

During the past several months, Secretary Rusk and I have become increasingly aware of the need to develop a new trade policy strategy for the United States after the Kennedy Round. You may recall that during your meeting with State Department Assistant Secretaries on May 31,² Tony Solomon mentioned a possible U.S. initiative in this area.

Our ideas have now become a bit clearer and I want to acquaint you with the direction of our thinking. Enclosed is a copy of a memorandum Secretary Rusk proposes to send to Governor Herter, Secretary Connor, and Secretary Wirtz outlining our views as to the need for a new trade policy strategy and a possible way of meeting these needs. We are requesting the support and assistance of these key agencies in developing these ideas further so that an inter-agency proposal (in which Agriculture, Interior and Treasury would subsequently participate) can be submitted to you.

Speculation about possible changes in U.S. trade policy could, I know, be a sensitive issue domestically. It could also have repercussions in the Kennedy Round negotiations which must remain our principal focus in the trade field over the coming months. However, I believe that by restricting inter-agency consideration of this matter to a very small group at the Assistant Secretary level, potentially embarrassing leaks can be prevented.

Although it is not likely that we will be seeking major new trade legislation in the next year, it is necessary that we begin now to develop a policy. What we propose is to refine a strategy which, with your approval, could be tested with Congressional leaders. You would then be in a position, if this seemed desirable, to use this as one element of a positive U.S. program to help ensure a successful meeting of the Inter-American system.

George W. Ball

Enclosure³

MEMORANDUM FOR

• Governor Herter
• Secretary Connor
• Secretary Wirtz

SUBJECT

• Trade Policy—A Proposed Strategy for the United States

I am deeply concerned that the world trading community appears to be drifting into regional blocs and discriminatory arrangements which, unchecked, would have serious political and economic consequences for the United States.

We need a new trade policy strategy following the Kennedy Round to check this drift. A sound strategy for the United States must, I believe, take account of:

• —The likelihood of increased discrimination against our exports as more countries in Western Europe associate themselves with the European Economic Community and form the largest market in the world with free trade among themselves and barriers against the United States and other outsiders.
• —The further proliferation of special trade arrangements which discriminate among poor countries, against Latin America, and against the United States.
• —The persistent appeal of the poor nations for preferred treatment for their exports. The countries of Southeast Asia as well as Africa and elsewhere will judge the sincerity of our interest in their progress by what we are prepared to do in the field of trade as well as aid.
• —The willingness of other industrialized countries to respond to this appeal which leaves the United States virtually isolated, a position which carries with it significant political costs.

United States political and economic interests require us to take the initiative and try to guide developments in a manner likely to advance our own national interests. We cannot let matters drift, leaving it to other nations to continue to work out ad hoc arrangements which adversely affect our interests.

This memorandum sets forth a possible way of meeting these challenges. I commend it to your personal attention and invite your support and assistance in developing it further so that an inter-agency proposal can be submitted to the President.

If our prognosis of a link between the EEC and most other Western European nations proves correct, the resulting continental trade wall against us would jeopardize our export position. We could, like Joshua, trumpet against such a wall and perhaps it would crumble. But prudence dictates that we arm ourselves with other tools. The only realistic way, in my view, is to move to the maximum extent possible toward free trade among all industrialized countries. This would be the first element in the proposed new trade strategy and would be in line with the authority to eliminate duties contained in the Trade Expansion Act but which could not be used because the United Kingdom did not join the EEC.

Appropriate legislation would be needed to enable us to enter into negotiations after the Kennedy Round. One approach would be to seek authority to negotiate the mutual reduction and possible elimination of trade barriers staged over an extended period, perhaps ten or fifteen years. An alternative would be to seek authority for another round of negotiations to reduce duties by a specific percentage as a further step toward our ultimate goal.

The second element of the proposed strategy would be to offer the poor countries of the world a “head start” in such a move toward ultimate free trade. The benefits of tariff reductions would be given to them immediately while reductions among industrialized countries are phased over a longer period. This would have a number of advantages for us:

• —It would improve our position vis-á-vis the developing countries.
• —It would, to the extent the developing countries support this approach, make it politically more difficult for other industrialized countries to resist the longer-term move to reduce barriers among themselves.
• —It would result in the phasing out of existing trade preferences which discriminate among developing countries, Latin America in particular.
• —It would strengthen our ability to insist on the elimination of preferences enjoyed by the European industrialized countries in the markets of some poor countries which discriminate against United States exports.
• —It would probably increase the trade earnings of the poor countries and assist in their economic development; they need trade as well as aid.

There is the problem, of course, of possible injury to U.S. industry and labor arising from increased imports from low-wage countries. This may require additional safe-guards and expanded adjustment assistance. Particularly sensitive items might be excluded entirely. In other cases, quantitative limitation on the amounts which could enter from developing countries at reduced rates might be appropriate.

No formal action should be taken which might divert attention from the Kennedy Round (which has to be substantially wrapped up by February–March 1967). We would not seek new authority until the basis for negotiations has been worked out with our trading partners. This process might take a year—from mid-1967 to mid-1968. In this event, the new program could be included in the 1969 State of the Union message. If the pre-negotiations moved faster and the traditional bias against trade legislation in an election year were overcome, the bill might be sent up in early 1968. In any case, for July 1967 (when the Kennedy Round is concluded), we would propose a simple one or two year extension of the period during which the existing authority under the Trade Expansion Act could be used.

These targets for submission of new legislation may seem far off, but we need to elaborate an inter-agency proposal so that we are in a position to:

• —Initiate consultations with Congressional leaders;
• —Refer to the direction of our thinking at the prospective meeting of Presidents of the Inter-American system toward the end of this year; and
• —Present a proposal in some detail at the Second United Nations Conference on Trade and Development in the summer or fall of 1967.

I believe the trade policy strategy outlined above is in the best interests of the United States because:

• —It offers the possibility of dealing realistically with the major commercial policy problem we face in the coming years, namely the strong likelihood of increased discrimination against our exports to Western Europe as these nations enter into various forms of associations with the Common Market;
• —It is responsive to the appeal of more than 100 poor nations for a special boost for their exports;
• —It would involve only a temporary departure from the basic objective of non-discrimination in world trade but simultaneously will enable us to obtain elimination of the invidious forms of discrimination which exist at present;
• —It would include adequate safeguards against injury to American producers and labor; and
• —It would help retain the historic US position of leadership in the trade policy field.

I would appreciate your designating a senior officer to meet with Assistant Secretary Solomon to develop further the proposed strategy so that an inter-agency proposal can be sent to the President within the reasonably near future. If the President agrees with this general approach, Congressional sentiment could then be tested.

Because of the sensitivity of this whole subject, I would appreciate your holding this memorandum closely within your respective agencies.

1. Source: Johnson Library, National Security File, Subject File, Vol. I [2 of 2], Box 47. Confidential. A memorandum from Anthony M. Solomon (E) to Ball, August 12, recommended that he sign this memorandum. (Ibid., Solomon Papers, Chronological File, August 1966, Box 13)
2. No record of this meeting has been found.
3. Confidential. Another copy indicates that this memorandum was cleared in substance with Walter J. Stoessel, Jr. (EUR), Allen D. Gordon (ARA/LA), Joseph Palmer II (AF), Rodger P. Davies (NEA), Samuel D. Berger (FE), Joseph J. Sisco (IO), and Douglas MacArthur II (H). (Johnson Library, Solomon Papers, Chronological Files-August 1966, Box 13) For evidence that the proposed memorandum was sent to the President, see Document 330.